Our Holding Company Structure and Contractual Arrangements with the Consolidated Variable Interest Entity The following diagram illustrates our corporate structure as of the date of this annual report, including our principal subsidiaries, the variable interest entity and its principal subsidiaries: Note: (1) Beijing Wuxin Technology Center (Limited Partnership) and Tianjin Wuxin Technology Partnership (Limited Partnership) each holds 86.77% and 13.23% of the equity interests in Beijing Wuxin, respectively. Ms. Ying (Kate) Wang and Mr. Bing Du each holds 93.635% and 6.365% of the partnership interests in Beijing Wuxin Technology Center (Limited Partnership), respectively. Ms. Ying (Kate) Wang and Mr. Bing Du each holds 1.00% and 99.00% of the partnership interests in Tianjin Wuxin Technology Partnership (Limited Partnership), respectively. Ms. Wang is a beneficial owner and co-founder of our company and serves as the chairperson of our board of directors and the chief executive officer of our company. Mr. Du is a beneficial owner of our company. For details of the contractual arrangements between Beijing Wuxin and Beijing Yueke, see “Item 4. Information on the Company—C. Organizational Structure—Contractual Arrangements with the Consolidated Variable Interest Entity and its Shareholders.” 4 Table of Contents RLX Technology Inc. is a Cayman Islands holding company. It has a significant presence in international markets through its subsidiaries. It does not conduct business operations directly in China and it does not have equity ownership in the consolidated variable interest entity in China. Rather, we conduct operations in China through (i) our PRC subsidiaries and (ii) the consolidated VIE with which we have maintained contractual arrangements and its subsidiaries. As advised by our PRC legal counsel, Han Kun Law Offices, according to the Several Policies and Measures in Relation to Promoting the Legalization and Standardization of the E-cigarettes Industry (for Trial Implementation), or the E-cigarettes Industrial Policies and Measures (for Trial Implementation), which were issued by the State Tobacco Monopoly Administration on April 25, 2022 and came into effect on the same day, the Administrative Rules on the Examination and Approval of the Establishment of Foreign-invested E-cigarette-related Manufacturing Enterprises, which were issued by the State Tobacco Monopoly Administration on September 2, 2022 and came into effect on the same day, and the Administrative Rules on the Import and Export Trade and Foreign Economic and Technical Cooperation of E-cigarettes, which were issued by the State Tobacco Monopoly Administration on October 12, 2022 and came into effect on the same day, and the Special Administrative Measures (Negative List) for Foreign Investment Access (2024 Version), foreign investors are prohibited from investing in the wholesale or retailing business of e-vapor products, and foreign investment in the production of e-vapor products is subject to regulatory approval. In addition, according to the Special Administrative Measures (Negative List) for Foreign Investment Access (2024 Version), the value-added telecommunications services conducted through the consolidated VIE and its subsidiaries are also subject to foreign investment restrictions. We are a Cayman Islands holding company, and our PRC subsidiaries are considered foreign-invested enterprises. Accordingly, our PRC subsidiaries are not eligible to conduct the businesses that are subject to such foreign investment restrictions under PRC laws and regulations. In line with common practice in industries in the PRC subject to foreign investment restrictions, our businesses in China are operated through the consolidated VIE and its subsidiaries, and we rely on contractual arrangements among our PRC subsidiaries, the consolidated VIE and its shareholders to direct activities of the consolidated VIE. The consolidated VIE is consolidated for accounting purposes, but is not an entity in which our Cayman Islands holding company, or our investors, own equity. Our company and shareholders may never hold equity interests of the consolidated VIE and its subsidiaries so long as such foreign investment restrictions remain in effect under PRC laws and regulations. Though the Foreign Investment Law does not explicitly classify contractual arrangements as a form of foreign investment, there is no assurance that foreign investment via contractual arrangement would not be interpreted as a type of indirect foreign investment activities in the future. If the VIE were deemed as foreign-invested enterprise under any such future laws, administrative regulations or provisions and any of the business of us and the consolidated VIE were included in any negative list or other form of restrictions on foreign investment, we may need to take further actions to comply with such future laws, administrative regulations or provisions. Such actions may have a material and adverse impact on the business, financial condition, result of operations and prospects of us and the consolidated VIE. For more details, see “—D. Risk Factors—Risks Relating to Our Corporate Structure—The interpretation and implementation of the Foreign Investment Law may be subject to changes from time to time, and it remains to be seen how it may impact the viability of our current corporate structure, corporate governance and operations.” Revenues contributed by the consolidated variable interest entity accounted for a significant portion of our total revenues for the years of 2023, 2024 and 2025. As used in this annual report, “we,” “us,” “our company” and “our” refer to RLX Technology Inc., our Cayman Islands holding company and its subsidiaries, and, in the context of describing operations related to our consolidated financial statements and our consolidated financial information, risk factors and financial results, also include the consolidated variable interest entity Beijing Wuxin Technology Co., Ltd. and its subsidiaries. Investors in our ADSs are not purchasing equity interest in the consolidated VIE in China, but instead are purchasing equity interest in a holding company incorporated in the Cayman Islands. This VIE structure involves unique risks to investors, and investors may never directly hold equity interests in the Chinese operating company. See “—D. Risk Factors—Risks Relating to Our Corporate Structure.” 5 Table of Contents A series of contractual agreements, including exclusive business cooperation agreement, power of attorney, equity interest pledge agreements, exclusive option agreement, and exclusive assets option agreement have been entered into by and among our subsidiaries, the consolidated VIE and its shareholders. Our Cayman Islands holding company and its subsidiaries do not have legal majority ownership in the VIE, but depend on these contractual arrangements to provide our subsidiaries with a “controlling financial interest” in the consolidated VIE, as defined in FASB ASC 810, making it the primary beneficiary of the consolidated VIE for accounting purposes. Terms contained in these contractual arrangements with the consolidated VIE and their respective shareholders are substantially similar, which enable us to (i) have power to direct activities of the consolidated VIE that most significantly affect the economic performance of the consolidated VIE, and (ii) receive the economic benefits from the consolidated VIE that could be significant to the consolidated VIE. However, neither RLX Technology Inc. nor its investors have an equity ownership in, direct foreign investment in, or control through such ownership or investment of, the consolidated VIE, and the VIE contractual arrangements are not equivalent to an equity ownership in the business of the VIE. As of the date of this annual report, the contractual arrangements with the consolidated VIE have not been tested in a court of law. The contractual arrangements may be less effective than direct ownership and our company may incur substantial costs to enforce the terms of the arrangements. See “—D. Risk Factors—Risks Relating to Our Corporate Structure” for more detailed information. As advised by our PRC legal counsel, Han Kun Law Offices, subject to the disclosure in this annual report, the terms of the contractual arrangements are valid, binding and enforceable under the PRC laws and regulations currently in effect. Despite the lack of legal majority ownership, our Cayman Island holding company consolidates the consolidated variable interest entity as required by Accounting Standards Codification topic 810, Consolidation. Accordingly, we treat the consolidated variable interest entity and its subsidiaries as our consolidated entities under U.S. GAAP and we consolidate the financial results of operations, assets and liabilities of the consolidated variable interest entity and its subsidiaries in our consolidated financial statements in accordance with U.S. GAAP. For more details of these contractual arrangements, see “Item 4. Information on the Company—A. History and Development of the Company.” However, the contractual arrangements may not be as effective as direct ownership in providing us with control over the consolidated VIE, and we may incur substantial costs to enforce the terms of the arrangements. Changes in the regulatory environment in China may limit our ability, as a Cayman Islands holding company, to enforce these contractual arrangements. Meanwhile, there are very few precedents as to whether contractual arrangements would be judged to form effective control over the consolidated variable interest entity through the contractual arrangements, or how contractual arrangements in the context of a consolidated variable interest entity should be interpreted or enforced by the PRC courts. Should legal actions become necessary, we cannot guarantee that the court will rule in favor of the enforceability of the variable interest entity contractual arrangements. In the event we are unable to enforce these contractual arrangements, or if we suffer significant delay or other obstacles in the process of enforcing these contractual arrangements, we may not be able to exert effective control over the consolidated variable interest entity, and our ability to conduct the business of us and the consolidated VIE may be materially adversely affected. See “—D. Risk Factors—Risks Relating to Our Corporate Structure—Any failure by the consolidated VIE or its shareholders to perform their obligations under our contractual arrangements with them would have a material and adverse effect on the business of us and the consolidated VIE” and “—D. Risk Factors—Risks Relating to Our Corporate Structure—The shareholders of the consolidated VIE may have potential conflicts of interest with us, which may materially and adversely affect the business of us and the consolidated VIE.” There are also substantial uncertainties regarding the interpretation and application of current and future PRC laws, regulations and rules regarding the status of the rights of our Cayman Islands holding company with respect to its contractual arrangements with the consolidated VIE and its shareholders. It is uncertain whether any new PRC laws or regulations relating to variable interest entity structures will be adopted or if adopted, what they would provide. If we or the consolidated VIE is found to be in violation of any existing or future PRC laws or regulations, or fail to obtain or maintain any of the required permits or approvals, the relevant PRC regulatory authorities would have broad discretion to take actions in dealing with such violations or failures. The relevant PRC regulatory authorities could disallow the variable interest entity structure, which would likely result in a material change in the operations of our company. The related risks and uncertainties could cause the value of our ADSs to significantly decline or become worthless. See “—D. Risk Factors—Risks Relating to Our Corporate Structure—Any failure by the consolidated VIE or its shareholders to perform their obligations under our contractual arrangements with them would have a material and adverse effect on the business of us and the consolidated VIE.” 6 Table of Contents Our corporate structure is subject to risks associated with our contractual arrangements with the consolidated VIE. If the PRC government deems that our contractual arrangements with the consolidated VIE do not comply with PRC regulatory restrictions on foreign investment in the relevant industries, or if these regulations or the interpretation of existing regulations are amended or interpreted differently in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations. Our holding company, our subsidiaries and the consolidated variable interest entity, and investors of our company face uncertainty about potential future actions by the PRC government that could affect the enforceability of the contractual arrangements with the consolidated variable interest entity and, consequently, significantly affect the financial performance of the consolidated variable interest entity and our company as a whole. For a detailed description of the risks associated with our corporate structure, please refer to risks disclosed under “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Corporate Structure.” We face various risks and uncertainties related to doing business in China. The business operations of us and the consolidated VIE are primarily conducted in China, and we are subject to complex and evolving PRC laws and regulations. For example, we face risks associated with regulatory approvals on offshore offerings, anti-monopoly regulatory actions, and oversight on cybersecurity and data privacy, which may impact our ability to conduct certain businesses, accept foreign investments, or list on a United States or other foreign exchange. These risks could result in a material adverse change in the operations of us and the consolidated VIE and the value of our ADSs, significantly limit or completely hinder our ability to continue to offer securities to investors, or cause the value of such securities to significantly decline. For a detailed description of risks relating to doing business in China, please refer to risks disclosed under “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in China.” PRC government’s significant authority in regulating the operations of ours and the consolidated VIE and its oversight over offerings conducted overseas by, and foreign investment in, China-based issuers could significantly limit or completely hinder our ability to offer or continue to offer securities to investors. Implementation of industry-wide regulations, including data security or anti-monopoly related regulations, may cause the value of such securities to significantly decline. For more details, see “—D. Risk Factors—Risks Relating to Doing Business in China—The business of us and the consolidated VIE is subject to complex and evolving PRC laws and regulations regarding data privacy and cybersecurity. Failure to protect confidential information of our users, business partners and network against security breaches could damage our reputation and brand and substantially harm the business and results of operations of us and the consolidated VIE” and “—D. Risk Factors—Risks Relating to Doing Business in China—We may be subject to the approval, filing or other requirements of the CSRC or other PRC governmental authorities in connection with future capital raising activities.” Changes in the regulatory environment in China, including risks and uncertainties regarding the enforcement of laws and quickly evolving rules and regulations in China, could result in a material adverse change in the operations of us and the consolidated VIE and the value of our ADSs. For more details, see “—D. Risk Factors—Risks Relating to Doing Business in China—Failure to respond to changes in the regulatory environment in China could materially and adversely affect us.” 7 Table of Contents The Holding Foreign Companies Accountable Act Pursuant to the Holding Foreign Companies Accountable Act, or the HFCAA, if the Securities and Exchange Commission, or the SEC, determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspections by the Public Company Accounting Oversight Board (United States), or the PCAOB, for two consecutive years, the SEC will prohibit our shares or the ADSs from being traded on a national securities exchange or in the over-the-counter trading market in the United States. On December 16, 2021, the PCAOB issued a report to notify the SEC of its determination that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong, including our auditor. In May 2022, the SEC conclusively listed us as a Commission-Identified Issuer under the HFCAA following the filing of this annual report on Form 20-F for the fiscal year ended December 31, 2021. On December 15, 2022, the PCAOB issued a report that vacated its December 16, 2021 determination and removed mainland China and Hong Kong from the list of jurisdictions where it is unable to inspect or investigate completely registered public accounting firms. For this reason, we do not believe we are at risk of having our securities subject to a trading prohibition under the HFCAA unless a new determination is made by the PCAOB. However, the PCAOB will determine annually whether it can inspect and investigate completely audit firms in mainland China and Hong Kong, among other jurisdictions. If PCAOB determines in the future that it no longer has full access to inspect and investigate completely accounting firms in mainland China and Hong Kong and we continue to use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial statements filed with the SEC, we would be identified as a Commission-Identified Issuer following the filing of the annual report on Form 20-F for the relevant fiscal year. There can be no assurance that we would not be identified as a Commission-Identified Issuer for any future fiscal year, and if we were so identified for two consecutive years, we would become subject to the prohibition on trading under the HFCAA. For details, see “—D. Risk Factors—Risks Relating 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” and “—D. Risk Factors—Risks Relating to Doing Business in China—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 headquartered in mainland China and Hong Kong. The delisting of the ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment.” Permissions Required From the PRC Authorities for the Operations of Us and the Consolidated VIE We conduct business primarily through our subsidiaries and the consolidated variable interest entity. The operations of us and the consolidated VIE in China are governed by PRC laws and regulations. On March 11, 2022, the State Tobacco Monopoly Administration issued the Administrative Measures for E-Cigarettes, or the E-Cigarettes Administrative Measures, which came into effect on May 1, 2022. According to the E-Cigarettes Administrative Measures, e-cigarette manufacturing enterprises as well as enterprises holding e-cigarette brands and e-cigarette OEM enterprises (collectively referred to as “e-cigarette manufacturing enterprises”) are required to apply with the department of tobacco monopoly administration under the State Council (i.e., the State Tobacco Monopoly Administration) for a Tobacco Monopoly License for Manufacturing Enterprise. For details of the regulatory requirements, see “Item 4. Information on the Company—B. Business Overview—Government Regulations—Regulations related to our Products.” As of the date of this annual report, the relevant subsidiaries of the consolidated VIE have successfully renewed their Tobacco Monopoly Licenses for Manufacturing Enterprises originally issued by the State Tobacco Monopoly Administration in accordance with the Administrative Measures for Electronic Cigarettes. The manufacturing licenses covering e-liquid production and other electronic vapor products have been renewed in 2025 upon their respective expirations, with the renewed licenses valid through June 30, 2027 and July 31, 2027, respectively. The offline stores operated by the Company in China have obtained the requisite Tobacco Monopoly Licenses for Retail Business in accordance with applicable laws and regulations. In the future, if we cannot obtain or renew the Tobacco Monopoly Licenses for Manufacturing Enterprise or the Tobacco Monopoly Licenses for Retail Business in a timely fashion, or at all, or fail to comply with the then applicable regulatory requirements, we may have to cease the business operation of us and the consolidated VIE that is not fully compliant and may be subject to penalties for any non-compliance of the business operations of us and the consolidated VIE. 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. See “—D. Risk Factors—Risks Relating to Our Business and Industry—Our business is subject to a large number of laws across many jurisdictions, many of which are evolving.” 8 Table of Contents Furthermore, in connection with offering and listing in an overseas market, as of the date of this annual report, we, our PRC subsidiary and the consolidated VIE, (i) have not been required to obtain prior approval or permissions from the China Securities Regulatory Commission, or the CSRC, the Cyberspace Administration of China, or the CAC, or any PRC governmental authorities for our historical issuance to foreign investors, (ii) have not been required to go through cybersecurity review by the Cyberspace Administration of China, or the CAC, and (iii) have not been involved in any formal investigations on cybersecurity review made by the CAC on such basis. However, the PRC government has recently indicated an intent to exert more oversight over offerings that are conducted overseas and foreign investment in China-based issuers. On February 17, 2023, the CSRC released the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies, or the Trial Measures and five supporting guidelines, which came into effect on March 31, 2023. Pursuant to the Trial Measures, domestic companies that seek to offer or list securities overseas, both directly and indirectly, should fulfill the filing procedure and report relevant information to the CSRC. However, since the Trial Measures was promulgated in early 2023 and may continue to evolve, the interpretation, application and enforcement of the Trial Measures are subject to further clarification. If the filing procedure with the CSRC under the Trial Measures is required for any future offerings, listing or any other capital raising activities, it is uncertain whether we, our PRC subsidiary and the consolidated VIE could complete the filing procedure in relation to any further capital raising activities in a timely manner, or at all. Moreover, we, our PRC subsidiary and the consolidated VIE may be required to go through cybersecurity review by the CAC, and to fulfill other applicable filing procedures or obtain approval from the State Tobacco Monopoly Administration or other PRC regulatory authorities. If we fail to obtain the relevant approval or complete other filing procedures for any future offshore offering or listing, we may face sanctions by the CSRC, the CAC or other PRC regulatory authorities, which may include fines and penalties on the operations of us and the consolidated VIE in China, limitations on our operating privileges in China, restrictions on or prohibition of the payments or remittance of dividends by our subsidiaries in China, restrictions on or delays to our future financing transactions offshore, or other actions that could have a material and adverse effect on the business, financial condition, results of operations, reputation and prospects of us and the consolidated VIE, as well as the trading price of our ADSs. For more detailed information, see “—D. Risk Factors—Risks Relating to Doing Business in China—We may be subject to the approval, filing or other requirements of the CSRC or other PRC governmental authorities in connection with future capital raising activities” and “—D. Risk Factors—Risks Relating to Doing Business in China—The business of us and the consolidated VIE is subject to complex and evolving PRC laws and regulations regarding data privacy and cybersecurity. Failure to protect confidential information of our users, business partners and network against security breaches could damage our reputation and brand and substantially harm the business and results of operations of us and the consolidated VIE.” Cash and Asset Flows Through Our Organization RLX Technology Inc. is a holding company with no operations of its own. We have a significant presence in international markets through our subsidiaries. Building on our successful entry into three additional markets in the Asia-Pacific region in 2024, we further accelerated our global footprint in 2025 by expanding into more markets in Europe. These expansions mark significant milestones in our international growth strategy, reinforcing our presence in key global markets and diversifying our revenue streams. In the meantime, we conduct operations in China primarily through our subsidiaries in China, the consolidated variable interest entity and its subsidiaries. As a result, although other means are available for us to obtain financing at the holding company level, RLX Technology Inc.’s ability to pay dividends to the shareholders and to service its debts may depend upon dividends paid by our subsidiaries in China and license and service fees paid by the consolidated VIE and its subsidiaries. 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 RLX Technology Inc. In addition, our PRC subsidiaries are permitted to pay dividends to RLX Technology Inc. only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Further, our PRC subsidiaries and VIE are required to make appropriations to certain statutory reserve funds or may make appropriations to certain discretionary funds, which are not distributable as cash dividends except in the event of a solvent liquidation of the companies. Furthermore, cash transfers from our PRC subsidiaries to parent companies outside of China are subject to PRC government control of currency conversion. Shortages in the availability of foreign currency may restrict the ability of our PRC subsidiaries and the consolidated variable interest entity to remit sufficient foreign currency to pay dividends or other payments to RLX Technology Inc., or otherwise satisfy our foreign currency denominated obligations. For more details, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Holding Company Structure.” 9 Table of Contents Under PRC laws and regulations, our PRC subsidiaries and the consolidated variable interest entity are subject to certain restrictions with respect to paying dividends or otherwise transferring any of their net assets to us. Remittance of dividends by a wholly foreign-owned enterprise out of China is also subject to examination by the banks designated by the SAFE. The amounts restricted include the paid-up capital and the statutory reserve funds of our PRC subsidiaries and the net assets of the consolidated variable interest entity in which we have no legal ownership, totaling RMB71.7 million, RMB73.6 million and RMB74.1 million (US$10.6 million) as of December 31, 2023, 2024 and 2025, respectively. For risks relating to the fund flows of the operations of us and the consolidated VIE in China, see “—D. Risk Factors—Risks Relating to Doing Business in China—We may rely on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiaries to make payments to us could have a material and adverse effect on our ability to conduct the business of us and the consolidated VIE.” Under PRC law, RLX Technology Inc. may provide funding to our PRC subsidiaries only through capital contributions or loans, and to our PRC consolidated variable interest entity only through loans, subject to satisfaction of applicable government registration and approval requirements. For the years ended December 31, 2023, 2024 and 2025, RLX Technology Inc. provided capital contributions of nil, nil and nil, respectively, to our intermediate holding companies and subsidiaries. For the years ended December 31, 2023, 2024 and 2025, RLX Technology Inc. provided loans of RMB3,226.1 million, RMB4,357.1 million and RMB8,561.0 million (US$1,224.2 million), respectively, to our intermediate holding companies and subsidiaries, and received repayments of RMB2,200.7 million, RMB5,771.6 million and RMB8,769.8 million (US$1,254.1 million), respectively. For the years ended December 31, 2023, 2024 and 2025, the consolidated variable interest entity received nil, nil and nil as loans provided by RLX Technology Inc., respectively, and repaid nil, nil and nil, respectively. For the years ended December 31, 2023, 2024 and 2025, no assets other than cash were transferred between the Cayman Islands holding company and a subsidiary, a PRC consolidated variable interest entity or its subsidiary of our Group, and no subsidiaries paid dividends or made other distributions to the holding company. For details of the financial position, cash flows and results of operations of our PRC consolidated variable interest entity, see “—Financial Information Related to the Consolidated Variable Interest Entity” and page F-16 of this annual report on Form 20-F. In August 2025, we announced the approval of a cash dividend of US$0.01 per ordinary share, or US$0.01 per ADS, to holders of ordinary shares and holders of ADSs, respectively, as of the close of business on September 12, 2025 Beijing/Hong Kong Time and New York Time, respectively, payable in U.S. dollars. The majority of cash dividend was paid in cash in September, 2025 for holders of ordinary shares and holders of ADSs. In November 2025, we announced the approval of a cash dividend of US$0.1 per ordinary share, or US$0.1 per ADS, to holders of ordinary shares and holders of ADSs, respectively, as of the close of business on January 26, 2026 Beijing/Hong Kong Time and New York Time, respectively, payable in U.S. dollars. The majority of cash dividend was paid in cash in February 2026 for holders of ordinary shares and holders of ADSs. Future cash dividends, if any, will be declared at the discretion of our board of directors, subject to certain requirements of Cayman Islands law, and will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors as our board of directors may deem relevant. According to Maples and Calder (Hong Kong) LLP, our Cayman Islands counsel, under the currently effective laws of the Cayman Islands, RLX Technology Inc. is not subject to Cayman Islands tax on income or capital gains. Upon payments of dividends to our shareholders, no Cayman Islands withholding tax will be imposed. For the purposes of illustration, the following discussion reflects the hypothetical taxes that might be required to be paid in mainland China and Hong Kong, assuming that: (i) we have taxable earnings in the consolidated VIE, and (ii) we determine to pay a dividend in the future: ​ ​ ​ ​ ​ Hypothetical pre-tax earnings in the consolidated VIE (1) ​ ​ ​ RMB 100.00 Tax on earnings at statutory rate of 25% at WFOE level (2) RMB (25.00) Amount to be distributed as dividend from WFOE to Relx HK Limited (3) RMB 75.00 Withholding tax at tax treaty rate of 5% ​ RMB (3.75) Amount to be distributed as dividend at Relx HK Limited level and net distribution to RLX Technology Inc. (4) RMB 71.25 Notes: (1) For the purposes of this example, the tax calculation has been simplified. The hypothetical book pre-tax earnings amount is assumed to equal Chinese taxable income in RMB. 10 Table of Contents (2) Certain of our subsidiaries and the consolidated VIE qualify for a 15% preferential income tax rate in China. However, such rate is subject to qualification, is temporary in nature, and may not be available in a future period when distributions are paid. For the purposes of this hypothetical example, the table above reflects a maximum tax scenario under which the full statutory rate would be effective. (3) China’s Enterprise Income Tax Law imposes a withholding income tax of 10% on dividends distributed by a Foreign Invested Enterprise to its immediate holding company outside of mainland China. A lower withholding income tax rate of 5% is applied if the Foreign Invested Enterprise’s immediate holding company is registered in Hong Kong or other jurisdictions that have a tax treaty arrangement with mainland China, subject to a qualification review at the time of the distribution. There is no incremental tax at Relx HK Limited level for any dividend distribution to RLX Technology Inc. (4) If a 10% withholding income tax rate is imposed, the withholding tax will be RMB7.5 and the amount to be distributed as dividend at Relx HK Limited level and net distribution to RLX Technology Inc. will be RMB67.5. The table above has been prepared under the assumption that all profits of the consolidated VIE will be distributed as fees to our PRC subsidiaries under tax neutral contractual arrangements. If, in the future, the accumulated earnings of the consolidated VIE exceed the service fees paid to our PRC subsidiaries (or if the current and contemplated fee structure between the intercompany entities is determined to be non-substantive and disallowed by Chinese tax authorities), the consolidated VIE could make a non-deductible transfer to our PRC subsidiaries for the amounts of the stranded cash in the consolidated VIE. This would result in such transfer being a non-deductible expense for the consolidated VIE but still taxable income for the PRC subsidiaries. This would have the impact of reducing the amount available above from 71.25% to approximately 53% of pre-tax income, respectively. Our management believes that there is only a remote possibility that this scenario would happen. Financial Information Related to the Consolidated Variable Interest Entity The following tables present the condensed consolidating schedule of financial information for the consolidated variable interest entity and other entities as of the dates presented. The condensed consolidating schedules include financial information for RLX Technology Inc., our Cayman Islands holding company and various other entities and groups, including other subsidiaries, primary beneficiary of the consolidated VIE, and consolidated VIE and its subsidiaries, along with eliminating adjustments and consolidated totals. The names and domiciles of these entities are enlisted in the table below. ​ ​ ​ ​ Entity ​ ​ ​ Domicile Primary Beneficiary of the Consolidated VIE ​ Beijing Yueke Technology Co., Ltd. ​ PRC Other Subsidiaries ​ Relx HK Limited ​ Hong Kong ​ ​ Mons Co., Ltd. ​ South Korea ​ ​ Pillbox38 (UK) Limited ​ United Kingdom ​ ​ Supersmooth Alpha HK Limited ​ Hong Kong ​ ​ Other 52 subsidiaries ​ Other Jurisdictions VIE ​ Beijing Wuxin Technology Co., Ltd. ​ PRC Subsidiaries of the VIE ​ Ningbo Wuxin Information Technology Co., Ltd. ​ PRC ​ ​ Shenzhen Wuxin Technology Co., Ltd. ​ PRC ​ ​ Other 18 VIE’s subsidiaries (1) ​ PRC Note: (1) These entities are subsidiaries of the VIE domiciled in PRC, each and all of which accounted for a fractional percentage of the Group’s revenues. 11 Table of Contents Condensed Consolidating Statements of Income Information ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended December 31, 2025 ​ ​ ​ ​ ​ ​ Primary ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Beneficiary ​ Consolidated ​ ​ ​ ​ ​ ​ RLX ​ ​ ​ of the ​ VIE and ​ ​ ​ ​ ​ ​ Technology ​ Other ​ Consolidated ​ its ​ Eliminating ​ Consolidated ​ ​ ​ ​ Inc. ​ ​ ​ Subsidiaries ​ ​ ​ VIE ​ ​ ​ Subsidiaries ​ ​ ​ Adjustments ​ ​ ​ Total ​ ​ (RMB in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Third-party revenues ​ — ​ 2,865,758 ​ 1,173 ​ 1,091,930 ​ — ​ 3,958,861 Inter-group revenues(1) ​ — ​ 112,823 ​ 43,361 ​ 398,225 ​ (554,409) ​ — Third-party cost of revenues ​ — ​ (1,706,404) ​ (1,489) ​ (725,763) ​ — ​ (2,433,656) Inter-group cost of revenues(1) ​ — ​ (393,220) ​ — ​ (273) ​ 393,493 ​ — Excise tax on products ​ — ​ — ​ — ​ (341,595) ​ — ​ (341,595) Third-party operating expenses ​ (13,173) ​ (538,766) ​ (59,202) ​ (243,909) ​ — ​ (855,050) Inter-group operating expenses(1) ​ — ​ (43,387) ​ — ​ (116,998) ​ 160,385 ​ — Income of subsidiaries(2) ​ 819,069 ​ 107,802 ​ — ​ — ​ (926,871) ​ — Income on the VIE(2) ​ — ​ — ​ 124,219 ​ — ​ (124,219) ​ — Other income/(expense) ​ 115,969 ​ 429,688 ​ (260) ​ 66,019 ​ (5,599) ​ 605,817 Net income ​ 921,865 ​ 834,294 ​ 107,802 ​ 127,636 ​ (1,057,220) ​ 934,377 Less: net income attributable to noncontrolling interests ​ — ​ 8,693 ​ — ​ 3,417 ​ 400 ​ 12,510 Net income attributable to RLX Technology Inc. ​ 921,865 ​ 825,601 ​ 107,802 ​ 124,219 ​ (1,057,620) ​ 921,867 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended December 31, 2024 ​ ​ ​ ​ ​ ​ Primary ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Beneficiary ​ Consolidated ​ ​ ​ ​ ​ ​ RLX ​ ​ ​ of the ​ VIE and ​ ​ ​ ​ ​ ​ Technology ​ Other ​ Consolidated ​ its ​ Eliminating ​ Consolidated ​ ​ ​ ​ Inc. ​ ​ ​ Subsidiaries ​ ​ ​ VIE ​ ​ ​ Subsidiaries ​ ​ ​ Adjustments ​ ​ ​ Total ​ ​ (RMB in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Third-party revenues ​ — 1,614,149 1,249 1,133,178 — 2,748,576 Inter-group revenues(1) ​ — ​ 234,828 ​ 100,940 ​ 369,356 ​ (705,124) ​ — Third-party cost of revenues ​ — (902,601) (1,804) (813,601) — (1,718,006) Inter-group cost of revenues(1) ​ — ​ (360,839) ​ — ​ (1,188) ​ 362,027 ​ — Excise tax on products ​ — ​ — ​ — ​ (304,053) ​ — ​ (304,053) Third-party operating expenses ​ (14,378) (340,575) (78,925) (399,784) — (833,662) Inter-group operating expenses(1) ​ — (79,750) — (267,518) 347,268 — Income/(loss) of subsidiaries(2) ​ 438,284 ​ (184,755) ​ — ​ — ​ (253,529) ​ — Loss on the VIE (2) ​ — ​ — ​ (201,907) ​ — ​ 201,907 ​ — Other income/(expense) ​ 127,931 ​ 443,728 ​ (4,308) ​ 93,321 ​ 10,817 ​ 671,489 Net income/(loss) ​ 551,837 424,185 (184,755) (190,289) (36,634) 564,344 Less: net income attributable to noncontrolling interests ​ — 11 — 11,618 878 12,507 Net income/(loss) attributable to RLX Technology Inc. ​ 551,837 424,174 (184,755) (201,907) (37,512) 551,837 ​ ​ 12 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended December 31, 2023 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Primary ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Beneficiary of ​ ​ ​ ​ ​ ​ ​ ​ RLX ​ ​ ​ the ​ Consolidated ​ ​ ​ ​ ​ ​ Technology ​ Other ​ Consolidated ​ VIE and its ​ Eliminating ​ Consolidated ​ ​ Inc. ​ Subsidiaries ​ VIE ​ Subsidiaries ​ Adjustments ​ Total ​ ​ (RMB in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Third-party revenues ​ — ​ 247,005 ​ 646 ​ 1,338,746 ​ — ​ 1,586,397 Inter-group revenues(1) ​ — ​ 176,707 ​ 111,753 ​ 15,937 ​ (304,397) ​ — Third-party cost of revenues ​ — ​ (190,395) ​ (1,274) ​ (664,660) ​ — ​ (856,329) Inter-group cost of revenues(1) ​ — (154) — (1,268) 1,422 — Excise tax on products ​ — — — (342,354) — (342,354) Third-party operating expenses ​ (20,363) ​ (274,016) ​ (105,051) ​ (484,994) ​ — ​ (884,424) Inter-group operating expenses(1) ​ — (15,937) — (237,664) 253,601 — Income/ (loss) of subsidiaries(2) ​ 404,342 ​ (169,894) ​ — ​ — ​ (234,448) ​ — Loss on the VIE(2) ​ — ​ — ​ (162,306) ​ — ​ 162,306 ​ — Other income/ (expense) ​ 199,761 ​ 631,417 ​ (13,662) ​ 220,220 ​ (38) ​ 1,037,698 Net income/ (loss) ​ 583,740 ​ 404,733 ​ (169,894) ​ (156,037) ​ (121,554) ​ 540,988 Less: net income attributable to noncontrolling interests ​ — 391 — 6,269 — 6,660 Net income/ (loss) attributable to RLX Technology Inc. ​ 583,740 ​ 404,342 ​ (169,894) ​ (162,306) ​ (121,554) ​ 534,328 Notes: (1) Representing the elimination of the inter-group service charge and assets transaction at the consolidation level. The subsidiaries of our company and the primary beneficiary of the consolidated VIE provide operation supporting services and assets transactions to entities within our corporate structure. The inter-group service charge and assets transactions are eliminated at the consolidation level. The consolidated VIE and its subsidiaries provide operation services and assets transactions to entities within the Group. Starting from 2024, a subsidiary of the consolidated VIE sells products to entities within the Group. The inter-group service revenue is eliminated at the consolidated level. (2) Representing the elimination of the investment of RLX Technology Inc., other subsidiaries, and the primary beneficiary of the consolidated VIE, and the consolidated VIE. ​ 13 Table of Contents Condensed Consolidating Balance Sheets Information ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, 2025 ​ ​ ​ ​ ​ ​ Primary ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Beneficiary of ​ Consolidated ​ ​ ​ ​ ​ ​ RLX ​ ​ ​ the ​ VIE and ​ ​ ​ ​ ​ ​ Technology ​ Other ​ Consolidated ​ its ​ Eliminating ​ Consolidated ​ ​ ​ ​ Inc. ​ ​ ​ Subsidiaries ​ ​ ​ ​VIE ​ ​ ​ ​Subsidiaries ​ ​ ​ Adjustments ​ ​ ​ Total ​ ​ (RMB in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ 1,367,572 ​ 2,455,362 ​ 1,125 ​ 1,543,080 ​ — ​ 5,367,139 Restricted cash ​ — ​ 138,523 ​ — ​ 39,350 ​ — ​ 177,873 Receivables from online payment platforms ​ — ​ 3,038 ​ — ​ 1,042 ​ — ​ 4,080 Short-term investments, net ​ — ​ 702,678 ​ — ​ 1,623,932 ​ — ​ 2,326,610 Short-term bank deposits, net — ​ 1,590,637 ​ — ​ 719,849 ​ — ​ 2,310,486 Accounts and notes receivable, net ​ — ​ 160,473 ​ — ​ 29,969 ​ — ​ 190,442 Inventories — ​ 258,661 ​ — ​ 39,789 ​ (768) ​ 297,682 Amounts due from related parties — ​ 192,101 ​ 320 ​ 17,818 ​ — ​ 210,239 Amounts due from group companies(1) 8,306,559 ​ 402,540 ​ 150,955 ​ 170,066 ​ (9,030,120) ​ — Prepayments and other current assets, net 36,185 ​ 198,331 ​ 3,445 ​ 81,396 ​ 121 ​ 319,478 Net assets of the subsidiaries (2) ​ 7,155,103 ​ 4,898,729 ​ — ​ — ​ (12,053,832) ​ — Net assets of the VIE(2) ​ — ​ — ​ 4,749,277 ​ — ​ (4,749,277) ​ — Property, equipment and leasehold improvement, net ​ — ​ 144,167 ​ 4 ​ 102,507 ​ (697) ​ 245,981 Intangible assets, net ​ — ​ 211,356 ​ 835 ​ 46,076 ​ (45,126) ​ 213,141 Deferred income tax assets, net ​ — ​ 7,838 ​ 70 ​ 15,397 ​ 5,799 ​ 29,104 Right-of-use assets, net ​ — ​ 49,378 ​ — ​ 33,052 ​ — ​ 82,430 Long-term investments, net — ​ 330 ​ — ​ 357,742 ​ (349,742) ​ 8,330 Long-term bank deposits, net ​ — ​ — ​ — ​ 433,618 ​ — ​ 433,618 Long-term investment securities, net ​ — ​ 5,116,336 ​ — ​ — ​ — ​ 5,116,336 Goodwill — ​ 567,181 ​ — ​ — ​ — ​ 567,181 Other non-current assets, net ​ — ​ 7,925 ​ 125 ​ 21,362 ​ — ​ 29,412 Total assets 16,865,419 ​ 17,105,584 ​ 4,906,156 ​ 5,276,045 ​ (26,223,642) ​ 17,929,562 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Dividend payable 478,833 ​ — ​ — ​ — ​ — ​ 478,833 Accounts and notes payable ​ 6 ​ 252,811 ​ — ​ 150,891 ​ — ​ 403,708 Contract liabilities — ​ 83,436 ​ — ​ 567 ​ — ​ 84,003 Salary and welfare benefits payable — ​ 32,419 ​ 5,325 ​ 56,203 ​ — ​ 93,947 Tax payable — ​ 142,333 ​ 1,125 ​ 16,260 ​ — ​ 159,718 Short-term loans ​ — ​ 72,100 ​ — ​ 20,000 ​ — ​ 92,100 Amounts due to related parties 371,504 ​ 103,040 ​ — ​ 83 ​ — ​ 474,627 Amounts due to group companies(1) 381,047 ​ 8,463,668 ​ — ​ 183,764 ​ (9,028,479) ​ — Accrued expenses and other current liabilities ​ 3,095 ​ 84,587 ​ 977 ​ 62,535 ​ (1,642) ​ 149,552 Lease liabilities-current portion — ​ 18,939 ​ — ​ 9,649 ​ — ​ 28,588 Deferred tax liabilities — ​ 104,373 ​ — ​ 8,539 ​ — ​ 112,912 Lease liabilities-non-current portion — ​ 29,773 ​ — ​ 25,898 ​ — ​ 55,671 Other non-current liability ​ — ​ 64,291 ​ — ​ — ​ — ​ 64,291 Total liabilities 1,234,485 ​ 9,451,770 ​ 7,427 ​ 534,389 ​ (9,030,121) ​ 2,197,950 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total RLX Technology Inc. shareholders’ equity(2) 15,630,934 ​ 7,199,986 ​ 4,898,729 ​ 4,749,277 ​ (16,845,177) ​ 15,633,749 Noncontrolling interests — ​ 453,828 ​ — ​ (7,621) ​ (348,344) ​ 97,863 Total shareholders’ equity 15,630,934 ​ 7,653,814 ​ 4,898,729 ​ 4,741,656 ​ (17,193,521) ​ 15,731,612 ​ 14 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, 2024 ​ ​ ​ ​ ​ ​ ​ ​ Primary ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Beneficiary of ​ Consolidated ​ ​ ​ ​ ​ ​ RLX ​ ​ ​ the ​ VIE and ​ ​ ​ ​ ​ ​ Technology ​ Other ​ Consolidated ​ its ​ Eliminating ​ Consolidated ​ ​ Inc. ​ ​ ​ Subsidiaries ​ ​ ​ ​VIE ​ ​ ​ ​Subsidiaries ​ ​ ​ Adjustments ​ ​ ​ Total ​ (RMB in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash and cash equivalents 1,345,705 ​ 2,137,952 ​ 134,490 ​ 1,975,345 ​ — ​ 5,593,492 Restricted cash ​ — ​ — ​ — ​ 50,867 ​ — ​ 50,867 Receivables from online payment platforms ​ — ​ 1,270 ​ — ​ 3,452 ​ — ​ 4,722 Short-term investments, net ​ — ​ 106,957 ​ — ​ 612,798 ​ — ​ 719,755 Short-term bank deposits, net — 690,600 — 1,489,286 — 2,179,886 Accounts and notes receivable, net ​ — ​ 43,514 ​ — ​ 34,970 ​ — ​ 78,484 Inventories — 60,951 — 81,838 (237) 142,552 Amounts due from related parties 823 257,185 320 87,804 — 346,132 Amounts due from group companies(1) 8,685,222 315,855 30,939 203,905 (9,235,921) — Prepayments and other current assets, net 2,735 50,647 3,751 127,903 55 185,091 Net assets of the subsidiaries (2) 6,206,208 ​ 4,726,275 ​ — ​ — ​ (10,932,483) ​ — Net assets of the VIE(2) ​ — ​ — ​ 4,578,634 ​ — ​ (4,578,634) ​ — Property, equipment and leasehold improvement, net ​ — ​ 21,781 ​ 38 ​ 29,665 ​ (697) ​ 50,787 Intangible assets, net ​ — ​ 49,275 ​ 1,283 ​ 47,364 ​ (45,126) ​ 52,796 Deferred income tax assets, net ​ — ​ 1,523 ​ 94 ​ 24,931 ​ 11,519 ​ 38,067 Right-of-use assets, net ​ — ​ 6,668 ​ — ​ 17,442 ​ — ​ 24,110 Long-term investments, net ​ — — — 8,000 — 8,000 Long-term bank deposits, net ​ — ​ 393,066 ​ — ​ 334,382 ​ — ​ 727,448 Long-term investment securities, net ​ — ​ 6,599,365 ​ — ​ — ​ — ​ 6,599,365 Goodwill ​ — 59,581 — — — 59,581 Other non-current assets, net ​ — ​ 1,970 ​ 1,281 ​ 6,663 ​ — ​ 9,914 Total assets 16,240,693 15,524,435 4,750,830 5,136,615 (24,781,524) 16,871,049 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Dividend payable — ​ 1,144 ​ — — — 1,144 Accounts and notes payable — ​ 206,137 ​ — ​ 252,401 ​ — ​ 458,538 Contract liabilities 4,025 ​ 5,437 ​ — 1,148 — 10,610 Salary and welfare benefits payable — ​ 22,366 ​ 8,589 42,785 — 73,740 Tax payable ​ — ​ 85,119 ​ 10,260 30,720 55 126,154 Short-term loans ​ — ​ — ​ — ​ 40,000 ​ — ​ 40,000 Amounts due to related parties ​ — ​ 27,375 ​ — ​ 26 ​ — ​ 27,401 Amounts due to group companies(1) 244,938 ​ 8,888,995 ​ 4,584 91,835 (9,230,352) — Accrued expenses and other current liabilities 3,514 ​ 17,414 ​ 1,122 92,335 (5,569) 108,816 Lease liabilities-current portion — ​ 2,146 ​ — 9,301 — 11,447 Deferred tax liabilities ​ — ​ 12,903 ​ — 3,293 — 16,196 Lease liabilities-non-current portion — ​ 2,307 ​ — 4,743 — 7,050 Total liabilities 252,477 ​ 9,271,343 ​ 24,555 ​ 568,587 ​ (9,235,866) ​ 881,096 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total RLX Technology Inc. shareholders’ equity(2) ​ 15,988,216 6,241,967 4,726,275 4,578,634 (15,546,876) 15,988,216 Noncontrolling interests ​ — 11,125 — (10,606) 1,218 1,737 Total shareholders’ equity 15,988,216 6,253,092 4,726,275 4,568,028 (15,545,658) 15,989,953 Notes: (1) Representing the elimination of inter-group balances among RLX Technology Inc., other subsidiaries, primary beneficiary of the consolidated VIE and the consolidated VIE and its subsidiaries. The functional currency for all PRC entities within the consolidated group is RMB. The functional currency for entities incorporated in the Cayman Islands, BVI and Hong Kong within the consolidated group is the U.S. dollar. Entities within the consolidated group in other jurisdictions generally use their respective local currencies as functional currencies. All inter-group balances between PRC entities are denominated in RMB and inter-group balances between non-PRC entities are denominated in the U.S. dollar or RMB. As of December 31, 2025, (i) Relx HK Limited had receivables from PRC entities of RMB105.4 million (US$15.1 million) denominated in RMB, and (ii) RLX Technology Inc. had payables to PRC entities of RMB19.6 million (US$2.8 million) denominated in RMB. As of December 31, 2024, (i) Relx HK Limited had receivables from PRC entities of RMB105.4 million denominated in RMB, and (ii) RLX Technology Inc. had payables to PRC entities of RMB19.6 million denominated in RMB. (2) Representing the elimination of the investment of RLX Technology Inc., other subsidiaries, and the primary beneficiary of the consolidated VIE. 15 Table of Contents Condensed Consolidating Cash Flows Information ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended December 31, 2025 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Primary ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Beneficiary of ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ the ​ Consolidated ​ ​ ​ ​ ​ ​ RLX ​ Other ​ Consolidated ​ VIE and its ​ Eliminating ​ Consolidated ​ ​ Technology Inc. ​ Subsidiaries ​ VIE ​ Subsidiaries ​ Adjustments ​ Total ​ ​ (RMB in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net cash (used in)/ generated from operating activities with Group company — ​ (375,265) ​ 66,114 ​ 309,151 ​ — ​ — Other operating activities 46,666 ​ 1,258,332 ​ (34,705) ​ (165,745) ​ — ​ 1,104,548 Net cash generated from operating activities 46,666 ​ 883,067 ​ 31,409 ​ 143,406 ​ — ​ 1,104,548 Loans to group companies (8,561,015) ​ (350,373) ​ (578,303) ​ (1,048,042) ​ 10,537,733 ​ — Repayment of loans from group companies ​ 8,769,792 ​ 320,365 ​ 413,967 ​ 738,620 ​ (10,242,744) ​ — Other investing activities — ​ (409,289) ​ (438) ​ (412,464) ​ — ​ (822,191) Net cash generated from/(used in) investing activities ​ 208,777 ​ (439,297) ​ (164,774) ​ (721,886) ​ 294,989 ​ (822,191) Borrowings from group companies — ​ 9,609,057 ​ 329,490 ​ 599,186 ​ (10,537,733) ​ — Repayment of loans to group companies — ​ (9,499,582) ​ (329,490) ​ (413,672) ​ 10,242,744 ​ — Other financing activities ​ (271,141) ​ 9,974 ​ — ​ (21,580) ​ — ​ (282,747) Net cash (used in)/generated from financing activities (271,141) ​ 119,449 ​ — ​ 163,934 ​ (294,989) ​ (282,747) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended December 31, 2024 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Primary ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Beneficiary of ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ the ​ Consolidated ​ ​ ​ ​ ​ ​ RLX ​ Other ​ Consolidated ​ VIE and its ​ Eliminating ​ Consolidated ​ ​ ​ ​ Technology Inc. ​ ​ ​ Subsidiaries ​ ​ ​ VIE ​ ​ ​ Subsidiaries ​ ​ ​ Adjustments ​ ​ ​ Total ​ ​ (RMB in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net cash (used in)/generated from operating activities with Group company ​ — (210,577) ​ 17,751 ​ 192,826 ​ — ​ — Other operating activities ​ 79,340 ​ 896,904 ​ (53,892) ​ (68,003) ​ — ​ 854,349 Net cash generated from/(used in) operating activities ​ 79,340 ​ 686,327 ​ (36,141) ​ 124,823 ​ — ​ 854,349 Loans to group companies ​ (4,357,124) ​ (213,013) ​ (312,584) ​ (233,835) ​ 5,116,556 ​ — Repayment of loans from group companies ​ 5,771,571 ​ 213,010 ​ 467,946 ​ 95,915 ​ (6,548,442) ​ — Other investing activities ​ (13,770) ​ 1,821,890 ​ 11,840 ​ 1,198,041 ​ — ​ 3,018,001 Net cash generated from investing activities ​ 1,400,677 ​ 1,821,887 ​ 167,202 ​ 1,060,121 ​ (1,431,886) ​ 3,018,001 Borrowings from group companies ​ — ​ 4,590,962 ​ 213,010 ​ 312,584 ​ (5,116,556) ​ — Repayment of loans to group companies ​ — ​ (5,867,486) ​ (213,010) ​ (467,946) ​ 6,548,442 ​ — Other financing activities ​ (677,010) ​ (40,845) ​ — ​ 39,824 ​ — ​ (678,031) Net cash used in financing activities ​ (677,010) ​ (1,317,369) ​ — ​ (115,538) ​ 1,431,886 ​ (678,031) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended December 31, 2023 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Primary ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Beneficiary of ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ the ​ Consolidated ​ ​ ​ ​ ​ ​ RLX ​ Other ​ Consolidated ​ VIE and its ​ Eliminating ​ Consolidated ​ ​ Technology Inc. ​ Subsidiaries ​ VIE ​ Subsidiaries ​ Adjustments ​ Total ​ ​ (RMB in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net cash generated from/(used in) operating activities with Group company ​ — ​ 136,977 ​ 73,502 ​ (210,479) ​ — ​ — Other operating activities ​ 128,329 ​ (4,745) ​ (127,295) ​ 202,414 ​ — ​ 198,703 Net cash generated from/(used in) operating activities ​ 128,329 ​ 132,232 ​ (53,793) ​ (8,065) ​ — ​ 198,703 Loans to group companies ​ (3,226,102) ​ (290,382) ​ (448,660) ​ (80,805) ​ 4,045,949 ​ — Repayment of loans from group companies ​ 2,200,692 ​ 275,504 ​ 486,506 ​ 61,590 ​ (3,024,292) ​ — Other investing activities ​ 2,339,504 ​ (299,534) ​ (2,276) ​ 53,451 ​ — ​ 2,091,145 Net cash generated from/(used in) investing activities ​ 1,314,094 ​ (314,412) ​ 35,570 ​ 34,236 ​ 1,021,657 ​ 2,091,145 Borrowings from group companies ​ — ​ 3,309,906 ​ 192,130 ​ 543,912 ​ (4,045,948) ​ — Repayment of loans to group companies ​ — ​ (2,262,281) ​ (171,250) ​ (590,760) ​ 3,024,291 ​ — Other financing activities ​ (1,081,991) ​ (111,225) ​ — ​ — ​ — ​ (1,193,216) Net cash (used in)/generated from financing activities ​ (1,081,991) ​ 936,400 ​ 20,880 ​ (46,848) ​ (1,021,657) ​ (1,193,216) ​ 16 Table of Contents Selected Consolidated Financial Data The following tables present the selected consolidated financial information for the business of us and the consolidated VIE. You should read the following information in conjunction with “Item 5. Operating and Financial Review and Prospects” below. The selected consolidated statements of comprehensive income data for the years ended December 31, 2023, 2024 and 2025, selected consolidated balance sheets data as of December 31, 2024 and 2025, and selected consolidated statements of cash flows data for the years ended December 31, 2023, 2024 and 2025 have been derived from our audited consolidated financial statements included elsewhere in this annual report beginning on page F-1. The Company acquired various companies on December 13, 2023, which was accounted for as an under common control transaction in accordance with ASC 805-50. The Company retrospectively adjusted the comparative data in prior year. Our consolidated financial statements are prepared and presented in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP. Our historical results are not necessarily indicative of results expected for future periods. The following table presents our selected consolidated statements of comprehensive income data for the years ended December 31, 2023, 2024 and 2025: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended December 31, ​ ​ 2023 ​ 2024 ​ 2025 ​ ​ ​ ​ RMB ​ ​ ​ RMB ​ ​ ​ RMB ​ ​ ​ US$ ​ (in thousands, except for share amounts and per share data) Selected Consolidated Statements of Comprehensive Income Data: ​ ​ ​ ​ ​ ​ ​ ​ Net revenues 1,586,397 2,748,576 3,958,861 ​ 566,110 Cost of revenues (856,329) (1,718,006) (2,433,656) ​ (348,008) Excise tax on products ​ (342,354) ​ (304,053) ​ (341,595) ​ (48,848) Gross profit 387,714 726,517 1,183,610 ​ 169,254 Operating expenses:(1) ​ ​ ​ ​ ​ Selling expenses (213,723) (229,466) (387,127) ​ (55,358) General and administrative expenses (498,015) (515,887) (336,915) ​ (48,178) Research and development expenses (172,686) (88,309) (131,008) ​ (18,734) Total operating expenses (884,424) (833,662) (855,050) ​ (122,270) (Loss)/income from operations (496,710) (107,145) 328,560 ​ 46,984 Other income: ​ ​ ​ ​ ​ Interest income, net 627,879 616,388 560,421 ​ 80,139 Investment income 245,700 49,636 51,617 ​ 7,381 Others, net 214,874 99,924 112,768 ​ 16,126 Income before income tax 591,743 ​ 658,803 ​ 1,053,366 ​ 150,630 Income tax expense (50,755) ​ (94,459) ​ (118,989) ​ (17,015) Net income 540,988 ​ 564,344 ​ 934,377 ​ 133,615 Other comprehensive income: ​ ​ ​ ​ ​ ​ ​ Foreign currency translation adjustments 198,534 ​ 143,811 ​ (257,174) ​ (36,775) Unrealized income/(loss) on long-term investment securities ​ 632 ​ (2,167) ​ (2,174) ​ (311) Total other comprehensive income 199,166 ​ 141,644 ​ (259,348) ​ (37,086) Total comprehensive income 740,154 ​ 705,988 ​ 675,029 ​ 96,529 Net income per ordinary share/ADS ​ ​ ​ ​ ​ ​ ​ Basic 0.407 ​ 0.448 ​ 0.698 ​ 0.100 Diluted 0.399 ​ 0.428 ​ 0.698 ​ 0.100 Weighted average number of ordinary shares/ADS ​ ​ ​ ​ ​ Basic 1,311,401,901 1,232,148,531 1,223,656,660 ​ 1,223,656,660 Diluted 1,340,445,653 1,288,911,783 1,223,955,737 ​ 1,223,955,737 Unaudited Non-GAAP Financial Measure: ​ ​ ​ ​ Adjusted (loss)/ income from operations(2) ​ (130,509) ​ 271,069 ​ 569,887 ​ 81,494 Adjusted net income(2) 906,492 940,769 1,162,268 166,204 Notes: (1)Share-based compensation expenses were allocated as follows: 17 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended December 31, ​ ​ 2023 ​ 2024 ​ 2025 ​ ​ ​ ​ RMB ​ ​ ​ RMB ​ ​ ​ RMB ​ ​ ​ US$ ​ ​ (in thousands) Selling expenses 16,700 32,563 37,744 5,397 General and administrative expenses 334,344 348,629 128,929 18,437 Research and development expenses 11,824 (11,537) 19,562 2,797 (2) For discussions of net income and adjusted (loss)/income from operations and their reconciliation to corresponding GAAP measures, see “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Unaudited Non-GAAP Financial Measure.” The following table presents our summary consolidated balance sheets data as of December 31, 2024 and 2025: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, ​ ​ 2024 ​ 2025 ​ ​ ​ ​ RMB ​ ​ ​ RMB ​ ​ ​ US$ ​ ​ (in thousands) Selected Consolidated Balance Sheets Data: ​ ​ ​ ​ ​ ​ Cash and cash equivalents 5,593,492 ​ 5,367,139 767,491 Short-term bank deposits, net 2,179,886 ​ 2,310,486 330,395 Short-term investments, net 719,755 ​ 2,326,610 332,701 Inventories 142,552 ​ 297,682 42,568 Amounts due from related parties 346,132 ​ 210,239 30,064 Prepayments and other current assets, net 185,091 ​ 319,478 45,685 Total current assets 9,300,981 ​ 11,204,029 1,602,156 Long term bank deposits, net 727,448 ​ 433,618 62,007 Long-term investment securities, net 6,599,365 ​ 5,116,336 731,626 Goodwill ​ 59,581 ​ 567,181 ​ 81,106 Total non-current assets 7,570,068 ​ 6,725,533 961,739 Total assets 16,871,049 ​ 17,929,562 2,563,895 Accounts and notes payable ​ 458,538 ​ 403,708 ​ 57,729 Accrued expenses and other current liabilities 108,816 ​ 149,552 21,386 Amounts due to related parties 27,401 ​ 474,627 67,871 Total current liabilities 857,850 ​ 1,965,076 281,004 Total liabilities 881,096 ​ 2,197,950 314,305 Total shareholders’ equity 15,989,953 ​ 15,731,612 2,249,590 Total liabilities and shareholders’ equity 16,871,049 ​ 17,929,562 2,563,895 ​ The following table presents our summary consolidated statements of cash flows data for the years ended December 31, 2023, 2024 and 2025: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended December 31, ​ ​ 2023 ​ 2024 ​ 2025 ​ ​ ​ ​ RMB ​ ​ ​ RMB ​ ​ ​ RMB ​ ​ ​ US$ ​ ​ (in thousands) Selected Consolidated Statements of Cash Flows Data: ​ ​ ​ ​ ​ ​ ​ ​ Net cash generated from operating activities 198,703 ​ 854,349 ​ 1,104,548 ​ 157,948 Net cash generated from/(used in) from investing activities 2,091,145 ​ 3,018,001 ​ (822,191) ​ (117,572) Net cash used in financing activities (1,193,216) ​ (678,031) ​ (282,747) ​ (40,432) Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash 34,340 ​ 29,982 ​ (98,957) ​ (14,150) Net increase/(decrease) in cash, cash equivalents and restricted cash 1,130,972 ​ 3,224,301 ​ (99,347) ​ (14,206) Cash, cash equivalents and restricted cash at the beginning of the year 1,289,086 ​ 2,420,058 ​ 5,644,359 ​ 807,133 Cash, cash equivalents and restricted cash at the end of the year 2,420,058 ​ 5,644,359 ​ 5,545,012 ​ 792,927 ​ 18 Table of Contents A. Reserved B. Capitalization and Indebtedness Not Applicable. C. Reasons for the Offer and Use of Proceeds Not Applicable. D. Risk Factors Summary of Risk Factors An investment in our ADSs or Class A ordinary shares involves significant risks. Below is a summary of material risks we face, organized under relevant headings. These risks are discussed more fully in “Item 3. Key Information—D. Risk Factors.” Risks Relating to Our Business and Industry ● We have a limited operating history and our historical operating and financial results may not be indicative of future performance, which makes it difficult to predict our future business prospects and financial performance. For details, see page 21 of this annual report. ● Our business is subject to a large number of laws across many jurisdictions, many of which are evolving. For details, see pages 22 to 27 of this annual report. ● We are subject to a variety of uncertainties, costs and risks during our international expansion. For details, see pages 27 and 28 of this annual report. ● Our international business expansion exposes us to risks associated with our relationship with Relx Inc. For details, see page 28 of this annual report. ● If it is determined or perceived that the usage of e-vapor products poses long-term health risks, the use of e-vapor products may decline significantly, which may materially and adversely affect the business, financial condition and results of operations of us and the consolidated VIE. For details, see page 28 of this annual report. ● We operate in an emerging and evolving market in China and globally, which may develop more slowly or differently than we expect. For details, see page 29 of this annual report. ● We are exposed to product liabilities and user complaints arising from the products we sell, which could have a material adverse impact on us. For details, see page 29 of this annual report. ● The business and results of operations of us and the consolidated VIE may be harmed by any failure to maintain and enhance the value of our brand. For details, see page 30 of this annual report. ● We have adapted our business, including distribution of products, to the new and currently effective regulatory framework applicable to China’s e-vapor industry and us, which have materially and adversely affected and may further materially and adversely affect our business, prospects, results of operations and financial performance. For details, see page 31 of this annual report. ● We may be subject to interest rate risk in connection with our interest income. For details, see page 32 of this annual report. ● We may be exposed to credit risk. For details, see page 32 of this annual report. 19 Table of Contents ● We may fail to continue to develop, innovate and utilize our technologies, which are core to our success. For details, see page 33 of this annual report. ● We may not be able to develop and introduce new products or upgrade existing products in a timely and cost-effective manner, which may adversely affect the business, results of operations and prospects the business of us and the consolidated VIE. For details, see page 33 of this annual report. ● We may engage in acquisitions, investments or strategic alliances, which could require significant management attention and materially and adversely affect our business and results of operations. For details, see page 34 of this annual report. ● Fluctuations in exchange rates could have a material and adverse effect on our results of operations and the value of your investment. For details, see page 34 of this annual report. ● We are subject to risks relating to our leased properties. For details, see pages 35 and 35 of this annual report. ● We may be subject to the approval, filing or other requirements of the CSRC or other PRC governmental authorities in connection with future capital raising activities. For details, see pages 35 to 37 of this annual report. ● There might be competitions between us and our affiliated companies. For details, see page 37 of this annual report. ● The business, financial condition and results of operations of us and the consolidated VIE may be adversely impacted by product defects or other quality issues. For details, see page 38 of this annual report. Risks Relating to Our Corporate Structure ● If the PRC government deems that our contractual arrangements with the consolidated variable interest entity do not comply with PRC regulatory restrictions on foreign investment in the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations. For details, see pages 53 and 54 of this annual report. ● We rely on contractual arrangements with the consolidated VIE and its shareholders to direct activities of the consolidated VIE, which may not be as effective as direct ownership in providing operational control. For details, see page 55 of this annual report. ● Any failure by the consolidated VIE or its shareholders to perform their obligations under our contractual arrangements with them would have a material and adverse effect on the business of us and the consolidated VIE. For details, see page 55 of this annual report. ● The shareholders of the consolidated VIE may have potential conflicts of interest with us, which may materially and adversely affect the business of us and the consolidated VIE. For details, see pages 55 and 56 of this annual report. Risks Relating to Doing Business in China ● Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on the business and operations of us and the consolidated VIE. For details, see page 58 of this annual report. ● Failure to respond to changes in the regulatory environment in China could materially and adversely affect us. For details, see page 58 of this annual report. 20 Table of Contents ● The PRC government’s significant oversight over the business operation of us and the consolidated VIE could result in a material adverse change in the operations of us and the consolidated VIE and the value of our ADSs. For details, see page 58 of this annual report. ● 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. For details, see page 59 of this annual report. ● 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 headquartered in mainland China and Hong Kong. The delisting of the ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment. For details, see page 59 of this annual report. ● You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing actions in China against us or our management named in this annual report based on foreign laws. For details, see page 66 of this annual report. Risks Relating to Our ADSs ● The trading price of the ADSs is likely to be volatile, which could result in substantial losses to investors. For details, see pages 68 and 69 of this annual report. ● Our dual-class share structure with different voting rights limits your ability to influence corporate matters and could discourage others from pursuing any change-of-control transactions that holders of our Class A ordinary shares and ADSs may view as beneficial. For details, see page 70 of this annual report. ● We believe that we were likely a PFIC for U.S. federal income tax purposes for 2025 and may be a PFIC for 2026, which could result in adverse U.S. federal income tax consequences to U.S. Holders of our ADSs or Class A ordinary shares. For details, see page 76 of this annual report. Risks Relating to Our Business and Industry We have a limited operating history and our historical operating and financial results may not be indicative of future performance, which makes it difficult to predict our future business prospects and financial performance. Since e-vapor products were only introduced to the market in the last two decades, we operate in an innovative and rapidly evolving industry in China and globally. We commenced the operation of us and the consolidated VIE in January 2018 and thus have a limited operating history, which makes it difficult to evaluate our future prospects and performance. We cannot assure you that we can successfully implement our business model. As the market and our business develop, we may modify our products and services. These changes may not lead to expected results and may have a material and adverse impact on our results of operations and financial condition. Our net revenues increased from RMB1,586.4 million for the year ended December 31, 2023 to RMB2,748.6 million for the year ended December 31, 2024 and further to RMB3,958.9 million for the year ended December 31, 2025. We generated net income of RMB541.0 million, RMB564.3 million and RMB934.4 million for the years ended December 31, 2023, 2024 and 2025, respectively. We cannot assure you that we will be able to maintain the ability to generate net profit or maintain profitability at a similar level or at all. Our ability to maintain profitability will depend primarily on the evolving regulatory environment, and our ability to generate sufficient revenues and to manage our costs of revenues and operating expenses. You should consider the business prospects of us and the consolidated VIE in light of the risks and difficulties we may encounter as an early-stage company operating in a new market, including, among other things, our ability to adapt to an evolving regulatory landscape, develop and utilize our technologies, provide high-quality products and services, meet users’ expectations, maintain and enhance our brand and reputation, improve our operational efficiency, and anticipate and adapt to changing market conditions. We may not be able to successfully address these risks and difficulties, which could significantly harm the business, results of operations and financial condition of us and the consolidated VIE. 21 Table of Contents Our business is subject to a large number of laws across many jurisdictions, many of which are evolving. We are subject to a variety of laws and regulation around the world, including those relating to the e-vapor market, as well as those relating to employment laws, accessibility requirements and taxation. These laws and regulations are continuously evolving, and compliance is costly and can require changes to our business practices and significant management time and effort. We strive to comply with all applicable laws, but they may conflict with each other, and by complying with the laws or regulations of one jurisdiction, we may find that we are violating the laws or regulations of another jurisdiction. Despite our efforts, we may not have fully complied in the past and may not fully comply in the future, particularly where the applicable regulatory regimes have not been broadly interpreted. If we become liable under laws or regulations applicable to us, we could be required to pay significant fines and penalties, our reputation may be harmed, and we may be forced to change the way we operate. That could require us to incur significant expenses or to discontinue certain services, which could negatively affect our business. In addition, if we are restricted from operating in one or more countries, our ability to attract and retain sellers and buyers may be adversely affected and we may not be able to grow our business as we anticipate. Additionally, if third parties with whom we work violate applicable laws or our policies, those violations could also result in liabilities for us and could harm our business. Our ability to rely on insurance, contracts, indemnification and other remedies to limit these liabilities, may be insufficient or unavailable in some cases. Furthermore, the circumstances in which we may be held liable for the acts, omissions, or responsibilities of our merchants is uncertain, complex, and evolving. As an example, in China, where we also conduct part of our operations, the regulatory landscape for e-vapor products has experienced significant changes in recent years, including the following developments. Prohibition on Sales to the Underage and Online Sales The regulatory efforts commenced with the announcements regarding prohibition on the sale of e-cigarettes, including e-vapor products, to juveniles and prohibition on sale through the internet, as well as the smoking control rules of some cities regarding using e-cigarettes as a form of smoking, such as, ● on August 28, 2018, the State Administration for Market Regulation and the State Tobacco Monopoly Administration jointly issued the Announcement on Prohibition of Selling E-Cigarettes Products to the Underage, or the August 2018 Announcement, which specifically prohibits all sales of e-cigarettes to the underage, ● on October 30, 2019, the State Administration for Market Regulation and the State Tobacco Monopoly Administration jointly issued the Announcement on Further Protecting the Underage from E-Cigarettes, or the October 2019 Announcement, to further strengthen the protection of the physical and mental health of the underage and prevent the underage from buying e-cigarettes through the internet and using them, and ● on September 28, 2022, the State Tobacco Monopoly Administration issued the Notice on Matters Related to Strengthen the Supervision of E-Cigarettes, to reaffirm the prohibition of selling or advertising e-cigarettes to the underage. As a result, we ceased to generate revenues from sales of e-vapor products to users through third-party e-commerce platforms and sales of e-vapor products to third-party e-commerce platform distributors, and we do not expect to generate revenues from selling e-vapor products through these distribution channels going forward. 22 Table of Contents E-Cigarettes Administrative Measures On March 11, 2022, the State Tobacco Monopoly Administration issued the Administrative Measures for E-Cigarettes, or the E-Cigarettes Administrative Measures, which came into effect on May 1, 2022. The E-Cigarettes Administrative Measures primarily aim at strengthening the management of e-cigarettes and regulating the e-cigarette market order, and stipulating the definition, licensing system, distribution management, technical review and quality control, transport, import and export, advertising and promotion of e-cigarettes, including but not limited to the following. ● Tobacco Monopoly License for Manufacturing Enterprise. The E-Cigarettes Administrative Measures require all e-cigarette manufacturing enterprises, enterprises holding e-cigarette brands and e-cigarette OEM enterprises (collectively referred to as “e-cigarette manufacturing enterprises”) to apply to the Department of Tobacco Monopoly Administration under the State Council for a Tobacco Monopoly License for Manufacturing Enterprise. As of the date of this annual report, the relevant subsidiaries of the consolidated VIE have successfully renewed their Tobacco Monopoly Licenses for Manufacturing Enterprises originally issued by the State Tobacco Monopoly Administration in accordance with the Administrative Measures for Electronic Cigarettes. The manufacturing licenses covering e-liquid production and other electronic vapor products have been renewed in 2025 upon their respective expirations, with the renewed licenses valid through June 30, 2027 and July 31, 2027, respectively. The offline stores operated by the Company in China have obtained the requisite Tobacco Monopoly Licenses for Retail Business in accordance with applicable laws and regulations. However, in the future, if we cannot obtain or renew the Tobacco Monopoly License for Manufacturing Enterprise in a timely fashion, or at all, or fail to comply with the then applicable regulatory requirements, we may have to cease the business operation of us and the consolidated VIE that is not fully compliant and may be subject to penalties for any non-compliance of the business operations of us and the consolidated VIE. In such cases, the business operations of us and the consolidated VIE will be materially and adversely affected or discontinued. In addition, the approved manufacturing capacity assigned to the applicable e-cigarette manufacturing enterprise would be specified on its Tobacco Monopoly License for Manufacturing Enterprise, which imposes a limitation on the quantity of the applicable e-cigarette products and/or raw materials that can be produced and supplied by such e-cigarette manufacturing enterprise during the term of the license. Further, according to the Several Policies and Measures in Relation to Promoting the Legalization and Standardization of the E-cigarettes Industry (for Trial Implementation), or the E-cigarettes Industrial Policies and Measures (for Trial Implementation), which were issued by the State Tobacco Monopoly Administration on April 25, 2022 and came into effect on the same day, the department of tobacco monopoly administration under the State Council shall be responsible for planning, managing and coordinating e-cigarettes’ domestic overall distribution, manufacturing capacity and market demands. According to the Administrative Rules on Fixed Asset Investment of E-cigarettes, fixed asset investment of e-cigarettes shall obtain the approval from or complete the filing procedure with the tobacco monopoly administration under the State Council before investment, the scope of the fixed asset investment assessment for e-cigarette enterprises includes fixed asset investment activities (i) for establishing e-cigarette enterprises, (ii) for engaging in the production of e-cigarette products and raw materials and conducted by the enterprises that have not obtained the Tobacco Monopoly License for Manufacturing Enterprises, (iii) for new factory (and branch factory) and conducted by the enterprises that have obtained Tobacco Monopoly License for Manufacturing Enterprises, (iv) for on-site expansion, reconstruction and technological transformation, relocation and restoration of construction and conducted by the enterprises that have obtained Tobacco Monopoly License for Manufacturing Enterprises, and (v) other circumstances prescribed by the tobacco monopoly administration under the State Council. The Administrative Rules on Fixed Asset Investment of E-cigarettes clarified that enterprises must complete the filing procedure for conducting the activity prescribed in (iv) if there is no increase in the manufacturing capacity of e-cigarette products and raw materials, and, however, obtain the approval if such increase is intended. Additionally, according to the Catalogue for Guiding Industry Restructuring, tobacco product (including e-cigarettes) processing projects fall into restricted industries under this catalogue, which means all tobacco manufacturing enterprises are subject to certain restrictions, including being prohibited from investing in new tobacco product (including e-cigarettes) processing projects. Therefore, the Administrative Rules on Fixed Asset Investment of E-cigarettes provided that, the above-mentioned (i), (ii) and (iii) will be disapproved according to relevant requirements on industries of restricted categories under the Catalogue for Guiding Industry Restructuring. 23 Table of Contents The two Tobacco Monopoly Licenses for Manufacturing Enterprise we obtained are subject to certain approved manufacturing capacity. Even if we are able to timely renew these licenses, we cannot assure you that we will be allotted the same or higher manufacturing capacity as compared to the existing one. And though we could apply for an increase in manufacturing capacity when we reach the approved capacity, there can be no assurance that the relevant PRC regulatory authorities will approve such application. In addition, under current regulations, we cannot expand our manufacturing capacity by establishing new e-cigarette enterprises or new factories. If the extra manufacturing capacity cannot be granted to us in a timely fashion, or at an amount no less than the required additional capacity, or at all, of if the manufacturing capacity of our current factories cannot produce sufficient e-cigarette products or raw materials, we may not be able to provide adequate e-cigarette products or raw materials to meet our needs and the market demands. All of the above may harm the business, financial condition and results of operations of us and the consolidated VIE. We also rely on a limited number of suppliers and manufacturers to supply and produce our products. In response to the regulatory developments in 2022, we had adapted our cooperation with suppliers and manufacturers to the new and currently effective regulatory framework applicable to China’s e-vapor industry and us. By December 31, 2025, all of our suppliers and manufacturers had obtained the requisite licenses and authorization under the E-Cigarettes Administrative Measures for our operations in China. However, there can be no assurance that our suppliers and manufacturers will be able to renew or update their existing licenses in a timely fashion, or at all, or they will be allotted the same or higher manufacturing capacity when they renew the licenses, or can always provide us with adequate e-cigarette products or raw materials to meet our needs and the market demands through their current e-cigarette manufacturing fixed assets. Also, given the uncertainties with respect to the evolving regulatory regime including the implementation of the applicable laws, regulations, policies, our suppliers and manufacturers may not be able to continue manufacturing our e-vapor products after they have reached the applicable manufacturing capacity. All of the above may render our suppliers and manufacturers unable to maintain or increase their production and supply of our products and as a result, the supply of our e-vapor products may be less than what the market demands, which may harm the business, financial condition and results of operations of us and the consolidated VIE. See also “—We rely on a limited number of suppliers and manufacturers to supply and produce our products. Loss of any of those business partners would materially and adversely affect the business of us and the consolidated VIE.” ● Flavor Ban. The E-Cigarettes Administrative Measures impose a ban on flavored e-cigarettes other than those with tobacco flavor. The flavor ban imposes significant restrictions on our product offerings, and therefore have materially affected and may further materially affect our ability to continue to introduce new products and upgrade our existing products to meet our users’ evolving preferences. We may lose our existing and potential users, and our revenues and competitiveness may be further reduced. ● Tobacco Monopoly License for Retail Business. Pursuant to the E-Cigarettes Administrative Measures, any e-cigarette retailer, including any entity or individual who engages in the retail business of e-cigarettes, must apply with the competent department of tobacco monopoly administration for a Tobacco Monopoly License for Retail Business or approval of modification of its registered business scope. The e-cigarette retailers should purchase e-cigarette products from local qualified distributors with the Tobacco Monopoly License for Wholesale Enterprises (“wholesale license”) (namely provincial Tobacco Commercial Enterprises in China) and avoid conducting any exclusive operation regarding any marketed e-cigarette products. As of December 31, 2025, we operated 40 offline stores in China by ourselves, all of which obtained the Tobacco Monopoly Licenses for Retail Business and conducted their businesses in compliance with the E-Cigarettes Administrative Measures and other applicable laws. These offline stores source e-vapor products solely from the qualified distributors with wholesale license (namely provincial Tobacco Commercial Enterprises in China) and offer a variety of branded e-vapor products. However, in the future, if we cannot obtain or renew the Tobacco Monopoly Licenses for Retail Business in a timely fashion, or at all, or fail to comply with the then applicable regulatory requirements, the related business operations of us and the consolidated VIE will be adversely affected or discontinued. 24 Table of Contents The E-Cigarettes Administrative Measures also impose various additional restrictions and requirements on the key participants along the e-cigarettes value chain, including our suppliers and manufacturers, as well as the distributors and retailers. See also “—We have adapted our business, including distribution of products, to the new and currently effective regulatory framework applicable to China’s e-vapor industry and us, which have materially and adversely affected and may further materially and adversely affect our business, prospects, results of operations and financial performance” and “—We rely on a limited number of suppliers and manufacturers to supply and produce our products. Loss of any of those business partners would materially and adversely affect the business of us and the consolidated VIE” for more details. The National Standards On April 8, 2022, the State Administration for Market Regulation and the Standardization Administration of the PRC issued the National Standards for E-Cigarettes, or the National Standards, which came into effect on October 1, 2022. The National Standards stipulate the technical terminology in relation to e-cigarettes and definitions thereof, clarify the standards for product design and raw materials of e-cigarettes and technical requirements for e-cigarette devices, e-atomization materials and e-cigarette emissions, and prescribe rules for instructions and labels of e-cigarette products. The National Standards also require that e-liquid must contain nicotine. In response to these regulatory developments in 2022, we have adjusted our product design, specifications and other aspects of our products in accordance with the applicable PRC laws and regulations. After such adjustment, which had been completed no later than September 30, 2022, and until the date of this annual report, all of our products sold, and the raw materials required for producing them, have satisfied the requirements of the National Standards and obtained the requisite product approvals. However, we cannot assure you that we will be able to produce e-vapor products that continuously fulfill the requirements of the National Standards, or obtain and maintain the required approval from the relevant technical authorities for our products in a timely manner, or at all; nor is there any assurance that we will be able to obtain the requisite approvals for our products in a more expeditious manner than our competitors in the market or efficiently launch our products in the relevant provinces and municipalities across China. Additionally, there have been cases of illegal distribution of non-tobacco-flavored e-cigarettes in the China market, which may adversely affect the distribution and sales of our products in China which are in compliance with the National Standards; in our ordinary course of business, we may also experience product recall due to quality issues from time to time; further, if any such non-tobacco-flavored e-cigarettes are associated with our brand and are in the market from unauthorized distribution beyond our control, our brand image may be impaired and the business of us and the consolidated VIE may be disrupted. See also “—The business and results of operations of us and the consolidated VIE may be harmed by any failure to maintain and enhance the value of our brand.” E-cigarette Excise Tax On October 2, 2022, the Ministry of Finance of the People’s Republic of China, the General Administration of Customs of the People’s Republic of China, and the State Taxation Administration of the People’s Republic of China jointly issued the Announcement on Imposing Excise Tax on E-cigarettes (the “E-cigarette Tax Announcement”). The E-cigarette Tax Announcement, which came into effect on November 1, 2022, imposes excise tax on manufacturers, importers and/or distributors of e-cigarettes in China. With respect to the tax implications for e-cigarette manufacturers, e-cigarette importers and e-cigarette distributors, the E-cigarette Tax Announcement contains the following key provisions, among others, (i) E-cigarette manufacturers and importers are subject to excise tax at the rate of 36% on the production or import of e-cigarettes, and (ii) E-cigarette distributors are subject to excise tax at the rate of 11% on the wholesale distribution of e-cigarettes. We have become subject to additional taxation pursuant to the above-mentioned announcements, and there remains further uncertainty with regard to the tax regime that may be applicable to us or the e-vapor industry in the future. Under the regulatory framework applicable to the e-vapor industry, we may no longer be qualified as a “high and new technology enterprise” as an e-vapor brand in China. Therefore, we may no longer be eligible for the preferential income tax rate of 15% or be entitled to claim super-deduction of certain qualified research and development expenses when determining the taxable income. See “Item 4. Information on the Company—B. Business Overview—Government Regulations—Regulations on Tax” for more details. Furthermore, we may no longer be entitled to subsidies granted by the local government. If additional tax or increased tax rates become applicable to our e-vapor products or us in the future, the business, results of operation and financial condition of us and the consolidated VIE would be materially and adversely affected. See also “—Failure to obtain or maintain any of the preferential tax treatments and government subsidies or imposition of any additional taxes and surcharges could adversely affect our financial condition and results of operations.” 25 Table of Contents Other Implementing Rules and Guidance Opinions From April 2022 to the date of this annual report, the State Tobacco Monopoly Administration have issued a series of implementing rules and guidance opinions, including the Several Policies and Measures in Relation to Promoting the Legalization and Standardization of the E-cigarette Industry (for Trial Implementation), the Implementing Rules on E-cigarette Product Technical Review, the Administrative Rules on E-cigarette Product Traceability, the Notice on Matters relating to the Labeling of the Traceability QR Codes of E-cigarette Products, the Guiding Opinions on Approval of the Tobacco Monopoly License for Manufacturing Enterprises to E-cigarette Manufacturing Enterprises, the Administrative Rules on the Tobacco Monopoly License for E-cigarette Manufacturing Enterprises or E-cigarette Wholesale Enterprises, the Guiding Opinions on E-cigarette Wholesale Enterprises Layout, the Guiding Opinions on E-cigarette Retail Outlets Layout and License Administration, the Implementation Rules on the E-cigarette Product Quality Supervision and Random Inspection, the Implementation Rules on the E-cigarette Product Identification and Testing, the Implementation Rules on the E-cigarette Product Packaging, the Regulations on the Warning Signs of E-cigarettes, the Administrative Rules on Logistics of E-cigarettes, the Administrative Rules on Transaction of E-cigarettes, the Administrative Rules on Establishment, Division, Merger or Dissolution of E-cigarette Manufacturing Enterprises, the Administrative Rules on Fixed Asset Investment of E-cigarettes, the Administrative Rules on the Examination and Approval of the Establishment of Foreign-invested E-cigarette-related Manufacturing Enterprises, the Administrative Rules on the Import and Export Trade and Foreign Economic and Technical Cooperation of E-cigarettes, the Guidelines on Promoting the Construction of Product Quality Assurance System for Export of E-cigarette, the Opinions on Cracking Down on Tobacco-related Illegal Activities Across the Entire Chain, the Notice on Further Promoting Dynamic Supply-Demand Balance in the E-cigarette Industry, and the Rules for Credit Administration of E-cigarette Manufacturing and Wholesale Enterprises (Trial Version). Such implementing rules and guiding opinions further regulate e-cigarette industrial policies, the technical review of e-cigarette products, e-cigarette product traceability system, approval and administration of licenses for e-cigarette manufacturing enterprises, e-cigarette wholesale enterprises and e-cigarette retail outlets, layout of e-cigarette wholesale enterprises and e-cigarette retail outlets, e-cigarette product quality supervision and random inspection, e-cigarette product identification and testing, e-cigarette product packaging, warning signs on e-cigarette product package, the logistics and transactions of e-cigarette products, the establishment, division, merger or dissolution of e-cigarette manufacturing enterprises, fixed asset investment of e-cigarettes, foreign investment in e-cigarettes, import and export trade, foreign economic and technical cooperation of e-cigarettes, cracking down on illegal e-cigarette activities, dynamic supply-demand balancing management for e-cigarettes, and the credit information collection, evaluation, and graded management of e-cigarette manufacturing and wholesale enterprises. In addition, on April 2, 2026, the State Tobacco Monopoly Administration published the Notice on Modifying Certain E-cigarette Regulatory Policy Documents (Draft for Comments) for public comment, which proposes to amend the Several Policies and Measures in Relation to Promoting the Legalization and Standardization of the E-cigarette Industry (for Trial Implementation), the Implementing Rules on E-cigarette Product Technical Review, the Administrative Rules on E-cigarette Product Traceability, the Administrative Rules on Establishment, Division, Merger or Dissolution of E-cigarette Manufacturing Enterprises, the Administrative Rules on Fixed Asset Investment of E-cigarettes and the Administrative Rules on the Import and Export Trade and Foreign Economic and Technical Cooperation of E-cigarettes, in order to implement the requirements of restrictive industrial policies on e-cigarettes and enhance the systemic, holistic and coordinated nature of the regulatory policy framework for e-cigarettes. The existing and additional laws, regulations, policies or governmental announcements that regulate the sale and use of e-cigarettes may continue to adversely affect the business, growth and prospects of us and the consolidated VIE. For example, the Notice of Maintaining Civil Aviation Order to Ensure Air Transportation Security promulgated by Civil Aviation Administration of China states that the usage of e-cigarettes would be treated as smoking and is therefore prohibited in aircrafts. In addition, some cities, such as Shenyang, Hainan, Shenzhen, Hangzhou, Chengdu, Xi’an, Nanning and Chongqing, have banned the use of e-cigarettes in public places, which include, among others, public transportation and indoor workspace. Such prohibition may also affect the usage of our products, which may in turn adversely affect the sales of our products. Further, sales of e-cigarettes in China are also subject to relevant PRC laws and regulations that are generally applicable to the sales of goods, such as the PRC Civil Code and the Product Quality Law of the PRC. See “Item 4. Information on the Company—B. Business Overview—Government Regulations—Regulations Related to Our Products.” In addition, certain articles published on Bulletin of the WHO stated that governments should consider prohibiting the use of e-vapor products in indoor areas to protect non-users from involuntary exposure to second-hand aerosols, issuing warnings about the potential health risks of e-vapor products and imposing higher taxes on e-vapor products. Certain limitations may be imposed on the e-vapor industry, such as prohibition of usage in public spaces or imposition of additional tax, either of which may materially and adversely affect the development of the e-vapor industry. 26 Table of Contents In addition, regulations governing vaping products outside of China are subject to a dynamic and often fragmented global regulatory environment, which may present additional compliance challenges. These varying regimes may evolve further in response to public health considerations, and any significant changes could affect our ability to operate in those markets and result in additional compliance costs. For more details on regulations in these jurisdictions, see “Item 4. Information on the Company—B. Business Overview—Government Regulations—Regulations in Other Jurisdictions.” We cannot assure you that government authorities will not impose further restrictions on e-vapor products in the future. Such restrictions, if any, may adversely affect supplies of raw materials, production and sales activities, taxation or other aspects of the business operation of us and the consolidated VIE. We may not be able to comply with any or all changes in existing laws and regulations or any new laws and regulations and may incur significant compliance cost. All of the above may adversely affect our production, distribution or market demand for e-vapor products, and thus adversely affect the business, financial condition and results of operations of us and the consolidated VIE. As we continue to grow in scale and significance, we expect to face increased scrutiny, which may result in increased investment in compliance and related capabilities. We are subject to a variety of uncertainties, costs and risks during our international expansion. Our business and results of operations are affected by the execution of our international expansion strategy. In international markets, we offer rechargeable e-vapor products, disposable vaping system and e-liquid products. We plan to seek international expansion primarily by collaborating with established international partners, acquiring well-known brands, or setting up joint ventures in international markets. For instance, we began to conduct our North Asia Business in December 2023 after we acquired SS North Asia Holding Limited. In 2024, we made significant strides in our global expansion by entering three new markets in Asia Pacific region, further solidifying our presence in key international markets. In 2025, we acquired an entity based in Europe to further enhance our footprint in the European market and support our long-term internationalization strategy. Our international expansion will place increased demands on our operational, managerial and administrative resources. A number of factors could have an adverse impact on our operating results if our efforts to expand internationally are not successful. These factors include changes in market needs and product trends, economic fluctuations, political and social turbulence, relevant countries or regions’ relationships with China, changes in legal regulations or other conditions and difficulties in employing and training appropriate management and local employees. In comparison to our operations in China, we will become subject to a number of additional risks and challenges as we expand into international markets, including but not limited to, the following: ● increased legal compliance due to a wide variety of local laws and regulations; ● inability to obtain government approvals, licenses and permits; ● competition from major, established competitors in international markets with more experience and resources; ● inability to anticipate foreign users’ preferences and customs; ● difficulties encountered when establishing overseas supply chain; ● difficulty to manage logistics and inventory effectively; ● difficulty to find qualified partners for overseas cooperation; ● our ability to manage costs during our global expansion; ● difficulties in hiring experienced staff and managing foreign operations; ● wars or political and economic instability; ● trade restrictions; ● lesser degrees of intellectual property protection; 27 Table of Contents ● tariffs and customs duties and the classifications of our goods by applicable governmental bodies; ● a legal system subject to undue influence or corruption; and ● high inflation. In particular, we face regulatory uncertainties and may incur substantial compliance costs when we enter into a new international market. Regulations in different international markets could vary significantly. Given the complexity, uncertainties and frequent changes in these laws, rules, regulations, policies and measures in international markets, including changes in their interpretation and implementation, our business activities and growth may be adversely affected if we do not respond to the changes in a timely manner or fail to fully comply with the applicable laws, rules, regulations, policies and measures. Non-compliance may subject us to sanctions by regulatory authorities, to monetary penalties, or to restrictions on our activities or revocation of our licenses, which may result in a material adverse effect on our business, financial condition and results of operations in the relevant international market. We also have to closely monitor changes in local laws and complete all necessary procedures and filings accordingly. Furthermore, we may also from time to time encounter legal disputes with various parties in international markets in our ordinary course of business operations. Our international business expansion exposes us to risks associated with our relationship with Relx Inc. As part of our international expansion, we maintain a business relationship with Relx Inc., an entity ultimately controlled by Ms. Ying (Kate) Wang, who also controls us. Relx Inc. currently operates the production and sale of e-vapor products in markets outside of China under the “RELX” and other brands pursuant to an intellectual property license agreement covering our trademarks and certain proprietary rights for international markets. For more details, see “Item 4. Information on the Company—A. History and Development of the Company—We undertook a corporate restructuring.” A significant portion of our revenue in 2025 was generated from the supply of e-vapor products through our offshore entity to Relx Inc., which then distributed these products in overseas markets. This business arrangement exposes us to additional risks. For instance, changes in our relationship with Relx Inc. or in the underlying ownership and control structure may create uncertainties regarding the continuity or terms of our cooperation, which could materially and adversely affect our results of operations and prospects. Although Relx Inc. operates independently, its business activities may nonetheless be perceived by regulators, customers, or the general public as part of our consolidated business. As a result, any adverse developments, including regulatory scrutiny, operational issues or reputational events affecting Relx Inc. or its overseas business, may negatively impact our brand, our business, and the operations of our consolidated affiliated entities. If it is determined or perceived that the usage of e-vapor products poses long-term health risks, the use of e-vapor products may decline significantly, which may materially and adversely affect the business, financial condition and results of operations of us and the consolidated VIE. Since e-vapor products were only introduced to the market in the last two decades and are rapidly evolving, studies relating to the long-term health effects of e-vapor product usage are still ongoing. Currently, there remain uncertainties regarding whether e-vapor products are sufficiently safe for their intended use and health risks associated with the usage of e-vapor products have been under scrutiny. According to the WHO, there is no conclusive evidence that the use of e-vapor products facilitates smoking cessation. The WHO recommended governments to strengthen relevant laws and regulations on the sale of e-vapor products, to, among other things, prohibit marketing strategies targeting the underage and the non-smoking population. Negative publicity on the health consequences of e-vapor products or other similar devices and their social impact, especially among juveniles, may also adversely affect the usage of e-vapor products. For example, a morbidity and mortality report published by CDC on October 1, 2021 claimed that use of tobacco products by youths in any form, including e-cigarettes, is unsafe. It reported that most e-cigarettes contain nicotine, and nicotine exposure during adolescence can harm the developing brain. There have been claims that users of e-vapor products may suffer a greater risk of bone damage, smoking relapse, depression, stroke or prediabetes. Additionally, there is also negative publicity on the social impact of e-vapor products or other similar devices. For example, many have criticized that the broad selection of different flavors of e-vapor products have imposed certain negative impact on the population of juveniles in China. Though it remains unclear whether the use of e-vapor products will increase such health-related risks or negative social impact, the ongoing negative publicity associated with e-vapor product usage may negatively impact the business, financial condition and results of operations of us and the consolidated VIE. 28 Table of Contents Research regarding the actual causes of these illnesses is still ongoing. If e-vapor product usage is determined or perceived to pose long-term health risks or to be linked to illnesses, the usage of e-vapor products may significantly decline, which would have a material adverse effect on the business, financial condition and results of operations of us and the consolidated VIE. Although we currently do not offer products containing THC, any perceived correlation between THC and Vitamin E acetate may adversely affect the public’s perception of e-vapor products in general, regardless of whether such products contain THC and/or Vitamin E. We operate in an emerging and evolving market in China and globally, which may develop more slowly or differently than we expect. The e-vapor market in China and globally is exposed to uncertainties with respect to the evolving regulatory environment, acceptance of e-vapor technologies and products, health studies relating to e-vapor product use, macro-economy, disposable income growth, the level of scrutiny imposed by regulatory authorities of local governments on the e-vapor industry and the pace of development of technologies and other factors. Furthermore, the e-vapor market is at its early stage and continues to evolve, and the penetration of e-vapor products among adult smokers remains relatively low. There can be no assurance that the penetration of e-vapor products among adult smokers will further deepen, or that the e-vapor market will grow at a pace that we expect. Additionally, the development of e-vapor market is subject to the uncertainty of the overall regulatory landscape for such products in different countries, which may have a material impact on the market development of e-vapor products. For instance, in China, the implementation of the E-Cigarettes Administrative Measures that came into effect on May 1, 2022, the National Standards that came into effect on October 1, 2022, and the relevant implementing rules and guiding opinions, have materially affected and may further materially affect the business, financial condition and results of operation of us and the consolidated VIE. See “—Our business is subject to a large number of laws across many jurisdictions, many of which are evolving” and “Item 4. Information on the Company—B. Business Overview—Government Regulations—Regulations Related to Our Products” for more details. There can be no assurance that the regulatory regime will be favorable to e-vapor products in general or us. It is also uncertain whether our products and services will achieve and sustain high levels of market acceptance and meet users’ expectations. Our ability to increase the sales of our e-vapor products depends on several factors, some of which may be beyond our control, including users’ receptiveness towards and adoption of e-vapor technologies and products, market awareness of our brand, the market acceptance of our products and services, the “word-of-mouth” effects of our products and services, and the cost, performance and functionality of our products and services. If we are unsuccessful in implementing our business strategies, developing our e-vapor products or reaching adult smokers, or if these users do not accept our e-vapor products, the market for our products may not continue to develop or may develop more slowly than we expect, any of which could materially and adversely affect our profitability and growth prospects. We are exposed to product liabilities and user complaints arising from the products we sell, which could have a material adverse impact on us. We may be subject to product liability claims and other legal liabilities in the jurisdictions in which we operate. Although we sell our products through different distribution models, we may still be held liable for product defects under general laws on product liability, consumer protection, or tort if the use of our products causes personal injury, property damage, or other health and safety concerns. For example, following changes to the regulatory framework applicable to China’s e-vapor industry in 2022, we currently sell our products in China to qualified distributors with wholesale licenses (namely, provincial Tobacco Commercial Enterprises) via the National Transaction Platform. These distributors then supply our products to retailers holding Tobacco Monopoly Licenses for Retail Business (“Retail License”), who ultimately sell the products to users across China. Outside of China, we are also subject to local regulatory requirements, and adverse events related to our products in overseas markets may likewise give rise to product liability or consumer claims against us. There is no assurance that we can succeed in defending ourselves, and we may be required to pay significant amounts of damages for product liability claims. Further, product liability claims against us, whether or not successful, are costly and time-consuming to defend. These disputes may result in negative publicity that could severely damage our reputation and affect the marketability of our products, and could result in substantial costs and diversion of our resources and management’s attention. Any of the above could in turn materially and adversely affect the business, financial condition and results of operation of us and the consolidated VIE. Although we may seek indemnification or contribution from our suppliers in certain circumstances, we cannot assure you that we will be able to receive indemnification or contribution in full, or at all. 29 Table of Contents Although we may have legal recourse against the suppliers and manufacturers of such products pursuant to applicable laws, attempts to enforce our rights against such suppliers and manufacturers may be expensive, time-consuming and unsuccessful. We maintain limited product liability insurance for claims of personal injury and property damage caused by our products. There is no assurance that our insurance coverage will be adequate to cover such claims. Our insurance does not provide coverage for all liabilities (including liability for certain events involving pollution or other environmental claims). In addition, there can be no assurance that we will be able to maintain our product liability insurance on acceptable terms. If we cannot maintain our product liability insurance on reasonable terms or our insurance does not sufficiently compensate us for the losses we sustain in the event of a legal proceeding, the business, financial condition and results of operations of us and the consolidated VIE would be adversely affected. We have received complaints in the past in relation to the quality and functionality of our products. We take these complaints seriously and endeavor to resolve such complaints by implementing various remedial measures. Nevertheless, we cannot assure you that we can successfully prevent or address all user complaints. We may also be subject to claims resulting from such complaints. Any complaints or claims against us, even if meritless and unsuccessful, may divert our management’s attention and other resources from the business of us and the consolidated VIE and adversely affect the business and operations of us and the consolidated VIE. Furthermore, negative publicity including, but not limited to negative online reviews on social media and crowd-sourced review platforms, industry findings or media reports related to the quality, functionality and health concerns of e-vapor products, whether or not accurate, and whether or not concerning our products, can adversely affect our business, results of operations and reputation. Such negative publicity may reduce users’ confidence in us, our products and our brand, which may adversely affect the business and results of operations of us and the consolidated VIE. The business and results of operations of us and the consolidated VIE may be harmed by any failure to maintain and enhance the value of our brand. As we primarily leverage word-of-mouth referrals among adult smokers to promote our brand, market recognition of our brand is critical for us to remain competitive. However, we may not be able to maintain the reputation of our brand in the future. Our brand’s recognition and reputation depend on our ability to consistently practice our ethical principles. For example, usage of our products by the underage would significantly impair our brand image. In addition, counterfeit and compatible products would also impair our brand image and cause disruption to the business of us and the consolidated VIE. We have undertaken a number of key initiatives to address underage usage of our products and the issue of counterfeiting and compatible products. We cannot assure you that these initiatives will be successful. For example, if we fail to implement effective measures to prevent purchases and uses of our products by the underage in accordance with announcements, guidance and regulations issued by government authorities, we may be subject to negative publicity and legal proceedings. Additionally, counterfeit and compatible products associated with our brand may also impair our brand image and cause disruption to the business of us and the consolidated VIE. Counterfeit and compatible products may use logos and designs similar to ours in order to confuse the users. Our prospective or existing users may mistakenly use those counterfeit and compatible products and attribute any issues, dissatisfaction or frustration they experience from such products to our company, which may significantly impair our brand image. Even though we have devoted significant resources to combat sales of counterfeit and compatible products, there can be no guarantee that we may succeed in eliminating counterfeit and compatible products and it could take even greater efforts to eliminate the negative public perception of our company caused by such counterfeit and compatible products. If we fail to address the risks and challenges above, public perception of our brand may be materially and adversely affected. There have been historical cases of unauthorized distribution of our products and such distribution may continue without our authorization, violating applicable laws, regulations and policies. For example, though we have written down those products that do not satisfy the requirements of the National Standards in response to the regulatory developments in 2022, there could be unauthorized distribution of our products that are obsolete or otherwise do not satisfy the requirements of the National Standards. In particular, unauthorized distribution of non-tobacco-flavored e-vapor products associated with our brand would impair our brand image and cause disruption to the business of us and the consolidated VIE. As those unauthorized distributions are beyond our control, there can be no assurance that we can detect such unauthorized distribution in a timely manner or at all. Our reputation and brand image may be materially and adversely affected if such unauthorized distributions lead to negative public perception. 30 Table of Contents In order to maintain and enhance the value of our brand, we also have to continue to provide a superior user experience and a wide selection of products, cater to users’ preferences and expectations, and maintain the reliability, quality and functionality of our products, which in turn may also help us maintain our existing user base or have more new users. However, there can be no assurance that the user experience we provide through our products will be recognized or accepted by adult smokers in China and other international markets. Failure to address these risks and challenges may materially and adversely affect the business, results of operations, financial condition and prospects of us and the consolidated VIE. In addition, users may be discouraged from purchasing our products if there is any negative publicity in connection with the use of our products, such as the quality or side effects of our products. Our reputation may also be adversely affected if there is any negative publicity relating to us, our directors, officers, employees, distributors, suppliers or manufacturers that are known to associate with us. Negative publicity may concern various matters, including but not limited to failure to provide equal opportunities to our employees, inability to enforce our codes of ethics and business conducts and workplace sexual harassment. Furthermore, negative publicity about other market players or isolated incidents, regardless of whether or not it is factually correct or whether we have engaged in any inappropriate activities, may result in negative perception of our industry as a whole and undermine the credibility we have established. Any damage to our brand name or reputation as a result of these or other factors may cause our products and services to be perceived unfavorably by users, distributors, retailers, other business partners and governmental authorities, and the business operations and prospects of us and the consolidated VIE could be materially and adversely affected as a result. We have adapted our business, including distribution of products, to the new and currently effective regulatory framework applicable to China’s e-vapor industry and us, which have materially and adversely affected and may further materially and adversely affect our business, prospects, results of operations and financial performance. Pursuant to the E-Cigarettes Administrative Measures, which came into effect on May 1, 2022, (i) any e-cigarette retailer, including any entity or individual who engages in the retail business of e-cigarettes, must apply with the competent department of tobacco monopoly administration for a Tobacco Monopoly License for Retail Business or approval of modification of its registered business scope, and (ii) any enterprise that has obtained the Tobacco Monopoly License for Wholesale Enterprises must apply with the department of tobacco monopoly administration under the State Council for approval of modification of its registered business scope prior to engagement in the wholesale business of e-cigarette products. In addition, according to the E-Cigarettes Administrative Measures and the Administrative Rules on Transaction of E-cigarettes, which came into effect on June 2, 2022 and was further amended on August 27, 2024, e-cigarette, e-atomization material, and e-cigarette nicotine, among others, can only be transacted via the national e-cigarette transaction and management platform, or the National Transaction Platform, which has been established by the department of tobacco monopoly administration under the State Council, and e-cigarette manufacturing enterprises are required to sell e-cigarettes to e-cigarette wholesale enterprises via the National Transaction Platform in China. See “Item 4. Information on the Company—B. Business Overview—Government Regulations—Regulations Related to Our Products—E-Cigarettes Administrative Measures” for more details. In response to the evolving regulatory requirements in China, we have adapted our business, including distribution of products, to the new and currently effective laws, regulations, and policies applicable to China’s e-vapor industry and us. We currently sell our products in China to the qualified distributors with wholesale license (namely provincial Tobacco Commercial Enterprises in China) via the National Transaction Platform in compliance with the E-Cigarettes Administrative Measures, the Administrative Rules on Transaction of E-cigarettes, and other applicable laws. The qualified distributors would supply our products to the qualified retailers with retail license via the National Transaction Platform, who then sell our products to users across China. There is, however, no assurance that these qualified distributors will be able to maintain, renew or update their existing licenses, or that no additional restrictions will be imposed on the location of the e-vapor retail outlets and the availability of e-vapor products. If the qualified distributors fail to maintain, renew or update the requisite licenses, or there are new laws, regulations, policies or guidelines introduced to impose additional government approvals, licenses, permits and requirements, the distribution of our products may be adversely affected, our business may be disrupted, and our results of operations may suffer. Also, there can be no assurance that we will be able to maintain our cooperation and contractual relationships with all our existing qualified distributors, and we do not have any control over such distributors. If any of such relationships is terminated, our ability to supply our products to qualified retailers and then to users in China may be adversely affected, which will harm the business, results of operations and financial conditions of us and the consolidated VIE. 31 Table of Contents In addition, there remains uncertainty as to whether the retailers who sell our e-vapor products to users in China can obtain sufficient products for their orders placed with the qualified distributors with wholesale license, who need to transact directly and solely with the National Transaction Platform for the distribution of e-vapor products in China. Further, there remains uncertainty as to whether the scope or coverage of the qualified retailers that sell our products to the users across China will be subject to further changes due to the developments in applicable laws, regulations and policies, or the implementation thereof. If existing qualified retailers that sell our products fail to renew, maintain or update their retailer licenses or new applicants cannot obtain retail licenses in a timely manner, or at all, we may not have adequate retailers to cover the nationwide distribution of our products, which may adversely affect the availability of our e-vapor products in the China market or otherwise result in discrepancy between the supply of our e-vapor products to the users and the actual user demands. If the supply of our e-vapor products to users in China fails to meet the user demands, our results of operations and financial condition may be materially and adversely affected. In addition, for our products manufactured in China and exported to overseas markets, we are also required to comply with applicable requirements under the PRC tobacco regulatory framework. Any failure to comply with such requirements could result in regulatory penalties, disruption of product exportation, or reputational harm, which may in turn adversely affect our international business and results of operations. We may be subject to interest rate risk in connection with our interest income. We may be exposed to interest rate risk primarily relating to the interest income generated by excess cash, which is mostly held in interest-bearing bank deposits and investment securities. Our interest income decreased from RMB627.9 million in 2023 to RMB616.4 million in 2024, and further to RMB560.4 million (US$80.1 million) in 2025, mainly due to a decrease of our investment of excess cash into interest-bearing bank deposits and interest rate fluctuations. Investments in both fixed rate and floating rate interest earning instruments carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. As of the date of this annual report, we have not been exposed to material risks due to changes in market interest rates and we have not used derivative financial instruments in our investment portfolio to hedge exposure to such risk. However, our future interest income may fall short of expectations due to changes in market interest rates, and our financial condition may be materially and adversely affected as a result. We may be exposed to credit risk. We have certain financial instruments that potentially expose us to credit risk, consisting primarily of cash and cash equivalents, restricted cash, short-term bank deposits, long-term bank deposits, accounts and notes receivable, receivables from online payment platforms, short-term investments, long-term investment securities and amounts due from related parties. Meanwhile, actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity and credit risk problems. For example, on March 10, 2023, Silicon Valley Bank (“SVB”) was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (“FDIC”) as receiver. Similarly, on March 12, 2023, Signature Bank and Silvergate Capital Corp. were each swept into receivership. Although a statement by the Department of the Treasury, the Federal Reserve and the FDIC indicated that all depositors of SVB would have access to all of their money after only one business day of closure, including funds held in uninsured deposit accounts, borrowers under credit agreements, letters of credit and certain other financial instruments with SVB, Signature Bank or any other financial institution that is placed into receivership by the FDIC may be unable to access undrawn amounts thereunder. Though we do not have any banking relationship with SVB and Signature Bank and we select reputable financial institutions with high credit ratings and quality with caution to place our relevant assets, failure, entrance into receivership or insolvency by any of these financial institutions in response to conditions affecting the banking system and financial markets, such as the recent occurrence at SVB and Signature Bank, which did not materially affect us, could threaten our ability to access our existing cash, cash equivalents and investments and could materially and adversely impact our financial position and results of operations. As of the date of this annual report, there has been no recent history of default or any of the incidents described in the immediately preceding sentence in relation to these financial institutions. Also, although we are not a borrower or party to any such instruments with SVB, Signature or any other financial institution currently in receivership, if any of our lenders or counterparties to any such instruments were to be placed into receivership, we may be unable to access such funds. In addition, if any of our customers, suppliers or other parties with whom we conduct business are unable to access funds pursuant to such instruments or lending arrangements with such a financial institution, such parties’ ability to pay their obligations to us or to enter into new commercial arrangements requiring additional payments to us could be adversely affected. 32 Table of Contents Additionally, our trading terms with some of the offline distributors and other parties in e-cigarettes value chain are on credit and the related accounts receivable are typically unsecured. Substantial uncertainties remain as to how long the credit period will be and whether we can collect payments from the relevant counterparties in a timely manner, or at all. As of December 31, 2025, our accounts and notes receivable, net was RMB190.4 million (US$27.2 million). Although we perform credit assessment on the distributors and other relevant counterparties and monitor our outstanding balances on an ongoing basis, we are not fully exempt from all the risks associated with potential bad debts. There can be no assurance that the qualified distributors and our other business partners will not default on their obligation to us in the future. In addition, the evolving regulatory regime may expose us to increased credit risk as the relevant counterparties in e-cigarettes value chain may not be able to or be willing to make payments to us if their businesses have been or will be materially and adversely affected by the regulatory developments. If we fail to address such risks and challenges, prolonged credit period and defaults may lead to an increase in provision of bad debts in the future, which may result in material losses. As a result, the business, results of operations, financial conditions and prospects of us and the consolidated VIE may be materially and adversely affected. We may fail to continue to develop, innovate and utilize our technologies, which are core to our success. We believe our technologies are core to our success and are critical to the business of us and the consolidated VIE. Our products are empowered by our proprietary technological innovations, such as e-liquid formulation, the engineering of the cartridge structure and the Essential Elements Solutions, to optimize adult smokers’ experience with our products. However, we cannot assure you that we can keep up with the fast pace of the technology industry, especially the technologies applicable and related to e-vapor products, and continue to develop, innovate and utilize our proprietary capabilities. In particular, e-vapor technologies are still at an early stage. New solutions and technologies developed and introduced by competitors could render our technologies obsolete. Developing and integrating new technologies into our existing products could be expensive and time-consuming. We may not succeed in developing and incorporating new technologies at all. Additionally, we may also face competition from innovative tobacco products developed and introduced to the China and international market with attractive features, which will increase the level of competition and may cause us to lose market share. If we fail to continue to develop, innovate and utilize technologies effectively and on a timely basis, the business, financial performance and prospects of us and the consolidated VIE could be materially and adversely affected. We may not be able to develop and introduce new products or upgrade existing products in a timely and cost-effective manner, which may adversely affect the business, results of operations and prospects the business of us and the consolidated VIE. To optimize adult smokers’ experience, we must introduce new products and upgrade our existing products to meet our users’ evolving preferences globally. On the one hand, it is difficult to predict the preferences of our users or a specific segment of users. Changes and upgrades to our existing products may not be well received by our users, and newly introduced products may not achieve expected results. On the other hand, the E-Cigarettes Administrative Measures, which came into effect on May 1, 2022, impose a ban on flavored e-cigarettes except for tobacco flavor e-cigarettes for our operations in China. The existing and evolving laws, regulations and policies applicable to us have restricted, and may further restrict, our ability to develop and introduce new products or upgrade existing products in a timely and cost-effective manner. The National Standards in China also require that e-liquid must contain nicotine and that the concentration of nicotine in the aerosol should not be higher than 20 mg/g and the total amount of nicotine should not be higher than 200 mg. In light of that, we have adjusted our product design, specifications and other aspects of our products in China to comply with the National Standards, and our ability to develop and introduce new products or upgrade existing products in the future may be further restricted. In addition to complying with the National Standards, the new products require approvals from the applicable governmental authorities in China. We would also need to launch our new products in the relevant provinces and municipalities, and communicate with each qualified distributor to get the new products listed in the market. All of the above, especially the limitations imposed by the evolving regulatory framework on our ability to develop and introduce new products or upgrade existing products, may materially and adversely affect the end-user experience in consuming our products and thereby significantly reduce the competitiveness and sales volume of our products in the future. We may also face competition from innovative tobacco products developed and introduced to the China and international market with attractive features, which will increase the level of competition and may cause us to lose market share. Additionally, there have been cases of illegal distribution of non-tobacco-flavored e-cigarettes in the China market, which may further adversely affect the distribution and sales of our products in China which are in compliance with the National Standards. See “Item 4. Information on the Company—B. Business Overview—Government Regulations—Regulations Related to Our Products” for more details on the E-Cigarettes Administrative Measures and the National Standards. Going forward, we may introduce new products with different features to the extent permissible under the applicable regulatory regime. Such efforts may require substantial investments of additional human capital and financial resources. If we fail to improve our existing products or introduce new ones in a timely or cost-effective manner, our ability to attract and retain users may be impaired, and our results of operations and prospects may be adversely affected. 33 Table of Contents Although we endeavor to understand user preferences through survey, sampling and other forms of interactions from time to time, we cannot assure you that we can anticipate, identify, develop or market products that respond to changes in users’ preferences and expectations. For example, our surveys may not yield accurate or useful insights on user behaviors, and feedbacks on our products may be different after such products are commercially available to a wider public. There can be no assurance that any of our new products will achieve market acceptance or generate sufficient revenues to offset the costs and expenses incurred in relation to our development and promotion efforts. There can be no assurance that each of our new products will achieve market acceptance and be successful. We may engage in acquisitions, investments or strategic alliances, which could require significant management attention and materially and adversely affect our business and results of operations. We may from time to time identify strategic partners to form strategic alliances, invest in or acquire additional assets, brands, distribution networks, technologies or businesses that are complementary to our existing business. These transactions may involve minority investments in other companies, acquisitions of controlling stakes in other companies or acquisitions of selected assets. Any strategic alliances, investments or acquisitions and the subsequent integration of the new assets and businesses obtained or developed from such transactions into our own may divert management from their primary responsibilities and subject us to additional liabilities. In addition, the costs of identifying and consummating investments and acquisitions may be significant. We may also incur costs and experience uncertainties in completing necessary registrations and obtaining necessary approvals from relevant government authorities. The costs and duration of integrating newly acquired assets and businesses could also materially exceed our expectations. Any such negative developments could have a material adverse effect on our business, financial condition, results of operations and cash flow. Our financial results could be adversely affected by our investments or acquisitions. The investments and acquired assets or businesses may not generate anticipated synergies with our business or achieve anticipated financial growth as we would expect. They could result in significant investments and goodwill impairment charges and amortization expenses for other intangible assets, which would adversely affect our financial condition and operating results. Fluctuations in exchange rates could have a material and adverse effect on our results of operations and the value of your investment. Due to our international presence, our business operation involves the use of various currencies, such as RMB, U.S. dollars and other currencies. For purposes of financial reporting, the local currency results are translated into U.S. dollars based on average exchange rates prevailing during a reporting period. We cannot assure you that foreign currencies will not appreciate or depreciate significantly in value against the U.S. dollar in the future. Especially, it is difficult to predict how market forces or government policy may impact the exchange rate between Renminbi, the U.S. dollar and other currencies. Capital controls and/or foreign currency exchange constraints may affect the ability of our subsidiaries in impacted jurisdictions to settle foreign currency denominated imports of goods and services and/or to pay dividends and royalties. These factors may also increase foreign currency devaluation risks, which may have a negative impact on our net assets and results of operations in these jurisdictions. All of which could have a material adverse effect on our financial condition, including our leverage ratios, cash flows, net earnings, and profitability. Very limited hedging options are available in China to reduce our exposure to exchange rate fluctuations. While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedges may be limited and we may not be able to adequately hedge our exposure or at all. In addition, our currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert Renminbi into foreign currency. As a result, fluctuations in exchange rates may have a material adverse effect on your investment. 34 Table of Contents We are subject to risks relating to our leased properties. We lease real properties from third parties primarily for our office, the offline stores operated by ourselves and production facilities in China, and most of these lease agreements for these properties have not been registered with the PRC governmental authorities as required by PRC law. Although the failure to do so does not in itself invalidate the leases, we may be ordered by the PRC government authorities to rectify such noncompliance and, if such noncompliance is not rectified within a given period of time, we may be subject to fines imposed by PRC government authorities ranging from RMB1,000 and RMB10,000 for each lease agreement that has not been registered with the relevant PRC governmental authorities. In the United Kingdom, while most of our leases are shorter than seven years and do not require registration, we have certain longer-term leases that have not been registered with the HM Land Registry. Although no issues have arisen to date, failure to register such leases may affect their legal status against third parties and could lead to potential legal uncertainties. The ownership certificates or other similar proof of most of our leased properties have not been provided to us by the relevant lessors in China. For our properties in the United Kingdom, while we conduct due diligence on title deeds, any unforeseen defects in a landlord’s title could still potentially affect our right to occupy the premises. Therefore, we cannot assure you that such lessors are entitled to lease the relevant real properties to us. If the lessors are not entitled to lease the real properties to us and the owners of such real properties decline to ratify the lease agreements between us and the respective lessors, we may not be able to enforce our rights to lease such properties under the respective lease agreements against the owners. If our lease agreements are claimed as null and void by third parties who are the real owners of such leased real properties, we could be required to vacate the properties, in the event of which we could only initiate claims against the lessors under relevant lease agreements for indemnities for their breach of the relevant leasing agreements. We cannot assure you that suitable alternative locations are readily available on commercially reasonable terms, or at all, and if we are unable to relocate our officers in a timely manner, the operations of us and the consolidated VIE may be interrupted. As of the date of this annual report, we are not aware of any claim or challenge brought by any third parties concerning the use of our leased properties without obtaining proper ownership proof. Regarding our operations in the United Kingdom, several of our leases are currently in a “holding over” status following their expiration. While this is common in the United Kingdom, there is no guarantee that we will be able to renew these leases on commercially reasonable terms, or at all. In 2021, a dispute arose between the owner and lessor of our former Beijing office regarding the lease agreement between them, and they have submitted the dispute to the court for resolution. The owner did not claim that our lease agreement with lessor was null or that we have been using our former Beijing office without obtaining proper ownership proof, but requested us to directly pay rent to the owner rather than the lessor. In May 2023, the Beijing Third Intermediate People’s Court issued a ruling in favor of the owner, terminating the lease agreement between the owner and the lessor. Following an appeal by the lessor, the Beijing Higher People’s Court reaffirmed the lower court’s decision in September 2023. Upon negotiation with the owner and the lessor, we suspended the payment of property rent since March 2023 until the owner and the lessor reach an arrangement on who shall receive such rent from us. Because we are not a party of or otherwise involved in the foregoing dispute, and we have ceased to use the property in dispute in December 2023, our business operation has not been affected by such legal dispute. We may be subject to the approval, filing or other requirements of the CSRC or other PRC governmental authorities in connection with future capital raising activities. The Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, adopted by six PRC regulatory agencies in 2006 and amended in 2009, requires an overseas special purpose vehicle formed for listing purposes through acquisitions of PRC domestic companies and controlled by PRC persons or entities to obtain the approval of the CSRC prior to the listing and trading of such special purpose vehicle’s securities on an overseas stock exchange. The interpretation and application of the regulations are subject to further clarification, and our offshore offerings may ultimately require approval of the CSRC. If the CSRC approval is required, it is uncertain whether we can, or how long it will take us to, obtain the approval and, even if we obtain such CSRC approval, the approval could be rescinded. Any failure to obtain or delay in obtaining the CSRC approval for any of our offshore offerings, or a rescission of such approval obtained by us, would subject us to sanctions imposed by the CSRC or other PRC regulatory authorities, which could include fines and penalties on the operations of us and the consolidated VIE in China, restrictions or limitations on our ability to pay dividends outside of China, and other forms of sanctions that may materially and adversely affect the business, financial condition and results of operations of us and the consolidated VIE. 35 Table of Contents On July 6, 2021, the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council issued Opinions on Strictly Cracking Down Illegal Securities Activities in Accordance with the Law. These opinions emphasized the need to strengthen the administration over illegal securities activities and the supervision on overseas listings by China-based companies and proposed to take effective measures, such as promoting the construction of relevant regulatory systems to deal with the risks and incidents faced by China-based overseas-listed companies. On February 17, 2023, the CSRC promulgated the Trial Measures for Overseas Listing and the Guidelines for Overseas Listing, or the Trial Measures and five supporting guidelines, which came into effect on March 31, 2023. According to the Trial Measures, PRC domestic companies that seek to offer and list securities in overseas markets, either in direct or indirect means, are required to fulfill the filing procedure with and report relevant information to the CSRC. The Trial Measures provide that if an issuer meets both of the following criteria, the overseas offering and listing of securities conducted by such issuer shall be determined as an indirect overseas offering and listing by a PRC domestic enterprise and is therefore subject to the filing and reporting requirements as required thereunder: (i) 50% or more of any of the issuer’s operating revenue, total profit, total assets or net assets as documented in its audited consolidated financial statements for the most recent fiscal year is accounted for by domestic companies; and (ii) the main parts of the issuer’s operation activities are conducted in mainland China, or the principal operation premises are located in mainland China, or the majority of senior management staff in charge of its business operations and management are PRC citizens or have habitual residences located in mainland China. The Trial Measures further stipulate that the determination as to whether a PRC domestic company is indirectly offering and listing securities in an overseas market shall be made on a substance-over-form basis. Furthermore, the Trial Measures also provide that (i) where a domestic company seeks to indirectly offer and list securities in overseas markets, the issuer shall designate a major domestic operating entity, which shall, as the domestic responsible entity, fulfill the filing procedures with the CSRC; (ii) an initial public offering and listing shall be filed with the CSRC within three business days after the relevant application is submitted overseas; (iii) subsequent securities offerings of an issuer in the same overseas market where it has previously offered and listed securities shall be filed with the CSRC within three business days after the offering is completed; and (iv) subsequent securities offerings and listings of an issuer in overseas markets other than where it has offered and listed shall be filed pursuant to provisions as stipulated for initial public offerings and listings. Where a domestic company fails to fulfill the filing procedure or conceals any material fact or falsifies any major content in its filing documents, such domestic company may be subject to administrative penalties, such as orders to rectify, warnings, fines, and its controlling shareholders, actual controllers, the person directly in charge and other directly liable persons may also be subject to administrative penalties, such as warnings and fines. On the same day, the CSRC also held a press conference for the release of the Trial Measures and issued the Notice on Administration for the Filing of Overseas Offering and Listing by Domestic Companies, which, among others, clarified that PRC domestic companies that have already been listed overseas on or before the effective date of the Trial Measures (i.e. March 31, 2023) shall be deemed as existing issuers, or the Existing Issuers. Existing Issuers are not required to complete the filling procedures immediately, and they are required to file with the CSRC when subsequent matters such as refinancing are involved. In addition, pursuant to the Confidentiality and Archives Management Provisions, which was promulgated on February 24, 2023 and came into effect on March 31, 2023, PRC domestic enterprises seeking to offer securities and list in overseas markets, either directly or indirectly, shall establish and improve the system of confidentiality and archives work, and shall complete approval and filing procedures with competent authorities, if such PRC domestic enterprises or their overseas listing entities provide or publicly disclose documents or materials involving state secrets and work secrets of state organs to relevant securities companies, securities service institutions, overseas regulatory agencies and other entities and individuals. It further stipulates that (i) providing or publicly disclosing documents and materials which may adversely affect national security or public interests, and accounting records or photocopies thereof to relevant securities companies, securities service institutions, overseas regulatory agencies and other entities and individuals shall be subject to corresponding procedures in accordance with relevant laws and regulations; and (ii) any working papers formed in the territory of the PRC by securities companies and securities service agencies that provide domestic enterprises with securities services relating to overseas securities issuance and listing shall be stored in the territory of the PRC, the outbound transfer of which shall be subject to corresponding procedures in accordance with relevant laws and regulations. However, given that the Trial Measures and the Confidentiality and Archives Management Provisions were promulgated in early 2023 and may continue to evolve, the implementation and interpretation, and how they will affect our listing status and future capital raising activities are subject to further clarification and interpretation. If we fail to complete the filing with or approval of the CSRC or other PRC government authorities in a timely manner or at all, for any future offering or any other activities which are subject to the filing or approval requirements under the aforesaid provisions, our ability to raise or utilize funds and our financial conditions, business operation, and business prospect may be adversely and materially affected. 36 Table of Contents Relatedly, on September 6, 2024, the NDRC and the MOFCOM jointly issued the Special Administrative Measures (Negative List) for Foreign Investment Access (2024 Version), or the 2024 Negative List, which became effective on November 1, 2024. Pursuant to such Special Administrative Measures, if a domestic company engaging in the prohibited business stipulated in the 2024 Negative List seeks an overseas offering and listing, it should obtain the approval from the competent governmental authorities. Besides, the foreign investors of the company should not be involved in the company’s operation and management, and their shareholding percentage will be subject, mutatis mutandis, to the relevant regulations on the domestic securities investments by foreign investors. In a Q&A released on its official website, the respondent NDRC official indicated that the above mentioned requirements should only apply to direct overseas offering and listing of a domestic company engaging in the prohibited business stipulated in the 2024 Negative List. The interpretation and implementation of these new requirements in the 2024 Negative List are subject to further clarification, and it remains to be seen as to whether and to what extent we will be subject to these new requirements. If we are required to comply with these requirements and fail to do so on a timely basis, or at all, the business operation, financial conditions and business prospect of us and the consolidated VIE may be adversely and materially affected. In addition, we cannot assure you that any new rules or regulations promulgated recently and, in the future, will not impose additional requirements on us. For example, the E-Cigarettes Administrative Measures stipulate that e-cigarette companies seeking initial public offering needs to obtain approval from the competent department of tobacco monopoly administration in advance. We are not certain how it will affect our current listing or any follow-on offering in the future. If it is determined in the future that approval and filing from the CSRC or other regulatory authorities or other procedures, including the cybersecurity review under the Cybersecurity Review Measures, the approval/filing requirements under the E-Cigarettes Administrative Measures, are required for our offshore offerings, it is uncertain whether we can or how long it will take us to obtain such approval or complete such filing procedures and any such approval or filing could be rescinded or rejected. Any failure to obtain or delay in obtaining such approval or completing such filing procedures for our offshore offerings, or a rescission of any such approval or filing if obtained by us, would subject us to sanctions by the CSRC or other PRC regulatory authorities for failure to seek CSRC approval or filing or other government authorization for our offshore offerings. These regulatory authorities may impose fines and penalties on the operations of us and the consolidated VIE in China, limit our ability to pay dividends outside of China, limit our operating privileges in China, delay or restrict the repatriation of the proceeds from our offshore offerings into China or take other actions that could materially and adversely affect the business, financial condition, results of operations, and prospects of us and the consolidated VIE, as well as the trading price of our listed securities. The CSRC or other PRC regulatory authorities also may take actions requiring us, or making it advisable for us, to halt our offshore offerings before settlement and delivery of the shares offered. Consequently, if investors engage in market trading or other activities in anticipation of and prior to settlement and delivery, they do so at the risk that settlement and delivery may not occur. In addition, if the CSRC or other regulatory authorities later promulgate new rules or explanations requiring that we obtain their approvals or accomplish the required filing or other regulatory procedures for our prior offshore offerings, we may be unable to obtain a waiver of such approval requirements, if and when procedures are established to obtain such a waiver. Any uncertainties or negative publicity regarding such approval requirement could materially and adversely affect the business, prospects, financial condition of us and the consolidated VIE, our reputation, and the trading price of our listed securities. There might be competitions between us and our affiliated companies. Historically, we entered into a non-competition agreement with Relx Inc., an entity ultimately controlled by Ms. Ying (Kate) Wang, to set forth the business scope of us and Relx Inc. and the non-compete obligations between these two companies. The non-competition agreement with Relx Inc. was terminated upon negotiation between Relx Inc. and us in November 2023, following which both companies are not restricted to operate their businesses inside and outside China and international markets. As we continuously expand into more international markets, there could be competition between us and Relx Inc. (and its affiliates) in the international markets. If we fail to coordinate well with Relx Inc. (and its affiliates) to minimize the competition, our financial condition and results of operations could be materially adversely affected and we may not achieve our development goals. 37 Table of Contents The business, financial condition and results of operations of us and the consolidated VIE may be adversely impacted by product defects or other quality issues. Our products may contain defects that are not detected until after they are shipped or inspected by our users. Our failure to maintain the consistency and quality throughout our production process could result in substandard quality or performance of our products, and product defects could cause significant damage to our market reputation and reduce our sales and market share. For example, the products we distribute may contain lithium-ion or similar types of batteries. Defects in these products could result in personal injury, property damage, pollution, release of hazardous substances or damage to equipment and facilities. As we primarily rely on several suppliers and manufacturers to supply raw materials and produce our products, if there is any inherent defects in the raw materials or our manufacturers do not produce products that meet the industrial and our standards, we may fail to maintain our quality control over our products. Actual or alleged defects in the products we distribute may give rise to claims against us for losses and expose us to claims for damages. Historically, there have been instances of product recalls of our products. In the future, if we deliver any defective products, or if there is a perception that our products are of substandard quality, we may incur substantial costs associated with mass product recall, product returns and replacements and significant warranty claims, our credibility and market reputation could be harmed and our results of operations and market share may be adversely affected. Further, defective products may result in compliance issues that could subject us to administrative proceedings and unfavorable results such as product recall and other actions. Such proceedings and unfavorable results could have a material adverse effect on our brand, reputation and results of operations. Some of our products may not be in strict compliance with certain existing regulations or industrial standards. We are subject to supply shortages and interruptions, long lead times, and price fluctuations for key raw materials and components, any of which could disrupt our supply chain and have a material adverse impact on our results of operations. Mass production of our products requires timely and adequate supply of various raw materials and components. We rely on third-party suppliers and manufacturers to source components and raw materials for production of our products, and some of these key components and raw materials are sourced from a limited number of suppliers. Therefore, we are subject to risks of shortages or discontinuation in supply, long lead times, cost increases and quality control issues with our suppliers. In addition, some of our suppliers may have more established relationships with our competitors and may choose to limit or terminate their relationships with us or prioritize our competitors’ orders in the case of supply shortages. In the event of a component or raw material shortage or supply interruption from suppliers, we will need to identify alternative sources of supply, which can be time-consuming, difficult to locate, and costly. We may not be able to source these components or raw materials on terms that are acceptable to us, or at all, which may undermine our ability to meet our production requirements or to fill distributor orders in a timely manner. This could cause delays in shipment of our products, harm our relationships with distributors and other business partners, and adversely affect our results of operations. In addition, there are laws and regulations that pose restrictions and requirements on certain raw materials and components of our products. Changes in the regulatory landscape of such raw materials and components may pose additional restrictions or requirements on such raw materials and components, which may further adversely affect the supply of such regulated raw materials and components. If we fail to address such risk, the business, results of operations and financial condition of us and the consolidated VIE may be materially and adversely affected. Moreover, market prices for certain raw materials have been volatile. For example, we have experienced fluctuations in the market prices for certain important raw materials used in production in the past, and may continue to experience such fluctuations in the future. We may not be able to recover these costs through selling price increases, which would have a negative effect on our results of operations. Human capital and equipment are also key elements in the overall manufacturing process. As the production process requires significant manpower and equipment, failure to effectively manage and address the risks relating to manpower shortage or equipment insufficiency could cause significant interruptions and delays to our production, which may in turn have a material and adverse impact on our results of operations. 38 Table of Contents Outbreaks of communicable diseases, natural disasters, banking crises or other events may materially and adversely affect the business, results of operations and financial condition of us and the consolidated VIE. The business of us and the consolidated VIE could be adversely affected by the effects of communicable diseases and epidemics. In particular, the business and operations of us and the consolidated VIE could be disrupted if any of our employees or manufacturers, or any other key participants along the e-cigarettes value chain is suspected of having H1N1 flu, avian flu or another epidemic in our offices, within the distribution and retail process or at the manufacturing facilities of the manufacturers, since it could require all of the possible contact persons to be quarantined and/or their offices to be disinfected. In addition, our results of operations could be adversely affected to the extent that the outbreak harms the PRC economy in general. We are also vulnerable to natural disasters and other calamities. Our production and storage facilities and research laboratories as well as the offline stores operated by ourselves are located at several leased properties. We cannot assure you that such properties will have adequate measures to protect itself from the effects of fire, floods, typhoons, earthquakes, power loss, telecommunications failures, break-ins, war, riots, terrorist attacks or similar events. Any of the foregoing events may give rise to cease of operations, which could cause the loss or corruption of products as well as adversely affect our ability to produce and distribute our products. Furthermore, our manufacturers, suppliers and other third parties upon which we rely may be exposed to a number of global and regional risks outside of our control, including natural disasters, public health crises, political crises, banking crises or failures, political instability or other conflict, or other events outside of our control, which may in turn adversely affect the manufacturing or distribution of our products, which may harm the business, results of operations and financial condition of us and the consolidated VIE. Misuse or abuse of our products may lead to potential adverse health effects, subjecting us to complaints, product liability claims and negative publicity. We are unable to control how our users choose to use our products. For example, we cannot prevent the users from misusing or abusing our products or the underage from doing so if they somehow get access to our products. Our users may also use our products to inhale chemicals obtained from informal sources and in other potentially hazardous applications that can result in personal injury, product liability and environmental claims. Misuse or abuse of our products, including use of our products in combination with other products and components from third parties, may significantly and adversely affect the health of our users, subjecting us to user complaints and product liability litigations, even though such products were not used in the manner recommended by us. Applicable law may render us liable for damages without regard to negligence or fault. Regardless of whether these complaints or product liability litigations hold merit, they may be costly and time-consuming to resolve, bring negative publicity that could damage our reputation and result in higher scrutiny by the government or stricter regulations, all of which could materially and adversely affect the business, financial condition and results of operations of us and the consolidated VIE. We rely on a limited number of suppliers and manufacturers to supply and produce our products. Loss of any of those business partners would materially and adversely affect the business of us and the consolidated VIE. We rely on a limited number of suppliers and manufacturers to supply and produce our products. In particular, a significant portion of our products is produced at an exclusive production plant in China that we manage in cooperation with a third-party operational partner. In addition, for our overseas business, we have engaged multiple third-party manufacturing partners to produce our products in accordance with our specifications and quality standards. If any of these suppliers or manufacturers experience operational disruptions, fail to meet our production requirements, or terminate their cooperation with us, we may face difficulties in maintaining product quality, managing costs, or ensuring timely delivery of products, which could materially and adversely affect our business, results of operations and reputation. Especially in China, the E-Cigarettes Administrative Measures, which came into effect on May 1, 2022, require all e-cigarette manufacturing enterprises to apply with the department of tobacco monopoly administration under the State Council for a Tobacco Monopoly License for Manufacturing Enterprise. Additionally, the E-Cigarettes Administrative Measures stipulate that tobacco leaves, re-cured tobacco leaves, tobacco sheets and other tobacco monopoly products used for manufacturing e-cigarettes should be purchased from relevant enterprises that have been authorized by competent department of tobacco monopoly administration. The plan for purchase and sale of tobacco leaves, re-cured tobacco leaves, tobacco sheets and other tobacco monopoly products should be issued by the department of tobacco monopoly administration under the State Council. See “Item 4. Information on the Company—B. Business Overview-Government Regulations—Regulations Related to Our Products—E-Cigarettes Administrative Measures” for more details. 39 Table of Contents In response to these regulatory developments in 2022, we had adapted our cooperation with suppliers and manufacturers to the new and currently effective regulatory framework applicable to China’s e-vapor industry and us. By December 31, 2025, all of our suppliers and manufacturers in China had obtained the requisite licenses and authorization under the E-Cigarettes Administrative Measures. In response to these regulatory developments in 2022, we had adapted our cooperation with suppliers and manufacturers to the new and currently effective regulatory framework applicable to China’s e-vapor industry and us. By December 31, 2025, all of our suppliers and manufacturers in China had obtained the requisite licenses and authorization under the E-Cigarettes Administrative Measures. However, we cannot assure you that our suppliers and manufacturers will be able to maintain, renew, or update their existing licenses and authorization or obtain additional licenses or authorization necessary for the supply and production of our products from time to time. Failure to maintain the required licenses, permits and approvals or other incompliance of our suppliers and manufacturers may adversely affect the supply and production of our products. Additionally, the implementation of the E-Cigarettes Administrative Measures may limit the quantity of e-vapor products that can be produced and supplied, and therefore, the supply of our e-vapor products may be less than what the market demands. Pursuant to the E-Cigarettes Administrative Measures and the Administrative Rules on Establishment, Division, Merger or Dissolution of E-cigarette Manufacturing Enterprises, the e-cigarette manufacturing enterprise should obtain the Tobacco Monopoly License for Manufacturing Enterprise from the tobacco monopoly administration under the State Council, and conduct the production within the permitted business scope, including the manufacturing capacity assigned to the applicable e-cigarette manufacturing enterprise, which could effectively impose a limitation on the quantity of the applicable e-cigarette products and/or raw materials that can be produced and supplied by such e-cigarette manufacturing enterprise during the term of the license. Further, according to the E-cigarettes Industrial Policies and Measures (for Trial Implementation), which were issued by the State Tobacco Monopoly Administration on April 25, 2022 and came into effect on the same day, the department of tobacco monopoly administration under the State Council shall be responsible for planning, managing and coordinating e-cigarettes’ domestic overall distribution, manufacturing capacity and market demands. According to the Administrative Rules on Fixed Asset Investment of E-cigarettes, fixed asset investment of e-cigarettes shall obtain the approval from or complete the filing procedure with the tobacco monopoly administration under the State Council before investment, the scope of the fixed asset investment assessment for e-cigarette enterprises includes fixed asset investment activities (i) for establishing e-cigarette enterprises, (ii) for engaging in the production of e-cigarette products and raw materials and conducted by the enterprises that have not obtained the Tobacco Monopoly License for Manufacturing Enterprises, (iii) for new factory (and branch factory) and conducted by the enterprises that have obtained Tobacco Monopoly License for Manufacturing Enterprises, (iv) for on-site expansion, reconstruction and technological transformation, relocation and restoration of construction and conducted by the enterprises that have obtained Tobacco Monopoly License for Manufacturing Enterprises, and (v) other circumstances prescribed by the tobacco monopoly administration under the State Council. The Administrative Rules on Fixed Asset Investment of E-cigarettes clarified that enterprises must complete the filing procedure for conducting the activity prescribed in (iv) if there is no increase in the manufacturing capacity of e-cigarette products and raw materials, and, however, obtain the approval if such increase is intended. Additionally, according to the Catalogue for Guiding Industry Restructuring, tobacco product (including e-cigarettes) processing projects fall into restricted industries under this catalogue, which means all tobacco manufacturing enterprises are subject to certain restrictions, including being prohibited from investing in new tobacco product (including e-cigarettes) processing projects. Therefore, the Administrative Rules on Fixed Asset Investment of E-cigarettes provided that, the above-mentioned (i), (ii) and (iii) will be disapproved according to relevant requirements on industries of restricted categories under the Catalogue for Guiding Industry Restructuring. There can be no assurance that, even if our suppliers and manufacturers are able to timely renew their existing licenses, they will be allotted the same or higher manufacturing capacity as compared to the existing one. Also, given the suppliers and manufacturers cannot expand their manufacturing capacity by establishing new e-cigarette enterprises or new factories under current regulations, we cannot sure such suppliers and manufacturers can always provide us with adequate e-cigarette products or raw materials to meet our needs and the market demands through their current e-cigarette manufacturing fixed assets. Since the uncertainties with respect to the evolving regulatory regime including the implementation of the applicable laws, regulations, policies, our suppliers and manufacturers may not be able to continue manufacturing our e-vapor products after they have reached the applicable manufacturing capacity. All of the above may render our suppliers and manufacturers unable to maintain or increase their production and supply of our products and as a result, the supply of our e-vapor products may be less than what the market demands, which may harm the business, financial condition and results of operations of us and the consolidated VIE. See also “–Our business is subject to a large number of laws across many jurisdictions, many of which are evolving.” 40 Table of Contents Furthermore, we cannot assure you that our suppliers and manufacturers will successfully establish the product quality assurance system or that they can pass the technical review conducted by professional institutions certified by the department of tobacco monopoly administration under the State Council or authorized otherwise by applicable laws and regulations. As a result, we may not be able to maintain the existing relationships with our suppliers and manufacturers, and we may fail to establish and maintain arrangements with new suppliers and manufacturers on favorable terms or at all. As a result, the production and supply of our products may be severely disrupted, which may in turn materially and adversely affect the business, financial condition and results of operations of us and the consolidated VIE. Due to China’s more stringent scrutiny on the e-vapor market, any failure of our suppliers or manufacturers to obtain the required license, approval or permits from the competent regulatory authority may result in their default in contract and/or termination of our contractual relationship with them, which may bring about more disputes between them and us and higher litigation risks and costs. There can be no assurance that such disputes could be resolved in a timely or cost-effective manner, or at all. If we fail to address such litigation and reputation risks, our results of operations, financial condition and our reputation may be materially and adversely affected. In the event that our key business partners experience any operational difficulties including equipment breakdowns, labor strikes or shortages, natural disasters, component or material shortages, cost increases, violation of environmental, health or safety laws and regulations, health epidemics, or other problems, such difficulties will cause significant interruption to the business operations of us and the consolidated VIE, as we may not be able to address such difficulties in a timely or cost-effective manner. We may be unable to pass potential cost increases to our users. We may have disputes with these business partners, which may result in litigation expenses, divert our management’s attention and cause supply shortages to us. In addition, we may not be able to renew contracts with these suppliers and manufacturers or identify or enter into new agreements with them for additional services or for more favorable terms. Any failure of such suppliers, manufacturers and third-party service providers to perform with regard to quantity, quality or timely supply of products may have a material negative impact on the business and results of operations of us and the consolidated VIE. Furthermore, although our agreements with our manufacturers contain provisions imposing confidentiality obligations on them, and we have adopted security protocols to ensure knowhow and technologies for manufacturing our products could not be easily leaked or plagiarized, we cannot guarantee the effectiveness of these efforts and, any leakage or plagiary of our knowhow and technologies could be detrimental to the business prospects and results of operations of us and the consolidated VIE. Any disruption of the exclusive production plant or the third-party manufacturers’ and suppliers’ production plants could materially and adversely affect the business and results of operations of us and the consolidated VIE. Natural disasters or other unanticipated catastrophic events, including storms, fires, explosions, earthquakes, terrorist attacks and wars, as well as changes in governmental planning for the land where the exclusive production plant or third-party manufacturers’ and suppliers’ production plants are located, could significantly impair our ability to manufacture our products and operate the business of us and the consolidated VIE. Catastrophic events could also destroy the inventories stored in the exclusive production plant and those third-party manufacturers’ and suppliers’ production plants. The occurrence of any catastrophic event could result in the temporary or long-term closure of manufacturing facilities, and severely disrupt the business operations of us and the consolidated VIE. In addition, the production plants are subject to environmental inspections and regulations. As of the date of this annual report, although remediation measures were undertaken in 2025, the exclusive production plant operated by the third-party operational partner was not in full compliance with applicable environmental inspections and regulations based on our knowledge If such facility fail to rectify and pass the environmental inspections or comply with relevant environmental requirements relating to production activities in a timely manner, it may be subject to fines, cohesive rectification, suspension and closure, which may materially and adversely affect the production of the exclusive production plant and in turn may impact the business of us and the consolidated VIE. In addition, the exclusive production plant and the third-party manufacturers’ and suppliers’ production plants are also subject to health and safety laws and regulations imposed by the PRC governmental authorities to ensure a healthy and safe production environment. Failure to comply with the existing and future health and safety laws and regulations could subject the production plants to monetary damages and fines, disruption to production plans, suspension of their operations, which may in turn materially and adversely affect the business operations of us and the consolidated VIE. Furthermore, if any on-site personnel at the exclusive production plant or any third-party manufacturers’ and suppliers’ production plants is suspected of having any communicable diseases, such production plants may be subject to temporary closure and quarantine requirements, which may in turn materially and adversely affect the business operations of us and the consolidated VIE. 41 Table of Contents Furthermore, the exclusive production plant is located on leased properties comprising of over 23,575 square meters. Though such lease is renewable upon expiration, our ability to renew existing leases upon its expiration is crucial to our production activities, operations and profitability. If we are unable to negotiate for a renewal of the relevant leases, we may be forced to relocate our production bases and it may be difficult and costly to replace or relocate the exclusive production plant and equipment on a timely basis. We have not registered the lease agreement relating to the exclusive production plant with the PRC governmental authorities as required by PRC law. As a result, we may be ordered by the PRC government authorities to rectify such noncompliance and, if such noncompliance is not rectified within a given period of time, we may be subject to fines imposed by PRC government authorities ranging from RMB1,000 and RMB10,000 for the lease agreement that has not been registered with the relevant PRC governmental authorities. If we fail to address the risks mentioned above, our production will be materially and adversely affected. See also “—We are subject to risks relating to our leased properties.” If we experience any unanticipated disruptions to us or the third-party manufacturers or if we are unable to renew our current leases, our production will be severely disrupted, which may in turn materially and adversely affect the business, financial condition and results of operations of us and the consolidated VIE. Even though the third-party operational partner is contractually obligated to adjust and switch the production to other resources for us in the event that the production at the exclusive production plant is disrupted, there can be no assurance that the third-party operational partner will fulfill such contractual obligation or will be able to provide us with sufficient and satisfactory production lines to ensure the quality and quantity of our products manufactured. We may be subject to certain risks relating to our e-liquid plant. E-liquid solution is one of our key raw materials and components. We apply stringent standards in selecting our suppliers for e-liquid solution, considering a variety of factors, including their service standards, quality, capacity, supply chain capabilities and price. From October 1, 2022, due to the requirements under the new regulatory regime, we scaled our production of e-liquid solutions at an e-liquid plant (“our e-liquid plant”) owned and operated by a subsidiary of the consolidated VIE, which obtained the Tobacco Monopoly License for Manufacturing Enterprise to manufacture e-liquid. The e-liquid plant is in Shenzhen, China, and have a gross area of 2,285 square meters. We are reliant on equipment and technology in our e-liquid plant for the production and quality control of our e-liquid solutions, and our operations are subject to production difficulties such as capacity constraints of our production facilities, mechanical and systems failures, and the need for construction and equipment upgrades and maintenance and continuous supply of utilities, such as electricity and water, to operate our e-liquid plant. Any of these could have a material adverse effect on our business, financial condition, results of operations and prospects. Moreover, we could be held liable for accidents that occur at our e-liquid plant. In the event of personal injuries or other accidents suffered by persons working at or visiting our e-liquid plant, we could face claims alleging that we should be liable for such injuries or accidents. Any material liability claim against us or any of our employees or contractors could adversely affect our reputation, create unfavorable publicity, cause us to incur substantial expenses and divert the time and attention of our management. Additionally, our e-liquid plant is located in China. Some of our manufacturing processes are labor intensive and cannot be completely replaced by automation technology at this time. At the same time, there have been labor shortages from time to time in certain cities in China. Although we did not experience material operational difficulty due to labor shortages in the past, there is no assurance that there will be no labor shortage for our e-liquid plant in the future. In addition, we may also be required to increase the wages to keep our labor force or attract new workers if there is a labor shortage or other changes to labor market conditions. If we cannot transfer the increased costs to our distributors, our profit may be significantly impacted in such case. Also, although we have not experienced any labor unrest in the past, any future labor unrest will disrupt our production or pose threat to our properties. Therefore, any labor shortage or unrest or increased labor cost may adversely affect our business, financial condition and results of operations. 42 Table of Contents We are subject to risks relating to the warehousing and logistics of our products. If any of these risks materializes, the business, financial condition and results of operations of us and the consolidated VIE could be materially and adversely affected. Natural disasters or other unanticipated catastrophic events, including power interruptions, water shortage, storms, fires, earthquakes, cybersecurity attacks, terrorist attacks and wars, as well as changes in governmental planning for the land underlying the warehousing facility, could destroy any inventory located in our warehouse facilities and significantly impair the business operations of us and the consolidated VIE. Furthermore, the lease for the warehousing facility that we use could be challenged by third parties or government authorities, which may cause interruptions to the business operations of us and the consolidated VIE. We cannot assure you that our use of such leased properties will not be challenged. In the event that our use of leased properties is successfully challenged, we may be subject to fines and forced to relocate the affected operations. We can provide no assurance that we will be able to find suitable replacement sites on terms acceptable to us on a timely basis, or at all, or that we will not be subject to material liability resulting from third parties’ challenges on our use of such properties. We also rely on third-party logistics service providers to deliver products to the distributors. Logistics and transit to final destination may be disrupted for a number of reasons that may be beyond our control or the control of our logistics service providers, including, without limitation, epidemics, inclement weather, natural disasters, transportation interruptions or labor unrest or shortage. Such interruptions to or failures in such third-party logistics service providers’ operations may obstruct the timely or successful delivery of our products. The E-Cigarettes Administrative Measures stipulate that the transport of e-cigarette products, e-atomization material and e-cigarette nicotine has to be subject to administration of competent department of tobacco monopoly administration for our operations in China. The Administrative Rules on Logistics of E-cigarettes further requires that all the e-cigarette manufacturing enterprises, e-atomization manufacturing enterprises, e-cigarette nicotine manufacturing enterprises, e-cigarette nicotine raw material sale enterprises, e-cigarette wholesale enterprises (including e-cigarette import enterprises) and relevant service providers shall rely on the National Transaction Platform to ensure the collection, maintenance, uploading and other work of logistics data and information. Quantity of e-cigarette products, e-atomization material and e-cigarette nicotine transmitted or off-site carried cannot exceed the limits prescribed by the competent government authority under the State Council. Import of e-cigarette products, e-atomization material and e-cigarette nicotine should be approved by the department of tobacco monopoly administration under the State Council. Meanwhile, the National Standards stipulate the technical terminology in relation to e-cigarettes and definitions thereof, clarify the standards for product design and raw materials of e-cigarettes and technical requirements for e-cigarette devices, e-atomization materials and e-cigarette emissions, and prescribe rules for instructions and labels of e-cigarette products. See “Item 4. Information on the Company—B. Business Overview—Government Regulations—Regulations Related to Our Products” for more details. These regulations and restrictions may cause disruptions or delay for the logistics and transit of our products and raw materials. If products are not delivered on time or are delivered in a damaged state, the distributors may return the products and may claim refund from us and the distributors’ confidence in us may be impaired. If any of our logistics service providers’ operations or services are disrupted or terminated, we may not be able to find alternative service providers with quality and on commercial terms to our satisfaction in a timely and reliable manner, or at all. As we continue to expand our international presence and engage in cross-border supply chains, we are increasingly exposed to logistics, warehousing and customs-related risks. In particular, international shipping and cross-border logistics expose us to additional risks, including potential customs clearance delays, government inspections or seizures, changes in import and export regulations, and disruptions due to geopolitical tensions, public health emergencies, or natural disasters. For example, shipments of our products or raw materials may be held at port or denied entry by local authorities due to documentation issues or evolving regulatory interpretations. In addition, rising freight costs, shortage of international cargo capacity, and labor disruptions in key transit hubs may further affect our delivery schedules and cost structure. As a result, the business, financial condition and results of operations of us and the consolidated VIE may be materially and adversely affected. 43 Table of Contents Failure of us, or the suppliers or manufacturers of our products, to manage inventory at optimal levels could adversely affect the business, financial condition and results of operations of us and the consolidated VIE. We are required to manage a large volume of inventory effectively for the business of us and the consolidated VIE. We determine our level of inventory based on our experience and estimation of demand. Our forecast for demands, however, may not accurately reflect the actual market demands, which depends on a number of factors including, without limitation, launches of new products, changes in product life cycles and pricing, as well as the volatile economic environment in China and globally. Further, in response to these regulatory developments in 2022, all of our sales of products to the distributors have been transacted via the National Transaction Platform since October 1, 2022 for our operations in China, and therefore the demand forecasts model that we previously depended on to manage our inventory had been rendered inapplicable, which, in turn, led to inventory management pressure. In addition, under certain specified circumstances and to the extent the applicable qualified distributors elect to do so, we are contractually obligated to accept on request our products returned to us by the qualified distributors, which creates additional uncertainty over and further complicates our inventory management. Also, in the event that we launch a new product with new components or raw material, it may be difficult to establish supplier relationships, determine appropriate raw material and product selection, and accurately forecast market demand for such product. We cannot assure you that we will be able to maintain proper inventory levels for the business of us and the consolidated VIE at all times, and any such failure may have a material and adverse effect on the business, financial condition and results of operations of us and the consolidated VIE. Excess inventory level may result in inventory write-downs, expiration of products or an increase in inventory holding costs and a potential negative effect on our liquidity. If we fail to manage our inventory effectively, we may be subject to a heightened risk of inventory obsolescence, a decline in inventory values, and significant inventory write-downs or write-offs. In addition, we may be required to lower sale prices in order to reduce inventory level, which may lead to lower gross margins. High inventory levels may also require us to commit substantial capital resources, preventing us from using that capital for other important purposes. Additionally, the unusable raw materials may bring about more disputes between the suppliers and us and higher litigation risks and costs. For example, they may seek monetary compensation from us for their inventory write-downs or require the unsalable or overstocked raw material or inventory be bought back by us. There can be no assurance that such disputes could be resolved in a timely or cost-effective manner, or at all. If we fail to address such litigation and reputation risks, our results of operations, financial condition and our reputation may be materially and adversely affected. Any of the above may materially and adversely affect our results of operations and financial condition. Conversely, if we underestimate distributor demand, or if our suppliers or contract manufacturers fail to provide products to us in a timely manner, we may experience inventory shortages, which may, in turn, require us to manufacture our products at higher costs, result in unfulfilled user orders, leading to a negative impact on our financial condition and our relationships with distributors. The distributors largely determine the inventory levels of the retail outlets they operate based on their estimation, and such inventory levels might not correspond to actual market demands and could lead to under-stocking or over-stocking in the retail outlets they operate. Therefore, we cannot assure you that there will not be under-stocking or over-stocking in these stores. Under-stocking can lead to missed sales opportunities, while over-stocking could result in inventory depreciation and decreased shelf space for stocks that are in higher demands. These results could adversely affect our business, financial condition and results of operations. Our investments in scientific research may not generate results as anticipated. To better serve adult smokers, we are dedicated to the scientific research of e-vapor products and endeavor to achieve advances in scientific research in harm reduction principles and methods. We operate laboratories to conduct our scientific research, focusing on the assessment and research of e-liquid and health risks associated with vaping. However, as scientific research is subject to significant uncertainties, there can be no assurance that our investments in such efforts will make material progress or improve our profitability in a timely and cost-effective manner, or at all. We may not be able to generate sufficient revenue from our scientific research efforts to offset the costs and expenses incurred, which may cause adverse effect to our financial condition and results of operations. 44 Table of Contents We face competition from players in e-vapor industry and may fail to compete effectively. The e-vapor industry in China and globally is intensely competitive. We face a variety of competitive challenges with respect to sourcing raw materials and products efficiently, pricing our products competitively, anticipating and quickly responding to changes in user preference, maintaining favorable brand recognition and providing quality services, finding manufacturing, warehousing and logistics solutions of good quality, and other potential challenges. In addition, our suppliers and other business partners may cease their cooperation with us, build up their own e-vapor brand and compete with us. We may also be subject to competition from established overseas and local e-vapor product brands. As we continue to expand into overseas markets, we face additional challenges such as complying with diverse local regulatory regimes, adapting to consumer preferences in different jurisdictions, managing relationships with foreign distributors and retailers, and competing with local and international brands that may have stronger brand recognition or better-established sales networks in their respective markets. If we cannot properly address these competitive challenges, the business and prospects of us and the consolidated VIE would be materially and adversely affected. Some of our current and potential competitors in China and global market may have greater financial, marketing, ordering quantities, portfolios of products and intellectual properties and other resources. Certain competitors may be able to secure raw materials and products from suppliers and manufacturers on more favorable terms, devote greater resources to marketing and promotional campaigns, adopt more aggressive pricing or inventory policies, and devote substantially more resources to product development and technology. Our competitors may also be allotted more manufacturing capacity or be able to obtain more product approvals than ours. We may also in the future face competition from innovative tobacco products developed and introduced to the China market with attractive features, which will increase the level of competition and may cause us to lose market share. Increased competition may adversely affect our results of operations, market share and brand recognition, or force us to incur losses. There can be no assurance that we will be able to successfully compete against current and future competitors, and competitive pressures may have a material adverse effect on the business, prospects, financial condition and results of operations of us and the consolidated VIE. We may not be successful in implementing our future business plans and strategies, and if we are unable to execute them effectively and efficiently, the business, financial condition, results of operations and growth prospects of us and the consolidated VIE may be materially and adversely affected. The business of us and the consolidated VIE has become increasingly complex in terms of both product portfolio and scale. Any future expansion may increase the complexity of the operations of us and the consolidated VIE and place a significant strain on our managerial, operational, financial and human resources. Our current and planned personnel, systems, procedures and control measures may not be adequate to support our future operations. We cannot assure you that we will be able to effectively manage our growth or to implement all these systems, procedures and control measures successfully. If we are unable to manage our growth effectively, the business and prospects of us and the consolidated VIE may be materially and adversely affected. Further, in response to the regulatory developments in 2022, we have adapted our business, including the product offerings, to the new and currently effective laws, regulations, and policies applicable to China’s e-vapor industry and us. Considering the limited operating period under the new regulatory regime since October 1, 2022, we may face unexperienced risks and uncertainties. For example, our new products may not be accepted by users as we expect, and we cannot assure you that we are able to successfully address such risks and uncertainties. We are also exploring a number of new initiatives, strategies and operating plans designed to enhance the business of us and the consolidated VIE. For example, we have started expanding to international markets and we also have various new initiatives operating in our offline stores. Furthermore, we have expanded our portfolio to include products beyond our core e-vapor offerings. These initiatives may prove unsuccessful. Implementing these initiatives will require investments that may result in costs without generating any revenues and may therefore negatively affect our profitability. We may not be able to successfully complete these growth initiatives, strategies and operating plans and may not realize all of the benefits that we expect to achieve. If, for any reason, the benefits we realize are less than our estimates, or the implementation of these growth initiatives, strategies and operating plans adversely affect the operations of us and the consolidated VIE, or it costs more or takes longer to effectuate them than we expect, or we fail to obtain requisite approvals or filings in due course, or if our assumptions prove inaccurate, the business, financial condition and results of operations of us and the consolidated VIE may be materially and adversely affected. 45 Table of Contents We are subject to risks associated with export and international logistics, which could adversely affect our business and operations. As we continue to expand our global footprint, a growing portion of our products is exported from China to various international markets. We rely on stable and predictable cross-border logistics infrastructure and customs clearance procedures to ensure timely delivery of our products. However, we face a number of risks inherent in export operations, including, but not limited to, limited shipping capacity, port congestion, shortage of containers or vessels, disruptions in international freight routes, and volatility in shipping costs. In addition, our products may be delayed, detained or rejected by customs authorities due to heightened inspections, changes in documentation requirements, or evolving regulatory standards in the destination country. In certain jurisdictions, products may be seized or subject to governmental hold orders due to alleged non-compliance or classification issues. If products are held up in transit, locked in bonded warehouses, or subject to delays in customs clearance, we may experience supply chain disruptions, increased storage costs, or reputational damage. Furthermore, geopolitical tensions, trade protectionism, labor strikes, natural disasters, or global public health emergencies may exacerbate these risks and create additional uncertainties in our international logistics operations.Any of these events could result in shipment delays, customer dissatisfaction, order cancellations, or increased operational costs, which in turn could materially and adversely affect our business, financial condition and results of operations. Recent escalations in geopolitical tensions, for example, the heightened tensions involving the United States, Israel, and Iran have introduced volatility into global energy markets, precipitating acute spikes in crude oil prices. While our primary commercial shipping routes do not presently face a significant impact of direct physical disruption or mandatory redirection as a consequence of these specific regional conflicts, the broader macroeconomic reverberations remain relevant to our operations. Specifically, the resulting surge in global bunker fuel prices and the imposition of corresponding freight surcharges inherently inflate our aggregate international logistics expenditures. Beyond transportation logistics, the downstream economic impact of elevated crude oil prices affects our manufacturing supply chain. Crude oil serves as a foundational feedstock for various petrochemical derivatives and by-products that constitute certain raw materials for our inventory. This includes the specialized plastics used in our device hardware and pod cartridges, as well as certain base chemical solvents of our e-liquid. Consequently, inflationary pressure on these petroleum-derived raw materials and associated logistics costs, should we be unable to effectively offset them or pass such increases through to our downstream, could adversely impact our business, financial condition, and results of operations. Misconduct, including illegal, fraudulent or collusive activities, by our employees, suppliers and manufacturers, may harm our brand and reputation and adversely affect the business and results of operations of us and the consolidated VIE. Misconduct, including illegal, fraudulent or collusive activities, unauthorized business conducts and behaviors, or misuse of corporate authorization by our employees, suppliers and manufacturers and other business partners could subject us to liability and negative publicity. Our employees, suppliers and manufacturers and other business partners may conduct fraudulent activities, such as accepting payments from or making payments to any persons in order to bypass our internal system and to complete shadow transactions and/or transactions outside our currently compliant distribution channels, or applying for fake reimbursement. They may conduct activities in violation of unfair competition laws and pricing laws, which may expose us to unfair competition allegations and risks. We cannot assure you that such incidents will not occur in the future. It is not always possible to identify and deter such misconduct, and the precautions we take to detect and prevent these activities may not be effective. Such misconduct could damage our brand and reputation, which could adversely affect the business and results of operations the business of us and the consolidated VIE. 46 Table of Contents Regulatory authorities in the PRC and other jurisdictions where we operate or intend to operate have imposed restrictions on e-cigarette advertisements. If we fail to fully comply with these and other relevant laws and regulations, rules and measures applicable to our advertising activities, the business and results of operations the business of us and the consolidated VIE may be adversely affected. PRC advertising laws, rules and regulations, as well as similar frameworks in international markets, require advertisers, advertising operators and advertising distributors to ensure that the content of the advertisements they prepare or distribute is fair and accurate and is in full compliance with applicable laws. Further, E-Cigarettes Administrative Measures stipulate that relevant regulations for tobacco advertisements also apply to e-cigarettes, which prohibit publishing e-cigarette advertisements through mass media, on public premises, public transportation vehicles or outdoors, or on the Internet. Using the advertisements for other products or services to publicize the names, trademarks, packages, decorations or other similar contents of e-cigarette products should also be prohibited. E-Cigarettes Administrative Measures also prohibit exhibitions, expositions, or forums for the purpose of introducing or promoting e-cigarettes. Certain provinces and cities in the PRC also prohibit the advertisement of combustible tobacco products and e-vapor products. In addition, according to the Guiding Opinions on Further Regulating Celebrities’ Endorsement Activities in Advertising, celebrities are prohibited to endorse any tobacco and tobacco products (including e-cigarettes). The existing laws and regulations prohibiting any exhibition and celebrities’ endorsements on e-cigarette products adversely affected our ability to conduct effective advertising activities, distribute promotion materials to our members and community and promote RELX merchants and co-branded products for our operations in China. The existing and evolving laws and regulations have reduced, and may further reduce, our brand awareness and mindshare. As a result, our revenues, financial condition and prospects may be materially and adversely affected. Furthermore, violation of these laws, rules or regulations may result in penalties, including fines, confiscation of advertising fees and orders to cease dissemination of the advertisements, revocation of business license, and potential unfair competition liability. In circumstances involving serious violations, the PRC government and other jurisdictions may suspend or revoke a violator’s business license. Even though we are not permitted to conduct comprehensive marketing activities, especially not online marketing in accordance with the E-Cigarettes Administrative Measures and the October 2019 Announcement, we may still conduct selling activities to the extent permitted. Failure to comply with these requirements may lead to penalties and fines for any noncompliance, which may render our efforts and costs incurred futile. As a result, the business and results of operations of us and the consolidated VIE may be adversely affected. We are subject to governmental regulations and other legal obligations related to privacy, information security, and data protection, and any security breaches, and our actual or perceived failure to comply with our legal obligations could harm our brand and business. We generate, collect, store and process a large amount of personal, transactional, statistical and behavioral data, including certain personal and other sensitive data from our users. We face inherent risks in handling large volumes of data and in securing and protecting such data. In particular, we face a number of data-related challenges related to the business operations of us and the consolidated VIE, including: ● protecting the data in and hosted on our system and cloud servers, including against attacks on our system and cloud servers by external parties or fraudulent behavior by our employees; ● addressing concerns related to privacy and sharing, safety, security and other factors; and ● complying with applicable laws, rules and regulations relating to the collection, use, disclosure or security of personal information, including any requests from regulatory and government authorities relating to such data. 47 Table of Contents Although we have taken steps to protect such data, our security measures could be breached. As of the date of this annual report, we have not experienced any material breach of our cybersecurity system or measures. We are subject to routine inspections and examinations by PRC governmental authorities and other jurisdictions in relation to our privacy protection and data security from time to time and may be requested to take certain remedial measures to rectify any deficiencies identified. As techniques used to sabotage or obtain unauthorized access to systems change frequently and generally are not recognized until they are launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. Any accidental or willful security breaches or other unauthorized access to our system and cloud servers could cause confidential information to be accessed, stolen and used for illegal or unauthorized purposes. Security breaches or unauthorized access to confidential information could also expose us to liability related to the loss of the information, time-consuming and expensive litigation and negative publicity. If security measures are breached because of third-party action, employee error, malfeasance or otherwise, or if design flaws in our technology infrastructure are exposed and exploited, our relationships with users, distributors, manufacturers or suppliers could be severely damaged, we could incur significant liability, and the business and operations of us and the consolidated VIE could be adversely affected. In addition, PRC government authorities have enacted a series of laws and regulations regarding the protection of personal information, under which telecommunication business operators, internet service providers and other value chain operators are required to comply with the principles of legality, justification and necessity, to clearly indicate the purposes, methods and scope of any information collection and usage, to obtain the consent of users, and to keep collected personal information confidential, as well as to establish a user information protection system with appropriate remedial measures. These laws and regulations are continuously evolving and can be subject to significant change. See “—Risks Relating to Doing Business in China—The business of us and the consolidated VIE is subject to complex and evolving PRC laws and regulations regarding data privacy and cybersecurity. Failure to protect confidential information of our users, business partners and network against security breaches could damage our reputation and brand and substantially harm the business and results of operations of us and the consolidated VIE.” However, there is uncertainty as to the interpretation and application of such laws and regulations, which may be interpreted and applied in a manner inconsistent with our current policies and practices or require changes to the features of our system. We cannot assure you that our existing information protection system and technical measures will be considered sufficient under applicable laws and regulations. If we are unable to address any information protection concerns, or to comply with the then applicable laws and regulations, we may incur additional costs and liability and our reputation, business and operations may be adversely affected. We have obtained consent from our users to use their information within the scope of authorization, and we have taken technical measures to ensure the security of such information and prevent the information from being divulged, damaged or lost. However, since the regulations, rules and measures regarding the protection of personal information are relatively new and are continuously evolving, there are uncertainties as to the interpretation and application of these laws and regulations, and it is possible that our data protection practices are or will be inconsistent with regulatory requirements. We have been, and may in the future be, subject to investigations and inspections by government authorities regarding our compliance with laws and regulations on information protection and data privacy, and we cannot assure you that our practices will always fully comply with all applicable rules and regulatory requirements. Any violation of the provisions and requirements under such laws, regulations, rules and measures may subject us to warnings, fines, confiscation of illegal gains, revocation of licenses, suspension of business, shutting down of websites or even criminal liabilities. Complying with such requirements could cause us to incur substantial expenses or to alter or change our practice in a manner that could harm the business of us and the consolidated VIE. Any systems failure or security breach or lapse that results in the unauthorized release of our user data could harm our reputation and brand and, consequently, the business of us and the consolidated VIE, in addition to exposing us to potential legal liability. Our intellectual property rights are critical to our success. Infringement of our intellectual property rights by any third party or loss of our intellectual property rights may materially and adversely affect the business, financial condition and results of operations of us and the consolidated VIE. We rely on a combination of trademark, patent, copyright and trade secret protection laws in China and other jurisdictions, as well as confidentiality procedures and contractual provisions, to protect our intellectual property rights. We also enter into confidentiality agreements with our employees and any third parties who may access our proprietary information, and we rigorously control access to our proprietary technology and information. 48 Table of Contents Intellectual property protection may not be sufficient in China or other countries. Confidentiality agreements may be breached by counterparties, and there may not be adequate remedies available to us for any such breach. Accordingly, we may not be able to effectively protect our intellectual property rights or to enforce our contractual rights in China or elsewhere. For example, we have identified cases where counterfeit and compatible products associated with our brand infringed our intellectual property rights. However, policing any unauthorized use of our intellectual property is difficult, time-consuming, and costly, and the steps we have taken may be inadequate to prevent the misappropriation of our intellectual property. In the event that we resort to litigation to enforce our intellectual property rights, such litigation could result in substantial costs and a diversion of our managerial and financial resources. We can provide no assurance that we will prevail in such litigation. Furthermore, we may be subject to the risks of losing our intellectual property rights or the intellectual property rights licensed from other third-parties due to several reasons. Certain intellectual property rights, such as patents, are subject to a limited period of time. Upon the expiry of such period of time, others may freely use such intellectual properties without any license or charges, which may impose competitive harm to us and in turn adversely affect the business and prospects of us and the consolidated VIE. The intellectual property rights that we currently have may also be revoked, invalidated or deprived by regulatory authorities as a result of intellectual property claims or challenges successfully raised by third parties. We may also rely on certain intellectual property rights licensed from other third parties. There can be no guarantee that we will be able to maintain such licenses at all times or renew such licenses upon expiry. Moreover, our trade secrets may be leaked or otherwise become available to, or be independently discovered by, our competitors. Any failure in maintaining, protecting or enforcing our intellectual property rights could have a material adverse effect on the business, financial condition and results of operations of us and the consolidated VIE. We may be subject to intellectual property infringement claims from third parties, which may be expensive to defend and may disrupt the business and operations of us and the consolidated VIE. We cannot be certain that the operations of us and the consolidated VIE or any aspects of the business of us and the consolidated VIE do not or will not infringe upon or otherwise violate patents, copyrights or other intellectual property rights held by third parties. We may, and from time to time in the future be, subject to legal proceedings and claims relating to the intellectual property rights of others. In addition, there may be other third-party intellectual property that is infringed by our products and services or other aspects of the business of us and the consolidated VIE. There could also be existing patents of which we are not aware that we may inadvertently infringe. Our existing intellectual property rights may also infringe intellectual property rights of other third parties and our existing intellectual property rights may be revoked, invalidated or deprived if other third parties successfully raise challenges or claims against us. We cannot assure you that holders of patents purportedly relating to some aspect of our technology or business, if any such holders exist, would not seek to enforce such patents against us in China or any other jurisdictions. For example, we currently use certain design patents, which constitute immaterial components of our products, from third parties. If we fail to maintain the license of such design patents for our use or fail to identify alternative patents in a timely manner, we may be subject to intellectual property infringement claims from such third parties. Further, the application and interpretation of China’s patent laws and the procedures and standards for granting patents in China are still evolving and are uncertain, and we cannot assure you that PRC courts or regulatory authorities would agree with our analysis. If we are found to have violated the intellectual property rights of others, we may be subject to liability for our infringement activities or may be prohibited from using such intellectual property, and we may incur licensing fees or be forced to develop alternatives of our own. In addition, we may incur significant expenses, and may be forced to divert management’s time and other resources from the business and operations of us and the consolidated VIE to defend against these third-party infringement claims, regardless of their merits. Accidents, injuries or other harm suffered by visitors to the offline stores operated by ourselves may adversely affect our reputation, subject us to liability and cause us to incur substantial expenses. We could be held liable for accidents that occur at the offline stores operated by ourselves. In the event of personal injuries, fires or other accidents suffered by visitors or others working at or visiting the offline stores operated by ourselves, our stores may be perceived to be unsafe, which may discourage potential visitors from going to the offline stores operated by ourselves. Although we have not encountered any instances of serious injuries to the visitors to the offline stores operated by ourselves, we cannot assure you that there will not be any in the future. We could also face claims alleging that we should be liable for accidents or injuries caused by our employees or contractors due to negligence in supervision. Any material liability claim against us or any of our employees or contractors could adversely affect our reputation, create unfavorable publicity, cause us to incur substantial expenses and divert the time and attention of our management. 49 Table of Contents Our success and ability to operate efficiently are dependent on our key management personnel, and loss of service of our key management personnel or any failure to attract and retain necessary talents may materially and adversely affect the business, financial condition and results of operations of us and the consolidated VIE. Our future success is significantly dependent upon the continued service of our key management personnel and other key employees, who have contributed significantly to our current achievements. There can be no assurance that we are able to retain all of our current key management personnel. For instance, in response to the evolving regulatory requirements in China, we have adapted our business to the new and currently effective laws, regulations, and policies applicable to China’s e-vapor industry and us, and some of our employees left our company after we adjusted our business in the past, which may negatively impact our business execution and research and development capabilities. Disputes may arise among our key management personnel and such disputes may result in the departure of such personnel. If we lose the services of any member of management or other key personnel due to any reason, the business and growth prospects of us and the consolidated VIE may be severely disrupted and we may not be able to locate suitable or qualified replacements and may incur additional expenses to recruit and train new staff. Competition for talents in emerging countries is intense, and the availability of suitable and qualified candidates in emerging countries is limited. Competition for these individuals could cause us to offer higher compensation and other benefits to attract and retain them. In addition, we may be subject to negative publicity or gossip surrounding the stability and changes in our key management composition. Even if we were to offer higher compensation and other benefits such as share-based incentives, there is no assurance that these individuals will choose to join or continue to work for us. Any failure to attract or retain key management personnel could severely disrupt the business and growth of us and the consolidated VIE, and our corporate culture. In addition, if any dispute arises regarding the agreements between our current or former key employees and us, we may have to incur substantial costs and expenses in order to enforce the agreements in China and other jurisdictions or we may be unable to enforce them at all. We also commit significant time and other resources to training our employees, which increases their value to competitors if they subsequently leave us for our competitors. If we fail to maintain an effective system of internal control over financial reporting, we may be unable to accurately report our financial results or prevent fraud, and investor confidence in our company and the market price of our ADSs may be adversely affected. The SEC, as required by Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, adopted rules requiring most public companies to include a management report on such company’s internal control over financial reporting in its annual report, which contains the management’s assessment of the effectiveness of the company’s internal control over financial reporting. In addition, when a company meets the SEC’s criteria, an independent registered public accounting firm must report on the effectiveness of the company’s internal control over financial reporting. Our management and independent registered public accounting firm have concluded that our internal control over financial reporting as of December 31, 2025 was effective. Our management has excluded Totally Wicked Holdings Limited and its consolidated subsidiaries (“TWHL”) from our assessment of internal control over financial reporting as of December 31, 2025 because they were acquired by the Company in a purchase business combination during 2025. TWHL are subsidiaries of the Company whose total assets and total revenues excluded from management’s assessment of internal control over financial reporting represent approximately 3% and 16%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2025. However, there is no assurance that we or our auditor will not identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses and render our internal control over financial reporting ineffective for any future periods. If we fail to maintain the adequacy of our internal control over financial reporting, as these standards are modified, supplemented or amended from time to time, we may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404. However, if we fail to maintain effective internal control environment, we could suffer material misstatements in our financial statements and fail to meet our reporting obligations, which could cause investors to lose confidence in our reported financial information. This could in turn limit our access to capital markets, harm our results of operations, and lead to a negative impact on the trading price of our ADSs. 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. 50 Table of Contents Future investments in and acquisitions of complementary assets, technologies and businesses may fail, and may result in equity and earnings dilution and significant diversion of management attention. We may invest in or acquire assets, technologies and businesses that are complementary to our existing business. This may include opportunities to expand our distribution network and strengthen our technology capabilities and product offerings. Our investments or acquisitions may not yield the results we expect. In addition, investments and acquisitions could result in the use of substantial amounts of cash, potentially dilutive issuances of equity securities, significant amortization expenses related to intangible assets, significant diversion of management attention and exposure to potential unknown liabilities of the acquired business. Moreover, the cost of identifying and consummating investments and acquisitions, and integrating the acquired businesses into ours, may be significant, and the integration of acquired businesses may be disruptive to our existing business operations. In the event that our investments and acquisitions are not successful, our results of operations and financial condition may be materially and adversely affected. We may not be able to obtain additional capital when desired, on favorable terms, or at all. We may make investments from time to time in technologies, facilities, equipment, hardware, software and other projects to remain competitive. Due to the unpredictable nature of the capital markets and our industry, there can be no assurance that we will be able to raise additional capital on terms favorable to us, or at all, if and when required, especially if we experience disappointing results of operations. If adequate capital is not available to us as required, our ability to fund the operations of us and the consolidated VIE, take advantage of unanticipated opportunities, develop or enhance our infrastructure or respond to competitive pressures could be significantly limited. If we do raise additional funds through the issuance of equity or convertible debt securities, the ownership interests of our shareholders could be significantly diluted. These newly issued securities may have rights, preferences or privileges senior to those of existing shareholders. We may be subject to legal or other proceedings in the ordinary course of the business of us and the consolidated VIE. If the outcomes of these proceedings are adverse to us, they could have a material adverse effect on the business, financial condition and results of operations of us and the consolidated VIE. During the ordinary course of the business operations of us and the consolidated VIE, we have been and may be in the future involved in legal disputes or regulatory and other proceedings relating to, including but not limited to, contractual disputes, product liability claims and employees’ claims. Especially, there might be employees’ claims as some of them left our company after we adjusted our business in the past in response to the evolving regulatory requirements in China. For contractual disputes, we cannot assure you that the venue and governing law agreed in relevant contracts are always favorable to us. Any such legal disputes or proceedings may subject us to substantial liabilities and may have a material and adverse effect on our reputation, business, financial condition and results of operations. Among those proceedings, some of them may be relating to our industry position in e-vapor market or by complaints from third parties. Especially, our industry position in e-vapor market may draw heightened scrutiny from the regulatory authorities or cause close attention to be paid to the business operation of us and the consolidated VIE. In addition, if we were to be involved in anti-monopoly and competition laws and regulations related scrutiny or action, governmental agencies and regulators may take certain actions, which may subject us to significant fines or penalties and restrictions imposed on our options. Due to the uncertainty of legislation and local implementation of anti-monopoly and competition laws and regulations in the PRC, we cannot assure you that we will not be subject to any investigations, claims or complaints of alleged violations of these laws and regulations. If we become involved in material or protracted legal proceedings or other legal disputes in the future, we may incur substantial legal expenses and our management may need to devote significant time and attention to handle such proceedings and disputes, thereby diverting their attention from the business operations of us and the consolidated VIE. In addition, the outcome of such proceedings or disputes may be uncertain and could result in settlement or outcomes which may adversely affect the business, financial condition and results of operations of us and the consolidated VIE. 51 Table of Contents We have granted and may continue to grant share options and other share-based awards in the future, which may result in increased share-based compensation expenses. We adopted equity incentive plans and we granted share-based compensation awards under such plans to our employees, directors and consultants to incentivize their performance and align their interests with ours. We have adopted our 2021 Plan and assume all outstanding share incentive awards granted under the equity incentive plans of Relx Inc. For further detailed information, please refer to “Item 6. Directors, Senior Management and Employees—B. Compensation—Share Incentive Plans.” We recorded share-based compensation expenses of RMB362.9 million, RMB369.7 million and RMB186.2 million (US$26.6 million) for the years ended December 31, 2023, 2024 and 2025, respectively. We believe the granting of share-based compensation is of significant importance to our ability to attract and retain key personnel and employees, and we will continue to grant share-based compensation to employees in the future. As a result, our expenses associated with share-based compensation may increase in the future, which may have an adverse effect on our results of operations. Failure to comply with labor laws and make adequate contributions to various employee benefit plans as required by regulations in the PRC and other jurisdictions may subject us to penalties. Companies operating in China, as well as in other jurisdictions where we have a presence, are required to participate in various government-sponsored employee benefit plans, including certain social insurance, national pension schemes, mandatory healthcare contributions, housing funds and other welfare-oriented payment obligations, and contribute to the plans in amounts equal to certain percentages of salaries, including bonuses and allowances, of employees up to a maximum amount specified by the local government from time to time at locations where our employees are based. The requirements and enforcement rigor of these benefit plans vary significantly across different locations and jurisdictions, often reflecting differing levels of economic development and local policy priorities. If we are determined by local authorities to fail to make adequate contributions to any employee benefits as required by applicable laws and regulations, we may face late fees, fines and legal challenges in relation to the underpaid employee benefits. In addition, our provision for these liabilities may not be adequate, particularly in light of the recent tightening regulations. As a result, our financial condition and results of operations may be materially and adversely affected. If we are not able to control our labor costs in an effective way, the business, results of operations and financial condition of us and the consolidated VIE may be adversely affected. Our labor costs are primarily incurred in China and other key international markets. The economy of China and many other regions has been experiencing significant growth, leading to inflation and increased labor costs, particularly in the large cities, such as Shenzhen and Beijing. In addition, we are required by PRC laws and similar statutory frameworks in other jurisdictions to pay various statutory employee benefits, including pensions, housing fund, medical insurance, work-related injury insurance, unemployment insurance and maternity insurance to designated government agencies for the benefit of our employees. We expect that our global labor costs, including wages and employee benefits, will continue to grow as the business of us and the consolidated VIE grows in scale. Significant additional government-imposed increases in the cities of China and other jurisdictions where we have operations may affect our profitability and results of operations. A severe or prolonged downturn in the global or China’s economy could materially and adversely affect the business and financial condition the business of us and the consolidated VIE. The global macroeconomic environment was facing challenges. The conflict between Russia and Ukraine and the conflict between South and North Korea have caused, and continues to intensify, significant geopolitical tensions across the world. The resulting sanctions are expected to have significant impacts on the economic conditions of the targeted countries and may disrupt global markets. It is unclear whether these challenges and uncertainties will be contained or resolved and what effects they may have on the global political and economic conditions in the long term. There is considerable uncertainty over the long-term effects of the monetary and fiscal policies adopted by the central banks and financial authorities of some of the world’s leading economies, including the United States and China. In addition, there have been concerns about the relationship between China and the United States resulting from the current trade tension between the two countries. Any further escalation in trade tensions between China and the U.S. or a trade war, or the perception that such escalation or trade war could occur, may have negative impact on the economies of not only the two countries concerned, but the global economy as a whole. 52 Table of Contents Economic conditions in China and the international markets where we operate are sensitive to global economic conditions, as well as changes in domestic economic and political policies and the expected or perceived overall economic growth rate in China and globally. Any prolonged slowdown in the global or Chinese economy may have a negative impact on the business, results of operations and financial condition the business of us and the consolidated VIE, and continued turbulence in the international markets may adversely affect our ability to access the capital markets to meet liquidity needs. Our users and business partners may reduce or delay spending with us, while we may have difficulty expanding our user base and cooperative network fast enough, or at all, or to offset the impact of decreased spending by our existing users and business partners. We have limited insurance coverage of the operations of us and the consolidated VIE, which may expose us to significant costs and business disruption. The insurance industry in China and other emerging countries is still in an early stage of development, and insurance companies in China and other emerging countries currently offer limited business-related insurance products. We do not maintain business interruption insurance or general third-party liability insurance. We consider this practice to be reasonable in light of the nature of the business of us and the consolidated VIE and the insurance products that are available in China and other emerging countries, which is in line with the practices of other companies in the same industry of similar size in China and other emerging countries. Any uninsured risks may result in substantial costs and the diversion of resources, which could adversely affect our results of operations and financial condition. Risks Relating to Our Corporate Structure If the PRC government deems that our contractual arrangements with the consolidated variable interest entity do not comply with PRC regulatory restrictions on foreign investment in the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations. Foreign ownership in entities that provide value-added telecommunication services is subject to restrictions under current PRC laws and regulations, unless certain exceptions are available. Specifically, foreign ownership of a value-added telecommunication service provider may not exceed 50%, except for the investment in the e-commerce operation business, a domestic multi-party communication business, an information storage and re-transmission business and a call center business. According to the E-cigarette Industrial Policies and Measures (for Trial Implementation) and the Special Administrative Measures (Negative List) for Foreign Investment Access (2024 Version), foreign investors are prohibited from investing in the wholesale or retailing business of e-cigarette products, and foreign investment in the production of e-cigarette products is subject to regulatory approval. We are a Cayman Islands company and our PRC subsidiaries are considered foreign-invested enterprises. Accordingly, our PRC subsidiaries are not eligible to provide value-added telecommunication services or other internet-related business that are subject to foreign ownership restriction under PRC laws and may not be eligible to conduct the business of production, sales and distribution of e-vapor products. To ensure compliance with the PRC laws and regulations, we conducted our foreign investment-restricted business in China through the consolidated VIE and its subsidiaries, which currently hold the value-added telecommunication business license. Our WFOE has entered into a series of contractual arrangements with the consolidated VIE and its shareholders, respectively, which enable us to (i) exercise effective control over the consolidated VIE, (ii) receive substantially all of the economic benefits of the consolidated VIE, (iii) have the pledge right over the equity interests in the consolidated VIE as the pledgee; and (iv) have an exclusive option to purchase all or part of the equity interests in the consolidated VIE when and to the extent permitted by PRC law. As a result of these contractual arrangements, we have control over and are the primary beneficiary of the consolidated VIE and hence consolidate their financial results under U.S. GAAP. See “Item 4. Information on the Company—C. Organizational Structure” for further details. 53 Table of Contents In the opinion of our PRC legal counsel, Han Kun Law Offices, subject to the disclosure in this annual report, (i) the ownership structures of our WFOE and the consolidated VIE in China are not in violation of explicit provisions of applicable PRC laws and regulations currently in effect; and (ii) the contractual arrangements between our WFOE, the consolidated VIE and its shareholders governed by PRC law are not in violation of provisions of applicable PRC laws or regulations currently in effect, and 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. However, we have been further advised by our PRC legal counsel that there are substantial uncertainties regarding the interpretation and application of current and future PRC laws, regulations and rules. Thus, the PRC governmental authorities may take a view contrary to the opinion of our PRC legal counsel. It is uncertain whether any new PRC laws or regulations relating to variable interest entity structure will be adopted or if adopted, what they would provide. If we are or the consolidated VIE is found to be in violation of any existing or future PRC laws or regulations, or fail to obtain or maintain any of the required permits or approvals to operate the business of us and the consolidated VIE, the relevant PRC governmental authorities would have broad discretion to take action in dealing with such violations or failures, including: ● revoking the business licenses and/or operating licenses of such entities; ● imposing fines on us; ● confiscating any of our income that they deem to be obtained through illegal operations; ● discontinuing or placing restrictions or onerous conditions on the operations of the consolidated VIE; ● placing restrictions on our right to collect revenues; ● shutting down our servers or blocking our app/websites; ● requiring us to restructure our ownership structure or operations; ● requiring the nullification of the contractual arrangements between our WFOE, the consolidated VIE and its shareholders; ● restricting or prohibiting our use of the proceeds from the offering or listing or other of our capital raising activities to fund the business and operations of the consolidated VIE; or ● taking other regulatory or enforcement actions that could be harmful to our business. Any of these events could cause significant disruption to the business operations of us and the consolidated VIE and severely damage our reputation, which would in turn have a material adverse effect on our financial condition and results of operations. If occurrences of any of these events results in our inability to direct the activities of the consolidated VIE in China that most significantly impact their economic performance and/or our failure to receive the economic benefits and residual returns from the consolidated VIE, and we are unable to restructure our ownership structure and operations in a satisfactory manner, we may not be able to consolidate the financial results of the consolidated VIE in our consolidated financial statements in accordance with U.S. GAAP. On February 17, 2023, the CSRC released the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies (the “Trial Measures”) and five supporting guidelines, which came into effect on March 31, 2023. At the press conference held for the Trial Measures on the same day, officials from the CSRC clarified that, as for companies seeking overseas listing with contractual arrangements, the CSRC will solicit opinions from relevant regulatory authorities and complete the filing of the overseas listing of such companies if they duly meet the compliance requirements, and support the development and growth of these companies by enabling them to utilize two markets and two kinds of resources. If we fail to complete the filing with the CSRC in a timely manner or at all, for any future offerings, listing or any other capital raising activities, which are subject to the filings under the Trial Measures, due to the contractual arrangements between our WFOE, the consolidated VIE and its shareholders, our ability to raise or utilize funds could be materially and adversely affected, and we may even need to unwind our contractual arrangements with the consolidated VIE and its shareholders or restructure our business operations to rectify the failure to complete the filings. However, given that the Trial Measures were promulgated in early 2023 and may continue to evolve, their interpretation, application, and enforcement and how they will affect our operations and our future financing are subject to further clarification and interpretation. 54 Table of Contents We rely on contractual arrangements with the consolidated VIE and its shareholders to direct activities of the consolidated VIE, which may not be as effective as direct ownership in providing operational control. We have relied and expect to continue to rely on contractual arrangements with the consolidated VIE and its shareholders to conduct the operations of us and the consolidated VIE in China. These contractual arrangements, however, may not be as effective as direct ownership in providing us with control over the consolidated VIE. For example, the consolidated VIE and its shareholders could breach their contractual arrangements with us by, among other things, failing to conduct the operations of the consolidated VIE in an acceptable manner or taking other actions that are detrimental to our interests. If we had direct ownership of the consolidated VIE in China, we would be able to exercise our rights as a shareholder to effect changes in the board of directors of the consolidated VIE, which in turn could implement changes, subject to any applicable fiduciary obligations, at the management and operational level. However, under the current contractual arrangements, we rely on the performance by the consolidated VIE and its shareholders of their obligations under the contracts to exercise control over the consolidated VIE. If any dispute relating to these contracts remains unresolved, we will have to enforce our rights under these contracts through the operations of PRC law and arbitration, litigation and other legal proceedings and therefore will be subject to uncertainties as to the outcome of any such legal proceedings. See “—Any failure by the consolidated VIE or its shareholders to perform their obligations under our contractual arrangements with them would have a material and adverse effect on the business of us and the consolidated VIE.” Any failure by the consolidated VIE or its shareholders to perform their obligations under our contractual arrangements with them would have a material and adverse effect on the business of us and the consolidated VIE. If the consolidated VIE or its shareholders fail to perform their respective obligations under the contractual arrangements, we may have to incur substantial costs and expend additional resources to enforce such arrangements. We may also have to rely on legal remedies under PRC law, including seeking specific performance or injunctive relief, and contractual remedies, which we cannot assure you will be sufficient or effective under PRC law. For example, if the shareholders of the consolidated VIE were to refuse to transfer their equity interests in the consolidated VIE to us or our designee when we exercise the purchase option pursuant to these contractual arrangements, or if they were otherwise to act in bad faith toward us, then we may have to take legal actions to compel them to perform their contractual obligations. All the agreements under our contractual arrangements are governed by PRC law and provide for the resolution of disputes through arbitration in China. Accordingly, these contracts would be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. As a result, we cannot guarantee that we could successfully enforce these contractual arrangements in a timely manner, or at all. See “—Risks Relating to Doing Business in China—Failure to respond to changes in the regulatory environment in China could materially and adversely affect us.” Meanwhile, there are very few precedents and little formal guidance as to how contractual arrangements in the context of a consolidated variable interest entity should be interpreted or enforced under PRC law. There remain significant uncertainties regarding the ultimate outcome of such arbitration if legal action becomes necessary. In addition, under PRC law, rulings by arbitrators are final, parties cannot appeal the arbitration results in courts, and if the losing parties fail to carry out the arbitration awards within a prescribed time limit, the prevailing parties may only enforce the arbitration awards in PRC courts through arbitration award recognition proceedings, which would require additional expenses and delay. In the event we are unable to enforce these contractual arrangements, or if we suffer significant delay or other obstacles in the process of enforcing these contractual arrangements, we may not be able to exert effective control over the consolidated VIE, and our ability to conduct the business we currently conduct through the contractual arrangements may be negatively affected. The shareholders of the consolidated VIE may have potential conflicts of interest with us, which may materially and adversely affect the business of us and the consolidated VIE. The shareholders of the consolidated VIE may have actual or potential conflicts of interest with us. These shareholders may breach, or cause the consolidated VIE to breach, or refuse to renew, the existing contractual arrangements we have with them and the consolidated VIE, which would have a material and adverse effect on our ability to effectively control the consolidated VIE and receive economic benefits from them. For example, the shareholders may be able to cause our agreements with the consolidated VIE to be performed in a manner adverse to us by, among other things, failing to remit payments due under the contractual arrangements to us on a timely basis. We cannot assure you that, when conflicts of interest arise, any or all of these shareholders will act in the best interests of our company or such conflicts will be resolved in our favor. 55 Table of Contents Currently, we do not have any arrangements to address potential conflicts of interest between these shareholders and our company, except that we may invoke the right under the equity pledge agreements with the shareholders of the VIE to enforce the equity pledge in the case of the shareholders’ breach of the contractual arrangements. For individuals who are also our directors and officers, we rely on them to abide by the laws of the Cayman Islands, which provide that directors and officers owe a fiduciary duty to the company that requires them to act in good faith and in what they believe to be the best interests of the company and not to use their position for personal gains. The shareholders of the consolidated VIE have executed powers of attorney to appoint our WFOE or a person designated by one of our WFOE to vote on their behalf and exercise voting rights as shareholders of the consolidated VIE. If we cannot resolve any conflict of interest or dispute between us and the shareholders of the consolidated VIE, we would have to rely on legal proceedings, which could result in disruption of the business of us and the consolidated VIE and subject us to substantial uncertainty as to the outcome of any such legal proceedings. The shareholders of the consolidated VIE may be involved in personal disputes with third parties or other incidents that may have an adverse effect on their respective equity interests in the consolidated VIE and the validity or enforceability of our contractual arrangements with the consolidated VIE and its shareholders. For example, in the event that any of the shareholders of the consolidated VIE divorces her or his spouse, the spouse may claim that the equity interest of the VIE held by such shareholder is part of their community property and should be divided between such shareholder and the spouse. If such claim is supported by the court, the relevant equity interest may be obtained by the shareholder’s spouse or another third party who is not subject to obligations under our contractual arrangements, which could result in a loss of effective control over the VIE by us. Similarly, if any of the equity interests of the consolidated VIE is inherited by a third party with whom the current contractual arrangements are not binding, we could lose our control over the VIE or have to maintain such control by incurring unpredictable costs, which could cause significant disruption to part of the business and operations of us and the consolidated VIE and harm our financial condition and results of operations. Contractual arrangements we have entered into with the consolidated VIE may be subject to scrutiny by the PRC tax authorities. A finding that we owe additional taxes could negatively affect our financial condition and the value of your investment. Under applicable PRC laws and regulations, arrangements and transactions among related parties may be subject to audit or challenge by the PRC tax authorities. We could face material and adverse tax consequences if the PRC tax authorities determine that the contractual arrangements in relation to the consolidated VIE were not entered into on an arm’s-length basis in such a way as to result in an impermissible reduction in taxes under applicable PRC laws, rules and regulations, and adjust income of the consolidated VIE in the form of a transfer pricing adjustment. A transfer pricing adjustment could, among other things, result in a reduction of expense deductions recorded by the consolidated VIE for PRC tax purposes, which could in turn increase their tax liabilities without reducing our PRC subsidiaries’ tax expense. In addition, the PRC tax authorities may impose late payment fees and other administrative sanctions on the consolidated VIE for the adjusted but unpaid taxes according to the applicable regulations. Our financial position could be materially and adversely affected if the consolidated VIE’s tax liabilities increase or if they are required to pay late payment fees and other penalties. We may lose the ability to use and benefit from assets held by the consolidated VIE that are material or supplementary to the operation of the business of us and the consolidated VIE if the consolidated VIE goes bankrupt or becomes subject to dissolution or liquidation proceedings. As part of our contractual arrangements with the consolidated VIE, the consolidated VIE may currently and in the future hold certain assets that are material or supplementary to the operation of the business of us and the consolidated VIE. If the consolidated VIE goes bankrupt and all or part of its assets become subject to liens or rights of creditors, we may be unable to continue some or all of our business activities we currently conduct through the contractual arrangement, which could materially and adversely affect the business, financial condition and results of operations of us and the consolidated VIE. Under the contractual arrangements, the consolidated VIE may not, in any manner, sell, transfer, mortgage or dispose of their assets or legal or beneficial interests in the business without our prior consent. If the consolidated VIE undergoes voluntary or involuntary liquidation proceedings, unrelated creditors may claim rights to some or all of these assets, thereby hindering our ability to operate part of the business of us and the consolidated VIE, which could materially and adversely affect the business, financial condition and results of operations of us and the consolidated VIE. 56 Table of Contents The interpretation and implementation of the Foreign Investment Law may be subject to changes from time to time, and it remains to be seen how it may impact the viability of our current corporate structure, corporate governance and operations. The value-added telecommunications services conducted through the consolidated VIE and its subsidiaries are subject to foreign investment restrictions set forth in the 2024 Negative List issued by the MOFCOM, and the NDRC, effective November 2024. The business of production, sales and distribution of e-vapor products conducted through the consolidated VIE and its subsidiaries are also subject to foreign investment restrictions or regulatory approval under the 2024 Negative List and the E-cigarette Industrial Policies and Measures (for Trial Implementation) issued by the State Tobacco Monopoly Administration on April 25, 2022, which came into effect on the same day. On March 15, 2019, the National People’s Congress promulgated the Foreign Investment Law, or the Foreign Investment Law (2019), which became effective on January 1, 2020 and replaced the Sino-Foreign Equity Joint Venture Enterprise Law, the Sino-Foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-Owned Enterprise Law to become the legal foundation for foreign investment in the PRC. Under the Foreign Investment Law (2019), “foreign investment” refers to the investment activities directly or indirectly conducted by foreign individuals, enterprises or other entities in China, and it further stipulates forms of foreign investment, as below: ● foreign investors set up foreign invested enterprises in China severally or jointly with other investors; ● foreign investors acquire shares, equity, properties or other similar interests in any domestic enterprise; ● foreign investors invest in new projects in China severally or jointly with other investors; and ● foreign investors invest through any other means stipulated in laws, administrative regulations, or provisions of the State Council. The Foreign Investment Law does not explicitly classify contractual arrangements as a form of foreign investment, and as of the date of this document, no relevant laws, administrative regulations or provisions of the State Council have incorporated contractual arrangements as a form of foreign investment in the field of the businesses operated by the consolidated VIE and its subsidiaries. In the opinion of our PRC legal counsel, Han Kun Law Offices, subject to the disclosure in this annual report, (i) the ownership structures of our WFOE and the consolidated VIE in China are not in violation of provisions of applicable PRC laws and regulations currently in effect; and (ii) the contractual arrangements between our WFOE, the consolidated VIE and its shareholders governed by PRC law are not in violation of provisions of applicable PRC laws or regulations currently in effect, and 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. However, we have been further advised by our PRC legal counsel that there are substantial uncertainties regarding the interpretation and application of current and future PRC laws, regulations and rules. Thus, the PRC governmental authorities may take a view contrary to the opinion of our PRC legal counsel. It is uncertain whether any new PRC laws or regulations relating to variable interest entity structure will be adopted or if adopted, what they would provide. For instance, though the Foreign Investment Law does not explicitly classify contractual arrangements as a form of foreign investment, there is no assurance that foreign investment via contractual arrangements would not be interpreted as a type of indirect foreign investment activities in the future. In addition, the definition of foreign investment contains a catch-all provision which includes investments made by foreign investors through any other means stipulated in laws, administrative regulations or provisions of the State Council. Therefore, it still leaves leeway for future laws, administrative regulations or provisions promulgated by the State Council to provide for contractual arrangements as a form of foreign investment. In any of these cases, it will be uncertain whether our contractual arrangements will be deemed to be in violation of the market access requirements for foreign investment under the PRC laws and regulations. If further actions are required to be taken under future laws, administrative regulations or provisions of the State Council, we may face substantial uncertainties as to whether we can complete such actions. Failure to do so could materially and adversely affect our current corporate structure, corporate governance and operations. 57 Table of Contents Risks Relating to Doing Business in China Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on the business and operations of us and the consolidated VIE. A significant portion of the business operations of us and the consolidated VIE are conducted in China. Accordingly, the business, financial condition, results of operations and prospects of us and the consolidated VIE may be influenced to a significant degree by political, economic and social conditions in China generally and by continued economic growth in China as a whole. China’s economy differs from the economies of most developed countries in many respects, including the level of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. In addition, the PRC government continues to play a significant role in regulating industry development by imposing industrial policies. The PRC government also has significant authority to exert influence on the ability of a China-based company, such as us, to conduct its business. Therefore, investors of our company and the business of us and the consolidated VIE face potential regulatory challenges from China. The PRC government also exercises significant control over the PRC economic growth through allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary policy, and providing preferential treatment to particular industries or companies. While China’s economy has experienced significant growth over the past decades, growth has been uneven, both geographically and among various sectors of the economy, and the rate of growth has been slowing. Some of the government measures may benefit the overall Chinese economy, but may have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations. Any stimulus measures designed to boost the Chinese economy may contribute to higher inflation, which could adversely affect our results of operations and financial condition. Failure to respond to changes in the regulatory environment in China could materially and adversely affect us. The PRC legal system is a civil law system based on written statutes. Unlike the common law system, prior court decisions under the civil law system may be cited for reference, but have limited precedential value. The overall effect of legislation over the past three decades has significantly enhanced the protections afforded to various forms of foreign investments in China. However, since these laws and regulations are relatively new and the PRC legal system continues to rapidly evolve, the interpretations of many laws, regulations and rules are subject to further implementation and clarification and enforcement of these laws, regulations and rules may be subject to changes. These uncertainties may affect our judgment on the relevance of legal requirements and our ability to enforce our contractual rights or tort claims. Besides, the PRC is geographically large and divided into various provinces and municipalities and, as such, different laws, rules, regulations and policies may have different and varying applications and interpretations in different parts of the PRC. Legislation or regulations, particularly in local applications, may be rapidly evolving. In addition, the regulatory uncertainties may be exploited through unmerited or frivolous legal actions or threats in attempts to extract payments or benefits from us. Furthermore, the PRC legal system is based in part on government policies and internal rules, which are continuously evolving. As a result, we may not be aware of our violation of any of these policies and rules until sometime after the violation. In addition, any administrative, legal or arbitral proceedings in China may be protracted, resulting in substantial costs and diversion of resources and management attention. The PRC government’s significant oversight over the business operation of us and the consolidated VIE could result in a material adverse change in the operations of us and the consolidated VIE and the value of our ADSs. We conduct our business in China primarily through our PRC subsidiaries and the consolidated variable interest entity. The operations of us and the consolidated VIE in China are governed by PRC laws and regulations. The PRC government has significant oversight over the conduct of the business of us and the consolidated VIE, and it may influence the operations of us and the consolidated VIE, which could result in a material adverse change in the operation of us and the consolidated VIE, and our ordinary shares and ADSs may decline in value or become worthless. Also, the PRC government has recently indicated an intent to exert more oversight over offerings that are conducted overseas and foreign investment in China-based issuers. Any such action could significantly limit or completely hinder our ability to offer or continue to offer securities to investors. In addition, implementation of industry-wide regulations directly targeting the operations of us and the consolidated VIE could cause the value of our securities to significantly decline. Therefore, investors of our company and the business of us and the consolidated VIE face potential uncertainty from actions taken by the PRC government affecting the business of us and the consolidated VIE. 58 Table of Contents The PCAOB had historically been unable to inspect our auditor in relation to their audit work performed for our financial statements and the inability of the PCAOB to conduct inspections of our auditor in the past has deprived our investors with the benefits of such inspections. Our auditor, the independent registered public accounting firm that issues the audit report included elsewhere in this annual report, as an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. The auditor is located in mainland China, a jurisdiction where the PCAOB was historically unable to conduct inspections and investigations completely before 2022. As a result, we and investors in the ADSs were deprived of the benefits of such PCAOB inspections. The inability of the PCAOB to conduct inspections of auditors in mainland China and Hong Kong 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 mainland China and Hong Kong that are subject to the PCAOB inspections. On December 15, 2022, the PCAOB issued a report that vacated its December 16, 2021 determination and removed mainland China and Hong Kong from the list of jurisdictions where it is unable to inspect or investigate completely registered public accounting firms. However, if the PCAOB determines in the future that it no longer has full access to inspect and investigate completely accounting firms in mainland China and Hong Kong, and we use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial statements filed with the Securities and Exchange Commission, we and investors in our ADSs would be deprived of the benefits of such PCAOB inspections again, which could cause investors and potential investors in the ADSs to lose confidence in our audit procedures and reported financial information and the quality of our financial statements. 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 headquartered in mainland China and Hong Kong. The delisting of the ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment. Pursuant to the HFCAA, if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspections by the PCAOB for two consecutive years, the SEC will prohibit our shares or ADSs from being traded on a national securities exchange or in the over-the-counter trading market in the United States. On December 16, 2021, the PCAOB issued a report to notify the SEC of its determination that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong and our auditor was subject to that determination. In May 2022, the SEC conclusively listed us as a Commission-Identified Issuer under the HFCAA following the filing of our annual report on Form 20-F for the fiscal year ended December 31, 2021. On December 15, 2022, the PCAOB removed mainland China and Hong Kong from the list of jurisdictions where it is unable to inspect or investigate completely registered public accounting firms. For this reason, we do not believe we are at risk of having our securities subject to a trading prohibition under the HFCAA unless a new determination is made by the PCAOB. However, the PCAOB will determine annually whether it can inspect and investigate completely audit firms in mainland China and Hong Kong, among other jurisdictions. If the PCAOB determines in the future that it no longer has full access to inspect and investigate completely accounting firms in mainland China and Hong Kong and we use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial statements filed with the Securities and Exchange Commission, we would be identified as a Commission-Identified Issuer following the filing of the annual report on Form 20-F for the relevant fiscal year. In accordance with the HFCAA, our securities would be prohibited from being traded on a national securities exchange or in the over-the-counter trading market in the United States if we are identified as a Commission-Identified Issuer for two consecutive years in the future. If our shares and ADSs are prohibited from trading in the United States, there is no certainty that we will be able to list on a non-U.S. exchange or that a market for our shares will develop outside of the United States. A prohibition of being able to trade in the United States would substantially impair your ability to sell or purchase our ADSs when you wish to do so, and the risk and uncertainty associated with delisting would have a negative impact on the price of our ADSs. Also, such a prohibition would significantly affect our ability to raise capital on terms acceptable to us, or at all, which would have a material adverse impact on our business, financial condition, and prospects. 59 Table of Contents We may rely on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiaries to make payments to us could have a material and adverse effect on our ability to conduct the business of us and the consolidated VIE. We are a Cayman Islands holding company and rely on dividends and other distributions on equity from our PRC subsidiaries for our cash requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders and service any debt we may incur. Current PRC regulations permit our PRC subsidiaries to pay dividends to us only out of their accumulated after-tax profits upon satisfaction of relevant statutory conditions and procedures, if any, determined in accordance with Chinese accounting standards and regulations. In addition, each of our PRC subsidiaries is required to set aside at least 10% of its after-tax profits each year, if any, to fund certain reserve funds until the total amount set aside reaches 50% of its registered capital. Additionally, if our PRC subsidiaries incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends or make other distributions to us. Furthermore, the PRC tax authorities may require our subsidiaries to adjust their taxable income under the contractual arrangements they currently have in place with the consolidated VIE in a manner that would materially and adversely affect their ability to pay dividends and other distributions to us. Any limitation on the ability of our PRC subsidiaries to distribute dividends or other payments to their respective shareholders could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to the businesses of us and the consolidated VIE, pay dividends or otherwise fund and conduct the business of us and the consolidated VIE. The custodians or authorized users of our controlling non-tangible assets, including chops and seals, may fail to fulfill their responsibilities, or misappropriate or misuse these assets. Under PRC laws, legal documents for corporate transactions are executed using the chop or seal of the signing entity or with the signature of a legal representative whose designation is registered and filed with the relevant branch of the SAMR. In order to secure the use of our chops and seals, we have established internal control procedures and rules for using these chops and seals. In any event that the chops and seals are intended to be used, the responsible personnel will submit the application which will then be verified and approved by authorized employees in accordance with our internal control procedures and rules. In addition, in order to maintain the physical security of our chops, we generally have them stored in secure locations accessible only to authorized employees. Although we monitor such authorized employees, the procedures may not be sufficient to prevent all instances of abuse or negligence. There is a risk that our employees could abuse their authority, for example, by entering into a contract not approved by us or seeking to gain control of any of our subsidiaries or VIE. If any employee obtains, misuses or misappropriates our chops and seals or other controlling non-tangible assets for whatever reason, we could experience disruption to our normal business operations. We may have to take corporate or legal action, which could involve significant time and resources to resolve and divert management from the operations of us and the consolidated VIE. In addition, the affected entity may not be able to recover corporate assets that are sold or transferred out of our control in the event of such a misappropriation if a transferee relies on the apparent authority of the representative and acts in good faith. PRC regulation of loans to and direct investment in PRC entities by offshore holding companies may delay us from using the proceeds from our securities offering to make loans or additional capital contributions to our PRC subsidiaries and to make loans to the consolidated VIE, which could materially and adversely affect our liquidity and our ability to fund and expand the business of us and the consolidated VIE. Any funds we transfer to our PRC subsidiaries, either as a shareholder loan or as an increase in registered capital, as well as any loans we provide to the consolidated VIE, are subject to approval by or registration with relevant governmental authorities in China. According to the relevant PRC regulations on FIEs in China, capital contributions to our PRC subsidiaries are subject to the registration with SAMR or its local counterpart and registration with a local bank authorized by the State Administration of Foreign Exchange, or the SAFE. In addition, (i) any foreign loan procured by our PRC subsidiaries is required to be registered with the SAFE or its local branches and (ii) any of our PRC subsidiaries may not procure loans which exceed the difference between its total investment amount and registered capital or, as an alternative, only procure loans subject to the calculation approach and limitation as provided by the People’s Bank of China. Additionally, any medium or long-term loans to be provided by us to the consolidated VIE must be registered with the NDRC and the SAFE or its local branches. We may not be able to obtain these government approvals or complete such registrations in a timely manner, or at all, with respect to future capital contributions or foreign loans by us to our PRC subsidiaries or loans by us to the consolidated VIE. If we fail to receive such approvals or complete such registration or filing, our ability to use the proceeds of our initial public offering to capitalize our PRC operations may be negatively affected, which could adversely affect our liquidity and our ability to fund and expand the business of us and the consolidated VIE. 60 Table of Contents Governmental control of currency conversion may limit our ability to utilize our revenues effectively and affect the value of your investment. The PRC government imposes controls on the convertibility of Renminbi into foreign currencies and, in certain cases, the remittance of currency out of China. We receive our revenues primarily in Renminbi. Under our current corporate structure, our Cayman Islands holding company primarily relies on dividend payments from our PRC subsidiaries to fund any cash and financing requirements we may have. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval of the SAFE by complying with certain procedural requirements. Specifically, under the existing foreign exchange restrictions, without prior approval of the SAFE, cash generated from the operations of our PRC subsidiaries in China may be used to pay dividends to our company. However, approval from or registration with appropriate government authorities is required where Renminbi is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. As a result, we need to obtain SAFE approval to use cash generated from the operations of our PRC subsidiaries and VIE to pay off their respective debt in a currency other than Renminbi owed to entities outside China, or to make other capital expenditure payments outside China in a currency other than Renminbi. The PRC government may at its discretion restrict access to foreign currencies for current account transactions in the future. If the foreign exchange control system prevents us from obtaining sufficient foreign currencies to satisfy our foreign currency demands, we may not be able to pay dividends in foreign currencies to our shareholders, including holders of our ADSs. China’s M&A Rules and certain other PRC regulations establish complex procedures for certain acquisitions of PRC companies, which could make it more difficult for us to pursue growth through acquisitions in China. A number of PRC laws and regulations have established procedures and requirements that could make merger and acquisition activities in China by foreign investors more time consuming and complex. In addition to the Anti-monopoly Law itself, these include the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, adopted by six PRC regulatory agencies in 2006 and amended in 2009, the Rules of the Ministry of Commerce on Implementation of Security Review System of Mergers and Acquisitions of Domestic Enterprises by Foreign Investors promulgated in 2011, and the Measures for the Security Review of Foreign Investment promulgated by the NDRC and the MOFCOM in December 2020 and came into force on January 18, 2021. These laws and regulations impose requirements in some instances that the PRC Ministry of Commerce be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise. In addition, pursuant to relevant anti-monopoly laws and regulations, the SAMR should be notified in advance of any concentration of undertaking if certain thresholds are triggered. In light of the uncertainties relating to the interpretation, implementation and enforcement of the anti-monopoly laws and regulations of the PRC, we cannot assure you that the anti-monopoly law enforcement agency will not deem our future acquisitions or investments to have triggered the filing requirement for anti-monopoly review. Moreover, mergers and acquisitions by foreign investors that raise “national defense and security” concerns and mergers and acquisitions through which foreign investors may acquire de facto control over domestic enterprises that raise “national security” concerns are subject to strict review by the NDRC and the PRC Ministry of Commerce, and prohibit any attempt to bypass a security review, including by structuring the transaction through a proxy or contractual control arrangement. In the future, we may grow the business of us and the consolidated VIE by acquiring complementary businesses. Complying with the requirements of the relevant regulations to complete such transactions could be time consuming, and any required approval processes, including clearance from the SAMR and approval from the PRC Ministry of Commerce, may delay or inhibit our ability to complete such transactions, which could affect our ability to expand the business of us and the consolidated VIE or maintain our market share. 61 Table of Contents PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident beneficial owners or our PRC subsidiaries to liability or penalties, limit our ability to inject capital into our PRC subsidiaries, limit our PRC subsidiaries’ ability to increase their registered capital or distribute profits to us, or may otherwise adversely affect us. In July 2014, the SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and Financing and Roundtrip Investment Through Special Purpose Vehicles, or SAFE Circular 37, which requires PRC residents (including PRC individuals and PRC corporate entities) to register with the SAFE or its local branches in connection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing with such PRC residents’ legally owned assets or equity interests in domestic enterprises or offshore assets or interests. SAFE Circular 37 is applicable to our shareholders who are PRC residents and may be applicable to any offshore acquisitions that we make in the future. In addition, such PRC residents must update their SAFE registrations when the offshore special purpose vehicle undergoes material events relating to any change of basic information (including change of such PRC citizens or residents, name and operation term), increases or decreases in investment amount, transfers or exchanges of shares, or mergers or divisions. According to the Circular on Further Simplifying and Improving Foreign Exchange Administration Policy on Direct Investment, which became effective on June 1, 2015, applications for foreign exchange registration of inbound foreign direct investments and outbound overseas direct investments, including those required under SAFE Circular 37, will be filed with qualified banks instead of the SAFE. The term “control” under SAFE Circular 37 is broadly defined as the operation rights, beneficiary rights or decision-making rights acquired by PRC residents in the offshore special purpose vehicles, or SPVs, by means of acquisition, trust, proxy, voting rights, repurchase, convertible bonds or other arrangements. If any PRC shareholder of such SPVs fails to make the required registration or to update the previously filed registration, the subsidiary of such SPVs in China may be prohibited from distributing their profits or the proceeds from any capital reduction, share transfer or liquidation to the SPVs, and the SPVs may also be prohibited from making additional capital contributions into their subsidiary in China. We have notified all individuals or entities who directly hold shares in our Cayman Islands holding company and are known to us as PRC residents to complete or update the foreign exchange registrations. However, we may not be informed of the identities of all the PRC individuals or entities holding direct or indirect interest in our company, nor can we compel our beneficial owners to comply with the SAFE registration requirements. As a result, we cannot assure you that all of our shareholders or beneficial owners who are PRC residents have complied with, and will in the future make, obtain or update any applicable registrations or approvals required by SAFE regulations. Failure by such shareholders or beneficial owners to comply with SAFE regulations, or failure by us to obtain or update the foreign exchange registrations of our PRC subsidiaries, could subject us to fines or legal sanctions, restrict our overseas or cross-border investment activities, limit our PRC subsidiaries’ ability to make distributions or pay dividends to us or affect our ownership structure, which could adversely affect the business and prospects of us and the consolidated VIE. Any failure to comply with PRC regulations regarding the registration requirements for employee stock incentive plans may subject the PRC plan participants or us to fines and other legal or administrative sanctions. In February 2012, the SAFE promulgated the Notices on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Publicly Listed Company, replacing earlier rules promulgated in 2007. Pursuant to these rules, PRC citizens and non-PRC citizens who reside in China for a continuous period of not less than one year who participate in any stock incentive plan of an overseas publicly listed company, subject to a few exceptions, are required to register with the SAFE through a domestic qualified agent, which could be the PRC subsidiaries of such overseas-listed company, and complete certain other procedures. See “Item 4. Information on the Company—B. Business Overview—Government Regulations—Regulations on Foreign Exchange and Dividend Distribution—Regulations on Foreign Exchange Registration of Overseas Investment by PRC Residents.” We and our senior management and other employees who are PRC citizens or who reside in the PRC for a continuous period of not less than one year and who have been or will be granted incentive shares or options are subject to these regulations. Failure to complete the SAFE registrations may subject us or them to fines and legal sanctions. We also face regulatory uncertainties that could restrict our ability to adopt additional incentive plans for our directors, senior management and employees under PRC law. 62 Table of Contents If we are classified as a PRC resident enterprise for PRC enterprise income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC shareholders and ADS holders. Under the PRC Enterprise Income Tax Law and its implementation rules, an enterprise established outside of the PRC with its “de facto management body” within the PRC is considered a “resident enterprise” and will be subject to the enterprise income tax on its global income at the rate of 25%. The implementation rules define the term “de facto management body” as the body that exercises full and substantial control and overall management over the business, productions, personnel, accounts and properties of an enterprise. In 2009, the State Administration of Taxation, or the SAT, issued a circular, known as SAT Circular 82, which provides certain specific criteria for determining whether the “de facto management body” of a PRC-controlled enterprise that is incorporated offshore is located in China. Although this circular only applies to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreigners, the criteria set forth in the circular may reflect the SAT’s general position on how the “de facto management body” text should be applied in determining the tax resident status of all offshore enterprises. According to SAT Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be regarded as a PRC tax resident by virtue of having its “de facto management body” in China, and will be subject to PRC enterprise income tax on its global income only if all of the following conditions are met: (i) the primary location of the day-to-day operational management is in the PRC; (ii) decisions relating to the enterprise’s financial and human resource matters are made or are subject to approval by organizations or personnel in the PRC; (iii) the enterprise’s primary assets, accounting books and records, company seals, and board and shareholder resolutions are located or maintained in the PRC; and (iv) at least 50% of voting board members or senior executives habitually reside in the PRC. We believe none of our entities outside of China is a PRC resident enterprise for PRC tax purposes. However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body.” If the PRC tax authorities determine that we are a PRC resident enterprise for enterprise income tax purposes, we will be subject to PRC enterprise income on our worldwide income at the rate of 25% and we will be required to withhold a 10% withholding tax from dividends we pay to our shareholders that are non-resident enterprises, including the holders of our ADSs. In addition, gains realized on the sale or other disposition of our ADSs or Class A ordinary shares may be subject to PRC tax, at a rate of 10% in the case of non-PRC enterprises or 20% in the case of non-PRC individuals (in each case, subject to the clauses of any applicable tax treaty), if such gains are deemed to be from the PRC. It is unclear whether non-PRC shareholders of our company would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC in the event that we are treated as a PRC resident enterprise. Any such tax may reduce the returns on your investment in the ADSs. We face uncertainty with respect to indirect transfers of equity interests in PRC resident enterprises by their non-PRC holding companies, which may have a material adverse effect on our financial condition and results of operations. On February 3, 2015, the SAT issued the Public Notice Regarding Certain Corporate Income Tax Matters on Indirect Transfer of Properties by Non-Tax Resident Enterprises, or SAT Bulletin 7. SAT Bulletin 7 extends its tax jurisdiction to transactions involving the transfer of taxable assets through offshore transfer of a foreign intermediate holding company. In addition, SAT Bulletin 7 provides certain criteria on how to assess reasonable commercial purposes and has introduced safe harbors for internal group restructurings and the purchase and sale of equity through a public securities market. SAT Bulletin 7 also brings challenges to both foreign transferor and transferee (or other person who is obligated to pay for the transfer) of taxable assets. On October 17, 2017, the SAT issued the Announcement of the State Administration of Taxation on Issues Concerning the Withholding of Non-resident Enterprise Income Tax at Source, or SAT Bulletin 37, which came into effect on December 1, 2017. SAT Bulletin 37 further clarifies the practice and procedure of the withholding of non-resident enterprise income tax. Where a non-resident enterprise transfers taxable assets indirectly by disposing of the equity interests of an overseas holding company, which is an Indirect Transfer, the non-resident enterprise as either transferor or transferee, or the PRC entity that directly owns the taxable assets, may report such Indirect Transfer to the relevant tax authority. Using a “substance over form” principle, the PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding or deferring PRC tax. As a result, gains derived from such Indirect Transfer may be subject to PRC enterprise income tax, and the transferee or other person who is obligated to pay for the transfer is obligated to withhold the applicable taxes, currently at a rate of 10% for the transfer of equity interests in a PRC resident enterprise. 63 Table of Contents We face uncertainties as to the reporting and other implications of certain past and future transactions where PRC taxable assets are involved, such as offshore restructuring, sale of the shares in our offshore subsidiaries and investments. For transfer of shares in our company by investors who are non-PRC resident enterprises, our PRC subsidiaries may be requested to assist in the filing under SAT Bulletin 7 and/or SAT Bulletin 37. As a result, we may be required to expend valuable resources to comply with SAT Bulletin 7 and/or SAT Bulletin 37, or to establish that we and our non-PRC resident investors should not be taxed under these circulars, which may have a material adverse effect on our financial condition and results of operations. The business of us and the consolidated VIE is subject to complex and evolving PRC laws and regulations regarding data privacy and cybersecurity. Failure to protect confidential information of our users, business partners and network against security breaches could damage our reputation and brand and substantially harm the business and results of operations of us and the consolidated VIE. We collect information from our customers to enhance their shopping experience and for our promotional and marketing activities. Maintaining complete security for the storage and transmission of confidential information on our platform is essential to maintaining our operating efficiency and customer confidence as well as complying with the applicable laws and standards. We have adopted security policies and measures, including encryption technology, to protect our proprietary data and customer information. However, advances in technology, the expertise of hackers, improper use or sharing of data, new discoveries in the field of cryptography or other events or developments could result in a compromise or breach of the technology that we use to protect confidential information. We may not be able to prevent third parties, especially hackers or other individuals or entities engaging in similar activities, from illegally obtaining such confidential or private information we hold as a result of our customers’ visits to our websites. Such individuals or entities obtaining our customers’ confidential or private information may further engage in various other illegal activities using such information. In addition, we have limited control or influence over the security policies or measures adopted by business partners. Any negative publicity on our websites’ safety or privacy protection mechanisms and policies, and any claims asserted against us or fines imposed upon us as a result of actual or perceived failures, could have a material and adverse effect on our public image, reputation, financial condition and results of operations. As of the date of this annual report, we have not experienced any material breach of our cybersecurity system or measures. We are subject to routine inspections and examinations by PRC governmental authorities in relation to our privacy protection and data security from time to time and may be requested to take certain remedial measures to rectify any deficiencies identified. We cannot assure you that no material deficiencies will be identified in the future. If we give third parties greater access to our technology platform in the future, it may become more challenging for us to ensure the security of our systems. Any compromise of our information security or the information security measures of third-party online payment service providers or other business partners could have a material and adverse effect on our reputation, business, prospects, financial condition and results of operations. Practices regarding the collection, use, storage, transmission and security of personal information by companies operating over the internet and mobile platforms are under increased public scrutiny. As the regulations regarding data privacy and cybersecurity are quickly evolving in China, we may become subject to new laws and regulations applying to the solicitation, collection, processing or use of personal or consumer information that could affect how we store, process and share data with our customers. On November 7, 2016, the Standing Committee of the National People’s Congress promulgated the PRC Cyber Security Law, which took effect on June 1, 2017 and lastly amended on October 28, 2025. The Cyber Security Law requires, among others, that network operators take security measures to protect the network from unauthorized interference, damage and unauthorized access and prevent data from being divulged, stolen or tampered with. Network operators are also required to collect and use personal information in compliance with the principles of legitimacy, properness and necessity, and strictly within the scope of authorization by the subject of personal information unless otherwise prescribed by laws or regulations. The Civil Code promulgated in 2020 and took effect in January 2021 also provides specific provisions regarding the protection of personal information. On June 10, 2021, the Standing Committee of the National People’s Congress promulgated the PRC Data Security Law, which took effect in September 2021. The Data Security Law, among others, provides for a security review procedure for the data activities that may affect national security. The Data Security Law also stipulates that the relevant authorities will formulate the catalogues for important data and strengthen the protection of important data, and state core data, i.e., data having a bearing on national security, the lifelines of national economy, people’s key livelihood and major public interests, should be subject to stricter management system. See “Item 4. Information on the Company—B. Business Overview—Government Regulations—Regulation Related to Internet Security and Privacy Protection.” The exact scope of important data and state core data is subject to further clarification and interpretation. If any data that we are in possession of constitutes important data or state core data, we may be required to adopt stricter measures for protection and management of such data. 64 Table of Contents On December 28, 2021, thirteen PRC government authorities, including the CAC, jointly promulgated the Measures for Cybersecurity Review, or the Cybersecurity Review Measures, which became effective on February 15, 2022 and repealed and superseded the former Measures for Cybersecurity Review promulgated in April 2020. Pursuant to the Cybersecurity Review Measures, critical information infrastructure operators purchasing network products and services and platform operators carrying out data processing activities, which affect or may affect national security, should be subject to cybersecurity review. The Cybersecurity Review Measures further provide that network platform operators with personal information of over one million users are subject to cybersecurity review before listing abroad. The cybersecurity review will evaluate, among others, the risk of critical information infrastructure, core data, important data or a large amount of personal information being influenced, controlled or maliciously used by foreign governments after such company goes public, and the risk on cyber information security. On September 24, 2024, the CAC released the Regulations on the Network Data Security. The Regulations on the Network Data Security provide that data processors refer to individuals or organizations that autonomously determine the purpose and the manner of processing data. In accordance with the Regulations on the Network Data Security, data processors are required to apply for a cybersecurity review according to relevant regulations for conducting activities that affect or may affect national security. However, there have been no clarifications from the authorities as of the date of this annual report as to the standards for determining such activities that “affects or may affect national security.” Since the interpretation, application and enforcement of the Cybersecurity Review Measures and the Regulations on the Network Data Security are subject to further clarification and implementation, the Cybersecurity Review Measures and the Regulations on the Network Data Security remain unclear on whether the relevant requirements will be applicable to companies that have been listed in the United States and Hong Kong, such as us. We cannot predict the impact of the Cybersecurity Review Measures and the Regulations on the Network Data Security, if any, at this stage, and we will closely monitor and assess any development in the rule-making process and future regulatory changes. If the relevant laws and regulations mandate clearance of cybersecurity review and other specific actions to be completed by China-based companies listed on a U.S. stock exchange, such as us, we face uncertainties as to whether such clearance can be timely obtained, or at all. As of the date of this annual report, we have not been involved in any formal investigations on cybersecurity review made by the CAC on such basis. However, if we are not able to comply with the cybersecurity and network data security requirements in a timely manner, or at all, we may be subject to government enforcement actions and investigations, fines, penalties, or suspension of our non-compliant operations, among other sanctions, which could materially and adversely affect the business and results of operations of us and the consolidated VIE. In addition to the cybersecurity review, the Regulations on the Network Data Security require that data processors processing “important data” should conduct an annual data security assessment, and submit the assessment report of the preceding year to the provincial cybersecurity department. Since the Regulations on the Network Data Security is relatively new, and its interpretation, application and enforcement are subject to further clarification and implementation, we are not sure if we may be subject to review when conducting data processing activities and annual data security assessment and may face challenges in addressing its requirements and making necessary changes to our internal policies and practices in data processing. On August 20, 2021, the Standing Committee of the National People’s Congress of China promulgated the Personal Information Protection Law, which integrates the scattered rules with respect to personal information rights and privacy protection and took effect on November 1, 2021. Our websites only collect basic user personal information that is necessary to provide the corresponding services. We do not collect any sensitive personal information or other excessive personal information that is not related to the corresponding services. We update our privacy policies from time to time to meet the latest regulatory requirements of the CAC and other authorities and adopt technical measures to protect data and ensure cybersecurity in a systematic way. Nonetheless, the Personal Information Protection Law raises the protection requirements for processing personal information, and many specific requirements of the Personal Information Protection Law remain to be clarified by the CAC, other regulatory authorities, and courts in practice. We may be required to make further adjustments to our business practices to comply with the personal information protection laws and regulations. See “Item 4. Information on the Company—B. Business Overview—Government Regulations—Regulation Related to Internet Security and Privacy Protection.” 65 Table of Contents Given that the above mentioned laws, regulations and policies were recently promulgated, issued or amended, their interpretation, application and enforcement are subject to further clarification and implementation. Although we only gain access to user information that is necessary for, and relevant to, the services provided, the data we obtain and use may include information that is deemed as “personal information,” “network data” or “important data” under the PRC Cyber Security Law, the Civil Code and related data privacy and protection laws and regulations. As such, we have adopted a series of measures to ensure that we comply with relevant laws and regulations in the collection, use, disclosure, sharing, storage, and security of user information and other data. We generally comply with industry standards and are subject to the terms of our own privacy policies. Compliance with any additional laws could be expensive, and may place restrictions on the conduct of the business of us and the consolidated VIE and the manner in which we interact with our customers. We have been, and may in the future be, subject to investigations and inspections by government authorities regarding our compliance with laws and regulations on information protection and data privacy, and we cannot assure you that our practices will always fully comply with all applicable rules and regulatory requirements. Any failure to comply with applicable regulations could also result in regulatory enforcement actions against us, and misuse of or failure to secure personal information could also result in violation of data privacy laws and regulations, proceedings against us by governmental authorities or other authorities, damage to our reputation and credibility and could have a negative impact on revenues and profits. Significant capital and other resources may be required to protect against information security breaches or to alleviate problems caused by such breaches or to comply with our privacy policies or privacy-related legal obligations. The resources required may increase over time as the methods used by hackers and others engaged in online criminal activities are increasingly sophisticated and constantly evolving. Any failure or perceived failure by us to prevent information security breaches or to comply with privacy policies or privacy-related legal obligations, or any compromise of security that results in the unauthorized release or transfer of personally identifiable information or other customer data, could cause our customers to lose trust in us and could expose us to legal claims. You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing actions in China against us or our management named in this annual report based on foreign laws. We are a company incorporated under the laws of the Cayman Islands, we conduct a significant portion of the operations of us and the consolidated VIE in China, and a significant portion of our assets are located in China. In addition, all our senior management reside within China for a significant portion of the time and most of them are PRC nationals. In addition, China does not have treaties providing for the reciprocal recognition and enforcement of judgments of courts with the Cayman Islands and many other countries and regions. Even if you are successful in bringing an action of this kind, interim remedies or enforcement orders granted by overseas courts, such as those in Hong Kong and the Cayman Islands, are subject to further recognition and enforcement by PRC courts according to the applicable laws and regulations. 66 Table of Contents It may be difficult for overseas regulators to conduct investigation or collect evidence within China. Shareholder claims or regulatory investigation generally are difficult to pursue as a matter of law or practicality in China. For example, in China, there are significant legal and other obstacles to providing information needed for regulatory investigations or litigations initiated outside China. Although the authorities in China may establish a regulatory cooperation mechanism with the securities regulatory authorities of another country or region to implement cross-border supervision and administration, such cooperation with the securities regulatory authorities in the Unities States may not be efficient in the absence of mutual and practical cooperation mechanism. Furthermore, according to Article 177 of the PRC Securities Law, or Article 177, which became effective in March 2020, no overseas securities regulator is allowed to directly conduct investigation or evidence collection activities within the territory of the PRC and without the consent by the Chinese securities regulatory authorities and the other competent governmental agencies, no entity or individual may provide documents or materials related to securities business overseas. Moreover, on February 24, 2023, the CSRC, the PRC Ministry of Finance, National Administration of State Secrets Protection and National Archives Administration of China jointly issued the Provisions on Strengthening Confidentiality and Archives Management of Overseas Securities Issuance and Listing by Domestic Enterprises (the “Confidentiality and Archives Management Provisions”), which came into effect on March 31, 2023. The Confidentiality and Archives Management Provisions require, among others, that PRC domestic enterprises seeking to offer and list securities in overseas markets, either directly or indirectly, shall establish the confidentiality and archives system, and shall complete approval and filing procedures with competent authorities, if such PRC domestic enterprises or their overseas listing entities provide or publicly disclose documents or materials involving state secrets and work secrets of PRC government agencies to relevant securities companies, securities service institutions, overseas regulatory agencies and other entities and individuals. It further stipulates that providing or publicly disclosing documents and materials which may adversely affect national security or public interests, and accounting files or copies of important preservation value to the state and society shall be subject to corresponding procedures in accordance with relevant laws and regulations. In addition, the Data Security Law and the Personal Information Protection Law provide that no entity or individual within the territory of the PRC should provide any foreign judicial body and law enforcement body with any data or any personal information stored within the territory of the PRC without the approval of the competent governmental authority of the PRC. While detailed interpretation of or implementation rules under these laws have yet to be promulgated, the inability for an overseas securities regulator to directly conduct investigation or evidence collection activities within China, and restrictions on the provision of documents, materials, data and personal information by PRC entities and individuals to an overseas securities regulator, foreign judicial body or foreign law enforcement body may further increase difficulties faced by you in protecting your interests. See also “—Risks Relating to Our ADSs—You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because we are incorporated under Cayman Islands law” for risks associated with investing in us as a Cayman Islands company. Failure to obtain or maintain any of the preferential tax treatments and government subsidies or imposition of any additional taxes and surcharges could adversely affect our financial condition and results of operations. Under the PRC Enterprise Income Tax Law and its implementation rules, the statutory enterprise income tax rate is 25%, but certain “software enterprise” and “high and new technology enterprises” qualify for a preferential enterprise income tax rates subject to certain qualification criteria. A “high and new technology enterprise,” which is reassessed every three years, is entitled to favorable income tax rate of 15%. In December 2020, Shenzhen Wuxin Technology Co., Ltd., or Shenzhen Wuxin, obtained qualification as a “high and new technology enterprise”. However, if it fails to maintain its qualified status, experiences any increase in the enterprise income tax rate, or faces any discontinuation, retroactive or future reduction or refund of any of the preferential tax treatments currently enjoyed, the business, financial condition and results of operations of us and the consolidated VIE could be materially and adversely affected. In addition, Ningbo Wuxin Information Technology Co., Ltd., or Ningbo Wuxin, received subsidies from certain PRC local governments for operating business in their jurisdictions. However, substantial uncertainties remain as to the tax regime that may be applicable to us or the e-vapor industry in the future, including, but not limited, to the following. ● Under the regulatory framework applicable to the e-vapor industry, Shenzhen Wuxin may no longer be qualified as a “high and new technology enterprise” as an e-vapor brand in China. Therefore, we may no longer be eligible for the preferential income tax rate of 15% or be entitled to claim super-deduction of certain qualified research and development expenses when determining the taxable income. ● Pursuant to the E-cigarette Tax Announcement, E-cigarette manufacturers, such as ourselves, become subject to excise tax at the rate of 36% on the production or import of e-cigarettes. See “Item 4. Information on the Company—B. Business Overview—Government Regulations—Regulations on Tax” for more details. 67 Table of Contents ● Furthermore, we may no longer be entitled to subsidies granted by the local government. If additional tax or increased tax rates become applicable to our e-vapor products or us in the future, the business, results of operation and financial condition of us and the consolidated VIE would be materially and adversely affected. See also “-Our business is subject to a large number of laws across many jurisdictions, many of which are evolving.” Further, in the ordinary course of the business of us and the consolidated VIE, we are subject to complex income tax and other tax regulations, and significant judgment is required in the determination of a provision for income taxes. Although we believe our tax provisions are reasonable, if the PRC tax authorities successfully challenge our position and we are required to pay tax, interest and penalties in excess of our tax provisions, our financial condition and results of operations would be materially and adversely affected. The tension in international trade and rising political tension, particularly between U.S. and China, may adversely impact the business, financial condition, and results of operations the business of us and the consolidated VIE. As international business is a key area of our focus, any unfavorable government policies on international trade, such as capital controls or tariffs, may affect the demand for our products and services, impact our competitive position, or prevent us from being able to conduct business in certain countries. If any new tariffs, legislation, or regulations are implemented, or if existing trade agreements are renegotiated, such changes could adversely affect the business, financial condition, and results of operations of us and the consolidated VIE. Recently, there have been heightened tensions in international economic relations, such as the one between the United States and China. In particular, in April 2025, the U.S. government imposed a new tariff on certain products imported from China, and China responded with reciprocal tariffs on goods imported from the United States. Although the direct impact of the current international trade tension, and any escalation of such tension, on the global e-vapor industry is uncertain, the negative impact on general, economic, political and social conditions may adversely impact the business, financial condition and results of operations of us and the consolidated VIE. As of December 31, 2025, we do not have any operations in the United States and do not plan to have business expansion in the United States in the near term. In addition, political tensions between the United States and China have escalated due to, among other things, trade disputes, sanctions imposed by the U.S. administration. Rising political tensions could reduce levels of trades, investments, technological exchanges and other economic activities between the two major economies, which would have a material adverse effect on global economic conditions and the stability of global financial markets. In addition, further deterioration in the relationship between China and the U.S. could accelerate the financial markets decoupling between the two countries. In recent years, the U.S. government has taken measures to increase regulatory scrutiny over U.S.-listed Chinese companies, including the enactment of the Holding Foreign Companies Accountable Act. If tensions continue to rise, additional regulatory or legislative actions could be taken, including more stringent disclosure requirements, restrictions on Chinese companies’ access to U.S. capital markets, or even forced delisting of Chinese ADRs from U.S. stock exchanges. These developments, if materialized, could adversely affect investor sentiment, significantly reduce the liquidity and trading volume of our securities in the U.S. market, and limit our ability to raise capital through public offerings or secondary market transactions. Any of these factors could have a material adverse effect on the business, prospects, financial condition and results of operations of us and the consolidated VIE. Risks Relating to Our ADSs The trading price of the ADSs is likely to be volatile, which could result in substantial losses to investors. The trading price of the ADSs is likely to be volatile and could fluctuate widely due to factors beyond our control. This may happen because of broad market and industry factors, including the performance and fluctuation of the market prices of other companies with business operations located mainly in China that have listed their securities in the United States. In addition to market and industry factors, the price and trading volume for the ADSs may be highly volatile for factors specific to our own operations, including the following: ● actual or anticipated fluctuations in our quarterly results of operations; ● variations in our revenues, earnings, or cash flows; ● fluctuations in operating metrics; ● regulatory developments affecting us or our industry; 68 Table of Contents ● detrimental negative publicity about us, our competitors or our industry; ● announcements of new products and services and expansions by us or our competitors; ● announcements of new investments, acquisitions, strategic partnerships or joint ventures by us or our competitors; ● changes in financial estimates by securities analysts; ● additions or departures of key personnel; ● release of lockup or other transfer restrictions on our outstanding equity securities or sales of additional equity securities; and ● potential litigation or regulatory investigations. Any of these factors may result in large and sudden changes in the volume and price at which the ADSs will trade. The securities of some China-based companies that have listed their securities in the United States have experienced significant volatility since their initial public offerings in recent years, including, in some cases, substantial declines in the trading prices of their securities. The trading performances of these companies’ securities after their offerings may affect the attitudes of investors towards Chinese companies listed in the United States in general, which consequently may impact the trading performance of our ADSs, regardless of our actual operating performance. In addition, any negative news or perceptions about inadequate corporate governance practices or fraudulent accounting, corporate structure or other matters of other Chinese companies may also negatively affect the attitudes of investors towards Chinese companies in general, including us, regardless of whether we have engaged in any inappropriate activities. In particular, the global financial crisis, the ensuing economic recessions and deterioration in the credit market in many countries have contributed and may continue to contribute to extreme volatility in the global stock markets. These broad market and industry fluctuations may adversely affect the market price of our ADSs. Volatility or a lack of positive performance in our ADS price may also adversely affect our ability to retain key employees, most of whom have been granted options or other equity incentives. In the past, shareholders of public companies have often brought securities class action suits against companies following periods of instability in the market price of their securities. We and certain of our current officers and directors have been named as defendants in a putative securities class action captioned Garnett v. RLX Technology Inc., et al. (Case No. 1:21-cv-05125) filed on June 9, 2021 in the United States District Court for the Southern District of New York. On November 8, 2021, lead plaintiffs filed the amended, operative complaint in this case alleging, in sum and substance, that our IPO registration and prospectus (“Offering Documents”) were false or misleading, in violation of Sections 11, 12(a)(2), and 15 of the Securities Act of 1933, in that the Offering Documents allegedly failed adequately to warn investors, among other things, that e-vapor products would soon be subject to the same stringent regulations as tobacco products. Plaintiffs purport to bring this action on behalf of a class of similarly situated investors and seek monetary damages on behalf of the class. In response, we and other defendants filed a motion to dismiss in December 2021. In February 2022, the lead plaintiffs and lead plaintiff counsel filed an opposition brief against our and other defendants’ motion to dismiss. In March 2022, we and other defendants further filed a reply brief in further support of our motion to dismiss, and briefing on the motion to dismiss was completed. On September 30, 2022, the court granted the company’s motion to dismiss all claims. The court held that Plaintiffs failed to plead that the company misrepresented its financials or the prospect of more stringent regulation of e-cigarettes in China. On October 28, 2022, plaintiffs filed a notice of appeal to appeal the dismissal of the complaint and filed their appellants’ brief on February 10, 2023, before the U.S. Court of Appeals for the Second Circuit. In November 2023, the U.S. Court of Appeals for the Second Circuit affirmed the District Court’s dismissal of the complaint with prejudice. Though we have planned to defend vigorously in the class action, we cannot ascertain the final result of the pending class action. Our involvement in the class action, whatever the final result may be, could divert a significant amount of our management’s attention and other resources from the business and operations of us and the consolidated VIE, which could harm our results of operations and require us to incur significant expenses to defend the suit. Any such class action suit, whether or not successful, could harm our reputation and restrict our ability to raise capital in the future. We are currently unable to estimate the potential loss, if any, associated with the resolution of the lawsuit. If a claim is successfully made against us, we may be required to pay significant damages or settlement, which could have a material adverse effect on our financial condition and results of operations. 69 Table of Contents Our dual-class share structure with different voting rights limits your ability to influence corporate matters and could discourage others from pursuing any change-of-control transactions that holders of our Class A ordinary shares and ADSs may view as beneficial. We have adopted a dual-class share structure such that our ordinary shares consist of Class A ordinary shares and Class B ordinary shares. In respect of matters requiring the votes of shareholders, holders of Class A ordinary shares are entitled to one vote per share, while holders of Class B ordinary shares are entitled to ten votes per share based on our dual-class share structure. Each Class B ordinary share is convertible into one Class A ordinary share at any time by the holder thereof, while Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances. Any number of Class B ordinary shares held by a holder thereof will be automatically and immediately converted into an equal number of Class A ordinary shares upon the occurrence of (i) any direct or indirect sale, transfer, assignment or disposition of such number of Class B ordinary shares by the holder thereof or the direct or indirect transfer or assignment of the voting power attached to such number of Class B ordinary shares through voting proxy or otherwise to any person that is not Ms. Ying (Kate) Wang or an entity controlled by her, or (ii) the direct or indirect sale, transfer, assignment or disposition of a majority of the issued and outstanding voting securities of, or the direct or indirect transfer or assignment of the voting power attached to such voting securities through voting proxy or otherwise, or the direct or indirect sale, transfer, assignment or disposition of all or substantially all of the assets of, a holder of Class B ordinary shares that is an entity to any person that is not Ms. Ying (Kate) Wang or an entity controlled by her. As of March 31, 2026, Ms. Ying (Kate) Wang beneficially owns 71,840,780 Class A ordinary shares of the company through BJ BJ Limited, 308,714,990 Class B ordinary shares of the company through Leo Valley Holding Limited, and is entitled to the voting rights of 412,501,527 Class A ordinary shares of the company pursuant the Acting-In-Concert Undertakings, representing 51.2% of the company’s total issued and outstanding ordinary shares and 82.5% of the aggregate voting power of the company. As a result of the dual-class share structure and the concentration of ownership, holders of our Class B ordinary shares have considerable influence over matters such as decisions regarding mergers, consolidations and the sale of all or substantially all of our assets, election of directors and other significant corporate actions. They may take actions that are not in the best interest of us or our other shareholders. This concentration of ownership may discourage, delay or prevent a change in control of our company, which could have the effect of depriving our other shareholders of the opportunity to receive a premium for their shares as part of a sale of our company and may reduce the price of our ADSs. This concentrated control limits your ability to influence corporate matters and could discourage others from pursuing any potential merger, takeover or other change-of-control transactions that holders of Class A ordinary shares and ADSs may view as beneficial. Our dual-class voting structure may render the ADSs representing our Class A ordinary shares ineligible for inclusion in certain stock market indices, and thus adversely affect the trading price and liquidity of the ADSs. We cannot predict whether our dual-class share structure with different voting rights will result in a lower or more volatile market price of the ADSs, adverse publicity, or other adverse consequences. Certain index providers have announced restrictions on including companies with multi-class share structures in certain of their indices. For example, S&P Dow Jones and FTSE Russell have changed their eligibility criteria for inclusion of shares of public companies on certain indices, including the S&P 500, to exclude companies with multiple classes of shares and companies whose public shareholders hold no more than 5% of total voting power from being added to such indices. As a result, our dual-class voting structure may prevent the inclusion of the ADSs representing our Class A ordinary shares in such indices, which could adversely affect the trading price and liquidity of the ADSs representing our Class A ordinary shares. In addition, several shareholder advisory firms have announced their opposition to the use of multiple class structure and our dual-class structure may cause shareholder advisory firms to publish negative commentary about our corporate governance, in which case the market price and liquidity of the ADSs could be adversely affected. We are a “controlled company” within the meaning of the NYSE Listed Company Manual. We are a “controlled company” as defined under the NYSE Listed Company Manual. As of March 31, 2026, Ms. Ying (Kate) Wang beneficially owns 71,840,780 Class A ordinary shares of the company through BJ BJ Limited, 308,714,990 Class B ordinary shares of the company through Leo Valley Holding Limited, and is entitled to the voting rights of 412,501,527 Class A ordinary shares of the company pursuant the Acting-In-Concert Undertakings, representing 51.2% of the company’s total issued and outstanding ordinary shares and 82.5% of the aggregate voting power of the company. For so long as we remain a controlled company under that definition, we are permitted to elect to rely, and will rely, on certain exemptions from corporate governance rules, including an exemption from the rule that a majority of our board of directors must be independent directors. Currently, we rely on the exemption with respect to the requirement that a majority of the board of directors consist of independent directors. As a result, you will not have the same protection afforded to shareholders of companies that are subject to these corporate governance requirements. 70 Table of Contents Techniques employed by short sellers may drive down the market price of our ADSs. Short selling is the practice of selling securities that the seller does not own but rather has borrowed from a third-party with the intention of buying identical securities back at a later date to return to the lender. The short seller hopes to profit from a decline in the value of the securities between the sale of the borrowed securities and the purchase of the replacement shares, as the short seller expects to pay less in that purchase than it received in the sale. As it is in the short seller’s interest for the price of the security to decline, many short sellers publish, or arrange for the publication of, negative opinions regarding the relevant issuer and its business prospects in order to create negative market momentum and generate profits for themselves after selling a security short. These short attacks have, in the past, led to selling of shares in the market. Public companies listed in the United States that have substantial operations in China have been the subject of short selling. Much of the scrutiny and negative publicity has centered on allegations of a lack of effective internal control over financial reporting resulting in financial and accounting irregularities and mistakes, inadequate corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud. As a result, many of these companies are now conducting internal and external investigations into the allegations and, in the interim, are subject to shareholder lawsuits and/or SEC enforcement actions. It is not clear what effect such negative publicity could have on us. If we were to become the subject of any unfavorable allegations, whether such allegations are proven to be true or untrue, we could have to expend a significant amount of resources to investigate such allegations and/or defend ourselves. While we would strongly defend against any such short seller attacks, we may be constrained in the manner in which we can proceed against the relevant short seller by principles of freedom of speech, applicable state law or issues of commercial confidentiality. Such a situation could be costly and time-consuming and could distract our management from growing the business of us and the consolidated VIE. Even if such allegations are ultimately proven to be groundless, allegations against us could severely impact the business operations of us and the consolidated VIE and our stockholder’s equity, and any investment in our ADSs could be greatly reduced or rendered worthless. If securities or industry analysts cease to publish research or reports about the business of us and the consolidated VIE, or if they adversely change their recommendations regarding the ADSs, the market price for the ADSs and trading volume could decline. The trading market for the ADSs will be influenced by research or reports that industry or securities analysts publish about the business of us and the consolidated VIE. If one or more analysts who cover us downgrade the ADSs, the market price for the ADSs would likely decline. If one or more of these analysts cease to cover us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which, in turn, could cause the market price or trading volume for the ADSs to decline. RLX Technology Inc. historically has paid cash dividends and you must rely on price appreciation of our ADSs for return on your investment. RLX Technology Inc. historically has paid cash dividends. Future cash dividends, if any, will be declared at the discretion of our board of directors, subject to certain requirements of Cayman Islands law, and will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors as our board of directors may deem relevant. Therefore, you should not rely on an investment in our ADSs as a source for any future dividend income. Our board of directors has complete discretion as to whether to distribute dividends, subject to certain requirements of Cayman Islands law. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our directors. Under Cayman Islands law, a Cayman Islands company may pay a dividend out of either profit or share premium account, provided that in no circumstances may a dividend be paid if this would result in the company being unable to pay its debts as they fall due in the ordinary course of business. Even if our board of directors decides to declare and pay dividends, the timing, amount and form of future dividends, if any, will depend on our future results of operations and cash flows, our capital requirements and surplus, the amount of distributions, if any, received by us from our subsidiaries, our financial condition, contractual restrictions and other factors deemed relevant by our board of directors. Accordingly, the return on your investment in our ADSs will likely depend entirely upon any future price appreciation of our ADSs. There is no guarantee that our ADSs will appreciate in value or even maintain the price at which you purchased the ADSs in the future. You may not realize a return on your investment in our ADSs and you may even lose your entire investment in our ADSs. 71 Table of Contents Substantial future sales or perceived potential sales of our ADSs in the public market could cause the price of our ADSs to decline. Sales of our ADSs in the public market or the perception that these sales could occur, could cause the market price of our ADSs to decline. Certain shareholders may cause us to register under the Securities Act the sale of their shares. Sales of these shares, or the perception that such sales could happen, could cause the price of our ADSs to decline. Such sales also might make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate. We cannot predict what effect, if any, market sales of securities held by a principal shareholder or any other shareholder or the availability of these securities for future sale will have on the market price on our ADSs. In addition, if we issue additional ordinary shares, either through private transactions or in the public markets in the United States or other jurisdictions, your ownership interests in our company would be diluted and this, in turn, would have an adverse effect on the price of our ADSs. Our currently effective memorandum and articles of association contain anti-takeover provisions that could have a material adverse effect on the rights of holders of our Class A ordinary shares and the ADSs. Our currently effective memorandum and articles of association contain provisions to limit the ability of others to acquire control of our company or cause us to engage in change-of-control transactions. These provisions could have the effect of depriving our shareholders of an opportunity to sell their shares at a premium over prevailing market prices by discouraging third parties from seeking to obtain control of our company in a tender offer or similar transaction. Our board of directors has the authority, without further action by our shareholders, to issue preferred shares in one or more series and to fix their designations, powers, preferences, privileges and relative participating, optional or special rights and the qualifications, limitations or restrictions, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights associated with our ordinary shares, including Class A ordinary shares represented by ADSs. Preferred shares could be issued quickly with terms calculated to delay or prevent a change in control of our company or make removal of management more difficult. If our board of directors decides to issue preferred shares, the price of the ADSs may fall and the voting and other rights of the holders of our Class A ordinary shares and the ADSs may be materially and adversely affected. Our currently effective memorandum and articles of association and the deposit agreement provide that the United States District Court for the Southern District of New York (or, if the United States District Court for the Southern District of New York lacks subject matter jurisdiction over a particular dispute, the state courts in New York County, New York) is the exclusive judicial forum within the U.S. for the resolution of any complaint asserting a cause of action arising out of or relating in any way to the federal securities laws of the United States, and any suit, action or proceeding arising out of or relating in any way to the ADSs or the deposit agreement, which could limit the ability of holders of our Class A ordinary shares, the ADSs or other securities to obtain a favorable judicial forum for disputes with us, our directors and officers, the depositary, and potentially others. Our currently effective memorandum and articles of association provide that the United States District Court for the Southern District of New York (or, if the United States District Court for the Southern District of New York lacks subject matter jurisdiction over a particular dispute, the state courts in New York County, New York) is the exclusive forum within the United States for the resolution of any complaint asserting a cause of action arising out of or relating in any way to the federal securities laws of the United States, regardless of whether such legal suit, action, or proceeding also involves parties other than our company. The deposit agreement provides that the United States District Court for the Southern District of New York (or, if the United States District Court for the Southern District of New York lacks subject matter jurisdiction over a particular dispute, the state courts in New York County, New York) should have exclusive jurisdiction over any suit, action or proceeding against or involving us or the depositary, arising out of or relating in any way to the deposit agreement or the transactions contemplated thereby or by virtue of owning the ADSs. The enforceability of similar federal court choice of forum provisions in other companies’ organizational documents has been challenged in legal proceedings in the United States, and it is possible that a court could find this type of provision to be inapplicable or unenforceable. If a court were to find the federal choice of forum provision contained in our currently effective memorandum and articles of association or the deposit agreement to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions. If upheld, the forum selection clause in our currently effective memorandum and articles of association, as well as the forum selection provision in the deposit agreement, may limit a security-holder’s ability to bring a claim against us, our directors and officers, the depositary, and potentially others in his or her preferred judicial forum, and this limitation may discourage such lawsuits. Holders of our shares or the ADSs will not be deemed to have waived our compliance with the federal securities laws and the regulations promulgated thereunder pursuant to the exclusive forum provision in the currently effective memorandum and articles of association and deposit agreement. 72 Table of Contents You may be subject to limitations on transfer of your ADSs. Your ADSs are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when it deems expedient in connection with the performance of its duties. The depositary may close its books from time to time for a number of reasons, including in connection with corporate action events, in emergencies, and on weekends and public holidays. The depositary may refuse to deliver, transfer or register transfers of the ADSs generally when our share register or the books of the depositary are closed, or at any time if we or the depositary thinks it is advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason. You may experience dilution of your holdings due to inability to participate in rights offerings. We may, from time to time, distribute rights to our shareholders, including rights to acquire securities. Under the deposit agreement, the depositary will not distribute rights to holders of ADSs unless the distribution and sale of rights and the securities to which these rights relate are either exempt from registration under the Securities Act with respect to all holders of ADSs, or are registered under the provisions of the Securities Act. The depositary may, but is not required to, attempt to sell these undistributed rights to third parties, and may allow the rights to lapse. We may be unable to establish an exemption from registration under the Securities Act, and we are under no obligation to file a registration statement with respect to these rights or underlying securities or to endeavor to have a registration statement declared effective. Accordingly, holders of ADSs may be unable to participate in our rights offerings and may experience dilution of their holdings as a result. You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because we are incorporated under Cayman Islands law. We are an exempted company incorporated under the laws of the Cayman Islands. Our corporate affairs are governed by our amended and restated memorandum and articles of association, the Companies Act (As Revised) of the Cayman Islands and the common law of the Cayman Islands. The rights of shareholders to take action against our directors, actions by our minority shareholders and the fiduciary duties of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from the common law of England, the decisions of whose courts are of persuasive authority, but are not binding, on a court in the Cayman Islands. The rights of our shareholders and the fiduciary duties of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedents in some jurisdictions in the United States. In particular, the Cayman Islands has a less developed body of securities laws than the United States. Some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands. In addition, Cayman Islands companies may not have the standing to initiate a shareholder derivative action in a federal court of the United States. Shareholders of Cayman Islands exempted companies like us have no general rights under Cayman Islands law to inspect corporate records (other than the memorandum and articles of association, special resolutions, and the register of mortgages and charges) or to obtain copies of lists of shareholders of these companies. Our directors have discretion under our currently effective memorandum and articles of association to determine whether or not, and under what conditions, our corporate records may be inspected by our shareholders, but are not obliged to make them available to our shareholders. This may make it more difficult for you to obtain the information needed to establish any facts necessary for a shareholder motion or to solicit proxies from other shareholders in connection with a proxy contest. As a result of all of the above, our public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of our board of directors or controlling shareholders than they would as public shareholders of a company incorporated in the United States. Certain judgments obtained against us by our shareholders may not be enforceable. We are an exempted Cayman Islands company and substantially all of our assets are located outside of the United States. Significant portion of our current operations are conducted in China. In addition, most of our current directors and officers are nationals and residents of countries other than the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States in the event that you believe that your rights have been infringed under the U.S. federal securities laws or otherwise. Even if you are successful in bringing an action of this kind, such judgements against our assets or the assets of our directors and officers are subject to further recognition and enforcement proceedings under the laws of the Cayman Islands and China. 73 Table of Contents The voting rights of holders of ADSs are limited by the terms of the deposit agreement, and you may not be able to exercise your right to vote the underlying Class A ordinary shares. As a holder of our ADSs, you will only be able to exercise the voting rights with respect to the underlying Class A ordinary shares in accordance with the provisions of the deposit agreement. Under the deposit agreement, you must vote by giving voting instructions to the depositary. Upon receipt of your voting instructions, the depositary will vote the underlying Class A ordinary shares in accordance with these instructions. You will not be able to directly exercise your right to vote with respect to the underlying shares unless you withdraw the Class A ordinary shares. When a general meeting is convened, you may not receive sufficient advance notice to withdraw the shares underlying your ADSs to allow you to vote with respect to any specific matter. If we ask for your instructions, the depositary will notify you of the upcoming vote and will arrange to deliver our voting materials to you. We cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote your shares. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for their manner of carrying out your voting instructions. This means that you may not be able to exercise your right to vote and you may have no legal remedy if the shares underlying your ADSs are not voted as you requested. Furthermore, as a Cayman Islands exempted company, we are not obliged by the Companies Act (As Revised) of the Cayman Islands to call shareholders’ annual general meetings. The depositary for our ADSs will give us a discretionary proxy to vote our Class A ordinary shares underlying your ADSs if you do not timely provide voting instructions to the depositary in accordance with the deposit agreement, except in limited circumstances, which could adversely affect your interests. Under the deposit agreement for the ADSs, if you do not timely provide voting instructions to the depositary, the depositary will give us a discretionary proxy to vote our Class A ordinary shares underlying your ADSs at shareholders’ meetings unless: ● we have failed to timely provide the depositary with notice of the 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; ● we have informed the depositary that a matter to be voted on at the meeting may have an adverse impact on shareholders; or ● the voting at the meeting is to be made on a show of hands. The effect of this discretionary proxy is that if you do not timely provide voting instructions to the depositary in the manner required by the deposit agreement, you cannot prevent our Class A ordinary shares underlying your ADSs from being voted, except under the circumstances described above. This may make it more difficult for shareholders to influence the management of our company. Holders of our Class A ordinary shares are not subject to this discretionary proxy. ADS holders may not be entitled to a jury trial with respect to claims arising under the deposit agreement, which could result in less favorable outcomes to the plaintiff(s) in any such action. The deposit agreement governing the ADSs representing our Class A ordinary shares provides that the United States District Court for the Southern District of New York (or, if the United States District Court for the Southern District of New York lacks subject matter jurisdiction over a particular dispute, in the state courts in New York County, New York) should have exclusive jurisdiction to hear and determine claims arising out of or relating in any way to the deposit agreement (including claims arising under the Exchange Act or the Securities Act) and in that regard, to the fullest extent permitted by law, ADS holders waive the right to a jury trial of any claim they may have against us or the depositary arising out of or relating to our shares, the ADSs or the deposit agreement, including any claim under the U.S. federal securities laws, to the fullest extent permitted by law. 74 Table of Contents If we or the depositary opposed a jury trial demand based on the waiver, the court would determine whether the waiver was enforceable based on the facts and circumstances of that case in accordance with the applicable state and federal law. To our knowledge, the enforceability of a contractual pre-dispute jury trial waiver in connection with claims arising under the federal securities laws has not been finally adjudicated by the United States Supreme Court. However, we believe that a contractual pre-dispute jury trial waiver provision is generally enforceable, including under the laws of the State of New York, which govern the deposit agreement. In determining whether to enforce a contractual pre-dispute jury trial waiver provision, courts will generally consider whether a party knowingly, intelligently and voluntarily waives the right to a jury trial. We believe that this is the case with respect to the deposit agreement and the ADSs. It is advisable that you consult legal counsel regarding the jury waiver provision before entering into the deposit agreement. If you or any other holders or beneficial owners of ADSs bring a claim against us or the depositary in connection with matters arising under the deposit agreement or the ADSs, including claims under federal securities laws, you or such other holder or beneficial owner may not be entitled to a jury trial with respect to such claims, which may have the effect of limiting and discouraging lawsuits against us or the depositary, lead to increased costs to bring a claim, limited access to information and other imbalances of resources between such holder and us, or limit such holder’s ability to bring a claim in a judicial forum that such holder finds favorable. If a lawsuit is brought against us or the depositary under the deposit agreement, it may be heard only by a judge or justice of the applicable trial court, which would be conducted according to different civil procedures and may result in different outcomes than a trial by jury would have had, including results that could be less favorable to the plaintiff(s) in any such action. Nevertheless, if this jury trial waiver provision is not enforced, to the extent a court action proceeds, it would proceed under the terms of the deposit agreement with a jury trial. No condition, stipulation or provision of the deposit agreement or ADSs will relieve us or the depositary from our respective obligations to comply with the Securities Act and the Exchange Act nor serve as a waiver by any holder or beneficial owner of ADSs of compliance with the U.S. federal securities laws and the rules and regulations promulgated thereunder. As a company incorporated in the Cayman Islands, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from the NYSE listing standards. As a Cayman Islands company listed on the NYSE, we are subject to the NYSE listing standards, which require listed companies to have, among other things, a majority of their board members to be independent and independent director oversight of executive compensation and nomination of directors. However, NYSE rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in the Cayman Islands, which is our home country, may differ significantly from the NYSE listing standards. For example, we currently follow our home country practice in lieu of the requirements of NYSE Listed Company Manual Section 303A.01 to have a majority of independent directors and the requirement of NYSE Listed Company Manual Section 303A.07 to have an audit committee with at least three members. We are permitted to elect to rely on additional home country practice to be exempted from the corporate governance requirements. If we choose to follow home country practice in the future, our shareholders may be afforded less protection than they would otherwise enjoy if we complied fully with the NYSE listing standards. We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to U.S. domestic public companies. Because we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the securities rules and regulations in the United States that are applicable to U.S. domestic issuers, including: ● the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q or current reports on Form 8-K; ● the sections of the Exchange Act regulating the solicitation of proxies, consents, or authorizations in respect of a security registered under the Exchange Act; ● the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and ● the selective disclosure rules by issuers of material nonpublic information under Regulation FD. 75 Table of Contents We are required to file an annual report on Form 20-F within four months of the end of each fiscal year. In addition, we intend to publish our results on a quarterly basis as press releases, distributed pursuant to the rules and regulations of the NYSE. Press releases relating to financial results and material events will also be furnished to the SEC on Form 6-K. However, the information we are required to file with or furnish to the SEC will be less extensive and less timely compared to that required to be filed with the SEC by U.S. domestic issuers. As a result, you may not be afforded the same protections or information that would be made available to you were you investing in a U.S. domestic issuer. We believe that we were likely a PFIC for U.S. federal income tax purposes for 2025 and may be a PFIC for 2026, which could result in adverse U.S. federal income tax consequences to U.S. Holders of our ADSs or Class A ordinary shares. A non-U.S. corporation, such as our company, will be classified as a PFIC for any taxable year if either (i) at least 75% of its gross income for such year consists of certain types of “passive” income, or the income test; or (ii) at least 50% of the value of its assets (generally determined on the basis of a quarterly average) during such year is attributable to assets that produce passive income or are held for the production of passive income, or the asset test. Based on the current and anticipated value of our assets, including the value of our goodwill, we believe that we were likely a PFIC for the taxable year ended December 31, 2025, and we may be a PFIC for 2026 and possibly subsequent taxable years if the value of our goodwill is determined by reference to our market capitalization. Whether we are or will become a PFIC for any taxable year is a fact-intensive inquiry made annually that depends, in part, upon the composition of our income and assets. Fluctuations in the market price of our ADSs can affect our PFIC status because the value of our assets for the purpose of the asset test, including the value of our goodwill and other unbooked intangibles, may be determined by reference to the market price of our ADSs from time to time. Based on the market price of our ADSs, we believe that we were likely a PFIC in 2025 and we may be a PFIC in 2026 and possibly subsequent taxable years if the value of our goodwill is determined by reference to our market capitalization. However, we have not obtained any valuation of our assets (including goodwill). U.S. Holders of our ADSs or Class A ordinary shares should consult their tax advisors regarding the value and characterization of our assets for purposes of the PFIC rules, which are subject to some uncertainties. Additionally, whether we are a PFIC in future years will depend on the composition of our income and assets, which may also be affected by how, and how quickly, we use our liquid assets. Moreover, it is not entirely clear how the contractual arrangements between us, the consolidated VIE, and the shareholders of the consolidated VIE will be treated for purposes of the PFIC rules, and we may be or become a PFIC for any taxable year if the consolidated VIE is not treated as owned by us for these purposes. We currently treat the consolidated VIE as being owned by us for U.S. federal income tax purposes because we control its management decisions and are entitled to substantially all of the economic benefits associated with it. However, there is no assurance that the Internal Revenue Service will agree with this position. If we are classified as a PFIC for any taxable year during which a U.S. Holder (as defined in “Item 10. Additional Information—E. Taxation—United States Federal Income Tax Considerations”) holds our ADSs or Class A ordinary shares, certain adverse U.S. federal income tax consequences could apply to such U.S. Holder. Accordingly, U.S. Holders should consult their tax advisors regarding the potential tax consequences to them of owning our ADSs or Class A common shares if we are a PFIC. ​