You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the section entitled “Selected Consolidated Financial Data” and our consolidated financial statements and the related notes included elsewhere in this annual report. This discussion contains forward-looking statements that involve risks and uncertainties about the business and operations of us and the consolidated VIE. Our actual results and the timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those we describe under “Item 3. Key Information—. Risk Factors” and elsewhere in this annual report. See special note on “Forward-Looking Information.” A. Operating Results Key Factors Affecting Our Results of Operations We set forth below the key factors that we believe to affect our results of operations. Regulatory environment in China Our results of operations are affected by the changes in existing laws, regulations and policies and the issuance of new laws, regulations, policies and standards in China applicable to us, our suppliers and manufacturers, and the distributors and retail outlets along the e-cigarettes value chain, such as the August 2018 Announcement, the October 2019 Announcement, the E-Cigarettes Administrative Measures, the National Standards, and the relevant implementing rules and guiding opinions. The E-Cigarettes Administrative Measures have imposed various licensing requirements for the key participants along the e-cigarettes value chain. The tobacco regulatory authority has established a national e-cigarette trade and management platform, which is the exclusive network for the sale of e-cigarette products in China. Further, the E-Cigarettes Administrative Measures apply the relevant tobacco advertising laws to e-cigarettes, prohibit the sale of flavored e-cigarettes other than tobacco flavored, and prohibit the sale of e-cigarettes near schools or via vending machines and the internet. Additionally, the E-cigarette Tax Announcement provides that (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. See “Item 4. Information on the Company—B. Business Overview—Government Regulations—Regulations Related to Our Products” and “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Taxation” for more details. Due to China’s more stringent regulation over the production, distribution and sale of e-vapor products, we have adjusted, and may further adjust the business operations of us and the consolidated VIE to fully comply with the evolving regulatory requirements in China. Such efforts to adjust or transform the business of us and the consolidated VIE have adversely affected, and may further materially and adversely affect the business, prospects, results of operations and financial performance of us and the consolidated VIE. See “Item 3. Key Information—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” for more details on our risks associated with the regulatory environment in China that may adversely affect our results of operations for more details. 117 Table of Contents International expansion Our results of operations are affected by our ability to execute our international expansion, which primarily involves penetrating into new markets outside China. 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. Our product distribution in such international markets is mainly realized through our own local channels, third-party distribution channels and distribution channels co-managed with third parties. We also rely on our offshore entity to sell our products to overseas markets. See “Item 4. Information on the Company—B. Business Overview.” Our international expansion involves certain risks. “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business and Industry—We are subject to a variety of uncertainties, costs and risks during our international expansion.” In 2025, we made significant strides in our global expansion by entering more markets located in Europe, further solidifying our presence in key international markets. Product distribution in China Our sales of products in China have only been directed 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. See “Item 4. Information on the Company—B. Business Overview—Government Regulations—Regulations Related to Our Products” for details of the regulatory requirements and “Item 3. Key Information—D. Risk Factors— Risks Relating to Our Business and Industry—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 risks associated therewith. Product distribution in international markets Our overseas sales are primarily conducted through a strategic combination of distribution partnerships and direct-to-market operations. Typically, an overseas market operates either under an exclusive distributor arrangement or through multiple distributors. In certain markets, sub-distributors may also be engaged to enhance regional coverage. These collaborative arrangements enable us to effectively penetrate local retail channels, which are primarily classified into key accounts (e.g. convenience stores and supermarkets) and specialty vape stores. In strategic markets, we have enhanced our presence through vertical integration by investing in local entities. This strategic shift allows us to function simultaneously as a distributor and a direct retailer, providing us with deeper market insights and greater operational control. Product offering We derive most of our revenues from selling e-vapor products, and we believe the consistent provision of superior products is the key to our success. In international markets, our product portfolio management framework employs strategic market segmentation to align innovative solutions with evolving regulatory environments, cultivating sustainable growth through three core product categories: closed-system rechargeable products, open-system products, and disposable. This framework enables precision resource deployment against differentiated market needs: Closed-system rechargeable products are engineered for sustained user engagement. It prioritizes lifecycle value and convenience through standardized interfaces and replenishment economics, delivering consistent value retention. Open system products strategically calibrate modular innovation with compliance scalability, catering to market demands for customizable experiences. Disposable products enable rapid regional footprint expansion via regional consumption analytics, optimizing portfolio agility in dynamic regulatory landscapes. Modern Oral products represent a paradigm shift in our proprietary R&D trajectory, anchored by a robust portfolio of unique intellectual property. This strategic expansion leverages our in-house innovation engine to bypass market commoditization, ensuring a competitive moat while aligning with evolving consumer preferences for harm-reduction alternatives. 118 Table of Contents In China market, we have rolled out series of rechargeable closed-system e-vapor products and a variety of cartridges, offering various alternatives for adult smokers since 2018. In response to the evolving regulatory requirements in 2022, we have adjusted our product design, specifications and other aspects of our products in accordance with the new and currently effective regulatory framework applicable to China’s e-vapor industry and us. After such adjustment, 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. We also introduced our first compliant disposable product line since the implementation of national standards during 2024. Our ability to continually provide our users with superior products is dependent on our technology and product development capabilities. We are committed to strengthening such capabilities by investing in the development of our know-how, expertise and talent pool. Supply chain management Our cost of revenue is mostly comprised of consignment manufacturing cost, material cost, depreciation of the machinery and equipment used on our production lines, rental and leasehold improvement. Our profitability is significantly dependent on our ability to control those costs as a percentage of our revenues, which in turn depends on our ability to effectively manage our supply chains and manufacturing process. Operating efficiency Our results of operations are further affected by our operating efficiency, as measured by our total operating expenses as a percentage of our revenues. Certain items of our operating expenses, including salaries and welfare benefits, are relatively fixed in nature. In addition, a few items of our operating expenses, including share-based compensation expenses, are relatively variable in nature. Key Components of Results of Operations Net revenues For the years ended December 31, 2023, 2024 and 2025, we derived substantially all of our net revenues from sales of e-vapor products to offline distributors, who sell our e-vapor products to sub-distributors and retailers. For international markets, we distribute our products to distributors and retailers. Typically, an overseas market operates either under an exclusive distributor arrangement or through multiple distributors. In certain markets, sub-distributors may also be engaged to enhance regional coverage. These collaborative arrangements enable us to effectively penetrate local retail channels, which are primarily classified into key accounts (e.g. convenience stores and supermarkets) and specialty vape stores. In China, We sell our products 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. We utilize our offline distribution and retail network as the main channel to access the massive population of global adult smokers. As a result, for the year ended December 31, 2025, we derived the vast majority of our net revenues from sales of e-vapor products to offline distributors, who subsequently supply these products to retailers. The following table sets forth a breakdown of our net revenues by amounts and percentages for the years presented: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended December 31, ​ ​ 2023 ​ 2024 ​ 2025 ​ ​ ​ ​ RMB ​ ​ ​ % ​ ​ ​ RMB ​ ​ ​ % ​ ​ ​ RMB ​ ​ ​ US$ ​ ​ ​ % ​ ​ (in thousands, except for percentages) Net revenues: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Sales to offline distributors 1,487,084 ​ 93.7 ​ 2,585,814 ​ 94.1 ​ 3,490,042 ​ 499,070 ​ 88.1 Sales to online and offline end users ​ 19,009 ​ 1.2 ​ 24,142 ​ 0.9 ​ 252,821 ​ 36,153 ​ 6.4 Others 80,304 ​ 5.1 ​ 138,620 ​ 5.0 ​ 215,998 ​ 30,887 ​ 5.5 Total 1,586,397 ​ 100.0 ​ 2,748,576 ​ 100.0 ​ 3,958,861 ​ 566,110 ​ 100.0 ​ Sales to offline distributors. We generated a substantial majority of our revenues from sales of our e-vapor products to offline distributors, who are then responsible for distribution to sub-distributors and retailers in authorized distribution areas. We recognize revenues from sales to offline distributors upon delivery of products to offline distributors’ warehouses. 119 Table of Contents Sale of products to online and offline end users. Revenue from sale of products to offline end users which is generated from sales to end users in self operated stores is recognized at the point when user takes possession of and pays for the products. Revenue from sales to online end users are conducted through the Group’s self operated online stores is recognized at the point when the products are delivered to users. Cost of revenues Our cost of revenue is primarily comprised of consignment manufacturing costs, material costs, inventory write-downs and depreciation of the machinery and equipment used on production lines, as well as related costs that are directly attributable to the production of products. Cost of products represents a substantial portion of our cost of revenues, accounting for 91.8% of our total cost of revenues for the year of 2025. We procure certain key raw materials and components and engage contract manufacturers to handle assembling, production and packaging. Cost of products includes the consignment manufacturing costs and procurement of materials, and is therefore variable in nature and closely tracks our shipment volume. We own certain key machinery and equipment used in the exclusive production plant, and the depreciation costs associated with these machinery and equipment are fixed in nature. In addition, we incur surcharges when we incur value-added tax and excise tax for the period, and such cost is, therefore, variable in nature. Excise tax on products The E-cigarette Tax Announcement, which came into effect on November 1, 2022, imposed excise tax on manufacturers of e-vapor products in China. We are subject to excise tax at the rate of 36% on the production of e-vapor products sold in China. The excise taxes recorded under this line item relate exclusively to our operations within China. Gross margin The following table sets forth the gross profit and gross margin for the years presented: ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended ​ ​ December 31, ​ ​ ​ ​ 2023 ​ ​ ​ 2024 ​ ​ ​ 2025 ​ ​ (RMB in thousands, except for percentages) Gross profit 387,714 ​ 726,517 ​ 1,183,610 Gross margin(%) 24.4 ​ 26.4 ​ 29.9 ​ Operating expenses Our operating expenses consist of selling expenses, general and administrative expenses and research and development expenses. In 2025, we recorded share-based compensation expenses of RMB186.2 million (US$26.6 million), consisting of (i) share-based compensation expenses of RMB37.7 million (US$5.4 million) recognized in selling expenses, (ii) share-based compensation expenses of RMB128.9 million (US$18.4 million) recognized in general and administrative expenses, and (iii) share-based compensation expenses of positive RMB19.6 million (US$2.8 million) recognized in research and development expenses, as compared to the total share-based compensation expenses of RMB362.9 million in 2023 and RMB369.7 million in 2024. The fluctuations in share-based compensation expenses in 2025 were primarily due to the changes in the fair value of the share incentive awards that the company granted to its employees as affected by the fluctuations of the company’s share price. The following table sets forth the components of our operating expenses by amounts and percentages of our net revenues for the years presented: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended December 31, ​ ​ 2023 ​ 2024 ​ 2025 ​ ​ ​ ​ RMB ​ ​ ​ % ​ ​ ​ RMB ​ ​ ​ % ​ ​ ​ RMB ​ ​ ​ US$ ​ ​ ​ % ​ ​ (in thousands, except for percentages) Operating expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Selling expenses 213,723 ​ 13.5 ​ 229,466 ​ 8.3 ​ 387,127 ​ 55,358 ​ 9.8 General and administrative expenses 498,015 ​ 31.4 ​ 515,887 ​ 18.8 ​ 336,915 ​ 48,178 ​ 8.5 Research and development expenses 172,686 ​ 10.9 ​ 88,309 ​ 3.2 ​ 131,008 ​ 18,734 ​ 3.3 Total 884,424 ​ 55.8 ​ 833,662 ​ 30.3 ​ 855,050 ​ 122,270 ​ 21.6 ​ 120 Table of Contents Selling expenses. Our selling expenses primarily consist of salaries, welfare benefits, branding expenses, share-based compensation expenses, shipping expenses and depreciation and amortization expenses. General and administrative expenses. Our general and administrative expenses primarily consist of salaries, welfare benefits, share-based compensation expenses, professional service fees and depreciation and amortization expenses. Research and development expenses. Our research and development expenses primarily consist of salaries, welfare benefits, share-based compensation expenses, depreciation of equipment associated with research and development activities, software and technical service expenses and material expenses. Taxation Cayman Islands We are an exempted company incorporated in the Cayman Islands. According to Maples and Calder (Hong Kong) LLP, our Cayman Islands counsel, under the current laws of the Cayman Islands, we are not subject to tax on income or capital gain, and the Cayman Islands currently has no form of estate duty, inheritance tax or gift tax. There are no other taxes likely to be material to us levied by the government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or brought within the jurisdiction of the Cayman Islands. In addition, the Cayman Islands currently does not impose withholding tax on dividend payments. Hong Kong Our subsidiary in Hong Kong is subject to 16.5% Hong Kong profit tax for its taxable income earned. Additionally, payments of dividends by our subsidiary in Hong Kong to our company are not subject to any Hong Kong withholding tax. South Korea Our South Korean entities are subject to an enterprise income tax on their taxable income in South Korea with a progressive tax rate, which is 10% on the first KRW200 million, 20% for the taxable income over KRW200 million up to KRW20 billion, 22% for the taxable income over KRW20 billion up to KRW300 billion and 25% for the excess. Our entities in South Korea are also subject to local income tax with progressive tax rates from 1% to 2.5% based on their taxable income. The South Korean Enterprise Income Tax Law provides that a withholding tax rate of 20% is normally applicable to dividends paid to non-resident enterprise shareholders. A preferential withholding tax rate of 10% or 15% could be applicable for dividend paid to a Hong Kong resident company provided that certain conditions under the double tax treaty between Hong Kong and the Republic of Korea are met. Besides, according to the South Korea’s Tobacco Business Act and relevant regulations, tobacco related taxes and surcharges (such as Individual Consumption Tax, Tobacco Consumption Tax, Local Education Tax and National Health Surcharge) are imposed upon importation or manufacturing of the products containing nicotine from natural tobacco substance. Indonesia According to Indonesian tax laws and regulations, Indonesian entities are subject to an enterprise income tax at a rate of 22% on their taxable income, while certain entities are subject to a final enterprise income tax based on its gross revenue at the rate of 0.5%. In addition, for certain entities, there is a 2.5% provisional income tax imposed upon importation (PPh Art 22) which could be taken as enterprise income tax credit of the entities. Besides, there are specific tobacco related taxes such as Excise tax (Cukai), Local surcharge (SPPR), and Excise VAT (PPNHT) imposed upon importation or manufacturing of the tobacco products including E-cigarette products (e.g. Pods, Disposables, E-liquid) 121 Table of Contents Japan According to Japanese tax laws and regulations, Japanese entities with share capital exceeding JPY 100 million are subject to an enterprise income tax at the rate of 23.2%. Japanese entities are also subject to local inhabitants tax which varies with the location and size of the company, and a local enterprise tax with a progressive standard rates up to 9.6%. Malaysia According to Malaysian tax laws and regulations, Malaysian entities are subject to an enterprise income tax at a rate of 24% on their taxable income, however for micro, small and medium-sized enterprise (MSMEs), the enterprise income tax rates applicable ranges from 15% to 24%. Malaysia imposes an excise tax of 40 sen (0.4 MYR) per millilitre on electronic cigarettes (e-cigarettes) liquid or gel containing nicotine upon importation or manufacturing. Besides, a 10% excise tax is applicable on the device. United Kingdom According to tax laws and regulations of the United Kingdom, entities in the United Kingdom are subject to a main rate of corporation tax at 25% for their taxable income over GBP250,000. A Small Profits Rate of 19% applies to companies with profits of GBP50,000 or less. For companies with augmented profits falling between these two thresholds, Marginal Relief is available to provide a gradual increase in the effective tax rate. PRC Generally, our PRC subsidiaries, VIE and VIE’s subsidiaries are subject to an enterprise income tax on their taxable income in China at a statutory rate of 25%, with exceptions for certain preferential tax treatments. Under relevant PRC government policies, enterprises qualified as “high and new technology enterprise” are entitled to a preferential income tax rate of 15%. Shenzhen Wuxin is qualified as “high and new technology enterprise” in December 2020 and is entitled to enjoy a preferential income tax rate of 15% for the tax filing of fiscal years from 2020 to 2022. Such qualification has been renewed successfully in a timely manner and will remain valid until 2026. The enterprise income tax is calculated based on the entity’s global income as determined under PRC tax laws and accounting standards. According to the Circular on Improving the Policy on the Pre-tax Additional Deduction for Research and Development Expenses promulgated by the Ministry of Finance, the SAT and the Ministry of Science and Technology on November 2, 2015, which became effective on January 1, 2016, except for certain industries, such as tobacco manufacturing industry, the enterprises engaged in research and development activities are entitled to claim a tax deduction amounting to 50% of certain qualified research and development expenses when determining the taxable income for that year. This tax deduction was increased from 50% to 75%, effective from 2018 according to the Notice on Raising the Proportion of Weighted Pre-tax Deduction of Research and Development Expenses promulgated by the Ministry of Finance, the SAT and the Ministry of Science and Technology in September 2018, which was further extended to December 31, 2023 according to the Announcement on Extending the Implementation Period of Certain Preferential Tax Policies promulgated by the Ministry of Finance and the SAT and effective from March 15, 2021. This tax deduction was increased from 75% to 100% in certain qualified manufacture industry according to the Circular on Improving the Pre-tax Deduction of Enterprise Research and Development Expenses Policies, or the Circular 13, promulgated by the Ministry of Finance and the SAT on March 31, 2021, which became effective from January 1, 2021. This tax deduction was further increased to 100% from January 1, 2023 for all enterprises that can enjoy the pre-tax deduction policy according to the Circular on Improving the Pre-tax Deduction of Enterprise Research and Development Expenses Policies (2023 Version) promulgated by the Ministry of Finance and SAT on March 26, 2023, which became effective on January 1, 2023 and replacing the Circular 13. On December 22, 2025, the Ministry of Finance and the SAT promulgated the Circular on Matters Relating to the Pre-tax Deduction of Advertising Expenses and Business Promotion Expenses, which became effective on January 1, 2026. According to such circular, the advertising expenses and business promotion expenses incurred by tobacco enterprises are not allowed to be deducted for calculation of taxable income. 122 Table of Contents There remains significant uncertainty regarding the tax regime that will be applicable to us or the e-vapor industry. Pursuant to the E-cigarette Tax Announcement, which came into effect on November 1, 2022, (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. Meanwhile, 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. Furthermore, we may no longer be entitled to any tax subsidies granted by the local government. Dividends paid by our wholly foreign-owned subsidiaries in China to our intermediary holding company in Hong Kong will be subject to a withholding tax rate of 10%, unless the relevant Hong Kong entity satisfies all the requirements under the Arrangement between China and the Hong Kong Special Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to Taxes on Income and Capital and receives approval from the relevant tax authority. If our Hong Kong subsidiary satisfies all the requirements under the tax arrangement and receives approval from the relevant tax authority, then the dividends paid to the Hong Kong subsidiary would be subject to withholding tax at the standard rate of 5%. Effective from November 1, 2015, the above mentioned pre-approval requirement has been abolished, but a Hong Kong entity is still required to file an application package with the relevant tax authority, and to settle any overdue taxes if the preferential 5% tax rate is denied based on the subsequent review of the application package by the relevant tax authority. See “Item 3. Key Information—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.” If our holding company in the Cayman Islands or any of our subsidiaries outside of China is deemed to be a “resident enterprise” under the PRC Enterprise Income Tax Law, it would be subject to enterprise income tax on its worldwide income at a rate of 25%. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in China—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.” 123 Table of Contents Results of Operations The following table sets forth a summary of our consolidated results of operations for the years presented, both in absolute amount and as a percentage of our net revenues for the years presented. This information should be read together with our consolidated financial statements and related notes included elsewhere in this annual report. The results of operations in any particular period are not necessarily indicative of our future trends. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended December 31, ​ ​ 2023 ​ 2024 ​ 2025 ​ ​ ​ ​ RMB ​ ​ ​ % ​ ​ ​ RMB ​ ​ ​ % ​ ​ ​ RMB ​ ​ ​ US$ ​ ​ ​ % ​ (in thousands, except for percentages) Net revenues ​ 1,586,397 ​ 100.0 ​ 2,748,576 ​ 100.0 ​ 3,958,861 ​ 566,110 ​ 100.0 Cost of revenues ​ (856,329) ​ (54.0) ​ (1,718,006) ​ (62.5) ​ (2,433,656) ​ (348,008) ​ (61.5) Excise tax on products ​ (342,354) ​ (21.6) ​ (304,053) ​ (11.1) ​ (341,595) ​ (48,848) ​ (8.6) Gross profit ​ 387,714 ​ 24.4 ​ 726,517 ​ 26.4 ​ 1,183,610 ​ 169,254 ​ 29.9 Operating expenses(1) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Selling expenses ​ (213,723) ​ (13.5) ​ (229,466) ​ (8.3) ​ (387,127) ​ (55,358) ​ (9.8) General and administrative expenses ​ (498,015) ​ (31.4) ​ (515,887) ​ (18.8) ​ (336,915) ​ (48,178) ​ (8.5) Research and development expenses ​ (172,686) ​ (10.9) ​ (88,309) ​ (3.2) ​ (131,008) ​ (18,734) ​ (3.3) Total operating expenses ​ (884,424) ​ (55.8) ​ (833,662) ​ (30.3) ​ (855,050) ​ (122,270) ​ (21.6) (Loss)/income from operations ​ (496,710) ​ (31.4) ​ (107,145) ​ (3.9) ​ 328,560 ​ 46,984 ​ 8.3 Other income: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest income, net ​ 627,879 ​ 39.6 ​ 616,388 ​ 22.4 ​ 560,421 ​ 80,139 ​ 14.2 Investment income ​ 245,700 ​ 15.5 ​ 49,636 ​ 1.8 ​ 51,617 ​ 7,381 ​ 1.3 Others, net ​ 214,874 ​ 13.5 ​ 99,924 ​ 3.6 ​ 112,768 ​ 16,126 ​ 2.8 Income before income tax ​ 591,743 ​ 37.2 ​ 658,803 ​ 23.9 ​ 1,053,366 ​ 150,630 ​ 26.6 Income tax expense ​ (50,755) ​ (3.2) ​ (94,459) ​ (3.4) ​ (118,989) ​ (17,015) ​ (3.0) Net income ​ 540,988 ​ 34.0 ​ 564,344 ​ 20.5 ​ 934,377 ​ 133,615 ​ 23.6 Unaudited Non-GAAP Financial Measure: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Adjusted (loss)/income from operations(2) ​ (130,509) ​ (8.2) ​ 271,069 ​ 9.9 ​ 569,887 ​ 81,494 ​ 14.4 Adjusted net income(2) ​ 906,492 ​ 57.1 ​ 940,769 ​ 34.2 ​ 1,162,268 ​ 166,204 ​ 29.4 Notes: (1)Share-based compensation expenses were allocated as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended December 31, ​ ​ 2023 ​ 2024 ​ 2025 ​ ​ ​ ​ RMB ​ ​ ​ % ​ ​ ​ RMB ​ ​ ​ % ​ ​ ​ RMB ​ ​ ​ US$ ​ ​ ​ % ​ (in thousands, except for percentages) Share-based compensation expenses: ​ ​ ​ ​ ​ ​ ​ Selling expenses 16,700 ​ 1.1 ​ 32,563 ​ 1.2 ​ 37,744 ​ 5,397 ​ 1.0 General and administrative expenses 334,344 ​ 21.1 ​ 348,629 ​ 12.7 ​ 128,929 ​ 18,437 ​ 3.3 Research and development expenses 11,824 ​ 0.7 ​ (11,537) ​ (0.4) ​ 19,562 ​ 2,797 ​ 0.5 (2) See “—Unaudited Non-GAAP Financial Measure.” 124 Table of Contents Year ended December 31, 2025 compared to the year ended December 31, 2024 Net revenues Our net revenues increased by 44.0% from RMB2,748.6 million for the year ended December 31, 2024 to RMB3,958.9 million (US$566.1 million) for the year ended December 31, 2025. In particular, the net revenues from sales to offline distributors increased by 35.0% from RMB2,585.8 million for the year ended December 31, 2024 to RMB3,490.0 million (US$499.1 million) for the year ended December 31, 2025. Our revenue increase was primarily due to increase of net revenues generated through our international expansion. Our international expansion was mainly driven by engaging with the optimal business partners, expanding our distribution network to more retailers, launching products with strong product-market-fit, and strategically entering new markets. Apart from distributing our products to third party distributors in international markets, we also distribute raw materials and finished goods to entities within Relx Inc.’s operations, which then distributes such products to other overseas distributors. Our offline distributors in China exclusively comprised qualified distributors with wholesale license (namely provincial Tobacco Commercial Enterprises in China). 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. Costs of revenues Our cost of revenues increased from RMB1,718.0 million for the year ended December 31, 2024 to RMB2,433.7 million (US$348.0 million) for the year ended December 31, 2025, primarily due to an increase in our cost of products from RMB1,548.5 million in 2024 to RMB2,233.9 million (US$319.5 million) in 2025. Cost of products represents a majority of our cost of revenues, accounting for 90.1% and 91.8% of our total cost of revenue for the years ended December 31, 2024 and 2025, respectively. The increase in cost of products was primarily due to the increase in sales volume of our e-vapor products. Excise tax on products Our excise tax on products was RMB341.6 million (US$48.8 million) for the year ended December 31, 2025, representing an increase of 12.3% from RMB304.1 million for the year ended December 31, 2024, primarily due to the increase of e-vapor products sold in China. Gross profit and gross margin As a result of the foregoing, our gross profit increased from RMB726.5 million for the year ended December 31, 2024 to RMB1,183.6 million (US$169.3 million) for the year ended December 31, 2025. Our gross margin increased from 26.4% for the year ended December 31, 2024 to 29.9% for the year ended December 31, 2025, primarily due to a favorable change in the revenue mix and cost optimization initiatives. Our cost optimization initiatives, including changes in product design and better use of better-in-value components, have led to the overall improvements in gross margin. Gross margin for both international markets and China have improved year-over-year. Operating expenses Our total operating expenses were RMB855.1 million (US$122.3 million) for the year ended December 31, 2025, representing an increase of 2.6% from RMB833.7 million for the year ended December 31, 2024. The slight increase in operating expenses was primarily due to increase in salaries and welfare benefits related to the consolidation of our acquired entity, offset by a decrease in share-based compensation expenses. Selling expenses Our selling expenses increased from RMB229.5 million for the year ended December 31, 2024 to RMB387.1 million (US$55.4 million) for the year ended December 31, 2025. The increase was primarily driven by an increase in salaries and welfare expenses, share-based compensation expenses, shipping expense and branding expenses. The share-based compensation expenses attributable to selling expenses increased to RMB37.7 million (US$5.4 million) for the year ended December 31, 2025, as compared to RMB32.6 million for the year ended December 31, 2024, which was primarily due to the changes in the fair value of the share incentive awards that we granted to our employees as affected by the fluctuations of our share price. 125 Table of Contents General and administrative expenses Our general and administrative expenses decreased from RMB515.9 million for the year ended December 31, 2024 to RMB336.9 million (US$48.2 million) for the year ended December 31, 2025. The decrease was primarily attributable to a decrease in share-based compensation expenses, slightly offset by an increase in salaries and welfare expenses. The share-based compensation expenses attributable to general and administrative expenses decreased to RMB128.9 million (US$18.4 million) for the year ended December 31, 2025, as compared to RMB348.6 million for the year ended December 31, 2024, which was primarily due to the completion of requisite service period for certain employees in the prior year. Research and development expenses Our research and development expenses increased from RMB88.3 million for the year ended December 31, 2024 to RMB131.0 million (US$18.7 million) for the year ended December 31, 2025. This increase was primarily driven by an increase in share-based compensation expenses and salaries and welfare expenses. The share-based compensation expenses attributable to research and development expenses increased to RMB19.6 million (US$2.8 million) for the year ended December 31, 2025, as compared to positive RMB11.5 million for the year ended December 31, 2024, primarily due to change in the number of research and development employees. Interest income, net Our interest income decreased from RMB616.4 million for the year ended December 31, 2024 to RMB560.4 million (US$80.1 million) for the year ended December 31, 2025, primarily due to decrease of investment of excess cash into interest-bearing bank deposits and interest rate fluctuations. Investment income Our investment income slightly increased from RMB49.6 million for the year ended December 31, 2024 to RMB51.6 million (US$7.4 million) for the year ended December 31, 2025. Others, net We recorded others, net of RMB112.8 million (US$16.1 million) for the year ended December 31, 2025, compared to RMB99.9 million for the year ended December 31, 2024. The increase was primarily due to slight increase of foreign exchange gain. Income tax expense Our income tax expense increased from RMB94.5 million for the year ended December 31, 2024 to RMB119.0 million (US$17.0 million) for the year ended December 31, 2025, primarily due to an increase in taxable income. Net income As a result of the foregoing, we recorded net income of RMB564.3 million and RMB934.4 million (US$133.6 million) for the year ended December 31, 2024 and 2025, respectively. Year ended December 31, 2024 compared to the year ended December 31, 2023 See “Item 5. Operating and Financial Review and Prospects—5.A. Operating Results—Results of Operations—Year ended December 31, 2024 compared to the year ended December 31, 2023” of our annual report on Form 20-F for the fiscal year ended December 31, 2024 filed with the SEC on April 17, 2024. 126 Table of Contents Non-GAAP Financial Measure We use adjusted net income and adjusted (loss)/income from operations, non-GAAP financial measures, in evaluating our operating results and for financial and operational decision-making purposes. Adjusted net income represents net income excluding share-based compensation expenses, amortization and depreciation of assets arising from fair value step-up in business acquisitions, and tax effects on non-GAAP adjustments. Adjusted (loss)/income from operations represents (loss)/income from operations excluding share-based compensation expenses and amortization and depreciation of assets arising from fair value step-up in business acquisitions. We present these non-GAAP financial measures because they are used by our management to evaluate our operating performance and formulate business plans. We believe that adjusted net income and adjusted (loss)/income from operations help identify underlying trends in the business of us and the consolidated VIE that could otherwise be distorted by the effect of certain expenses that are included in net income and (loss)/income from operations. We also believe that the use of the non-GAAP measures facilitates investors’ assessment of our operating performance. We believe that adjusted net income and adjusted (loss)/income from operations provides useful information about our operating results, enhances the overall understanding of our past performance and future prospects and allows for greater visibility with respect to key metrics used by our management in its financial and operational decision making. Adjusted net income and adjusted (loss)/income from operations should not be considered in isolation or construed as an alternative to net income, (loss)/income from operations or any other measure of performance or as an indicator of our operating performance. Investors are encouraged to review our historical non-GAAP financial measures to the most directly comparable GAAP measures. Adjusted net income and adjusted (loss)/income from operations presented here may not be comparable to similarly titled measures presented by other companies. Other companies may calculate similarly titled measures differently, limiting their usefulness as comparative measures to our data. We encourage investors and others to review our financial information in its entirety and not to rely on a single financial measure. The table below sets forth a reconciliation of our net income to adjusted net income, and a reconciliation of our (loss)/income from operations to adjusted (loss)/income from operations for the years presented: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended ​ ​ December 31, ​ ​ 2023 ​ 2024 ​ 2025 ​ ​ ​ ​ RMB ​ ​ ​ RMB ​ ​ ​ RMB ​ ​ ​ US$ ​ (in thousands) Net income 540,988 ​ 564,344 ​ 934,377 ​ 133,615 Add: ​ ​ ​ ​ Share-based compensation expenses 362,868 ​ 369,655 ​ 186,235 ​ 26,631 Amortization and depreciation of assets resulting from business acquisitions ​ 3,333 ​ 8,559 ​ 55,092 ​ 7,879 Tax effects on non-GAAP adjustments ​ (697) ​ (1,789) ​ (13,436) ​ (1,921) Adjusted net income 906,492 ​ 940,769 ​ 1,162,268 ​ 166,204 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended ​ ​ December 31, ​ ​ 2023 ​ 2024 ​ 2025 ​ ​ ​ ​ RMB ​ ​ ​ RMB ​ ​ ​ RMB ​ ​ ​ US$ ​ ​ (in thousands) (Loss)/income from operations ​ ​ ​ (496,710) ​ (107,145) ​ 328,560 ​ 46,984 Add: ​ ​ ​ ​ Share-based compensation expenses 362,868 369,655 186,235 26,631 Amortization and depreciation of assets resulting from business acquisitions ​ 3,333 ​ 8,559 ​ 55,092 ​ 7,879 Adjusted (loss)/income from operations (130,509) 271,069 569,887 81,494 ​ 127 Table of Contents Selected Balance Sheet Items Accounts and notes receivable, net As of December 31, 2023 and 2024, our accounts and notes receivable, net primarily consisted of receivables from distributors. As of December 31, 2023 and 2024, our accounts and notes receivable, net were RMB60.5 million and RMB78.5 million, respectively. As of December 31, 2025, our accounts and notes receivable, net primarily consisted of receivables from distributors. As of December 31, 2025, our accounts and notes receivable, net was RMB190.4 million (US$27.2 million). In 2025, we experienced an increase in our accounts and notes receivable due to the improvement in sales and the consolidation of our acquired entity. Inventories Our inventories mainly include raw materials and finished goods. Inventories are stated at the lower of cost or net realizable value. Cost is determined using the weighted average method. As of December 31, 2023, 2024 and 2025, our inventories were RMB144.9 million, RMB142.6 million and RMB297.7 million (US$42.6 million), respectively. Our inventory turnover days were 115.5 days and 51.6 days for the years ended December 31, 2023 and 2024 and 42.1 days for the year ended December 31, 2025. The change in inventory turnover days was primarily due to our business growth, the consolidation of our acquired entity and our inventory management improvement. Our inventory turnover days for a given period is computed as: (i) the simple average of the balances of inventories at the beginning and the end of the period, divided by (ii) the cost of revenues during the period and then multiplied by (iii) the number of days during the period. We recorded inventory write-downs of RMB35.7 million, RMB24.3 million and RMB37.0 million (US$5.3 million) for the years ended December 31, 2023, 2024 and 2025, respectively. The increase in inventory write-downs in 2025 was primarily due to our business growth. Accounts and notes payable Our accounts payable primarily include accounts payable to our suppliers and manufacturers. Our notes payable mainly include short-term notes, typically with terms of 91 to 93 days which are provided to our suppliers and manufacturers. Our banks provide guarantee of these notes to the suppliers and manufacturers under their credit and require that we keep certain amount of cash at the bank (which we account for as restricted cash) until the notes are settled. Notes payable as of December 31, 2024 were secured by restricted cash of RMB24.1 million held in commercial banks. Notes payable as of December 31, 2025 were secured by restricted cash of RMB17.3 million (US$2.5 million) held in commercial banks. As of December 31, 2023, 2024 and 2025, our accounts and notes payable were RMB266.4 million, RMB458.5 million and RMB403.7 million (US$57.7 million), respectively. Our accounts and notes payable turnover days were 119.1 days and 80.1 days for the years ended December 31, 2023 and 2024 and 63.8 days for the year ended December 31, 2025. Accounts and notes payable turnover days for a given period is computed as (i) the simple average of accounts and notes payable at the beginning and the end of the period, divided by (ii) the cost of revenues during the period, and then multiplied by (iii) the number of days during the period. B. Liquidity and Capital Resources Cash Flows and Working Capital We had net cash generated from operating activities of RMB1,104.5 million (US$157.9 million) for the year ended December 31, 2025, and had cash, cash equivalents and restricted cash of RMB5,545.0 million (US$792.9 million) as of December 31, 2025. Additionally, we had RMB2,310.5 million (US$330.4 million) in short-term bank deposits, net, RMB2,326.6 million (US$332.7 million) in short-term investments, net, RMB5,116.3 million (US$731.6 million) in long-term investment securities, net and RMB433.6 million (US$62.0 million) in long-term bank deposits, net, as of December 31, 2025. We believe that our current capital resources (comprised of cash, cash equivalents, restricted cash, short-term bank deposits, net, short-term investments, net, long-term investment securities, net and long-term bank deposits, net) and our expected cash provided by operating activities will be sufficient to meet our current and anticipated working capital requirements and capital expenditures for the next twelve months. We may, however, need additional cash resources in the future if we experience changes in business conditions or other developments. We may also need additional cash resources in the future if we identify and wish to pursue opportunities for investment, acquisition, capital expenditure or similar actions. 128 Table of Contents As of December 31, 2025, 62.9% of our cash, cash equivalents and restricted cash were held in Mainland China. As of December 31, 2025, 28.5% of cash, cash equivalents and restricted cash were held by the consolidated VIE and VIE’s subsidiaries. Although we consolidate the results of the consolidated variable interest entity and its subsidiaries, we only have access to the assets or earnings of the consolidated variable interest entity and its subsidiaries through our contractual arrangements with the consolidated variable interest entity and its shareholders. See “Item 4. Information on the Company—C. Organizational Structure—Contractual Arrangements with the Consolidated Variable Interest Entity and its Shareholders” for more information. For restrictions and limitations on liquidity and capital resources as a result of our corporate structure, see “—Holding Company Structure.” Aside from the revenues derived from our international operation that are in the form of U.S. dollars or local currencies, revenues generated from China business have been, and we expect they are likely to continue to be, in the form of Renminbi. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior SAFE approval as long as certain routine procedural requirements are fulfilled. Therefore, our PRC subsidiaries are allowed to pay dividends in foreign currencies to us without prior SAFE approval by following certain routine procedural requirements. However, current PRC regulations permit our PRC subsidiaries to pay dividends to us only out of its accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. Our PRC subsidiaries are required to set aside at least 10% of its after-tax profits after making up previous years’ accumulated losses each year, if any, to fund certain reserve funds until the total amount set aside reaches 50% of its registered capital. These reserves are not distributable as cash dividends. Historically, our PRC subsidiaries have not paid dividends to us. Furthermore, capital account transactions, which include foreign direct investment and loans, must be approved by and/or registered with SAFE, its local branches and certain local banks. As a Cayman Islands exempted company and offshore holding company, we are permitted under PRC laws and regulations to provide funding to our PRC subsidiaries only through loans or capital contributions, subject to the approval, filings or registration of government authorities and limits on the amount of capital contributions and loans. This may delay us from using the proceeds from our initial public offering to make loans or capital contributions to our PRC subsidiaries. We expect to invest a significant portion of the proceeds from our initial public offering in our PRC operations for general corporate purposes within the business scopes of the consolidated VIE and VIE’s subsidiaries. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in China—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.” The following table sets forth a summary of our cash flows for the years presented: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended December 31, ​ ​ 2023 ​ 2024 ​ 2025 ​ ​ ​ ​ RMB ​ ​ ​ RMB ​ ​ ​ RMB ​ ​ ​ US$ ​ ​ (in thousands) Net cash generated from operating activities 198,703 ​ 854,349 ​ 1,104,548 ​ 157,948 Net cash generated from/(used in) 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 and 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 ​ 129 Table of Contents Operating activities Net cash generated from operating activities in the year ended December 31, 2025 was RMB1,104.5 million (US$157.9 million). The difference between net cash generated from operating activities and net income of RMB934.4 million (US$133.6 million) in the same period was due to adjustments for non-cash items that primarily included share-based compensation expenses of RMB186.2 million (US$26.6 million), inventory write-downs of RMB37.0 million (US$5.3 million) and amortization of right-of-use assets of RMB31.2 million (US$4.5 million), and reduced cash released from working capital, which mainly resulted from an increase of RMB77.6 million (US$11.1 million) in prepayments and other current assets, a decrease of RMB55.6 million (US$7.9 million) in accounts and notes payable, and an increase of RMB55.1 million (US$7.9 million) in inventories, partially offset by a decrease of RMB135.9 million (US$19.4 million) in amount due from related parities. Net cash generated from operating activities in the year ended December 31, 2024 was RMB854.3 million. The difference between net cash generated from operating activities and net income of RMB564.3 million in the same period was due to adjustments for non-cash items that primarily included unrealized investment income of RMB91.3 million, share-based compensation expenses of RMB369.7 million, and reduced cash released from working capital, which mainly resulted from an increase of RMB227.4 million in amount due from related parities, a decrease of RMB39.0 million in contract liabilities, partially offset by an increase of RMB192.1 million in accounts and notes payable. Net cash generated from operating activities in the year ended December 31, 2023 was RMB198.7 million. The difference between net cash generated from operating activities and net income of RMB541.0 million in the same period was due to adjustments for non-cash items that primarily included unrealized investment income of RMB378.1 million, share-based compensation expenses of RMB362.9 million, and disposal gain of equity investment of RMB164.4 million, and reduced cash released from working capital, which mainly resulted from a decrease of RMB88.5 million in salary and welfare benefits payable and a decrease of RMB59.7 million in lease liabilities, partially offset by a decrease of RMB29.9 million in prepayments and other current assets. Investing activities Net cash used in investing activities for the year ended December 31, 2025 was RMB822.2 million (US$117.6 million), primarily due to purchase of shot-term investments of RMB13,458.0 million (US$1,924.5 million), purchase of short-term bank deposits of RMB2,298.9 million (US$328.7 million), purchase of long-term investment securities of RMB1,000.2 million (US$143.0 million), and acquisition of subsidiaries of RMB599.1 million (US$85.7 million), partially offset by proceeds from maturities of short-term investments of RMB14,263.0 million (US$2,039.6 million) and proceeds from maturities of short-term bank deposits of RMB2,769.5 million (US$396.0 million). Net cash generated from investing activities for the year ended December 31, 2024 was RMB3,018.0 million, primarily due to RMB13,258.1 million received from maturities of short-term investments and RMB2,710.6 million received from maturities of short-term bank deposits, partially offset by RMB9,786.2 million used in purchase of short-term investments, RMB1,993.7 million used in purchase of long-term investment securities and RMB1,090.0 million used in purchase of short-term band deposits. Net cash generated from investing activities for the year ended December 31, 2023 was RMB2,091.1 million, primarily due to RMB9,717.5 million received from maturities of short-term bank deposits and RMB8,388.0 million received from maturities of short-term investments, partially offset by RMB8,749.7 million used in purchase of short-term investments and RMB4,843.2 million used in purchase of short-term bank deposits. Financing activities Net cash used in financing activities for the year ended December 31, 2025 primarily consisted of RMB282.9 million (US$40.5 million) in amounts due to cash payments for repurchase of shares and repayment of bank loans. Net cash used in financing activities for the year ended December 31, 2024 primarily consisted of RMB589.4 million in amounts due to cash payments for repurchase of shares. Net cash used in financing activities for the year ended December 31, 2023 primarily consisted of RMB996.6 million in amounts due to cash payments for repurchase of shares. 130 Table of Contents Material Cash Requirements Our material cash requirements as of December 31, 2025 primarily include our operating lease obligations and capital expenditures. Our operating lease obligations consist of lease of offices under non-cancelable operating lease agreements, which expire at various dates through 1 month to 180 months. Payment due as of December 31, 2025 for our operating lease obligations amounted to RMB84.3 million (US$12.0 million). Our capital expenditures are primarily related to purchases of machinery and equipment on production lines that we manage and warehouses used for inventory storage. Our capital expenditures were RMB32.4 million and RMB12.3 million for the years ended December 31, 2023 and 2024 and RMB118.7 million (US$17.0 million) for the year ended December 31, 2025. The significant increase in capital expenditures in 2025 compared to 2024 was mainly attributable to the purchase of warehouses for inventory storage. We intend to fund our future capital expenditures with our existing cash balance and cash generated from operating activities. We will continue to incur capital expenditures to meet the needs of the business of us and the consolidated VIE. The following table sets forth our contractual obligations as of December 31, 2025. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years ending December 31, ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2028 and ​ ​ Total ​ ​ ​ 2026 ​ ​ ​ 2027 ​ ​ ​ thereafter ​ ​ (RMB in thousands) Operating lease commitments 7,725 ​ 7,725 — — ​ We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. In addition, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in product development services with us. Other than as shown above, we did not have any significant capital and other commitments, long-term obligations or guarantees as of December 31, 2025. Holding Company Structure RLX Technology Inc. is a holding company with no material 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 primarily through our PRC subsidiaries, the consolidated VIE and its subsidiaries in China. As a result, our ability to pay dividends depends upon dividends paid by our PRC subsidiaries. If our existing PRC subsidiaries or any newly formed ones incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us. In addition, our wholly foreign-owned subsidiaries in China are permitted to pay dividends to us only out of its retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Under PRC law, each of our subsidiaries and the consolidated VIE in China are required to set aside at least 10% of its after-tax profits each year, if any, to fund certain statutory reserve funds until such reserve funds reach 50% of their registered capital. In addition, our wholly foreign-owned subsidiaries in China may allocate a portion of their after-tax profits based on PRC accounting standards to enterprise expansion funds and staff bonus and welfare funds at their discretion, and the consolidated VIE may allocate a portion of its after-tax profits based on PRC accounting standards to a surplus fund at their discretion. The statutory reserve funds and the discretionary funds are not distributable as cash dividends. Remittance of dividends by a wholly foreign-owned company out of China is subject to examination by the banks designated by SAFE. Our PRC subsidiaries have not paid dividends and will not be able to pay dividends until they generate accumulated profits and meet the requirements for statutory reserve funds. C.Research and Development, Patents and Licenses, etc. See “Item 4. Information on the Company—B. Business Overview—Our Technology and Product Development and Scientific Research” and “Item 4. Information on the Company—B. Business Overview—Intellectual Property.” 131 Table of Contents D.Trend Information Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the year ended December 31, 2025 that are reasonably likely to have a material effect on our net revenues, income, profitability, liquidity or capital resources, or that would cause the disclosed financial information to be not necessarily indicative of future operating results or financial conditions. E. Critical Accounting Estimates We prepare our financial statements in accordance with U.S. GAAP, which requires our management to make judgements, estimates and assumptions. We continually evaluate these judgments, estimates and assumptions based on our own historical experience, knowledge and assessment of current business and other conditions, our expectations regarding the future based on available information and various assumptions that we believe to be reasonable, which together form our basis for making judgments about matters that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, our actual results could differ from those estimates. Some of our accounting policies require a higher degree of judgment than others in their application. Our critical accounting estimate is described below. You should read the following description of critical accounting estimate in conjunction with our consolidated financial statements and other disclosures included in this annual report. Fair value measurement of acquired company’s intangibles as of valuation date The Group recorded RMB121.1 million of channel relations and RMB67.8 million of brands as intangible assets in connection with the acquisition of an entity based in Europe which was accounted for as a business combination. Fair value is estimated using a multi-period excess earnings method for channel relations and a relief from royalty method for brands. Our cash flow projections for the intangible assets acquired included significant judgments and assumptions relating to revenue growth rates, margin rates, operating expense rates, discount rate and contributory assets charges for channel relations and revenue growth rates, discount rate and royalty rate for brands. Our management’s estimates of fair value are based on available information as of the acquisition date and upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, the actual results may differ from estimates. Changes in these estimates and assumptions could materially affect the determination of the asset’s fair value. ​