人民网记者 葛俊俊 走进趣头条，独特的互联网公司特质让人眼前一亮：开放式的办公区域、充满个性的装饰，前沿科技的气息弥漫在每一个角落。 这是一家主营新闻资讯平台"趣头条"、网络文学小说"米读小说"、微短剧平台"魔豆剧场"等的上海本土民营互联网企业。成立不到10年，却拥有众多用 户。 按照"网上网下形成同心圆"的要求，2019年，在张江科学城综合党委的引领下，趣头条以政治建设为核心，打造了"圆周率"党建品牌，为互联网企业党 建工作注入了鲜活力量，成为了红色党建在互联网领域绽放光彩的生动范例。 以党建为基石，创新党建品牌 为何以"圆周率"为党建品牌，有何深意？"构建同心圆，要把网下的社会、文化各方面和网上的生态、数据等方面凝聚在同一个圆心，党建是重要基 石。"趣头条党委副书记金真表示，所有的圆，都具有共同的圆周率。 根据"π"的数值3.14，趣头条党委提出了"加强党员政治实践、表达和参与"的3个切入点；"打造与党同心同德、以人民为中心的队伍"的1个核心目标，形 成"可复制、可推广、可实践、可发展"的4项工作输出属性。 "圆周率"党建 趣头条党委深知，将"人"的政治能力提升并运用到具体工作中，转化为平台营造网络清朗空 ...

PART I [ITEM 3. KEY INFORMATION](index=7&type=section&id=ITEM%203.%20KEY%20INFORMATION) Qutoutiao Inc., a Cayman Islands holding company, operates in China via VIEs due to foreign ownership restrictions, facing risks from contract enforceability, regulatory scrutiny, and substantial doubt about its going concern status due to recurring losses and negative cash flows - The company operates through a VIE structure, controlling PRC entities via contractual arrangements due to foreign investment restrictions in telecommunication and internet services[27](index=27&type=chunk) - Substantial doubt exists about the company's ability to continue as a going concern due to recurring net losses, negative operating cash flow, working capital deficit, and significant debt obligations, including a convertible loan from Alibaba[71](index=71&type=chunk)[72](index=72&type=chunk) - The HFCAA poses a risk, potentially prohibiting the company's ADSs from trading in the US if the PCAOB cannot inspect its China-based auditor for two consecutive years[31](index=31&type=chunk) Summary of Cash Transfers Between Subsidiaries and VIEs (RMB in thousands) | Description | 2022 | 2023 | 2024 | | :--- | :--- | :--- | :--- | | **Cash paid by VIEs to subsidiaries (service agreements)** | (376,184) | (571,434) | 207,656 | | **Cash received by VIEs from subsidiaries (service agreements)** | 236,903 | 637,646 | - | | **Cash received by VIEs from subsidiaries (intra-Group financing)** | 606,146 | 66,034 | - | | **Cash repaid by VIEs to subsidiaries (intra-Group financing)** | - | - | 365,627 | [Risk Factors](index=19&type=section&id=D.%20Risk%20Factors) The company faces significant business, structural, and regulatory risks, including limited operating history, user acquisition challenges, going concern doubts, reliance on advertising, VIE enforceability issues, Chinese government intervention, and ADS trading volatility and delisting risks - The company incurred net losses of **RMB 914.8 million**, **RMB 185.3 million**, and **RMB 167.5 million** in 2022, 2023, and 2024, respectively, raising substantial doubt about its ability to continue as a going concern[72](index=72&type=chunk)[79](index=79&type=chunk) - Reliance on VIE contractual arrangements poses risks of non-performance or non-compliance with PRC regulations, potentially leading to severe penalties and being less effective than direct ownership[206](index=206&type=chunk)[214](index=214&type=chunk) - PRC government intervention and evolving regulations on overseas offerings and cybersecurity could hinder operations and securities offerings, potentially causing ADS value to decline or become worthless[232](index=232&type=chunk)[240](index=240&type=chunk) - The company's ADSs were delisted from Nasdaq in April 2023, now trading on the OTC market with lower liquidity, and face a risk of a complete trading ban under the HFCAA if the PCAOB cannot inspect its auditor[270](index=270&type=chunk)[276](index=276&type=chunk)[280](index=280&type=chunk) [ITEM 4. INFORMATION ON THE COMPANY](index=77&type=section&id=ITEM%204.%20INFORMATION%20ON%20THE%20COMPANY) Qutoutiao operates a mobile content platform in China, targeting lower-tier city users with light entertainment via its flagship and literature apps, monetizing primarily through advertising services, all within a complex VIE structure following its Nasdaq delisting - The flagship Qutoutiao app launched in June 2016, followed by Midu Novels in May 2018, with the company's ADSs delisted from Nasdaq on March 14, 2023[319](index=319&type=chunk)[324](index=324&type=chunk) - The business model delivers customized content to users, especially in lower-tier Chinese cities, primarily monetized through advertising and marketing services[326](index=326&type=chunk)[328](index=328&type=chunk)[332](index=332&type=chunk) Key Operating Metrics (2023 vs 2024) | Metric | 2023 | 2024 | | :--- | :--- | :--- | | **Combined Average MAUs (millions)** | 8.5 | 5.6 | | **Combined Average DAUs (millions)** | 2.9 | 2.0 | | **New Installed Users (millions)** | 17.2 | 10.4 | | **Average daily time spent per DAU (minutes)** | 41.8 | 33.4 | - The company operates through a VIE structure, using contractual arrangements to control key PRC operating entities and comply with Chinese laws restricting foreign ownership in the internet sector[518](index=518&type=chunk)[520](index=520&type=chunk) [ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS](index=115&type=section&id=ITEM%205.%20OPERATING%20AND%20FINANCIAL%20REVIEW%20AND%20PROSPECTS) The company's financial performance shows volatile revenues, continued net losses despite 2024 growth, declining operational metrics, and significant liquidity challenges from debt and redemption obligations, raising substantial doubt about its going concern status, prompting management to implement cost controls and explore financing Consolidated Results of Operations Summary (RMB in millions) | Metric | 2022 | 2023 | 2024 | | :--- | :--- | :--- | :--- | | **Net Revenues** | 1,083.0 | 745.6 | 1,021.9 | | **Gross Profit** | 520.4 | 329.6 | 461.5 | | **Loss from Operations** | (318.5) | (1.9) | 33.5 (Income) | | **Net Loss** | (914.8) | (185.3) | (167.5) | - Net revenues increased to **RMB 1,021.9 million** in 2024 from **RMB 745.6 million** in 2023, driven by increased advertising budgets and new channel customer expansion[597](index=597&type=chunk) - Substantial doubt exists about the company's ability to continue as a going concern due to recurring losses, negative working capital, and uncertainties regarding the repayment of a **RMB 2.2 billion** convertible loan and redemption obligations for Fun Literature Limited[627](index=627&type=chunk)[633](index=633&type=chunk) - Management is implementing liquidity improvement measures, including optimizing user loyalty programs, reducing operating expenses, and exploring external financing, asset sales, and convertible loan maturity extensions[629](index=629&type=chunk)[631](index=631&type=chunk) [ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES](index=131&type=section&id=ITEM%206.%20DIRECTORS%2C%20SENIOR%20MANAGEMENT%20AND%20EMPLOYEES) Led by Eric Siliang Tan and Bing Xu, the company paid approximately RMB 3.0 million in 2024 compensation, lacks independent directors after committee dissolution, employs 331 staff primarily in technology, and has highly concentrated share ownership with Eric Siliang Tan controlling 72.1% of voting power - Co-founder Eric Siliang Tan holds **34.0%** of ordinary shares but controls **72.1%** of aggregate voting power due to the dual-class share structure, granting significant influence[169](index=169&type=chunk)[688](index=688&type=chunk) - In 2024, aggregate cash compensation for all directors and executive officers was approximately **RMB 3.0 million (US$0.4 million)**[656](index=656&type=chunk) - The company has no independent directors, as the audit, compensation, and nominating committees were dissolved on May 12, 2023, with their functions now performed by the board[283](index=283&type=chunk)[677](index=677&type=chunk) Employee Breakdown by Function (as of Dec 31, 2024) | Function | Number of Employees | % of Total | | :--- | :--- | :--- | | Content management | 67 | 20.2% | | Technology and product development | 152 | 45.9% | | Sales, customer service and marketing | 52 | 15.7% | | General administration | 60 | 18.2% | | **Total** | **331** | **100.0%** | [ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS](index=140&type=section&id=ITEM%207.%20MAJOR%20SHAREHOLDERS%20AND%20RELATED%20PARTY%20TRANSACTIONS) The company engages in related party transactions, primarily with entities controlled by co-founder Eric Siliang Tan, involving advertising services and significant amounts due, with its VIE contractual arrangements also constituting related party transactions - The Group provided advertising services to companies controlled by co-founder Eric Siliang Tan, with **RMB 44.5 million (US$6.1 million)** due from these related parties as of December 31, 2024[698](index=698&type=chunk) - The Group also procured advertisement placement and promotion services from media platforms controlled by Mr. Tan, with service fees totaling **RMB 1.0 million** in 2024[699](index=699&type=chunk)[700](index=700&type=chunk) - The company's operational reliance on its VIEs is managed through contractual arrangements, which constitute significant related party transactions[701](index=701&type=chunk) [ITEM 8. FINANCIAL INFORMATION](index=140&type=section&id=ITEM%208.%20FINANCIAL%20INFORMATION) This section presents the company's consolidated financial statements, detailing significant legal proceedings including a shareholder class-action lawsuit and a **RMB 82.8 million** fine for fraudulent advertisements, while noting the company has never paid dividends and plans to retain earnings for business growth - The company is a defendant in a shareholder class-action lawsuit alleging materially false or misleading statements, which was dismissed but later vacated and remanded[704](index=704&type=chunk)[705](index=705&type=chunk) - In 2022, a subsidiary and a Key VIE paid fines totaling **RMB 82.8 million (US$12.0 million)** related to fraudulent advertisements on the company's platform[706](index=706&type=chunk) - The company has never paid dividends and plans no future payments, intending to retain funds for business growth, with PRC regulations also restricting subsidiary profit distribution[710](index=710&type=chunk)[712](index=712&type=chunk) [ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=150&type=section&id=ITEM%2011.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company's primary market risk is foreign exchange, as RMB-denominated revenues and USD-traded ADSs expose it to RMB/USD fluctuations, which are not currently hedged with derivatives, while interest rate and inflation risks are not significant - The primary market risk is foreign exchange, as RMB-denominated revenues and USD-traded ADSs make investments sensitive to RMB-USD exchange rate fluctuations[768](index=768&type=chunk)[770](index=770&type=chunk) - The company does not currently use derivative financial instruments to hedge its foreign exchange risk exposure[770](index=770&type=chunk) - Interest rate risk is not material, as the company has not been significantly exposed to market rate changes, and Chinese inflation has not materially affected operations[773](index=773&type=chunk)[775](index=775&type=chunk) PART II [ITEM 15. CONTROLS AND PROCEDURES](index=153&type=section&id=ITEM%2015.%20CONTROLS%20AND%20PROCEDURES) As of December 31, 2024, management concluded disclosure controls and procedures were ineffective due to a persistent material weakness in internal control over financial reporting, stemming from insufficient personnel with U.S. GAAP and SEC reporting knowledge, with remedial steps not yet fully implemented - Management concluded that as of December 31, 2024, the company's disclosure controls and procedures were ineffective[789](index=789&type=chunk) - A material weakness in internal control over financial reporting was identified due to insufficient financial reporting and accounting personnel with adequate U.S. GAAP and SEC reporting knowledge[792](index=792&type=chunk) - Remedial measures, including hiring qualified resources and enhancing training, have not been fully implemented, and the material weakness was not corrected as of December 31, 2024[793](index=793&type=chunk) [ITEM 16F. CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT](index=155&type=section&id=ITEM%2016F.%20CHANGE%20IN%20REGISTRANT%27S%20CERTIFYING%20ACCOUNTANT) On January 3, 2023, Qutoutiao dismissed PwC and appointed Shandong Haoxin Certified Public Accountants Co., Ltd. as its new auditor, with no disagreements on accounting principles, though PwC's 2021 report expressed substantial doubt about the company's going concern ability - The company dismissed PricewaterhouseCoopers Zhong Tian LLP (PwC) on January 3, 2023, and appointed Shandong Haoxin Certified Public Accountants Co., Ltd. on January 17, 2023[805](index=805&type=chunk) - PwC's 2021 audit report was not adverse or qualified, but included a paragraph expressing substantial doubt about the company's ability to continue as a going concern[806](index=806&type=chunk) - There were no disagreements with PwC on accounting principles or practices, with the only reportable event being the previously disclosed material weakness in internal control over financial reporting[808](index=808&type=chunk) [ITEM 16K. CYBERSECURITY](index=157&type=section&id=ITEM%2016K.%20CYBERSECURITY) The company integrates cybersecurity into its risk management with policies, technical measures, and an incident response mechanism, overseen by the board and a dedicated committee chaired by Jianfei Dong, and has not experienced any material cybersecurity incidents to date - The company has implemented a comprehensive cybersecurity risk management program, including procedures for assessing, identifying, and managing threats through technical measures and internal policies[815](index=815&type=chunk) - Cybersecurity governance is overseen by the board, with a management-level Cybersecurity and Information Security Committee, chaired by director Jianfei Dong, responsible for implementation and reporting[818](index=818&type=chunk)[819](index=819&type=chunk) - As of the report date, the company has not experienced any cybersecurity incidents that have materially affected its business strategy, results of operations, or financial condition[817](index=817&type=chunk) PART III [ITEM 18. FINANCIAL STATEMENTS](index=157&type=section&id=ITEM%2018.%20FINANCIAL%20STATEMENTS) The consolidated financial statements, audited by Shandong Haoxin, present Qutoutiao Inc.'s financial position and performance through December 31, 2024, with the auditor expressing substantial doubt about its going concern ability due to recurring losses, negative working capital, and significant debt, reflecting a challenging financial situation including a **RMB 167.5 million** net loss and **RMB 4.3 billion** shareholders' deficit in 2024 - The independent auditor's report expresses substantial doubt about the Company's ability to continue as a going concern, citing recurring losses, negative working capital, and uncertainties regarding loan repayments and preferred shareholder redemption rights[834](index=834&type=chunk) Consolidated Balance Sheet Summary (RMB in thousands) | Metric | Dec 31, 2023 | Dec 31, 2024 | | :--- | :--- | :--- | | **Total Current Assets** | 348,996 | 435,428 | | **Total Assets** | 413,411 | 478,712 | | **Total Current Liabilities** | 807,853 | 844,691 | | **Total Liabilities** | 2,767,669 | 3,023,372 | | **Total Shareholders' Deficit** | (3,937,388) | (4,315,010) | Consolidated Statement of Comprehensive Loss Summary (RMB in thousands) | Metric | 2022 | 2023 | 2024 | | :--- | :--- | :--- | :--- | | **Net Revenues** | 1,083,045 | 745,557 | 1,021,892 | | **Gross Profit** | 520,438 | 329,644 | 461,541 | | **Net Loss** | (914,767) | (185,313) | (167,530) | Consolidated Statement of Cash Flows Summary (RMB in thousands) | Metric | 2022 | 2023 | 2024 | | :--- | :--- | :--- | :--- | | **Net cash from operating activities** | (443,797) | (65,698) | 3,830 | | **Net cash from investing activities** | 267,555 | 26,483 | (149) | | **Net cash from financing activities** | (20,000) | — | — |

PART I [ITEM 3. KEY INFORMATION](index=8&type=section&id=ITEM%203.%20KEY%20INFORMATION) Qutoutiao, a Cayman Islands holding company, operates in China through VIEs due to foreign ownership restrictions, detailing its structure, associated risks, and financial summaries - Qutoutiao Inc. is a Cayman Islands holding company controlling PRC operations and receiving economic benefits through VIEs due to foreign investment restrictions in telecommunication services[24](index=24&type=chunk)[25](index=25&type=chunk)[26](index=26&type=chunk) - The company faces delisting risks under the Holding Foreign Companies Accountable Act (HFCAA) if the PCAOB cannot inspect its China-based auditor for two consecutive years[28](index=28&type=chunk) Summary of Cash Transfers Between Subsidiaries and Group VIEs (RMB in thousands) | Description | 2021 | 2022 | 2023 | | :--- | :--- | :--- | :--- | | Cash paid by VIEs to subsidiaries (Service agreements) | (756,962) | (376,184) | (571,434) | | Cash received by VIEs from subsidiaries (Service agreements) | 188,798 | 236,903 | 637,646 | | Cash received by VIEs from subsidiaries (Intra-Group financing) | 137,515 | 606,146 | 66,034 | - No dividends were paid by subsidiaries or VIEs to the Cayman Islands holding company from 2021 to 2023, with earnings retained for business expansion[33](index=33&type=chunk) [Risk Factors](index=22&type=section&id=D.%20Risk%20Factors) This section details significant investment risks for Qutoutiao's ADSs, covering business, corporate structure, China operations, and ADS-specific risks including delisting and going concern issues - Substantial doubt exists about the company's ability to continue as a going concern due to recurring net losses, negative operating cash flow, a working capital deficit, and significant convertible loan obligations[52](index=52&type=chunk)[69](index=69&type=chunk) - Reliance on VIE contractual arrangements poses risks of less effective control and potential PRC government scrutiny, leading to severe penalties or loss of operational control[53](index=53&type=chunk)[55](index=55&type=chunk) - The company's ADSs were delisted from Nasdaq on April 12, 2023, now trading on the OTC market, potentially impacting liquidity and trading price[252](index=252&type=chunk)[255](index=255&type=chunk) - The company's ADSs face delisting risk from US markets under the HFCAA if the PCAOB is unable to inspect its China-based auditors in the future[55](index=55&type=chunk)[246](index=246&type=chunk) [ITEM 4. INFORMATION ON THE COMPANY](index=82&type=section&id=ITEM%204.%20INFORMATION%20ON%20THE%20COMPANY) This section provides an overview of Qutoutiao's mobile content platforms, business model, complex VIE structure, and the extensive PRC regulatory environment governing its operations - The company operates AI-powered mobile content platforms, Qutoutiao and Midu, delivering personalized content primarily to users in lower-tier Chinese cities[296](index=296&type=chunk)[298](index=298&type=chunk) - The business model is primarily monetized through advertising and marketing services, supported by an innovative user loyalty program for acquisition and engagement[299](index=299&type=chunk)[302](index=302&type=chunk) - The company operates in China via a VIE structure to comply with PRC foreign investment restrictions in telecommunications and internet sectors, using contractual arrangements for control and economic benefits[480](index=480&type=chunk)[482](index=482&type=chunk)[483](index=483&type=chunk) - The company is subject to a complex and evolving PRC regulatory landscape, requiring numerous licenses and posing significant compliance risks across various internet and data sectors[333](index=333&type=chunk)[339](index=339&type=chunk) [ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS](index=123&type=section&id=ITEM%205.%20OPERATING%20AND%20FINANCIAL%20REVIEW%20AND%20PROSPECTS) This section analyzes the company's financial condition, detailing significant revenue decline, narrowed net loss due to cost optimization, and liquidity pressures, including a convertible loan and going concern doubts Consolidated Financial Performance (RMB in millions) | Metric | 2021 | 2022 | 2023 | | :--- | :--- | :--- | :--- | | Net Revenues | 4,339.6 | 1,083.0 | 745.6 | | Gross Profit | 3,168.0 | 520.4 | 329.6 | | Loss from Operations | (1,193.2) | (318.5) | (1.9) | | Net Loss Attributable to Qutoutiao Inc. | (1,239.6) | (914.8) | (185.3) | - Net revenues significantly decreased from **RMB 1,083.0 million** in 2022 to **RMB 745.6 million** in 2023, primarily due to macroeconomic downturn and advertising budget constraints[507](index=507&type=chunk)[560](index=560&type=chunk) - Total operating expenses were drastically reduced from **RMB 4,467.3 million** in 2021 to **RMB 900.8 million** in 2022, and further to **RMB 351.1 million** in 2023, driven by cost optimization and cessation of user base expansion[562](index=562&type=chunk)[573](index=573&type=chunk) - The company's financial condition raises substantial doubt about its ability to continue as a going concern, citing recurring losses, negative operating cash flow, a working capital deficit, and a significant convertible loan of approximately **RMB 1.94 billion** due in April 2025[586](index=586&type=chunk)[589](index=589&type=chunk)[591](index=591&type=chunk) [ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES](index=140&type=section&id=ITEM%206.%20DIRECTORS,%20SENIOR%20MANAGEMENT%20AND%20EMPLOYEES) This section details the company's leadership, compensation, board structure with no independent directors or committees, and a significant reduction in employee headcount by 2023 - The board of directors comprises three executive officers: Eric Siliang Tan (Co-founder and Chairman), Bing Xu (CEO and CFO), and Jianfei Dong (Co-president)[606](index=606&type=chunk) - In 2023, aggregate cash compensation for all directors and executive officers was approximately **RMB 3.1 million (US$0.4 million)**[612](index=612&type=chunk) - The company has no independent directors, and all board committees were dissolved on May 12, 2023, with functions now performed by the full board[631](index=631&type=chunk) Employee Headcount by Year | As of December 31 | Total Employees | | :--- | :--- | | 2021 | 1,110 | | 2022 | 427 | | 2023 | 370 | [ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS](index=149&type=section&id=ITEM%207.%20MAJOR%20SHAREHOLDERS%20AND%20RELATED%20PARTY%20TRANSACTIONS) This section details major shareholders, highlighting Co-founder Eric Siliang Tan's significant control and related party transactions, including advertising services and procurement with his affiliated entities - Co-founder and Chairman, Mr. Eric Siliang Tan, holds effective control with **72.1%** of aggregate voting power through **27,123,442 Class B ordinary shares**[639](index=639&type=chunk) - The Group provided advertising and marketing services to Mr. Eric Siliang Tan's controlled companies, with fees of **RMB 40.3 million** in 2021, **RMB 2.5 million** in 2022, and nil in 2023[649](index=649&type=chunk) - The Group procured advertisement placement services from Mr. Eric Siliang Tan's controlled media platforms, with fees of **RMB 103.3 million** in 2021, **RMB 16.7 million** in 2022, and **RMB 0.3 million** in 2023[650](index=650&type=chunk) [ITEM 8. FINANCIAL INFORMATION](index=150&type=section&id=ITEM%208.%20FINANCIAL%20INFORMATION) This section details ongoing legal proceedings, including a shareholder class action and a significant fine for fraudulent advertisements, and states the company's policy of not paying dividends - The company is defending a shareholder class action lawsuit alleging Securities Act and Exchange Act violations related to its 2018 IPO and 2019 secondary offering, with an appeal pending after a dismissal motion was granted[657](index=657&type=chunk)[658](index=658&type=chunk) - In October 2022, the company was ordered to pay fines of approximately **RMB 82.8 million (US$12.0 million)** for fraudulent advertisements, which have since been paid[659](index=659&type=chunk) - The company has never declared or paid dividends and plans to retain all earnings for business operation and expansion[662](index=662&type=chunk) [ITEM 9. THE OFFER AND LISTING](index=152&type=section&id=ITEM%209.%20THE%20OFFER%20AND%20LISTING) This section details the trading history of the company's ADSs, noting their listing on NASDAQ from 2018 until their delisting in April 2023 - The company's ADSs were delisted from the NASDAQ Global Select Market, with the delisting becoming effective in April 2023 after a Form 25 filing[666](index=666&type=chunk) [ITEM 10. ADDITIONAL INFORMATION](index=152&type=section&id=ITEM%2010.%20ADDITIONAL%20INFORMATION) This section provides supplementary corporate information, including material contracts, exchange controls, and detailed tax implications across the Cayman Islands, PRC, and US, highlighting potential PFIC classification risks - The company, an exempted entity in the Cayman Islands, is currently not subject to profits, income, gains, or capital gains tax in that jurisdiction[676](index=676&type=chunk) - There is a risk that PRC tax authorities could deem the company a PRC resident enterprise, subjecting it to a **25%** enterprise income tax on worldwide income and potential withholding taxes on foreign dividends[679](index=679&type=chunk) - The company believes it was not a Passive Foreign Investment Company (PFIC) for the most recent taxable year, but its status is annually determined and could change, leading to adverse U.S. federal income tax consequences for U.S. Holders if classified as such[283](index=283&type=chunk)[693](index=693&type=chunk)[694](index=694&type=chunk) [ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=160&type=section&id=ITEM%2011.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This section discusses the company's primary market risk as foreign exchange fluctuations between RMB and USD, while noting no material exposure to interest rate risk or significant impact from inflation - The company's primary market risk is foreign exchange risk due to RMB-denominated revenues and expenses versus USD-traded ADSs, impacting investment value[718](index=718&type=chunk)[719](index=719&type=chunk) - The company has not been materially exposed to interest rate risk and does not use derivative financial instruments to manage interest rate or foreign exchange risk[719](index=719&type=chunk)[723](index=723&type=chunk) - Inflation in China has not materially affected operations, with the consumer price index increasing by **0.9%**, **2.0%**, and **0.2%** in 2021, 2022, and 2023 respectively[725](index=725&type=chunk) [ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES](index=161&type=section&id=ITEM%2012.%20DESCRIPTION%20OF%20SECURITIES%20OTHER%20THAN%20EQUITY%20SECURITIES) This section outlines the various fees and charges associated with the company's American Depositary Shares (ADSs) payable to the depositary, The Bank of New York Mellon ADS Depositary Fees and Charges | Fee | For | Amount | | :--- | :--- | :--- | | Issuance/Cancellation Fee | Issuance or cancellation of ADSs | US$5.00 (or less) per 100 ADSs | | Cash Distribution Fee | Any cash distribution to ADS holders | US$0.05 (or less) per ADS | | Depositary Services Fee | Annual fee for depositary services | US$0.05 (or less) per ADS per calendar year | - The company did not receive any payments from its depositary bank, The Bank of New York Mellon, in 2023[733](index=733&type=chunk) PART II [ITEM 15. CONTROLS AND PROCEDURES](index=163&type=section&id=ITEM%2015.%20CONTROLS%20AND%20PROCEDURES) Management concluded that disclosure controls and internal controls over financial reporting were ineffective as of December 31, 2023, due to a persistent material weakness in financial reporting personnel - Management concluded that the company's disclosure controls and procedures were ineffective as of December 31, 2023[741](index=741&type=chunk) - A material weakness in internal control over financial reporting, first identified in 2017, persists due to insufficient financial reporting and accounting personnel with U.S. GAAP and SEC reporting knowledge[743](index=743&type=chunk)[744](index=744&type=chunk) [ITEM 16. [RESERVED]](index=164&type=section&id=ITEM%2016.%20%5BRESERVED%5D) This section covers corporate governance, including the absence of an audit committee financial expert, a change in certifying accountant, and the company's cybersecurity risk management strategy - The company's board dissolved the audit committee on May 12, 2023, resulting in no audit committee financial expert[747](index=747&type=chunk) - On January 3, 2023, the company dismissed PricewaterhouseCoopers Zhong Tian LLP and appointed Shandong Haoxin Certified Public Accountants Co., Ltd. as its new independent registered public accounting firm[755](index=755&type=chunk) - The company established a Cybersecurity and Information Security Committee, chaired by Mr. Jianfei Dong, to oversee cybersecurity risk management, with overall board oversight[767](index=767&type=chunk)[768](index=768&type=chunk) PART III [ITEM 18. FINANCIAL STATEMENTS](index=167&type=section&id=ITEM%2018.%20FINANCIAL%20STATEMENTS) This section presents the audited consolidated financial statements for 2021-2023, with the auditor expressing substantial doubt about the company's going concern ability due to declining assets, significant liabilities, and persistent net losses - The independent auditor's report expresses substantial doubt about the Company's ability to continue as a going concern, citing recurring losses, negative operating cash flow, negative working capital, and convertible loan repayment uncertainties[786](index=786&type=chunk)[795](index=795&type=chunk) Consolidated Balance Sheet Summary (RMB in thousands) | Account | Dec 31, 2022 | Dec 31, 2023 | | :--- | :--- | :--- | | Total Current Assets | 481,825 | 348,996 | | Total Assets | 581,536 | 413,411 | | Total Current Liabilities | 990,034 | 807,853 | | Convertible Loan (Non-current) | 1,746,188 | 1,944,834 | | Total Liabilities | 2,757,840 | 2,767,669 | | Total Shareholders' Deficit | (3,590,739) | (3,937,388) | Consolidated Statement of Comprehensive Loss Summary (RMB in thousands) | Account | 2021 | 2022 | 2023 | | :--- | :--- | :--- | :--- | | Net Revenues | 4,339,603 | 1,083,045 | 745,557 | | Gross Profit | 3,167,977 | 520,438 | 329,644 | | Loss from Operations | (1,193,223) | (318,498) | (1,894) | | Net Loss | (1,240,176) | (914,767) | (185,313) | Consolidated Statement of Cash Flows Summary (RMB in thousands) | Account | 2021 | 2022 | 2023 | | :--- | :--- | :--- | :--- | | Net cash used in operating activities | (279,122) | (443,797) | (65,698) | | Net cash provided by investing activities | 75,521 | 267,555 | 26,483 | | Net cash used in financing activities | (66,094) | (20,000) | — | | Cash at end of year | 315,833 | 130,401 | 91,706 |

Financial Performance - Total revenues for the year ended December 31, 2022, were RMB 1,083,045 thousand, a decrease from RMB 4,339,603 thousand in 2021, reflecting a significant decline in revenue[43]. - Gross profit for 2022 was RMB 520,438 thousand, compared to RMB 3,167,977 thousand in 2021, indicating a substantial drop in profitability[43]. - Net loss attributable to Qutoutiao Inc. for 2022 was RMB 914,767 thousand, an increase from RMB 1,239,617 thousand in 2021, showing worsening financial performance[43]. - Total operating expenses for 2022 were RMB 900,765 thousand, down from RMB 4,467,298 thousand in 2021, suggesting cost-cutting measures were implemented[43]. - The company reported a loss from operations of RMB 318,498 thousand in 2022, compared to a loss of RMB 1,193,223 thousand in 2021, indicating improved operational efficiency despite losses[43]. - Non-operating expenses for 2022 totaled RMB 595,901 thousand, reflecting a significant increase from RMB 40,708 thousand in 2021, impacting overall financial results[43]. - The company experienced a gross profit margin of approximately 48.1% in 2022, down from 73% in 2021, highlighting challenges in maintaining profitability[43]. - The company recorded income tax benefits of RMB 1,048 thousand in 2022, compared to expenses of RMB 3,050 thousand in 2021, reflecting a shift in tax position[43]. - As of December 31, 2022, total assets for Qutoutiao Inc. amounted to RMB 3,754,106 thousand, a decrease from RMB 2,080,475 thousand as of December 31, 2021[46][47]. - Total current liabilities increased to RMB 2,736,222 thousand as of December 31, 2022, compared to RMB 3,263,673 thousand as of December 31, 2021[46][47]. - Cash and cash equivalents rose to RMB 50,989 thousand in 2022 from RMB 19,633 thousand in 2021, indicating a significant increase[46][47]. - The company's total liabilities decreased to RMB 2,757,840 thousand in 2022 from RMB 3,297,813 thousand in 2021, reflecting improved financial health[46][47]. - Total shareholders' deficit for Qutoutiao Inc. was RMB (3,590,739) thousand as of December 31, 2022, compared to RMB (2,389,556) thousand in 2021[46][47]. - The amount due from related parties increased to RMB 48,802 thousand in 2022 from RMB 259,863 thousand in 2021, indicating a shift in financial relationships[46][47]. - The company's short-term investments were RMB 26,402 thousand in 2022, a decrease from RMB 343,017 thousand in 2021[46][47]. - Accounts payable increased to RMB 394,994 thousand in 2022 from RMB 313,768 thousand in 2021, suggesting higher operational liabilities[46][47]. - The total current assets decreased to RMB 481,825 thousand in 2022 from RMB 1,862,509 thousand in 2021, indicating a decline in liquidity[46][47]. - The company's goodwill remained stable at RMB 7,268 thousand for both years, reflecting consistent valuation in this area[46][47]. Cash Flow - For the year ended December 31, 2020, the net cash provided by operating activities was RMB (863,774) thousand, indicating a significant cash outflow[49]. - In 2021, the net cash provided by operating activities improved to RMB (279,122) thousand, showing a reduction in cash outflow compared to 2020[50]. - For the year ended December 31, 2022, the net cash provided by operating activities was RMB (443,797) thousand, reflecting continued challenges in cash generation[50]. - The net cash used in investing activities for 2020 was RMB (782,545) thousand, while in 2021 it was RMB 75,521 thousand, indicating a substantial improvement in cash flow from investing activities[49][50]. - In 2022, the net cash provided by investing activities was RMB 267,555 thousand, further demonstrating a positive trend in cash flow from investments[50]. - The net cash provided by financing activities in 2020 was RMB 307,746 thousand, which increased to RMB (66,094) thousand in 2021, indicating a shift towards cash outflows in financing[49][50]. Regulatory and Compliance Risks - The Group faces legal and operational risks associated with evolving PRC laws and regulations, which could materially affect its business[29]. - The Holding Foreign Companies Accountable Act may affect the trading of the Group's ADSs if audit reports are not issued by a PCAOB-inspected firm for two consecutive years[30]. - The PCAOB's ability to inspect registered public accounting firms in China remains uncertain, impacting compliance with the HFCAA[30]. - The Group faces significant risks related to regulatory compliance in China, which could adversely affect its operations and financial condition[55]. - The Group's operations may be adversely affected by regulatory compliance issues, including potential penalties and content distribution restrictions imposed by the Chinese government[68]. - The Group may face administrative sanctions under the Audio-visual Program Provisions, including fines up to RMB30,000 and potential cessation of audio and video transmission[84]. - If the Group fails to maintain its Internet news information services license, it could incur fines between RMB10,000 and RMB30,000 and may be ordered to cease news dissemination[87]. - The Group's financial position may be adversely affected by any future regulatory investigations or allegations, regardless of their validity[96]. - The Group's advertising operations may be subject to severe penalties, including potential termination of operations, if found in violation of advertising regulations[124]. - The Group faces regulatory uncertainties in China, including potential challenges to its permits and licenses, which could disrupt operations and require additional capital[141]. - The Group's business may be adversely affected by new laws or regulations concerning data protection, which could increase compliance costs and impact advertising revenue[149]. - The Group's ability to navigate evolving regulations related to online live streaming may increase compliance burdens and impact business operations[142]. - The Group's ability to attract and retain advertising customers may be impacted by changes in the regulatory environment and increased compliance costs[129]. User Engagement and Market Position - The company relies heavily on advertising and marketing for revenue generation, making it vulnerable to fluctuations in this sector[55]. - The company has experienced declines in installed users, MAUs, DAUs, and revenues from 2021 to 2022, indicating potential challenges in user engagement and retention[61]. - The Group's mobile applications had approximately 31.4 million combined average MAUs and approximately 9.9 million combined average DAUs, with an average daily time spent per DAU of approximately 40.9 minutes for the three months ended December 31, 2022[67]. - The Group's user engagement efforts may not achieve expected results, and the acquisition cost per user may increase due to new marketing initiatives[67]. - The Group's business has faced downward pressures in user base and engagement due to changes in operating strategies, regulatory environment, and the impacts of the COVID-19 pandemic[67]. - The Group's user engagement and retention strategies are critical for maintaining its user base amidst regulatory challenges and competition[139]. - The Group's user growth and engagement are dependent on effective interoperability with mobile operating systems and app distribution channels that the Group does not control, such as Android and iOS[196]. - The Group's ability to attract users and generate revenues depends on successfully creating new content formats and services, which may involve new technologies with limited prior experience[105]. - The Group's content providers play a crucial role in maintaining user engagement; any decline in content quality or quantity could negatively impact the user base[114]. - The Group's advertising customers are not bound by long-term agreements, making it essential to continuously attract and retain them to sustain revenue[110]. - The Group's user engagement is threatened by intense competition from content aggregators and other entertainment platforms, which may lead to a decrease in user traffic[106][107]. Corporate Structure and Governance - Qutoutiao Inc. operates primarily through contractual arrangements with Group VIEs in China, without owning equity interests in them[26]. - The Group's corporate structure and contractual arrangements are subject to PRC laws, which may change and impact compliance and operational control[220]. - If the PRC government deems the contractual arrangements illegal, the Group may lose control over the VIEs, leading to potential business disruption[221]. - The Group's ADSs may significantly decline in value if it cannot assert control over the VIEs' assets[218]. - The Group's dual-class share structure may limit the ability of Class A shareholders to influence corporate matters, potentially discouraging change of control transactions[175]. - Mr. Eric Siliang Tan controls approximately 41.2% of the total issued and outstanding share capital and 87.5% of the voting power due to the dual-class share structure[175]. - The Group's internal control over financial reporting was deemed ineffective as of December 31, 2022, due to a lack of sufficient qualified personnel[191]. - The material weakness in internal control was first identified in 2017 and has not been remediated as of December 31, 2022[191]. Operational Challenges - The Group's operations are significantly affected by the performance of China's Internet infrastructure and telecommunications networks, which are primarily controlled by state-owned operators[198]. - The Group's information technology infrastructure costs have increased due to the addition of engaging content such as short videos and live-streaming, which may impact financial performance if service costs rise[200]. - The Group's user-generated content volume is increasing, necessitating expansion and adaptation of technology and infrastructure to maintain performance during peak usage[202]. - The Group's business could be harmed by service disruptions or failures to scale technology effectively, impacting user retention and acquisition[201]. - The Group has limited business insurance coverage, which may lead to substantial costs and resource diversion in case of uninsured disruptions[208]. - The Group's ability to maintain its preferential tax treatments in China is subject to ongoing verification by local tax authorities, which could result in a standard tax rate of 25% if not maintained[195]. - A prolonged downturn in the Chinese or global economy could negatively impact the Group's business, particularly affecting advertising revenue and consumer spending on entertainment[207]. - The Group's reliance on a limited number of telecommunications service providers poses risks, as disruptions could hinder its ability to deliver services effectively[198]. Security and Privacy Concerns - Privacy concerns regarding user data collection could damage the Group's reputation and deter users from its mobile applications[147]. - The Group's security measures are critical, as breaches could lead to unauthorized access to user data, resulting in significant legal and financial exposure[153]. - Security breaches in online payment systems could lead to litigation and damage the Group's reputation, potentially resulting in a loss of active users[156]. - An increase in fees charged by payment platforms could materially and adversely affect the Group's business and financial condition[157]. - The Group may be subject to cybersecurity reviews by PRC regulatory authorities, which could disrupt operations and require suspension of new user registrations[160]. - The revised Cybersecurity Review Measures effective from February 15, 2022, require procurement of network products and services affecting national security to undergo review[160]. - The Group has not been informed of any requirement for a cybersecurity review as of the date of the annual report, but faces potential risks if deemed a critical information infrastructure operator[162]. - The PRC Data Security Law imposes obligations on entities regarding data activities, including collection and processing, which could impact the Group's operations[163]. - The Group's mobile apps and websites only collect basic user information necessary for service provision, and it has implemented measures to improve data privacy protection[167]. - The Group's ability to leverage algorithms for user engagement may be adversely impacted by new regulations governing their use[169]. Intellectual Property and Legal Issues - The Group's intellectual property rights are critical to its success, but there are challenges in protecting these rights effectively in China[180]. - The Group is currently defending claims related to alleged unauthorized content on its platform, which may adversely affect its business[186]. - The Group's share-based compensation strategy is essential for attracting and retaining talent, potentially increasing future expenses[177]. - The Group may face significant costs and operational disruptions from future investments and acquisitions, which may not yield expected results[178]. - The Group's financial condition may be adversely affected if it is found to owe additional taxes or fines due to past non-compliance with tax regulations[205]. - The Group's business could face severe penalties or operational restrictions if found in violation of PRC laws[223]. - The Group's contractual arrangements have not been tested in a court of law in China, leading to uncertainties in enforcement outcomes[215].

PART I [ITEM 3. KEY INFORMATION](index=7&type=section&id=ITEM%203.%20KEY%20INFORMATION) This section details Qutoutiao's Cayman Islands holding company structure, its VIE operations in China, associated PRC regulatory and HFCAA risks, and condensed financial data showing persistent losses and going concern doubts - Qutoutiao Inc. operates as a Cayman Islands holding company, conducting primary operations in China through contractual Variable Interest Entities (VIEs) due to PRC foreign ownership restrictions, meaning investors hold equity in the holding company, not the Chinese operating entities[26](index=26&type=chunk) - The company faces delisting risk under the Holding Foreign Companies Accountable Act (HFCAA) as its China-based auditor is not inspectable by the PCAOB, potentially prohibiting ADS trading on U.S. exchanges from 2024 if inspections remain unfeasible for three consecutive years[30](index=30&type=chunk) Consolidated Financial Highlights (2019-2021) | Financial Metric | 2019 (RMB thousands) | 2020 (RMB thousands) | 2021 (RMB thousands) | | :--- | :--- | :--- | :--- | | **Total Revenues** | 5,570,081 | 5,285,195 | 4,339,603 | | **Gross Profit** | 3,929,449 | 3,610,779 | 3,167,977 | | **Loss from Operations** | (2,723,232) | (1,032,169) | (1,193,223) | | **Net Loss** | (2,689,268) | (1,105,166) | (1,240,176) | | **Net Loss Attributable to Qutoutiao Inc.** | (2,688,681) | (1,104,439) | (1,239,617) | Consolidated Cash Flow Summary (2019-2021) | Cash Flow Item | 2019 (RMB thousands) | 2020 (RMB thousands) | 2021 (RMB thousands) | | :--- | :--- | :--- | :--- | | **Net cash used in operating activities** | (2,367,295) | (863,774) | (279,122) | | **Net cash provided by/(used in) investing activities** | (1,224,152) | 782,545 | 75,521 | | **Net cash provided by financing activities** | 1,768,001 | 307,746 | (66,094) | [Risk Factors](index=17&type=section&id=D.%20Risk%20Factors) The company faces multiple risks in supply chain, regulations, and international trade - The company's limited operating history, recurring net losses, negative operating cash flow, and negative working capital raise substantial doubt about its ability to continue as a going concern[59](index=59&type=chunk)[69](index=69&type=chunk)[75](index=75&type=chunk) - The business heavily relies on VIE contractual arrangements, which may be less effective than direct ownership and risk severe penalties or relinquishment of interests if deemed non-compliant with PRC foreign investment restrictions[54](index=54&type=chunk)[190](index=190&type=chunk)[198](index=198&type=chunk) - Operations are subject to significant PRC government oversight, where policy changes, law enforcement uncertainties, and potential interventions could materially affect business, limit offshore capital access, and cause ADS value decline or worthlessness[56](index=56&type=chunk)[216](index=216&type=chunk)[221](index=221&type=chunk) - The company's ADSs face delisting risk under the HFCAA if the PCAOB cannot inspect its China-based auditor for three consecutive years, posing significant investor risks alongside volatile trading prices and a dual-class share structure[58](index=58&type=chunk)[259](index=259&type=chunk)[268](index=268&type=chunk) [ITEM 4. INFORMATION ON THE COMPANY](index=65&type=section&id=ITEM%204.%20INFORMATION%20ON%20THE%20COMPANY) This section provides a comprehensive overview of Qutoutiao's business, including its history, operational model, and corporate structure, detailing its mobile content platforms, AI-driven monetization, and the complex VIE structure navigating extensive PRC internet and foreign investment regulations [History and Development of the Company](index=65&type=section&id=A.%20History%20and%20Development%20of%20the%20Company) This section outlines the chronological development of the company, including key product launches and its NASDAQ listing history - The company launched its flagship mobile application, Qutoutiao, in June 2016, followed by Midu Novels in May 2018, and Midu Lite in May 2019[307](index=307&type=chunk) - The company's ADSs commenced trading on the NASDAQ Global Select Market under the symbol "QTT" on September 14, 2018[309](index=309&type=chunk) - On December 10, 2021, the ADS to Class A ordinary share ratio was changed from **4 ADSs representing 1 share** to **2 ADSs representing 5 shares**[310](index=310&type=chunk) [Business Overview](index=66&type=section&id=B.%20Business%20Overview) This section describes the company's mobile content platforms, target audience, business model, and primary revenue sources - Qutoutiao operates mobile content platforms, including its flagship app "Qutoutiao" and free online literature app "Midu," targeting lower-tier Chinese cities with light entertainment content, utilizing AI algorithms for personalized feeds and a gamified user loyalty program[312](index=312&type=chunk)[314](index=314&type=chunk)[316](index=316&type=chunk) Key Operating Metrics (Q4 2021) | Metric | Value (Q4 2021) | | :--- | :--- | | Combined Average MAUs | 97.6 million | | Combined Average DAUs | 25.0 million | | Average daily time spent per DAU | 43.2 minutes | - The company's primary revenue source is advertising and marketing services delivered through its in-house programmatic advertising platform, with diversification into online games and live-streaming monetization channels[320](index=320&type=chunk) Financial Performance (2019-2021) | Metric | 2019 (RMB) | 2020 (RMB) | 2021 (RMB) | | :--- | :--- | :--- | :--- | | Net Revenues | 5,570.1 million | 5,285.2 million | 4,339.6 million | | Net Loss Attributable to Qutoutiao Inc. | 2,688.7 million | 1,104.4 million | 1,239.6 million | [Regulations](index=73&type=section&id=C.%20Regulations) This section details the extensive regulatory environment in China affecting the company's operations, including licensing, foreign investment restrictions, and content oversight - The company has obtained material licenses for its main operations in China, including Value-added Telecommunications Service Licenses (ICP Licenses) and Internet Cultural Business Licenses for key VIEs like Shanghai Jifen and Big Rhinoceros Horn[356](index=356&type=chunk)[357](index=357&type=chunk) - Due to PRC restrictions on foreign investment in value-added telecommunications services, foreign equity ownership is capped at **50%**, necessitating the use of a VIE structure for business operations[368](index=368&type=chunk)[371](index=371&type=chunk) - The business is subject to extensive PRC regulations covering internet content, online advertising, cybersecurity, and data privacy, including requirements for content monitoring, real-name user registration, and potential cybersecurity reviews for national security or overseas listings[375](index=375&type=chunk)[409](index=409&type=chunk)[427](index=427&type=chunk) - Recent draft regulations on overseas listings by domestic companies, if enacted, may require the company to complete CSRC filing procedures for future offerings and comply with stringent national security reviews, adding regulatory uncertainty[483](index=483&type=chunk)[484](index=484&type=chunk) [Organizational Structure](index=95&type=section&id=D.%20Organizational%20Structure) This section describes the company's complex Variable Interest Entity (VIE) structure used to comply with PRC foreign ownership restrictions and the contractual arrangements that provide control over its key operating entities - The company operates through a VIE structure to comply with PRC laws restricting foreign ownership in the internet sector, controlling key operating entities like Shanghai Jifen and Big Rhinoceros Horn via contractual arrangements rather than direct equity ownership[491](index=491&type=chunk) - Key contractual agreements providing control include Equity Interest Pledge, Voting Rights Proxy, Exclusive Technology and Consulting Service, and Exclusive Option Agreements, enabling effective control, economic benefits, and the option to purchase VIE equity[494](index=494&type=chunk)[498](index=498&type=chunk)[500](index=500&type=chunk) Intra-Group Cash Transfers (2019-2021) | Description | 2019 (RMB thousands) | 2020 (RMB thousands) | 2021 (RMB thousands) | | :--- | :--- | :--- | :--- | | Cash paid by VIEs to subsidiaries (service agreements) | — | (297,510) | (756,962) | | Cash received by VIEs from subsidiaries (service agreements) | 67,419 | — | 188,798 | | Cash received by VIEs from subsidiaries (financing) | 2,859,506 | 462,233 | 137,515 | [ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS](index=99&type=section&id=ITEM%205.%20OPERATING%20AND%20FINANCIAL%20REVIEW%20AND%20PROSPECTS) This section analyzes the company's financial performance, noting a decline in net revenues to **RMB 4.34 billion** in 2021 due to reduced advertising, persistent net losses of **RMB 1.24 billion**, declining user metrics, and significant liquidity challenges including a maturing convertible loan that raises going concern doubts [Operating Results](index=99&type=section&id=A.%20Operating%20Results) This section provides a detailed analysis of the company's financial performance, including revenue trends, cost structures, and profitability over recent fiscal years Key Financial Results (2019-2021) | Metric | 2019 (RMB millions) | 2020 (RMB millions) | 2021 (RMB millions) | | :--- | :--- | :--- | :--- | | Net Revenues | 5,570.1 | 5,285.2 | 4,339.6 | | Gross Profit | 3,929.4 | 3,610.8 | 3,168.0 | | Loss from Operations | (2,723.2) | (1,032.2) | (1,193.2) | | Net Loss Attributable to Qutoutiao Inc. | (2,688.7) | (1,104.4) | (1,239.6) | - Net revenues decreased in 2021 primarily due to a decline in advertising and marketing revenues, attributed to a tightening regulatory environment in the internet and technology sector constraining advertiser budgets[568](index=568&type=chunk) - Sales and marketing expenses increased in 2021 to **RMB 3.48 billion** from **RMB 3.38 billion** in 2020, primarily driven by higher user acquisition costs for expanding the Midu platform's user base, though user engagement expenses decreased significantly due to improved content algorithms[572](index=572&type=chunk)[571](index=571&type=chunk) - Research and development expenses decreased in 2021 to **RMB 551.6 million** from **RMB 947.9 million** in 2020, primarily due to a reduction in R&D headcount and related salary and share-based compensation expenses[572](index=572&type=chunk) [Liquidity and Capital Resources](index=113&type=section&id=B.%20Liquidity%20and%20Capital%20Resources) This section assesses the company's ability to meet its short-term and long-term financial obligations, highlighting its going concern status and efforts to manage cash flow and debt - The company's financial condition raises substantial doubt about its ability to continue as a going concern due to recurring net losses, negative operating cash flow, negative working capital, and uncertainties regarding the repayment of a convertible loan[597](index=597&type=chunk)[602](index=602&type=chunk) - As of December 31, 2021, the company had a convertible loan from Alibaba of approximately **RMB 1.18 billion (US$185.6 million)** expected to mature within one year, with its maturity date subsequently extended to May 28, 2022, at an increased interest rate[604](index=604&type=chunk)[595](index=595&type=chunk) - Management is exploring measures to improve liquidity, including reducing operating costs, obtaining additional financing, and potentially selling assets, with the company's cash flow forecast assuming the successful extension of the Alibaba convertible loan[599](index=599&type=chunk)[600](index=600&type=chunk) Cash Flow Summary (2020 vs 2021) | Cash Flow Item | 2020 (RMB thousands) | 2021 (RMB thousands) | | :--- | :--- | :--- | | Net cash used in operating activities | (863,774) | (279,122) | | Net cash provided by investing activities | 782,545 | 75,521 | | Net cash provided by/(used in) financing activities | 307,746 | (66,094) | [Research and Development](index=116&type=section&id=C.%20Research%20and%20Development) This section details the company's investment in research and development, focusing on technological advancements and their impact on product offerings and operational efficiency - The company's R&D efforts focus on enhancing its content recommendation engine, optimizing advertising solutions, and improving content management and delivery capabilities through AI and automation[618](index=618&type=chunk) Research and Development Expenses (2019-2021) | Year | R&D Expenses (RMB millions) | | :--- | :--- | | 2019 | 926.2 | | 2020 | 947.9 | | 2021 | 551.6 | [ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES](index=117&type=section&id=ITEM%206.%20DIRECTORS,%20SENIOR%20MANAGEMENT%20AND%20EMPLOYEES) This section details the company's leadership, governance, and workforce, including directors and executive officers led by Eric Siliang Tan, their **RMB 5.1 million** aggregate cash compensation in 2021, the reduced workforce of **1,110 employees**, and the dual-class share structure granting Mr. Tan **72.7%** voting power, making it a controlled company under NASDAQ rules - The company is led by co-founder, chairman, and CEO Mr. Eric Siliang Tan, with a board consisting of five directors[622](index=622&type=chunk)[651](index=651&type=chunk) - In 2021, the aggregate cash compensation paid to directors and executive officers was approximately **RMB 5.1 million (US$0.8 million)**[631](index=631&type=chunk) - As of December 31, 2021, the company had **1,110 employees**, a significant decrease from **2,932 in 2019**, with Technology and product development accounting for **47.8%** of the workforce[662](index=662&type=chunk) - The company has a dual-class share structure, with co-founder Eric Siliang Tan beneficially owning shares constituting approximately **35.3%** of total share capital but **72.7%** of the aggregate voting power, making the company a "controlled company" under NASDAQ rules[157](index=157&type=chunk)[158](index=158&type=chunk)[671](index=671&type=chunk) [ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS](index=126&type=section&id=ITEM%207.%20MAJOR%20SHAREHOLDERS%20AND%20RELATED%20PARTY%20TRANSACTIONS) This section details the company's major shareholders and significant related party transactions, highlighting concentrated ownership by Eric Siliang Tan, **RMB 40.3 million** in 2021 revenue from advertising services to his controlled companies, and **RMB 259.9 million** due from these related parties at year-end 2021 - The company provided advertising and marketing services to several companies controlled by co-founder Mr. Eric Siliang Tan[680](index=680&type=chunk) Revenue from and Receivables due from Companies Controlled by Mr. Tan | Metric | 2019 (RMB) | 2020 (RMB) | 2021 (RMB) | | :--- | :--- | :--- | :--- | | Service Fees Charged | 473.2 million | 250.9 million | 40.3 million | | Amount Due at Year-End | - | 383.6 million | 259.9 million | - As of December 31, 2021, **RMB 204.4 million** of the **RMB 259.9 million** due from related parties was overdue, though a majority of the overdue balance was collected after the year-end[1058](index=1058&type=chunk)[680](index=680&type=chunk) [ITEM 8. FINANCIAL INFORMATION](index=127&type=section&id=ITEM%208.%20FINANCIAL%20INFORMATION) This section covers legal proceedings, including a U.S. shareholder class action lawsuit and a **RMB 55.0 million** contractual dispute settlement in China, alongside the company's dividend policy of retaining earnings for business growth without present plans for distributions - The company is a defendant in a shareholder class action lawsuit in the U.S. District Court for the Southern District of New York, alleging violations of the Securities Act and Exchange Act related to its IPO and secondary offering documents[690](index=690&type=chunk) - A contractual dispute with Shanghai Wenji Culture Communications Co., Ltd. was settled on March 31, 2021, with a settlement amount of **RMB 55.0 million**[688](index=688&type=chunk) - The company has never declared or paid dividends and does not intend to in the foreseeable future, planning to retain earnings to fund business growth, with dividend payments also restricted by PRC regulations requiring subsidiaries to set aside statutory reserves[692](index=692&type=chunk)[694](index=694&type=chunk) [ITEM 9. THE OFFER AND LISTING](index=128&type=section&id=ITEM%209.%20THE%20OFFER%20AND%20LISTING) This section details the trading of Qutoutiao's American Depositary Shares (ADSs), listed on the NASDAQ Global Select Market under "QTT" since September 14, 2018, and the December 10, 2021, change in ADS ratio from **4:1** to **2:5** Class A ordinary shares - The company's ADSs are listed on the NASDAQ Global Select Market under the symbol "QTT" since September 14, 2018[696](index=696&type=chunk) - On December 10, 2021, the ADS to Class A ordinary share ratio was changed from **4:1** to **2:5**[696](index=696&type=chunk)[698](index=698&type=chunk) [ITEM 10. ADDITIONAL INFORMATION](index=129&type=section&id=ITEM%2010.%20ADDITIONAL%20INFORMATION) This section covers supplementary details on the company's securities, material contracts, and taxation, including no material contracts outside ordinary business, Cayman Islands tax implications, potential **25%** PRC enterprise income tax, and the risk of being classified as a Passive Foreign Investment Company (PFIC) for U.S. investors - The company is incorporated in the Cayman Islands and is not subject to profits, income, gains, or appreciation taxes there[706](index=706&type=chunk) - Under PRC law, the company could be considered a "resident enterprise" if its "de facto management body" is in China, subjecting it to a **25%** enterprise income tax on worldwide income and potentially a **10%** withholding tax on dividends paid to non-PRC enterprise shareholders[708](index=708&type=chunk) - For U.S. federal income tax purposes, there is a risk that the company could be classified as a Passive Foreign Investment Company (PFIC), potentially leading to adverse U.S. tax consequences for investors, including increased tax liabilities and burdensome reporting requirements[299](index=299&type=chunk)[723](index=723&type=chunk)[725](index=725&type=chunk) [ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=136&type=section&id=ITEM%2011.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This section addresses the company's exposure to market risks, primarily foreign exchange risk due to RMB-denominated revenues and USD-traded ADSs, noting no derivative hedging, and concluding that interest rate and inflation risks have not materially affected operations to date - The company's primary market risk is foreign exchange risk, as revenues are denominated in RMB while ADSs are traded in U.S. dollars, making investment value sensitive to RMB/USD exchange rate fluctuations[748](index=748&type=chunk)[749](index=749&type=chunk) - The company has not been materially exposed to risks from changes in market interest rates and has not used derivative financial instruments to manage this risk[752](index=752&type=chunk) - Inflation in China has not materially affected the company's results of operations[754](index=754&type=chunk) [ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES](index=136&type=section&id=ITEM%2012.%20DESCRIPTION%20OF%20SECURITIES%20OTHER%20THAN%20EQUITY%20SECURITIES) This section details the fees and charges associated with the company's American Depositary Shares (ADSs), requiring holders to pay various service fees to The Bank of New York Mellon for issuance, cancellation, and distributions, noting no payments received by the company from the depositary in 2021 ADS Depositary Fees and Charges | Service | Fee | | :--- | :--- | | Issuance/Cancellation of ADSs | US$5.00 (or less) per 100 ADSs | | Cash distribution | US$0.05 (or less) per ADS | | Depositary services | US$0.05 (or less) per ADS per calendar year | - The company did not receive any payments from its depositary bank, The Bank of New York Mellon, in 2021[760](index=760&type=chunk) PART II [ITEM 15. CONTROLS AND PROCEDURES](index=139&type=section&id=ITEM%2015.%20CONTROLS%20AND%20PROCEDURES) This section reports on the ineffectiveness of the company's disclosure controls and procedures as of December 31, 2021, due to a material weakness in internal control over financial reporting, specifically a lack of sufficient U.S. GAAP and SEC reporting personnel, with ongoing but incomplete remediation efforts - Management concluded that as of December 31, 2021, the company's disclosure controls and procedures were ineffective[766](index=766&type=chunk) - A material weakness was identified in internal control over financial reporting, relating to a lack of sufficient personnel with appropriate knowledge of U.S. GAAP and SEC reporting requirements to formalize key controls and prepare financial statements[768](index=768&type=chunk) - Remediation efforts are underway, including hiring more qualified financial staff, implementing training programs, and enhancing the internal audit function, though these measures were not fully implemented as of December 31, 2021[770](index=770&type=chunk) [Other Information (Items 16A-16I)](index=140&type=section&id=ITEM%2016.%20Other%20Information) This section covers corporate governance and compliance, including Mr. Feng Li's designation as an audit committee financial expert, the company's code of ethics, **US$1.177 million** in 2021 audit fees, and the company's adherence to Cayman Islands corporate governance practices as a foreign private issuer, exempting it from certain NASDAQ requirements - The Board of Directors has determined that Mr. Feng Li, an independent director, qualifies as an audit committee financial expert[773](index=773&type=chunk) Principal Accountant Fees (PricewaterhouseCoopers Zhong Tian LLP) | Fee Type | 2020 (US$ thousands) | 2021 (US$ thousands) | | :--- | :--- | :--- | | Audit Fees | 1,073 | 1,177 | | Tax Fees | — | — | | All Other Fees | — | — | | **Total** | **1,073** | **1,177** | - As a foreign private issuer, the company follows Cayman Islands corporate governance practices, which exempts it from certain NASDAQ listing standards, such as the requirement for a majority of the board to be independent[783](index=783&type=chunk) PART III [ITEM 18. FINANCIAL STATEMENTS](index=142&type=section&id=ITEM%2018.%20FINANCIAL%20STATEMENTS) This section contains the company's audited consolidated financial statements for fiscal years 2019-2021, with the auditor's report highlighting substantial doubt about going concern due to recurring losses, negative cash flows, and convertible loan uncertainties, detailing financial position, comprehensive loss, shareholders' deficit, and cash flows under U.S. GAAP - The independent auditor's report expresses substantial doubt about the company's ability to continue as a going concern, based on accumulated losses, net cash used in operations, negative working capital, and uncertainty regarding the repayment of a convertible loan[805](index=805&type=chunk) Consolidated Balance Sheet Highlights (As of Dec 31) | Account | 2020 (RMB thousands) | 2021 (RMB thousands) | | :--- | :--- | :--- | | **Total Assets** | 2,915,858 | 2,080,475 | | **Total Liabilities** | 3,107,695 | 3,297,813 | | **Total Shareholders' Deficit** | (1,285,363) | (2,389,556) | - The company's operations are primarily conducted through VIEs, which as of December 31, 2021, held total assets of **RMB 2.29 billion** and total liabilities of **RMB 7.42 billion**[862](index=862&type=chunk) - The company's convertible loan from Alibaba had its maturity extended to May 28, 2022, with an increased interest rate, resulting in a total principal and accumulated interest due at maturity of approximately **US$240.4 million**[1075](index=1075&type=chunk) [ITEM 19. EXHIBITS](index=142&type=section&id=ITEM%2019.%20EXHIBITS) This section lists all exhibits filed with the annual report, including the company's Amended and Restated Memorandum and Articles of Association, American Depositary Receipt and Deposit Agreement forms, various contractual arrangements governing the VIE structure, the Equity Incentive Plan, and the Convertible Loan Agreement with Alibaba Investment Limited - The exhibits include the company's Sixth Amended and Restated Memorandum and Articles of Association[789](index=789&type=chunk) - Key operational and structural agreements are filed as exhibits, including the series of contractual arrangements (Equity Pledge, Voting Rights Proxy, Service, and Option agreements) that establish control over the VIEs[789](index=789&type=chunk)[791](index=791&type=chunk) - Financing agreements, such as the Convertible Loan Agreement with Alibaba Investment Limited and its supplemental agreements, are included as exhibits[792](index=792&type=chunk)

Financial Data and Key Metrics Changes - The company's net revenues for Q3 2021 were RMB966 million, with an average revenue per user (ARPU) of RMB0.41 and a quarterly average daily active users (DAU) of 27 million, alongside a monthly active users (MAU) of 119 million, impacted by a tightening regulatory environment and constrained advertiser budgets [14][15] - Gross profit reached RMB697 million, resulting in a gross margin of 72%, which improved year-over-year and remained stable sequentially [15] - An operating loss of approximately RMB516 million was reported for Q3 2021, with expectations for the rest of the company to break even for the full year 2021, excluding Midu and impairment charges [19] Business Line Data and Key Metrics Changes - Midu Novels showed significant growth, with DAU averaging around 11 million in Q3 2021, up from 10 million in Q2 2021, marking a 65% increase year-over-year [10] - The company plans to ensure that Midu can break even and turn cash flow positive on an operational basis in the second half of 2022 [11] Market Data and Key Metrics Changes - The advertising market is facing economic headwinds and regulatory actions, leading to decreased advertiser confidence and spending [7][8] - The company noted that the uncertainty in the advertising market has influenced budgeting decisions among advertisers [8] Company Strategy and Development Direction - The company is focusing on improving operating efficiency and has implemented cost control measures to enhance future operating results [9][12] - A disciplined approach will be taken in future quarters to ensure sustainable growth, particularly for Midu Novels [11] Management's Comments on Operating Environment and Future Outlook - Management acknowledged that the second half of the year has been challenging due to the alignment of business lines and external pressures on advertisers [7] - The company expects continued pressure in Q4 2021 and early 2022, with no immediate upward momentum anticipated [8] Other Important Information - The company had cash, cash equivalents, restricted cash, and short-term investments totaling RMB862 million (approximately US$134 million) as of September 30, 2021, down from RMB986 million as of December 31, 2020 [20] - For Q4 2021, the company expects revenue to range between RMB850 million and RMB900 million [20] Q&A Session Summary - No specific questions or answers were recorded in the provided content, as the call concluded without a detailed Q&A segment [21][22][24]

Financial Data and Key Metrics Changes - The company's net revenues for Q2 2021 were RMB 1.202 billion, with ARPU increasing by RMB 0.46 and a quarterly average DAU of 29 million and MAU of 132 million, remaining stable sequentially [15] - Cost of revenues decreased by 17% year-on-year to RMB 328 million, leading to a gross profit margin of 73%, which expanded both year-on-year and sequentially [16] - Operating loss was RMB 200 million, with expectations for operational profitability in the second half of the year [18][19] Business Line Data and Key Metrics Changes - The company focused on improving operating efficiency and growing Midu Novel, which has seen positive growth trends with DAU exceeding 10 million in Q2 [10][26] - Sales and marketing expenditures totaled RMB 901 million, flat year-on-year, but represented a 13 percentage point increase as a percentage of revenue due to increased investment in user base growth for Midu Novels [17] Market Data and Key Metrics Changes - The overall digital advertising market in China has faced headwinds post-COVID-19, with advertisers showing caution in spending and budgeting [9][22] - The company anticipates continued pressure in the second half of the year, particularly in Q3, due to uncertainties in economic growth and regulatory environments [10][23] Company Strategy and Development Direction - The company is focusing on improving operating efficiency and investing in Midu Novel as a key growth strategy [10][11] - Management views recent regulatory actions as positive for the long-term health and stability of the Chinese tech industry [12] Management Comments on Operating Environment and Future Outlook - Management expressed caution regarding the advertising outlook for the second half of the year, noting that clients are conservative in ad spending [22] - The company expects revenue for Q3 to be stable, ranging between RMB 1.050 billion to RMB 1.1 billion [19] Other Important Information - The company has maintained a focus on compliance with regulations and has positioned itself to meet high standards in data privacy and security [31] Q&A Session Summary Question: Advertising outlook in the second half and impact of regulatory environment - Management indicated that the advertising market outlook remains cautious due to uncertainties in economic growth and regulatory environments, with clients being conservative in ad spending [22][23] Question: User acquisition costs and engagement - Management noted that user engagement costs have stabilized, and acquisition costs are rising due to increased investment in Midu, which is expected to yield good ROI [25][26] Question: Impact of regulations on data collection and advertising business - Management welcomed the regulatory developments, stating that they do not foresee significant incremental impacts on the advertising business due to prior compliance measures [31]

Financial Data and Key Metrics Changes - The company's net revenues for Q1 2021 were RMB1,291 million, with an ARPU of RMB0.45 and a quarterly average DAU of 32 million and MAU of 133 million, indicating stability and recovery after the peak season of Q4 [21][22] - Cost of revenues decreased by 17% year-on-year to RMB380 million, resulting in a gross profit of RMB910 million and a gross margin of 71%, reflecting a margin expansion of 3% to 4% both year-on-year and sequentially [22] - The company incurred a small operating loss of RMB54 million, with an operating loss ratio of just 4.2%, maintaining good cost discipline since breaking even in Q4 2020 [25][26] Business Line Data and Key Metrics Changes - Midu Novels has become a significant growth pillar, with DAU peaking over 10 million in Q2 and revenues doubling year-over-year [16][29] - The company has seen improved unit economics, with better ARPU and significantly reduced user engagement expenses, particularly excluding Midu [27][30] Market Data and Key Metrics Changes - The advertising market showed some weakness from March to May due to regulatory actions affecting the Internet industry, particularly online education, but a recovery trend is expected to continue for 2021 [35][36] - The company anticipates stable DAU and revenue for the rest of the year, with some seasonal movements [30] Company Strategy and Development Direction - The company is committed to a balanced approach towards growth and profitability while developing its portfolio of applications, aiming for full-year group-level profitability [18][30] - Strategic collaborations with Kuaishou for mini TV series and partnerships with China Literature are part of the strategy to enhance content quality and user engagement [11][12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving full-year targets despite short-term challenges in the advertising market, emphasizing a disciplined approach to marketing investments [34][36] - The company aims to double Midu's DAU and revenue by year-end, with a target of over 50 million DAU [37][38] Other Important Information - The company has maintained a streamlined R&D team, with R&D expenses at RMB137 million, representing 11% of revenues, which is consistent with previous quarters [24] - The management highlighted the importance of user retention and monetization efficiency as key components of their growth strategy for Midu [29] Q&A Session Summary Question: Q2 revenue guidance and advertising momentum - Management expects stable user and revenue bases but noted some weakness in the advertising market due to regulatory actions, particularly affecting online education [34][35] Question: Midu's KPIs for the year - Management reiterated the goal to double Midu's DAU and revenue by year-end, with current DAU already surpassing 10 million [37][38] Question: User acquisition strategy for Midu - Management emphasized a disciplined approach to user acquisition, ensuring good ROI on marketing expenditures while seeing promising results in ARPU and user retention [42][43]

PART I [ITEM 3. KEY INFORMATION](index=6&type=section&id=ITEM%203.%20KEY%20INFORMATION) This section presents key financial data, significant risk factors, and essential investor information, detailing 2020 financial performance and core operational challenges [Selected Financial Data](index=6&type=section&id=A.%20Selected%20Financial%20Data) Selected financial data reveals a decrease in net revenues but a significant narrowing of net loss in 2020, with non-GAAP adjustments provided Selected Consolidated Statement of Operations Data (2018-2020) | Indicator | 2018 (RMB '000) | 2019 (RMB '000) | 2020 (RMB '000) | 2020 (US$ '000) | | :--- | :--- | :--- | :--- | :--- | | **Net revenues** | 3,022,146 | 5,570,081 | 5,285,195 | 809,992 | | **Gross profit** | 2,518,533 | 3,929,449 | 3,610,779 | 553,376 | | **Loss from operations** | (1,981,613) | (2,723,232) | (1,032,169) | (158,187) | | **Net loss attributable to Qutoutiao Inc.** | (1,942,572) | (2,688,681) | (1,104,439) | (169,263) | | **Net loss per share (Basic and diluted)** | (52.69) | (39.41) | (15.69) | (2.40) | Selected Consolidated Balance Sheet Data (as of Dec 31) | Indicator | 2019 (RMB '000) | 2020 (RMB '000) | 2020 (US$ '000) | | :--- | :--- | :--- | :--- | | **Total current assets** | 2,692,227 | 2,472,316 | 378,899 | | **Total assets** | 2,940,197 | 2,915,858 | 446,875 | | **Total liabilities** | 3,149,696 | 3,107,695 | 476,275 | | **Total Qutoutiao Inc. shareholders' equity (deficit)** | (701,482) | (1,280,775) | (196,287) | Reconciliation of Non-GAAP Net Loss | Indicator | 2018 (RMB '000) | 2019 (RMB '000) | 2020 (RMB '000) | 2020 (US$ '000) | | :--- | :--- | :--- | :--- | :--- | | **Net loss attributable to Qutoutiao Inc.** | (1,942,572) | (2,688,681) | (1,104,439) | (169,263) | | Add: share-based compensation expenses | 951,627 | 271,979 | 463,214 | 70,992 | | **Non-GAAP net loss attributable to Qutoutiao Inc.** | (990,945) | (2,416,702) | (641,225) | (98,271) | [Risk Factors](index=9&type=section&id=D.%20Risk%20Factors) The company faces significant risks related to its business, corporate structure, operations in China, and the trading of its ADSs [Risks Relating to Our Industry and Business](index=11&type=section&id=Risks%20Relating%20to%20Our%20Industry%20and%20Business) Operational risks include limited history, persistent net losses, reliance on user growth, strict PRC content rules, and intense competition - The company has a limited operating history, with its main application launched in 2016, making rapid historical growth not necessarily indicative of future performance[43](index=43&type=chunk) - The company has incurred significant net losses, reporting **RMB 1,945.8 million**, **RMB 2,689.3 million**, and **RMB 1,105.2 million** for 2018, 2019, and 2020, respectively, and may not achieve profitability[54](index=54&type=chunk) - A substantial majority of revenues are generated from advertising and marketing, making the business vulnerable to declines in advertising spending[79](index=79&type=chunk) - The COVID-19 pandemic has negatively affected the advertising market in China, constraining customer advertising budgets, which could materially impact business and financial results[72](index=72&type=chunk) [Risks Relating to Our Corporate Structure](index=31&type=section&id=Risks%20Relating%20to%20Our%20Corporate%20Structure) The company's VIE structure in China poses risks due to enforceability, potential non-compliance, and uncertainties from the Foreign Investment Law - The company relies on contractual arrangements with its consolidated VIEs to operate its business, which may not be as effective as direct ownership and could be difficult to enforce under PRC law[156](index=156&type=chunk)[157](index=157&type=chunk) - If the PRC government deems the VIE contractual arrangements non-compliant with foreign investment restrictions, the company could face severe penalties, including the revocation of business licenses or being forced to restructure[163](index=163&type=chunk)[166](index=166&type=chunk) - The PRC Foreign Investment Law, effective January 1, 2020, creates substantial uncertainty as to whether controlling VIEs through contractual arrangements will be recognized as "foreign investment," potentially impacting the viability of the current corporate structure[175](index=175&type=chunk)[179](index=179&type=chunk) [Risks Relating to Doing Business in China](index=36&type=section&id=Risks%20Relating%20to%20Doing%20Business%20in%20China) Operating in China involves political, economic, and legal risks, including unpredictable PRC law enforcement, complex regulations, and potential delisting under the U.S. HFCA Act - The company's ADSs may be delisted under the Holding Foreign Companies Accountable Act (HFCA Act) if the Public Company Accounting Oversight Board (PCAOB) is unable to inspect its China-based auditor for three consecutive years[213](index=213&type=chunk)[214](index=214&type=chunk) - The inability of the PCAOB to conduct inspections of auditors in China deprives investors of the benefits of such oversight and makes it more difficult to evaluate the effectiveness of the audit process[219](index=219&type=chunk) - The business is subject to uncertainties in the interpretation and enforcement of PRC laws, which can be inconsistent and unpredictable[183](index=183&type=chunk)[185](index=185&type=chunk) - Escalating political tensions between the United States and China could negatively impact trade, investment, and economic conditions, potentially harming the company's business and access to U.S. capital markets[211](index=211&type=chunk) [Risks Relating to the ADSs](index=44&type=section&id=Risks%20Relating%20to%20the%20ADSs) ADS investment risks include price volatility, limited shareholder influence from a dual-class structure, no anticipated dividends, and exemptions as a foreign private issuer - The trading price of the ADSs is subject to volatility due to broad market factors and investor sentiment towards Chinese companies listed in the U.S[227](index=227&type=chunk) - The company has a dual-class share structure where Class B shares have ten votes per share, giving co-founder Mr. Eric Siliang Tan control over corporate matters with **72.9%** of the aggregate voting power[121](index=121&type=chunk)[627](index=627&type=chunk) - The company does not expect to pay cash dividends in the foreseeable future, meaning investors may only see a return if the ADS price increases[230](index=230&type=chunk) - As a foreign private issuer and an emerging growth company, the company is exempt from certain U.S. reporting requirements, which may provide less information and protection to investors compared to U.S. domestic issuers[251](index=251&type=chunk)[254](index=254&type=chunk) [ITEM 4. INFORMATION ON THE COMPANY](index=50&type=section&id=ITEM%204.%20INFORMATION%20ON%20THE%20COMPANY) This section details the company's history, mobile content platforms, AI-driven business model, regulatory environment, and VIE corporate structure [History and Development of the Company](index=50&type=section&id=A.%20History%20and%20Development%20of%20the%20Company) The company launched its flagship Qutoutiao app in 2016, Midu Novels in 2018, operates via VIEs, and completed its NASDAQ IPO in 2018 - Launched flagship mobile application Qutoutiao in June 2016 and mobile literature application Midu Novels in May 2018[264](index=264&type=chunk) - Completed its initial public offering on the NASDAQ Global Select Market on September 14, 2018, raising approximately **US$85.8 million** in net proceeds[266](index=266&type=chunk) [Business Overview](index=51&type=section&id=B.%20Business%20Overview) Qutoutiao operates AI-driven mobile content platforms targeting lower-tier cities, leveraging a loyalty program for user engagement and primarily monetizing through advertising - The company's mission is to bring fun and value to users through its mobile content platforms, Qutoutiao and Midu, which use AI-based algorithms for content personalization[268](index=268&type=chunk) Key Operating Metrics (Q4 2020) | Metric | Value | | :--- | :--- | | Combined Average MAUs | 124.7 million | | Combined Average DAUs | 32.3 million | | Average daily time spent per DAU | 50.3 minutes | - The company strategically targets users from lower-tier cities in China, an underserved market with high monetization potential[270](index=270&type=chunk) - A key business feature is an innovative user loyalty program where users earn points for referrals and engagement, which fosters loyalty and lowers user acquisition costs[271](index=271&type=chunk) - Revenue is primarily generated from advertising and marketing services, powered by a proprietary programmatic advertising platform acquired in February 2018[276](index=276&type=chunk)[302](index=302&type=chunk) [Regulations](index=58&type=section&id=C.%20Regulations) The company's operations are subject to a complex PRC regulatory framework covering foreign investment, telecommunications, content, advertising, and data security, necessitating a VIE structure and various licenses - The Foreign Investment Law (effective Jan 1, 2020) creates uncertainty regarding the regulatory treatment of VIE structures[316](index=316&type=chunk) - Foreign investment in value-added telecommunications services is restricted, with foreign equity capped at **50%**, necessitating the company's use of a VIE structure to operate in China[322](index=322&type=chunk) - The company is required to obtain and maintain various licenses, including an ICP License for information services and an Internet News License, which its VIE Shanghai Jifen obtained in July 2019[321](index=321&type=chunk)[331](index=331&type=chunk) - Operations are subject to strict regulations on online advertising, requiring monitoring of ad content to ensure compliance and avoid penalties for false or misleading information[335](index=335&type=chunk)[339](index=339&type=chunk) [Organizational Structure](index=70&type=section&id=D.%20Organizational%20Structure) Qutoutiao Inc. operates in China via a VIE structure, using contractual arrangements to control VIEs and consolidate financials, due to PRC foreign ownership restrictions - The company operates in the PRC through a VIE structure due to legal restrictions on foreign investment in internet-based businesses[393](index=393&type=chunk) - Effective control over the VIEs is maintained through a series of contractual arrangements, including Equity Interest Pledge Agreements, Voting Rights Proxy Agreements, Exclusive Technology and Consulting Service Agreements, and Exclusive Option Agreements[398](index=398&type=chunk)[400](index=400&type=chunk)[402](index=402&type=chunk)[405](index=405&type=chunk) - As a result of these arrangements, the company is the primary beneficiary of its consolidated VIEs and includes their financial results in its consolidated financial statements[395](index=395&type=chunk) [ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS](index=73&type=section&id=ITEM%205.%20OPERATING%20AND%20FINANCIAL%20REVIEW%20AND%20PROSPECTS) This section analyzes the company's financial performance and condition, highlighting 2020's narrowed net loss, ongoing liquidity challenges, and a strategic shift in user metrics [Operating Results](index=74&type=section&id=A.%20Operating%20Results) In 2020, net revenues decreased, but operational efficiency improved significantly due to reduced sales and marketing expenses, leading to a narrowed net loss Year-over-Year Financial Performance (2019 vs. 2020) | Metric | 2019 (RMB) | 2020 (RMB) | Change (%) | | :--- | :--- | :--- | :--- | | **Net Revenues** | 5,570.1 M | 5,285.2 M | -5.1% | | **Gross Profit** | 3,929.4 M | 3,610.8 M | -8.1% | | **Sales and Marketing Expenses** | 5,489.7 M | 3,381.6 M | -38.4% | | **Net Loss Attributable to Qutoutiao Inc.** | (2,688.7 M) | (1,104.4 M) | +58.9% | - The decrease in advertising and marketing revenues in 2020 was primarily due to the company's strategy to balance operational efficiency and sustainable growth[515](index=515&type=chunk) - The significant decrease in sales and marketing expenses was driven by reductions in both user acquisition expenses (down to **RMB 1,720.7 million** from **RMB 2,932.4 million**) and user engagement expenses (down to **RMB 1,392.6 million** from **RMB 2,137.8 million**) as the company optimized its loyalty programs and traffic acquisition strategy[519](index=519&type=chunk)[520](index=520&type=chunk) - Combined average DAUs and MAUs experienced a downward trend in 2020 as the company focused more on the quality and profile of its user base rather than absolute size[428](index=428&type=chunk) [Liquidity and Capital Resources](index=92&type=section&id=B.%20Liquidity%20and%20Capital%20Resources) The company's liquidity is supported by past financing but faces challenges from ongoing negative operating cash flow and a significant convertible loan maturing in 2022 Cash Flow Summary (2018-2020) | Cash Flow (in thousands RMB) | 2018 | 2019 | 2020 | | :--- | :--- | :--- | :--- | | **Net cash used in operating activities** | (434,765) | (2,367,295) | (863,774) | | **Net cash provided by/(used in) investing activities** | (72,493) | (1,224,152) | 782,545 | | **Net cash provided by financing activities** | 2,298,044 | 1,768,001 | 307,246 | - As of December 31, 2020, the company had cash and cash equivalents of **RMB 494.5 million**, restricted cash of **RMB 100.3 million**, and short-term investments of **RMB 391.0 million**[550](index=550&type=chunk) - A convertible loan of **US$171.1 million** from Alibaba will mature on April 4, 2022, which will have a significant impact on the company's liquidity[542](index=542&type=chunk)[555](index=555&type=chunk) [ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES](index=97&type=section&id=ITEM%206.%20DIRECTORS,%20SENIOR%20MANAGEMENT%20AND%20EMPLOYEES) This section details the company's leadership, compensation, board structure, and employees, highlighting the dual-class share structure granting significant voting control to co-founders - The board of directors is led by co-founder, chairman, and CEO Mr. Eric Siliang Tan[576](index=576&type=chunk) - As of December 31, 2020, the company had **1,704** employees, with **51.9%** in technology and product development and **27.6%** in content management[620](index=620&type=chunk) - Due to a dual-class share structure, co-founder Eric Siliang Tan beneficially owns **35.8%** of total shares but controls **72.9%** of the aggregate voting power[627](index=627&type=chunk) [ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS](index=107&type=section&id=ITEM%207.%20MAJOR%20SHAREHOLDERS%20AND%20RELATED%20PARTY%20TRANSACTIONS) This section details major shareholders and related party transactions, primarily involving advertising and marketing services provided to entities controlled by co-founder Mr. Eric Siliang Tan Transactions with Companies Controlled by Mr. Eric Siliang Tan | Transaction Type | 2019 (RMB) | 2020 (RMB) | | :--- | :--- | :--- | | Advertising & Marketing Services Provided | 473.2 million | 250.9 million | | Amount Due from Related Parties (Year-End) | 278.2 million | 383.6 million | - The company entered into cost-per-impression (CPM) and game cooperation agreements with entities controlled by or affiliated with Mr. Eric Siliang Tan, incurring service fees[639](index=639&type=chunk) [ITEM 8. FINANCIAL INFORMATION](index=108&type=section&id=ITEM%208.%20FINANCIAL%20INFORMATION) This section covers material legal proceedings, including a contractual dispute and a shareholder class action lawsuit, and states the company's policy of not paying dividends - The company is a defendant in a putative shareholder class action lawsuit filed in August 2020, alleging violations of U.S. securities laws in connection with its IPO and secondary offering[650](index=650&type=chunk) - A contractual dispute with Shanghai Wenji Culture Communications Co., Ltd. has led to a lawsuit seeking **RMB 103.2 million** and the freezing of certain company assets[648](index=648&type=chunk) - The company has never declared or paid dividends and has no present plan to do so, intending to retain earnings for business operations and expansion[652](index=652&type=chunk) [ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=116&type=section&id=ITEM%2011.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company's primary market risk is foreign exchange risk due to RMB-denominated revenues and USD-traded ADSs, with no current hedging, while interest rate and inflation risks are not significant - The company's main market risk is foreign exchange risk, as revenues are in RMB while ADSs are traded in USD. The value of an investment in ADSs will be affected by the USD/RMB exchange rate[707](index=707&type=chunk)[709](index=709&type=chunk) - The company does not currently use any derivative financial instruments to hedge its exposure to foreign exchange risk[709](index=709&type=chunk) - Interest rate risk and inflation risk are not considered to have a material effect on the company's results of operations[712](index=712&type=chunk)[714](index=714&type=chunk) PART II [ITEM 15. CONTROLS AND PROCEDURES](index=120&type=section&id=ITEM%2015.%20CONTROLS%20AND%20PROCEDURES) Management concluded that disclosure controls and internal control over financial reporting were ineffective as of December 31, 2020, due to a material weakness in financial reporting personnel - Management concluded that as of December 31, 2020, the company's disclosure controls and procedures and internal control over financial reporting were ineffective[729](index=729&type=chunk)[731](index=731&type=chunk) - A material weakness was identified relating to the lack of sufficient financial reporting and accounting personnel with appropriate knowledge of U.S. GAAP and SEC reporting requirements[732](index=732&type=chunk) - Remediation efforts are underway, including hiring more qualified resources and implementing training programs, but the material weakness was not fully remediated as of December 31, 2020[733](index=733&type=chunk) PART III [ITEM 18. FINANCIAL STATEMENTS](index=124&type=section&id=ITEM%2018.%20FINANCIAL%20STATEMENTS) This section presents the audited consolidated financial statements for 2018-2020, prepared under U.S. GAAP, with the auditor's report emphasizing the significant convertible loan maturity in 2022 - The report includes audited consolidated financial statements for the years ended December 31, 2018, 2019, and 2020, prepared in conformity with U.S. GAAP[748](index=748&type=chunk)[762](index=762&type=chunk) - The independent auditor's report includes an "Emphasis of Matter" paragraph highlighting the significant impact on the company's liquidity from the **US$171.1 million** convertible loan maturing on April 4, 2022[766](index=766&type=chunk)

Financial Data and Key Metrics Changes - The company's net revenues in Q4 2020 were RMB1.302 billion, with an ARPU of RMB0.44, showing significant sequential improvement [23] - The average DAU was 32 million and MAU was 125 million during the quarter, indicating a leaner user base [23][28] - The company achieved its first operational profit on a non-GAAP basis in Q4 2020, with an operating profit of RMB42.5 million and a 3% operating margin [27][36] Business Line Data and Key Metrics Changes - The cost of revenues decreased by 12% year-on-year to RMB441.7 million, driven by disciplined management [24] - Gross profit was RMB860.7 million, with a gross margin of 66%, slightly lower year-on-year [25] - Sales and marketing expenses were reduced significantly, halving year-on-year to RMB680.3 million, resulting in a 23 percentage point improvement in operating margin [26] Market Data and Key Metrics Changes - The free-to-read online literature sector is recognized as having multibillion-dollar potential, with optimism around its long-term growth [15] - The company plans to double Midu Novels' DAU and revenues by the end of 2021, indicating strong growth expectations [34] Company Strategy and Development Direction - The company is focused on enhancing unit economics and improving content quality while reducing loyalty points to attract a higher quality user base [10][19] - The strategy includes continued investment in content and technology to enhance user experience across the platform [19][20] - The company remains committed to lower-tier cities in China, where growth potential for smartphone users is significant [21] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving full-year profitability in 2021, despite challenges in the competitive environment [20][36] - The company expects modest user base expansion and revenue growth for the entire company in 2021, with improved user economics [32][36] Other Important Information - The company completed a new round of financing for Midu Novels amounting to over $110 million, which will support growth across multiple fronts [33] - The operational focus for 2020 was on underlying profitability, which has shown positive results [18] Q&A Session Summary Question: What does management think of the long-term operating margin profile for the free online literature business in China? - Management believes it is too early to determine the long-term margin prospects for Midu, but expects operating profit margins to exceed 20% in the long term [40][41] Question: What is the specific user acquisition strategy for Midu in 2021? - The company plans to continue investing in Midu throughout 2021, focusing on disciplined spending and achieving good ROI from marketing efforts [42][43] Question: Can management comment on the competitive landscape of the advertising market? - Management noted a trend of recovery in the advertising market, particularly in e-commerce, and expressed confidence in their performance-based advertising strength [49][51]