Waterdrop 2021 Annual Report

Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
(Mark One)
☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021.
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF

1934
OR
☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

ACT OF 1934
Date of event requiring this shell company report
For the transition period from to
Commission file number: 001-40376
Waterdrop Inc.
(Exact name of Registrant as specified in its charter)
N/A
(Translation of Registrant’s name into English)
Cayman Islands
(Jurisdiction of incorporation or organization)
Block C, Wangjing Science and Technology Park

No. 2 Lize Zhonger Road
Chaoyang District, Beijing 100102
People’s Republic of China
+86 10 5339-4997
(Address of principal executive offices)
Kangping Shi, Chief Financial Officer
Telephone: +86 10 5339-4997
Email: [email protected]

(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Trading Name of each exchange

Title of each class Symbol(s) on which registered
American depositary shares (each ADS WDH New York Stock Exchange
represents ten of our Class A ordinary shares,
par value US$0.000005 per share)
Class A ordinary shares, par value New York Stock Exchange
US$0.000005 per share*
* Not for trading, but only in connection with the listing on the New York Stock Exchange of American depositary shares.
Securities registered or to be registered pursuant to Section 12(g) of the Act:

None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
(Title of Class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual
report.
3,140,896,631 Class A ordinary shares (excluding 65,757,070 Class A ordinary shares, comprising of Class A ordinary shares issued to the depositary
for bulk issuance of ADSs and reserved for future issuances upon the exercise or vesting of awards granted under share incentive plans, and Class A
ordinary shares in the form of ADSs held in treasury), and 801,904,979 Class B ordinary shares, par value US$0.000005 per share, as of December 31,
2021.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934. ☐ Yes ☒ No
Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 from their obligations under those Sections.
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such
files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company.
See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Emerging growth company ☒
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected
not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of
the Exchange Act. ☐ Yes ☒ No
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting
Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that
prepared or issued its audit report. ☐ Yes ☒ No
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ☒ International Financial Reporting Standards as issued Other ☐

by the International Accounting Standards Board ☐
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to
follow. ☐ Item 17 ☐ Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). ☐ Yes ☒ No
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. ☐ Yes ☐ No
Table of Contents
TABLE OF CONTENTS
Page
INTRODUCTION 1
FORWARD-LOOKING INFORMATION 2
PART I 3
Item 1. Identity of Directors, Senior Management and Advisers 3
Item 2. Offer Statistics and Expected Timetable 3
Item 3. Key Information 3
Item 4. Information on the Company 60
Item 4A. Unresolved Staff Comments 97
Item 5. Operating and Financial Review and Prospects 98
Item 6. Directors, Senior Management and Employees 114
Item 7. Major Shareholders and Related Party Transactions 124
Item 8. Financial Information 126
Item 9. The Offer and Listing 127
Item 10. Additional Information 128
Item 11. Quantitative and Qualitative Disclosures about Market Risk 142
Item 12. Description of Securities Other than Equity Securities 143
PART II 146
Item 13. Defaults, Dividend Arrearages and Delinquencies 146
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds 146
Item 15. Controls and Procedures 146
Item 16A. Audit Committee Financial Expert 147
Item 16B. Code of Ethics 148
Item 16C. Principal Accountant Fees and Services 148
Item 16D. Exemptions from the Listing Standards for Audit Committees 148
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers 148
Item 16F. Change in Registrant’s Certifying Accountant 149
Item 16G. Corporate Governance 149
Item 16H. Mine Safety Disclosure 149
Item 16I. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. 149
PART III 150
Item 17. Financial Statements 150
Item 18. Financial Statements 150
Item 19. Exhibits 150
SIGNATURES 154
Table of Contents
INTRODUCTION
Except where the context otherwise requires and for purposes of this annual report only:
• “ADRs” are to the American depositary receipts which may evidence the ADSs;
• “ADSs” are to the American depositary shares, each of which represents ten Class A ordinary shares;
• “China” or the “PRC” are to the People’s Republic of China, excluding, for the purposes of this annual report only, Hong Kong,
Macau and Taiwan;
• “Class A ordinary shares” refer to our Class A ordinary shares, par value US$0.000005 per share;
• “Class B ordinary shares” refer to our Class B ordinary shares, par value US$0.000005 per share;
• “FYP” are to first year premiums, which include all premiums that policyholders are obligated to pay for short-term policies and the
premiums that policyholders are obligated to pay in the first policy year for long-term policies;
• “ordinary shares” are to our Class A ordinary shares and Class B ordinary shares, par value US$0.000005 per share;
• “the VIEs” are to Beijing Zhuiqiu Jizhi Technology Co., Ltd., or Zhuiqiu Jizhi, Beijing Shuidi Hubao Technology Co., Ltd., or
Shuidi Hubao, Beijing Shuidi Hulian Technology Co., Ltd., or Shuidi Hulian, Beijing Zongqing Xiangqian Technology Co., Ltd., or
Zongqing Xiangqian, and Beijing Guangmu Weichen Technology Co., Ltd., or Guangmu Weichen;
• “our WFOE” are to Beijing Absolute Health Co., Ltd., or Absolute Health;
• “RMB” and “Renminbi” are to the legal currency of China;
• “US$,” “U.S. dollars,” “$,” and “dollars” are to the legal currency of the United States; and
• “Waterdrop,” “we,” “us,” “our company” and “our” are to Waterdrop Inc., our Cayman Islands holding company and its subsidiaries,
and, in the context of describing the consolidated financial information, its consolidated variable interest entities and the subsidiaries
of the consolidated variable interest entities in China, including, but not limited to, the VIEs.
Our reporting currency is the Renminbi. This annual report also contains translations of certain foreign currency amounts into U.S. dollars for the
convenience of the reader. Unless otherwise stated, all translations of Renminbi into U.S. dollars were made at RMB6.3726 to US$1.00, the exchange
rate set forth in the H.10 statistical release of the Federal Reserve Board on December 30, 2021. We make no representation that the Renminbi or U.S.
dollars amounts referred to in this annual report could have been or could be converted into U.S. dollars or Renminbi, as the case may be, at any
particular rate or at all.
Due to rounding, numbers presented throughout this annual report may not add up precisely to the totals provided and percentages may not
precisely reflect the absolute figures.
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FORWARD-LOOKING INFORMATION
This annual report contains forward-looking statements that involve risks and uncertainties. All statements other than statements of current or
historical facts are forward-looking statements. These forward-looking statements are made under the “safe harbor” provisions of the U.S. Private
Securities Litigation Reform Act of 1995. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual
results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements.
You can identify these forward-looking statements by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,”
“plan,” “believe,” “likely to” or other similar expressions. We have based these forward-looking statements largely on our current expectations and
projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and
financial needs. These forward-looking statements include, but are not limited to, statements about:
• our mission, goals and strategies;
• our future business development, financial conditions and results of operations;
• the expected growth of the insurance and online healthcare industry in China;
• our expectations regarding demand for and market acceptance of our products and services;
• our expectations regarding our relationships with consumers, insurance carriers and other partners;
• competition in our industry;
• our proposed use of proceeds; and
• relevant government policies and regulations relating to our industry.
You should read this annual report and the documents that we refer to in this annual report with the understanding that our actual future results
may be materially different from and worse than what we expect. Other sections of this annual report include additional factors which could adversely
impact our business and financial performance. Moreover, we operate in an evolving environment. New risk factors and uncertainties emerge from time
to time and it is not possible for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business
or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking
statements. We qualify all of our forward-looking statements by these cautionary statements.
This annual report also contains statistical data and estimates that we obtained from government and private publications. Statistical data in these
publications also include projections based on a number of assumptions. The industries in which we operate may not grow at the rate projected by
market data, or at all. Failure of those industries to grow at the projected rate may have a material and adverse effect on our business and the market
price of the ADSs. In addition, the rapidly evolving nature of such industries result in significant uncertainties for any projections or estimates relating to
the growth prospects or future condition of our market. Furthermore, if any one or more of the assumptions underlying the market data are later found to
be incorrect, actual results may differ from the projections based on these assumptions. In addition, projections, assumptions and estimates of our future
performance and the future performance of the industry in which we operate are necessarily subject to a high degree of uncertainty and risk due to a
variety of factors, including those described in “Item 3. Key Information—D. Risk Factors” and elsewhere in this annual report. You should not place
undue reliance on these forward-looking statements.
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PART I
Item 1. Identity of Directors, Senior Management and Advisers
Not applicable.
Item 2. Offer Statistics and Expected Timetable

Not applicable.
Item 3. Key Information

Waterdrop Inc. is not an operating company in China but rather a Cayman Islands holding company with no material operations of its own and no
equity ownership in the VIEs (defined below). We conduct our operations primarily through (i) our PRC subsidiaries and (ii) the VIEs, with which we
maintain contractual agreements. PRC laws and regulations restrict and impose conditions on foreign direct investment in companies involved in the
provision of value-added telecommunication services, insurance brokerage services or insurance agency services. Therefore, we operate such businesses
in China through the variable interest entities, Zhuiqiu Jizhi, Shuidi Hubao, Shuidi Hulian, Zongqing Xiangqian and Guangmu Weichen, which we refer
to as the VIEs in this annual report, and rely on contractual arrangements among our PRC subsidiaries, the VIEs and their shareholders to control the
business operations of the VIEs. Revenues contributed by the VIEs accounted for 100.0%, 99.5% and 99.6% of our total net revenues for the fiscal years
2019, 2020 and 2021, respectively. As used in this annual report, “Waterdrop,” “we,” “us,” “our company” or “our” refers to Waterdrop Inc., its
subsidiaries, and, in the context of describing the consolidated financial information, the VIEs and their subsidiaries in China. Investors in our ADSs
thus are not purchasing equity interest in the VIEs in China but instead are purchasing equity interest in Waterdrop Inc., a Cayman Islands holding
company.
Our corporate structure is subject to risks associated with our contractual arrangements with the VIEs. Investors may not directly hold equity
interests in the VIEs or in the businesses that are conducted by the VIEs, and the VIE structure provides contractual exposure to foreign investment in
the companies which involve foreign investment restrictions. If the PRC government finds that the agreements that establish the structure for operating
our business do not comply with PRC laws and regulations, or if these regulations or their interpretations change in the future, we could be subject to
severe penalties or be forced to relinquish our interests in those operations. This may result in the VIEs being deconsolidated, which would materially
and adversely affect our operations, and our ADSs may decline significantly in value or become worthless. Our holding company, our PRC subsidiaries,
the VIEs, and investors of our company face uncertainty about potential future actions by the PRC government that could affect the enforceability of the
contractual arrangements with the VIEs and, consequently, significantly affect the financial performance of the VIEs and our company as a whole. The
PRC regulatory authorities could disallow the VIE structure, which would likely result in a material adverse change in our operations, and our ordinary
shares or our ADSs may decline significantly in value or become worthless. As such, the VIE structure involves unique risks to investors of our holding
company. For a detailed description of the risks associated with our corporate structure, please refer to risks disclosed under “Item 3. Key Information—
D. Risk Factors—Risks Related to Our Corporate Structure.”
We face various risks and uncertainties related to doing business in China. Our business operations are primarily conducted in China, and we are
subject to complex and evolving PRC laws and regulations. For example, we face risks associated with regulatory approvals on offshore offerings, anti-
monopoly regulatory actions, and oversight on cybersecurity and data privacy. These risks could result in a material adverse change in our operations
and the value of our ADSs, significantly limit or completely hinder our ability to continue to offer securities to investors, or cause the value of such
securities to significantly decline. For a detailed description of risks related to doing business in China, “Item 3. Key Information—D. Risk Factors—
Risks Related to Doing Business in China.”
Risks and uncertainties arising from the legal system in China, including risks and uncertainties regarding the enforcement of laws and quickly
evolving rules and regulations in China, could result in a material adverse change in our operations and the value of our ADSs. For more details, see
“Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Uncertainties with respect to the PRC legal system could
adversely affect us.”
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Our Holding Company Structure and VIE Contractual Arrangements

Waterdrop Inc. is a holding company with no material operations of its own. We conduct our operations primarily through our PRC subsidiaries
and the VIEs. Our value-added telecommunication services, insurance brokerage services or insurance agency services in the PRC have been conducted
through the VIEs in order to comply with the PRC laws and regulations, which restrict and impose conditions on foreign direct investment in companies
involved in the provision of value-added telecommunication services, insurance brokerage services or insurance agency services.
The following diagram illustrates our corporate structure as of the date of this annual report, including our principal subsidiaries, the VIEs and the
VIEs’ principal subsidiaries:
Notes:
(1) Mr. Peng Shen holds 100% of the equity interests in Beijing Shuidi Hubao Technology Co., Ltd.
(2) Mr. Peng Shen and Mr. Wei Ran, an employee of the Company, each holds 99% and 1% of the equity interests in Beijing Shuidi Hulian
Technology Co., Ltd.
(3) Mr. Peng Shen and Mr. Guang Yang, each holds 99% and 1% of the equity interests in Beijing Zhuiqiu Jizhi Technology Co., Ltd.
(4) Mr. Peng Shen and Mr. Wei Ran, an employee of the Company, each holds 99% and 1% of the equity interests in Beijing Zongqing Xiangqian
(5) Ms. Xiaolei Sun and Ms. Nian Liu, both employees of the Company, each holds 99% and 1% of the equity interests in Beijing Guangmu Weichen
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Permissions Required from the PRC Authorities for Our Operations

We conduct our business primarily through our PRC subsidiaries, the VIEs and their subsidiaries in China. Our operations in China are governed
by PRC laws and regulations. As of the date of this annual report, our PRC subsidiaries, the VIEs and their subsidiaries have obtained the requisite
licenses and permits from the PRC government authorities that are material for the business operations of our holding company, the VIEs and their
subsidiaries in the PRC, including, among others, licenses to conduct insurance brokerage business and insurance agency business, license for provision
of internet information services, or ICP License and Internet Pharmaceutical Information Service Qualification Certificate. Given the uncertainties of
interpretation and implementation of relevant laws and regulations and the enforcement practice by relevant government authorities, we may be required
to obtain additional licenses, permits, filings or approvals for the functions and services of our platform in the future. For more detailed information, see
“Item 3. Key Information—D. Risk Factors—Risks Related to Our Business—Any lack of requisite approvals, licenses or permits applicable to our
business operation may have a material and adverse impact on our business and results of operations.”
As of the date of this annual report, except for the licenses and approvals that have been granted, we, our PRC subsidiaries and the VIEs are not
required to obtain approval or permission from China Securities Regulatory Commission, or the CSRC, the Cyberspace Administration of China, or the
CAC or any other entity that is required to approve the VIEs’ operations or required for us to offer securities to foreign investors under any currently
effective PRC laws, regulations, and regulatory rules. However, in connection with any future overseas capital markets activities, we may need to obtain
permission from the CSRC, undergo a cybersecurity review conducted by the CAC, or meet other regulatory requirements that may be adopted in the
future by PRC authorities. To the extent such requirements are or become applicable, we cannot assure you that we would be able to comply with them.
Any failure to obtain or delay in obtaining such approval or completing such procedures could subject us to restrictions and penalties imposed by the
CSRC, the CAC or other PRC regulatory authorities, which could include fines and penalties on our operations in China, delays of or restrictions on the
repatriation of the proceeds from our offshore offerings into China, or other actions that could materially and adversely affect our business, financial
condition, results of operations, and prospects, as well as the trading price of our ADSs. See “Item 3. Key Information—D. Risk Factors—Risks Related
to Doing Business in China—The PRC government’s significant oversight and discretion over our business operation could result in a material adverse
change in our operations and the value of our ADSs.”
Furthermore, in connection with issuance of securities to foreign investors, the PRC government has recently indicated an intent to exert more
oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers. Any such action could significantly
limit or completely hinder our ability to conduct future offerings of securities to investors and accept foreign investments. For more detailed
information, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China— The filing, approval or other administration
requirements of the CSRC or other PRC government authorities may be required in connection with our offshore offerings under PRC law, and, if
required, we cannot predict whether or for how long we will be able to complete such filing, obtain such approval or meet such requirements.”
The Holding Foreign Companies Accountable Act

The Holding Foreign Companies Accountable Act, or the HFCAA, was enacted on December 18, 2020. The HFCAA states if the SEC determines
that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspection by the Public Company Accounting
Oversight Board (United States), or the PCAOB, for three consecutive years beginning in 2021, the SEC shall prohibit our shares or ADSs from being
traded on a national securities exchange. Since our auditor is located in China, a jurisdiction where the PCAOB has been unable to conduct inspections
without the approval of the Chinese authorities, our auditor is not currently inspected by the PCAOB, which may impact our ability to remain listed on a
United States. The related risks and uncertainties could cause the value of our ADSs to significantly decline. For more details, see “Item 3. Key
Information—D. Risk Factors—Risks Related to Doing Business in China—The PCAOB is currently unable to inspect our auditor in relation to their
audit work performed for our financial statements and the inability of the PCAOB to conduct inspections over our auditor deprives our investors with
the benefits of such inspections” and “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Our ADSs will be
prohibited from trading in the United States under the Holding Foreign Companies Accountable Act, or the HFCAA, in 2024 if the PCAOB is unable to
inspect or fully investigate auditors located in China, or in 2023 if proposed changes to the law are enacted. The identification by the HFCAA to its lists,
delisting of our ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment.”
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Cash Transfers and Dividend Distribution
Waterdrop Inc., our Cayman Islands holding company, or the Parent, transfers cash to our wholly-owned Hong Kong subsidiary, by making capital
contributions or providing loans, and our Hong Kong subsidiary transfers cash to our PRC subsidiaries by making capital contributions or providing
loans to them.
Because the Parent and its subsidiaries control the VIEs through contractual arrangements, they are not able to make direct capital contribution to
the VIEs and their subsidiaries. However, they may transfer cash to the VIEs by loans or by making payment to the VIEs for inter-group transactions.
The following table sets forth the amount of the transfers for the periods presented.
Years Ended December 31,

2019 2020 2021
(RMB in millions)
Capital contributions from Parent to its subsidiaries 1,468 1,555 2,679
Loans from its subsidiaries to Parent — — 382
Loans repayment received by its subsidiaries from Parent — — 35
Loans from its subsidiaries to the VIEs and their subsidiaries 892 1,477 4,418
Loans repayment received by subsidiaries from VIEs and their subsidiaries 367 372 3,010
Service fees received by WOFE from the VIEs and their subsidiaries * — 455 718
Note:
* The cash flows between our WFOE, and the VIEs and their subsidiaries included the service fees paid for services contemplated by the exclusive
business cooperation agreements.
The VIEs may transfer cash to our WFOE by paying service fees according to the exclusive business cooperation agreements. Pursuant to these
agreements between the VIEs and our WFOE, our WFOE has the exclusive right to provide the VIEs with consulting, technical services and other
services required by the VIEs’ business. Without our WFOE’s prior written consent, the VIEs may not accept the same or similar consulting, technical
services and other services provided by any third party during the term of the agreement. The VIEs agree to pay our WFOE service fees based on the
operating profit generated by the VIEs on an annual basis. For the years ended December 31, 2019, 2020 and 2021, service fees of nil, RMB455 million,
and RMB718 million were paid to the WFOE by the VIEs under the agreements.
For the years ended December 31, 2019, 2020 and 2021, no dividends or distributions were made to the Parent by our subsidiaries. For the years
ended December 31, 2019, 2020 and 2021, no dividends or distributions were made to U.S. investors.
For purposes of illustration, the following discussion reflects the hypothetical taxes that might be required to be paid within China, assuming that:
(i) we have taxable earnings, and (ii) we determine to pay a dividend in the future:
Taxation Scenario(1)
Statutory Tax and Standard Rates
Hypothetical pre-tax earnings(2) 100%
Tax on earnings at statutory rate of 25%(3) (25%)
Net earnings available for distribution 75%
Withholding tax at standard rate of 10%(4) (7.5%)
Net distribution to Parent/Shareholders 67.5%
Notes:
(1) For purposes of this example, the tax calculation has been simplified. The hypothetical book pre-tax earnings amount, not considering timing
differences, is assumed to equal taxable income in China.
(2) Under the terms of VIE agreements, our WFOE may charge the VIEs for services provided to the VIEs. These fees shall be recognized as
expenses of the VIEs, with a corresponding amount as service income by our WFOE and eliminate in consolidation. For income tax purposes, our
our WFOE and the VIEs file income tax returns on a separate company basis. The fees paid are recognized as a tax deduction by the VIEs and as
income by our WFOE and are tax neutral.
(3) Certain of our subsidiaries qualifies for a 15% preferential income tax rate in China. However, such rate is subject to qualification, is temporary in
nature, and may not be available in a future period when distributions are paid. For purposes of this hypothetical example, the table above reflects
a maximum tax scenario under which the full statutory rate would be effective.
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(4) The PRC Enterprise Income Tax Law imposes a withholding income tax of 10% on dividends distributed by a foreign invested enterprise, or FIE,
to its immediate holding company outside of China. A lower withholding income tax rate of 5% is applied if the FIE’s immediate holding
company is registered in Hong Kong or other jurisdictions that have a tax treaty arrangement with China, subject to a qualification review at the
time of the distribution. For purposes of this hypothetical example, the table above assumes a maximum tax scenario under which the full
withholding tax would be applied.
The table above has been prepared under the assumption that all profits of the VIEs will be distributed as fees to our WFOE under tax neutral
contractual arrangements. If, in the future, the accumulated earnings of the VIE exceed the fees paid to our WFOE (or if the current and contemplated
fee structure between the intercompany entities is determined to be non-substantive and disallowed by Chinese tax authorities), the VIEs could, as a
matter of last resort, make a non-deductible transfer to our PRC subsidiaries for the amounts of the stranded cash in the VIEs. This would result in such
transfer being non-deductible expenses for the VIEs but still taxable income for our WFOE.
As Waterdrop Inc. is a Cayman Islands holding company with no material operations of its own, its ability to pay dividends depends upon
dividends paid by our PRC subsidiaries. Our PRC subsidiaries in turn generate income from their own operations, and in addition enjoy all economic
benefit and receive service fees from the VIEs pursuant to the exclusive business cooperation agreement with the VIEs. If our existing PRC subsidiaries
or any newly formed ones incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to distribute
earnings or pay dividends to us. Under PRC law, each of our subsidiaries and the VIEs in China is required to set aside at least 10% of its after-tax
profits each year, if any, to fund certain statutory reserve funds until such reserve funds reach 50% of its registered capital. In addition, each of our
subsidiaries and the VIEs in China may allocate a portion of its after-tax profits based on PRC accounting standards to a surplus fund at its discretion.
The statutory reserve funds and the discretionary funds are not distributable as cash dividends. Remittance of dividends by a wholly foreign-owned
company out of China is subject to examination by the banks designated by the State Administration of Foreign Exchange, or the SAFE and declaration
and payment of withholding tax. Additionally, if our PRC subsidiaries and the VIEs incur debt on their own behalf in the future, the instruments
governing their debt may restrict their ability to pay dividends or make other distributions to us. Our PRC subsidiaries have not paid dividends and will
not be able to pay dividends until it generates accumulated profits and meets the requirements for statutory reserve funds. For more details, see “Item 3.
Key Information—D. Risk Factors—Risks Related to Doing Business in China—PRC regulation of loans to and direct investment in PRC entities by
offshore holding companies may delay us from using the proceeds of financing activities to make loans or additional capital contributions to our PRC
subsidiaries and to make loans to the VIEs, which could materially and adversely affect our liquidity and our ability to fund and expand our business,”
and “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Governmental control of currency conversion may limit
our ability to utilize our revenues effectively and affect the value of your investment.”
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Financial Information Related to the VIEs

The following table presents the condensed consolidating balance sheet data for the VIEs and other entities as of the dates presented.
As of December 31, 2021 As of December 31, 2020

VIEs and VIEs and
Non-VIE their Non-VIE their
Parent subsidiaries subsidiaries Elimination Consolidated Parent subsidiaries subsidiaries Elimination Consolidated
(RMB in thousands)
Cash and cash equivalents 8,483 78,047 731,189 — 817,719 32,145 273,876 755,941 — 1,061,962
Restricted cash — — 667,664 — 667,664 — 7,830 253,557 — 261,387
Short-term investments 414,921 1,202,990 351,451 — 1,969,362 653,609 265,161 274,390 — 1,193,160
Accounts receivable — 8,608 635,235 — 643,843 — 3,147 536,644 — 539,791
Current contract assets — — 563,611 — 563,611 — — 824,544 — 824,544
Amount due from related parties — — 1,049 — 1,049 — — 813 — 813
Prepaid expense and other assets 14,993 39,361 315,440 — 369,794 — 31,183 619,897 — 651,080
Amounts due from the entities within our
Group 1,786 4,323,023 121 (4,324,930) — 2,073 2,517,756 127,405 (2,647,234) —
Non-current contract assets — — 29,889 — 29,889 — — 24,006 — 24,006
Property, equipment and software, net — 31,506 13,256 — 44,762 — 19,553 9,171 — 28,724
Intangible assets, net — 20,535 53,202 (16,984) 56,753 — 25,986 49,406 (22,358) 53,034
Long-term investments 1,912 — 9,900 — 11,812 1,957 — 784 — 2,741
Investment in Non-VIE subsidiaries 3,883,806 — — (3,883,806) — 2,551,008 — — (2,551,008) —
Investment in VIEs — (1,341,046) — 1,341,046 — — (87,217) — 87,217 —
Right of use assets, net — 28,503 30,578 — 59,081 — 39,940 20,754 — 60,694
Deferred tax assets — — 11,840 — 11,840 — — — — —
Goodwill — — 3,420 — 3,420 — — 3,119 — 3,119
Total assets 4,325,901 4,391,527 3,417,845 (6,884,674) 5,250,599 3,240,792 3,097,215 3,500,431 (5,133,383) 4,705,055
Amount due to related parties — 20,449 — — 20,449 — 9,789 — — 9,789
Insurance premium payables — — 685,028 — 685,028 — — 607,326 — 607,326
Deferred revenue — — 803 — 803 — — 22,017 — 22,017
Accrued expenses and other current liabilities 3,734 81,580 413,438 — 498,752 60,480 87,915 447,211 — 595,606
Current lease liabilities — 27,661 16,452 — 44,113 — 25,957 10,594 — 36,551
Amounts due to the entities within our Group 348,741 1,491 3,617,123 (3,967,355) — — 21,559 2,266,999 (2,288,558) —
Non-current lease liabilities — 1,556 12,921 — 14,477 — 19,528 8,181 — 27,709
Deferred tax liabilities — — 13,126 425 13,551 — 425 225,320 — 225,745
Total liabilities 352,475 132,737 4,758,891 (3,966,930) 1,277,173 60,480 165,173 3,587,648 (2,288,558) 1,524,743
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The following table presents the condensed consolidating statements of operations for the VIEs and other entities for the periods presented.
For the year ended December 31, 2021 For the year ended December 31, 2020 For the year ended December 31, 2019
VIEs and VIEs and VIEs and
Non-VIE their Non-VIE their Non-VIE their
Parent subsidiaries subsidiaries Elimination Consolidated Parent subsidiaries subsidiaries Elimination Consolidated Parent subsidiaries subsidiaries Elimination C
(RMB in thousands)
Operating
revenue, net 2,279 757,798 3,193,807 (747,970) 3,205,914 — 535,486 3,035,904 (543,442) 3,027,948 — 154,890 1,511,010 (154,935)
Operating costs — (171,728) (882,747) — (1,054,475) — (150,457) (591,801) — (742,258) — (62,659) (228,651) —
Sales and
marketing
expenses (10,902) (161,598) (2,932,269) — (3,104,769) (4,538) (59,354) (2,066,643) — (2,130,535) (1,927) (40,540) (1,014,027) —
General and
administrative
expenses (214,856) (208,605) (853,908) 746,847 (530,522) (211,596) (123,631) (583,583) 511,639 (407,171) (19,834) (87,915) (201,044) 165,798
Research and
development
expenses (25,056) (329,291) (24,643) — (378,990) (13,279) (202,495) (28,456) — (244,230) (8,329) (152,291) (54,026) —
Total operating
costs and
expenses (250,814) (871,222) (4,693,567) 746,847 (5,068,756) (229,413) (535,937) (3,270,483) 511,639 (3,524,194) (30,090) (343,405) (1,497,748) 165,798
Operating
(loss)/income (248,535) (113,424) (1,499,760) (1,123) (1,862,842) (229,413) (451) (234,579) (31,803) (496,246) (30,090) (188,515) 13,262 10,863
Equity in loss of
subsidiaries
and VIEs (1,332,101) (1,250,773) — 2,582,874 — (286,022) (287,649) — 573,671 — (292,523) (116,494) — 409,017
Net
(loss)/income (1,574,080) (1,332,101) (1,253,808) 2,585,909 (1,574,080) (663,869) (286,022) (253,807) 539,829 (663,869) (321,535) (292,523) (184,632) 477,155
The following table presents condensed consolidating cash flow data for the VIEs and other entities for the years ended presented.
For the year ended December 31, 2021 For the year ended December 31, 2020 For the year ended December 31, 2019
VIEs and VIEs and VIEs and
Non-VIE their Non-VIE their Non-VIE their
Parent subsidiaries subsidiaries Elimination Consolidated Parent subsidiaries subsidiaries Elimination Consolidated Parent subsidiaries subsidiaries Elimination
(RMB in thousands)
Net cash
provided
by/(used in)
operating
activities 320,097 (497,069) (919,680) — (1,096,652) (28) (224,548) (552,532) — (777,108) (2,827) (148,151) (381,917) —
Net cash (used
in)/provided
by investing
activities (2,458,126) (2,376,786) (99,240) 4,087,254 (846,898) (2,209,098) (1,391,055) (277,521) 2,659,973 (1,217,701) (1,434,140) (680,046) 75,528 1,992,703
Net cash
provided
by/(used in)
financing
activities 2,128,529 2,670,120 1,408,275 (4,087,254) 2,119,670 2,048,986 1,556,899 1,104,978 (2,659,973) 2,050,890 1,491,983 1,467,522 505,973 (1,992,703)
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A. Selected Financial Data

The following selected consolidated statements of comprehensive loss data for the years ended December 31, 2019, 2020 and 2021, selected
consolidated balance sheet data as of December 31, 2020 and 2021 and selected consolidated cash flow data for the years ended December 31, 2019,
2020 and 2021 have been derived from our audited consolidated financial statements included elsewhere in this annual report. The following selected
consolidated statements of comprehensive loss data for the year ended December 31, 2018, selected consolidated balance sheet data as of December 31,
2018 and 2019 and selected consolidated cash flow data for the year ended December 31, 2018 have been derived from our audited consolidated
financial statements not included in this annual report. Our consolidated financial statements are prepared and presented in accordance with U.S. GAAP.
You should read this “Selected Financial Data” section together with our consolidated financial statements and the related notes and “Item 5. Operating
and Financial Review and Prospects” included elsewhere in this annual report. Our historical results are not necessarily indicative of results expected for
future periods.
The following table sets forth a summary of our consolidated statements of comprehensive loss for the years ended December 31, 2018, 2019,
2020 and 2021.
For the Year Ended December 31,

2018 2019 2020 2021
RMB RMB RMB RMB US$
(in thousands, except for share and per share data)
Operating revenue, net 238,149 1,510,965 3,027,948 3,205,914 503,078
Operating costs and expenses
Operating costs (45,932) (291,310) (742,258) (1,054,475) (165,470)
Sales and marketing expenses (184,943) (1,056,494) (2,130,535) (3,104,769) (487,206)
General and administrative expenses (126,242) (142,995) (407,171) (530,522) (83,250)
Research and development expenses (69,196) (214,646) (244,230) (378,990) (59,472)
Total operating costs and expenses (426,313) (1,705,445) (3,524,194) (5,068,756) (795,398)
Operating loss (188,164) (194,480) (496,246) (1,862,842) (292,320)
Other income/(expenses)
Interest income 2,428 10,533 26,515 48,662 7,636
Fair value change of warrant — — (150,685) — —
Foreign currency exchange gain/(loss) 66 4,152 (1,335) 9,349 1,467
Others, net (1,967) 817 8,052 9,764 1,532
Loss before income tax, and share of results of equity
method investee (187,637) (178,978) (613,699) (1,795,067) (281,685)
Income tax (expense)/benefit (21,503) (142,528) (50,155) 220,987 34,678
Share of results of equity method investee (54) (29) (15) — —
Net loss attributable to Waterdrop Inc. (209,194) (321,535) (663,869) (1,574,080) (247,007)
Deemed dividend on modification on preferred shares — — (67,975) — —
Deemed dividend upon issuance of warrants — — (90,268) — —
Preferred shares redemption value accretion (22,230) (136,839) (285,668) (152,287) (23,897)
Net loss attributable to ordinary shareholders (231,424) (458,374) (1,107,780) (1,726,367) (270,904)
Weighted average number of ordinary shares used in
computing net loss per share
Basic and diluted 839,572,645 1,203,526,000 1,174,583,516 2,990,507,749 2,990,507,749
Net loss per share attributable to ordinary shareholders
Basic and diluted (0.28) (0.38) (0.94) (0.58) (0.09)
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The following table presents our selected consolidated balance sheet data as of December 31, 2019, 2020 and 2021.
As of December 31,
2019 2020 2021
RMB RMB RMB US$
(in thousands)
Selected Consolidated Balance Sheet Data:
Cash and cash equivalents 964,476 1,061,962 817,719 128,318
Restricted cash 329,676 261,387 667,664 104,771
Short-term investments 60,278 1,193,160 1,969,362 309,036
Accounts receivable 252,499 539,791 643,843 101,033
Contract assets 617,688 848,550 593,500 93,133
Total assets 2,555,906 4,705,055 5,250,599 823,933
Insurance premium payables(1) 320,327 607,326 685,028 107,496
Deferred revenue(2) 21,670 22,017 803 126
Accrued expenses and other current liabilities(3) 496,530 595,606 498,752 78,265
Deferred tax liabilities(4) 167,601 225,745 13,551 2,126
Total liabilities 1,054,394 1,524,743 1,277,173 200,416
Total mezzanine equity 2,207,831 4,837,336 — —
Total shareholders’ (deficit)/equity (706,319) (1,657,024) 3,973,426 623,517
Notes:
(1) Includes amounts of the consolidated VIEs and subsidiaries of VIEs without recourse to the Company of RMB320.2 million, RMB607.3 million
and RMB685.0 million as of December 31, 2019, 2020 and 2021, respectively.
(2) Includes amounts of the consolidated VIEs and subsidiaries of VIEs without recourse to the Company of RMB21.7 million, RMB22.0 million and
RMB0.8 million as of December 31, 2019, 2020 and 2021, respectively.
The following table sets forth our selected consolidated cash flow data for the years ended December 31, 2018, 2019, 2020 and 2021.

2018 2019 2020 2021
RMB RMB RMB RMB US$
(in thousands)
Net cash used in operating activities (211,029) (532,895) (777,108) (1,096,652) (172,089)
Net cash provided by/(used in) investing activities 31,988 (45,955) (1,217,701) (846,898) (132,897)
Net cash provided by financing activities 362,669 1,472,775 2,050,890 2,119,670 332,622
Effect of exchange rate changes on cash and cash equivalents (1,973) 27,342 (26,884) (14,086) (2,209)
Net increase in cash and cash equivalents and restricted cash 181,655 921,267 29,197 162,034 25,427
Total cash and cash equivalents and restricted cash at beginning of year 191,230 372,885 1,294,152 1,323,349 207,662
Total cash and cash equivalents and restricted cash at end of year 372,885 1,294,152 1,323,349 1,485,383 233,089
B. Capitalization and Indebtedness

Not applicable.
C. Reasons for the Offer and Use of Proceeds

Not applicable.
D. Risk Factors
Summary of Risk Factors
Investing in our ADSs involves significant risks. You should carefully consider all of the information in this annual report before making an
investment in our ADSs. The following list summarizes some, but not all, of these risks.
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Risks Related to Our Business and Industry

• Our business and growth are significantly affected by the future prospects of third-party insurance brokerage and agency, medical
crowdfunding and healthcare industries, which are rapidly evolving.
• Our limited operating history and evolving business model make it difficult to evaluate our business and future prospects and the
risks and challenges we may encounter.
• We face intense competition and could lose market share, which could adversely affect our results of operations.
• We have a history of net losses and negative cash flows from operating activities, which may continue in the future.
• We face uncertainties relating to the change of regulatory regime.
• We face reputational, monetary, and legal risks in relation to our discontinuation of the Waterdrop Mutual Aid business.
• The administration, interpretation and enforcement of the regulations applicable to us are evolving and involve uncertainties. We
may not be able to stay in constant compliance with the rapidly evolving regulations.
• Any lack of requisite approvals, licenses or permits applicable to our business operation may have a material and adverse impact on
our business and results of operations.
• We have been or may be subject to penalties for failure to manage our personnel engaging in insurance brokerage activities.
• We face reputational, monetary, and legal risks in relation to our discontinuation of the Waterdrop Mutual Aid business.
• Our historical growth rate may not be indicative of our future performance and if we fail to effectively manage our growth, our
business, financial condition and results of operations could be adversely affected.
Risks Related to Our Corporate Structure

• We are a Cayman Islands holding company with no equity ownership in the VIEs and we conduct our operations in China primarily
through (i) our PRC subsidiaries and (ii) the VIEs, with which we have maintained contractual arrangements. Investors in our ADSs
thus are not purchasing equity interest in our operating entities in China but instead are purchasing equity interest in a Cayman
Islands holding company. If the PRC government finds that the agreements that establish the structure for operating our business do
not comply with the PRC laws and regulations, or if these regulations or their interpretations change in the future, we could be
subject to severe penalties or be forced to relinquish our interests in those operations. Our holding company, our PRC subsidiaries,
the VIEs, and investors of our company face uncertainty about potential future actions by the PRC government that could affect the
enforceability of the contractual arrangements with the VIEs and, consequently, significantly affect the financial performance of the
VIEs and our company as a whole.
Risks Related to Doing Business in China

• Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our
business and operations.
• PRC government’s significant authority in regulating our operations and its oversight and control over securities offerings conducted
overseas by, and foreign investment in, China-based issuers could significantly limit or completely hinder our ability to offer or
continue to offer securities to investors. Implementation of industry-wide regulations in this nature may cause the value of such
securities to significantly decline.
• Risks and uncertainties arising from the legal system in China, including risks and uncertainties regarding the enforcement of laws
and quickly evolving rules and regulations in China, could result in a material adverse change in our operations and the value of our
ADSs.
• We may rely on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing
requirements we may have, and any limitation on the ability of our PRC subsidiaries to make payments to us could have a material
and adverse effect on our ability to conduct our business.
• Our auditor is currently not subject to inspections by the PCAOB. Our ADSs may be delisted under the Holding Foreign Companies
Accountable Act. The delisting of our ADSs, or the threat of their being delisted, may materially and adversely affect the value of
your investment. Additionally, the inability of the PCAOB to conduct inspections deprives our investors with the benefits of such
inspections.
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• Our ADSs will be prohibited from trading in the United States under the Holding Foreign Companies Accountable Act, in 2024 if
the PCAOB is unable to inspect or fully investigate auditors located in China, or in 2023 if proposed changes to the law are enacted.
The delisting of our ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment.
Risks Related to Our ADSs

• The trading price of the ADSs is likely to be volatile, which could result in substantial losses to investors.
• If securities or industry analysts cease to publish research or reports about our business, or if they adversely change their
recommendations regarding the ADSs, the market price for the ADSs and trading volume could decline.
• Our dual-class voting structure will limit your ability to influence corporate matters and could discourage others from pursuing any
change of control transactions that holders of our Class A ordinary shares and ADSs may view as beneficial.
Risks Relating to Our Business and Industry

Our business and growth are significantly affected by the future prospects of third-party insurance brokerage and agency, medical
crowdfunding and healthcare industries, which are rapidly evolving.
We primarily operate in three rapidly evolving industries. Our business and growth are highly dependent on the future growth and proliferation of
third-party insurance brokerage and agency, medical crowdfunding and healthcare industries in China, which could be affected by many factors beyond
our control.
Firstly, third-party insurance brokerage and agency industry in China could be affected by, from the insurance carrier side, the close integration
with and improvements in online infrastructure and technology, efficient access to insurance consumers, consumer base and insights, consumer
acquisition costs and the separation of insurance product design and sales; and from the consumer side, by the continued formation of consumers’ online
insurance policy purchasing habits, the selection, price and popularity of insurance products offered by insurance carriers, the demand for convenience,
the reliability and security of third-party insurance brokerage and agency platforms and online insurance policy buying or claim settlement experience.
In addition, third-party insurance brokerage and agency industry may also be affected by the overall prosperity of health and life insurance industry and
the regulatory regime.
Secondly, the medical crowdfunding industry in China could be affected by the medical cost borne by patients, development of self-discipline
conventions driven by industry leaders, the coverage of China’s national social medical insurance provided by the Chinese government and regulatory
policies.
Thirdly, our operation could also be significantly affected by the development of the healthcare industry, an adjacent industry to third-party
insurance brokerage and agency and medical crowdfunding industries, in China. Healthcare related business is subject to multiple regulations in China,
such as regulations governing pharmacy, distribution of pharmaceutical and healthcare products, healthcare, internet healthcare, and insurance claim
processing. New laws, regulations and regulatory requirements have been and may continue to be promulgated and implemented from time to time. We
face challenges brought by these new laws, regulations and regulatory requirements, as well as significant uncertainties in the interpretation and
application thereof. Moreover, there exist uncertainties as to how the regulatory environment might change. Any violation of the relevant laws, rules and
regulations may result in penalties and, under certain circumstances, criminal liabilities. Major internet companies or traditional online healthcare
service providers in China may start to offer or strengthen their offerings of competing products and services in the healthcare industry, utilizing their
large user base and cross-selling advantages. As a result, our business and growth potential could be materially and adversely affected.
Our limited operating history and evolving business model make it difficult to evaluate our business and future prospects and the risks and
challenges we may encounter.
We commenced our operation in 2016. Our evaluations of the business and prediction about our future performance may not be as accurate as they
would be if we had a longer operating history. In the event that actual results differ from our expectation or we adjust our estimates in future periods, the
investors’ perceptions of our business and future prospects could change materially, which may adversely affect our ADS price.
We have been actively exploring boundaries and synergy values of our business and expanding our services. We started with the mutual aid plan
services in May 2016, under which we generated management fee income as an operator of the mutual aid plans, and then launched Waterdrop Medical
Crowdfunding in July 2016. We began to distribute insurance products underwritten by insurance carriers in our Waterdrop Insurance Marketplace in
May 2017, through which we earn brokerage income. As trial operation, we started to charge service fees for medical crowdfunding services in early
2022. There is no assurance that we could bring in new patients to our Waterdrop Medical Crowdfunding platform at the scale as before if patients
alternatively initiate crowdfunding campaigns on other platforms providing free crowdfunding services. See “—If we fail to bring in new patients to our
Waterdrop Medical Crowdfunding platform, our business and results of operations could be adversely affected.” In addition, we may also encounter
reputational risks, negative feedback from patients and donors, and regulatory uncertainties as we start charging service fees for medical crowdfunding
services. Further, we may also enter into other healthcare related industries under our mission to bring insurance and healthcare service to billions
through technology. If our healthcare related products and services do not maintain and drive customers’ engagement or if we fail to provide superior
customer experience, we may fail to attract new customers or retain sufficient customers for our healthcare related business. Our healthcare business
may become increasingly complex in terms of both business model and scale. Moreover, if we are unable to boost the growth of our healthcare related
business and operations, or implement our business strategies successfully, we may discontinue or adjust the relevant business model. Our constantly
evolving business model makes it difficult to evaluate the risks and challenges we may encounter.
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We face intense competition and could lose market share, which could adversely affect our results of operations.
The third-party insurance brokerage and agency industry in China is intensely competitive. Our current or potential competitors include (i) online
third-party brokers and agents such as Ant Group and WeSure; and (ii) offline third-party brokers and agents such as Fanhua, Everpro and Datong. New
competitors may emerge at any time. We also face competition from traditional insurance intermediaries such as bancassurance, tied agency channel of
insurance carriers and direct sales channel of insurance carriers.
Additional players may also enter into the rapidly evolving medical crowdfunding space from time to time. We also face intensive competition as
more companies tap into the global clinical research and development third-party service market where many market players exist.
Existing or potential competitors may have substantially greater brand recognition and possess more financial, marketing and research resources
than we do. Our competitors may introduce platforms with more attractive products, content and features, or services or solutions with competitive
pricing or enhanced performance that we cannot match. Some of our competitors may have more resources to develop or acquire new technologies and
react quicker to changing requirements of consumers.
In addition, for the online insurance marketplace industry we operate in, our target insurance policy purchasers, PRC residents with potential
insurance needs, may seek insurance products and services in well-equipped and developed neighboring insurance markets. We may fail to compete
effectively with our competitors and industry participants in neighboring insurance markets.
We have a history of net losses and negative cash flows from operating activities, which may continue in the future.
We have incurred net losses and negative cash flows from operating activities each year since our inception and we may not be able to achieve or
maintain profitability or positive cash flow in the future. We incurred net losses of RMB321.5 million, RMB663.9 million and RMB1,574.1 million
(US$247.0 million) in 2019, 2020 and 2021, respectively. Net cash used in our operating activities was RMB532.9 million, RMB777.1 million and
RMB1,096.7 million (US$172.1 million) in 2019, 2020 and 2021, respectively.
Our operating costs and expenses may increase in the foreseeable future as we continue to grow our business, acquire new users, invest and
innovate in our technology infrastructure and further develop our product and service offering and increase brand recognition. Any of these efforts may
incur significant capital investment and recurring costs, have different revenue and cost structures, and take time to achieve profitability. If we continue
to have net loss and negative cash flows from operating activities, we may have to finance ourselves with equity or debt financing, which may not be
available at price term favorable to us or at all.
We face uncertainties relating to the change of regulatory regime.

We operate in a highly regulated industry in China, and the regulatory regime continues to evolve. The China Banking and Insurance Regulatory
Commission, or the CBIRC, has extensive authority to supervise and regulate the insurance industry in China. Since the online insurance industry in
China is evolving rapidly, the CBIRC has been enhancing its supervision over this industry in recent years, and new laws, regulations and regulatory
requirements have been promulgated and implemented from time to time. We face challenges brought by these new laws, regulations and regulatory
requirements, as well as significant uncertainties in the interpretation and application thereof. Moreover, there exist uncertainties as to how the
regulatory environment might change.
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On December 7, 2020, the CBIRC published the Regulatory Measures for Online Insurance Business, or the Regulatory Measures, which became
effective on February 1, 2021. Shuidi Insurance Brokerage (as defined below) conducts online insurance brokerage business in the PRC and is subject to
the Regulatory Measures. The Regulatory Measures significantly changes regulatory regime for online insurance business in various aspects. For
example, the Regulatory Measures requires insurance institutions (including insurance carriers and insurance intermediary service providers, such as
insurance brokerage companies and insurance agency companies) to (i) establish internal policies with regard to personnel management, customer
information protection and internal control, (ii) enhance compliance management of promotional materials and marketing activities, (iii) meet certain
detailed requirements for sales activities, and (iv) protect the information right of consumers by making appropriate disclosure. In particular, the
Regulatory Measures requires online insurance transactions being conducted through online interfaces operated by insurance institutions only, and
prohibits insurance institutions to set default option for customer and impose any restriction on the cancellation of automatic payment to affect
customer’s choice during the sales process of insurance products. The Regulatory Measures does not explicitly allow the entities which are not insurance
institutions to conduct marketing activities for online insurance products. The Regulatory Measures prohibits entities which are not insurance
institutions from conducting insurance businesses, such as consultation of insurance products, comparison of insurance products, trial calculation of
insurance premiums, quotation and comparison of quotations, drafting insurance plans for policyholders, processing insurance application formalities
and premium collection.
We currently engage third party user acquisition channels to attract consumers for the insurance products offered on our platform. If our
cooperation with such user acquisition channels is deemed to be in violation of the Regulatory Measures, we may be required to modify our business
practice, which may result in reduction in our attraction to consumers. In addition, the Regulatory Measures sets a higher standard for insurance
institutions and online industry participants to improve IT infrastructure and cybersecurity protection. For example, insurance institutions engaged in
online insurance products sales business shall have IT systems that are certified as Safety Level III Computer Information Systems or above level. It
might be costly for us to stay in compliance with the heightened requirements and standards in the Regulatory Measures. According to Regulatory
Measures, we had certain insufficiencies in term of compliance, e.g., deficiency in registration, disclosure, operation and marketing management. The
Regulatory Measures sets out a ramp-up process allowing market participants to achieve full compliance in phases until February 1, 2022. As of the date
of this annual report, we have taken measures to comply with the requirements in the Regulatory Measures. We, however, cannot assure you that our
current business operations will remain fully compliant with the Regulatory Measures at all times, or we will be able to rectify the non-compliance
incidents in a timely manner. For details of the Regulatory Measures, see “Item 4.B. Information on the Company—Business Overview—Regulations—
Regulations on Internet Insurance Business.”
The regulatory framework in China’s insurance industry is evolving and undergoing significant changes. Further development of regulations
applicable to us may result in additional restrictions on our business operations. We may have to adjust our business practice and operations to comply
with the continuously changing regulatory requirements. On October 12, 2021, the CBIRC published the Circular on Further Regulating Certain Issues
on Internet Life Insurance Business, or the CBIRC Circular 108. The CBIRC Circular 108 requires that each installment of premium of certain insurance
products less than one year term, such as accident insurance and health insurance, shall be equal. We used to provide our consumers the option of
monthly payments and the first month payment of premium of certain insurance products is typically lower than subsequent installments. We were
subject to administrative penalties imposed by the CBIRC in connection with such past non-compliance incident in November 2021. As of the date of
this annual report, we have adjusted the payment regime and are in compliance with the CBIRC Circular 108. The adjustment of such payment regime
may result in reduction in our attraction to potential consumers. The CBIRC Circular 108 also provides the upper limit for the predetermined fee rate
and average supplemental fee rate for certain insurance products, which may affect the amount of insurance brokerage commission we charge on the
relevant insurance products and adversely affect our financial condition. In addition, pursuant to the CBIRC Circular 108, insurance intermediary
institutions that conduct the sales of ordinary life insurance products (excluding fixed term life insurance) and annuity and pension insurance products
longer than ten-year term shall meet certain conditions, including, among others, having not received any material administrative penalty or regulatory
actions imposed or taken by any governmental authorities over the last twelve months. We have been, and may from time to time in the future be,
subject to administrative penalties imposed by the relevant authorities under PRC laws. For example, Shuidi Insurance Brokerage was subject to
administrative penalties imposed by the local counterpart of the CBIRC in July 2020, June 2021 and November 2021 due to certain non-compliance
incidents identified in its past business operations, including failure to provide legally required disclosure on our platform to our consumers, and
inaccurate or incomplete information of insurance products on our platform in our past practice, responding to customers’ inquiries on insurance
products without prior customer consent, conducting insurance brokerage business in areas where it did not have branches, and not completing practice
registration for some insurance brokerage personnel. Although these administrative penalties do not constitute material administrative penalties as
defined in the CBIRC Circular 108, we would be restricted from selling such insurance products under the CBIRC Circular 108 if we are imposed with
material administrative penalty imposed by PRC governmental authorities. As the CBIRC Circular 108 is newly issued, it remains uncertain as to how
the circular will be implemented and whether the circular will have a material impact on our business, financial conditions, result of operations and
prospects. The attention of our management team could be diverted to these efforts to cope with an evolving regulatory or competitive environment.
Meanwhile, staying compliant with the restriction may result in limitation to our business scope, limitation to our product and service offerings, and
reduction in our attraction to consumers. As a result, our business and results of operations might be materially and adversely affected.
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Furthermore, our medical crowdfunding business currently has no specific governing laws and regulations as such industries are relatively nascent
and are at their early stages of development, and we expect to experience strengthened regulatory environment along with rapid industry evolution.
Regulatory or administrative authorities may impose new requirements relating to, among other things, new and additional licenses, permits and
approvals or governance or ownership structures on us for operating medical crowdfunding business in the future. For example, if the competent PRC
authorities promulgate new laws or regulations in future which require approvals, licenses or permits to operate our medical crowdfunding business, we
may not be able to obtain the required approvals, licenses or permits in a timely manner, or at all. In addition, for the funds contributed by donors in our
medical crowdfunding platform, we have entered into agreements with a commercial bank, under which the bank provides fund custodian services. If
regulatory authorities in China promulgate new laws or regulations regulating online crowdfunding business, including but not limited to the custodian
mechanism, in the future, we may need to amend the relevant agreements or modify our current business practices to comply with new regulatory
requirements, the process of which could be costly and uncertain, or even discontinue the relevant business. If any of the foregoing or other changes of
the applicable PRC laws and regulations that have any adverse impact on our businesses was to occur, our business and financial condition might be
materially and adversely affected.
The administration, interpretation and enforcement of the regulations applicable to us are evolving and involve uncertainties. We may not be
able to stay in constant compliance with the rapidly evolving regulations.
Our business is subject to governmental supervision and regulation by various PRC governmental authorities, and regulatory bodies may view
matters or interpret laws and regulations differently than they have in the past or in a manner adverse to our business. The CBIRC and its local
counterparts have wide discretion in administration, interpretation and enforcement of these laws, regulations and regulatory requirements, as well as the
authority to impose regulatory sanctions on industry participants. In certain circumstances it may be difficult to determine which actions or omissions
may be deemed to be in violation of applicable laws, regulations or regulatory requirements. For example, historically, we have offered certain insurance
consumers free insurance coverage upgrades as part of our sales and marketing activities and the outreaching and conversation by our customer service
personnel with such users were considered as conducting telesales of insurance products business by the local regulatory authorities. Pursuant to the
relevant PRC laws, insurance companies can operate telesales of insurance products business through establishing call centers or collaborating with
insurance agencies. We have implemented various measures in response to the alleged non-compliance. As of the date of this annual report, we have
cooperated with insurance companies to conduct telesales of insurance products business through Tairui Insurance Agency Co., Ltd., a wholly-owned
subsidiary of Zongqing Xiangqian. In particular, we also examined our practice and set up strict internal control policies to deter our customer service
personnel misconduct, including among others, prohibiting our customer service personnel from active calling out without the prior consent of users.
However, we cannot assure you that our customer service personnel will not engage in any misconduct, and we are uncertain as to whether our
rectification measures will be sufficient to ensure full compliance with the regulatory requirements due to the lack of detailed interpretation and
implementation of these requirements. Furthermore, due to the lack of further interpretations, the exact definition and scope of “conducting telesales of
insurance products business” under the current regulatory regime is unclear. It is uncertain whether we would be deemed to operate telesales of
insurance products business because of the conversation by our customer service personnel. In addition, the current PRC laws and regulations remain
unclear as to whether our customer service personnel are required to complete the qualification registration as insurance brokerage practitioners in
accordance with the relevant PRC laws and regulations. Given the evolving regulatory environment of the insurance industry, we cannot assure you that
we will not be required in the future by the relevant governmental authorities to obtain approval or license to continue our customer services or complete
qualification registration for our customer service personnel in a timely manner. If we fail to comply with these laws and regulations, we could be
subject to penalties and operational disruption and our financial condition and results of operations could be adversely affected.
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Moreover, we have from time to time been subject, and are likely again in the future to be subject to PRC regulatory inquiries, inspections and
investigations. If any non-compliance incidents in our business operation are identified, we may be required to take certain rectification measures in
accordance with applicable laws and regulations, or we may be subject to other regulatory actions such as administrative penalties. For example, we
were identified non-compliance incidents with respect to conducting insurance business in areas where we do not have branches. We are in the process
of rectifying relevant non-compliance incidents that we are aware of under the changing regulatory environment. Recently, the local counterpart of the
CBIRC conducted inspections on us and identified certain non-compliance incidents in our business operation and internal control, including failure to
disclose information of our insurance brokerage personnel when conducting internet insurance marketing activities in accordance with applicable laws
and failure to take effective measures to protect rights of consumers required by relevant laws. As of the date of this annual report, we are in the process
of rectifying such non-compliance incidents identified in the inspections. However, we cannot assure you that we will be able to fully rectify all
non-compliance incidents in a timely manner or fully satisfy the regulatory requirements, or we will not be subject to any future regulatory reviews and
inspections where other non-compliance incidents might be identified, which might materially and adversely affect our business, financial condition,
results of operations and prospects.
In addition, we have been expanding our businesses and may enter into new business areas as we see fit. Due to the complexities and uncertainties
of PRC laws and regulations governing the new industries we are going to operate our business in, we cannot assure you that all our new business
operations in the future will be in compliance with the relevant laws and regulations applicable to the new industries.
Any lack of requisite approvals, licenses or permits applicable to our business operation may have a material and adverse impact on our
business and results of operations.
Our business is subject to regulation, and we are required to obtain applicable licenses, permits and approvals from different PRC regulatory
authorities in order to conduct or expand our business, including, but not limited to, licenses to conduct insurance brokerage and insurance agency
businesses, license for provision of internet information services, or ICP License and Internet Pharmaceutical Information Service Qualification
Certificate. We have obtained and maintained all licenses and permits material to our business as described above as required by the PRC regulatory
authorities. We cannot assure you that we will be able to maintain existing licenses and permits or renew any of them when their current term expires. If
we are unable to maintain one or more of the current licenses and permits, or obtain such renewals, the operations and prospects of our business could be
materially disrupted. Furthermore, if the relevant governmental authorities consider that we were operating without the proper approvals, licenses or
permits, or the relevant governmental authorities promulgate new laws and regulations that require additional approvals or licenses or impose additional
restrictions on the operation of any part of our business and we are not able to obtain such approvals, licenses or permits or adjust our business model in
a timely manner, it has the power, among other things, to levy fines, confiscate our income, revoke our business licenses, and require us to discontinue
our relevant business. Any of these actions by the relevant governmental authorities may have a material adverse effect on our business and results of
operations.
We have been or may be subject to penalties for failure to manage our personnel engaging in insurance brokerage activities.
The practice of insurance intermediary personnel is strictly regulated under the PRC laws and regulations. Personnel who engage in insurance
brokerage activities are required to be registered with the insurance intermediary regulatory information system of the CBIRC. Insurance brokerage
companies that engage in unregistered personnel may be subject to warnings, fines and other penalties by regulatory authorities. On March 12, 2019, the
CBIRC issued the Notice for Professional Insurance Intermediaries to Conduct the Verification of Insurance Practitioners’ Practice Registration,
requiring that all insurance intermediary institutions to complete the registration for their personnel with the local branches where such personnel are
practicing and to complete self-check and verification of the registration of all of the registered personnel by July 31, 2019. Some of our insurance
brokerage personnel were found being registered with Shuidi Insurance Brokerage rather than its branches where such personnel were practicing. We
have been subject to administrative penalties for failure to complete practice registration for our insurance brokerage personnel. As of the date of this
annual report, we are in the process of rectification of non-compliance matter related to registration for some of our insurance brokerage personnel,
while it takes time to complete the registration procedures for newly joined personnel. We cannot assure you that we will be able to complete the
registration for all of our insurance brokerage personnel in a timely manner due to the increasing number of our insurance brokerage personnel, or that
the relevant regulatory authorities would not retrospectively find deficiency in the registration of these personnel and subject us to penalties.
Furthermore, the personnel can only practice within the scope specified by the insurance brokerage company that he/she is registered with. We have
implemented policies to ensure our insurance brokerage personnel to practice in compliance with the relevant PRC regulations. Nevertheless, there can
be no assurance that all of such personnel will not practice outside the scope specified by us, or that such personnel will strictly abide by these policies
or take their responsibilities under the applicable laws and regulations in connection with insurance brokerage services, which may subject to fines and
other administrative proceedings.
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We face reputational, monetary, and legal risks in relation to our discontinuation of the Waterdrop Mutual Aid business.
In March 2021, we ceased the operation of our Waterdrop Mutual Aid platform in order to focus on our core businesses and offer enhanced
protection to our users. We have offered to migrate all mutual aid participants as insurance policyholders of our Waterdrop Insurance Marketplace
service. In connection with this change, we will voluntarily cover mutual aid participants’ medical expenses arising from medical conditions diagnosed
by March 31, 2021 that would have been covered by the ceased mutual aid plan, subject to certain procedural requirements and eligibility criteria, and in
addition offered a one-year complementary health insurance policy to each participant with a similar coverage as the participant’s original mutual aid
plan. Despite our good intention, our mutual aid participants or general public may view our action as adversely affecting the actual or expected interests
of mutual aid participants, which may in turn harm our reputation. In the worst scenario, participants may choose to bring complaints and lawsuits
against us. Although we were contractually permitted to terminate the mutual aid plans any time in our discretion, lawsuits may nevertheless be time
consuming and costly, and distract our management’s attention.
Our historical growth rate may not be indicative of our future performance and if we fail to effectively manage our growth, our business,
financial condition and results of operations could be adversely affected.
We have experienced rapid growth since our inception, particularly in terms of the number of insurance consumers, the FYP generated through us,
and cumulative fund we help patients raise. However, there is no assurance that we will be able to maintain our historical growth rates in future periods.
If our growth rates slow or decline, investors’ perceptions of our business and prospects may be adversely affected and the market price of our ADSs
could decline.
We cannot assure you that we will be able to effectively manage the future growth of our rapidly evolving business. We started with the mutual aid
plan services in May 2016, under which we generate management fee income as an operator of the mutual aid plans, and then launched Waterdrop
Medical Crowdfunding in July 2016. We began to distribute insurance products underwritten by insurance carriers in our Waterdrop Insurance
Marketplace in May 2017, through which we earn brokerage income, and we had experienced significant business growth in the past. However, due to
the uncertainty of the macroeconomy, industry and regulatory conditions, we expect our FYP and revenue from the insurance business may decline in
the foreseeable future. We have also proactively adjusted our customer acquisition strategy to reduce reliance on third-party user acquisition channels,
which leads to the decrease in the number of new users on our Waterdrop Insurance Marketplace and in turn negatively affects the amount of our FYP
and revenue as well. While we plan to further expand user coverage and engagement to improve mindshare, penetrate further into the insurance value
chain with strategic partners, invest in data analysis and technology infrastructure and deepen partnership with medical institutions to build up health
ecosystem, we cannot assure you that our growth initiatives will succeed.
Any harm to our brand or reputation may materially and adversely affect our business.
The brand recognition and reputation of our ‘Waterdrop” brand and the successful maintenance and enhancement of our brand and reputation have
contributed and will continue to contribute significantly to our success and growth.
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Any negative perception and publicity, whether or not justified, such as complaints and accidents in relation to user experience or quality of
services, including inappropriate behavior of the crowdfunding consultants and sales personnel, could tarnish our reputation and reduce the value of our
brand. Further, our competitors may fabricate complaints or negative publicity about us for the purpose of vicious competition. With the increased use of
social network, adverse publicity can be disseminated quickly and broadly, making it increasingly difficult for us to respond and mitigate effectively.
We are also subject to negative publicity regarding our platform participants, whose activities are out of our control. Negative public perception on
the insurance products by insurance carriers on our platform or that insurance carriers on our platform do not provide satisfactory customer services,
even if factually incorrect or based on isolated incidents, could undermine the trust and credibility we have established and have a negative impact on
our ability to attract new users or retain our current users.
Our Waterdrop Insurance Marketplace business may be negatively affected if the insurance carriers on our platform do not continue their
relationship with us or if their operations fail.
Our relationship with insurance carriers is crucial to our success. We generate a substantial portion of our revenues from commission fees paid by
insurance carriers. Certain insurance carriers have accounted for a significant portion of our revenues in the past. Anxin Insurance accounted for 44.2%,
19.9% and 7.5% of our total operating revenue in 2019, 2020 and 2021, respectively. China Taiping Insurance accounted for 21.9%, 24.9% and 14.3%
of our total operating revenue in 2019, 2020 and 2021, respectively. Hongkang Life Insurance accounted for 11.1% and 11.5% of our total operating
revenue in 2020 and 2021, respectively. If one or more of them fail to make payments to us, the settlement of our accounts receivable and financial
position would be materially and adversely affected. While we continually seek to diversify insurance carriers on our platform, there can be no
assurance that the concentration will decrease.
Our arrangements with insurance carriers are typically not exclusive, and they may have similar arrangements with our competitors. If insurance
carriers are dissatisfied with our services and solutions or find us ineffective in enhancing their profitability, they may terminate their relationships with
us. Moreover, insurance carriers we work with may develop their own technology capabilities to serve policy holders online.
Furthermore, if insurance carriers or the reinsurance companies they partner with fail to properly fulfill their obligations as insurers under the
insurance policies sold on our platform, our users may lose faith in our platform.
A significant portion of the FYP generated through us is contributed by a limited number of insurance products. If we cannot continue to
offer these insurance products on our platform for any reason or the popularity of these products declines, our brokerage income may
decrease.
A significant portion of the FYP generated through us is from a limited number of popular insurance products, primarily our health and life
insurance products. We believe the concentration was partially due to the comprehensive protection coverage with reasonable policy terms which makes
these insurance products more attractive than others. Although we plan to continue diversifying our product offerings, launch more tailor-made
insurance products, expand our user base and generate brokerage income from a wider variety of insurance products, we cannot guarantee you that we
will be able to succeed, and that such concentration will decrease. If we cannot continue to offer these popular insurance products for any reason or the
popularity of these products decline, our brokerage income may decrease.
Our revenue and profitability might be adversely impacted if the commission level of our insurance brokerage service declines.
We are engaged in the insurance brokerage business and derive revenues primarily from commission fees paid by the insurance carriers whose
insurance policies our consumers purchase. The commission fee rates are negotiated between insurance carriers and us, and are based on the premiums
that the insurance products charge. Commission fee rates and premiums can change based on the prevailing economic, regulatory, taxation and
competitive factors that affect insurance carriers. These factors, which are beyond our control, include the capacity of insurance carriers to place new
business, profits of insurance carriers, consumer demand for insurance products, the availability of comparable products from other insurance carriers at
lower costs, and the availability of alternative insurance products, such as government benefits and self-insurance plans, to consumers. In addition,
premium rates for certain insurance products are tightly regulated by the CBIRC. Because we do not determine, and cannot predict, the timing or extent
of premium or commission fee rate changes, we cannot predict the effect any of these changes may have on our operations. Any decrease in premiums
or commission fee rates may significantly affect our profitability.
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We may not be successful in increasing the sales of long-term health and life insurance products.
As the consumers’ awareness for health protection and insurance products in China were still substantially lower than in developed countries,
many insurance consumers on our platform start with purchases of short-term protection products. We began to offer long-term health and life insurance
products in the end of 2018, and we have been endeavoring to raise consumer awareness, and demonstrate the value and importance of long-term health
and life insurance, through our interactions with them. The FYP of long-term health and life insurance products generated through us increased from
RMB550.0 million in 2019 to RMB2,646 million in 2021. The increasing sales of long-term health and life insurance products is beneficial to our
business as it brings us a steady cash flow during the whole insurance period. If we fail to migrate our insurance consumers to long-term health and life
insurance products, our results of operation may be adversely affected.
If we fail to bring in new patients to our Waterdrop Medical Crowdfunding platform, our business and results of operations could be adversely
affected.
We mainly rely on our offline crowdfunding consultants to bring in new patients and rely on social network link sharing practice to reach potential
donors. The success of our Waterdrop Medical Crowdfunding platform largely depends on our ability to bring in new patients to our platforms. We must
continue to help patients efficiently launch crowdfunding campaigns and withdraw the funds raised for medical treatments. The number of donors and
amount of fund raised largely depend on the wide dissemination starting from the patients’ relatives, friends and acquaintances, and expansion of
outreach through the social network, which may be beyond our control. If we fail to bring in new patients to our Waterdrop Medical Crowdfunding
platform, our business, financial condition and results of operations will be adversely affected.
Our offline crowdfunding consultancy at hospitals by crowdfunding consultants may be restricted or banned.
The operation of our Waterdrop Medical Crowdfunding platform largely relies on offline crowdfunding consultancy at hospitals by crowdfunding
consultants. Our crowdfunding consultants play an important role in discovering the patients in need of medical funds, helping patients fill in personal
information and upload medical documentation and verification of the patients’ medical records and financial status. If our relationship with hospitals
worsens, the crowdfunding consultants may be banned from entering the hospitals or patients’ wards, which may materially affect our offline
crowdfunding consultancy of our crowdfunding business.
If we fail to bring in and retain new consumers and increase engagement of existing users on our Waterdrop Insurance Marketplace platform,
our business and results of operations could be adversely affected.
Our future growth depends on our ability to continue to bring in and retain consumers and increase engagement of existing consumers on our
Waterdrop Insurance Marketplace platform. We may not able to locate or have access to sufficient number of new consumers. In addition, we must stay
abreast of emerging user preferences and product trends that will appeal to existing and potential participants and consumers. Our platforms make
personalized recommendations of and insurance products to users based on their needs, and offer a comprehensive suite of services to ensure a smooth
and efficient experience. For users on our insurance marketplace, we also develop insurance products in cooperation with insurance carriers to meet their
evolving needs. Our ability to provide these products and services is dependent on our expertise and our data analytical capabilities. However, there is
no assurance that the products and services that we offer will cater to the needs of potential or existing users, sustain for a period of time that we expect
them to, or be welcomed or accepted by the market at all. If we cannot acquire new users or if users cannot find their desired insurance products on our
platform at attractive prices and terms, or if they find their experience with us dissatisfactory, they may have limited access to our products and services,
lose trust in us, terminate their memberships, surrender their existing policies and turn to other platforms, which in turn may materially and adversely
affect our business, financial condition and results of operations.
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Failure to deal effectively with any fraud perpetrated on our platforms could harm our business and reputation.
We face risks with respect to fraudulent activities on our platforms. We cannot fully eliminate insurance fraud and adverse selection insurance
behaviors. Some patients on Waterdrop Medical Crowdfunding platform have been reportedly falsifying medical or financial records to raise funds.
Some participants of Waterdrop Mutual Aid platform may make false medical payout applications.
Although we have implemented various measures to detect and reduce the occurrence of fraudulent activities on our platform, there can be no
assurance that these measures will be effective in combating fraudulent transactions. In addition, illegal, fraudulent or collusive activities by our
employees, crowdfunding consultants or third party agents could also subject us to liability and negative publicity. Any illegal, fraudulent or collusive
activity could severely damage our brand and reputation as an operator of a trusted online platform, which could adversely affect our business.
Regulatory actions, legal proceedings and customer complaints against us could harm our reputation and have a material adverse effect on
our business, results of operations, financial condition and prospects.
We were involved in litigations and other disputes in the ordinary course of our business, which include lawsuits, arbitration, regulatory
proceedings and other disputes relating to our business. Along with growth and expansion of our business, we may be involved in litigations, regulatory
proceedings and other disputes arising outside the ordinary course of our business. Such litigations and disputes may result in claims for actual damages,
freezing of our assets, diversion of our management’s attention and reputational damage in to us and our management, as well as legal proceedings
against our directors, officers or employees, and the probability and amount of liability, if any, may remain unknown for long periods of time. Given the
uncertainty, complexity and scope of many of these litigation matters, their outcome generally cannot be predicted with any reasonable degree of
certainty. Therefore, our reserves for such matters may be inadequate. Moreover, even if we eventually prevail in these matters, we could incur
significant legal fees or suffer significant reputational harm, or we may be unable to enforce the prevailing judgement.
We have been named as a defendant in a putative shareholder class action lawsuit that could have a material adverse impact on our business,
financial condition, results of operation, cash flows and reputation.
We are defending against the putative shareholder class action lawsuit described in “Item 8. Financial Information—A. Consolidated Statements
and Other Financial Information—Legal Proceedings,” including any appeals of such lawsuit, should our initial defense be successful. We are currently
unable to estimate the possible loss or possible range of loss, if any, associated with the resolution of this lawsuit. In the event that our initial defense of
this lawsuit is unsuccessful, there can be no assurance that we will prevail in any appeal. Any adverse outcome of this case, including any plaintiff’s
appeal, could have a material adverse effect on our business, financial condition, results of operation, cash flows and reputation. In addition, there can be
no assurance that our insurance carriers will cover all or part of the defense costs, or any liabilities that may arise from these matters. The litigation
process may utilize a significant portion of our cash resources and divert management’s attention from the day-to-day operations of our company, all of
which could harm our business. We are also subject to claims for indemnification related to these matters, and we cannot predict the impact that
indemnification claims may have on our business or financial results.
Our current risk management system may not be able to exhaustively identify or mitigate all risks to which we are exposed.
We have established risk management, quality control and internal control systems, consisting of policies and procedures that we believe are
appropriate for our business. However, the implementation of such policies and procedures may involve human error and mistakes. Moreover, we may
be exposed to fraud or other misconduct committed by our employees, crowdfunding consultants, customer service personnel or other third parties,
including but not limited to our users and business partners, or other events that are out of our control.
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We may fail to accurately and timely process payout applications under mutual aid plans.
We must accurately and timely evaluate and process payout applications that are made under mutual aid plans that existed prior to our
discontinuation of the mutual aid business in March 2021. Many factors affect our ability to process payout applications accurately and timely, including
the efficacy of our artificial intelligence payout applications processing, the training and experience of our payout application reviewers and independent
third-party application investigators, and our ability to develop or select and implement appropriate procedures and systems to support our payouts
functions.
We may also encounter errors in any of the large number of payouts applications we process through our complex administrative systems. Any
mistakes during the payout process may harm our business, reputation, results of operations, or financial condition. In addition, if we are unable to
obtain necessary and accurate information from participants, we may be unable to process payout applications, which may harm our business,
reputation, results of operations, or financial condition. Furthermore, any failure to payout accurately or timely could also lead to material litigation, or
result in damage to our reputation, any one of which could materially and adversely affect our business, financial condition and results of operations.
We may not be able to ensure the accurate and complete disclosure of insurance product information.
Our users rely on the insurance product information we provide on our platform. We had in the past failed to provide legally required disclosure
on our platform to the attention of our users, including failure to indicate name of certain insurance products for filing on visible place of our platform
and failure to indicate payment methods for insurance premiums, issuance and delivery methods for insurance documentation, the procedure for policy
cancellation and payment method for refund of cancelled policies and had been subject to fines. We had rectified the abovementioned failure in
disclosure. If we provide any inaccurate or incomplete information on our platform due to either our own fault or that of insurance carriers, our
consumers making the insurance purchase relying on the information may fail to receive the protection they expect and we may be warned or penalized
by regulatory authorities, and our reputation could be harmed and we could experience reduced user traffic to our platform.
We may not be able to recommend the insurance products most suitable to our users.
Our search and recommendation engine may fail to function properly. The data provided to us by our users, insurance carriers and user acquisition
channels may not be accurate or up to date. Our insurance agents and consultants may not fully understand users’ insurance needs and recommend
suitable products to them. If our users are recommended insurance products that do not suit their protection needs, they may lose trust in our platform.
Meanwhile, insurance carriers may find our recommendation ineffective. Our users and insurance carriers may consequently be reluctant to continue to
use our platform.
Some of our shareholders offer similar products or services competing with ours.
Some of our shareholders also offer products and services competing with ours. For example, WeSure, Tencent’s online insurance brokerage
platform offers online insurance distribution services as we do. As of March 31, 2022, Tencent beneficially owns 21.1% of our ordinary shares. Internet
conglomerates in China, such as Tencent and Meituan, have strong technological capabilities, and may independently develop more products and
services competing with ours in the future. If competition between us and our shareholders becomes more intense in the future or they cease to
cooperate with or provide support to us, our business and results of operations may be materially and adversely affected.
We face risks in properly managing the large amount of cash contributed by donors in our crowdfunding platform and participants of mutual
aid plans.
The funds contributed by donors in our crowdfunding platform and participants of mutual aid plans are deposited in segregated bank accounts. We
have entered into agreements with a commercial bank to act as a custodian bank and manage the different accounts. The bank follows our instruction
with regard to withdrawal or transfer of funds. If we send incorrect instructions to the bank, the funds may be mistakenly withdrawn or transferred,
which may give rise to disputes and claims against us.
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We may face disruption to our technology systems and resulting interruptions in the availability of our services.
The satisfactory performance, reliability and availability of our technology systems are critical to our success. We rely on our scalable technology
infrastructure and corresponding mobile apps, Weixin Mini Programs and Official Accounts connecting our network with those of our various platform
users. However, our technology systems or infrastructure may not function properly at all times. We may be unable to monitor and ensure high-quality
maintenance and upgrade of our technology systems and infrastructure, and users may experience service outages and delays in accessing and using our
platforms as we seek to source additional capacity. For instance, our medical crowdfunding needs constant calculation of amounts donated by donors
and distributed to patients and our mutual aid businesses need constant calculation about the payouts to and allocated payout amounts from mutual aid
participants, which may require additional capacity as our businesses further scale.
Our technology systems may also experience telecommunications failures, computer viruses, failures during the process of upgrading or replacing
software, databases or components, power outages, hardware failures, user errors, or other attempts to harm our technology systems, which may result in
the unavailability or slowdown of our platform or certain functions, delays or errors in transaction processing, loss of data, inability to accept and fulfill
user request, reduced fund raised, FYP or size of mutual plans and the attractiveness of our platform. Further, hackers, acting individually or in
coordinated groups, may also launch distributed denial of service attacks or other coordinated attacks that may cause service outages or other
interruptions in our business.
Our business is subject to complex and evolving laws and regulations regarding data privacy and cybersecurity. Failure to protect confidential
information of our users and network against security breaches could damage our reputation and brand and substantially harm our business
and results of operations.
Our platform stores and processes certain personal and other sensitive data provided by users on our platforms, and we make certain personal
information provided by the user or third party data providers available to banks or insurance carriers with user consent. Personally identifiable and
other confidential information is increasingly subject to legislation and regulations in China and numerous foreign jurisdictions. The PRC government
authorities have enacted a series of laws and regulations relating to the protection of privacy and personal information, under which internet service
providers and other network operators are required to clearly indicate the purposes, methods and scope of any information collection and usage, to
obtain appropriate user consent and to establish user information protection systems with appropriate remedial measures. However, this regulatory
framework for privacy issues in China and worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future. For example, on
August 20, 2021, the Standing Committee of the National People’s Congress of China promulgated the Personal Information Protection Law, which
integrates the scattered rules with respect to personal information rights and privacy protection. Our mobile apps and websites only collect basic user
personal information that is necessary to provide the corresponding services. We do not collect any sensitive personal information or other excessive
personal information that is not related to the corresponding services. We update our privacy policies from time to time to meet the latest regulatory
requirements of the governmental authorities and adopt technical measures to protect data and ensure cybersecurity in a systematic way. Nonetheless,
the Personal Information Protection Law raises the protection requirements for processing personal information, and many specific requirements of the
Personal Information Protection Law remain to be clarified by governmental authorities and courts in practice. We may be required to make further
adjustments to our business practices to comply with the personal information protection laws and regulations. See “Item 4.B. Information on the
Company—Business Overview—Regulations.”
In addition, regulatory requirements on cybersecurity and data privacy are constantly evolving and can be subject to varying interpretations or
significant changes. PRC regulators have been increasingly focused on regulation in the areas of cybersecurity and data protection in recent years. For
example, on June 10, 2021, the Standing Committee of the National People’s Congress promulgated the PRC Data Security Law, which took effect in
September 2021. The Data Security Law, among others, provides for a security review procedure for the data activities that may affect national security.
On December 28, 2021, the CAC, the National Development and Reform Commission, or the NDRC, the Ministry of Industry and Information
Technology, or the MIIT, and several other PRC governmental authorities jointly issued the Cybersecurity Review Measures, which provide that critical
information infrastructure operators that procure internet products and services and network platform operators engaging in data processing activities
must be subject to the cybersecurity review if their activities affect or may affect national security. The Cybersecurity Review Measures further stipulate
that network platform operators holding over one million users’ personal information shall apply with the Cybersecurity Review Office for a
cybersecurity review before public offering at a foreign stock exchange. However, given the Cybersecurity Review Measures recently promulgated,
there are substantial uncertainties as to the interpretation, application and enforcement of the Cybersecurity Review Measures.
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Furthermore, on November 14, 2021, the CAC released the Regulations on the Network Data Security (Draft for Comments), or the Draft
Regulations, and will accept public comments until December 13, 2021. The Draft Regulations provide that data processors refer to individuals or
organizations that autonomously determine the purpose and the manner of processing data. In accordance with the Draft Regulations, data processors
shall apply for a cybersecurity review for the following activities: (i) merger, reorganization or division of Internet platform operators that have acquired
a large number of data resources related to national security, economic development or public interests to the extent that affects or may affect national
security; (ii) listing abroad of data processors which process over one million users’ personal information; (iii) the listing of data processors in Hong
Kong which affects or may affect national security; or (iv) other data processing activities that affect or may affect national security. However, there
have been no clarifications from the authorities as of the date of this annual report as to the standards for determining such activities that “affects or may
affect national security.” See “Item 4.B. Information on the Company—Business Overview—Regulations.” As of the date of this annual report, the
Draft Regulations were released for public comment only, and its provisions and the anticipated adoption or effective date may be subject to change with
substantial uncertainty. The Draft Regulations remain unclear on whether the relevant requirements will be applicable to companies that have been listed
in the United States, such as us. We cannot predict the impact of the Draft Regulations, if any, at this stage, and we will closely monitor and assess any
development in the rule-making process. If the enacted versions of the Draft Regulations mandate clearance of cybersecurity review and other specific
actions to be completed by China-based companies listed on a U.S. stock exchange, such as us, we face uncertainties as to whether such clearance can
be timely obtained, or at all. As of the date of this annual report, we have not been involved in any formal investigations on cybersecurity review made
by the CAC on such basis. However, if we are not able to comply with the cybersecurity and network data security requirements in a timely manner, or
at all, we may be subject to government enforcement actions and investigations, fines, penalties, suspension of our non-compliant operations, or removal
of our app from the relevant application stores, among other sanctions, which could materially and adversely affect our business and results of
operations. In addition to the cybersecurity review, the Draft Regulations requires that data processors processing “important data” or listed overseas
shall conduct an annual data security assessment by itself or commission a data security service provider to do so, and submit the assessment report of
the preceding year to the municipal cybersecurity department by the end of January each year. If a final version of the Draft Regulations is adopted, we
may be subject to review when conducting data processing activities and annual data security assessment and may face challenges in addressing its
requirements and make necessary changes to our internal policies and practices in data processing.
The PRC laws and regulations relating to data privacy and cybersecurity, including, among others, PRC Cyber Security Law and the Data Security
Law are relatively new and subject to interpretation by the regulators. Although we have taken various measures to comply with all applicable laws and
regulations regarding cybersecurity and data privacy in China, we cannot assure you that the measures we have taken or will take are adequate under the
relevant laws, and we may be held liable in the event of any breach of the relevant requirements under the relevant laws and regulations. We expect that
these areas will receive greater public scrutiny and attention from regulators and more frequent and rigid investigation or review by regulators, which
will increase our compliance costs and subject us to heightened risks and challenges. If we are unable to manage these risks, we could become subject to
penalties, fines, suspension of business and revocation of required licenses, and our reputation and results of operations could be materially and
adversely affected.
In addition to laws, regulations and other applicable rules regarding privacy and privacy advocacy, industry groups or other private parties may
propose new and different privacy standards. We cannot assure you that our existing privacy and personal protection system and technical measures will
always be considered sufficient under applicable laws, regulations and other privacy standards. We could be adversely affected if legislation or
regulations in China are expanded to require changes in business practices or privacy policies, or if the PRC governmental authorities interpret or
implement their legislation or regulations in ways that negatively affect our business. We may also be subject to additional regulations, laws and policies
adopted by the PRC government to apply more stringent social and ethical standards in data privacy resulting from the increased global focus on this
area.
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We may not be able to access or accumulate sufficient data for business analysis.
We highly rely on our data in every step of our business, in particular, the entire insurance value chain, including research and co-design of
insurance products, risk management, claim settlement, and policy holder services. We also rely on our data in the development and operation of mutual
aid plans and medical crowdfunding business. We currently also use external data sources for our business analysis, which can become unavailable due
to regulatory restrictions or other reasons.
Our business may be negatively impacted if the information that we receive from third parties for user verification purpose is inaccurate.
In order to verify the personal and financial information provided by our users, we obtain information from independent third-party data providers.
We accordingly establish personal profiles for users and process the users’ crowdfunding campaigns, mutual aid plan enrollment, insurance policy
purchase request and claims settlement applications based on such information we collect and the comparison of the information from third parties
against those provided by the users themselves. However, as credit reporting systems for individuals in China are in their early stages of development,
there are limited public sources available to verify the financial and other information of individual user, and the systems may not be able to reflect the
actual profiles of these users constantly and accurately. Although we have developed our risk management and control procedures and policies and have
devoted efforts to verifying the information provided by the users before we offer them our products or services, the effectiveness of such risk
management is conditioned on the accuracy and completeness of the user information we obtain. We cannot guarantee the completeness or accuracy of
any information we obtain with respect to any particular user. If the data and information we rely on are inaccurate or obsolete, we are exposed to higher
risks of fraudulent user behavior. As a result, our business and operations could be materially and adversely affected.
We may fail to maintain the capability and accuracy in actuarial analysis.

We operate an intelligent system where we code underwriting criteria set by insurance carriers in our system and the system automatically
generates eligibility for purchasing insurance products. Leveraging our deep understanding of consumer needs and actuarial capabilities, we also
collaborate with some insurance carriers to co-design new insurance products. The proper functioning of our actuarial and statistical analysis, products
pricing suggestion, risk management, financial control, accounting, user database, user service and other data processing systems is highly critical to our
business and our ability to compete effectively. We rely on our dedicated talents with actuarial expertise to conduct actuarial analysis, and we rely on our
research and development team to enhance our data capabilities to perform pricing modeling. We cannot guarantee you that we will successfully retain
our employees with actuarial expertise or to hire new ones.
We leverage third-party user acquisition channels to bring in some of new users to our platforms and may incur significant costs on paying
our user acquisition channels service fees.
In addition to growing our user base organically, we also cooperate with our user acquisition channels to convert their user traffic to user base of
our platform. If our user acquisition channels do not renew their agreements with us, choose to work with our competitors, or terminate their cooperation
with us, we may lose potential users and our business and results of operations will be negatively affected. In addition, if our user acquisition channels
lose influence over their traffic or otherwise fail to effectively convert their users to our users, our business and results of operations may suffer.
Furthermore, we have incurred significant expenses on paying third-party user acquisition channels marketing fees. If certain of existing third-
party user acquisition channels require higher rates of marketing fees or we fail to negotiate favorable terms with them or find new third-party user
acquisition channels, our cost of user acquisition may increase, and our results of operations may be adversely affected.
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If insurance carriers, user acquisition channel partners, other business partners, outsourced customer service personnel or other ecosystem
participants engage in any misconduct or cause errors to occur in our operation, our business could be materially and adversely affected.
We are exposed to the risk of misconduct by third-party user acquisition channel partners, outsourced customer service personnel or other
ecosystem participant and/or business partners to interact with users and provide various services. Misconduct could include making misrepresentations
when marketing insurance products to users, recommending mutual aid plans, hiding or falsifying material information in relation to insurance contracts
and mutual aid plans terms, colluding with applicants, insureds, or beneficiaries to obtain insurance or mutual aid benefits, failing to disclose legally
required information to users, engaging in false claims or otherwise not complying with laws and regulations or our internal policies or procedures. Any
of the aforementioned misconduct by parties we cooperate with may cause potential liabilities of us, and further subject us to regulatory actions and
penalties. If any third parties that are important to our operations are sanctioned by regulatory actions, our business operations will be disrupted or
otherwise negatively affected.
We are subject to payment processing risk.

We accept a wide variety of payment methods, including bank transfers and online payments through third-party online payment platforms such as
Weixin Pay, UnionPay and Alipay, in order to ensure smooth user experience. For certain payment methods, we pay varying transaction fees, which may
increase over time and increase our operating costs and lower our profit margins. We may also be subject to fraud, money laundering and other illegal
activities in connection with the various payment methods we accept if we cannot implement risk management measures effectively.
We are also subject to various regulations, rules and requirements, regulatory or otherwise, governing online payment processing and fund
transfers, which could change or be reinterpreted to make it difficult or impossible for us to comply with. If we fail to comply with these rules or
requirements, we may be subject to fines and higher transaction fees and lose our ability to accept credit and debit card payments from users, process
electronic fund transfers or facilitate other types of online payments.
Our future growth depends on the further acceptance of the internet as an effective platform for distributing insurance products and content.
The internet, and particularly the mobile internet, has gained increasing popularity in China as a platform for insurance products and content in
recent years. However, certain participants in the industry, especially traditional insurance companies, and many insurance clients have limited
experience in handling insurance products and content online, and some insurance customers may have reservations about using online platforms. For
example, clients may not find online content to be reliable sources of insurance product information. Some insurance companies and reinsurance
companies may not believe online platforms are secure for risk assessment and risk management. Others may not find online platforms effective when
promoting and providing their products and services, especially to targeted clients in lower-tier cities or rural areas. If we fail to educate the insurance
customers about the value of our platform and our products and services, our growth will be limited and our business, financial performance and
prospects may be materially and adversely affected. The further acceptance of the internet and particularly the mobile internet as an effective and
efficient platform for insurance products and content is also affected by factors beyond our control, including negative publicity and restrictive
regulatory measures. If online and mobile networks do not achieve adequate acceptance in the market, our growth prospects, results of operations and
financial condition could be harmed.
User growth and activity on mobile devices depend upon effective use of our mobile applications and third-party mobile operating systems that
we do not control.
We are dependent on our users’ downloading and effective use of our mobile applications for their particular devices. We are further dependent on
the interoperability of our mobile applications with third-party mobile operating systems that we do not control, such as iOS and Android, and any
changes in such systems that degrade the functionality of our mobile applications could adversely affect the usage of our applications on mobile devices.
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As new mobile devices and operating platforms are released, we may experience delay or difficulties in updating and integrating our mobile
applications for these alternative devices and platforms and we may need to devote significant resources to the development, support and maintenance of
such applications. Problems may also arise with our relationships with providers of mobile operating systems or mobile application download stores,
such as our applications may receive unfavorable treatment compared to competing applications on the download stores. In the event that it becomes
difficult for our consumers to access and use our applications on their mobile devices, our consumer growth could be harmed and our business and
results of operations may be adversely affected.
We may fail to protect our intellectual properties.

We regard our software registrations, trademarks, patents, domain names, know-how, proprietary technologies and similar intellectual property as
critical to our success, and we rely on a combination of intellectual property laws and contractual arrangements, including confidentiality and
non-compete agreements with our employees and others to protect our proprietary rights. See “Item 4. Information On the Company—B. Business
Overview—Intellectual Property.” Despite these measures, any of our intellectual property rights could be challenged, invalidated, circumvented or
misappropriated, or such intellectual property may not be sufficient to provide us with competitive advantages.
It is often difficult to maintain and enforce intellectual property rights in China. Statutory laws and regulations are subject to judicial interpretation
and enforcement and may not be applied consistently. Confidentiality, invention assignment and non-compete agreements may be breached by
counterparties, and there may not be adequate remedies available to us for any such breach.
Accordingly, we may not be able to effectively protect our intellectual property rights or to enforce our contractual rights in China. In particular,
some of our trademark applications for certain categories have been rejected, and we have applied for administrative reviews on such rejections.
However, there can be no assurance that we will obtain such trademarks and any other trademarks that are crucial to our business in the future. Thus, we
may be unable to prevent others from using such trademarks or suing us for infringement, or even unable to continue to use such trademarks in our
business.
Preventing any unauthorized use of our intellectual property is difficult and costly and the steps we take may be inadequate to prevent the
misappropriation of our intellectual property. In the event that we resort to litigation to enforce our intellectual property rights, such litigation could
result in substantial costs and a diversion of our managerial and financial resources. We can also provide no assurance that we will prevail in such
litigation. In addition, our trade secrets may be leaked or otherwise become available to, or be independently discovered by, our competitors.
We may be subject to intellectual property infringement claims.

We cannot be certain that our operations or any aspects of our business do not or will not infringe upon or otherwise violate trademarks, patents,
copyrights, know-how or other intellectual property rights held by third parties. As of the date of this annual report, we are still in the process of
applying for one trademark, which may be considered to resemble the trademarks held by third parties. We may be from time to time in the future
subject to legal proceedings and claims relating to the intellectual property rights of others. In addition, there may be third-party trademarks, patents,
copyrights, know-how or other intellectual property rights that are infringed by our products, services or other aspects of our business without our
awareness. If any third-party infringement claims are brought against us, we may be forced to divert management’s time and other resources from our
business and operations to defend against these claims, regardless of their merits.
We may fail to make necessary or desirable strategic alliance, acquisition or investment, and we may not be able to achieve the benefits we
expect from the alliances, acquisition or investments we make.
We may pursue selected strategic alliances and potential strategic acquisitions that are supplemental to our business and operations, including
opportunities that can help us further expand our product and service offerings and improve our technology system. However, strategic alliances with
third parties could subject us to a number of risks, including risks associated with sharing proprietary information, non-performance or default by
counterparties, and increased expenses in establishing these new alliances, any of which may materially and adversely affect our business. In addition,
we may have limited ability to control or monitor the actions of our strategic partners. To the extent a strategic partner suffers any negative publicity as a
result of its business operations, our reputation may be negatively affected by virtue of our association with such party.
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The costs of identifying and consummating strategic acquisitions may be significant and subsequent integrations of newly acquired companies,
businesses, assets and technologies would require significant managerial and financial resources and could result in a diversion of resources from our
existing business, which in turn could have an adverse effect on our growth and business operations. In addition, investments and acquisitions could
result in the use of substantial amounts of cash, potentially dilutive issuances of equity securities and exposure to potential unknown liabilities of the
acquired business. The acquired businesses or assets may not generate the financial results we expect and may incur losses. The cost and duration of
integrating newly acquired businesses could also materially exceed our expectations. If our portfolios do not perform as we expect, our results of
operation and profitability may be adversely affected.
Failure to maintain our cooperation with Tencent could have a material adverse effect on our business and prospects for growth.
Our business has benefited from our collaboration with Tencent, one of our principal shareholders, and we expect to continue to be leverage our
collaboration with Tencent in the foreseeable future. As of March 31, 2022, Tencent holds approximately 21.1% equity interests of our company.
The user acquisition of our medical crowdfunding business largely relies on Weixin-based link sharing practice. Once a crowdfunding campaign is
launched, a link to the crowdfunding campaign will be created and available for sharing. Starting from sharing by the patients’ relatives, friends and
acquaintances, the link will be widely disseminated to a broader social network, which greatly helps the increase of number of donors and amount of
fund raised. If the link sharing practice is restricted or becomes otherwise unavailable, the patients may not be able to raise enough funds for medical
treatment, which may divert them to other crowdfunding platforms and the user acquisition of our medical crowdfunding business will be materially
affected. Our insurance marketplace which partially relies on traffic from our medical crowdfunding business may also suffer.
In addition, we also operate our business through our Weixin Official Accounts and Mini Programs. Users may access our products or services
through Weixin Mini Programs, operated by us. Furthermore, there are links embedded in the publications on our Official Accounts or Mini Programs
which will direct the users to download or launch our Apps. If our Official Accounts or Mini Programs cannot work due to service shutdown or the links
directing to our own Apps are not available, our users may not be able to use or easily access our products or services.
We cannot assure you that we will be able to maintain the current level of cooperation with Tencent in the future. If our collaborative relationship
with Tencent, particularly regarding the Weixin-based link sharing practice, is terminated or curtailed, or if any of the commercial terms between us and
Tencent are revised or made less favorable to us, or if Tencent does not continue to or adequately promote our products and services, our ability to
operate our business may be impaired and we may, in the worst case scenario, completely lose our ability to conduct links sharing practice, operate our
Official Accounts and Mini Programs or promote our business on Tencent platforms. In addition, Tencent may invest in our direct or indirect
competitors, and may devote resources or attention to the other companies it has an interest in.
Our success depends on the continuing efforts of our senior management and key employees.
Our future success is significantly dependent upon the continued service of our senior management and other key employees. If we lose their
service, we may not be able to locate suitable or qualified replacements, and may incur additional expenses to recruit and train new staff, which could
severely disrupt our business and growth. Our founder and chief executive officer, Mr. Peng Shen, and other management members are critical to our
vision, strategic direction, culture and overall business success. If there is any internal organizational structure change or change in responsibilities for
our management or key personnel, or if one or more of our senior management members were unable or unwilling to continue in their present positions,
the operation of our business and our business prospects may be adversely affected. Our employees, including members of our management, may
choose to pursue other opportunities. If we are unable to motivate or retain key employees, our business may be severely disrupted and our prospects
could suffer. In addition, although we have entered into confidentiality and non-competition agreements with our management, there is no assurance that
our management members would not join our competitors or form a competing business. If any dispute arises between our current or former officers and
us, we may have to incur substantial costs and expenses in order to enforce such agreements in China or we may not be able to enforce them at all.
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If we are unable to recruit, train and retain talents, our business may be materially and adversely affected.
We believe our future success depends on our continued ability to attract, develop, motivate and retain qualified and skilled employees.
Competition for personnel with expertise in insurance, sales and marketing, technology and risk management is extremely intense in China. We may not
be able to hire and retain these personnel at compensation levels consistent with our existing compensation and salary structure. Some of the companies
with which we compete for experienced employees have greater resources than we have and may be able to offer more attractive terms of employment.
In addition, we invest significant time and resources in training our employees, which increases their value to competitors who may seek to recruit them.
If we fail to retain our employees, we could incur significant expenses in hiring and training new employees, and our ability to serve users and business
partners could diminish, resulting in a material adverse effect to our business.
We may not be able to raise additional capital when desired, on favorable terms or at all.
We need to make continued investments in facilities, hardware, software, technological systems and to retain talents to remain competitive. Due to
the unpredictable nature of the capital markets and our industry, there can be no assurance that we will be able to raise additional capital on terms
favorable to us, or at all, if and when required, especially if we experience disappointing operating results. If adequate capital is not available to us as
required, our ability to fund our operations, take advantage of unanticipated opportunities, develop or enhance our infrastructure or respond to
competitive pressures could be significantly limited. If we do raise additional funds through the issuance of equity or convertible debt securities, the
ownership interests of our shareholders could be significantly diluted. These newly issued securities may have rights, preferences or privileges on par
with or senior to those of existing shareholders.
Our insurance coverage may not be adequate, which could expose us to significant costs and business disruptions.
We maintain certain insurance policies to safeguard us against risks and unexpected events. We provide social security insurance including
pension insurance, unemployment insurance, work-related injury insurance, maternity insurance and medical insurance for our employees pursuant to
applicable PRC laws. We do not maintain business interruption insurance. We consider our insurance coverage to be sufficient for our business
operations in China. However, we cannot assure you that our insurance coverage is sufficient to prevent us from any loss or that we will be able to
successfully claim our losses under our current insurance policy on a timely basis, or at all. If we incur any loss that is not covered by our insurance
policies, or the compensated amount is significantly less than our actual loss, our business, financial condition and results of operations could be
materially and adversely affected.
If we fail to implement and maintain an effective system of internal controls to remediate our material weakness over financial reporting, we
may be unable to accurately report our results of operations, meet our reporting obligations or prevent fraud.
In connection with the audits of our consolidated financial statements as of and for the years ended December 31, 2018, 2019 and 2020, we and
our independent registered public accounting firm identified one material weakness in our internal control over financial reporting. As defined in the
standards established by the U.S. Public Company Accounting Oversight Board, a “material weakness” is a deficiency, or a combination of deficiencies,
in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial
statements will not be prevented or detected on a timely basis.
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The material weakness that has been identified relates to our lack of sufficient skilled staff with appropriate knowledge of U.S. GAAP for the
purpose of financial reporting and our lack of formal accounting policies and procedures manual to ensure proper financial reporting to comply with
U.S. GAAP and SEC requirements. The material weakness, if not timely remedied, may lead to significant misstatements in our consolidated financial
statements in the future. Following the identification of the material weakness, we have taken measures and plan to remediate these control deficiencies.
See “Item 15. Controls and Procedures—Internal Control Over Financial Reporting.” As of December 31, 2021, based on our management’s assessment
on the performance of the remediation measures, we determined that the material weakness had been remediated. In the future we may determine that
we have additional material weaknesses, or our independent registered public accounting firm may disagree with our management assessment of the
effectiveness of our internal controls.
We are subject to the reporting requirements of the U.S. Securities Exchange Act of 1934, as amended, or the Exchange Act, the Sarbanes-Oxley
Act of 2002 (the “Sarbanes-Oxley Act”) and the rules and regulations of the New York Stock Exchange. The Sarbanes-Oxley Act requires, among other
things, that we maintain effective disclosure controls and procedures and internal controls over financial reporting. We are required by Section 404 of
the Sarbanes-Oxley Act to perform system and process evaluation and testing of our internal controls over financial reporting to allow management to
report on the effectiveness of our internal controls over financial reporting in our Form 20-F beginning with our annual report in our second annual
report after becoming a public company. We may experience difficulty in meeting these reporting requirements in a timely manner.
Our management may conclude that our internal control over financial reporting is not effective. Moreover, even if our management concludes
that our internal control over financial reporting is effective, our independent registered public accounting firm, after conducting its own independent
testing, may issue an adverse report if it is not satisfied with our internal controls or the level at which our controls are documented, designed, operated
or reviewed, or if it interprets the relevant requirements differently from us.
If we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, or if we are unable to maintain
the adequacy of our internal control over financial reporting, as these standards are modified, supplemented or amended from time to time, we may not
be able to produce timely and accurate financial statements and may not be able to conclude on an ongoing basis that we have effective internal control
over financial reporting in accordance with Section 404. If that were to happen, we could suffer material misstatements in our financial statements and
fail to meet our reporting obligations, which could lead to a decline in the market price of our ADSs and we could be subject to sanctions or
investigations by the New York Stock Exchange, SEC or other regulatory authorities. We may also be required to restate our financial statements for
prior periods.
We have granted and may continue to grant awards under our share incentive plans.
We adopted our 2018 Share Incentive Plan, as amended and restated, which we refer to as the 2018 Plan, and our 2021 Share Incentive Plan, as
amended and restated, which we refer to as the 2021 Plan, for the purpose of granting share-based compensation awards to employees, directors and
consultants to secure and retain the services of eligible award recipients and to provide incentives for such persons to exert maximum efforts for our
success. We recognize expenses in our consolidated financial statements in accordance with U.S. GAAP. Under the 2018 Plan and the 2021 Plan, we are
authorized to grant options, restricted shares, restricted share units and other types of share awards. As of March 31, 2022, the maximum aggregate
number of Class A ordinary shares which may be issued pursuant to all awards under the 2018 Plan is 384,159,746 Class A ordinary shares, and we have
outstanding options with respect to 318,707,760 Class A ordinary shares and outstanding restricted share units with respect to 2,902,000 Class A
ordinary shares granted to our employees, directors and consultants under the 2018 Plan. As of March 31, 2022, the maximum aggregate number of
Class A ordinary shares that may be issued pursuant to all awards under the 2021 Plan is 159,364,533 Class A ordinary shares, and no award has been
granted under the 2021 Plan. We expect to incur substantial share-based compensation expenses in the future. As a result, our expenses associated with
share-based compensation may increase, which may have an adverse effect on our results of operations. Further, we may re-evaluate the vesting
schedules, lock-up period, exercise price or other key terms applicable to the grants under our equity incentive plan from time to time. If we choose to
do so, we may experience substantial change in our share-based compensation charges in the future reporting periods. For further information on our
equity incentive plan and information on our recognition of related expenses, please see “Item 6. Directors, Senior Management and Employees—B.
Compensation—Share Incentive Plans.”
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Our business has been and may continue to be adversely affected by the outbreak of COVID-19.
The current COVID-19 pandemic has already adversely affected our business. COVID-19 caused temporary closures of our offices and
implementation of short-term measures for employees to work remotely from home in our headquarter and other offices, which resulted in decreased
productivity of our workforce. As the hospitals were locked down from time to time according to government orders, our crowdfunding consultants
could not enter the hospitals or patients’ wards during the lock-down period, which to certain extent adversely impacted the leads-sourcing activities in
our crowdfunding business. We, insurance carriers and user acquisition channels and other business partners have been gradually recovering from the
general shutdown and delay in commencement of operations in China since the beginning of March 2021. Even though our business is currently
operational, our operating efficiency and capacity may still be adversely affected by the COVID-19 pandemic mainly due to the necessity to comply
with disease control protocols in business facilities and hospitals. Recently, there has been an increasing number of COVID-19 cases, including the
COVID-19 Delta and Omicron variant cases, in multiple cities in China. The Chinese local authorities have reinstated certain measures to keep
COVID-19 in check, including travel restrictions and stay-at-home orders, and we may have to adjust various aspects of our operations. In addition, the
highly-transmissible Delta and Omicron variants of COVID-19 have caused authorities in various countries to reimpose restrictions such as mask
mandates, curfews and prohibitions on large gatherings. There remain significant uncertainties surrounding COVID-19, including the existing and new
variants of COVID-19, and its further development as a global pandemic, including the effectiveness of vaccine programs against existing and any new
variants of COVID-19. The global spread of COVID-19 pandemic in major countries of the world may also result in global economic distress, and the
extent to which it may affect our results of operations will depend on future developments of the COVID-19 pandemic, which are highly uncertain and
difficult to predict. There may be potential impacts on our results of operations if the pandemic and the resulting disruption were to extend over a
prolonged period.
In addition, if the global spread of COVID-19 and deterioration cannot be contained, risks set forth in this annual report may be exacerbated or
accelerated at a heightened level.
We face risks related to natural disasters, health epidemics and other outbreaks, which could significantly disrupt our operations.
In addition to the impact of COVID-19, our business could be materially and adversely affected by natural disasters, health epidemics or other
public safety concerns affecting China. Natural disasters may give rise to server interruptions, breakdowns, system failures, technology platform failures
or internet failures, which could cause the loss or corruption of data or malfunctions of software or hardware as well as adversely affect our ability to
operate our platform and provide services and solutions. In recent years, there have been outbreaks of epidemics in China and globally, such as H1N1
flu, avian flu or another epidemic. Our business operations could be disrupted by any of these epidemics. In addition, our results of operations could be
adversely affected to the extent that any health epidemic harms the Chinese economy in general. A prolonged outbreak of any of these illnesses or other
adverse public health developments in China or elsewhere in the world could have a material adverse effect on our business operations. Such outbreaks
could significantly impact the insurance industry, which could severely disrupt our operations and adversely affect our business, financial condition and
results of operations. Our headquarters are located in Beijing, where most of our management and employees currently reside. Most of our system
hardware and back-up systems are hosted in facilities located in Shanghai. Consequently, if any natural disasters, health epidemics or other public safety
concerns were to affect Beijing, our operation may experience material disruptions, which may materially and adversely affect our business, financial
condition and results of operations.
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A severe or prolonged downturn in Chinese or global economy could materially and adversely affect our business and financial condition.
COVID-19 had a severe and negative impact on the Chinese and the global economy in 2021. Whether this will lead to a prolonged downturn in
the economy is still unknown. Even before the outbreak of COVID-19, the global macroeconomic environment was facing numerous challenges. The
growth rate of the Chinese economy had already been slowing since 2010. There is considerable uncertainty over the long-term effects of the
expansionary monetary and fiscal policies which had been adopted by the central banks and financial authorities of some of the world’s leading
economies, including the United States and China, even before 2021. Unrest, terrorist threats and the potential for war in the Middle East and elsewhere
may increase market volatility across the globe. There have also been concerns about the relationship between China and other countries, including the
surrounding Asian countries, which may potentially have economic effects. In particular, there is significant uncertainty about the future relationship
between the United States and China with respect to trade policies, treaties, government regulations and tariffs. Economic conditions in China are
sensitive to global economic conditions, as well as changes in domestic economic and political policies and the expected or perceived overall economic
growth rate in China. Any severe or prolonged slowdown in the global or Chinese economy may materially and adversely affect our business, results of
operations and financial condition.
Healthcare-related businesses, such as clinical trial patient recruitment services, are subject to risks of customer needs, industry trends, trade
secrets, data compliance and regulatory changes, which could adversely affect our reputation, business, financial condition, results of
operations and prospects.
We are exploring healthcare-related businesses, such as clinical trial patient recruitment services starting from December 2021. The success of
such new business depends primarily on the number of pharmaceutical companies and patients engaged. There can be no assurance that these industries
will continue to grow at the rates we expect. Any slowdown or reversal of any of these trends could materially and adversely affect demand for our
services. Furthermore, if investments in pharmaceutical industries were to decrease, the demand for outsourced biopharmaceutical R&D services may
also decrease. The services we provide are complex and often time-sensitive. We cannot assure you that we will always be able to deliver the quality of
services that meets our clients’ standards and evolving needs. We may make material mistakes, including in managing and conducting a project, that
could negatively impact or obviate the usefulness of results of the project or cause the results of the project to be reported improperly. In such cases, we
may incur significant costs from reperforming the project and liability to the clients for any failure to meet contractually agreed standards. We may incur
losses if we lose existing clients, or fail to attract new clients. In order to meet the increasing demands arising from our business growth, we may be
required to increase the outsourcing of patient recruitment services. There is no assurance that we will always be able to secure subcontractors who
provide services at the specification, quantity and quality levels required by us. In addition, any failure of our suppliers or subcontractors to continue to
obtain requisite licenses or approvals, or to provide satisfactory products or services, or their misconduct, may result in interruption in their business
operations, which may delay or disrupt the progress of our projects. In addition, we may not be able to seek adequate compensation from our suppliers
and subcontractors for losses caused by them. During initial stage of business development, we cannot assure you that we will be able to manage growth
effectively.
In addition to the protection afforded by our registered intellectual property rights, we rely on unpatented trade secret protection, unpatented
know-how and continuing technological innovation to develop and maintain our competitive position. However, trade secrets and know-how can be
difficult to protect. Healthcare-related businesses are also subject to privacy protection and data compliance risks. Before patients and healthy volunteers
enroll in clinical trials, we collect and maintain medical data, treatment records and other personal data. We are subject to relevant privacy laws and
regulations. Although we have taken measures to maintain the confidentiality of medical records and personal data of patients and healthy volunteers
prior to enrolling in clinical trials so that they cannot be viewed without proper authorization, we cannot assure you that such measures are effective in
ensuring our compliance with relevant laws and regulations, or that we are able to prevent the enrolled subjects’ private or medical records being
divulged without their consent. For example, our information technology systems may be hacked, and personal data could leak due to theft or misuse of
personal information arising from misconduct or negligence, leading to disclosure. In addition, our clinical trials often involve professionals from third-
party institutions working on-site with our staff and enrolled subjects. We cannot ensure that such persons will always comply with our data privacy
measures. Furthermore, any changes in relevant laws and regulations may affect our ability to use medical data and subject us to liability for the use of
such data for previously permitted purposes. Any failure to protect the confidentiality of the medical records and personal data of patients and healthy
volunteers or any restrictions on our use of medical data or any liability arising therefrom could materially and adversely affect our business, financial
condition and results of operations. Furthermore, as the hospitals may be locked down from time to time due to COVID-19 epidemic prevention orders
in China, our patient recruitment consultants cannot enter the hospitals or patients’ wards during the lock-down period, which to certain extent may
adversely impact the leads-sourcing activities in our patient recruitment business. If our relationship with hospitals worsens, the patient recruitment
consultants may be banned from entering the hospitals or patients’ wards, which may materially affect our offline patient recruitment consultancy of our
business.
Government agencies and industry regulatory bodies impose strict rules, regulations or industry standards on how customers develop, test,
research and manufacture drugs, medical devices and biologics, and how third parties perform related services on customers’ behalf. The services we
provide to our clients are subject to and must comply with various applicable legal and regulatory requirements. Any adverse findings by such
regulatory authorities or other regulatory or legal noncompliance may result in severe penalties against us. In addition, regulatory authorities may
change the laws and regulations from time to time. As a result, our existing compliance procedures may not be adequate for new legal and regulatory
requirements, and we may need to incur additional compliance costs and become exposed to negative findings from relevant government authorities.
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If we are unable to manage the risks presented by our international expansion, our financial results and future prospects will be adversely
impacted.
As of the date of this annual report, we have expanded business operations into overseas markets. However, we have limited history and
experience operating in jurisdictions outside of China. We have made certain investment, and may further make significant investments to expand our
international operations and compete with local competitors. Such investments may not be successful and may negatively affect our operating results.
Conducting our business internationally, particularly in countries in which we have limited experience, subjects us to risks that we do not face to the
same degree in China. These risks include, among others:
• operational and compliance challenges caused by distance, language, and cultural differences;
• the resources required to build a local management team in each new market and to localize our service offerings to appeal to
consumers in that market;
• compliance challenges caused by unfamiliar laws and regulations;
• competition with businesses that understand local markets better than we do, that have pre-existing relationships with potential
consumers in those markets, or that are favored by government or regulatory authorities in those markets;
• international geopolitical tensions;
• political, social and economic instability in any jurisdiction where we operate;
• international export controls and economic and trade sanctions;
• legal uncertainty including uncertainty resulting from unique local laws or a lack of clear legal precedent;
• regulatory press and licenses requirements from local authorities in insurance, crowdfunding or other industries;
• fluctuations in currency exchange rates;
• managing operations in markets in which offline activities are favored over online platform or service;
• adverse tax consequences, including the complexities of foreign value added tax systems, and restrictions on the repatriation of
earnings;
• increased financial accounting and reporting burdens, and complexities associated with implementing and maintaining adequate
internal controls;
• difficulties in implementing and maintaining the financial systems and processes needed to enable compliance across multiple
offerings and jurisdictions; and
• reduced or varied protection for intellectual property rights in some markets.
These risks could adversely affect our international operations, which could in turn adversely affect our business, financial condition, and
operating results.
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Risks Related to Our Corporate Structure

If the PRC government finds that the agreements that establish the structure for operating some of our operations in China do not comply
with PRC regulations relating to the relevant industries, or if these regulations or the interpretation of existing regulations change in the
future, we could be subject to severe penalties or be forced to relinquish our interests in those operations.
We are a Cayman Islands holding company with no equity ownership in the VIEs and we conduct our operations in China primarily through
(i) our PRC subsidiaries and (ii) the VIEs, with which we have maintained contractual arrangements. Holders of our ADSs thus are not holding equity
interest in our operating entities in China but instead are holding equity interest in a Cayman Islands holding company. If the PRC government finds that
the agreements that establish the structure for operating our business do not comply with the PRC laws and regulations, or if these regulations or their
interpretations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations. Our ADSs may
decline in value or become worthless if we are unable to assert our contractual control rights over the assets of the VIE which contributes to 99.6% of
our revenues in 2021. Our holding company in the Cayman Islands, the VIEs and investors of our company face uncertainty about potential future
actions by the PRC government that could affect the enforceability of the contractual arrangements with the VIEs and, consequently, significantly affect
the financial performance of the VIEs and our company as a group.
Foreign investment in the value-added telecommunication services industry and insurance industry in China is extensively regulated and subject to
stringent requirements. Specifically, foreign ownership of a value-added telecommunication service provider may not exceed 50% (except for
e-commerce, domestic multi-party communication, storage and forwarding classes and call centers) under the Special Administrative Measures for
Access of Foreign Investment (Negative List) (2021 Edition), which is jointly promulgated by the NDRC and the Ministry of Commerce and became
effective on January 1, 2022, and the major foreign investor is required to have a record of good performance and operating experience in managing
value-added telecommunications business. Accordingly, none of our wholly-owned PRC subsidiaries is eligible to provide value-added
telecommunication services, insurance brokerage services or insurance agency services in China under PRC laws. To comply with the applicable PRC
laws and regulations, we conduct such business through the VIEs and their subsidiaries, including Zongqing Xiangqian and Shuidi Insurance Brokerage.
As of the date of this annual report, three of the VIEs, including Zongqing Xiangqian, and certain subsidiaries of Zongqing Xiangqian and Guangmu
Weichen hold the ICP License. Shuidi Insurance Brokerage holds the Insurance Intermediary License issued by the CBIRC, which allows it to conduct
insurance brokerage business in China. Shuidi Insurance Brokerage also holds an ICP License. In addition, Tairui Insurance Agency Co., Ltd. holds the
Insurance Intermediary License issued by the CBIRC, which allows it to conduct insurance agency business in China. Our WFOE, Absolute Health, has
entered into a series of contractual arrangements with the VIEs and their shareholders, which enable us to:
• exercise effective control over the VIEs;
• receive substantially all of the economic benefits and bear the obligation to absorb substantially all of the losses of the VIEs; and
have an exclusive option to purchase all or part of the equity interests and assets in the VIEs when and to the extent permitted by
PRC law.
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As a result of these contractual arrangements, we have control over and are the primary beneficiary of the VIEs and hence consolidate financial
results of the VIEs and its subsidiaries into our consolidated financial statements under U.S. GAAP. For a detailed discussion of these contractual
arrangements, see “Corporate History and Structure.”
In the opinion of our PRC counsel, Han Kun Law Offices, (i) the ownership structures of our WFOE and the VIEs in China, currently are not in
violation of any explicit provisions of PRC laws and regulations currently in effect; and (ii) the agreements under the contractual arrangements between
our WFOE, the VIEs and their shareholders governed by PRC law are valid, binding and enforceable against each party thereto in accordance with their
terms.
However, we have been further advised by our PRC counsel that there are substantial uncertainties regarding the interpretation and application of
current and future PRC laws, regulations and rules. The PRC regulatory authorities may take a view contrary to the opinion of our PRC legal counsel. It
is uncertain whether any new PRC laws or regulations relating to variable interest entity structure will be adopted or if adopted, what they would
provide. If the ownership structures, contractual arrangements and business of our company, our PRC subsidiaries, the VIEs or subsidiaries the VIEs are
found to be in violation of any existing or future PRC laws or regulations, or fail to obtain or maintain any of the required permits or approvals to
operate our business, the relevant PRC regulatory authorities would have broad discretion to take action in dealing with such violations or failures,
including:
• revoking the business licenses and/or operating licenses of such entities;
• imposing fines on us;
• confiscating any of our income that they deem to be obtained through illegal operations;
• discontinuing or placing restrictions or onerous conditions on our operations;
• placing restrictions on our right to collect revenues;
• shutting down our servers or blocking our app/websites;
• requiring us to restructure our ownership structure or operations;
• restricting or prohibiting our use of the proceeds from our financing activities to finance the business and operations of the VIEs and
their subsidiaries; or
• taking other regulatory or enforcement actions that could be harmful to our business.
Any of these events could cause significant disruption to our business operations and severely damage our reputation, which would in turn have a
material adverse effect on our financial condition and results of operations. If occurrences of any of these events results in our inability to direct the
activities of the VIEs and their subsidiaries in China that most significantly impact its economic performance, and/or our failure to receive the economic
benefits and residual returns from the VIEs and their subsidiaries, and we are not able to restructure our ownership structure and operations in a
satisfactory manner, we may not be able to consolidate the financial results of the VIEs or their subsidiaries in our consolidated financial statements in
accordance with U.S. GAAP.
The contractual arrangements with the VIEs and their shareholders may not be as effective as direct ownership in providing operational
control.
We have to rely on the contractual arrangements with the VIEs and their shareholders to operate our business in China, including provision of
certain value-added telecommunication services and insurance brokerage services. These contractual arrangements, however, may not be as effective as
direct ownership in providing us with control over the VIEs. For example, the VIEs and their shareholders could breach their contractual arrangements
with us by, among other things, failing to conduct the operations of the VIEs in an acceptable manner or taking other actions that are detrimental to our
interests.
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If we had direct ownership of the VIEs in China, we would be able to exercise our rights as a shareholder to effect changes in the board of
directors of the VIEs, which in turn could implement changes, subject to any applicable fiduciary obligations, at the management and operational level.
However, under the current contractual arrangements, we rely on the performance by the VIEs and their shareholders of their obligations under the
contracts to exercise control over the VIEs. The shareholders of the VIEs may not act in the best interests of our company or may not perform their
obligations under these contracts. If any dispute relating to these contracts remains unresolved, we will have to enforce our rights under these contracts
through the operations of PRC law and arbitration, litigation and other legal proceedings and therefore will be subject to uncertainties in the PRC legal
system. See “— Any failure by the VIEs or their shareholders to perform their obligations under our contractual arrangements with them would have a
material and adverse effect on our business.”
Any failure by the VIEs or their shareholders to perform their obligations under our contractual arrangements with them would have a
material and adverse effect on our business.
If the VIEs or their shareholders fail to perform their respective obligations under the contractual arrangements, we could be limited in our ability
to enforce the contractual arrangements that give us effective control over our business operations in China and may have to incur substantial costs and
expend additional resources to enforce such arrangements. We may also have to rely on legal remedies under PRC law, including seeking specific
performance or injunctive relief, and contractual remedies, which we cannot assure you will be sufficient or effective under PRC law. For example, if
the shareholders of the VIEs were to refuse to transfer their equity interests in the VIEs to us or our designee if we exercise the purchase option pursuant
to these contractual arrangements, or if they were otherwise to act in bad faith toward us, then we may have to take legal actions to compel them to
perform their contractual obligations. In addition, if there are any disputes or governmental proceedings involving any interest in such shareholders’
equity interests in the VIEs, our ability to exercise shareholders’ rights or foreclose the share pledges according to the contractual arrangements may be
impaired. If these disputes or proceedings were to impair our control over the VIEs, we may not be able to maintain effective control over our business
operations in the PRC and thus would not be able to continue to consolidate the VIEs’ financial results, which would in turn result in a material adverse
effect on our business, operations and financial condition.
Our Chairman and CEO, Mr. Peng Shen, is subject to a lawsuit, and there is uncertainty as to the outcome of the claim and its impact on us.
In March 2021, a third party individual, or the Claimant, filed a complaint with the local court in Beijing in China against Mr. Peng Shen, our
Chairman and CEO. Zongqing Xiangqian was named as a third party in the complaint. The complaint claims that the Claimant is entitled to receive
1.25% of the equity interest in Zongqing Xiangqian which was held by Mr. Peng Shen as the Claimant’s nominee after Zongqing Xiangqian’s series A
preferred shares financing, pursuant to an agreement entered into between them in 2017. Our current corporate structure was established in 2018, and
Zongqing Xiangqian became our variable interest entity in November 2018 as part of the corporate restructuring then.
Our PRC counsel, Han Kun Law Offices, advises us that based on the evidence presented in the complaint to date there are meritorious defenses
to the Claimant’s claims. However, we are not sure there would be no new facts presented in the case and if new facts were to be presented, how such
facts could affect the court’s decision. In addition, if the Claimant prevailed in the present proceeding, there is no assurance that he would not file a new
complaint seeking additional remedies.
In the event the Claimant were able to prevail in his claim for the alleged equity interest in Zongqing Xiangqian, there could be a number of
potential remedies, which include awarding the Claimant an interest, direct or indirect, in Zongqing Xiangqian. If the Claimant were awarded a direct
ownership interest through transfer of Mr. Peng Shen’s existing equity interest, such transfer would, according to our PRC counsel, be subject to the
right of first refusal by other shareholders of Zongqing Xiangqian under the PRC Company Law. In the event the Claimant obtained a direct ownership
interest in Zongqing Xiangqian, we will not be able to receive the corresponding economic benefits from the alleged equity interest in Zongqing
Xiangqian under the current contractual arrangements.
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Our contractual arrangements are governed by PRC law. Accordingly, these contracts would be interpreted in accordance with PRC law, and
any disputes would be resolved in accordance with PRC legal procedures, which may not protect you as much as those of other jurisdictions,
such as the United States.
All the agreements under our contractual arrangements are governed by PRC law and provide for the resolution of disputes through arbitration in
China. Accordingly, these contracts would be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal
procedures. The legal system in the PRC is not as developed as in some other jurisdictions, such as the United States. As a result, uncertainties in the
PRC legal system could limit our ability to enforce these contractual arrangements. See “— Risks Related to Doing Business in China—Uncertainties
with respect to the PRC legal system could adversely affect us.” Meanwhile, there are very few precedents and little formal guidance as to how
contractual arrangements in the context of a consolidated variable interest entity should be interpreted or enforced under PRC law. There remain
significant uncertainties regarding the ultimate outcome of such arbitration should legal action become necessary. In addition, under PRC law, rulings by
arbitrators are final, parties cannot appeal the arbitration results in courts, and if the losing parties fail to carry out the arbitration awards within a
prescribed time limit, the prevailing parties may only enforce the arbitration awards in PRC courts through arbitration award recognition proceedings,
which would require additional expenses and delay. In the event we are unable to enforce these contractual arrangements, or if we suffer significant
delay or other obstacles in the process of enforcing these contractual arrangements, we may not be able to exert effective control over the VIEs, and our
ability to conduct our business may be negatively affected.
The shareholders of the VIEs may have actual or potential conflicts of interest with us.
The shareholders of the VIEs may have actual or potential conflicts of interest with us. These shareholders may breach, or cause the VIEs to
breach, or refuse to renew, the existing contractual arrangements we have with them and the VIEs, which would have a material and adverse effect on
our ability to effectively control the VIEs and receive economic benefits from them. For example, the shareholders may be able to cause our agreements
with the VIEs to be performed in a manner adverse to us by, among other things, failing to remit payments due under the contractual arrangements to us
on a timely basis. We cannot assure you that when conflicts of interest arise any or all of these shareholders will act in the best interests of our company
or such conflicts will be resolved in our favor.
Currently, we do not have any arrangements to address potential conflicts of interest between these shareholders and our company, except that we
could exercise our purchase option under the exclusive option agreements with these shareholders to request them to transfer all of their equity interests
in the VIEs to a PRC entity or individual designated by us, to the extent permitted by PRC law. For individuals who are also our directors and officers,
we rely on them to abide by the laws of the Cayman Islands, which provide that directors and officers owe a fiduciary duty to the company that requires
them to act in good faith and in what they believe to be the best interests of the company and not to use their position for personal gains. The
shareholders of the VIEs have executed powers of attorney to appoint our WFOE or a person designated by our WFOE to vote on their behalf and
exercise voting rights as shareholders of the VIEs. If we cannot resolve any conflict of interest or dispute between us and the shareholders of the VIEs,
we would have to rely on legal proceedings, which could result in disruption of our business and subject us to substantial uncertainty as to the outcome
of any such legal proceedings.
The shareholders of the VIEs may be involved in personal disputes with third parties or other incidents that may have an adverse effect on their
respective equity interests in the VIEs and the validity or enforceability of our contractual arrangements with the VIEs and their shareholders. For
example, in the event that any of the shareholders of the VIEs divorces his spouse, the spouse may claim that the equity interest of the VIEs held by such
shareholder is part of their community property and should be divided between such shareholder and his spouse. If such claim is supported by the court,
the relevant equity interest may be obtained by the shareholder’s spouse or another third party who is not subject to obligations under our contractual
arrangements, which could result in a loss of the effective control over the VIEs by us. Similarly, if any of the equity interests of the VIEs is inherited by
a third party with whom the current contractual arrangements are not binding, we could lose our control over the VIEs or have to maintain such control
by incurring unpredictable costs, which could cause significant disruption to our business and operations and harm our financial condition and results of
operations.
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Although under our current contractual arrangements, (i) each of the spouses of Mr. Peng Shen, Mr. Guang Yang and Mr. Wei Ran has
respectively executed a spousal consent letter, under which each spouse agrees that she/he will not raise any claims against the equity interest, and will
take every action to ensure the performance of the contractual arrangements, and (ii) the VIEs and their shareholders shall not assign any of their
respective rights or obligations to any third party without the prior written consent of our WFOE, we cannot assure you that these undertakings and
arrangements will be complied with or effectively enforced. In the case any of them is breached or becomes unenforceable and leads to legal
proceedings, it could disrupt our business, distract our management’s attention and subject us to substantial uncertainties as to the outcome of any such
legal proceedings.
Contractual arrangements in relation to the VIEs may be subject to scrutiny by the PRC tax authorities and they may determine that we or the
VIEs owe additional taxes, which could negatively affect our financial condition and the value of your investment.
Under applicable PRC laws and regulations, arrangements and transactions among related parties may be subject to audit or challenge by the PRC
tax authorities. We could face material and adverse tax consequences if the PRC tax authorities determine that the contractual arrangements in relation to
the VIEs were not entered into on an arm’s length basis in such a way as to result in an impermissible reduction in taxes under applicable PRC laws,
rules and regulations, and adjust income of the VIEs in the form of a transfer pricing adjustment. A transfer pricing adjustment could, among other
things, result in a reduction of expense deductions recorded by the VIEs for PRC tax purposes, which could in turn increase their tax liabilities without
reducing our PRC subsidiaries’ tax expenses. In addition, the PRC tax authorities may impose late payment fees and other penalties on the VIEs for the
adjusted but unpaid taxes according to the applicable regulations. Our financial position could be materially and adversely affected if the VIEs’ tax
liabilities increase or if they are required to pay late payment fees and other penalties.
We may lose the ability to use and enjoy assets held by the VIEs that are critical to the operation of our business if the VIEs declare
bankruptcy or become subject to a dissolution or liquidation proceeding.
The VIEs hold certain assets that may be critical to the operation of our business, including permits, domain names and most of our intellectual
property rights. If the shareholders of the VIEs breach the contractual arrangements and voluntarily liquidate the VIEs or their subsidiaries, or if the
VIEs or their subsidiaries declare bankruptcy and all or part of their assets become subject to liens or rights of third-party creditors or are otherwise
disposed of without our consent, we may be unable to continue some or all of our business activities, which could materially and adversely affect our
business, financial condition and results of operations. In addition, if the VIEs or their subsidiaries undergo an involuntary liquidation proceeding, third-
party creditors may claim rights to some or all of their assets, thereby hindering our ability to operate our business, which could materially or adversely
affect our business, financial condition and results of operations.
Our current corporate structure and business operations may be substantially affected by the newly enacted Foreign Investment Law.
On March 15, 2019, the National People’s Congress promulgated the Foreign Investment Law, which took effect on January 1, 2020. On
December 26, 2019, the PRC State Council approved the Implementation Rules of Foreign Investment Law, which came into effect on January 1, 2020.
Since the Foreign Investment Law and its implementation rules are relatively new, substantially uncertainties exist in relation to its interpretation and
implementation. The Foreign Investment law does not explicitly classify whether variable interest entities that are controlled through contractual
arrangements would be deemed as foreign invested enterprises if they are ultimately “controlled” by foreign investors. However, it has a catch-all
provision under definition of “foreign investment” that includes investments made by foreign investors in China through other means as provided by
laws, administrative regulations or the State Council. Therefore, it still leaves leeway for future laws, administrative regulations or provisions of the
State Council to provide for contractual arrangements as a form of foreign investment, at which time it will be uncertain whether our contractual
arrangements will be deemed to be in violation of the market access requirements for foreign investment in the PRC and if yes, how our contractual
arrangements should be dealt with.
The Foreign Investment Law grants national treatment to foreign-invested entities, except for those foreign-invested entities that operate in
industries specified as either “restricted” or “prohibited” from foreign investment in the “negative list”, which is most recently jointly promulgated by
the National Development and Reform Commission and the Ministry of Commerce and took effective on January 1, 2022. The Foreign Investment Law
provides that foreign-invested entities operating in “restricted” or “prohibited” industries will require market entry clearance and other approvals from
relevant PRC government authorities. If our control over the VIEs through contractual arrangements are deemed as foreign investment in the future, and
any business of the VIEs is “restricted” or “prohibited” from foreign investment under the “negative list” effective at the time, we may be deemed to be
in violation of the Foreign Investment Law, the contractual arrangements that allow us to have control over the VIEs may be deemed as invalid and
illegal, and we may be required to unwind such contractual arrangements and/or restructure our business operations, any of which may have a material
adverse effect on our business operation.
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Furthermore, if future laws, administrative regulations or provisions mandate further actions to be taken by companies with respect to existing
contractual arrangements, we may face substantial uncertainties as to whether we can complete such actions in a timely manner or at all. Failure to take
timely and appropriate measures to cope with any of these or similar regulatory compliance challenges could materially and adversely affect our current
corporate structure and business operations.
If we exercise the option to acquire equity interest of the VIEs, this equity interest transfer may subject us to certain limitations and substantial
costs.
Under the current PRC laws, foreign investors are generally not allowed to hold more than 50% of the equity interest of any company providing
certain value-added telecommunications services with certain exceptions and any such must have prior experience in operating value-added
telecommunications businesses and a proven track record of business operations overseas, or the Qualification Requirements. Currently no applicable
PRC laws or regulations provides clear guidance or interpretation on these requirements. We still face the risk of not satisfying the requirement
promptly. If PRC laws change to allow foreign investors to invest in value-added telecommunications enterprises in the PRC, we may be unable to
unwind our contractual arrangements with the VIE and its shareholders before we are able to comply with the Qualification Requirements and other
requirements.
Pursuant to the contractual arrangements, our WFOE has the irrevocable and exclusive right to purchase all or any part of the relevant equity
interest in the VIEs from the VIEs’ shareholders at any time and from time to time in their absolute discretion to the extent permitted by PRC laws. The
consideration our WFOE pays for such purchases will be a nominal price or the lowest price as permitted under applicable PRC laws or an amount equal
to the registered capital contributed by the relevant shareholder. This equity transfer may be subject to approvals from, filings with, or reporting to
competent PRC authorities, such as the Ministry of Commerce, the Ministry of Industry and Information Technology, the State Administration of
Market Regulation, and/or their local competent branches. In addition, the equity transfer price may be subject to review and tax adjustment by the
relevant tax authorities.
Risks Related to Doing Business in China

Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our business and
operations.
Substantially all of our assets and operations are located in China. Accordingly, our business, financial condition, results of operations and
prospects may be influenced to a significant degree by economic, political and social conditions in China generally. The Chinese economy differs from
the economies of most developed countries in many respects, including the level of development, growth rate, level of government involvement and
control of foreign exchange and allocation of resources. The PRC government exercises significant control over China’s economic growth through
allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary policy, and providing preferential treatment to
particular industries or companies. In addition, the PRC government continues to play a significant role in regulating industry development by imposing
relevant industrial policies.
While the Chinese economy has experienced significant growth over the past decades, growth has been uneven, both geographically and among
various sectors of the economy, and the rate of growth has been slowing since 2012. Any adverse changes in economic conditions in China, in the
policies of the PRC government or in the laws and regulations in China could have a material adverse effect on the overall economic growth of China.
Such developments could adversely affect our business and operating results, lead to reduction in demand for our services and adversely affect our
competitive position. The PRC government has implemented various measures to encourage economic growth and guide the allocation of resources.
Some of these measures may benefit the overall Chinese economy, but may have a negative effect on us. For example, our financial condition and
results of operations may be adversely affected by government control over capital investments or changes in tax regulations. In addition, in the past the
PRC government has implemented certain measures, including interest rate adjustment, to control the pace of economic growth. These measures may
cause decreased economic activity in China, which may adversely affect our business and results of operations. In addition, the increased global focus
on social, ethical and environmental issues may lead to China’s adoption of more stringent standards in these areas, which may adversely impact the
operations of China-based companies including us.
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The PRC government’s significant oversight and discretion over our business operation could result in a material adverse change in our
operations and the value of our ADSs.
We conduct our business primarily in China. Our operations in China are governed by PRC laws and regulations. The PRC government has
significant oversight and discretion over the conduct of our business, and it may intervene in or influence our operations as it deems appropriate to
advance regulatory and societal goals and policy positions. The PRC government has recently published new regulations and policies that significantly
affected certain industries, and we cannot rule out the possibility that the PRC government will in the future release regulations or policies that directly
or indirectly affect our industry or require us to seek additional permission to continue our operations, which could result in a material adverse change in
our operation and/or the value of our ADSs. Therefore, investors of our company and our business face potential uncertainty from actions taken by the
PRC government affecting our business.
Uncertainties with respect to the PRC legal system could adversely affect us.
The PRC legal system is a civil law system based on written statutes, where prior court decisions have limited precedential value. The PRC legal
system is evolving rapidly, and the interpretations of many laws, regulations and rules may contain inconsistencies and enforcement of these laws,
regulations and rules involves uncertainties.
From time to time, we may have to resort to administrative and court proceedings to enforce our legal rights. However, since the PRC judicial and
administrative authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to predict
the outcome of a judicial or administrative proceeding than in more developed legal systems. These uncertainties may impede our ability to enforce the
contracts we have entered into and could materially and adversely affect our business and results of operations.
Furthermore, the PRC legal system is based, in part, on government policies and internal rules, some of which are not published in a timely
manner or at all, but which may have retroactive effect. As a result, we may not always be aware of any potential violation of these policies and rules.
Such unpredictability towards our contractual, property (including intellectual property) and procedural rights could adversely affect our business and
impede our ability to continue our operations.
We may be adversely affected by the complexity, uncertainties and changes in PRC regulation of internet-related businesses and companies.
The PRC government extensively regulates the internet industry, including foreign ownership of, and the licensing and permit requirements
pertaining to, companies operating in the internet industry. These internet-related laws and regulations are relatively new and evolving, and their
interpretation and enforcement involve significant uncertainties. As a result, in certain circumstances it may be difficult to determine what actions or
omissions may be deemed to be in violation of applicable laws and regulations.
We only have contractual control over the VIEs and their subsidiaries. We do not directly own the VIEs due to the restriction of foreign
investment in certain businesses, including internet information provision services. This may subject us to sanctions, or compromise enforceability of
related contractual arrangements, which may result in significant disruption to our business.
The evolving PRC regulatory system for the internet industry may lead to the establishment of new regulatory agencies. For example, in March
2018, the State Council announced the establishment of a new department, the Office of the Central Cyberspace Affairs Commission (with the
involvement of the State Council Information Office, the Ministry of Industry and Information Technology, or the MIIT, and the Ministry of Public
Security). The primary role of this new agency is to facilitate the policy-making and legislative development in this field, to direct and coordinate with
the relevant departments in connection with online content administration and to deal with cross-ministry regulatory matters in relation to the internet
industry, and the National Computer Network and Information Security Management Center was adjusted to be managed by the Office of the Central
Cyberspace Affairs Commission Office instead of the MIIT.
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We have obtained the ICP License and other relevant permits required for operating our business. However, if we fail to obtain, maintain or renew
such licenses, or obtain any additional licenses and permits or make any records or filings required by new laws or regulations required for our new
business in a timely manner or at all, we could be subject to liabilities or penalties, and our operations could be adversely affected.
The interpretation and application of existing PRC laws, regulations and policies and possible new laws, regulations or policies relating to the
internet industry have created substantial uncertainties regarding the legality of existing and future foreign investments in, and the businesses and
activities of, internet businesses in China, including our business. We cannot assure you that we have obtained all the permits or licenses required for
conducting our business in China or will be able to maintain our existing licenses or obtain new ones. If the PRC government considers that we were
operating without the proper approvals, licenses or permits or promulgates new laws and regulations that require additional approvals or licenses or
imposes additional restrictions on the operation of any part of our business, it has the power, among other things, to levy fines, confiscate our income,
revoke our business licenses and require us to discontinue our relevant business or impose restrictions on the affected portion of our business. Any of
these actions by the PRC government may have a material adverse impact on our business and results of operations.
You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing actions in China against us or
our management named in the annual report based on foreign laws.
We are an exempted company incorporated under the laws of the Cayman Islands, however, we conduct substantially all of our operations in
China and substantially all of our assets are located in China. In addition, all our senior executive officers reside within China for a significant portion of
the time and substantially all of them are PRC nationals. As a result, it may be difficult for our shareholders to effect service of process upon us or our
management residing in China. In addition, China does not have treaties providing for reciprocal recognition and enforcement of judgments of courts
with the Cayman Islands and some other countries and regions. Therefore, recognition and enforcement in China of judgments of a court in any of these
non-PRC jurisdictions in relation to any matter not subject to a binding arbitration provision may be difficult or impossible.
It may be difficult for overseas regulators to conduct investigation or collect evidence within China.
Shareholder claims or regulatory investigation that are common in the United States generally are difficult to pursue as a matter of law or
practicality in China. For example, in China, there are significant legal and other obstacles to providing information needed for regulatory investigations
or litigation initiated outside China. Although the authorities in China may establish a regulatory cooperation mechanism with the securities regulatory
authorities of another country or region to implement cross-border supervision and administration, such cooperation with the securities regulatory
authorities in the Unities States may not be efficient in the absence of mutual and practical cooperation mechanism. Furthermore, according to Article
177 of the PRC Securities Law, or Article 177, which became effective in March 2020, no overseas securities regulator is allowed to directly conduct
investigation or evidence collection activities within the territory of the PRC. While detailed interpretation of or implementation rules under Article 177
have yet to be promulgated, the inability for an overseas securities regulator to directly conduct investigation or evidence collection activities within
China may further increase difficulties faced by you in protecting your interests. See also “—Risks Related to Our ADSs—You may face difficulties in
protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because we are incorporated under Cayman Islands
law” for risks associated with investing in us as a Cayman Islands company.
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If we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable tax
consequences to us and our non-PRC shareholders and ADS holders.
Under the PRC Enterprise Income Tax Law and its implementation rules, an enterprise established outside of the PRC with “de facto management
body” within China is considered a “resident enterprise” and will be subject to the enterprise income tax on its global income at the rate of 25%. The
implementation rules define the term “de facto management body” as the body that exercises full and substantial control and overall management over
the business, productions, personnel, accounts and properties of an enterprise. In 2009, the State Administration of Taxation, or SAT, issued the Circular
of the State Administration of Taxation on Issues Relating to Identification of PRC-Controlled Overseas Registered Enterprises as Resident Enterprises
in Accordance with the De Facto Standards of Organizational Management, or SAT Circular 82, which provides certain specific criteria for determining
whether the “de facto management body” of a PRC-controlled enterprise that is incorporated offshore is located in China. Although this circular only
applies to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreigners, the
criteria set forth in the circular may reflect SAT’s general position on how the “de facto management body” text should be applied in determining the tax
resident status of all offshore enterprises. According to SAT Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC
enterprise group will be regarded as a PRC tax resident by virtue of having its “de facto management body” in China and will be subject to PRC
enterprise income tax on its global income only if all of the following conditions are met: (i) the primary location of the day-to-day operational
management is in China; (ii) decisions relating to the enterprise’s financial and human resource matters are made or are subject to approval by
organizations or personnel in China; (iii) the enterprise’s primary assets, accounting books and records, company seals, and board and shareholder
resolutions, are located or maintained in China; and (iv) at least 50% of voting board members or senior executives habitually reside in China.
We believe none of our entities outside of China is a PRC resident enterprise for PRC tax purposes. However; the tax resident status of an
enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto
management body.” If the PRC tax authorities determine that Waterdrop Inc. is a PRC resident enterprise for enterprise income tax purposes, we could
be subject to PRC tax at a rate of 25% on our worldwide income, which could materially reduce our net income, and we may be required to withhold a
10% withholding tax from dividends we pay to our shareholders that are non-resident enterprises, including the holders of our ADSs. In addition,
non-resident enterprise shareholders (including our ADS holders) may be subject to PRC tax at a rate of 10% on gains realized on the sale or other
disposition of ADSs or Class A ordinary shares, if such income is treated as sourced from within China. Furthermore, if we are deemed a PRC resident
enterprise, dividends payable to our non-PRC individual shareholders (including our ADS holders) and any gain realized on the transfer of ADSs or
Class A ordinary shares by such shareholders may be subject to PRC tax at a rate of 20% (and such PRC tax may be withheld at source in the case of
dividends). Any PRC income tax liability may be reduced under applicable tax treaties. However, it is unclear whether in practice non-PRC shareholders
of Waterdrop Inc. would be able to obtain the benefits of any tax treaties between their country of tax residence and the PRC in the event that we are
treated as a PRC resident enterprise. Any such tax may reduce the returns on your investment in the ADSs or Class A ordinary shares.
We face uncertainties with respect to indirect transfers of equity interests in PRC resident enterprises by their non-PRC holding companies.
We face uncertainties regarding the reporting on and consequences of previous private equity financing transactions involving the transfer and
exchange of shares in our company by non-resident investors. In February 2015, the SAT issued the Bulletin on Issues of Enterprise Income Tax on
Indirect Transfers of Assets by Non PRC Resident Enterprises, or Bulletin 7. Pursuant to Bulletin 7, an “indirect transfer” of PRC assets, including a
transfer of equity interests in an unlisted non-PRC holding company of a PRC resident enterprise, by non-PRC resident enterprises may be
re-characterized and treated as a direct transfer of the underlying PRC assets, if such arrangement does not have a reasonable commercial purpose and
was established for the purpose of avoiding payment of PRC enterprise income tax. As a result, gains derived from such indirect transfer may be subject
to PRC enterprise income tax, and the transferee or other person who is obligated to pay for the transfer is obligated to withhold the applicable taxes,
currently at a rate of 10% for the transfer of equity interests in a PRC resident enterprise. Bulletin 7 also introduced safe harbors for internal group
restructurings and the purchase and sale of equity securities through a public securities market. On October 17, 2017, the SAT issued the Announcement
of the State Administration of Taxation on Issues Concerning the Withholding of Non-resident Enterprise Income Tax at Source, or Bulletin 37, which
came into effect on December 1, 2017. The Bulletin 37 further clarifies the practice and procedure of the withholding of nonresident enterprise income
tax.
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We face uncertainties on the reporting and consequences of future private equity financing transactions, share exchanges or other transactions
involving the transfer of shares in our company by investors that are non-PRC resident enterprises. The PRC tax authorities may pursue such
non-resident enterprises with respect to a filing or the transferees with respect to withholding obligation, and request our PRC subsidiaries to assist in the
filing. As a result, we and non-resident enterprises in such transactions may become at risk of being subject to filing obligations or being taxed under
Bulletin 7 and Bulletin 37, and may be required to expend valuable resources to comply with them or to establish that we and our non-resident
enterprises should not be taxed under these regulations, which may have a material adverse effect on our financial condition and results of operations.
If our preferential tax treatments and government subsidies are revoked or become unavailable or if the calculation of our tax liability is
successfully challenged by the PRC tax authorities, we may be required to pay tax, interest and penalties in excess of our tax provisions.
The Chinese government has provided tax incentives to our PRC subsidiaries in China, including reduced enterprise income tax rates. For
example, under the Enterprise Income Tax Law and its implementation rules, the statutory enterprise income tax rate is 25%. However, the income tax
of an enterprise that has been determined to be a high and new technology enterprise can be reduced to a preferential rate of 15%. Any increase in the
enterprise income tax rate applicable to our PRC subsidiaries in China, or any discontinuation, retroactive or future reduction or refund of any of the
preferential tax treatments and local government subsidies currently enjoyed by our PRC subsidiaries in China, could adversely affect our business,
financial condition and results of operations.
Further, in the ordinary course of our business, we are subject to complex income tax and other tax regulations, and significant judgment is
required in the determination of a provision for income taxes. Although we believe our tax provisions are reasonable, if the PRC tax authorities
successfully challenge our position and we are required to pay tax, interest and penalties in excess of our tax provisions, our financial condition and
results of operations would be materially and adversely affected.
The M&A Rules and certain other PRC regulations may make it more difficult for us to pursue growth through acquisitions.
The Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors, or the M&A Rules, adopted by six PRC regulatory
agencies in 2006 and amended in 2009, and some other regulations and rules concerning mergers and acquisitions established complex procedures and
requirements for some acquisitions of Chinese companies by foreign investors, including requirements in some instances that the Ministry of
Commerce, be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise.
Moreover, the Anti-Monopoly Law promulgated by the Standing Committee of the PRC National People’s Congress, which became effective in 2008
requires that transactions which are deemed concentrations and involve parties with specified turnover thresholds must be cleared by the Ministry of
Commerce before they can be completed. On October 23, 2021, the Standing Committee of the National People’s Congress issued a discussion draft of
the amended Anti-Monopoly Law, which proposes to increase the fines for illegal concentration of business operators to no more than ten percent of its
last year’s sales revenue if the concentration of business operator has or may have an effect of excluding or limiting competitions, or a fine of up to
RMB5 million if the concentration of business operator does not have an effect of excluding or limiting competition. The draft also proposes that the
relevant authorities shall investigate a transaction where there is any evidence that the concentration has or may have the effect of eliminating or
restricting competitions, even if such concentration does not reach the filing threshold. On February 7, 2021, the Anti-Monopoly Committee of the State
Council published the Anti-Monopoly Guidelines for the Internet Platform Economy Sector, which intends to regulate abuse of a dominant position and
other anti-competitive practices by online platform operators and the related service providers on online platforms. It also stipulates that any
concentration of undertakings involving variable interest entities shall fall within the scope of anti-monopoly review. If a concentration of undertakings
meets the thresholds for clearance under the applicable laws, an internet platform operator shall report such concentration of undertakings to the anti-
monopoly law enforcement agency under the State Council in advance. Therefore, our acquisitions of other entities that we make in the future (whether
by ourselves, our subsidiaries or through our variable interest entities) and that meets the thresholds for clearance, may be required to be report to and
approved by the anti-monopoly law enforcement agency in the PRC, and we may be subject to penalty including but not limited to a fine if we fail to
comply with such requirement.
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In addition, the security review rules issued by the Ministry of Commerce that became effective in September 2011 specify that mergers and
acquisitions by foreign investors that raise “national defense and security” concerns and mergers and acquisitions through which foreign investors may
acquire de facto control over domestic enterprises that raise “national security” concerns are subject to strict review by the Ministry of Commerce, and
the rules prohibit any activities attempting to bypass a security review, including by structuring the transaction through a proxy or contractual control
arrangement. On December 19, 2020, the Measures for the Security Review for Foreign Investment was jointly issued by the NDRC and the Ministry of
Commerce and took effect from January 18, 2021. The Measures for the Security Review for Foreign Investment specified provisions concerning the
security review mechanism on foreign investment, including the types of investments subject to review, review scopes and procedures, among others.
In the future, we may pursue potential strategic acquisitions that are complementary to our business and operations. Complying with the
requirements of the above-mentioned regulations and other relevant rules to complete such transactions could be time-consuming, and any required
approval processes, including obtaining approval or clearance from the Ministry of Commerce or its local counterparts or other relevant governmental
authorities, may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market
share.
The filing, approval or other administration requirements of the CSRC or other PRC government authorities may be required in connection
with our offshore offerings under PRC law, and, if required, we cannot predict whether or for how long we will be able to complete such filing,
obtain such approval or meet such requirements.
The M&A Rules requires an overseas special purpose vehicle formed for listing purposes through acquisitions of PRC domestic companies and
controlled by PRC persons or entities to obtain the approval of the CSRC prior to the listing and trading of such special purpose vehicle’s securities on
an overseas stock exchange. The interpretation and application of the regulations remain unclear, and our offshore offerings may ultimately require
approval of the CSRC. If the CSRC approval is required, it is uncertain whether we can or how long it will take us to obtain the approval and, even if we
obtain such CSRC approval, the approval could be rescinded. Any failure to obtain or delay in obtaining the CSRC approval for any of our offshore
offerings, or a rescission of such approval if obtained by us, would subject us to sanctions imposed by the CSRC or other PRC regulatory authorities,
which could include fines and penalties on our operations in China, restrictions or limitations on our ability to pay dividends outside of China, and other
forms of sanctions that may materially and adversely affect our business, financial condition, and results of operations.
On July 6, 2021, the relevant PRC government authorities issued Opinions on Strictly Scrutinizing Illegal Securities Activities in Accordance with
the Law. These opinions emphasized the need to strengthen the administration over illegal securities activities and the supervision on overseas listings
by China-based companies and proposed to take effective measures, such as promoting the construction of relevant regulatory systems to deal with the
risks and incidents faced by China-based overseas-listed companies. On December 24, 2021, the CSRC published the Administrative Provisions and the
Draft Measures for public comments. Pursuant to these drafts, PRC domestic companies that directly or indirectly seek to offer or list their securities in
an overseas stock exchange, including a PRC company limited by shares and an offshore company whose main business operations are in China and
intends to offer securities or be listed in an overseas stock exchange based on its onshore equities, assets or similar interests, are required to file with the
CSRC within three business days after submitting their application documents to the regulator in the place of intended listing or offering. The Draft
Measures also provides that a PRC domestic company must file with the CSRC within three business days for its follow on offering of securities or issue
of securities to purchase assets after it is listed in an overseas market. As of the date of this annual report, there is no schedule for the adoptions of such
drafts, and it remains unclear whether the versions adopted will have any further material changes. There remains substantial uncertainties about how
these drafts will be enacted, interpreted or implemented and how they will affect our operations and future overseas offerings.
Pursuant to Cybersecurity Review Measures which were issued on December 28, 2021 and became effective on February 15, 2022, network
platform operators holding over one million users’ personal information must apply with the Cybersecurity Review Office for a cybersecurity review
before any public offering at a foreign stock exchange. However, given the Cybersecurity Review Measures were recently promulgated, there are
substantial uncertainties as to the interpretation, application and enforcement of the Cybersecurity Review Measures. It remains uncertain whether we
should apply for cybersecurity review prior to any offshore offering and that we would be able to complete the applicable cybersecurity review
procedures in a timely manner, or at all, if we are required to do so. In addition, on November 14, 2021, the CAC published the Draft Regulations which
reiterates the circumstances under which data processors shall apply for cybersecurity review. There is no timetable as to when such draft measures will
be enacted. As such, it remains unclear whether the formal version adopted in the future will have any further material changes, it is uncertain how the
measures will be enacted, interpreted or implemented and how they will affect our offshore offerings.
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If it is determined in the future that approval from the CSRC or other regulatory authorities or other procedures, including the cybersecurity
review under the revised Measures for Cybersecurity Review, are required for our offshore offerings, it is uncertain whether we can or how long it will
take us to obtain such approval or complete such procedures and any such approval could be rescinded. Any failure to obtain or delay in obtaining such
approval or completing such procedures for our offshore offerings, or a rescission of any such approval if obtained by us, would subject us to sanctions
by the CSRC or other PRC regulatory authorities for failure to seek CSRC approval or other government authorization for our offshore offerings. These
regulatory authorities may impose fines and penalties on our operations in China, limit our ability to pay dividends outside of China, limit our operating
privileges in China, delay or restrict the repatriation of the proceeds from our offshore offerings into China or take other actions that could materially
and adversely affect our business, financial condition, results of operations, and prospects, as well as the trading price of our shares. The CSRC or other
PRC regulatory authorities also may take actions requiring us, or making it advisable for us, to halt our offshore offerings before settlement and delivery
of the shares offered. Consequently, if investors engage in market trading or other activities in anticipation of and prior to settlement and delivery, they
do so at the risk that settlement and delivery may not occur. In addition, if the CSRC or other regulatory authorities later promulgate new rules or
explanations requiring that we obtain their approvals or accomplish the required filing or other regulatory procedures for our prior offshore offerings, we
may be unable to obtain a waiver of such approval requirements, if and when procedures are established to obtain such a waiver. Any uncertainties or
negative publicity regarding such approval requirement could materially and adversely affect our business, prospects, financial condition, reputation,
and the trading price of the shares.
Any failure to comply with PRC regulations regarding the registration requirements for employee share incentive plans may subject our share
incentive plan participants or us to fines and other legal or administrative sanctions.
In February 2012, the SAFE promulgated the Notices on Issues Concerning the Foreign Exchange Administration for Domestic Individuals
Participating in Stock Incentive Plan of Overseas Publicly Listed Company, replacing earlier rules promulgated in 2007. Pursuant to these rules, PRC
citizens and non-PRC citizens who reside in China for a continuous period of not less than one year and participate in any stock incentive plan of an
overseas publicly listed company, subject to a few exceptions, are required to register with SAFE through a domestic qualified agent, which could be the
PRC subsidiaries of such overseas-listed company, and complete certain other procedures. In addition, an overseas-entrusted institution must be retained
to handle matters in connection with the exercise or sale of stock options and the purchase or sale of shares and interests. We and our executive officers
and other employees who are PRC citizens or who reside in China for a continuous period of not less than one year and who have been granted options
are subject to these regulations. Failure to complete SAFE registrations may subject them to fines of up to RMB300,000 for entities and up to
RMB50,000 for individuals, and legal sanctions and may also limit our ability to contribute additional capital into our PRC subsidiaries and limit our
PRC subsidiaries’ ability to distribute dividends to us. We also face regulatory uncertainties that could restrict our ability to adopt additional incentive
plans for our directors, executive officers and employees under PRC law. See “Item 4. Information on the Company—B. Business Overview—
Regulation— Regulations Relating to Share Incentive Plans.”
In addition, SAT has issued certain circulars concerning employee share options and restricted shares. Under these circulars, our employees
working in China who exercise share options or are granted restricted shares will be subject to PRC individual income tax. Our PRC subsidiaries have
obligations to file documents related to employee share options or restricted shares with relevant tax authorities and to withhold individual income taxes
of those employees who exercise their share options. If our employees fail to pay or we fail to withhold their income taxes according to relevant laws
and regulations, we may face sanctions imposed by the tax authorities or other PRC government authorities. See “Item 4. Information on the Company
—B. Business Overview—Regulation—Regulations Relating to Share Incentive Plans.”
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Failure to comply with PRC laws and regulations on leased property may expose us to potential fines and negatively affect our ability to use
the properties we lease.
Our leasehold interests in leased properties have not been registered with the relevant PRC government authorities as required by PRC law, which
may expose us to potential fines if we fail to remediate after receiving any notice from the relevant PRC government authorities. Failure to complete the
lease registration will not affect the legal effectiveness of the lease agreements according to PRC law, but the real estate administrative authorities may
require the parties to the lease agreements to complete lease registration within a prescribed period of time, and the failure to do so may subject the
parties to fines from RMB1,000 to RMB10,000 for each of such lease agreements.
Certain lessors of our leased properties have not provided us with valid property ownership certificates or any other documentation proving their
right to lease those properties to us. If our lessors are not the owners of the properties or they have not obtained consents from the owners or their lessors
or permits from the relevant government authorities, our leases could be invalidated.
As of the date of this annual report, we are not aware of any actions, claims or investigations threatened against us or our lessors with respect to
the defects in our leasehold interests. However, if any of our leases is terminated as a result of challenges by third parties or governmental authorities for
lack of title certificates or proof of authorization to lease, we do not expect to be subject to any fines or penalties, but we may be forced to relocate the
affected offices and incur additional expenses relating to such relocation.
PRC regulations relating to offshore investment activities by PRC residents may limit our PRC subsidiaries’ ability to change their registered
capital or distribute profits to us or otherwise expose us or our PRC resident beneficial owners to liability and penalties under PRC laws.
In July 2014, SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore
Investment and Financing and Roundtrip Investment Through Special Purpose Vehicles, or SAFE Circular 37. SAFE Circular 37 requires PRC residents
(including PRC individuals and PRC corporate entities as well as foreign individuals that are deemed as PRC residents for foreign exchange
administration purpose) to register with SAFE or its local branches in connection with their direct or indirect offshore investment activities. SAFE
Circular 37 further requires amendment to the SAFE registrations in the event of any changes with respect to the basic information of the offshore
special purpose vehicle, such as change of a PRC individual shareholder, name and operation term, or any significant changes with respect to the
offshore special purpose vehicle, such as increase or decrease of capital contribution, share transfer or exchange, or mergers or divisions. SAFE Circular
37 is applicable to our shareholders who are PRC residents and may be applicable to any offshore acquisitions that we make in the future.
If our shareholders who are PRC residents or entities do not complete their registration with the local SAFE branches, our PRC subsidiaries may
be prohibited from distributing its profits and proceeds from any reduction in capital, share transfer or liquidation to us, and we may be restricted in our
ability to contribute additional capital to our PRC subsidiaries. In February 2015, SAFE promulgated a Circular on Further Simplifying and Improving
Foreign Exchange Administration Policy on Direct Investment, or SAFE Circular 13, effective in June 2015. Under SAFE Circular 13, applications for
foreign exchange registration of inbound foreign direct investments and outbound overseas direct investments, including those required under SAFE
Circular 37, will be filed with qualified banks instead of SAFE The qualified banks will directly examine the applications and accept registrations under
the supervision of SAFE.
We have used our best efforts to notify PRC residents or entities who directly or indirectly hold shares in our Cayman Islands holding company
and who are known to us as being PRC residents to complete the foreign exchange registrations. However, we may not be informed of the identities of
all the PRC residents or entities holding direct or indirect interest in our company, nor can we compel our beneficial owners to comply with SAFE
registration requirements. As of the date of this annual report, Mr. Peng Shen, Mr. Guang Yang, Mr. Yao Hu and 20 other PRC residents known to us
that currently hold direct or indirect ownership interests in our company have completed the initial registrations with the local SAFE branch or qualified
banks as required by SAFE Circular 37. We cannot assure you that all shareholders or beneficial owners of ours who are PRC residents, including the
beneficiaries of certain trusts directly or indirectly holding interest in our company have complied with, and will in the future make, obtain or update any
applicable registrations or approvals required by, SAFE regulations.
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The failure or inability of such shareholders or beneficial owners to comply with SAFE Circular 37 or other SAFE regulations, or failure by us to
amend the foreign exchange registrations of our PRC subsidiaries, could subject us to fines or legal sanctions, restrict our overseas or cross-border
investment activities, limit our PRC subsidiaries’ ability to make distributions or pay dividends to us or affect our ownership structure. Moreover, failure
to comply with the various foreign exchange registration requirements described above could result in liability under PRC law for circumventing
applicable foreign exchange restrictions. As a result, our business operations and our ability to distribute profits to you could be materially and adversely
affected.
Furthermore, as these foreign exchange regulations are still relatively new and their interpretation and implementation has been constantly
evolving, it is unclear how these regulations, and any future regulation concerning offshore or cross-border transactions, will be interpreted, amended
and implemented by the relevant government authorities. For example, we may be subject to a more stringent review and approval process with respect
to our foreign exchange activities, such as remittance of dividends and foreign currency-denominated borrowings, which may adversely affect our
financial condition and results of operations. In addition, if we decide to acquire a PRC domestic company, we cannot assure you that we or the owners
of such company, as the case may be, will be able to obtain the necessary approvals or complete the necessary filings and registrations required by the
foreign exchange regulations. This may restrict our ability to implement our acquisition strategy and could adversely affect our business and prospects.
We may be materially adversely affected if our shareholders and beneficial owners who are PRC entities fail to comply with the relevant PRC
overseas investment regulations.
On December 26, 2017, the NDRC promulgated the Administrative Measures on Overseas Investments of Enterprises, or NDRC Order No. 11,
which took effect as of March 1, 2018. According to NDRC Order No. 11, non-sensitive overseas investment projects are subject to record-filing
requirements with NDRC. On September 6, 2014, the Ministry of Commerce promulgated the Administrative Measures on Overseas Investments, which
took effect as of October 6, 2014. According to this regulation, overseas investments of PRC enterprises that involve non-sensitive countries and regions
and non-sensitive industries are subject to record-filing requirements with the Ministry of Commerce. According to the Circular of the State
Administration of Foreign Exchange on Issuing the Regulations on Foreign Exchange Administration of the Overseas Direct Investment of Domestic
Institutions, which was promulgated by SAFE on July 13, 2009 and took effect on August 1, 2009, PRC enterprises must register for overseas direct
investment with a local SAFE branch.
We may not be fully informed of the identities of all our shareholders or beneficial owners who are PRC entities, and we cannot provide any
assurance that all of our shareholders and beneficial owners who are PRC entities will comply with our request to complete the overseas direct
investment procedures under the aforementioned regulations or other related rules in a timely manner, or at all. If they fail to complete the filings or
registrations required by the overseas direct investment regulations, the relevant authorities may order them to suspend or cease the implementation of
such investment and make corrections within a specified time, which may adversely affect our business, financial condition and results of operations.
We may rely on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirements we may
have, and any limitation on the ability of our PRC subsidiaries to make payments to us could have a material and adverse effect on our ability
to conduct our business.
We are a Cayman Islands holding company and we may rely principally on dividends and other distributions on equity from our PRC subsidiaries
for our cash requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders for services of any debt we
may incur. If any of our PRC subsidiaries incurs debt on its own behalf in the future, the instruments governing the debt may restrict its ability to pay
dividends or make other distributions to us. Under PRC laws and regulations, our PRC subsidiaries, which are foreign-owned enterprises, may pay
dividends only out of their respective accumulated profits as determined in accordance with PRC accounting standards and regulations. In addition, a
foreign-owned enterprise is required to set aside at least 10% of its accumulated after-tax profits each year, if any, to fund a certain statutory reserve
fund, until the aggregate amount of such fund reaches 50% of its registered capital. Such reserve funds cannot be distributed to us as dividends. At its
discretion, a foreign-owned enterprise may allocate a portion of its after-tax profits based on PRC accounting standards to an enterprise expansion fund,
or a staff welfare and bonus fund.
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Our PRC subsidiaries generate essentially all of their revenue in Renminbi, which is not freely convertible into other currencies. As a result, any
restriction on currency exchange may limit the ability of our PRC subsidiaries to use their Renminbi revenues to pay dividends to us.
The PRC government may continue to strengthen its capital controls, and more restrictions and substantial vetting process may be put forward by
SAFE for cross-border transactions falling under both the current account and the capital account. Any limitation on the ability of our PRC subsidiaries
to pay dividends or make other kinds of payments to us could materially and adversely limit our ability to grow, make investments or acquisitions that
could be beneficial to our business, pay dividends, or otherwise fund and conduct our business.
In addition, the Enterprise Income Tax Law and its implementation rules provide that a withholding tax rate of up to 10% will be applicable to
dividends payable by Chinese companies to non-PRC-resident enterprises unless otherwise exempted or reduced according to treaties or arrangements
between the PRC central government and governments of other countries or regions where the non-PRC resident enterprises are incorporated.
PRC regulation of loans to and direct investment in PRC entities by offshore holding companies may delay us from using the proceeds of
financing activities to make loans or additional capital contributions to our PRC subsidiaries and to make loans to the VIEs, which could
materially and adversely affect our liquidity and our ability to fund and expand our business.
Any funds we transfer to our PRC subsidiaries, either as a shareholder loan or as an increase in registered capital, as well as any loans we provide
to the VIEs, are subject to approval by or registration with relevant governmental authorities in China. According to the relevant PRC regulations on
foreign invested enterprises in China, capital contributions to our PRC subsidiaries are subject to the registration with the State Administration for
Market Regulation or its local counterpart and registration with a local bank authorized by SAFE. In addition, (i) any foreign loan procured by our PRC
subsidiaries is required to be registered with the SAFE or its local branches and (ii) any of our PRC subsidiaries may not procure loans which exceed the
difference between its total investment amount and registered capital or, as an alternative, only procure loans subject to the calculation approach and
limitation as provided by the People’s Bank of China, or the PBOC. Additionally, any medium or long-term loans to be provided by us to the VIEs must
be registered with the NDRC and SAFE or its local branches. We may not be able to obtain these government approvals or complete such registrations
in a timely manner, or at all, with respect to future capital contributions or foreign loans by us to our PRC subsidiaries or loans by us to the VIEs. If we
fail to receive such approvals or complete such registration or filing, our ability to use the proceeds of financing activities to capitalize our PRC
operations may be negatively affected, which could adversely affect our liquidity and our ability to fund and expand our business.
Fluctuations in exchange rates could have a material and adverse effect on our results of operations and the value of your investment.
The conversion of Renminbi into foreign currencies, including U.S. dollars, is based on rates set by the People’s Bank of China. The Renminbi has
fluctuated against the U.S. dollar, at times significantly and unpredictably. The value of Renminbi against the U.S. dollar and other currencies is affected
by changes in China’s political and economic conditions and by China’s foreign exchange policies, among other things. We cannot assure you that
Renminbi will not appreciate or depreciate significantly in value against the U.S. dollar in the future. It is difficult to predict how market forces or PRC
or U.S. government policy may impact the exchange rate between Renminbi and the U.S. dollar in the future.
Substantially all of our income and expenses are denominated in Renminbi and our reporting currency is Renminbi. Significant revaluation of the
Renminbi may have a material and adverse effect on your investment. For example, to the extent that we need to convert U.S. dollars we receive from
our IPO into Renminbi for our operations, appreciation of the Renminbi against the U.S. dollar would reduce the Renminbi amount we would receive
from the conversion. Conversely, if we decide to convert our Renminbi into U.S. dollars for the purpose of paying dividends or for other business
purposes, appreciation of the U.S. dollar against the Renminbi would reduce the U.S. dollar amount available to us.
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Very limited hedging options are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any
material hedging transactions to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the
future, the availability and effectiveness of these hedges may be limited and we may not be able to adequately hedge our exposure or at all. In addition,
our currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert Renminbi into foreign currency.
Governmental control of currency conversion may limit our ability to utilize our revenues effectively and affect the value of your investment.
The PRC government imposes controls on the convertibility of the Renminbi into foreign currencies and, in certain cases, the remittance of
currency out of China. We receive substantially all of our revenues in Renminbi. Under our current corporate structure, our Cayman Islands holding
company may rely on dividend payments from our PRC subsidiaries to fund any cash and financing requirements we may have. Under existing PRC
foreign exchange regulations, payments of current account items, including profit distributions, interest payments and trade and service-related foreign
exchange transactions, can be made in foreign currencies without prior approval of SAFE, by complying with certain procedural requirements.
Specifically, under the existing exchange restrictions, without prior approval of SAFE, cash generated from the operations of our PRC subsidiaries in
China may be used to pay dividends to our company. However, approval from or registration with appropriate government authorities is required where
Renminbi is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in
foreign currencies. As a result, we need to obtain SAFE approval to use cash generated from the operations of our PRC subsidiaries and VIEs to pay off
their respective debt in a currency other than Renminbi owed to entities outside China, or to make other capital expenditure payments outside China in a
currency other than Renminbi.
In light of the flood of capital outflows of China in 2016 due to the weakening Renminbi, the PRC government has imposed more restrictive
foreign exchange policies and stepped-up scrutiny of major outbound capital movement including overseas direct investment. More restrictions and
substantial vetting process are put in place by SAFE to regulate cross-border transactions falling under the capital account. If any of our shareholders
regulated by such policies fails to satisfy the applicable overseas direct investment filing or approval requirement timely or at all, it may be subject to
penalties from the relevant PRC authorities. The PRC government may at its discretion further restrict access in the future to foreign currencies for
current account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currencies to satisfy our foreign
currency demands, we may not be able to pay dividends in foreign currencies to our shareholders, including holders of the ADSs.
Our failure to fully comply with PRC labor-related laws may expose us to potential penalties.
Companies operating in China are required to participate in various government sponsored employee benefit plans, including certain social
insurance, housing funds and other welfare-oriented payment obligations, and contribute to the plans in amounts equal to certain percentages of salaries,
including bonuses and allowances, of our employees up to a maximum amount specified by the local government from time to time at locations where
we operate our businesses. The requirement of employee benefit plans has not been implemented consistently by the local governments in China given
the different levels of economic development in different locations. We did not pay, or were not able to pay, certain past social security and housing fund
contributions in strict compliance with the relevant PRC regulations for and on behalf of our employees. Although we have recorded accruals for
estimated underpaid amounts and late payment in our financial statements, we may be subject to penalties for our failure to make payments in
accordance with the applicable PRC laws and regulations. We may be required to make up the contributions for these plans as well as to pay late fees
and fines. We have not made any accruals for penalties that may be imposed by the relevant PRC government authorities in the financial statements. If
we are subject to fines in relation to the underpaid employee benefits, our financial condition and results of operations may be adversely affected.
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The PCAOB is currently unable to inspect our auditor in relation to their audit work performed for our financial statements and the inability
of the PCAOB to conduct inspections over our auditor deprives our investors with the benefits of such inspections.
Our auditor, the independent registered public accounting firm that issues the audit report included elsewhere in this annual report, as an auditor of
companies that are traded publicly in the United States and a firm registered with the Public Company Accounting Oversight Board (United States), or
the PCAOB, is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess its compliance with the
applicable professional standards. Since our auditor is located in China, a jurisdiction where the PCAOB has been unable to conduct inspections without
the approval of the Chinese authorities, our auditor is not currently inspected by the PCAOB. As a result, we and investors in our ADSs are deprived of
the benefits of such PCAOB inspections. The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the
effectiveness of our independent registered public accounting firm’s audit procedures or quality control procedures as compared to auditors outside of
China that are subject to the PCAOB inspections, which could cause investors and potential investors in our ADSs to lose confidence in audit
procedures performed by our auditor and reported financial information and the quality of our financial statements.
Our ADSs will be prohibited from trading in the United States under the Holding Foreign Companies Accountable Act, or the HFCAA, in
2024 if the PCAOB is unable to inspect or fully investigate auditors located in China, or in 2023 if proposed changes to the law are enacted.
The delisting of our ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment.
The Holding Foreign Companies Accountable Act, or the HFCAA, was signed into law on December 18, 2020. The HFCAA states if the SEC
determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspection for the PCAOB for three
consecutive years beginning in 2021, the SEC shall prohibit our shares or ADSs from being traded on a national securities exchange or in the
over-the-counter trading market in the United States. On December 2, 2021, the SEC adopted final amendments implementing the disclosure and
submission requirements of the HFCAA, pursuant to which the SEC will identify an issuer as a “Commission Identified Issuer” if the issuer has filed an
annual report containing an audit report issued by a registered public accounting firm that the PCAOB has determined it is unable to inspect or
investigate completely, and will then impose a trading prohibition on an issuer after it is identified as a Commission-Identified Issuer for three
consecutive years. On December 16, 2021, the PCAOB issued a report to notify the SEC of its determination that the PCAOB is unable to inspect or
investigate completely registered public accounting firms headquartered in mainland China and Hong Kong. The PCAOB identified our auditor as one
of the registered public accounting firms that the PCAOB is unable to inspect or investigate completely. Therefore, we expect to be identified as a
“Commission Identified Issuer” shortly after the filing of this annual report on Form 20-F.
Whether the PCAOB will be able to conduct inspections of our auditor before the issuance of our financial statements on Form 20-F for the year
ending December 31, 2023 which is due by April 30, 2024, or at all, is subject to substantial uncertainty and depends on a number of factors out of our,
and our auditor’s, control. If our shares and ADSs are prohibited from trading in the United States, there is no certainty that we will be able to list on a
non-U.S. exchange or that a market for our shares will develop outside of the United States. Such a prohibition would substantially impair your ability to
sell or purchase our ADSs when you wish to do so, and the risk and uncertainty associated with delisting would have a negative impact on the price of
our ADSs. Also, such a prohibition would significantly affect our ability to raise capital on terms acceptable to us, or at all, which would have a material
adverse impact on our business, financial condition, and prospects.
On June 22, 2021, the U.S. Senate passed a bill which would reduce the number of consecutive non-inspection years required for triggering the
prohibitions under the HFCAA from three years to two. On February 4, 2022, the U.S. House of Representatives passed a bill which contained, among
other things, an identical provision. If this provision is enacted into law and the number of consecutive non-inspection years required for triggering the
prohibitions under the HFCAA is reduced from three years to two, then our shares and ADSs could be prohibited from trading in the United States in
2023.
The current tension in international trade, particularly with regard to U.S. and China trade policies, may adversely impact our business,
financial condition, and results of operations.
Although cross-border business may not be an area of our focus, if we plan to expand our business internationally in the future, any unfavorable
government policies on international trade, such as capital controls or tariffs, may affect the demand for our services, impact our competitive position, or
prevent us from being able to conduct business in certain countries. If any new tariffs, legislation, or regulations are implemented, or if existing trade
agreements are renegotiated, such changes could adversely affect our business, financial condition, and results of operations. Recently, there have been
heightened tensions in international economic relations, such as the one between the United States and China. The U.S. government has recently
imposed, and has recently proposed to impose additional, new, or higher tariffs on certain products imported from China to penalize China for what it
characterizes as unfair trade practices. China has responded by imposing, and proposing to impose additional, new, or higher tariffs on certain products
imported from the United States. Following mutual retaliatory actions for months, on January 15, 2020, the United States and China entered into the
Economic and Trade Agreement Between the United States of America and the People’s Republic of China as a phase one trade deal, effective on
February 14, 2020.
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Although the direct impact of the current international trade tension, and any escalation of such tension, on the industries in which we operate is
uncertain, the negative impact on general, economic, political and social conditions may adversely impact our business, financial condition and results
of operations.
Risks Related to Our ADSs

The trading price of the ADSs is likely to be volatile, which could result in substantial losses to investors.
Since our ADSs became listed on the New York Stock Exchange on May 7, 2021, the closing trading price of our ADSs ranged from US$1.26 to
US$9.70 per ADS in 2021. The trading price of the ADSs is likely to be volatile and could fluctuate widely due to factors beyond our control. This may
happen because of broad market and industry factors, including the performance and fluctuation of the market prices of other companies in the relevant
industries and those with business operations located mainly in China that have listed their securities in the United States. In addition to market and
industry factors, the price and trading volume for the ADSs may be highly volatile for factors specific to our own operations, including the following:
• variations in our revenues, earnings, cash flow;
• fluctuations in operating metrics;
• announcements of new investments, acquisitions, strategic partnerships or joint ventures by us or our competitors;
• announcements of new solutions and services and expansions by us or our competitors;
• termination or non-renewal of contracts or any other material adverse change in our relationship with our key customers or strategic
investors;
• changes in financial estimates by securities analysts;
• detrimental negative publicity about us, our competitors or our industry;
• additions or departures of key personnel;
• release of lockup or other transfer restrictions on our outstanding equity securities or sales of additional equity securities;
• regulatory developments affecting us or our industry; and
• potential litigation or regulatory investigations.
Any of these factors may result in large and sudden changes in the volume and price at which the ADSs will trade. Furthermore, the stock market
in general experiences price and volume fluctuations that are often unrelated or disproportionate to the operating performance of companies like us.
These broad market and industry fluctuations may adversely affect the market price of our ADSs. Volatility or a lack of positive performance in our
ADS price may also adversely affect our ability to retain key employees, most of whom have been granted share incentives.
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In the past, shareholders of public companies have often brought securities class action suits against companies following periods of instability in
the market price of their securities. Involving in a class action suit could divert a significant amount of our management’s attention and other resources
from our business and operations and require us to incur significant expenses to defend the suit, which could harm our results of operations. Any such
class action suit, whether or not successful, could harm our reputation and restrict our ability to raise capital in the future. In addition, if a claim is
successfully made against us, we may be required to pay significant damages, which could have a material adverse effect on our financial condition and
results of operations.
If securities or industry analysts cease to publish research or reports about our business, or if they adversely change their recommendations
regarding the ADSs, the market price for the ADSs and trading volume could decline.
The trading market for the ADSs will be influenced by research or reports that industry or securities analysts publish about our business. If one or
more analysts who cover us downgrade the ADSs, the market price for the ADSs would likely decline. If one or more of these analysts cease to cover us
or fail to regularly publish reports on us, we could lose visibility in the financial markets, which, in turn, could cause the market price or trading volume
for the ADSs to decline.
Our dual-class voting structure will limit your ability to influence corporate matters and could discourage others from pursuing any change of
control transactions that holders of our Class A ordinary shares and ADSs may view as beneficial.
Our authorized and issued ordinary shares are divided into Class A ordinary shares and Class B ordinary shares (with certain shares remaining
undesignated, with power for our directors to designate and issue such classes of shares as they think fit). Holders of Class A ordinary shares are entitled
to one vote per share, while holders of Class B ordinary shares are entitled to nine votes per share. Each Class B ordinary share is convertible into one
Class A ordinary share at any time by the holder thereof, while Class A ordinary shares are not convertible into Class B ordinary shares under any
circumstances. In addition, the Class B ordinary shares held by Mr. Peng Shen or his affiliated entities shall be automatically immediately converted into
the same number of Class A ordinary shares in the event that Mr. Shen ceases to be employed by and ceases to act as a director of our Company.
As of March 31, 2022, Mr. Peng Shen beneficially owns all of our issued Class B ordinary shares and held approximately 71.3% of the aggregate
voting power of our total issued and outstanding share capital due to the disparate voting powers associated with our dual-class share structure. As a
result of the dual-class share structure and the concentration of ownership, holders of Class B ordinary shares have considerable influence over matters
such as decisions regarding mergers and consolidations, election of directors, and other significant corporate actions. Such holders may take actions that
are not in the best interest of us or our other shareholders. This concentration of ownership may discourage, delay, or prevent a change in control of our
company, which could have the effect of depriving our other shareholders of the opportunity to receive a premium for their shares as part of a sale of our
company and may reduce the price of our ADSs. This concentrated control will limit your ability to influence corporate matters and could discourage
others from pursuing any potential merger, takeover, or other change of control transactions that holders of Class A ordinary shares and ADSs may view
as beneficial.
Our dual-class voting structure may render the ADSs representing our Class A ordinary shares ineligible for inclusion in certain stock market
indices, and thus adversely affect the trading price and liquidity of the ADSs.
We cannot predict whether our dual-class share structure with different voting rights will result in a lower or more volatile market price of the
ADSs, adverse publicity, or other adverse consequences. Certain index providers have announced restrictions on including companies with multi-class
share structures in certain of their indices. For example, S&P Dow Jones and FTSE Russell have changed their eligibility criteria for inclusion of shares
of public companies on certain indices, including the S&P 500, to exclude companies with multiple classes of shares and companies whose public
shareholders hold no more than 5% of total voting power from being added to such indices. As a result, our dual-class voting structure may prevent the
inclusion of the ADSs representing our Class A ordinary shares in such indices, which could adversely affect the trading price and liquidity of the ADSs
representing our Class A ordinary shares. In addition, several shareholder advisory firms have announced their opposition to the use of multiple class
structure and our dual-class structure may cause shareholder advisory firms to publish negative commentary about our corporate governance, in which
case the market price and liquidity of the ADSs could be adversely affected.
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We are a “controlled company” within the meaning of the NYSE Listed Company Manual and, as a result, may rely on exemptions from
certain corporate governance requirements that provide protection to shareholders of other companies.
We are a “controlled company” as defined under the NYSE Listed Company Manual because Mr. Peng Shen, our chairman of the board of
directors and chief executive officer, will own more than 50% of our total voting power. For so long as we remain a “controlled company” under that
definition, we are permitted to elect to rely, and may rely, on exemptions from certain corporate governance rules, including an exemption from the rule
that a majority of our board of directors must be independent directors or that we have to establish a nominating committee and a compensation
committee composed entirely of independent directors. In the event that we elect to rely on one or more of these exemptions, you will not have the same
protection afforded to shareholders of companies that are subject to these corporate governance requirements.
We currently do not expect to pay dividends in the foreseeable future and you must rely on price appreciation of our ADSs for return on your
investment.
We currently intend to retain most, if not all, of our available funds and any future earnings to fund the development and growth of our business.
As a result, we do not expect to pay any cash dividends in the foreseeable future. Therefore, you should not rely on an investment in our ADSs as a
source for any future dividend income.
Our board of directors has complete discretion as to whether to distribute dividends, subject to certain requirements of Cayman Islands law. In
addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our directors. Under
Cayman Islands law, a Cayman Islands exempted company may pay a dividend out of either profit or share premium account, provided that in no
circumstances may a dividend be paid if this would result in the company being unable to pay its debts as they fall due in the ordinary course of
business. Even if our board of directors decides to declare and pay dividends, the timing, amount and form of future dividends, if any, will depend on
our future results of operations and cash flow, our capital requirements and surplus, the amount of distributions, if any, received by us from our
subsidiaries, our financial condition, contractual restrictions and other factors deemed relevant by our board of directors. Accordingly, the return on your
investment in our ADSs will likely depend entirely upon any future price appreciation of our ADSs. There is no guarantee that our ADSs will appreciate
in value or even maintain the price at which you purchased the ADSs. You may not realize a return on your investment in our ADSs and you may even
lose your entire investment in our ADSs.
Substantial future sales or perceived potential sales of our ADSs in the public market could cause the price of our ADSs to decline.
Sales of our ADSs in the public market, or the perception that these sales could occur, could cause the market price of our ADSs to decline. The
ADSs sold in our IPO are freely tradable without restriction or further registration under the Securities Act of 1933, as amended, or the Securities Act,
and shares held by our existing shareholders may also be sold in the public market in the future subject to the restrictions in Rule 144 and Rule 701
under the Securities Act and the applicable lock-up agreements. We cannot predict what effect, if any, market sales of securities held by our significant
shareholders or any other shareholder or the availability of these securities for future sale will have on the market price of our ADSs.
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Our memorandum and articles of association contain anti-takeover provisions that could have a material adverse effect on the rights of
holders of our Class A ordinary shares and the ADSs.
Our currently effective memorandum and articles of association contain provisions to limit the ability of others to acquire control of our company
or cause us to engage in change-of-control transactions. These provisions could have the effect of depriving our shareholders of an opportunity to sell
their shares at a premium over prevailing market prices by discouraging third parties from seeking to obtain control of our company in a tender offer or
similar transaction. Our board of directors has the authority, without further action by our shareholders, to issue preferred shares in one or more series
and to fix their designations, powers, preferences, privileges and relative participating, optional or special rights and the qualifications, limitations or
restrictions, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be
greater than the rights associated with our Class A ordinary shares, including Class A ordinary shares represented by ADSs. Preferred shares could be
issued quickly with terms calculated to delay or prevent a change in control of our company or make removal of management more difficult. If our
board of directors decides to issue preferred shares, the price of the ADSs may fall and the voting and other rights of the holders of our Class A ordinary
shares and the ADSs may be materially and adversely affected.
Our memorandum and articles of association and the deposit agreement provide that the United States District Court for the Southern District
of New York (or, if the United States District Court for the Southern District of New York lacks subject matter jurisdiction over a particular
dispute, the state courts in New York County, New York) is the exclusive judicial forum within the U.S. for the resolution of any complaint
asserting a cause of action arising out of or relating in any way to the federal securities laws of the United States, and any suit, action or
proceeding arising out of or relating in any way to the ADSs or the deposit agreement, which could limit the ability of holders of our Class A
ordinary shares, the ADSs or other securities to obtain a favorable judicial forum for disputes with us, our directors and officers, the
depositary, and potentially others.
Our currently effective memorandum and articles of association provide that the United States District Court for the Southern District of New
York (or, if the United States District Court for the Southern District of New York lacks subject matter jurisdiction over a particular dispute, the state
courts in New York County, New York) is the exclusive forum within the United States for the resolution of any complaint asserting a cause of action
arising out of or relating in any way to the federal securities laws of the United States, regardless of whether such legal suit, action, or proceeding also
involves parties other than our company. The deposit agreement provides that the United States District Court for the Southern District of New York (or,
if the United States District Court for the Southern District of New York lacks subject matter jurisdiction over a particular dispute, the state courts in
New York County, New York) shall have exclusive jurisdiction over any suit, action or proceeding against or involving us or the depositary, arising out
of or relating in any way to the deposit agreement or the transactions contemplated thereby or by virtue of owning the ADSs. The enforceability of
similar federal court choice of forum provisions in other companies’ organizational documents has been challenged in legal proceedings in the United
States, and it is possible that a court could find this type of provision to be inapplicable or unenforceable. If a court were to find the federal choice of
forum provision contained in our memorandum and articles of association or the deposit agreement to be inapplicable or unenforceable in an action, we
may incur additional costs associated with resolving such action in other jurisdictions. If upheld, the forum selection clause in our memorandum and
articles of association, as well as the forum selection provision in the deposit agreement, may limit a security-holder’s ability to bring a claim against us,
our directors and officers, the depositary, and potentially others in his or her preferred judicial forum, and this limitation may discourage such lawsuits.
Holders of our shares or the ADSs will not be deemed to have waived our compliance with the federal securities laws and the regulations promulgated
thereunder pursuant to the exclusive forum provision in the memorandum and articles of association and deposit agreement. In addition, the forum
selection provision of the deposit agreement does not effect the right of an ADS holder or the depositary to require any claim against us, including a
federal securities law claim, to be submitted to arbitration or to commence an action in any court in aid of that arbitration provision or to enter judgment
upon or enforce any arbitration award.
The voting rights of holders of ADSs are limited by the terms of the deposit agreement, and you may not be able to exercise your right to direct
the voting of the underlying Class A ordinary shares represented by your ADSs.
Holders of ADSs do not have the same rights as our registered shareholders. As a holder of ADSs, you will not have any direct right to attend
general meetings of our shareholders or to cast any votes at such meetings. You will only be able to exercise the voting rights attached to the Class A
ordinary shares underlying your ADSs indirectly by giving voting instructions to the depositary in accordance with the provisions of the deposit
agreement. Where any matter is to be put to a vote at a general meeting, then upon receipt of your voting instructions, the depositary will try, as far as is
practicable, to vote the underlying Class A ordinary shares represented by your ADSs in accordance with your instructions. You will not be able to
directly exercise your right to vote with respect to the underlying Class A ordinary shares unless you cancel and withdraw the shares and become the
registered holder of such shares prior to the record date for the general meeting.
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When a general meeting is convened, you may not receive sufficient advance notice of the fleeting to withdraw the Class A ordinary shares
represented by your ADSs and become the registered holder of such shares to allow you to attend the general meeting and to vote directly with respect
to any specific matter or resolution to be considered and voted upon at the general meeting. In addition, under our currently effective memorandum and
articles of association, for the purposes of determining those shareholders who are entitled to attend and vote at any general meeting, our directors may
close our register of members and/or fix in advance a record date for such meeting, and such closure of our register of members or the setting of such a
record date may prevent you from withdrawing the underlying Class A ordinary shares represented by your ADSs and from becoming the registered
holder of such shares prior to the record date, so that you would not be able to attend the general meeting or to vote directly. Where any matter is to be
put to a vote at a general meeting, upon our instruction the depositary will notify you of the upcoming vote and will arrange to deliver our voting
materials to you. We cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote the
underlying Class A ordinary shares represented by your ADSs.
In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for their manner of carrying out your
voting instructions. This means that you may not be able to exercise your right to direct how the underlying Class A ordinary shares represented by your
ADSs are voted and you may have no legal remedy if the underlying Class A ordinary shares represented by your ADSs are not voted as you requested.
In addition, in your capacity as an ADS holder, you will not be able to call a shareholders’ meeting.
Further, under the deposit agreement for the ADSs, if you do not vote, the depositary will give us a discretionary proxy to vote the Class A
ordinary shares underlying your ADSs at shareholders’ meetings unless:
• we have instructed the depositary that we do not wish a discretionary proxy to be given;
• we have informed the depositary that there is substantial opposition as to a matter to be voted on at the meeting;
• a matter to be voted on at the meeting would have a material adverse impact on shareholders; or
• the voting at the meeting is to be made on a show of hands.
The effect of this discretionary proxy is that you cannot prevent our Class A ordinary shares underlying your ADSs from being voted, except
under the circumstances described above. This may adversely affect your interests and make it more difficult for shareholders to influence the
management of our company. Holders of our Class A ordinary shares are not subject to this discretionary proxy.
You may be subject to limitations on transfer of your ADSs.

Your ADSs are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when it
deems expedient in connection with the performance of its duties. The depositary may close its books from time to time for a number of reasons,
including in connection with corporate events such as a rights offering, during which time the depositary needs to maintain an exact number of ADS
holders on its books for a specified period. The depositary may also close its books in emergencies, and on weekends and public holidays. The
depositary may refuse to deliver, transfer or register transfers of the ADSs generally when our share register or the books of the depositary are closed, or
at any time if we or the depositary thinks it is advisable to do so because of any requirement of law or of any government or governmental body, or
under any provision of the deposit agreement, or for any other reason.
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You may experience dilution of your holdings due to inability to participate in rights offerings.
We may, from time to time, distribute rights to our shareholders, including rights to acquire securities. Under the deposit agreement, the depositary
will not distribute rights to holders of ADSs unless the distribution and sale of rights and the securities to which these rights relate are either exempt
from registration under the Securities Act with respect to all holders of ADSs, or are registered under the provisions of the Securities Act. The
depositary may, but is not required to, attempt to sell these undistributed rights to third parties, and may allow the rights to lapse. We may be unable to
establish an exemption from registration under the Securities Act, and we are under no obligation to file a registration statement with respect to these
rights or underlying securities or to endeavor to have a registration statement declared effective. Accordingly, holders of ADSs may be unable to
participate in our rights offerings and may experience dilution of their holdings as a result.
You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because we are
incorporated under Cayman Islands law.
We are an exempted company incorporated under the laws of the Cayman Islands. Our corporate affairs are governed by our memorandum and
articles of association, the Companies Act (As Revised) of the Cayman Islands and the common law of the Cayman Islands. The rights of shareholders
to take action against our directors, actions by our minority shareholders and the fiduciary duties of our directors owed to us under Cayman Islands law
are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively
limited judicial precedent in the Cayman Islands as well as from the common law of England, the decisions of whose courts are of persuasive authority,
but are not binding, on a court in the Cayman Islands. The rights of our shareholders and the fiduciary duties of our directors owed to us under Cayman
Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular,
the Cayman Islands has a less developed body of securities laws than the United States. Some U.S. states, such as Delaware, have more fully developed
and judicially interpreted bodies of corporate law than the Cayman Islands. In addition, Cayman Islands companies may not have the standing to initiate
a shareholder derivative action in a federal court of the United States.
Shareholders of Cayman Islands exempted companies like us have no general rights under Cayman Islands law to inspect corporate records (other
than the memorandum and articles of association and any special resolutions passed by such companies, and the registers of mortgages and charges of
such companies) or to obtain copies of lists of shareholders of these companies. Under Cayman Islands law, the names of our current directors can be
obtained from a search conducted at the Registrar of Companies. Our directors have discretion under our memorandum and articles of association to
determine whether or not, and under what conditions, our corporate records may be inspected by our shareholders, but are not obliged to make them
available to our shareholders. This may make it more difficult for you to obtain the information needed to establish any facts necessary for a shareholder
motion or to solicit proxies from other shareholders in connection with a proxy contest.
As a result of all of the above, our public shareholders may have more difficulty in protecting their interests in the face of actions taken by
management, members of our board of directors or controlling shareholders than they would as public shareholders of a company incorporated in the
United States. For a discussion of significant differences between the provisions of the Companies Act of the Cayman Islands and the laws applicable to
companies incorporated in the United States and their shareholders, see “Item 10. Additional Information—B. Memorandum and Articles of Association
—Differences in Corporate Law.”
Certain judgments obtained against us by our shareholders may not be enforceable.

We are a Cayman Islands exempted company and substantially all of our assets are located outside of the United States. All of our current
operations are conducted in China. In addition, substantially all of our current directors and officers are nationals and residents of countries other than
the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States in
the event that you believe that your rights have been infringed under the U.S. federal securities laws or otherwise. Even if you are successful in bringing
an action of this kind, the laws of the Cayman Islands and of China may render you unable to enforce a judgment against our assets or the assets of our
directors and officers. For more information regarding the relevant laws of the Cayman Islands and China, see “Enforceability of Civil liabilities.”
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Your rights to pursue claims against the depositary as a holder of ADSs are limited by the terms of the deposit agreement.
The deposit agreement governing the ADSs representing our Class A ordinary shares provides that, subject to the right to require a claim to be
settled by arbitration, ADS holders waive the right to a jury trial of any claim they may have against us or the depositary arising out of or relating to our
shares, the ADSs or the deposit agreement, including any claim under the U.S. federal securities laws, to the fullest extent permitted by law. However,
you will not be deemed to and you will not be able to, by agreeing to the terms of the deposit agreement, waive our or the depositary’s compliance with
U.S. federal securities laws and the rules and regulations promulgated thereunder.
If we or the depositary opposed a jury trial demand based on the waiver, the court would determine whether the waiver was enforceable based on
the facts and circumstances of that case in accordance with the applicable state and federal law. To our knowledge, the enforceability of a contractual
pre-dispute jury trial waiver in connection with claims arising under the federal securities laws has not been finally adjudicated by the United States
Supreme Court. However, we believe that a contractual pre-dispute jury trial waiver provision is generally enforceable, including under the laws of the
State of New York, which govern the deposit agreement, by a federal or state court in the City of New York, which has nonexclusive jurisdiction over
matters arising under the deposit agreement. In determining whether to enforce a contractual pre-dispute jury trial waiver provision, courts will generally
consider whether a party knowingly, intelligently and voluntarily waive the right to a jury trial. We believe that this is the case with respect to the deposit
agreement and the ADSs. It is advisable that you consult legal counsel regarding the jury waiver provision before entering into the deposit agreement.
If you or any other holders or beneficial owners of ADSs bring a claim against us or the depositary in connection with matters arising under the
deposit agreement or the ADSs, including claims under federal securities laws, you or such other holder or beneficial owner may not be entitled to a jury
trial with respect to such claims, which may have the effect of limiting and discouraging lawsuits against us or the depositary. If a lawsuit is brought
against us or the depositary under the deposit agreement, it may be heard only by a judge or justice of the applicable trial court, which would be
conducted according to different civil procedures and may result in different outcomes than a trial by jury would have had, including results that could
be less favorable to the plaintiff(s) in any such action.
Nevertheless, if this jury trial waiver provision is not permitted by applicable law, an action could proceed under the terms of the deposit
agreement with a jury trial. No condition, stipulation or provision of the deposit agreement or ADSs serves as a waiver by any holder or beneficial
owner of ADSs or by us or the depositary of compliance with any substantive provision of the U.S. federal securities laws and the rules and regulations
promulgated thereunder.
The deposit agreement also provides that ADSs holders and the depositary have the right to elect to have any claim against us arising out of or
relating to our Class A ordinary shares, ADSs, ADRs or the deposit agreement settled by arbitration in New York, New York rather than in a court of
law, and to have any judgment rendered by the arbitrators entered in any court having jurisdiction. The arbitral tribunal in any such arbitration would not
have the authority to award any consequential, special, or punitive damages or other damages not measured by the prevailing party’s actual damages and
may not make any ruling, finding or award that does not conform to the provisions of the deposit agreement. The deposit agreement does not give us the
right to require that any claim, whether brought by us or against us, be arbitrated. The optional arbitration provision does not apply to claims under
federal securities laws or claims other than in connection with our IPO.
We are an emerging growth company within the meaning of the Securities Act and may take advantage of certain reduced reporting
requirements.
As a company with less than US$1.07 billion in revenues for our last fiscal year, we qualify as an “emerging growth company” pursuant to the
JOBS Act. Therefore, we may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public
companies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002, or
Section 404, in the assessment of the emerging growth company’s internal control over financial reporting and permission to delay adopting new or
revised accounting standards until such time as those standards apply to private companies. As a result, if we elect not to comply with such reporting
and other requirements, in particular the auditor attestation requirements, our investors may not have access to certain information they may deem
important.
The JOBS Act also provides that an emerging growth company does not need to comply with any new or revised financial accounting standards
until such date that a private company is otherwise required to comply with such new or revised accounting standards. We do not plan to “opt out” of
such exemptions afforded to an emerging growth company. As a result of this election, our financial statements may not be comparable to companies
that comply with public company effective dates.
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As a company incorporated in the Cayman Islands, we are permitted to adopt certain home country practices in relation to corporate
governance matters that differ significantly from the NYSE listing standards.
As a Cayman Islands company listed on the NYSE, we are subject to the NYSE listing standards, which requires listed companies to have, among
other things, a majority of their board members to be independent and independent director oversight of executive compensation and nomination of
directors. However, NYSE rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain
corporate governance practices in the Cayman Islands, which is our home country, may differ significantly from the NYSE listing standards.
We are permitted to elect to rely on home country practice to be exempted from the corporate governance requirements. If we choose to follow
home country practice in the future, our shareholders may be afforded less protection than they would otherwise enjoy if we complied fully with the
NYSE listing standards.
We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions
applicable to U.S. domestic public companies.
Because we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the securities rules and
regulations in the United States that are applicable to U.S. domestic issuers, including:
• the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q or current reports on Form
8-K;
• the sections of the Exchange Act regulating the solicitation of proxies, consents, or authorizations in respect of a security registered
under the Exchange Act;
• the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability
for insiders who profit from trades made in a short period of time;
• the selective disclosure rules by issuers of material nonpublic information under Regulation FD; and
• certain audit committee independence requirements in Rule 10A-3 of the Exchange Act.
We are required to file an annual report on Form 20-F within four months of the end of each fiscal year. In addition, we intend to publish our
results on a quarterly basis as press releases, distributed pursuant to the rules and regulations of the NYSE. Press releases relating to financial results and
material events will also be furnished to the SEC on Form 6-K. However, the information we are required to file with or furnish to the SEC will be less
extensive and less timely compared to that required to be filed with the SEC by U.S. domestic issuers. As a result, you may not be afforded the same
protections or information that would be made available to you were you investing in a U.S. domestic issuer.
There can be no assurance that we will not be a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for any
taxable year, which could result in adverse U.S. federal income tax consequences to U.S. holders of the ADSs or our Class A ordinary shares.
A non-U.S. corporation, such as our company, will be considered a passive foreign investment company, or “PFIC,” for any taxable year if either
(i) at least 75% of its gross income is passive income or (ii) at least 50% of the value of its assets (generally determined on the basis of a quarterly
average) is attributable to assets that produce or are held for the production of passive income. Although the law in this regard is not entirely clear, we
treat our consolidated VIEs (including their subsidiaries) as being owned by us for U.S. federal income tax purposes because we control their
management decisions and are entitled to substantially all of the economic benefits associated with them. As a result, we consolidate their results of
operations in our consolidated U.S. GAAP financial statements. If it were determined, however, that we are not the owner of our consolidated VIEs for
U.S. federal income tax purposes, we would likely be treated as a PFIC for the current taxable year and any subsequent taxable year.
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Assuming that we are the owner of the consolidated VIEs for U.S. federal income tax purposes, and based upon our income and assets, we do not
believe we were a PFIC for the taxable year ended December 31, 2021, and we do not presently expect to be a PFIC for the current taxable year or the
foreseeable future. However, no assurance can be given in this regard because the determination of whether we will be or become a PFIC is a factual
determination made annually that will depend, in part, upon the composition of our income and assets. Fluctuations in the market price of the ADSs may
cause us to be a PFIC for the current or future taxable years because the value of our assets for purposes of the asset test, including the value of our
goodwill and unbooked intangibles, may be determined by reference to the market price of the ADSs from time to time (which may be volatile). In
particular, recent declines in the market price of our ADSs significantly increased our risk of becoming a PFIC for the current taxable year. The market
price of our ADSs may continue to fluctuate considerably and, consequently, we cannot assure you of our PFIC status for any taxable year. Furthermore,
the composition of our income and assets may also be affected by how, and how quickly, we use our liquid assets and the cash raised in our IPO. Under
circumstances where our revenue from activities that produce passive income significantly increases relative to our revenue from activities that produce
non-passive income, or where we determine not to deploy significant amounts of cash for active purposes, our risk of being or becoming a PFIC may
substantially increase. Because there are uncertainties in the application of the relevant rules, there can be no assurance that we will not be a PFIC for
the current taxable year or any future taxable year.
If we are treated as a PFIC for any taxable year during which a U.S. Holder holds an ADS or an ordinary share, certain adverse U.S. federal
income tax consequences could apply to such U.S. Holder. See “Item 10. Additional Information—E. Taxation—United States Federal Income Tax
Considerations—Passive Foreign Investment Company Rules.”
We incur increased costs as a result of being a public company, particularly after we cease to qualify as an “emerging growth company.”
We are now a public company and incur increased legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-
Oxley Act of 2002, as well as rules subsequently implemented by the Securities and Exchange Commission, or the SEC, and NYSE, impose various
requirements on the corporate governance practices of public companies. We expect these rules and regulations to increase our legal and financial
compliance costs and to make some corporate activities more time-consuming and costly.
Operating as a public company makes it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be
required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. In addition, we will
incur additional costs associated with our public company reporting requirements. It may also be more difficult for us to find qualified persons to serve
on our board of directors or as executive officers. We are currently evaluating and monitoring developments with respect to these rules and regulations,
and we cannot predict or estimate the number of additional costs we may incur or the timing of such costs.
In addition, as an emerging growth company, we will still incur expenses in relation to management assessment according to requirements of
Section 404(a) of the Sarbanes-Oxley Act of 2002. After we are no longer an “emerging growth company,” we expect to incur additional significant
expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404(b) of the Sarbanes-Oxley Act of
2002 and the other rules and regulations of the SEC.
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Item 4. Information on the Company

A. History and Development of the Company
We commenced our operation through Beijing Zongqing Xiangqian Technology Co., Ltd. (formerly known as Beijing Weizhong Culture
Technology Co., Ltd.), or Zongqing Xiangqian, in 2016. We launched Waterdrop Mutual Aid platform in May 2016 and then launched Waterdrop
Medical Crowdfunding platform for critical illness crowdfunding in July 2016. Beijing Shuidi Hubao Technology Co., Ltd., or Shuidi Hubao, was
established in December 2016 to operate Waterdrop Medical Crowdfunding platform. Beijing Shuidi Hulian Technology Co., Ltd., or Shuidi Hulian,
was established in December 2016 to operate Waterdrop Mutual Aid platform. We acquired Shuidi Insurance Brokerage Co., Ltd. (formerly known as
Baoduoduo Insurance Brokerage Co., Ltd.), or Shuidi Insurance Brokerage, in September 2016 to conduct insurance brokerage business and Tairui
Insurance Agency Co., Ltd. in June 2020 to conduct insurance agency business and launched our Waterdrop Insurance Marketplace in May 2017.
Beijing Zhuiqiu Jizhi Technology Co., Ltd., or Zhuiqiu Jizhi was established in February 2018, which acquired Tianjin Jingbin Internet Technology Co.,
Ltd. in October 2019 to invest in and incubate new businesses. Miaoyi Hulian (Beijing) Technology Co., Ltd. was established in July 2018 to operate
general healthcare and pharmaceutical services.
In May 2018, Waterdrop Inc. was incorporated in the Cayman Islands as an offshore holding company to facilitate our offshore financing
activities. Shortly following its incorporation, Waterdrop Inc. established a wholly-owned subsidiary in Hong Kong, Waterdrop Group HK Limited, or
Waterdrop HK. In October 2018, Waterdrop HK established its wholly-owned subsidiary in China, Beijing Absolute Health Co., Ltd., or Absolute
Health. In July 2019, Absolute Health established its wholly-owned subsidiary, Shanghai Danzheng Health Technology Co., Ltd., or Shanghai
Danzheng.
In November 2018, we gained control over Zongqing Xiangqian and Shuidi Hubao, through Absolute Health, by entering into a series of
contractual arrangements with Zongqing Xiangqian and Shuidi Hubao and their shareholders. In July 2019, we further restructured and entered into a
series of contractual arrangements with Shuidi Hulian and its shareholders and started consolidating Shuidi Hulian as a VIE. Prior to that, Shuidi Hulian
was a subsidiary of Zongqing Xiangqian. In October 2019, we gained control over Zhuiqiu Jizhi, through Absolute Health, by entering into a series of
contractual arrangements with Zhuiqiu Jizhi and its shareholders. In December 2021, we gained control over Guangmu Weichen, through Absolute
Health, by entering into a series of contractual arrangements with Guangmu Weichen.
In light of our expanded business and prospect, the increased recognition of our brand, and the latest market development, we have decided to
focus on our core businesses and offer enhanced protection to our users. Our Waterdrop Mutual Aid service historically served as a scenario for
educating and familiarizing millions of users with the importance of insurance coverage. In March 2021, we ceased the operation of the Waterdrop
Mutual Aid business, offering to migrate all mutual aid participants as insurance policyholders of our Waterdrop Insurance Marketplace service. In
connection with this change, we will voluntarily cover mutual aid participants’ medical expenses arising from medical conditions diagnosed by
March 31, 2021 that would have been covered by the ceased mutual aid plan, subject to certain procedural requirements and eligibility criteria, and in
addition offered a one-year complementary health insurance policy to each participant with a similar coverage as the participant’s original mutual aid
plan.
In May 2021, we listed our ADSs on the New York Stock Exchange under the symbol “WDH.”
Our principal executive offices are located at Block C, Wangjing Science and Technology Park, No. 2 Lize Zhonger Road, Chaoyang District,
Beijing, People’s Republic of China. Our telephone number at this address is +86 10 5339-4997. Our registered office in the Cayman Islands is located
at the Office of Maples Corporate Services Limited at PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands. Our agent for service
of process in the United States is Cogency Global Inc., located at 122 East 42nd Street, 18th Floor, New York, NY 10168.
The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file
electronically with the SEC on www.sec.gov. You can also find information on our website ir.waterdrop-inc.com. The information contained on our
website is not a part of this annual report.
B. Business Overview
We are a leading technology platform dedicated to insurance and healthcare service with a positive social impact.
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Waterdrop Insurance Marketplace

We provide various health and life insurance products to meet the growing protection demand of our consumers through our Waterdrop Insurance
Marketplace. As a portal for both insurance consumers and insurance carriers, our Waterdrop Insurance Marketplace integrates data, systems and
services, and facilitates smooth execution flow and consumer experience leveraging our strong technology capabilities.
Consumers of Waterdrop Insurance Marketplace

Waterdrop Insurance Marketplace aims to serve consumers with growing awareness in insurance protection and yet are underserved by insurance
carriers or brokers in a traditional manner. These consumers include those from lower-tier cities who are not fully covered by insurance carriers or
agents, the younger generation of internet users who are new to insurance, and consumers who otherwise cannot afford or are not aware of insurance
products without affordable insurance products and consumer education that we offer.
We have a huge and growing consumer base on our Waterdrop Insurance Marketplace. As of December 31, 2021, the cumulative number of
insurance consumers we served was approximately 110.4 million, including 28.2 million paying insurance consumers. We see two groups of people as
our typical insurance consumers. One is those who are new to insurance and are used to purchasing everything online, and the other group is those bread
winners from lower-tier cities who support living and healthcare expenses of their whole families including parents and children. Meanwhile, we
gradually expand our coverage to emerging middle class and affluent consumer groups. Waterdrop Insurance Marketplace, as an online insurance
platform, is well positioned to serve those consumers.
Consumers come to Waterdrop Insurance Marketplace through a variety of channels. Leveraging our precise consumer profiling and product
matching capabilities, we are able to generate personalized recommendations on insurance products to consumers and achieve efficient consumer
conversion.
We believe our consumers, with heightened awareness through education, are open to long-term protection insurance products and more health
services. The huge consumer base forms the foundation of our business model, and we aim to capture the lifetime value of our users by covering their
holistic healthcare needs and building a healthcare ecosystem.
Products Tailored for Consumers of Waterdrop Insurance Marketplace

We offer a wide array of health and life insurance products on our Waterdrop Insurance Marketplace. As of December 31, 2021, we collaborated
with 80 insurance carriers to offer 364 types of health and life insurance products online. Out of the 364 types of products: 216 were short-term health
insurance, while 148 were long-term health and life insurance; 308 were health insurance, while 56 were life insurance. We generally select and offer on
Waterdrop Insurance Marketplace products that represent great value, address demands of our consumers, or already gain popularity on the market.
Our products offering covers both short-term health and long-term health and life insurance. For certain insurance products, we provide consumers
the option of monthly payments while such products are normally paid annually. We believe that this innovation gives more payment flexibility to
consumers.
The tables below set forth the summary of insurance products we offered.
For the Years Ended December 31,

2019 2020 2021
FYP (RMB million) (%) (RMB million) (%) (RMB million) (%)
Short-term insurance 6,118 91.7 11,916 82.6 13,717 83.8
Long-term insurance 550 8.3 2,510 17.4 2,646 16.2
Total 6,668 100.0 14,426 100.0 16,363 100.0

Number of Policies (thousand) (%) (thousand) (%) (thousand) (%)
Short-term insurance 10,638 98.9 17,007 96.6 18,254 96.6
Long-term insurance 118 1.1 605 3.4 633 3.4
Total 10,756 100.0 17,612 100.0 18,887 100.0
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2019 2020 2021
FYP (RMB million) (%) (RMB million) (%) (RMB million) (%)
Health insurance
Medical insurance 5,339 80.1 10,426 72.3 11,003 67.3
Casualty insurance 527 7.9 1,280 8.9 1,194 7.3
Critical illness insurance 699 10.5 1,907 13.2 2,833 17.3
Life insurance 103 1.5 813 5.6 1,333 8.1
Total 6,668 100.0 14,426 100.0 16,363 100.0

2019 2020 2021
Number of Polices (thousand) (%) (thousand) (%) (thousand) (%)
Health insurance
Medical insurance 8,406 78.2 13,571 77.0 14,577 77.2
Casualty insurance 1,743 16.2 3,162 18.0 2,386 12.6
Critical illness insurance 584 5.4 681 3.9 1,609 8.5
Life insurance 23 0.2 198 1.1 315 1.7
Total 10,756 100.0 17,612 100.0 18,887 100.0
Leveraging our deep understanding of consumer needs and our data analysis and actuarial capabilities, we collaborate with some insurance
carriers to co-design new insurance products. Currently, co-designed products constitute a majority of insurance products offered on Waterdrop
Insurance Marketplace. After the design phase is completed, it takes us as short as one week to establish connection with the system of the insurance
carrier and launch the co-designed product. Such co-designed products are underwritten by insurance carriers and generally offered on Waterdrop
Insurance Marketplace exclusively, which further deepens our collaboration with these insurance carriers and enhances our platform’s attractiveness to
consumers.
Hui Min Insurance (“惠民保”) is endorsed by the local governmental authorities in China and underwritten by leading insurance carriers, which
provides insurance coverage supplementary to the national basic medical insurance. As of the end of 2021, we have been involved in Hui Min Insurance
projects in ten cities, as leading operating agency or distributor, including Beijing, Nanchang, Zibo and Dezhou. Our Hui Min Insurance operation
covers mega-cities as well as small to medium-sized cities. As of December 31, 2021, the cumulative number of insured users covered by Hui Min
Insurance distributed by us exceeded 12 million.
We have further served the market beyond commercial insurance, providing more options to users regardless of their physical conditions or past
medical history. Our Hui Min Insurance operation helps expand our service scope and increased the user stickiness on our platform. In addition, the one-
stop medical payment solution we have implemented in our Hui Min Insurance operation in some cities has integrated different medical payment
channels through technology, enabling our users to enjoy more convenient medical services, and empowering our insurance partners and local
governmental authorities by providing technological support.
Experience on Waterdrop Insurance Marketplace

Streamlined and mobile-based transaction process
Our platform is designed to be mobile-first and digital-native. It streamlines various transaction processes, ensures smooth user experience, and
reduces the time between first query and the completion of a transaction. We believe that we are well-positioned to capitalize on the accelerating trend of
digitalization across the insurance landscape. Insurance consumers are increasingly conducting research online and ultimately, purchasing online. We
evaluate the massive products offerings on our platform and recommend the most suitable insurance products that represent great value for our
consumers.
Our platform enables smooth online transaction process of the selected health and life insurance products with direct connection with carriers. We
believe that the streamlined experience of our platform forms part of our unique appeal to consumers.
Our platform fully supports mobile-based transactions. Through our mobile apps or Weixin Official Account, consumers can complete insurance
products purchase or renewal within minutes.
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Al-driven intelligent claim review system

Empowered by our Al-driven intelligent claim review system, we are able to provide smooth consumer experience that reduces frictions, and
unnecessary delays, and aligns interests and incentives. Our system supports claim information compilation and preliminary claim review for selected
insurance carriers. Relevant documents can be submitted digitally for our initial review. We then pass our initial review results to relevant insurance
carriers for their final review and settlement approval, improving claim efficiency and consumer satisfaction.
Our intelligent system is complemented by our customer service team dedicated to resolving consumer enquiries in a timely manner. Empowered
by our confluence medical knowledge graph built upon real-life cases and data analytic capabilities, our online customer service representatives
efficiently answer various consumer enquires where medical knowledge and expertise are required.
Data Origination and Analysis

Leveraging our data analytic capabilities, we are able to explore potential consumer needs, develop new business initiatives and provide
technology solutions. With the increasing volume of transactions through our platform, our data becomes richer, feeding into our machine learning and
data science-enabled feedback loops. As a result, our models and algorithms become more precise.
Partnership with Insurance Carriers

As of December 31, 2021, we collaborated with 80 insurance carriers to offer 364 types of health and life insurance products online. Out of the 80
insurance carriers: 54 were life and health insurance carriers, while 26 were P&C insurance carriers; 62 were Chinese insurance carriers, while 18 were
foreign-invested. The depth and breadth of our insurance carrier network allows us to present a comprehensive suite of product options to consumers.
Selection of Insurance Carriers

When selecting insurance carriers to cooperate with, we consider a comprehensive set of factors including insurance products offered, system
stability and data security, brand, scale, and financial position of the carrier, as well as customer service capabilities.
To maintain flexibility and our bargaining position, for each particular product or category, we generally work with a focused group of insurance
carriers. With the large sales volume, we are also able to develop a deeper understanding of insurance carriers’ objectives, and to further optimize
product matching, enhance product sales on our insurance marketplace, and strengthen our bargaining power.
At the same time, we also maintain a big enough insurance carrier base to keep sufficient redundancy and reduce concentration risk. To broaden
insurance product selection and ensure adequate product back-up, we typically work with at least two carriers for each product, and over five for popular
products.
Connected systems with insurance carriers

Our insurance platform is built on a secure and scalable infrastructure that is connected to the systems of insurance carriers. The connected
systems enable us to provide streamlined consumer experience and allow us to continuously improve operating efficiency.
The connected systems mainly include core business system and account reconciliation system, which processes product, policy and consumer
information, and integrates functions such as new insurance policy entry, underwriting verification, premium collection (initial or renewal), insurance
policy renewal (automatic or manual), after-sales administrative services (cancellation and refund), and other insurance policy related administrative
services.
Our insurance platform is able to perform a series of functions to ensure efficient and speedy connection and new product launch. The lead time
for each subsequent product integration to our insurance marketplace is approximately two days for standard products and five to seven days for
non-standard products.
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Commission Structure
We generate commission revenue from selling insurance policies that are underwritten by insurance carriers through our platform. We are
generally paid a commission as a percentage of premiums paid. The payment mode of premiums depends on the products, premiums for short-term
insurance products are usually paid annually or monthly, while premiums for long-term insurance products are paid lump-sum, annually, or monthly.
The commission structure encourages collaboration between us and insurance carriers to increase consumer satisfaction and retention by choosing health
and life insurance products that best fit consumers’ needs, which drives better outcomes for both carriers and consumers.
Waterdrop Medical Crowdfunding

We launched our medical crowdfunding platform, Waterdrop Medical Crowdfunding, in July 2016 to provide medical costs support by bringing
together those who are seeking help and who are willing to help through social network. As of December 31, 2021, approximately 394 million people
donated over RMB48.4 billion in aggregate to over 2.36 million patients through Waterdrop Medical Crowdfunding.
Crowdfunding Process
The full cycle of a crowdfunding campaign includes campaign initiation, online dissemination and crowdfunding, and fund withdrawal.
Campaign initiation
Patients (or their relatives or friends on their behalf) are able to start a campaign via the patient portal on our platform by creating personalized
campaign pages describing their story and situation in details supported by pictures. Patients are generally required to describe their personal
background such as name, age, gender, occupation and geographic locations, their medical condition such as type of disease, treatment received,
treatment plan and estimated medical costs, their family financial conditions such as annual household income and family assets, as well as their
crowdfunding goals. Once reviewed and approved by us, campaign pages will be created and ready for online sharing.
Online dissemination end fundraising

Patients are then able to share their campaigns online, starting from our application, Weixin Official Account and Mini Program embedded in
Weixin among their relatives, friends and acquaintances, who can view the patient’s story and donate directly through crowdfunding links. Viewers are
able to see their social network friends who have donated to certain crowdfunding campaigns, which may encourage them to forward, share and donate.
We may also boost the online dissemination for certain campaigns by providing technology support to increase online presence and large traffic. The
campaign page also contains promotion of our online insurance marketplace.
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Fund withdrawal
Patients can initiate a withdrawal application by completing an application online, substantiated with a complete set of medical records and
medical bills. We will review, and approve or reject the fund withdrawal application. Once fund raised have been withdrawn and used for subsequent
medical treatment, donors may receive positive feedback showing gratitude and how the fund helps the patient.
Risk Management for Waterdrop Medical Crowdfunding

Rigorous vetting throughout the campaign process
We adopt a preliminary information verification and approval procedure at the campaign initiation stage. Our blacklist databases will first screen
out ineligible patients. We then review the campaign pages and verify the truthfulness and completeness of information provided by patients on a
preliminary basis by checking their medical records and medical bills. We also conduct real name verification of patients at this stage.
Throughout the campaign process, we employ a suite of methods to detect in real time any potential frauds, including social network acquaintance
validation and report, big data analysis and strategy engine monitoring anomalies, social supervision, and news collection and study. We established a
big data intelligent verification system based on massive data from medical crowdfunding campaigns and use the verification system to cross check the
validity of the patient’s information and conduct risk assessments. We will suspend any crowdfunding activities immediately if any fraud is detected.
We also monitor the use of fund raised and the following medical treatment and condition of the patients after fund withdrawal. We may
implement fund remittance in installments and require patients to provide medical payment receipts in order to receive the next installment. If the fund is
used for other purposes or any fraud is detected afterwards, we initiate investigations immediately. Successfully retrieved fund will be refunded to each
respective donor. Where necessary, we may also report to law enforcement authorities or bring litigation against fraud to protect donors on our platform.
The multi-dimension vetting process ensures that we can take appropriate and timely steps when fraud and risks arise.
Public disclosure before fund withdrawal

We set an additional 24-hour contestability period before issuing funds from a specific donor to relevant patients for inspection and supervision. If
any complaints or rejections are received, we will suspend fund remittance and initiate investigation process. Fund raised for successfully challenged
campaigns will be refunded to each respective donor through the same route.
Direct fund remittance to hospitals

We also collaborate with hospitals to prevent fraud. In certain situations, we may arrange fund remittance into the hospital’s account directly rather
than into the patient’s personal account.
Independent account at trusted third-party bank

We cooperate with a third-party commercial bank and set up a custodian bank account for medical crowdfunding campaigns, within which
respective account could be created by each patient on our medical crowdfunding platform. The bank will execute transactions for fund withdrawal only
after receiving both withdrawal applications from patients and approval from us. If any fraud is detected and the campaign is terminated, fund raised
will be refunded to each donor through the same route.
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Internet Medical Crowdfunding Platform Self-Discipline Convention

Under instructions of the Ministry of Civil Affairs of China, we led the drafting and implementation of the Internet Medical Crowdfunding
Platform Self-Discipline Convention, or the Self-Discipline Convention, together with other industry participants. According to the Self-Discipline
Convention, we have established a blacklist of dishonest patients who committed fabricating medical records, exaggerating medical conditions, or
embezzling medical funds for other use. We publish the blacklist on our platforms and update it on a continuous basis. Internet platforms subject to the
Self-Discipline Convention will not provide services to patients on such blacklist.
Dedicated Crowdfunding Consultants Team

We contracted a crowdfunding consultant team dedicated to serve patients offline. As of December 31, 2021, our contracted offline crowdfunding
consultants cover hospitals and medical service personnel across 31 provinces and 313 cities nationwide. We also maintain an online crowdfunding
consultant team standing by for direct online users or patients not covered by our offline personnel. Our crowdfunding consultants answer general
enquires, conduct initial patient identify verification and campaign review. Our crowdfunding consultants receive specialized training on standard
service process and common medical knowledge, and are evaluated and incentivized not based on sheer quantity but on successful crowdfunding
campaigns they have served, their service quality, and compliance with regulations and our internal policies.
Recent Development
From the inception in July 2016 till December 2021, Waterdrop Medical Crowdfunding has cumulatively served an aggregate of 2.36 million
patients who launched crowdfunding campaigns on our platform. However, we have not charged any service fees or generated any revenue from the
crowdfunding business, and covered all the relevant operating costs and expenses by our own funds for more than five years. In order to better maintain
the stable operation of the platform, we have started to charge platform service fees for crowdfunding campaigns on Waterdrop Medical Crowdfunding
as trial operation since early 2022.
The platform service fee is charged at 3% of the withdrawal amount for a single crowdfunding campaign and the maximum amount for a single
crowdfunding campaign is capped at RMB5,000 (in addition to the platform service fee, the payment channel fee which is charged at 0.6% of the
withdrawal amount by the third-party payment platform, e.g., Weixin Pay, instead of us, remained unchanged). The collected platform service fees will
be used to cover the operational cost of Waterdrop Medical Crowdfunding and for future development of Waterdrop Medical Crowdfunding.
Waterdrop Mutual Aid

A Mutual Aid Collective to Ease Medical Cost Burden
We operated Waterdrop Mutual Aid between May 2016 and March 2021, a mutual aid collective where participants help each other to ease the
medical cost burden of over 100 types of critical illness. It served not only as an alternative medical cost coverage for participants, but also as a scenario
for educating and familiarizing them the importance of insurance coverage.
Shared cost, calculated by dividing the payout amount and management fee by the number of active plan participants, would be borne by a
participant only when another participant within the same plan received a payout. Our mutual aid plans provided affordable health protection, with a
participant’s average annual shared cost for a mutual aid plan generally ranging from RMB20 to RMB100 depending on the specific plan.
After joining a mutual aid plan, the participant was required to make payment into his or her plan account for future shared costs deduction, either
by setting up automatic payment or manually paying into the account. If the participant chose the former, an automatic payment would be made the day
following the activation, and automatic payments to the account would be made each month to maintain a certain level of balance. If the participant
chose the latter, he or she will have discretion over the amount and timing of prepayment into the account. If the participant’s account balance fell below
a certain level, he or she would become ineligible for the mutual aid plan benefits.
Role of Waterdrop Mutual Aid

We designed and managed mutual aid plans. All payments were equally borne by every participant. We did not have obligations of paying or
compensating under our mutual aid plans. For each payout, we charged an additional plan management fee at a fixed rate of the respective amount. We
started to charge the fee in 2019, and recognized management fee income of RMB56.5 million in 2019, RMB40.2 million in 2020 and RMB2.7 million
(US$0.4 million) in 2021.
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The process of designing a mutual aid plan included establishing targeted participants, setting scope and extent of protection, and predicting the
shared cost. Catering for different participant needs and acceptable shared cost, we had developed and offered layered mutual aid plans, primarily
including Children’s Health Mutual, Youth Critical Disease Mutual, Elderly Cancer Mutual, and Comprehensive Accident Mutual.
On March 26, 2021, we announced the termination of the Waterdrop Mutual Aid business by the end of March 2021. In connection with this
business adjustment, we voluntarily undertook to cover mutual aid participants’ medical expenses arising from medical conditions diagnosed by
March 31, 2021 that would have been covered by the ceased mutual aid plan, subject to certain procedural requirements and eligibility criteria. In
addition, we also offered a one-year complementary health insurance policy to each participant with a similar coverage as the participant’s original
mutual aid plan.
Healthcare and Pharmaceutical Services

We proactively seek innovative opportunities in broader healthcare industry to achieve a full user life-cycle coverage and enrich our ecosystem.
We believe our healthcare and pharmaceutical services extend our service coverage to capture patients’ healthcare spending after getting crowdfunding
fund raised or insurance claim payment. We leverage core competencies in data analysis, advanced technology, and healthcare expertise, focused on
improving health outcomes, lowering healthcare costs and creating value for patients, medical service providers and pharmaceutical companies.
For example, we launched Waterdrop Medicine, our pharmacy benefit management service, in June 2020, where we cooperate with insurance
carriers and retail pharmacies in bringing affordable medicines to consumers. Under such program, a patient authorizes Waterdrop Medicine to purchase
an insurance policy on the patient’s behalf, and the patient’s subsequent claims for prescribed medicine made at partner retail pharmacies will be paid by
relevant insurance carriers. We also offer other insurance products in addition to the medicine coverage to patients. We believe this program improves
patients’ medicine payment ability and boosts consumers’ confidence in use of medicines.
We have developed the digital platform for patients recruitment. The platform helps patients find the best matches for clinical trials, and access
new drugs and frontier innovative therapies, while reducing their financial burden from treatment costs. And a faster patient enrollment could drive an
efficient completion of clinical trials for the pharmaceutical companies in the medical industry chain. This would help save the cost, and speed up the
process of new drug development and product launch. Our projects cover clinical trials of new drugs for lung cancer, liver cancer, gynecological tumors
and gastrointestinal tumors.
Brand Image and Omni-Channel Marketing Strategies

Branding
We have focused on offering affordable and innovative health and life insurance products since our inception and are committed to building a
trusted brand. While serving the diversified healthcare needs of various demographic groups across Waterdrop Medical Crowdfunding and Waterdrop
Insurance Marketplace, we attract users, discover demands, raise awareness of insurance protection and Waterdrop brand, create strong network effects,
and strengthen our consumer acquisition capabilities. We have built brand recognition among families and insurance carriers throughout China, which
has significantly driven our growth through word-of-mouth referrals.
Campaign pages created and shared on our platforms and other social networks also contribute to our brand recognition and enhance user
confidence and trust in us. We believe our focus on providing affordable and innovative health and life insurance products will continue to strengthen
our brand awareness, which is our best and most cost-efficient marketing measure.
Marketing activities powered by precise user profiling

We leverage data analysis, artificial intelligence, and a variety of marketing activities to promote our products and services, grow the market, and
gain share. We rapidly and cost-efficiently adjust and scale our marketing sources to maximize user acquisition efficiency. We combine user group
profiling and modeling by marketing channels to maximize our return on investment (ROI). Within our platforms, data analysis is used to push tailored
marketing messages and campaigns in real time to achieve higher conversion.
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Our primary channel of marketing includes various social networks, news media, short-video platforms and searches. We also post articles on our
platforms regularly, which form part of our content marketing efforts. We conduct offline marketing activities mainly through billboard display. To
extend our geographic reach, we are also exploring various new sales channels to expand our footprint into the markets in smaller cities across China.
We believe continuous user engagement and mindshare improvement contribute to increase in user acquisition, conversion and retention. Our regularly
posted articles further educate and motivate users’ potential needs and keep users updated of our insurance products. Leveraging strong network effects,
articles posted on our Weixin Official Account further promote our brand and products when shared online.
Data Insights
We gain multi-dimensional data insights from millions of users across our platforms. We store and process five key categories of data including
demographic property (identity, social status, health condition), credit characteristics (financial condition, occupations, personal credit score), user
demands (insurance awareness, life stages, preferences), device (first activation, operating system, APP) and behavioral data (purchase preferences,
sharing frequency, platform utilization / page view).
We have established a confluence medical knowledge graph covering a wide range of diseases, supported by data accumulated from real-life
cases. We uses technologies such as Natural Language Processing, or NLP and optical character recognition, or OCR technology to extract from a large
volume of unstructured medical data key elements of the knowledge graph, such as extract entities, relationships, attributes, and combine those elements
with expert medical information to construct the confluence medical knowledge graph, achieving semi-automated processing of medical data streams
and life cycle management of the knowledge graph to improve service quality. Such confluence medical knowledge graph includes brief disease
introduction, hospitals specializing in certain diseases, medical treatment and medical costs for a specific type of disease. As we further build up our
insurance base and knowledge graphs, we are able to match insurance recommendations more effectively through our knowledge on both the demand
and supply side, improving consumer experience.
Data-driven Solutions
We have built strong data analysis capabilities using algorithms, models and data analysis tools to analyze user data. Our ability to capture data
points electronically through responses during onboarding, claim behavior, product migration behavior, and other touch-points in the insurance process,
in conjunction with our machine learning capabilities, allows us to provide better services to our consumers and more easily detect fraudulent claims
over time.
We build user profiling with 2,747 labels used in the creation process, which enables us to have a deep dive into users’ needs and risk profile. Our
data capability is difficult to replicate because acquiring the data underlying our models at our scale and scope, as well as refining those models to the
performance we have obtained would be time-consuming, expensive and complicated for newer entrants or smaller companies in this market.
We operate dozens of proprietary technology systems, which support a data-driven user acquisition, service, and retention lifecycle within the life
and health insurance market. Our systems are entirely integrated, so data generated in a customer service interaction can inform the claims process,
while claims data routinely impacts marketing campaigns, and so forth. Our systems do not merely collect data, but also adapt in real time in response to
the data collected.
Data privacy and security

We are committed to protecting user data. We collect data with users’ prior consent and in accordance with applicable laws. We have established
and implemented privacy policy on data collection, processing and usage.
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To ensure the confidentiality and integrity of our data, we maintain comprehensive and rigorous data security measures. We anonymize and
encrypt confidential personal information and take other technological measures to ensure the secure processing, transmission and usage of data. All
user information we provide to insurance carriers are on a need-to-know basis, and are strictly redacted and encrypted. We have also established
stringent internal protocols under which we grant classified access to confidential personal data only to limited employees with strictly defined and
layered access authorization. We employ a variety of technical solutions to prevent and detect risks and vulnerabilities in user privacy and data security,
such as encryption, firewall, data backup system, vulnerability scanning and database audit. For instance, we store and transmit users’ certain sensitive
data in encrypted formats and obtained the Safety Level III Computer Information Systems Certificate. We maintain data logs that record all attempted
and successful processing of personal data. We also have clear and strict data authorization and authentication procedures in place. Our employees only
have access to data that are directly relevant and necessary to their job responsibilities and for limited purposes and are required to get approval upon
every hyper-privileged access attempt. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—Our business is
subject to complex and evolving laws and regulations regarding data privacy and cybersecurity. Failure to protect confidential information of our users
and network against security breaches could damage our reputation and brand and substantially harm our business and results of operations.” To
vigorously comply PRC laws regulating data securities, we have established Data Security Committee to supervise our overall business operations and
cybersecurity compliance. We also engage external information security experts to test and improve the robustness of our security system.
Technology and Infrastructure

Technology infrastructure
We engineered our systems for rapid scalability, with modern cloud infrastructure, proper information security controls, and third-party expert
support. We primarily host our services on servers and network infrastructure of top cloud computing vendors. Our network infrastructure delivers the
stability to meet demands for high volume transactions processed on our platforms and data volume, the scalability to support increased traffic over
time, and the flexibility to quickly launch new products or services. We regularly monitor the performance of our infrastructure and platforms and keep
upgrading our technology infrastructure to achieve higher stability as well as flexibility.
Technology team
Our technology team has extensive experience with leading internet technology and healthcare companies, and support our long-term business
growth by (i) maintaining and strengthening all our platforms and application systems, (ii) actively participating in our business development and new
business initiatives, exploring user needs and technology solutions, (iii) collaborating with and empowering external parties including insurance carriers
to facilitate smooth execution and data flow, and (iv) actively tracking cutting-edge technologies applied in medical and life and health insurance
industries.
Technology applications
We believe our proprietary technologies and infrastructure are critical to our success. Our technology capabilities both propels the rapid growth of
our business and safeguard against risks.
Intelligent lead generation

We utilize a broad user acquisition funnel strategy, generating unique new business leads across crowdfunding, mutual aid and third-party
channels, which include social network platform, short-video platforms, search engine, and other third-party marketing partners. We built a database
based on consumer lead records that enable us to efficiently target consumer leads that are more likely to convert to policyholders.
For marketing campaigns, our intelligent marketing system allocate marketing investments across different channels based on historical placement
data and analysis. The system then connects the marketing channel and conduct the marketing activities. The channel then combines our group user
profiles with user data on that channel to make precise placements. We are able to obtain instant feedback for channels and marketing materials with
higher views and clicks, and adjust marketing strategies on a real-time basis. The marketing within our own platforms has a similar process and focus on
instant marketing data feedback and dynamic strategy adjustments.
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Our data system actively monitors the cost of acquiring consumers and uses our algorithm to dynamically captures the attributes of user, including
the specific marketing activity and channel that precipitated the consumer’s engagement. We use our proprietary machine learning technologies to
evaluate consumer leads in real-time by applying a machine learning model to large amount of historical consumer lead data we have gathered and their
measured long-term outcomes. This score informs us of the potential profitability and conversion probability of the consumer lead and enhances our
ability to more accurately estimate a new lead’s lifetime value and enables us to make more informed decisions when generating leads.
Intelligent lead management

Our proprietary software will score the lead in real-time based on multiple factors, then route the lead to the most appropriate level of agent to
maximize expected lifetime policyholder value. We use the lead score to optimize the routing of the consumer lead and the online sales representatives
who are best suited to serve each consumer. Our use of proprietary technology to monitor, segment and enhance agent performance, such as through
real-time lead routing to the most effective agents, is a key competitive advantage and driver of our business performance.
We use natural language processing, or NLP, technology to convert voice file data into text in real time. Through automatic analysis of
conversation content and keyword extraction, we can quickly locate user intent and recognize user emotions, thereby accurately marking user profiles
while at the same performing service quality monitoring. Each consumer is serviced by a representative with specialized training, experience, and
performance characteristics suitable for that consumer. Representative performance data are continuously gathered and regularly analyzed to further
optimize allocation algorithms and strategies.
Intelligent sales
When a user visits our platforms, sales or marketing actions are automatically triggered. When user conversion happens, such data will be
uploaded to and analyzed by our system to further optimize future engagement strategies. The intelligent lead management system allows us to
maximize sales, enhance user retention and ultimately maximizes user lifetime revenues.
Intelligent user engagement and lifecycle management

Our artificial intelligence capabilities enable us to provide efficient and high-quality customer services Empowered by NLP algorithms such as
real-time voice transcription, voice evaluation, sentiment analysis, and keyword extraction, we deploy intelligent customer service robots in answering
users’ enquiries on a real time basis. We build knowledge base and form learning corpus, and our intelligent customer service robots could recognize
key words and question patterns extracted from user enquires and revert with matching answers automatically. For more complex enquires, users could
access our online customer service personnel. During our online staffs services, the intelligent system automatically identifies users’ question patterns
and prompt matching answers. Our online customer service personnel can edit and send the answers at one click, achieving prompt and accurate replies.
Intelligent verification
Our proprietary Al-driven intelligent verification system is designed to optimize users’ transaction experience, improve the efficiency of our
verification process, and effectively detect fraud.
Our intelligent verification system conducts initial verification on eligibility based on information provided by users. User identification are aided
with facial recognition technologies such as living organisms detection, face comparison, and 5G remote facial verification. For eligible users, we
further conduct secondary verification focusing on risk management. By analyzing a user’s profile, risk data, and disease data based on past medical
conditions with data accumulated on our platforms, our intelligent verification system analyzes and tags the risk level of such user. We then implement
hierarchical user management according to different levels of risks.
From our users’ side, the intelligent verification system can identify users’ pre-existing health conditions leveraging data analysis. In addition, our
AI-driven intelligent system enables us to ask fewer questions of users but derive more data points from each user interaction. For some insurance
carriers, the system is integrated with those of insurance carriers, and effectively screen eligibility of insurance consumers for each insurance product.
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Our intelligent verification system is reinforced by cumulative claim data and can also be customized for newly designed insurance products. We
believe that our intelligent verification system drastically reduces human resource requirements and verification expense.
Intelligent claim review

We have also applied Al and machine learning technologies in our intelligent claim review system. Once insurance claims are substantiated with
documentation and reports are completed via our platforms, relevant data could be fetched through our proprietary core system and adjustment system.
The intelligent system then analyzes claim information, user behavior information, medical record, and treatment data to model and grade the claim,
generating a health score and complete automatic review.
We apply Light GBM (gradient boosted machine)-based machine learning to predict settlement outcome, and use access rules to screen out users
not meeting application conditions first. The remaining users are then rated for settlement projections according to user profiling based on our machine
learning model. Results for users with scores higher than the pre-setting compensation threshold will be marked as positive without human intervention.
We train our rating and projection models with the vast amount of claim data accumulated on our platforms, conduct single or multiple variable
analysis and discovery of variables, and identify highly relevant characteristics for the purpose of claim review and settlement projection, and ultimately
improve precision and recall of our model.
Intelligent risk management

Our technology infrastructure enables us to reference the social network analysis of our users to protect them from potential fraud of improper
crowdfunding activities and claims. We accumulate experiences in medical crowdfunding cases and mutual aid performance to establish a
comprehensive risk management center and have intercepted over 75,000 suspected cases as of December 31, 2021. These are enabled through our
black/grey list databases, OCR system, third-party data management, etc. Our intelligent risk management mechanism can further reduce the claims
ratio of insurance carriers.
ESG and CSR

Since our inception, we have attached great importance to social value, corporate governance and environmental protection, and has been
committed to creating a sustainable business model. We aim to make unremitting efforts to build a brighter future for all employees and business
partners through in-depth analysis of social issues and with the power of technology and digitalization. In 2021, in order to improve the ESG
management capabilities and information disclosure systems, we established an ESG indicator system through identifying stakeholders and analyzing
substantive issues, integrating sustainable development goals and corporate development strategies.
As of December 31, 2021, our Waterdrop Medical Crowdfunding cumulatively enabled over 2.36 million patients with critical illness campaigns
and helped raise over RMB48.4 billion cumulatively without charging fundraisers. We have used all the interest income generated from the custodian
bank account for medical crowdfunding campaigns for public welfare donations and patient assistance.
We highly value employee equality and their diversified development. As of December 31, 2021, our employees comprised of more than 20
different ethnic minority groups, with ethnic minority groups accounting for over 5% of our employees and consultants. We also value gender equality
with female employees accounting for close to 50% of our employees and consultants as of December 31, 2021. In addition, we place great emphasis on
the protection of employees’ rights and interests. We care about the demands of employees. We regularly hold face-to-face meetings for our employees
to meet with our senior management, such as CEO. We have also developed a comprehensive training system for our employees and consultants. In
2021, we invested over RMB3.5 million in staff training, and provided over 20,000 training sessions.
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Furthermore, we attach great importance to the environmental impact of our operation and actively engage in energy conservation and emission
reduction measures. In 2021, we consumed a total of approximately 625,000 kWh of electricity, representing a year-on-year decrease of approximately
80,000 kWh. We also actively promote paperless office administration process. We are committed to cultivating the awareness of energy conservation
and environmental protection among our employees. In 2021, we held over 20 training sessions on water conservation and electricity conservation for
office administrative staff.
We have been honored to have our corporate social responsibility efforts acknowledged throughout 2021. Some of these acknowledgments are
highlighted below.
2021 ESG Best Social Case Award: we are the finalist for 2021 China Corporate ESG Best Social Case Award organized by leading media
organization Cailian;
2021 Asia Corporate Excellence & Sustainability Awards -Young Entrepreneur of the Year: Mr. Peng Shen, our founder and chief executive officer
has been awarded with the Young Entrepreneur of the Year award at the ACES Awards, for bringing affordable healthcare available to all through
Waterdrop’s businesses; and
2021 CSR Summit Public Welfare Role Model Award: we are awarded the 2021 CSR Public Welfare Role Model Award by The 2021 Corporate
Social Responsibility Summit with the theme of “Shared Responsibility, Shared Prosperity.”
Competition
The life and health commercial insurance market in China is intensely competitive. Waterdrop Insurance Marketplace’s current or potential
competitors include affiliated agents, bancassurance, direct sales, and third-party insurance brokers and agents. We compete primarily on the basis of
consumers acquisition, wide selection of products tailored to consumers’ needs, innovation in technology and business model, proximity to consumers
and data insights, risk management, and operational efficiency.
Intellectual Property
We regard our trademarks, copyrights, patents, domain names, technological know-how, proprietary technologies and other intellectual properties
as critical to our success and competitiveness. We rely on a combination of copyright and trademark law, trade secret protection, confidentiality
agreements with employees and contractual restrictions on intellectual property and confidentiality clauses in our agreements with third parties to
protect our intellectual property rights. In addition, under the employment agreements we enter into with our employees and consultants, they
acknowledge that the intellectual property made by them in connection with their employment with us are our property. We also regularly monitor any
infringement or misappropriation of our intellectual property rights.
As of December 31, 2021, we owned 167 computer software copyrights, 20 other copyrights and 35 patents in China for various aspects of our
operations and maintained 855 trademark registrations inside China. As of December 31, 2021, we had registered or acquired 262 domain names,
including sdbao.com, shuidichou.com and waterdrop-inc.com, among others.
Insurance
We maintain certain insurance policies to safeguard us against risks and unexpected events. We provide social security insurance including
pension insurance, unemployment insurance, work-related injury insurance, maternity insurance and medical insurance for our employees in compliance
with applicable PRC laws. We do not maintain insurance policies covering damages to our network infrastructures or information technology systems.
We also do not maintain business interruption insurance. We consider our insurance coverage to be in line with that of other companies of similar size
and business nature in China.
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Regulation
Regulations on Foreign Investment in China
The establishment, operation and management of companies in China are governed by the PRC Company Law, as amended in 2005, 2013 and
2018. The PRC Company Law applies to both PRC domestic companies and foreign-invested companies. The direct or indirect investment activities of
a foreign investor shall be governed by the PRC Foreign Investment Law and its implementation rules. The PRC Foreign Investment Law is
promulgated by the National People’s Congress on March 15, 2019, and has taken effect since January 1, 2020, which replaced the PRC Equity Joint
Venture Law, the PRC Cooperative Joint Venture Law and the PRC Wholly Foreign-owned Enterprise Law. The Foreign Investment Law adopts the
administrative system of pre-entry national treatment along with a negative list for foreign investments, establishing the basic framework for the access
to, and the promotion, protection and administration of foreign investments in view of investment protection and fair competition.
Pursuant to the Foreign Investment Law, “foreign investments” refers to any direct or indirect investment activities conducted by any foreign
individual, enterprise, or organization (collectively referred to as “foreign investors”) in the PRC, which includes any of the following circumstances:
(i) foreign investors establishing foreign-invested enterprises, or FlEs, in the PRC solely or jointly with other investors; (ii) foreign investors acquiring
shares, equity interests, property portions or other similar rights and interests thereof within the PRC; (iii) foreign investors investing in new projects in
the PRC solely or jointly with other investors; and (iv) other forms of investments as defined by laws, regulations, or as otherwise stipulated by the State
Council. According to the Foreign Investment Law, the State Council shall promulgate or approve a list of special administrative measures for market
access of foreign investments, or the Negative List. The Foreign Investment Law grants national treatment to foreign-invested entities, except for those
foreign-invested entities that operate in industries deemed to be either “restricted” or “prohibited” in the Negative List. The Foreign Investment Law
provides that foreign investors shall not invest in the “prohibited” industries, and shall meet certain requirements as stipulated under the Negative List
for investing in “restricted” industries.
In addition, the Foreign Investment Law also provides several protective rules and principles for foreign investors and their investments in the
PRC, including, among others, (i) that local governments shall abide by their commitments to the foreign investors; (ii) FlEs are allowed to issue stocks
and corporate bonds; except for special circumstances, in which case statutory procedures shall be followed and fair and reasonable compensation shall
be made in a timely manner, expropriation or requisition of the investment of foreign investors is prohibited; (iii) mandatory technology transfer is
prohibited; and (iv) the capital contributions, profits, capital gains, proceeds out of asset disposal, licensing fees of intellectual property rights, indemnity
or compensation legally obtained, or proceeds received upon settlement by foreign investors within the PRC, may be freely remitted inward and outward
in RMB or a foreign currency. Also, foreign investors or FlEs should assume legal liabilities for failing to report investment information in accordance
with the requirements. Furthermore, the Foreign Investment Law provides that FlEs established prior to the effectiveness of the Foreign Investment Law
may maintain their legal form and structure of corporate governance within five years after January 1, 2020.
On December 26, 2019, the State Council further issued the Implementation Rules of Foreign Investment Law, which came into effect on
January 1, 2020, and replaced the Regulations on Implementing the PRC Equity Joint Venture Law, Provisional Regulations on the Duration of PRC
Equity Joint Venture Law, the Regulations on Implementing the PRC Cooperative Joint Venture Law, and the Regulations on Implementing the PRC
Wholly Foreign-owned Enterprise Law. The Regulations on Implementing the PRC Foreign Investment Law restates certain principles of the Foreign
Investment Law and further provides that, among others, (i) if an FIE established prior to the effective date of the Foreign Investment Law fails to adjust
its legal form or governance structure to comply with the provisions of the Companies Law of the PRC or the Partnership Enterprises Law of the PRC,
as applicable, and complete amendment registration before January 1, 2025, the enterprise registration authority will not process other registration
matters of the FIE and may public such non-compliance thereafter; and (ii) the provisions regarding equity interest transfer and distribution of profits
and remaining assets as stipulated in the contracts among the joint venture parties of an FIE established before the effective date of the Foreign
Investment Law may, after adjustment of the legal form and governing structure of such FIE, remain binding upon the parties during the joint venture
term of the enterprise.
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On December 27, 2021, the NDRC, and the Ministry of Commerce promulgated the Special Administrative Measures for Access of Foreign
Investment (Negative List) (2021 Edition), or the 2021 Negative List, which came into effect on January 1, 2022. In addition, the NDRC and the
Ministry of Commerce promulgated the Encouraged Industry Catalogue for Foreign Investment 2021 Edition), or the 2020 Encouraged Industry
Catalogue, which was promulgated on December 27, 2020 and came into effect on January 27, 2021. Industries not listed in the 2021 Negative List and
2020 Encouraged Industry Catalogue are generally open for foreign investments unless specifically restricted by other PRC laws. The establishment of
wholly foreign-owned enterprises is generally allowed in encouraged and permitted industries. Some restricted industries are limited to equity or
contractual joint ventures, while in some cases Chinese partners are required to hold the majority equity interests in such joint ventures. In addition,
foreign investment in projects in a restricted category is subject to government approvals. Foreign investors are not allowed to invest in industries in the
prohibited category.
Pursuant to the Provisional Administrative Measures on Establishment and Modifications (Filing) for Foreign Invested Enterprises promulgated
by the Ministry of Commerce on October 8, 2016, and amended in 2017 and 2018, establishment and changes of FlEs not subject to approvals under the
special entry management measures shall be filed with the relevant commerce authorities. However, as the PRC Foreign Investment Law has taken
effect, the Ministry of Commerce and the State Administration for Market Regulation, or the SAMR, jointly approved the Foreign Investment
Information Report Measures on December 19, 2019, which has been in effect since January 1, 2020. According to the Foreign Investment Information
Report Measures, which repealed the Provisional Administrative Measures on Establishment and Modifications (Filing) for Foreign Invested
Enterprises, foreign investors or FlEs shall report their investment-related information to the competent local counterparts of the Ministry of Commerce
through Enterprise Registration System and National Enterprise Credit Information Notification System.
Regulations on Value-Added Telecommunications Services

Regulations on Value-Added Telecommunications Services
The PRC Telecommunications Regulations, promulgated on September 25, 2000, by the State Council of the PRC and most recently amended in
February 2016, are the primary regulations governing telecommunications services. Under the PRC Telecommunications Regulations, a
telecommunications service provider is required to procure operating licenses from the MIIT, or its provincial counterparts, prior to the commencement
of its operations, otherwise, such operator might be subject to sanctions including corrective orders and warnings from the competent administrative
authority, fines and confiscation of illegal gains. In the case of serious violations, the operator’s websites may be ordered to be closed.
The PRC Telecommunications Regulations categorize telecommunication services in China as either basic telecommunications services or value-
added telecommunications services, and value-added telecommunications services are defined as telecommunications and information services provided
through public network infrastructures. The Administrative Measures for Telecommunications Business Operating License promulgated by the MIIT in
June 2017, or the Telecom License Measures, set forth more specific provisions regarding the types of licenses required to operate value-added
telecommunications services, the qualifications and procedures for obtaining the licenses, and the administration and supervision of these licenses.
Pursuant to the Telecom License Measures, a commercial operator of value-added telecommunication services must first obtain an operating license for
value-added telecommunication business, or VATS License. The Telecom License Measures also provides that an operator providing value-added
services in multiple provinces is required to obtain a cross-region VATS License, whereas an operator providing value-added services in one province is
required to obtain an intra-provincial VATS License. Pursuant to the Telecom License Measures, any telecommunication services operator must conduct
telecommunication business pursuant to the type and within the scope of business as specified in its VATS License.
Pursuant to the Catalog of Telecommunications Services promulgated by the Ministry of Information Industry of the PRC (the predecessor of the
MIIT) on February 21, 2003, and last amended by the MIIT on June 6, 2019, internet information services fall within Class 2 value-added
telecommunication services. The “information services” refer to the information services provided for users via the public communication network or
the internet and by the information collection, development, processing and construction of information platforms. The Administrative Measures on
Internet Information Services, which was promulgated by the State Council on September 25, 2000, and amended in 2011, sets out guidelines on the
provision of internet information services. The Administrative Measures on Internet Information Services classifies internet information services into
commercial internet information services and non-commercial internet information services. Pursuant to the Administrative Measures on Internet
Information Services, commercial internet information services refer to the provision with paid information or website production or other service
activities to online users via the internet, and non-commercial internet information services refer to the provision with free information that is in the
public domain and openly accessible to online users via the internet. The Administrative Measures on Internet Information Services requires that a
provider of commercial internet information services shall obtain a VATS License for internet information services. It further requires that a provider of
non-commercial internet information services shall carry out record-filing procedures with the provincial level counterparts of the MIIT.
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Each of Shuidi Hubao, Shuidi Hulian, Zongqing Xiangqian, Miaoyi Hulian (Beijing) Technology Co., Ltd., Shuidi Insurance Brokerage, Beijing
Tianxia Youzhi Technology Co., Ltd., Beijing Zongqing Xiangqian Health Technology Co., Ltd., Chongqing Hecheng Insurance Adjusting Co., Ltd.,
Tairui Insurance Agency Co., Ltd., Hainan Puluo Medical Technology Co., Ltd. and Beijing Yifan Fengshun Medical Technology Co., Ltd. has obtained
the ICP Licence, a type of VATS License to provide internet information service.
Regulations on Foreign Investment Restriction on Value-Added Telecommunications Services

Pursuant to the 2021 Negative List, the equity ratio of foreign investment in the value-added telecommunications enterprises is subject to the cap
of 50% except for the investment in e-commerce operation businesses, domestic multi-party communication businesses, information storage and
re-transmission businesses, and call center businesses.
Specifically, foreign direct investment in telecommunications companies in China is governed by the Administrative Regulations on Foreign-
Invested Telecommunications Enterprises, which was promulgated by the State Council on December 11, 2001, and amended in 2008 and 2016. The
regulations require that foreign-invested value-added telecommunications enterprises must be in the form of a Sino-foreign equity joint venture, and the
ultimate capital contribution percentage by foreign investor(s) in a foreign-invested value-added telecommunications enterprise must not exceed 50%,
other than certain exceptions. In addition, the main foreign investor who invests in a foreign-invested value-added telecommunications enterprise in
China must satisfy a number of stringent performance and operational experience requirements, including demonstrating a good track record and
experience in operating value-added telecommunication business overseas. Foreign investors that meet these requirements shall obtain approvals from
the MIIT, which retain considerable discretion in granting such approvals. On April 7, 2022, the State Council of the PRC issued the Decision to Amend
and Abolish Certain Administrative Regulations, which makes amendments to the Administrative Regulations on Foreign-Invested Telecommunications
Enterprises. The amendments include, among others, removing the performance and operational experience requirements for foreign investors that hold
equity interest in PRC companies conducting value-added telecommunication business as set out in the Administrative Regulations on Foreign-Invested
Telecommunications Enterprises. The amended regulations will take effect on May 1, 2022.
In 2006, the predecessor of the MIIT issued the Circular of the Ministry of Information Industry on Strengthening the Administration of Foreign
Investment in Value-added Telecommunications Business, according to which a foreign investor in the telecommunications services industry of China
must establish an FIE and apply for a telecommunications businesses operation license. This circular further requires that: (i) PRC domestic
telecommunications business enterprises must not lease, transfer or sell a telecommunications businesses operation license to a foreign investor through
any form of transaction or provide resources, offices and working places, facilities or other assistance to support the illegal telecommunications services
operations of a foreign investor; (ii) value-added telecommunications enterprises or their shareholders must directly own the domain names and
trademarks used by such enterprises in their daily operations; (iii) each value-added telecommunications enterprise must have the necessary facilities for
its approved business operations and maintain such facilities in the regions covered by its license; and (iv) all providers of value-added
telecommunications services are required to maintain network and internet security in accordance with the standards set forth in relevant PRC
regulations. If a license holder fails to comply with the requirements in the circular and cause such non-compliance, the MIIT or its local counterparts
have the discretion to take measures against such license holder, including revoking its license for value-added telecommunications business.
Regulations on Insurance Industry

The insurance industry in the PRC is highly regulated. Between 1998 and 2018, the China Insurance Regulatory Commission, or the CIRC, was
the regulatory authority responsible for the supervision of the Chinese insurance industry. In March 2018, the Chinese Banking and Insurance
Regulatory Committee, or the CBIRC, was established as the result of the merger between the CIRC and the China Banking Regulatory Commission,
replacing the CIRC as the regulatory authority for the supervision of the Chinese insurance industry. Insurance activities undertaken within the PRC are
primarily governed by the Insurance Law of the PRC, which was promulgated by the Standing Committee of the National People’s Congress on
June 30, 1995, and amended in 2015, and the related rules and regulations. The Insurance Law of the PRC, comprising general principles, insurance
contracts, insurance institutions, insurance operational standards, supervision and regulation of the insurance industry, insurance agencies and insurance
brokerage companies, legal liabilities and supplementary provisions, sets out the legal framework for regulating the insurance companies.
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Regulations on Insurance Brokerage Business

Pursuant to the Insurance Law of the PRC, an insurance broker is an entity that, in the interest of the insurance applicants, provides intermediary
services between the insurance applicants and the insurance companies for the conclusion of insurance contracts, and collects commissions for such
services in accordance with relevant laws.
On May 1, 2018, the CIRC promulgated the Provisions on the Supervision and Administration of Insurance Brokers, or the Insurance Brokerage
Provisions, which specifies the provisions regarding market access and exit, operating rules, industry self-discipline, monitor and inspection and legal
obligations for insurance brokers.
Market Access
Pursuant to the Insurance Brokerage Provisions, to operate insurance brokerage businesses within the PRC, an insurance brokerage company shall
satisfy the requirements stipulated by the CIRC and obtain an Insurance Brokerage License. The minimum registered capital of an insurance brokerage
company that conducts business in regions not limited to the provincial level is RMB50 million. The minimum registered capital of an insurance
brokerage company that conducts business within the provincial level is RMB10 million. An insurance brokerage company shall not operate insurance
brokerage business until it obtains the license, and it shall register the relevant information in a regulatory information system as prescribed by the CIRC
in time.
The Insurance Brokerage Provisions also requires an insurance brokerage company to procure professional liability insurance or pay a deposit
within twenty days upon obtaining an Insurance Brokerage License. If an insurance brokerage company intends to procure professional liability
insurance, it shall ensure that the insurance remains valid. The maximum compensation for each accident under the professional liability insurance
procured by an insurance brokerage company shall be no less than RMB1 million. One-year accumulated maximum compensation shall be no less than
RMB10 million and no less than the insurance brokerage company’s income from principal business in the previous year. If an insurance brokerage
company intends to pay a deposit, the deposit shall be paid at 5% of its registered capital; if an insurance brokerage company increases its registered
capital, the amount of the deposit shall be increased proportionately. The deposit shall be stored in a designated account in the form of a bank deposit in
a commercial bank or in any other form approved by the CIRC. Under any of the following circumstances, an insurance brokerage company may use the
deposit: (i) decrease of registered capital; (ii) cancellation of license; (iii) taking out of professional liability insurance in conformity with the conditions;
or (iv) other circumstances provided by the CIRC. An insurance brokerage company shall report in written form to the local branch of the CIRC within
five days from the day when it uses the deposit.
Operation Rules
Pursuant to the Insurance Brokerage Provisions, an insurance broker may operate all or part of the following businesses: (i) draft insurance plans
for policyholders, select insurance companies and process insurance application formalities; (ii) assist insured parties or beneficiaries in making claims;
(iii) carry out reinsurance brokerage businesses; (iv) provide advisory services on disaster prevention, loss prevention or risk evaluation and risk
management to entrusting parties; and (v) any other insurance brokerage-related businesses stipulated by the CIRC.
An insurance broker is required to conduct insurance brokerage business within the business scope and business area of the underwriter. An
insurance broker and its practitioners may not sell non-insurance financial products, except for non-insurance financial products that have been approved
by the relevant financial regulatory authorities. An insurance broker and its practitioners shall have the necessary qualifications before selling
non-insurance financial products.
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The Insurance Brokerage Provisions also requires an insurance broker to set up a designated account book to record the income and expenditure of
the insurance brokerage business. An insurance broker shall open an independent designated account for client funds. The following funds shall only be
deposited in the designated account for client funds: (i) insurance premiums paid by policyholders to an insurance company; and (ii) surrender value and
pay-outs collected on behalf of policyholders, insured parties and beneficiaries. An insurance broker shall open an independent account for commissions
it collects.
Services provided by Insurance Brokers and Their Practitioners

Pursuant to the Insurance Brokerage Provisions, an insurance broker and its practitioners shall not engage in the following acts or behaviors:
(i) deceive or mislead the insurer, the applicant, the insured or the beneficiary; (ii) conceal any important circumstances relating to the insurance
contract; (iii) obstruct the applicant from fulfilling his or her obligation to tell the truth, or induce the applicant not to fulfill the same; (iv) grant or
commit to grant to the applicant, the insured or the beneficiary any interest other than that provided in the insurance contract; (v) compel or induce the
applicant to enter or restrict the applicant from entry into an insurance contract by using their administrative power, position or the advantage of their
profession and other improper means; (vi) forge or alter the insurance contract without authorization or providing false evidence for parties to the
insurance contract; (vii) misappropriate, retain or embezzle the premiums or insurance benefits; (viii) make use of the advantages of the business to
obtain improper benefits for other institutions or individuals; (ix) defraud insurance benefits in collusion with the applicant, the insured or the
beneficiary; or (x) disclose trade secrets of the insurer, the applicant or the insured known during the business activities. An insurance broker and its
practitioners shall not solicit or accept any remuneration or other property other than those as agreed upon in the contract and granted by any insurance
company or its staff or take advantage of executing the insurance brokerage business to obtain other illegal benefits in the course of carrying out the
insurance brokerage business.
Qualification for Insurance Brokerage Management Personnel and Practitioners

The Insurance Brokerage Provisions sets out the requirements for senior officers of an insurance broker, such as education, work experience and
good character. It also provides that senior officers of an insurance broker shall obtain the employment qualification approved by the local branches of
CIRC prior to the assumption of duty.
Pursuant to the Insurance Law of the PRC, the examination and approval of the qualification of insurance brokerage practitioners have been
cancelled. Pursuant to the Insurance Brokerage Provisions and the Notice on Relevant Issues on the Administration of Practitioners of Insurance
Intermediaries, which was promulgated by CIRC on August 5, 2015; before an insurance intermediary practitioner begins to practice, his/her employer
shall complete the practicing registration in the insurance intermediary regulatory information system of the CIRC for him/her, and the qualification
certificate shall not be served as a necessary condition for the administration of practicing registration.
Reward and Incentive

Pursuant to the Insurance Brokerage Provisions, an insurance broker may not set payment of fees or purchase of insurance products as a condition
of employment, may not promise unreasonably high return, or take the number of persons introduced directly or indirectly or sales performance as the
main basis of payroll calculation.
Pursuant to the Notice on Strictly Regulating Incentive Measures of Insurance Intermediaries promulgated by the CIRC on November 15, 2010,
professional insurance intermediaries may only implement equity incentive measures for sales personnel of more than two consecutive years of practice
experience within such intermediaries, and may not arbitrarily expand the scope of equity incentives for rapid business growth. In implementing
incentives, professional insurance intermediaries may not: (i) conduct deceptive or misleading promotion for the incentive program, including
exaggeration or arbitrarily promising uncertain earning from the future listing; (ii) induce sales personnel to purchase self-insurance or purchase
insurance with borrowings for incentives; or (iii) offer client equity in the name of incentive as consideration for illicit interests. According to the
Circular on Further Regulating the Incentive Plans of Professional Insurance Intermediary Institutions, promulgated on February 28, 2012, by the CIRC,
all professional insurance intermediary institutions shall not, by way of connecting the equity incentive plan with their listing and exaggerating proceeds
brought by their listing and other means, induce any of the general public to become a salesperson, or induce salespersons or clients to buy insurance
products which are inconsistent with their actual insurance needs.
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Regulations on Foreign Restriction on Insurance Brokerage

According to the Announcement of the CIRC on Permitting the Establishment of Wholly Foreign-invested Insurance Brokerage Companies by
Foreign Insurance Brokerage Companies, which was promulgated by CIRC on December 11, 2006, and became effective on the same day, in five years
following China’s accession into the WTO, the establishment of a wholly foreign owned enterprise to engage in insurance brokerage services shall be
permitted. There shall be no other restrictions except those on the establishment conditions and business scopes. On April 27, 2018, the CBIRC
promulgated the Notice on Relaxing Restrictions on the Business Scope of Foreign-Funded Insurance Brokerage Companies, which became effective on
April 27, 2018. Pursuant to this notice, the foreign-funded insurance brokerage institutions that obtain insurance brokerage business permits upon
approval by the insurance regulatory authority of the State Council may engage in the following insurance brokerage businesses within the PRC:
(i) drafting insurance application proposals, selecting insurers, and undergoing the insurance application formalities for insurance applicants;
(ii) assisting the insured parties or beneficiaries in claiming compensation; (iii) reinsurance brokerage business; (iv) providing disaster or loss prevention
or risk evaluation and management advisory services; and (v) other businesses approved by the CBIRC.
On December 3, 2021, the General Office of the CBIRC issued the Circular on Clarifying Relevant Measures on Open up of Insurance Agency
Markets, which provides that qualified foreign insurance brokerage companies with actual operation experience are allowed to set up insurance
brokerage companies in China to conduct insurance brokerage business, and the following qualification requirements for the foreign investor of an
insurance brokerage company are abolished (i) the foreign investor shall have engaged in insurance brokerage business for more than thirty years within
the territories of World Trade Organization members; (ii) the foreign investor shall have established its representative office in China for two
consecutive years; and (iii) the total assets of the foreign investor shall be no less than US$200 million as of the end of the year prior to its application.
Shuidi Insurance Brokerage, one of the subsidiaries of our variable interest entities, has obtained the license for conducting insurance brokerage
business.
Regulations on Insurance Agency Business

Pursuant to the Insurance Law of PRC and the Provisions on the Supervision and Administration of Insurance Agencies, or the Insurance
Agencies Provisions, which was promulgated on November 12, 2020 and came into effect on January 1, 2021, an insurance agency is an entity, which
has been authorized by an insurer to transact insurance business on its behalf within the scope of authorization and gets in return agency’s commissions
to be collected from the insurer.
Pursuant to the Insurance Agencies Provisions, a professional insurance agency engaging in insurance agency business within the territory of the
PRC shall satisfy the qualification requirements specified by the insurance regulatory authority under the State Council and obtain the Insurance Agency
License. The minimum registered capital of a professional insurance agency that conducts business in regions not limited to the provincial level is
RMB50 million, while the minimum registered capital of a professional insurance agency that conducts business within the provincial level is
RMB20 million. The registered capital of a professional insurance agency shall be paid-up in full. The Insurance Agencies Provisions also stipulates the
rules of market access, management qualifications, supervision and other matters of insurance agency.
According to the Insurance Agencies Provisions, an insurance agency may engage in the following insurance agency businesses: (i) sale of
insurance products on behalf of the insurance companies; (ii) collection of insurance premium on behalf of the insurance companies; (iii) conducting
loss surveys and handling claims of insurance businesses on behalf of the insurer principal; and (iv) other business activities approved by the insurance
regulatory authority under the State Council. If a professional insurance agency engages in insurance agency businesses in other provinces other than
that the province in which it is registered, it shall establish branches, and the business scope of such branches shall not go beyond the province where it
locates.
Tairui Insurance Agency Co., Ltd., one of the subsidiaries of our variable interest entities, has obtained the license for conducting insurance
agency business.
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Regulations on Insurance Claims Adjusting Business

The principal regulation governing insurance adjusting firms is the Provisions on the Supervision and Administration of Insurance Adjustors,
which was promulgated by the CIRC on February 1, 2018, and became effective on May 1, 2018. Pursuant to the Provisions on the Supervision and
Administration of Insurance Adjustors, the term “insurance adjustment” refers to the assessment, survey, authentication, loss estimation and relevant risk
assessment of the insured subject matters or the insurance incidents conducted by an appraisal firm and its professional appraisers upon the entrustment
of the parties concerned. The term “insurance adjusting firm” refers to an entity and any of its branches which engages in the aforementioned
businesses. To operate the insurance adjustment business, an insurance adjusting firm shall, within thirty days after the date of obtaining its business
license, complete the filing with the CIRC and its local branches. In addition, an insurance adjusting firm shall have professional risk fund or procure
professional liability insurance within twenty days upon completion of the filing.
According to the Provisions on the Supervision and Administration of Insurance Adjustors, an insurance adjusting firm should take the form of a
company or a partnership in accordance with applicable law and retains claims adjustment practitioners to engage in insurance claims adjusting
businesses. A claims adjusting firm in the form of a partnership must have at least two claims adjustors and two-thirds of its partners should be claims
adjustors, who have least three years’ working experience in claims adjustment and have no record of administrative penalties in relation to claims
adjustment activities in the past three years. An insurance adjusting firm in the form of a company must have at least eight insurance assessors and two
shareholders of which two-thirds are insurance assessors who have least three years’ working experience in claims adjustment and have no record of
administrative penalties in relation to claims adjustment activities in the past three years.
An insurance claims adjusting firm must meet certain requirements in order to engage in claims adjustment business, including, but not limited to,
(i) its shareholders or its partners must meet the requirements mentioned above and its capital contribution must be self-owned, actual and lawful and
must not be non-self-owned capital in various forms such as a bank loan; and (ii) it must have adequate working capital to support its day-to-day
operation and risk undertaking in accordance with its business development plan. Pursuant to the Circular on the Filing and Regulation of Business
Conducted by Insurance Adjusting Firms, promulgated by the CIRC on June 30, 2017, the working capital of an insurance adjusting firm with national
business scope shall be no less than RMB2 million, and an insurance adjusting firm with regional business scope shall be no less than RMB1 million.
The insurance adjusting firm shall enter into an escrow agreement with commercial banks regarding the working capital.
According to the Provisions on the Supervision and Administration of Insurance Adjustors, an insurance adjusting firm may engage in the
following businesses: (i) inspecting and appraising the value of and assessing the risks of the subject matter before and after it is insured; (ii) surveying,
inspecting, estimating the loss of, adjusting and disposing of the insured’s subject matter after loss has been incurred; (iii) risk management consulting;
and (iv) other business activities approved by the CIRC. In addition, the insurance adjusting firms shall not engage in the following acts while working
in the insurance adjusting business: (i) seeking illegitimate interests in the course of business; (ii) allowing other organizations to carry out insurance
adjusting business in its name or carrying out insurance adjusting business in the name of other organizations; (iii) soliciting business by improper
means, such as malicious price-cutting, payment of kickbacks, false advertising, or derogation or defamation of other insurance adjusting firms;
(iv) accepting any businesses with conflicting interests; (v) accepting the commissions from two parties who have conflicts of interest when assessing
the same subject matter; (vi) issuing false assessment reports or assessment reports with any material omission; (vii) employing or designating any
individual who does not meet the requirements to engage in the insurance adjusting business; or (viii) any other act in violation of laws or administrative
regulations.
An insurance claims adjustment practitioner must join an insurance claims adjusting firm to conduct insurance claims adjustment activities. The
insurance claims adjusting firm to which he or she belongs must register his or her information with the CIRC’s Insurance Intermediary Supervision
Information System. An adjustor can only conduct insurance adjustment activities for one insurance claims adjusting firm and can only be registered
with the system through one insurance claims adjusting firm. At least two insurance claims adjustment practitioners must be appointed to undertake each
case of insurance claims adjustment businesses and the claims adjustment report shall be signed by at least two insurance claims adjustment
practitioners engaged in the claims adjustment activities and the seal of the claims adjusting firm to which he or she belongs shall be affixed thereto.
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Chongqing Hecheng Insurance Adjusting Co., Ltd. has completed the filing with the local branch of the governmental authorities.
Regulations on Internet Insurance Business

On December 7, 2020, the CBIRC promulgated the Regulatory Measures for Online Insurance Business, or the Regulatory Measures, which
became effective on February 1, 2021 and supersedes the Interim Regulatory Measures for Internet Insurance Business promulgated by the CIRC on
July 22, 2015. Shuidi Insurance Brokerage conducts online insurance brokerage business and is subject to the Regulatory Measures.
Pursuant to the Regulatory Measures, “Internet insurance business” refers to the business whereby insurance institutions form insurance contracts
or provide insurance services based on internet. Any entity which is not a qualified insurance institution (including the insurance company and insurance
intermediary service providers, such as the insurance brokerage company and insurance agency company) is not allowed to conduct online insurance
business, including without limitation consultation of insurance products, comparison of insurance products, trial calculation of insurance premiums,
quotation and comparison of quotations, drafting insurance plans for policyholders, processing insurance application formalities and premium
collection.
According to the Regulatory Measures, “self-operated online platform” refers to the online platform which is established and operated
independently by an insurance institution for the purpose of engaging in internet insurance business. The Regulatory Measures requires that insurance
institutions conducting online insurance business via their self-operated online platforms in the form of websites or mobile applications shall complete
the filing with the competent authority for the operation of their websites and mobile applications. An insurance institution shall sell internet insurance
products or provide insurance brokerage or insurance adjustment services via its self-operated online platform or the self-operated online platform of
other insurance institutions, and the online insurance transactions being conducted through online interfaces shall be operated by insurance institutions
only. In addition, the Regulatory Measures imposes technical IT requirements for insurance institutions engaged in online insurance business. For
example, the self-operated online platforms with online insurance products sales or insuring functions and the information management systems and
core business systems that support the operation of such self-operated online platforms shall be certified as Safety Level III Computer Information
Systems or above level. As for the self-operated online platforms without online insurance products sales or insuring functions and the information
management systems and core business systems that support the operation of such self-operated online platforms shall be certified as Safety Level II
Computer Information Systems or above level.
The Regulatory Measures also sets out specific requirements in relation to marketing activities conducted by insurance institutions for the
marketing and promotion of insurance products or insurance services via internet media, such as websites, websites and applications, in the form of text,
pictures, audio, video or otherwise. An insurance institution shall comply with the Advertising Law of the PRC, laws and regulations on marketing of
financial products and other relevant rules promulgated by the CBIRC when carrying out marketing activities to promote their insurance products and
services. In addition, the Regulatory Measures also requires insurance institutions to regulate their marketing and sales activities for internet insurances
products, including, among others, implementing management protocols on the qualification, training, and behavior of online insurance practitioners and
protocols on approval of content on marketing and sales of online insurance products. The online insurance practitioners shall conduct marketing
activities of online insurance products within the scope authorized by insurance institutions and disclose relevant information on their marketing web
page, such as their personal information and insurance institution’s names. The marketing content published by the practitioners shall be uniformly made
by insurance institutions. An insurance institution shall assume the primary responsibility for the internet insurance marketing activities conducted by
itself and its practitioners.
The Regulatory Measures also sets forth specific operation and management requirements in relation to an insurance institution, including, among
others, (i) an insurance institution shall adopt effective technical methods to verify the authenticity of each policyholder’s identity information, and
completely record and keep the main internet insurance business process; (ii) an insurance institution shall complete practice registration for their
personnel, and shall identify their qualification to engage in internet insurance business for public inquiry; (iii) the relevant fees paid by insurance
companies to insurance intermediary service providers shall not be settled in cash; (iv) an insurance institution shall assume the primary responsibility
for the protection of customer information, and shall collect, process and use personal information following the principles of legality, legitimacy and
necessity, and ensure the security and legality of the collection, processing and use of information; and (v) an insurance institution shall make several
internal operation plans and protocols, for example, an emergency response plan for the interruption of internet insurance business operation, an internal
control protocol for anti-money laundering, a customer due diligence protocol, a protocol for keeping customer identity data and transaction records, a
protocol for the reporting of large-value transactions and suspicious transactions and an anti-fraud protocol.
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The Regulatory Measures sets out a ramp-up process allowing the insurance institutions to achieve full compliance in phases until February 1,
2022. Pursuant to the Regulatory Measures, the insurance institutions shall (i) complete the rectification of the issues on internal protocols, marketing
activities, sales management and information disclosure within three months from the effective date of the Regulatory Measure; (ii) complete the
rectification of other issues on business and operation within six months from the effective date hereof; and (iii) complete the authentication of classified
cybersecurity protection of its self-operated online platform within twelve months from the effective date of the Regulatory Measure.
On April 14, 2016, the CIRC together with 14 authorities issued the Implementation Plan for the Special Campaign on Internet Insurance Risks,
which sets out the overall framework for the rectification initiative dedicated to mitigation of online insurance risks, specifying that the special
rectification initiative shall focus on regulating business operation model optimizing market environment and improving regulatory rules, to achieve the
objective of parallel promotion of innovation and risk mitigation, and the healthy and sustainable development of online insurance.
On April 2, 2019, the CBIRC promulgated the Circular of the General Office of the CBIRC on Issuing the 2019 Plan for the Rectification of
Chaos in the Insurance Intermediary Market, or the Rectification Plan, aiming to further curb the chaos of violations of laws and regulations in the
insurance intermediary market. The Rectification Plan mainly includes three key tasks: (i) to ascertain insurance companies’ responsibility for
management and control of various intermediary channels; (ii) to carefully investigate business compliance of insurance intermediaries; and (iii) to
strengthen the rectification of insurance business of the third-party online platforms in cooperation with insurance institutions. Pursuant to the
Rectification Plan, all insurance institutions (including insurance companies and insurance intermediaries) shall conduct internet insurance business,
regulate the business cooperation with third-party online platforms, prohibit third-party platforms from illegally engaging in insurance intermediary
business in accordance with the Interim Regulatory Measures for Internet Insurance Business and relevant regulations, and focus their rectification on
the following: (i) whether the activities of any cooperative third-party online platform of the insurance institution and its employees are limited to
providing sales support services such as insurance product display and description and web links, and whether it illegally engages in insurance sales,
underwriting, settlement of claims, and surrender or other insurance business links; (ii) whether there is a cooperation between the insurance institution
and any third-party online platform engaging in internet finance involving wealth management, peer-to-peer lending and finance lease, etc.; (iii) whether
the insurance institution performs the primary responsibility for supervising and managing its cooperative third-party platforms as required; (iv) whether
all cooperative third-party online platforms of the insurance institution conform to relevant provisions of the Interim Regulatory Measures for Internet
Insurance Business; (v) whether the insurance institution owns the interfaces where customers purchase insurance policies on its cooperative third-party
online platforms and bears the compliance responsibility, and whether any of its third-party platforms engages in the collection of insurance premiums
on its behalf and transfer of payments; (vi) whether each cooperative third-party online platform of the insurance institution discloses the information of
all its cooperative insurance institutions at an eye-catching position, and that of such third-party online platform disclosed on the information disclosure
platform of the Insurance Association of China at an eye-catching position, and indicates that the insurance business is provided by insurance
institutions; and (vii) whether any cooperative third-party online platform of the insurance institution restricts such insurance institutions from accessing
relevant information of customers in a truthful, complete and timely manner.
On June 22, 2020, the CBIRC promulgated the Circular on Regulating the Retrospective Management of Internet Insurance Sales Practices, which
took effect on October 1, 2020, setting out requirements on various aspects of online sales by insurance institutions (including insurance companies and
insurance intermediaries), including sales practices, record-keeping for backtracking sales, and disclosure requirements. The Circular on Regulating the
Retrospective Management of Internet Insurance Sales Practices provides that, (i) online sales pages should be displayed only on insurance institutions’
self-operated online platforms and should be separated from non-sales pages; (ii) important insurance clauses should be presented on a separate page
and be confirmed by policyholders or insureds; and (iii) insurance institutions should keep records for five years after the expiry of the policy for
policies with a term of one year or less and for ten years for policies with a term longer than one year for purposes of backtracking sales.
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On August 5, 2021, the CBIRC published the Notice on Carrying Out Special Rectification of Internet Insurance Chaos, or the CBIRC Notice 87,
which lays out a plan to identify and rectify key issues in the Internet insurance industry, including among others, hosting misleading sales, imposing
excessively high service fees, and misuse of users’ information. The CBIRC Notice 87 provides, among others, the insurance companies shall
(i) conduct comprehensive investigations on their Internet insurance business since 2020, and find out the weak links and violations in the Internet
insurance business; (ii) clarify responsibility of business department and management and strictly implement rules on accountability for relevant
responsible personnel; and (iii) strengthen internal control and compliance management, including without limitation, establish and improve the Internet
insurance operation mechanism and compliance management system, regularly assess the security and effectiveness of the information system, and
ensure compliance throughout the process of the Internet insurance business operation. In addition, the CBIRC Notice 87 requires the CBIRC and local
counterparts of the CBIRC to conduct on-site inspections in insurance institutions and require the insurance institutions and relevant regulatory
authorities to report material risks and material issues to the CBIRC in a timely manner during the rectification.
On August 24, 2021, Beijing counterpart of the CBIRC issued the Notice on the Special Rectification of Issues Related to Internet Insurance
Marketing and Publicity in Beijing, pursuant to which, the insurances companies and insurance professional intermediary agencies shall (i) immediately
cease publishing Internet insurance marketing advertisements with excessive marketing and inducing consumption in the Beijing; (ii) establish
management system related to the production, review, release, and effect evaluation of marketing and publicity content and prepare an Internet insurance
marketing publicity management ledger in Beijing, and (iii) comprehensively evaluate the compliance of Internet insurance marketing advertisements
published in Beijing, clarify the rectification measures, register them in the management ledger one by one, and report the management ledger to the
Beijing counterpart of the CBIRC within the first 10 days of each quarter since the first quarter of 2022.
On October 12, 2021, the General Offices of the CBIRC issued the CBIRC Circular 108 to regulate the Internet life insurance business. The
CBIRC Circular 108 provides, among others, that (i) the scope of Internet personal insurance products should be limited to accident insurance, health
insurance (except care insurance), term life insurance, ordinary life insurance (except term life insurance) with an insurance period of more than 10
years and ordinary annuity insurance with an insurance period of more than 10 years, as well as other personal insurance products specified by the
CBIRC; (ii) Internet personal insurance products that do not comply with the requirements under the CBIRC Circular 108 shall not be offered online;
and (iii) each installment of premium of certain insurance products less than one year term, such as accident insurance and health insurance, shall be
equal. In addition, the CBIRC Circular 108 provides the upper limit for the predetermined fee rate and average supplemental fee rate for certain
insurance products. It further requires insurance intermediary institutions that conduct the sales of ordinary life insurance products (excluding fixed term
life insurance) and annuity and pension insurance products longer than ten-year term to meet certain conditions, including, among others, meeting the
operation and service abilities for insurance companies, having not received any material administrative penalty or regulatory actions imposed or taken
by any governmental authorities over the last twelve months. Furthermore, the customer service personnel of insurance intermediary institutions are not
allowed to actively promote internet insurance products and their salary shall not be linked to the sales assessment indicators of Internet personal
insurance business.
On December 31, 2021, the PBOC, the MIIT, the CAC, the CBIRC, the CSRC, the SAFE and the State Intellectual Property Office jointly
published the draft Measures for the Administration of Online Marketing of Financial Products (Draft for Comments) for public comments. Pursuant to
the draft, the third-party Internet platforms, such as website, application, mini program and we media, which provide online business premises,
information interaction and transaction matching services to financial institutions for their online marketing activities, shall use the online marketing
publicity contents verified and determined by the financial institutions for the marketing of financial products and such marketing publicity contents
shall not be changed without authorization. If the operator of the third-party Internet platform fails to perform the fiduciary obligations as agreed, causes
damages to the rights and interests of financial consumers or causes other adverse effects, it shall bear relevant responsibilities accordingly. Without the
approval of the financial management department, the operator of the third-party Internet platform shall not engage in the sales business of financial
products in any manner.
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Regulations on Critical Illness Crowdfunding

Regulations on Donation Contract
The PRC Contract Law promulgated by the PRC National People’s Congress, in March 1999, governs the formation, validity, performance,
enforcement and assignment of contracts. The PRC Civil Code which was promulgated by the PRC National People’s Congress in May 2020 and came
into effect on January 1, 2021, incorporates the content of the PRC Contract Law and other PRC civil laws. The PRC Civil Code confirms the validity of
donation contract between individuals and define the donation contract as a contract under which the donor agrees to donate his or her property to the
beneficiary, and the beneficiary agrees to accept such donation. Under the PRC Civil Code, a donation contract may be subject to obligations and if the
beneficiary fails to perform such obligations, the donor may rescind the donation and require the beneficiary to return the donated property.
Regulations on Critical Illness Crowdfunding

On August 30, 2016, the Ministry of Civil Affairs, or the MCA, the MIIT, the State Administration of Press, Publication, Radio, Film and
Television and the Cyberspace Administration of the PRC, the predecessor of the National Radio and Television Administration of the PRC, issued the
Administrative Measures for the Services of Public Crowdfunding Platform, which came into effect on September 1, 2016. According to the
Administrative Measures for the Services of Public Crowdfunding Platform, when the individuals call for help to resolve their own or their families’
difficulties through radio, television, newspapers, network service providers or telecommunications operators, such service providers or operators shall
appropriately indicate a risk reminder to the public, informing that the information published by such individual is not charitable public crowdfunding
information and that the publisher is responsible for the veracity of such information.
On October 17, 2019, the Beijing Municipal People’s Government issued the Regulations on the Promotion of Charity in Beijing, which came into
effect on January 1, 2020. The regulations provide that network service providers, when providing service to individuals who seek for help, shall be
entitled to require such help seeker to provide relevant evidence, post risk reminder in a way easily identifiable by the public, and inform the public that
such information is not charitable public crowdfunding information. It also requires that when receiving complaints and reports regarding to untruthful
help-seeking information, network service providers should promptly take the necessary measures to eliminate and reduce the impact.
Regulations on Online Public Crowdfunding Information Platform

On March 16, 2016, the PRC National People’s Congress published the PRC Charity Law which came into effect on September 1, 2016. The PRC
Charity Law defines the charity organization as a non-profit organization duly established under the PRC Charity Law which aims to carry out charity
activities. The PRC Charity Law defines charitable crowdfunding as the donations of property raised by charity organizations for charitable purposes.
Pursuant to the PRC Charity Law, only charity organizations with permits from the MCA can carry out public charity crowdfunding.
Pursuant to the Administrative Measures for the Services of Public Crowdfunding Platform, public charity crowdfunding platform services refer
to platform services provided by radio, television, newspapers, network service providers or telecom operators for charity organizations to carry out
public charity crowdfunding or publish public charity crowdfunding information; online public charity crowdfunding platform service providers shall be
designated by the MCA. The Administrative Measures for the Services of Public Crowdfunding Platform also provides certain requirements for public
charity crowdfunding platform service providers, including: (i) public charity crowdfunding platform service providers shall inspect the charity
organizations’ registration certificates and public charity crowdfunding permits; (ii) public charity crowdfunding platform service providers shall not
accept donations on behalf of charity organizations; (iii) an agreement shall be entered into by and between parties involved in the public charity
crowdfunding platform service to clarify each party’s rights and obligations regarding the truthfulness and other aspects of the public charity
crowdfunding; (iv) public charity crowdfunding platform service providers shall promptly report to the MCA if violation of laws or regulations by
charity organizations is discovered; and (v) public charity crowdfunding platform service providers shall record and preserve copies of charity
organizations’ registration certificates and public charity crowdfunding permits, as well as relevant information published by charity organizations on
the platform.
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On July 20, 2017, the MCA issued two specifications, namely the Basic Technical Specifications for Online Public Crowdfunding Information
Platforms for Charity Organizations and the Basic Management Specifications for Online Public Crowdfunding Information Platforms for Charity
Organizations, further clarifying the requirements for online public charity crowdfunding information platforms from the aspects of technology and
management, respectively.
On June 1, 2018, the MCA announced the Directory of Online Public Crowdfunding Information Platforms for Charity Organizations, pursuant to
which twenty online platforms including our Waterdrop Charity platform are designated by the MCA as online public charity crowdfunding information
platforms.
On October 28, 2021, the General Office of the State Council announced the Opinions of the General Office of the State Council on the
Improvement of the Medical Security and Relief System for Serious and Critical Diseases, pursuant to which charitable organizations and other social
organizations are encouraged to set up serious illness relief projects and play a supplementary role in such relief. In particular, the Opinions promote the
development of online public crowdfunding information platforms and encourage sharing resource among platforms. The Opinions also provide to
regulate the information release of Internet personal serious illness helping platforms.
Regulations on Mutual Aid Business

On December 20, 2016, the CIRC issued the Notice on Carrying out the Special Rectification on Illegal Insurance Business in the Form of Online
Mutual Aid Plan. Pursuant to the Special Rectification on Illegal Insurance Business in the Form of Online Mutual Aid Plan, the entity conducting
online mutual aid business shall not: (i) in any form promise solvency margin or mislead consumers to expect assured settlement, including promising in
any form full settlement, using any previous mutual aid cases for publicity and marketing purposes, adopting any publicity approach that may mislead
consumers to expect guarantee, or using any words similar to “ensure” or “guarantee;” (ii) use any insurance terms to promote mutual aid plan or
compare the mutual aid plan to insurance products; (iii) make false and misleading publicity in the name of “insurance innovation” or “Internet-based
insurance;” (iv) claim that mutual aid plans and the fund management are subject to government supervision; or (v) collect funds from the public in
name of insurance premium or illegally set up cash pools.
Regulations on Internet Security

The Decision in Relation to Protection of Internet Security enacted by the Standing Committee of the National People’s Congress on
December 28, 2000, as amended in August 2009, provides that, among other things, the following activities conducted through the internet, if
constituted a crime under PRC laws, are subject to criminal punishment: (i) hacking into a computer or system of strategic importance; (ii) intentionally
inventing and spreading destructive programs such as computer viruses to attack computer systems and communications networks, thus damaging
computer systems and the communications networks; (iii) in violation of national regulations, discontinuing computer networks or the communications
services without authorization; (iv) leaking state secrets; (v) spreading false commercial information; or (vi) infringing intellectual property rights
through internet.
The Provisions on Technological Measures for Internet Security Protection, or the Internet Security Protection Measures, promulgated on
December 13, 2005, by the Ministry of Public Security requires internet service providers and organizations that use interconnection implementing
technical measures for internet security protection, like technical measures for preventing any matter or act that may endanger network security, for
example, computer viruses, invasion or attacks to or destruction of the network. All internet access service providers are required to take measures to
keep a record of and preserve user registration information. Under these measures, value-added telecommunications services license holders must
regularly update information security and content control systems for their websites and must also report any public dissemination of prohibited content
to local public security authorities. If a value-added telecommunications services license holder violates these measures, the Ministry of Public Security
and the local security bureaus may revoke its operating license and shut down its websites.
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On July 1, 2015, the Standing Committee of the National People’s Congress issued the PRC National Security Law, which came into effect on the
same day. The National Security Law provides that the state shall safeguard the sovereignty, security and cyber security development interests of the
state, and that the state shall establish a national security review and supervision system to review, among other things, foreign investment, key
technologies, internet and information technology products and services, and other important activities that are likely to impact national security of
China.
On November 7, 2016, the Standing Committee of the National People’s Congress promulgated the Cybersecurity Law, which came into effect on
June 1, 2017, and applies to the construction, operation, maintenance and use of networks as well as the supervision and administration of cybersecurity
in China. The Cybersecurity Law defines “networks” as systems that are composed of computers or other information terminals and relevant facilities
used for the purpose of collecting, storing, transmitting, exchanging and processing information in accordance with certain rules and procedures.
“Network operators,” who are broadly defined as owners and administrators of networks and network service providers, are subject to various security
protection-related obligations, including: (i) complying with security protection obligations in accordance with tiered cybersecurity system’s protection
requirements, which include formulating internal security management rules and manual, appointing cybersecurity responsible personnel, adopting
technical measures to prevent computer viruses and cybersecurity endangering activities, adopting technical measures to monitor and record network
operation status and cybersecurity events; (ii) formulating cybersecurity emergency response plans, timely handling security risks, initiating emergency
response plans, taking appropriate remedial measures and reporting to regulatory authorities; and (iii) providing technical assistance and support for
public security and national security authorities for protection of national security and criminal investigations in accordance with the law. Network
service providers who do not comply with the Cybersecurity Law may be subject to fines, suspension of their businesses, shutdown of their websites,
and revocation of their business licenses.
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On June 10, 2021, the Standing Committee of the National People’s Congress promulgated the Data Security Law, which took effect in September
2021. The Data Security Law introduces a data classification and hierarchical protection system based on the materiality of data in economic and social
development, as well as the degree of harm it will cause to national security, public interests, or legitimate rights and interests of persons or entities
when such data is tampered with, destroyed, divulged, or illegally acquired or used. It also provides for a security review procedure for the data
activities which may affect national security.
On December 28, 2021, the CAC published the Cybersecurity Review Measures, which became effective on February 15, 2022. Pursuant to the
Cybersecurity Review Measures, critical information infrastructure operators that purchase network products and services and network platform
operators engaging in data processing activities that affect or may affect national security must be subject to the cybersecurity review. According to the
Cybersecurity Review Measures, before purchasing any network products or services, a critical information infrastructure operator shall assess potential
national security risks that may arise from the launch or use of such products or services, and apply for a cybersecurity review with the cybersecurity
review office of CAC if national security will or may be affected. In addition, network platform operators who possess personal information of more
than one million users, and intend to be listed at a foreign stock exchange must be subject to the cybersecurity review. The Cybersecurity Review
Measures further elaborate the factors to be considered when assessing the national security risks of the relevant activities, including, among others: (i)
the risk of any critical information infrastructure being illegally controlled, interfered, or sabotaged; (ii) the harm to the business continuity of any
critical information infrastructure caused by the disruption of supply of these products and services; (iii) the security, openness, transparency and variety
of sources of these products or services, the reliability of supply channels, as well as risks of supply interruptions due to factors such as politics,
diplomacy and trade; (iv) the level of compliance with PRC laws and regulations of the product and service providers; (v) the risk of core data,
important data, or a large amount of personal information being stolen, leaked, destroyed, and illegally used or cross-border transferred, (vi) the risk of
critical information infrastructure, core data, important data, or a large amount of personal information being affected, controlled, or maliciously used by
foreign governments and the cyber information security risk in connection with public offering, and (vii) other factors that may adversely affect the
security of critical information infrastructures, cyber security or data security. If the cybersecurity review office of CAC deems it necessary to conduct a
cybersecurity review, it should complete a preliminary review (including reaching a review conclusion suggestion and sending the review conclusion
suggestion to the implementing body for the cybersecurity review mechanism and the relevant authorities for their comments) within 30 business days
from the issuance of a written notice to the operator, or 45 business days for complicated cases. Upon the receipt of a review conclusion suggestion, the
implementing body for the cybersecurity review mechanism and the relevant authorities for their comments shall issue a written reply within 15
business days. If the cybersecurity review office of CAC and these authorities reach a consensus, then the cybersecurity review office of CAC shall
inform the operator in writing, otherwise, the case will go through a special review procedure. The special review procedure should be completed within
90 business days, or longer for complicated cases.
On August 17, 2021, the State Council promulgated the Regulations on Protection of Security of Critical Information Infrastructure, which took
effect on September 1, 2021, and pursuant to which, “critical information infrastructures” refer to critical network facilities and information systems
involved in important industries and sectors, such as public communication and information services, energy, transportation, water conservancy, finance,
public services, governmental digital services, science and technology related to national defense industry, as well as those which may seriously
endanger national security, national economy and citizen’s livelihood or public interests if damaged or malfunctioned, or if any leakage of data in
relation thereto occurs. Pursuant to these regulations, critical information infrastructure operators shall establish a cybersecurity protection system and
accountability system, and that the main responsible person of a critical information infrastructure operator shall take full responsibility for the security
protection of the critical information infrastructures operated by it. In addition, the relevant governmental authorities are responsible for stipulating rules
for the identification of critical information infrastructures with reference to several factors set forth in the regulations, and further identify the critical
information infrastructure operators in the related industries in accordance with such rules. The relevant authorities shall also notify operators identified
as the critical information infrastructure operators.
On October 29, 2021, the CAC issued the Measures for Security Assessment of Cross-border Data Transfer (Draft for Comment). According to
these measures, in addition to the self-risk assessment requirement for provision of any data outside China, a data processor shall apply to the competent
cyberspace department for data security assessment and clearance of outbound data transfer in any of the following events: (i) outbound transfer of
personal information and important data collected and generated by an operator of critical information infrastructure; (ii) outbound transfer of important
data; (iii) outbound transfer of personal data by a data processor which has processed more than one million users’ personal data; (iv) outbound transfer
of more than one hundred thousand users’ personal information or more than ten thousand users’ sensitive personal information cumulatively; and
(v) such other circumstances where ex-ante security assessment and evaluation of cross-border data transfer is required by the CAC.
On November 14, 2021, the CAC published the Administration Regulations on Network Data Security (Draft for Comments), or the Draft
Measures for Network Data Security, which provides that data processors conducting the following activities shall apply for cybersecurity review:
(i) merger, reorganization or separation of Internet platform operators that have acquired a large number of data resources related to national security,
economic development or public interests affects or may affect national security; (ii) overseas listing of data processors processing over one million
users’ personal information; (iii) listing in Hong Kong which affects or may affect national security; (iv) other data processing activities that affect or
may affect national security. In addition, the Draft Measures for Network Data Security also require Internet platform operators to establish platform
rules, privacy policies and algorithm strategies related to data, and solicit public comments on their official websites and personal information protection
related sections for no less than 30 working days when they formulate platform rules or privacy policies or makes any amendments that may have
significant impacts on users’ rights and interests. The CAC solicited comments on this draft, but there is no timetable as to when it will be enacted.
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On February 10, 2022, the MIIT issued the Measures for the Administration of Data Security in the Field of Industry and Information Technology,
or the Draft Measures, for public comments. The Draft Measures are aimed to regulate the processing activities of data in the field of industry and
information technology field conducted by relevant data processors in the PRC. Pursuant to the Draft Measures, data in the field of industry and
information technology includes industrial data, telecommunication data and radio data generated and collected during the operation of relevant
services, and the data processors in the field of industry and information technology include, among others, the operators of telecommunication services
that have obtained relevant licenses for operation of telecommunication services. The Draft Measures provide for the classification of data in the field of
industry and information technology as general, important, or core data, and provide specific requirements for the management of data classifications
and data protection measures, including among others, data collection, storage, processing, transmission, disclosure, and destruction for data processors
in the field of industry and information technology. In particular, data processors processing important data and core data are required to complete filing
with relevant authorities for the catalogue of important data and core data. The filing information includes basic information on the data, such as
category, classification, quantity, processing purposes and methods of data processing, scope of use, liable entities, data sharing, cross-border transfer of
data and data security protection measures. If over 30% of the category or quantity of important and core data changes or there is any material change to
other filing information, data processors shall update the filing information with the relevant authorities within three month after such change.
Furthermore, the Draft Measures provide data security requirements for cross-border and data transfers for data processors. If a data processor needs to
transfer data in cases of merger, restructuring, or bankruptcy, it shall make data transfer plan and notify users affected, and if the data to be transferred
includes important and core data, it shall complete the filing with relevant authorities. In addition, the Draft Measures indicate that the legal
representative or principal of the data processor should be the primary person held accountable for data security and the person in charge of data security
should take direct responsibility for the security of data processing activities.
Regulations on Privacy Protection

Pursuant to the Decision on Strengthening the Protection of Online Information, issued by the Standing Committee of the National People’s
Congress in 2012, and the Order for the Protection of Telecommunication and Internet User Personal Information, issued by the MIIT in 2013 and the
Cybersecurity Law, any collection and use of a user’s personal information must be subject to the consent of the user, be legal, reasonable and necessary
and be limited to specified purposes, methods and scopes. An internet information service provider must also keep such information strictly confidential,
and is further prohibited from divulging, tampering with or destroying any such information, or selling or providing such information to other parties.
An internet information service provider is required to take technical and other measures to prevent the collected personal information from any
unauthorized disclosure, damage or loss. In case of any actual or potential leakage of the user personal information, internet information service
providers must take immediate remedial measures and make timely report to the relevant regulatory authorities and inform users in accordance with the
regulations. Any violation of these laws and regulations may subject the internet information service provider to warnings, fines, confiscation of illegal
gains, revocation of licenses, cancelation of filings, closedown of websites or even criminal liabilities.
With respect to the security of information collected and used by mobile apps, pursuant to the Announcement of Conducting Special Supervision
against the Illegal Collection and Use of Personal Information by Apps, which was issued on January 23, 2019, app operators should collect and use
personal information in compliance with the Cybersecurity Law and should be responsible for the security of personal information obtained from users
and take effective measures to strengthen the protection of personal information. Furthermore, app operators must not force their users to make
authorization by means of bundling, suspending installation or in other default forms and should not collect personal information in (i) violation of laws
or regulations, or (ii) breach of user agreements. Such regulatory requirements were emphasized by the Notice on the Special Rectification of Apps
Infringing upon User’s Personal Rights and Interests, which was issued by the MIIT on October 31, 2019. On November 28, 2019, the Cyberspace
Administration of China, the MIIT, the Ministry of Public Security and the SAMR jointly issued the Methods of Identifying Illegal Acts of Apps to
Collect and Use Personal Information. This regulation further illustrates certain commonly seen illegal practices of apps operators in terms of the
protection of personal information, including: “failure to publicize rules for collecting and using personal information”; “failure to expressly state the
purpose, manner and scope of collecting and using personal information”; “collection and use of personal information without consent of users of the
App”; “collecting personal information irrelevant to the services provided by the app in violation of the principle of necessity,” “provision of personal
information to others without users’ consent”; “failure to provide the function of deleting or correcting personal information as required by laws”; and
“failure to publish information such as methods for complaints and reporting.” Any of the following acts, among others, of an app operator will
constitute “collection and use of personal information without consent of users:” (i) collecting any user’s personal information or activating the
permission for collecting any user’s personal information without obtaining such user’s consent; (ii) collecting personal information or activating the
permission for collecting the personal information of any user who explicitly refuses such collection, or repeatedly seeking any user’s consent such that
the user’s normal use of such app is disturbed; (iii) collecting any user’s personal information which has been actually collected by the app operator or
activating the permission for collecting any user’s personal information by the app operator that is beyond the scope of personal information which the
user authorizes the app operator to collect; (iv) seeking any user’s consent in a non-explicit manner; (v) modifying any user’s settings for activating the
permission for collecting any personal information without such user’s consent; (vi) using users’ personal information and any algorithms to
directionally push any information, without providing the option of non-directed pushing of such information; (vii) misleading users to permit collecting
their personal information or activating the permission for collecting the users’ personal information by improper methods, such as fraud and deception;
(viii) failing to provide users with the means and methods to withdraw their permission for collecting personal information; and (ix) collecting and using
personal information in violation of the rules for collecting and using personal information promulgated by the app operator.
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Pursuant to the Notice of the Supreme People’s Court, the Supreme People’s Procuratorate and the Ministry of Public Security on Legally
Punishing Criminal Activities Infringing upon the Personal Information of Citizens, issued in 2013, and the Interpretation of the Supreme People’s Court
and the Supreme People’s Procuratorate on Several Issues regarding Legal Application in Criminal Cases Infringing upon the Personal Information of
Citizens, which was issued on May 8, 2017 and took effect on June 1, 2017, the following activities may constitute the crime of infringing upon a
citizen’s personal information: (i) providing a citizen’s personal information to specified persons or releasing a citizen’s personal information online or
through other methods in violation of relevant national provisions; (ii) providing legitimately collected information relating to a citizen to others without
such citizen’s consent (unless the information is processed, not traceable to a specific person and not recoverable); (iii) collecting a citizen’s personal
information in violation of applicable rules and regulations when performing a duty or providing services; or (iv) collecting a citizen’s personal
information by purchasing, accepting or exchanging such information in violation of applicable rules and regulations.
Pursuant to the PRC Civil Code, which came into effect on January 1, 2021, the information processor shall take technical measures and other
necessary measures to protect the personal information collected and stored by it and to prevent any information from being leaked, falsified and lost. In
the event that any personal information is or may be leaked, falsified or lost, the information processor shall take immediate remedial measures, inform
the natural person concerned and escalate such situation to the competent department as required.
On August 20, 2021, the Standing Committee of the National Peoples’ Congress issued the PRC Personal Information Protection Law, which
integrates the scattered rules with respect to personal information rights and privacy protection. The PRC Personal Information Protection Law aims at
protecting the personal information rights and interests, regulating the processing of personal information, ensuring the orderly and free flow of personal
information in accordance with the law, and promoting the reasonable use of personal information. Personal information, as defined in the PRC Personal
Information Protection Law, refers to information related to identified or identifiable natural persons and recorded by electronic or other means, but
excluding the anonymized information. The PRC Personal Information Protection Law provides the circumstances under which a personal information
processor could process personal information, which include but not limited to, where the consent of the individual concerned is obtained and where it is
necessary for the conclusion or performance of a contract to which the individual is a contractual party. It also stipulates certain specific rules with
respect to the obligations of a personal information processor, such as to inform the purpose and method of processing to the individuals, and the
obligation of the third party who has access to the personal information by way of co-processing or delegation.
According to the Insurance Brokerage Provisions, Insurance Agencies Provisions and the Provisions on the Supervision and Administration of
Insurance Adjustors, the insurance brokers, insurance agencies, insurance adjusting firms and their practitioners shall not disclose trade secrets of the
insurer, the applicant and the insured known during business activities.
Regulations on Intellectual Property Rights

Patent Law
According to the PRC Patent Law (2020 Revision), the State Intellectual Property Office is responsible for administering patent law in China. The
patent administration departments of the provincial, autonomous region and municipal governments are responsible for administering patent law within
their respective jurisdictions. The PRC patent system adopts a first-to-file principle, which means that when more than one person files different patent
applications for the same invention, only the person who files the application first is entitled to obtain a patent of the invention. To be patentable, an
invention or a utility model must meet three criteria: novelty, inventiveness, and practicability. A patent is valid for twenty years in the case of an
invention and ten years in the case of utility models and designs.
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Regulations on Copyright
The PRC Copyright Law, which became effective on June 1, 1991 and was amended in 2001, 2010 and 2020, provides that Chinese citizens, legal
persons, or other organizations own copyright in their copyrightable works, whether published or not, which include, works of literature, art, natural
science, social science, engineering technology, and computer software. Copyright owners enjoy certain legal rights, including right of publication, right
of authorship, and right of reproduction. The Copyright Law as revised in 2010 extends copyright protection to internet activities, products disseminated
over the internet, and software products. In addition, the Copyright Law provides for a voluntary registration system administered by the China
Copyright Protection Center. Pursuant to the Copyright Law, an infringer of copyrights is subject to various civil liabilities, which include ceasing
infringement activities, apologizing to the copyright owners, and compensating the loss of the copyright owners. Infringers of copyrights may also be
subject to fines and/or administrative or criminal liabilities in severe situations.
Pursuant to the Computer Software Copyright Protection Regulations promulgated by the State Council on December 20, 2001 and amended in
2013, the software copyright owner may go through the registration formalities with a software registration authority recognized by the State Council’s
copyright administrative department. The software copyright owner may authorize others to exercise that copyright and is entitled to receive
remuneration.
Trademark Law
Trademarks are protected under the PRC Trademark Law, which was adopted on August 23, 1982 and subsequently amended in 1993, 2001, 2013,
and 2019, and the Implementation Regulations of the PRC Trademark Law adopted by the State Council in 2002 and most recently amended in 2014.
The Trademark Office under the State Administration for Market Regulation (formally known as the State Administration for Industry and Commerce)
handles trademark registrations. The Trademark Office grants a ten-year term to registered trademarks and the term may be renewed for another ten-year
period upon request by the trademark owner. A trademark registrant may license its registered trademarks to another party by entering into trademark
license agreements, which must be filed with the Trademark Office for the record. As with patents, the Trademark Law has adopted a first-to-file
principle with respect to trademark registration. If a trademark applied for is identical or similar to another trademark which has already been registered
or subject to a preliminary examination and approval for use on the same or similar kinds of products or services, such a trademark application may be
rejected. Any person applying for the registration of a trademark may not injure existing trademark rights first obtained by others, nor may any person
register in advance a trademark that has already been used by another party and has already gained a “sufficient degree of reputation” through such other
party’s use.
Regulations on Domain Names

The MIIT promulgated the Measures on Administration of Internet Domain Names on August 24, 2017, which became effective on November 1,
2017 and replaced the Administrative Measures on China Internet Domain Names promulgated by the MIIT on November 5, 2004. Pursuant to these
measures, the MIIT oversees the administration of PRC Internet domain names. The domain name registration follows a first-to-file principle.
Applicants for registration of domain names must provide the true, accurate, and complete information of their identities to domain name registration
service institutions. The applicants will become the holder of such domain names upon the completion of the registration procedure.
Regulations on Foreign Exchange

General Administration of Foreign Exchange
Under the PRC Foreign Currency Administration Rules promulgated on January 29, 1996 and most recently amended in 2008 and various
regulations issued by the State Administration of Foreign Exchange, or SAFE, and other relevant PRC government authorities, Renminbi is convertible
into other currencies for current account items, such as trade-related receipts and payments and payment of interest and dividends. The conversion of
Renminbi into other currencies and remittance of the converted foreign currency outside China for capital account items, such as direct equity
investments, loans, and repatriation of investment, requires the prior approval from SAFE or its local branch.
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Payments for transactions that take place in China must be made in Renminbi. Unless otherwise approved, PRC companies may not repatriate
foreign currency payments received from abroad or retain the same abroad. FlEs may retain foreign exchange proceeds in accounts with designated
foreign exchange banks under the current account items subject to a cap set by SAFE or its local branch. Foreign exchange proceeds under the current
accounts may be either retained or sold to a financial institution engaged in settlement and sale of foreign exchange pursuant to relevant SAFE rules and
regulations. For foreign exchange proceeds under the capital accounts, approval from SAFE is generally required for the retention or sale of such
proceeds to a financial institution engaged in settlement and sale of foreign exchange.
Pursuant to the Circular of SAFE on Further Improving and Adjusting Foreign Exchange Administration Policies for Direct Investment, which
was promulgated on November 19, 2012, became effective on December 17, 2012, and was further amended in 2015, 2018 and 2019, approval of SAFE
is not required for opening a foreign exchange account and depositing foreign exchange proceeds into the accounts relating to the direct investments.
This circular also simplifies foreign exchange-related registration required for foreign investors to acquire equity interests of PRC companies and further
improves the administration on foreign exchange settlement for FlEs.
The Circular on Further Simplifying and Improving Foreign Exchange Administration Policy on Direct Investment, or SAFE Circular 13, which
became effective on June 1, 2015 and was amended in 2019, cancels the administrative approvals of foreign exchange registration of direct domestic
investment and direct overseas investment and simplifies the procedure of foreign exchange-related registration. Pursuant to the SAFE Circular 13,
when setting up a new FIE, investors should register with banks for direct domestic investment and direct overseas investment.
The Circular on Reforming the Management Approach Regarding the Settlement of Foreign Capital of Foreign-Invested Enterprise, which was
promulgated on March 30, 2015, became effective on June 1, 2015, and was amended on December 30, 2019, provides that an FIE may, according to its
actual business needs, settle with a bank the portion of the foreign exchange capital in its capital account for which the relevant foreign exchange
administration has confirmed monetary capital contribution rights and interests (or for which the bank has registered the injection of the monetary
capital contribution into the account). Pursuant to this circular: FlEs are allowed to settle 100% of their foreign exchange capital on a discretionary basis;
an FIE should truthfully use its capital for its own operational purposes within the scope of its business; and where an ordinary FIE makes domestic
equity investment with the amount of foreign exchanges settled, the FIE must first go through domestic re-investment registration and open a
corresponding account for foreign exchange settlement pending payment with the foreign exchange administration or the bank at the place where it is
registered.
The Circular on Reforming and Regulating Policies on the Control over Foreign Exchange Settlement of Capital Accounts, which was
promulgated and became effective on June 9, 2016, provides that enterprises registered in China may also convert their foreign debts from foreign
currency into Renminbi on a self- discretionary basis. This circular also provides an integrated standard for conversion of foreign exchange under capital
account items (including, but not limited to, foreign currency capital and foreign debts) on a self-discretionary basis, which applies to all enterprises
registered in China.
On January 26, 2017, SAFE promulgated the Circular on Further Improving Reform of Foreign Exchange Administration and Optimizing
Genuineness and Compliance Verification, which stipulates several capital control measures with respect to the outbound remittance of profit from
domestic entities to offshore entities, including: (i) banks should check board resolutions regarding profit distribution, the original version of tax filing
records, and audited financial statements pursuant to the principle of genuine transactions; and (ii) domestic entities should hold income to account for
previous years’ losses before remitting the profits. Moreover, pursuant to this circular, domestic entities should make detailed explanations of the
sources of capital and utilization arrangements, and provide board resolutions, contracts, and other proof when completing the registration procedures in
connection with an outbound investment.
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On October 23, 2019, SAFE promulgated the Notice for Further Advancing the Facilitation of Cross-border Trade and Investment, which, among
other things, allows all FlEs to use Renminbi converted from foreign currency-denominated capital for equity investments in China, as long as the equity
investment is genuine, does not violate applicable laws, and complies with the negative list on foreign investment. However, since this circular is newly
promulgated, it is unclear how SAFE and competent banks will carry it out in practice.
Based on the foregoing, if we intend to provide funding to our wholly foreign-owned subsidiaries through capital injection at or after their
establishment, we must register the establishment of and any follow-on capital increase in our wholly foreign-owned subsidiaries with the SAMR or its
local counterparts, file such via the enterprise registration system, and register such with the local banks for the foreign exchange-related matters.
Loans by the Foreign Companies to Their PRC Subsidiaries

A loan made by foreign investors as shareholders in an FIE is considered foreign debt in China and is regulated by various laws and regulations,
including the PRC Regulation on Foreign Exchange Administration, the Interim Provisions on the Management of Foreign Debts, the Statistical
Monitoring of Foreign Debt Tentative Provisions, the Detailed Rules for the Implementation of Provisional Regulations on Statistics and Supervision of
Foreign Debt, and the Administrative Measures for Registration of Foreign Debt. Under these rules and regulations, a shareholder loan in the form of
foreign debt made to a PRC entity does not require the prior approval of SAFE. However, such foreign debt must be registered with and recorded by
SAFE or its local branches within fifteen business days after entering into the foreign debt contract. Pursuant to these rules and regulations, the balance
of the foreign debts of an FIE cannot exceed the difference between the total investment and the registered capital of the FIE.
On January 12, 2017, the People’s Bank of China, or the PBOC, promulgated the Notice of the People’s Bank of China on Matters concerning the
Macro-Prudential Management of Full-Covered Cross-Border Financing, or PBOC Notice No. 9. Pursuant to PBOC Notice No. 9, within a transition
period of one year from January 12, 2017, FlEs may adopt the currently valid foreign debt management mechanism, or the mechanism as provided in
PBOC Notice No. 9, at their own discretions. PBOC Notice No. 9 provides that enterprises may conduct independent cross-border financing in
Renminbi or foreign currencies as required. Pursuant to PBOC Notice No. 9, the outstanding cross-border financing of an enterprise (the outstanding
balance drawn, here and below) will be calculated using a risk-weighted approach and cannot exceed certain specified upper limits. PBOC Notice No. 9
further provides that the upper limit of risk-weighted outstanding cross-border financing for an enterprise is 200% of its net assets, or the Net Asset
Limits. Enterprises must file with SAFE in its capital item information system after entering into the relevant cross-border financing contracts and prior
to three business days before drawing any money from the foreign debts.
Based on the foregoing, if we provide funding to our wholly foreign-owned subsidiaries through shareholder loans, the balance of such loans
(i) cannot exceed the difference between the total investment and the registered capital of the subsidiaries and we will need to register such loans with
SAFE or its local branches in the event that the currently valid foreign debt management mechanism applies, or (ii) will be subject to the risk-weighted
approach and the Net Asset Limits and we will need to file the loans with SAFE in its information system in the event that the mechanism as provided in
PBOC Notice No. 9 applies. Pursuant to PBOC Notice No. 9, after a transition period of one year from January 11, 2017, the PBOC and SAFE would
determine the cross-border financing administration mechanism for the FlEs after evaluating the overall implementation of PBOC Notice No. 9. As of
the date hereof, neither the PBOC nor SAFE has promulgated and made public any further rules, regulations, notices, or circulars in this regard. It is
uncertain which mechanism will be adopted by the PBOC and SAFE in the future and what statutory limits will be imposed on us when providing loans
to our PRC subsidiaries.
Offshore Investment
Under the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and Financing and
Roundtrip Investment Through Special Purpose Vehicles, or SAFE Circular 37, effective on July 4, 2014, PRC residents are required to register with the
local SAFE branch prior to the establishment or control of an offshore special purpose vehicle, which is defined as an offshore enterprise directly
established or indirectly controlled by PRC residents for investment and financing purposes, with the enterprise assets or interests PRC residents hold in
China or overseas. The term “control” means to obtain the operation rights, right to proceeds, or decision-making power of a special purpose vehicle
through acquisition, trust, holding shares on behalf of others, voting rights, repurchase, convertible bonds, or other means. An amendment to registration
or subsequent filing with the local SAFE branch by such PRC residents is also required if there is any change in the basic information of the offshore
company or any material change with respect to the capital of the offshore company. At the same time, SAFE has issued the Operation Guidance for the
Issues Concerning Foreign Exchange Administration over Round-Trip Investment regarding the procedures for SAFE registration under SAFE Circular
37, which became effective on July 4, 2014, as an attachment of SAFE Circular 37.
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Under the relevant rules, failure to comply with the registration procedures set forth in SAFE Circular 37 may result in bans on the foreign
exchange activities of the relevant onshore company, including the payment of dividends and other distributions to its offshore parent or affiliates, and
may also subject relevant PRC residents to penalties under PRC foreign exchange administration regulations.
Regulations on Dividend Distribution

The principal laws and regulations regulating the distribution of dividends by FlEs in China include the PRC Company Law, as amended in 2004,
2005, 2013, and 2018, and the 2019 PRC Foreign Investment Law and its Implementation Rules. Under the current regulatory regime in China, FlEs in
China may pay dividends only out of their retained earnings, if any, determined in accordance with PRC accounting standards and regulations. A PRC
company is required to set aside as statutory reserve funds at least 10% of its after-tax profit, until the cumulative amount of such reserve funds reaches
50% of its registered capital, unless laws regarding foreign investment provide otherwise. A PRC company cannot distribute any profits until any losses
from prior fiscal years have been offset. Profits retained from prior fiscal years may be distributed together with distributable profits from the current
fiscal year.
Regulations on Taxation
Enterprise Income Tax
On March 16, 2007, the National People’s Congress promulgated the PRC Enterprise Income Tax Law, which was amended on February 24, 2017
and December 29, 2018. On December 6, 2007, the State Council enacted the Regulations for the Implementation of the Enterprise Income Tax Law,
which became effective on January 1, 2008 and was amended on April 23, 2019. Under the Enterprise Income Tax Law and the relevant implementing
regulations, both resident enterprises and non-resident enterprises are subject to tax in China. Resident enterprises are defined as enterprises that are
established in China in accordance with PRC laws, or that are established in accordance with the laws of foreign countries but are actually or in effect
controlled from within China. Non-resident enterprises are defined as enterprises that are organized under the laws of foreign countries and whose actual
management is conducted outside China, but have established institutions or premises in China, or have no such established institutions or premises but
have income generated from inside China. Under the Enterprise Income Tax Law and relevant implementing regulations, a uniform corporate income
tax rate of 25% is applied. However, if non-resident enterprises have not formed permanent establishments or premises in China, or if they have formed
permanent establishments or premises in China but there is no actual relationship between the relevant income derived in China and the established
institutions or premises set up by them, withholding income tax is set at the rate of 10% with respect to their income sourced from inside the PRC.
Value-Added Tax
The PRC Provisional Regulations on Value-Added Tax were promulgated by the State Council on December 13, 1993, became effective on
January 1, 1994, and were subsequently amended from time to time. The Detailed Rules for the Implementation of the PRC Provisional Regulations on
Value-Added Tax (2011 Revision) were promulgated by the Ministry of Finance on December 25, 1993 and subsequently amended in 2008 and 2011.
On November 19, 2017, the State Council promulgated the Decisions on Abolishing the PRC Provisional Regulations on Business Tax and Amending
the PRC Provisional Regulations on Value-Added Tax. Pursuant to these regulations, rules and decisions, all enterprises and individuals engaged in sale
of goods, provision of processing, repair, and replacement services, sales of services, intangible assets, real property, and the importation of goods within
the PRC are value-added tax, or VAT, taxpayers. On March 20, 2019, the Ministry of Finance, the State Administration of Taxation, or SAT, and the
General Administration of Customs jointly issued the Announcement on Relevant Policies on Deepening the Reform of Value-Added Tax. Pursuant to
this announcement, the generally applicable VAT rates are simplified as 13%, 9%, 6%, and 0%, which became effective on April 1, 2019, and the VAT
rate applicable to the small-scale taxpayers is 3%.
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Dividend Withholding Tax

The Enterprise Income Tax Law and its implementation rules provide that since January 1, 2008, an income tax rate of 10% will normally apply to
dividends declared to non-PRC resident investors that do not have an establishment or place of business in China, or that have such establishment or
place of business but the relevant income is not effectively connected with the establishment or place of business, to the extent such dividends are
derived from sources within China.
Pursuant to the Arrangement Between the Mainland of China and the Hong Kong Special Administrative Region on the Avoidance of Double
Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital, and other applicable PRC laws, if a Hong Kong resident
enterprise is determined by the competent PRC tax authority to have met the relevant conditions and requirements under this arrangement and other
applicable laws, the 10% withholding tax on the dividends the Hong Kong resident enterprise receives from a PRC resident enterprise may be reduced to
5%. However, based on the Circular on Certain Issues with Respect to the Enforcement of Dividend Provisions in Tax Treaties issued on February 20,
2009, if the relevant PRC tax authorities determine, in their discretions, that a company benefits from such reduced income tax rate due to a structure or
arrangement that is primarily tax-driven, such PRC tax authorities may adjust the preferential tax treatment. Pursuant to the Circular on Several
Questions regarding the “Beneficial Owner” in Tax Treaties, which was issued on February 3, 2018 by SAT and became effective on April 1, 2018,
when determining the applicant’s status as the “beneficial owner” regarding tax treatment in connection with dividends, interests, or royalties in the tax
treaties, several factors, including, without limitation, whether the applicant is obligated to pay more than 50% of his or her income in twelve months to
residents in a third country or region, whether the business operated by the applicant constitutes the actual business activities, and whether the
counterparty country or region to the tax treaties does not levy any tax or grant any tax exemption on relevant incomes or levy tax at an extremely low
rate, will be taken into account, and such factors will be analyzed according to the actual circumstances of the specific cases.
Tax on Indirect Transfer

On February 3, 2015, SAT issued the Bulletin on Issues of Enterprise Income Tax on Indirect Transfers of Assets by Non PRC Resident
Enterprises, or Bulletin 7. Pursuant to Bulletin 7, an “indirect transfer” of assets, including equity interests in a PRC resident enterprise, by non-PRC
resident enterprises, may be recharacterized and treated as a direct transfer of PRC taxable assets, if such arrangement does not have a reasonable
commercial purpose and was established for the purpose of avoiding payment of PRC enterprise income tax. As a result, gains derived from such
indirect transfer may be subject to PRC enterprise income tax. When determining whether there is a “reasonable commercial purpose” in the transaction
arrangement, features to be taken into consideration include, inter alia, whether the main value of the equity interest of the relevant offshore enterprise
derives directly or indirectly from PRC taxable assets; whether the assets of the relevant offshore enterprise mainly consists of direct or indirect
investment in China or if its income is mainly derived from China; and whether the offshore enterprise and its subsidiaries directly or indirectly holding
PRC taxable assets have a real commercial nature which is evidenced by their actual function and risk exposure. Bulletin 7 does not apply to
transactions of sale of shares by investors through a public stock exchange where such shares are acquired on a public stock exchange. On October 17,
2017, SAT issued the Announcement of the State Administration of Taxation on Issues Concerning the Withholding of Non- resident Enterprise Income
Tax at Source, or Bulletin 37, which was amended by the Announcement of the State Administration of Taxation on Revising Certain Taxation
Normative Documents issued on June 15, 2018 by SAT. Bulletin 37 further elaborates the relevant implemental rules regarding the calculation,
reporting, and payment obligations of the withholding tax by the non-resident enterprises. Nonetheless, there remain uncertainties as to the interpretation
and application of Bulletin 7. Bulletin 7 may be determined by the tax authorities to be applicable to our offshore transactions or sale of our shares or
those of our offshore subsidiaries where non-resident enterprises, being the transferors, are involved.
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Regulations on Employment
Labor Contract Law
The PRC Labor Contract Law, which became effective on January 1, 2008 and amended in 2012, primarily aims at regulating rights and
obligations of employment relationships, including the establishment, performance, and termination of labor contracts. Pursuant to the Labor Contract
Law, labor contracts must be executed in writing if labor relationships are to be or have been established between employers and employees. Employers
are prohibited from forcing employees to work above certain time limits and employers must pay employees for overtime work in accordance with
national regulations. In addition, employees’ wages must not be lower than local standards on minimum wages and must be paid to employees in a
timely manner.
Social Insurance
As required under the Regulation of Insurance for Labor Injury implemented on January 1, 2004 and amended in 2010, the Provisional Measures
for Maternity Insurance of Employees of Corporations implemented on January 1, 1995, the Decisions on the Establishment of a Unified Program for
Old-Aged Pension Insurance of the State Council issued on July 16, 1997, the Decisions on the Establishment of the Medical Insurance Program for
Urban Workers of the State Council promulgated on December 14, 1998, the Unemployment Insurance Measures promulgated on January 22, 1999, and
the PRC Social Insurance Law implemented on July 1, 2011 and amended on December 29, 2018, employers are required to provide their employees in
China with welfare benefits covering pension insurance, unemployment insurance, maternity insurance, work-related injury insurance, and medical
insurance. These payments are made to local administrative authorities. Any employer that fails to make social insurance contributions may be ordered
to rectify the non-compliance and pay the required contributions within a prescribed time limit and be subject to a late fee. If the employer still fails to
rectify the failure to make the relevant contributions within the prescribed time, it may be subject to a fine ranging from one to three times the amount
overdue. On July 20, 2018, the General Office of the State Council issued the Plan for Reforming the State and Local Tax Collection and Administration
Systems, which stipulated that SAT will become solely responsible for collecting social insurance premiums.
Housing Fund
In accordance with the Regulations on the Administration of Housing Funds, which was promulgated by the State Council in 1999 and amended
in 2002 and 2019, employers must register at the designated administrative centers and open bank accounts for depositing employees’ housing funds.
Employers and employees are also required to pay and deposit housing funds, with an amount no less than 5% of the monthly average salary of the
employee in the preceding year in full and on time.
Regulations on Share Incentive Plans

Pursuant to the Notices on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan
of Overseas Publicly Listed Company, which was issued by SAFE on February 15, 2012, employees, directors, supervisors, and other senior
management who participate in any stock incentive plan of a publicly listed overseas company and who are PRC citizens or non-PRC citizens residing
in China for a continuous period of no less than one year, subject to a few exceptions, are required to register with SAFE through a qualified domestic
agent, which may be a PRC subsidiary of such overseas listed company, and complete certain other procedures.
In addition, SAT has issued certain circulars concerning employee stock options and restricted shares. Under these circulars, employees working
in China who exercise stock options or are granted restricted shares will be subject to PRC individual income tax. The PRC subsidiaries of an overseas
listed company are required to file documents related to employee stock options and restricted shares with relevant tax authorities and to withhold
individual income taxes of employees who exercise their stock options or purchase restricted shares. If the employees fail to pay or the PRC subsidiaries
fail to withhold income tax in accordance with relevant laws and regulations, the PRC subsidiaries may be subject to sanctions imposed by the tax
authorities or other PRC governmental authorities.
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M&A Rules and Overseas Listing

On August 8, 2006, six PRC governmental and regulatory agencies, including the Ministry of Commerce and the CSRC, promulgated the M&A
Rules governing the mergers and acquisitions of domestic enterprises by foreign investors, which became effective on September 8, 2006, and was
revised in 2009. The M&A Rules, among other things, require that if an overseas company established or controlled by PRC companies or PRC citizens
intends to acquire equity interests or assets of any other PRC domestic company affiliated with the PRC citizens, such acquisition must be submitted to
the Ministry of Commerce for approval. The M&A Rules also require that an offshore special purpose vehicle, or a special purpose vehicle formed for
overseas listing purposes and controlled directly or indirectly by PRC companies or individuals, shall obtain the approval of the CSRC prior to overseas
listing and trading of such special purpose vehicle’s securities on an overseas stock exchange. See “Risk Factors — The M&A Rules and certain other
PRC regulations may make it more difficult for us to pursue growth through acquisitions.”
On December 24, 2021, the CSRC published the Administrative Provisions and the Draft Measures, for public comments. Pursuant to these drafts,
PRC domestic companies that directly or indirectly offer or list their securities in an overseas market, including a PRC company limited by shares and
an offshore company whose main business operations are in China and intends to offer shares or be listed in an overseas market based on its onshore
equities, assets or similar interests, are required to file with the CSRC within three business days after submitting their listing application documents to
the regulator in the place of intended listing. Failure to complete the filing under the Administrative Provisions may subject the domestic enterprise to a
warning or a fine of one to ten million RMB. If the circumstances are serious, the domestic enterprise may be ordered to suspend its business or suspend
its business pending rectification, or its permits or businesses license may be revoked. The Draft Measures also provide that a PRC domestic company
must file with the CSRC within three business days for its follow on offering of securities or issue of securities to purchase assets after it is listed in an
overseas market. However, there is no timetable as to when these drafts will be enacted.
C. Organizational Structure
For the chart illustrating our company’s organizational structure, see the outset of “Item 3. Key Information.”
Contractual Arrangements with the Variable Interest Entities and Their Shareholders
Current PRC laws and regulations impose certain restrictions or prohibitions on foreign ownership and investment in internet-based businesses
such as the value-added telecommunication services. We are an exempted company incorporated in the Cayman Islands. Absolute Health is our PRC
subsidiary and a foreign-invested enterprise under PRC laws.
To comply with PRC laws and regulations, we conduct certain of our business in China through Zhuiqiu Jizhi, Shuidi Hubao, Shuidi Hulian,
Zongqing Xiangqian and Guangmu Weichen, the variable interest entities in the PRC, based on a series of contractual arrangements by and among
Absolute Health, the VIEs and their shareholders. We refer to Absolute Health as our WFOE, and Zhuiqiu Jizhi, Shuidi Hubao, Shuidi Hulian, Zongqing
Xiangqian and Guangmu Weichen as the VIEs in this annual report.
Our contractual arrangements with the VIEs and their respective shareholders allow us to (i) exercise effective control over the VIEs, (ii) receive
substantially all of the economic benefits of the VIEs, and (iii) have an exclusive option to purchase all or part of the equity interests in the VIEs when
and to the extent permitted by PRC law.
As a result of our direct ownership in our WFOE and the contractual arrangements with the VIEs, we are regarded as the primary beneficiary of
the VIEs, and we treat them and their subsidiaries as our variable interest entities under U.S. GAAP. We have consolidated the financial results of the
VIEs and their subsidiaries in our consolidated financial statements in accordance with U.S. GAAP.
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Agreements that provide us with effective control over the VIEs

Powers of Attorney. Pursuant to the powers of attorney, between our WFOE and the shareholders of the VIEs, each of the shareholders of the VIEs
has executed a power of attorney to irrevocably authorize our WFOE, or any person designated by our WFOE, to act as his attorney-in-fact to exercise
all of his rights as a shareholder of the VIE, including, but not limited to, the right to (i) propose, convene and attend shareholders’ meetings, (ii) vote on
any resolution on behalf of the shareholders that require the shareholders to vote under PRC law and the VIE’s articles of association, such as the sale,
transfer, pledge and disposal of all or part of a shareholder’s equity interest in the VIE, and (iii) designate and appoint the VIE’s legal representative,
director, supervisor, manager and other senior management members on behalf of the shareholders. The powers of attorney will remain effective until
such shareholder ceases to be a shareholder of the VIE.
Loan Agreements. Pursuant to the loan agreement between our WFOE and each of the shareholders of Zongqing Xiangqian, our WFOE extended
loans to the shareholders of Zongqing Xiangqian, who had contributed the loan principals to Zongqing Xiangqian mainly as registered capital. The
shareholders of Zongqing Xiangqian may repay the loans only by transferring their respective equity interests in Zongqing Xiangqian to WFOE or its
designated person(s) pursuant to the exclusive option agreements. Each loan shall be interest-free unless, in the event of a transfer of equity interests by
a shareholder of Zongqing Xiangqian to our WFOE or its designated person(s) pursuant to the exclusive option agreement, the transfer price exceeds the
loan principal. The excess over the loan principal shall be deemed the interest of the loan to the extent permitted under PRC law. These loan agreements
will remain effective until the date of full performance by the parties of their respective obligations thereunder. The loan agreement among our WFOE,
Zhuiqiu Jizhi and the shareholders of Zhuiqiu Jizhi are substantially the same.
Equity Interest Pledge Agreements. Pursuant to the equity interest pledge agreements, among our WFOE, the VIEs and the shareholders of the
VIEs, the shareholders of the VIEs have pledged all of their respective equity interests in the VIEs to our WFOE to guarantee performance of the
obligations of the VIEs and their shareholders under the exclusive business cooperation agreements, the powers of attorney, the exclusive option
agreements and loan agreements (as applicable). In the event of a breach by the VIEs or any of their shareholders of contractual obligations under these
contractual arrangements, our WFOE, as pledgee, will have the right to request for enforcement of the pledge and dispose of the pledged equity interests
in the VIEs and will have priority in receiving the proceeds from such disposal. The VIEs and the shareholders of the VIEs also covenant that, without
the prior written consent of our WFOE, they shall not transfer the pledged equity interests, create or allow any new pledge or any other encumbrance on
the pledged equity interests. The equity interest pledge agreements will remain effective until the contractual obligations are fully fulfilled.
We have completed the registration of the equity interest pledge under the equity interest pledge agreements in relation to the VIEs with the
relevant offices of the State Administration of Market Regulation in accordance with the PRC Civil Code.
Agreements that allow us to receive economic benefits from the VIEs

Exclusive Business Cooperation Agreements. Pursuant to the exclusive business cooperation agreements, between our WFOE and the VIEs, our
WFOE has the exclusive right to provide the VIEs with consulting, technical services and other services required by the VIEs’ business. Without our
WFOE’s prior written consent, the VIEs may not accept the same or similar consulting, technical services and other services provided by any third party
during the term of the agreement. The VIEs agree to pay our WFOE service fees based on the operating profit generated by the VIEs on an annual basis.
Our WFOE has the exclusive ownership of all the intellectual property rights created as a result of the performance of the exclusive business
cooperation agreement. To guarantee the VIEs’ performance of their obligations thereunder, the shareholders of the VIEs have pledged all of their equity
interests in the VIEs to our WFOE pursuant to the equity interest pledge agreement. The exclusive business cooperation agreement will remain effective,
unless otherwise terminated by our WFOE in writing or based on conditions expressly stipulated in the exclusive business cooperation agreements.
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Agreements that provide us with the option to purchase the equity interests in the VIEs
Exclusive Option Agreements. Pursuant to the exclusive option agreements, among our WFOE, the VIEs and the shareholders of the VIEs, each of
the shareholders has irrevocably granted our WFOE, or any person or persons designated by our WFOE, an exclusive option to purchase all or part of
his equity interests in the VIE, and the VIE has agreed to such grant of options. Our WFOE may exercise such options at a price equal to the higher of
RMB1 or the lowest price as permitted by applicable PRC laws at the time of transfer of equity or an amount equal to the registered capital contributed
by the relevant shareholder. The VIEs and the shareholders of the VIEs covenant that, without our WFOE’s prior written consent, they will not, among
other things, (i) supplement, change or amend the VIEs’ articles of association and bylaws, (ii) increase or decrease the VIEs’ registered capital or
change the structure of registered capital, (iii) create any pledge or encumbrance on their equity interests in the VIEs, other than those created under the
equity interest pledge agreements, (iv) sell, transfer, mortgage, or dispose of their equity interests in and any material assets of the VIEs and any legal or
beneficial interests in the business or revenue of the VIEs, (v) enter into any material contracts by the VIEs, except in the ordinary course of business, or
(vi) merge or consolidate the VIEs with any other entity. These agreements will remain effective till all of the equity interests of the relevant VIEs have
been transferred to our WFOE and/or its designated person.
Spousal Consent Letters. The spouses of the individual shareholders of the VIEs have each signed a spousal consent letter agreeing that the equity
interests in the VIEs held by and registered under the name of the respective individual shareholders will be disposed pursuant to the contractual
agreements with our WFOE, without seeking further authorization or consent of such spouses. Each spouse agreed not to assert any rights over the
equity interests in the VIEs held by the respective individual shareholders.
In the opinion of Han Kun Law Offices, our PRC legal counsel:
• the ownership structures of the VIEs in China and our WFOE currently do not and will not result in violation of any explicit
provisions of PRC laws, rules or regulations currently in effect; and
• each of the agreements under the contractual arrangements among our WFOE, the VIEs and their respective shareholders governed
by PRC law, rules and regulations currently is valid, binding and enforceable, and will not result in violation of any explicit
provisions of PRC laws, rules or regulations currently in effect.
However, our PRC legal counsel has also advised us that there are substantial uncertainties regarding the interpretation and application of current
and future PRC laws, regulations and rules. Accordingly, the PRC regulatory authorities may take a view that is contrary to the opinion of our PRC legal
counsel. It is uncertain whether any new PRC laws or regulations relating to variable interest entity structures will be adopted or if adopted, what they
would provide. If we or the VIEs are found to be in violation of any existing or future PRC laws or regulations, or fail to obtain or maintain any of the
required permits or approvals, the relevant PRC regulatory authorities would have broad discretion to take action in dealing with such violations or
failures. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—If the PRC government finds that the agreements
that establish the structure for operating some of our operations in China do not comply with PRC regulations relating to the relevant industries, or if
these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our
interests in those operations.” and “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Uncertainties with respect
to the PRC legal system could adversely affect us.”
D. Property, Plant and Equipment

We lease premises of approximately 12,528 square meters as of December 31, 2021 for our corporate headquarters in Beijing, China. We also
lease offices in various other cities, with an aggregate area of approximately 29,191 square meters as of December 31, 2021. These leases vary in
duration from one to three years.
Item 4A. Unresolved Staff Comments

None.
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Item 5. Operating and Financial Review and Prospects

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated
financial statements and the related notes included elsewhere in this annual report. This discussion contains forward-looking statements that involve
risks and uncertainties about our business and operations. Our actual results and the timing of selected events may differ materially from those
anticipated in these forward-looking statements as a result of various factors, including those we describe under “Item 3. Key Information—D. Risk
Factors” and elsewhere in this annual report.
A. Operating Results
Key Factors Affecting Our Results of Operations
We benefit from the rapid development of healthcare and insurance industries, in particular health and life insurance industry, in China.
Meanwhile, we operate in a highly regulated industry in China, and the regulatory regime continues to evolve. Regulatory changes may affect our
growth potential as well as the competitive landscape of the market.
While our business is influenced by general factors affecting our industry, our results of operations are more directly affected by company-specific
factors, including the following major ones:
Expansion and retention of consumer base

Brokerage income earned from insurance carriers through our Waterdrop Insurance Marketplace is the main source of our revenue, which is
significantly affected by the number of insurance consumers on the Waterdrop Insurance Marketplace.
Our insurance consumers come from both internal and external sources. In terms of internal source, our medical crowdfunding operation direct
substantial traffic to our insurance marketplace. Historically, our mutual aid operation also directed traffic to our insurance marketplace. Moreover,
existing consumers attracted to our Waterdrop Insurance Marketplace also constituted an internal source of consumers and contributed to our business
growth. Specifically, the repeat purchase of a short-term insurance product by a returning consumer after his or her existing short-term policy expires or
a new purchase of another insurance product with additional or different coverage by a returning consumer also contributed to FYP growth. We see the
internal source of consumer traffic as an important consumer acquisition resource to us, and in addition we consider this cohort of consumers with
stronger awareness of insurance protection and stronger interest in the content and product offerings on our platforms, and more loyal to our services. In
2019, 2020 and 2021, this cohort of consumers contributed approximately 65.2%, 55.1% and 50.4% of the FYP generated through Waterdrop Insurance
Marketplace. Our renewal rate for short-term products increased from 54.6% in 2020 to 80.9% in 2021. We will continue to strengthen our brand to
attract and retain more insurance consumers from this source.
In order to continuously diversify our consumer acquisition channels, we also cooperate with other third-party traffic channels to grow our
insurance consumer base. In 2019, 2020 and 2021, approximately 34.8%, 44.9% and 49.6% of the FYP generated through Waterdrop Insurance
Marketplace was sourced from third-party traffic channels, respectively. We have faith in our competitive advantages in consumer acquisition cost, as a
result of our brand recognition, data insights into insurance consumers, and deep cooperation with major traffic providers in China’s internet business.
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Our consumer base experienced rapid growth in the past three years. As of December 31, 2019, 2020 and 2021, the cumulative number of paying
insurance consumers was approximately 8.8 million, 19.2 million and 28.2 million. Aside from the consumers, we also had 17.2 million, 60.3 million
and 82.2 million cumulative gift insurance policyholders as of December 31, 2019, 2020 and 2021 who subscribed to insurance policies through us for
free as a result of our promotional activities. These policyholders form a promising base of potential insurance consumers from a user conversion
perspective.
Since the second half of 2021, we have taken the initiatives to upgrade and optimize the online customer acquisition model, to better comply with
the new regulatory guidance and evolving industry trends. We have reduced the reliance on third party traffic to acquire new consumers, terminated
sales of products with discount price in the first month and changed to monthly flat payment, and invested more resources in managing and retaining
existing customers.
First year premium per consumer

As the consumers’ awareness for health protection and insurance products in China were still substantially lower than in developed countries,
many insurance consumers on our platform start with purchases of short-term products. We began to offer long-term health and life insurance products
at the end of 2018, and we have been endeavoring to raise consumer awareness, and demonstrate the value and importance of long-term health and life
insurance through our interactions with them. We soon won the trust of insurance consumers with their important purchases — the FYP per policy of
short-term health insurance products generated through us in 2021 reached RMB845.0. Short-term health insurance products accounted for 82.6% and
83.8% of the FYP generated through us in 2020 and 2021, and consequently the FYP per policy increased from RMB819.1 in 2020 and further to
RMB866.4 in 2021.
In addition to premium per policy, the growth in the number of policies per consumer, from 1.4 in 2020 to 1.5 in 2021, also contributed to the
increase in premium per consumer. We believe that consumers stick to our services and repeat their purchases on our platform most importantly because
of the attractive product price and the consumer-friendly features of products offered at our platform. Our large consumer base and strong business
growth allow us to negotiate favorable terms in our business cooperation with insurance carriers. We work with insurance carriers, our customers, to
design and develop tailor-made insurance products for consumers leveraging our cutting-edge technology. Over 90% of the FYP generated through us
was contributed by our exclusive customized insurance products.
We have placed more emphasis on service quality to enhance consumer experience. We provide comprehensive insurance protection plans that
cover the life cycle of our consumers and their family members. By analyzing our consumer profiles and lifecycle, our online operation scenarios
empower our online consultants team to provide our consumers with flexible, dynamic and comprehensive protection solutions, thereby maximizing the
life time value of users.
As a result of the above, the FYP per consumer increased from RMB859.1 in 2019 to RMB1,143.2 in 2020 and further to RMB1,313.3 in 2021.
Cooperation with insurance carriers

We cooperate with insurance carriers to offer their standard insurance products or to design and develop tailor-made insurance products, and our
relationship with insurance carriers is crucial to our success. As of December 31, 2021, we had established business cooperation with 80 insurance
carriers. We need to keep the growth of our business, brand influence, value-added technology service capabilities and risk management capabilities so
as to strengthen and deepen the cooperation with our existing insurance carriers. We also plan to expand our claim review service to cover the long-term
insurance products and deepen the cooperation with long-term insurance product suppliers.
Operating efficiency and leverage

We have incurred significant costs and expenses in building our platform, growing our consumer base and developing capabilities in data analysis
and technology. Our business model is highly scalable and our platform is built to support our continued growth. We expect our operating costs and
expenses to decrease as a proportion of our revenues as we improve the operating efficiency of our platform and achieve more economies of scale.
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Our total operating costs and expenses as a percentage of net operating revenue increased from 112.9% in 2019 to 116.4% in 2020 and further to
158.0% in 2021, within which general and administrative expenses as a percentage of net operating revenue increased from 9.5% in 2019 to 13.4% in
2020 and further to 16.5% in 2021. Our general and administrative expenses for year 2019, 2020 and 2021 included share-based compensation expenses
of RMB17.7 million, RMB210.0 million, RMB190.3 million (US$29.9 million), respectively. We pay marketing fees to our third-party traffic channel,
and sales and marketing expenses represented 69.9% in 2019, 70.4% in 2020 and 96.8% in 2021 of total net operating revenue. We select third-party
traffic channels and further optimize our consumer acquisition channels to reduce such operating costs as a percentage of our total revenues.
Furthermore, we have invested in technology to accumulate and process multi-dimensional consumer data and transaction data, and we plan to conduct
in-depth analysis as analysis of consumer needs will contribute to our consumer acquisition and conversion, product design and risk management
capabilities, which in turn improves our overall operational margin. In addition, we have built up our CRM system to increase sales operating efficiency
and better manage the sales personnel to reduce cost.
Key Components of Results of Operations
Operating revenue, net

We generate net operating revenue primarily from (i) providing insurance brokerage services to insurance carriers, (ii) membership fees and
management fees from operating the mutual aid plans prior to our discontinuation of the mutual aid business in March 2021, and (iii) providing
technical services to insurance carriers and other insurance brokerage or agency companies through our platforms. The following table sets forth the
breakdown of our operating revenue, in amounts and as percentages of operating revenue for the years presented:

2019 2020 2021
RMB % RMB % RMB US$ %
(in thousands, except for percentage data)
Operating revenue, net:
Brokerage income
Short-term insurance brokerage income 1,134,984 75.1 2,045,191 67.6 2,037,677 319,756 63.6
Long-term insurance brokerage income 173,192 11.5 650,129 21.5 789,790 123,935 24.6
Subtotal 1,308,176 86.6 2,695,320 89.1 2,827,467 443,691 88.2
Management fee income 142,683 9.4 109,828 3.6 2,745 431 0.1
Technical service income 51,705 3.4 194,130 6.4 243,542 38,217 7.6
Other revenues 8,401 0.6 28,670 0.9 132,160 20,739 4.1
Total 1,510,965 100.0 3,027,948 100.0 3,205,914 503,078 100.0
Brokerage income. We derive brokerage income primarily from commission fees generated from distributing insurance products underwritten by
insurance carriers through our Waterdrop Insurance Marketplace. The commission fees we are entitled to receive are based on a percentage of the
premiums our insurance consumers pay insurance carriers. Commission fee rates generally depend on the type of insurance products and the particular
insurance carriers. Commission fees for each insurance policy, taking into account the estimated premium retention rate data, are recognized as our
revenue upon policy effective dates. For long-term policies, the commission rate for premiums received after the first policy year is significantly lower
than that for FYP. We believe FYP is a strong indicator of brokerage income because it better demonstrates the brokerage income potential we may
generate for an insurance policy.
Management fee income. Management fee income primarily consists of: (i) the membership fees we collected from upgraded mutual aid plan
participants. The participants who paid such membership fees are entitled to enroll in our upgraded mutual aid plans and receive premium services, such
as higher payout limit for payouts, multiple payouts, and consumer service by dedicated representatives. The membership fees are initially recorded as
deferred revenue (for recurring members) and consumer advances (for new members). Revenue is recognized ratably over the term of the respective
service period; and (ii) the management fee we charge as a percentage of each approved payout from payout applicants (excluding upgraded mutual aid
plan participants), primarily to cover the costs we incurred in connection with verifying the facts associated with each payout, which is recognized
overtime as the payout processing services are performed. Starting from March 2021, with the cessation of the Waterdrop Mutual Aid operation, the
corresponding management fee income was no longer a revenue stream for us.
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On March 26, 2021, we announced the termination of the Waterdrop Mutual Aid business by the end of March 2021. In connection with this
business adjustment, we voluntarily undertook to cover mutual aid participants’ medical expenses arising from medical conditions diagnosed by
March 31, 2021 that would have been covered by the ceased mutual aid plan, subject to certain procedural requirements and eligibility criteria. In
addition, we also offered a one-year complementary health insurance policy to each participant with a similar coverage as the participant’s original
mutual aid plan. For mutual aid participants who were diagnosed and submitted their claims prior to March 31, 2021, we had paid the medical expenses
incurred within 180 days of the date of the submission of the claim. For mutual aid participants who were diagnosed prior to March 31, 2021 but
submitted claims during the 180-day period beginning on the date of diagnosis, we had paid only the medical expenses incurred prior to March 31,
2021. We did not and will not pay the medical expenses for those who were diagnosed after March 31, 2021. There were 12.4 million active participants
on our Mutual Aid platform when we ceased the operation, among whom 2.7 million have opted in the one-year complementary health insurance
coverage. The one-year complementary health insurance coverage became effective on March 31, 2021.
As of December 31, 2021, we had accrued the cost of medical expense coverage of RMB15.0 million (US$2.4 million) and the cost of one-year
health insurance coverage of RMB81.7 million (US$12.8 million). RMB19.9 million (US$3.1 million) was accounted for as a reduction of management
fee revenue previously recognized for each participant to the extent of the cumulative amount earned until March 26, 2021. RMB76.8 million (US$12.1
million) was recorded as operating costs.
Technical service income. We derive technical service income primarily from providing technical services to selected insurance carriers, which
mainly include consumer relationship maintenance, consumer complaint management and claim review services through our CRM system and
consumer behavioral analysis system which are linked to insurance carriers’ systems. We also provide marketing services to certain insurance carriers on
our various website channels and apps. We also provide technical service, and further refer potential users to certain insurance brokerage or agency
companies. We are exploring to broaden our technical service offerings and diversify our technical service income sources.
Other revenues. Other revenues mainly include commission revenue from online sale of agriculture products and health products, and membership
fee from Waterdrop Medicine. Our performance obligation under these contracts is to arrange for the provision of the specified goods or services by
those third-party merchants. Revenue is recognized for the net amount of consideration we are entitled to retain in exchange for our services at a point in
time upon successful sales. We recognized the membership fee ratably over the membership period.

Our operating costs and expenses consist of operating costs, sales and marketing expenses, general and administrative expenses, research and
development expenses. The following table sets forth the breakdown of our total operating costs and expenses, in amounts and as percentages of net
operating revenue for each of the years presented:

2019 2020 2021
Operating costs and expenses:
Operating costs. 291,310 19.3 742,258 24.5 1,054,475 165,470 32.9
Sales and marketing expenses 1,056,494 69.9 2,130,535 70.4 3,104,769 487,206 96.8
General and administrative expenses 142,995 9.5 407,171 13.4 530,522 83,250 16.5
Research and development expenses 214,646 14.2 244,230 8.1 378,990 59,472 11.8
Total operating costs and expenses: 1,705,445 112.9 3,524,194 116.4 5,068,756 795,398 158.0
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Operating costs. Operating costs primarily consists of (i) payroll and related expenses for insurance agents and consultants, employees involved in
payout investigation function for mutual aid plans, and customer service personnel, (ii) payout investigation cost of mutual aid plans, which is in the
form of service fee paid to third-party investigation companies only for approved cases; (iii) transaction fees charged by third-party payment platforms
relating to insurance brokerage services and management of mutual aid plans, (iv) costs for medical expenses and one-year health insurance coverage
we offered related to termination of the Waterdrop Mutual Aid business in March 2021, and (v) charges for the usage of the server and cloud service
incurred for operational support of the platforms, and the expenses of facilities and equipment, such as depreciation expenses, rental and others,
attributed to our principal operations. We expect our operating costs to increase in absolute terms as our scale of business grows. However, as we
improve the operating efficiency of our platform and achieve more economies of scale, we expect our operating costs as a percentage of our net
operating revenue will decrease in the foreseeable future.
Sales and marketing expenses. Our sales and marketing expenses primarily consist of (i) marketing expenses for user acquisition and brand
building, (ii) payroll and related expenses for employees involved in sales and marketing functions, (iii) the associated expenses of facilities and
equipment, such as depreciation expenses, rental and others, and (iv) promotional rewards to our users, which mainly include gift insurance products
and gift physical examination, etc.
General and administrative expenses. Our general and administrative expenses mainly consist of (i) payroll and related expenses for employees
engaging in general corporate functions, including the share-based compensation expenses, (ii) professional service fees and other general corporate
expenses, including impairment cost, and (iii) expenses associated with the use by these functions of facilities and equipment, such as rental and
depreciation expenses.
Research and development expenses. Our research and development expenses mainly consist of (i) payroll and related expenses for employees
involved in platform and new function development and significant improvement, and (ii) charges for the usage of the server and cloud service incurred
to support research, design, and development activities by research and development personnel, as well as the associated expenses of facilities and
equipment, such as depreciation expenses, rental and others.
Taxation
Cayman Islands
The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciations and there is no
taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to the Company levied by the Government of the
Cayman Islands save certain stamp duties which may be applicable, from time to time, on certain instruments executed in or brought within the
jurisdiction of the Cayman Islands. In addition, the Cayman Islands does not impose withholding tax on dividend payments.
Hong Kong
According to the Hong Kong regulations, Hong Kong entities are subject to a two-tiered income tax rate for taxable income earned in Hong Kong
with effect from April 1, 2018. The first HK$2 million of profits earned by HK entity will be taxed at 8.25%, while the remaining profits will continue
to be taxed at the existing 16.5% tax rate. In addition, to avoid abuse of the two-tiered tax regime, each group of connected entities can nominate only
one entity to benefit from the two-tiered tax rate. Additionally, payments of dividends by the subsidiaries incorporated in Hong Kong to the Company
are not subject to any Hong Kong withholding tax. Under the Hong Kong tax laws, we are exempted from the Hong Kong income tax on our foreign-
derived income.
PRC
Our subsidiaries, the consolidated VIEs and subsidiaries of the VIEs established in the PRC are mainly subject to statutory income tax at a rate of
25%. Certain enterprises benefit from a preferential tax rate of 15% under the Enterprise Income Tax (“EIT”) Law if they qualify as high and new
technology enterprises (“HNTE”). Certain enterprises are qualified as “small enterprises with low profits” and thus enjoyed a preferential income tax
rate of 20% for 2021.
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The EIT Law includes a provision specifying that legal entities organized outside of the PRC will be considered resident enterprises for the PRC
income tax purposes if the place of effective management or control is within the PRC. The implementation rules to the EIT Law provide that
non-resident legal entities will be considered as PRC resident enterprises if substantial and overall management and control over the manufacturing and
business operations, personnel, accounting, properties, etc., occurs within the PRC. Despite the present uncertainties resulting from the limited PRC tax
guidance on the issue, we do not believe that our entities organized outside of the PRC should be treated as resident enterprises for the PRC income tax
purposes. If the PRC tax authorities subsequently determine that our Company and our subsidiaries registered outside the PRC should be deemed
resident enterprises, our Company and our subsidiaries registered outside the PRC will be subject to the PRC income tax, at a rate of 25%. See “Item 3.
Key Information—D. Risk Factors—Risks Related to Doing Business in China — If we are classified as a PRC resident enterprise for PRC income tax
purposes, such classification could result in unfavorable tax consequences to us and our non-PRC shareholders and ADS holders.”
The EIT Law also imposes a withholding income tax of 10% on dividends distributed by a FIE to its immediate holding company outside of
China, if such immediate holding company is considered as a non-resident enterprise without any establishment or place within China or if the received
dividends have no connection with the establishment or place of such immediate holding company within China, unless such immediate holding
company’s jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement. The Cayman Islands, where
the Company incorporated, does not have such tax treaty with China. According to the arrangement between the mainland China and Hong Kong
Special Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal Evasion in August 2006, dividends paid by an FIE in
China to its immediate holding company in Hong Kong will be subject to withholding tax at a rate of no more than 5% (if the foreign investor owns
directly at least 25% of the shares of the FIE). In accordance with accounting guidance, all undistributed earnings are presumed to be transferred to the
parent company thereby resulting in deferred tax liabilities to account for future withholding taxes. All FlEs are subject to the withholding tax from
January 1, 2008. The presumption may be overcome if we have sufficient evidence to demonstrate that the undistributed dividends will be re-invested
and the remittance of the dividends will be postponed indefinitely. We did not record any deferred tax liabilities for dividend withholding tax, as we have
no retained earnings for the years ended December 31, 2019, 2020 and 2021. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our
Corporate Structure—Contractual arrangements in relation to the VIEs may be subject to scrutiny by the PRC tax authorities and they may determine
that we or the VIEs owe additional taxes, which could negatively affect our financial condition and the value of your investment.”
Results of Operations
The following table sets forth a summary of our consolidated results of operations for the periods presented, both in absolute amount and as a
percentage of our net operating revenue for the periods presented.

2019 2020 2021
Operating revenue, net 1,510,965 100.0 3,027,948 100.0 3,205,914 503,078 100.0
Operating costs (291,310) (19.3) (742,258) (24.5) (1,054,475) (165,470) (32.9)
Sales and marketing expenses(l) (1,056,494) (69.9) (2,130,535) (70.4) (3,104,769) (487,206) (96.8)
General and administrative expenses (142,995) (9.5) (407,171) (13.4) (530,522) (83,250) (16.5)
Research and development expenses (214,646) (14.2) (244,230) (8.1) (378,990) (59,472) (11.8)
Total operating costs and expenses: (1,705,445) (112.9) (3,524,194) (116.4) (5,068,756) (795,398) (158.0)
Operating loss (194,480) (12.9) (496,246) (16.4) (1,862,842) (292,320) (58.0)
Interest income 10,533 0.7 26,515 0.9 48,662 7,636 1.5
Fair value change of warrant — — (150,685) (5.0) — — —
Foreign currency exchange gain/(loss) 4,152 0.3 (1,335) (0.0) 9,349 1,467 0.3
Others, net 817 0.1 8,052 0.3 9,764 1,532 0.3
Loss before income tax, and share of results of equity method investee (178,978) (11.8) (613,699) (20.2) (1,795,067) (281,685) (55.9)
Income tax (expense)/benefit (142,528) (9.4) (50,155) (1.7) 220,987 34,678 6.9
Share of results of equity method investee (29) (0.0) (15) (0.0) — — —
Net loss attributable to Waterdrop Inc (321,535) (21.2) (663,869) (21.9) (1,574,080) (247,007) (49.0)
Deemed dividend on modification on preferred shares — — (67,975) (2.2) — — —
Deemed dividend upon issuance of warrants — — (90,268) (3.0) — — —
Preferred shares redemption value accretion (136,839) (9.1) (285,668) (9.4) (152,287) (23,897) (4.8)
Net loss attributable to ordinary shareholders (458,374) (30.3) (1,107,780) (36.5) (1,726,367) (270,904) (53.8)
Other comprehensive income/(loss):
Foreign currency translation adjustment 27,771 1.8 (14,008) (0.5) (36,640) (5,750) (1.1)
Unrealized gains on available for sale investments, net of tax 209 0.0 1,724 0.1 192 30 0.0
Total comprehensive loss (293,555) (19.4) (676,153) (22.3) (1,610,528) (252,727) (50.1)
Note:
(1) The breakdown of sales and marketing expenses is as follows:
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2019 2020 2021
RMB RMB RMB US$
(in thousands)
Marketing expenses for user acquisition and brand building 793,419 1,743,014 2,232,942 350,397
Payroll and related expenses for employees 201,147 210,308 295,434 46,360
Expenses of facilities and equipment 11,333 17,274 21,023 3,299
Promotional rewards to our users 25,701 43,652 10,896 1,710
Outsourced sales and marketing service fee to third parties 11,685 94,218 507,421 79,625
Others 13,209 22,069 37,053 5,815
Total sales and marketing expenses 1,056,494 2,130,535 3,104,769 487,206
Year Ended December 31, 2021 Compared to Year Ended December 31, 2020
Our net operating revenue increased by 5.9% from RMB3,027.9 million for 2020 to RMB3,205.9 million (US$503.1 million) in 2021, which was
primarily due to the increase in net operating revenue from brokerage income and technical service income, partially offset by the decrease in net
operating revenue from management fee income.
The net operating revenue from brokerage income increased by 4.9% from RMB2,695.3 million in 2020 to RMB2,827.5 million (US$443.7
million) in 2021, which was mainly due to the (i) increase in the FYP generated through our platform from RMB14,426 million in 2020 to
RMB16,363 million in 2021, and (ii) optimized product mix with more short-term health insurance products, the FYP from which accounted for
approximately 82.6% and 83.8% of the total FYP generated through us in 2020 and 2021, and consequently the FYP per policy increased from
RMB819.1 in 2020 and further to RMB866.4 in 2021. The rapid growth of FYP was in turn driven by increase of insurance consumers and the increase
of FYP per consumer from RMB1,143.2 in 2020 to RMB1,313.3 in 2021.
The net operating revenue from management fee income decreased by 97.5% from RMB109.8 million in 2020 to RMB2.7 million in 2021, which
was mainly due to the cessation of the mutual aid business at the end of March 2021.
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The net operating revenue from technical service income increased from RMB194.1 million in 2020 to RMB243.5 million (US$38.2 million) in
2021, primarily due to the increase of RMB43.7 million of technical services to insurance brokerage or agency companies as a result of more users
referred by us.

Our total operating costs and expenses increased by RMB1,544.6 million, or 43.8%, from RMB3,524.2 million in 2020 to RMB5,068.8 million
(US$795.4 million) in 2021, which was mainly due to the business expansion.
Operating costs
Our operating costs increased by 42.1% from RMB742.3 million in 2020 to RMB1,054.5 million (US$165.5 million) in 2021, which was mainly
due to (i) RMB148.5 million increase in personnel cost as our insurance agents and consultants, payout investigation and customer service team rapidly
increased to support the business growth, (ii) RMB73.2 million increase in professional and outsourced customer service fee in line with our growing
business, and (iii) the cost of RMB76.8 million incurred in relation to the cessation of the Waterdrop Mutual Aid business.
Sales and marketing expenses

Our sales and marketing expenses increased by 45.7% from RMB2,130.5 million in 2020 to RMB3,104.8 million (US$487.2 million) in 2021,
which was mainly due to (i) RMB489.9 million increase in marketing expenses to third-party traffic channels as a result of our business expansion and
branding promotion, and (ii) RMB413.2 million increase in outsourced sales and marketing service fee to third parties, and (ii) RMB85.1 million
increase in payroll and related expenses for employees involved in sales and marketing functions.
General and administrative expenses

Our general and administrative expenses increased by 30.3% from RMB407.2 million in 2020 to RMB530.5 million (US$83.3 million) in 2021,
which was mainly due to (i) RMB79.0 increase in professional service fees and personnel cost, in particular share-based compensation expenses, as a
result of our growing business, and (ii) RMB39.0 million increase in impairment loss over prepayment.
Research and development expenses

Our research and development expenses increased by 55.2% from RMB244.2 million in 2020 to RMB379.0 million (US$59.5 million) in 2021.
The increase was mainly attributable to RMB124.5 million increase in research and development personnel cost and share-based compensation
expenses, which was due to the growth of our research and development team as we continue to strengthen our technological capabilities.
Interest income
Our interest income increased substantially from RMB26.5 million in 2020 to RMB48.7 million (US$7.6 million) in 2021. The increase was
mainly attributable to increase in cash balance as a result of the receipt of proceeds from the completion of our IPO in May 2021 and interest income
from our short-term investments.
Net loss
As a result of the foregoing, our net loss increased by 137.1% from RMB663.9 million in 2020 to RMB1,574.1 million (US$247.0 million) in
2021.
Income tax benefit/(expense)

Income tax benefit in 2021 was RMB221.0 million (US$34.7 million), compared with income tax expense of RMB50.2 million in 2020, which
was primarily due to an increase of net operating losses that can be carried forward to future years.
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
Our net operating revenue increased by 100.4% from RMB1,511.0 million for 2019 to RMB3,027.9 million in 2020, which was primarily due to
the substantial increase in net operating revenue from brokerage income, partially offset by the decrease in net operating revenue from management fee
income.
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The net operating revenue from brokerage income increased by 106.0% from RMB1,308.2 million in 2019 to RMB2,695.3 million in 2020, which
was mainly due to the (i) increase in the FYP generated through our platform from RMB6,668 million in 2019 to RMB14,426 million in 2020, and
(ii) optimized product mix with more long-term health and life insurance products, the FYP from which accounted for approximately 17.4% of the total
FYP generated through us in 2020. The rapid growth of FYP was in turn driven by increase of insurance consumers from 7.8 million in 2019 to
12.6 million in 2020 and the increase of FYP per consumer from RMB859.1 in 2019 to RMB1,143.2 in 2020.
The net operating revenue from management fee income decreased by 23.1% from RMB142.7 million in 2019 to RMB109.8 million in 2020,
which was mainly due to (i) the decrease of RMB16.5 million in membership fees we collected from participants in line with the decrease in the number
of participants who subscribed for upgraded services for mutual aid plan they enrolled; (ii) the decrease of RMB16.3 million in management fees as a
result of the decrease in active plan participants.
The net operating revenue from technical service income increased from RMB51.7 million in 2019 to RMB194.1 million in 2020, primarily due to
the increase of RMB157.9 million of technical services to insurance brokerage or agency companies.

Our total operating costs and expenses increased by RMB1,818.7 million, or 51.6%, from RMB1,705.4 million in 2019 to RMB3,524.2 million in
2020.
Operating costs
Our operating costs increased by 154.8% from RMB291.3 million in 2019 to RMB742.3 million in 2020, which was mainly due to
(i) RMB211.1 million increase in personnel cost as our insurance agents and consultants, payout investigation and customer service team rapidly
increased to support the business growth, and (ii) RMB131.7 million increase in outsourced customer service fee in line with our growing business.
Sales and marketing expenses

Our sales and marketing expenses increased by 101.7% from RMB1,056.5 million in 2019 to RMB2,130.5 million in 2020, which was mainly due
to (i) RMB949.6 million increase in marketing expenses to third-party traffic channels as a result of our business expansion and branding promotion,
and (ii) RMB71.7 million increase in outsourced sales and marketing service fee to third parties.
General and administrative expenses

Our general and administrative expenses increased by 184.8% from RMB143.0 million in 2019 to RMB407.2 million in 2020, which was mainly
due to increase in personnel cost, in particular share-based compensation expenses, as a result of our growing business.
Research and development expenses

Our research and development expenses increased by 13.8% from RMB214.6 million in 2019 to RMB244.2 million in 2020. The increase was
mainly attributable to RMB23.3 million increase in research and development personnel cost and related expenses, which was due to the growth of our
research and development team as we continue to strengthen our technological capabilities.
Interest income
Our interest income increased substantially from RMB10.5 million in 2019 to RMB26.5 million in 2020. The increase was mainly attributable to
increase in cash balance as a result of the receipt of proceeds from private equity financings in 2020 and interest income from our short-term
investments.
Net loss
As a result of the foregoing, our net loss increased by 106.5% from RMB321.5 million in 2019 to RMB663.9 million in 2020.
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Critical Accounting Policies, Judgments and Estimates
We prepare our financial statements in accordance with U.S. GAAP, which requires our management to make judgments, estimates and
assumptions. We continually evaluate these judgments, estimates and assumptions based on our own historical experience, knowledge and assessment of
current business and other conditions, our expectations regarding the future based on available information and various assumptions that we believe to
be reasonable, which together form our basis for making judgments about matters that are not readily apparent from other sources. Since the use of
estimates is an integral component of the financial reporting process, our actual results could differ from those estimates. Some of our accounting
policies require a higher degree of judgment than others in their application.
The selection of critical accounting policies, the judgments and other uncertainties affecting application of those policies and the sensitivity of
reported results to changes in conditions and assumptions are factors that should be considered when reviewing our financial statements. We believe the
following accounting policies involve the most significant judgments and estimates used in the preparation of our financial statements. You should read
the following description of critical accounting policies, judgments and estimates in conjunction with our consolidated financial statements and other
disclosures included in this annual report.
Revenue Recognition
For insurance brokerage service, our performance obligation to the insurance carrier is satisfied and commission revenue is recognized at the point
in time when an insurance policy becomes effective. We determine the transaction price of our contracts by estimating commissions that we expect to be
entitled to over the premium collection term of the policy based on historical experience regarding premium retention and assumptions about future
policyholder behavior and market conditions. Such estimates are ‘constrained’ in accordance with ASC 606. That is, we use the expected value method
and only include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized for
such transactions will not occur.
For certain long-term insurance products sold, we are also entitled to a performance bonus from insurance carriers if the retention rate for certain
periods exceeds a predetermined percentage. As the consideration for the bonus is contingent on the occurrence (or nonoccurrence) of a future event, the
bonus represents variable consideration. Consistent with the policy described above, we use the expected value method to estimate the variable
consideration and may constrain the estimate to the extent that it is probable that a significant reversal of revenue in the future will not occur.
Our significant estimates include estimating commissions that we are entitled over the premium collection term, policyholder behavior and market
conditions. While those estimates have been relatively stable historically, they require subjective management judgment and any changes in those
estimates may cause us to realize different amount of revenues in the future periods.
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Income Taxes
Current income taxes are provided for in accordance with the laws of the relevant tax authorities. Deferred income taxes are recognized when
temporary differences exist between the tax bases of assets and liabilities and their reported amounts in the financial statements. Net operating loss carry
forwards and credits are applied using enacted statutory tax rates applicable to future years. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more-likely-than-not that a portion of or all of the deferred tax assets will not be realized. Deferred tax assets
are recognized to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilized, which
can require the use of accounting estimation and the exercise of judgement. The impact of an uncertain income tax position is recognized at the largest
amount that is more-likely-than-not to be sustained upon audit by the relevant tax authority. An uncertain income tax position will not be recognized if it
has less than a 50% likelihood of being sustained. Interest and penalties on income taxes will be classified as a component of the provisions for income
taxes.
Significant judgment is required in determining the valuation allowance. In assessing the need for a valuation allowance, we consider all sources
of taxable income, including projected future taxable income, reversing taxable temporary differences and ongoing tax planning strategies. If it is
determined that we are unable to realize a deferred tax asset, we would adjust the valuation allowance in the period in which such a determination is
made, with a corresponding decrease to earnings.
Fair Value of Common Share

Prior to our IPO in May 2021, we were a private company with no quoted market prices for our common shares. We therefore made estimates of
the fair value of our common shares at various dates for the purpose of determining the fair value of our common shares at the date of the grant of share-
based compensation awards to our employees and external consultants to determine the grant date fair value of the award.
The valuations of our ordinary shares were performed using methodologies, approaches and assumptions consistent with the American Institute of
Certified Public Accountants Audit and Accounting Practice Aid Series: Valuation of Privately-Held-Company Equity Securities Issued as
Compensation, or the AICPA Practice Guide. The determination of the fair value of our ordinary shares requires complex and subjective judgments to be
made regarding our projected financial and operating results, our unique business risks, the liquidity of our shares and our operating history and
prospects at the time of valuation.
In determining our equity value, we applied the discounted cash flow analysis based on our projected cash flow using our best estimate as of the
valuation date. The discounted cash flow method involves applying an appropriate discount rate to future cash flow to present value. The future cash
flows represent our management’s best estimation as of the measurement date. The projected cash flow estimation includes, among others, analysis of
projected revenue growth, gross margins and terminal value based on our business plan. In determining an appropriate discount rate, we have considered
the weighted average cost of capital, by considering a number of factors including risk-free rate, comparative industry risk, equity risk premium,
company size and non-systematic risk factors. We also applied a discount for lack of marketability, or DLOM to reflect the fact that there is no ready
market for our shares in a closely-held company like us.
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Our estimates of these inputs require subjective management judgment and are inherently uncertain. The fair value information is sensitive to
changes in the unobservable inputs used to determine fair value and such changes could result in the fair value at the reporting date to be different from
the fair value presented.
Since our IPO in May 2021, the determination of the fair value of the ordinary shares is based on the market price of our ADSs, each representing
ten Class A ordinary shares, traded on the NYSE.
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Recent Accounting Pronouncements

A list of recently issued accounting pronouncements that are relevant to us is included in Note 2 “Recent accounting pronouncements” to our
audited consolidated financial statements included elsewhere in this annual report.
B. Liquidity and Capital Resources

Liquidity and Capital Resources
We had net cash used in operating activities of RMB532.9 million in 2019, RMB777.1 million in 2020 and RMB1,096.7 million (US$172.1
million) in 2021, respectively. Our primary sources of liquidity have been proceeds from preferred share issuances in 2019 and 2020, and our IPO in
May 2021. As of December 31, 2021, we had RMB817.7 million (US$128.3 million) in cash and cash equivalents, of which approximately 90.3% were
held in Renminbi and the remainder was mainly held in U.S. dollars.
We believe our cash on hand will be sufficient to meet our current and anticipated needs for working capital and capital expenditure requirement
for at least the next 12 months.
Our restricted cash was RMB329.7 million, RMB261.4 million and RMB667.7 million (US$104.8 million) as of December 31, 2019, 2020 and
2021, respectively. Our restricted cash primarily consists of premiums collected by us from the insurance consumers in a fiduciary capacity until
disbursed to the insurance carriers. Restricted cash also includes guarantee deposits. We pay guarantee deposit required by China Banking and Insurance
Regulatory Commission in order to protect insurance premium appropriation by insurance broker and agency. Furthermore, guarantee deposit for
foreign exchange settlement was paid in 2020 to a commercial bank in order to carry out foreign exchange settlement.
Our accounts receivable represents primarily brokerage commission fee receivable from insurance carriers and technical service fees receivable
from insurance carriers. As of December 31, 2019, 2020 and 2021, our accounts receivable were RMB252.5 million, RMB539.8 million and
RMB643.8 million (US$101.0 million), respectively. The increase was due to the growth of our business scale.
Our contract assets are recorded for arrangements when we have provided the insurance brokerage services but for which the related commission
payments are not yet due. Contract assets represent primarily the brokerage commission fee that is contingent upon the future premium payment of the
insurance policy holders and retention-based bonus. As of December 31, 2019, 2020 and 2021, our contract assets were RMB617.7 million,
RMB848.6 million and RMB593.5 million (US$93.1 million), respectively.
Our prepaid expense and other assets represent primarily (i) the fund receivable from external payment service providers through which we collect
and transfer insurance premiums to insurance carriers, and donors’ donation received by our external payment service provider prior to those being
transferred to custodian bank, and (ii) the advances to suppliers, such as the prepayments to third-party traffic channels. As of December 31, 2019, 2020
and 2021, our prepaid expense and other assets were RMB235.3 million, RMB651.1 million and RMB369.8 million (US$58.0 million), respectively.
Insurance premium payables represent insurance premiums we collected on behalf of insurance carriers from the insurance consumers but have
not yet been remitted to insurance carriers as of the balance sheet dates. As of December 31, 2019, 2020 and 2021, our insurance premium payables
were RMB320.2 million, RMB607.3 million and RMB685.0 million (US$107.5 million), respectively.
Our accrued expenses and other current liabilities represent primarily (i) accrued marketing and selling expenses, (ii) payroll and welfare payable,
and (iii) payable related to medical crowdfunding business, which mainly represents the funds we collected through the third-party payment platforms
that has not been transferred to custodian bank. Our accrued expenses and other current liabilities were RMB496.5 million, RMB595.6 million and
RMB498.8 million (US$78.3 million) as of December 31, 2019, 2020 and 2021, respectively.
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Although we consolidate the results of the VIEs, we only have access to the assets or earnings of the VIEs through our contractual arrangements
with the VIEs and their shareholders. See “Item 4. Information on the Company—C. Organizational Structure.” For restrictions and limitations on
liquidity and capital resources as a result of our corporate structure, see “— Holding Company Structure.”
Substantially all of our operating revenue have been, and we expect they are likely to continue to be, in the form of Renminbi. Under existing PRC
foreign exchange regulations, payments of current account items, including profit distributions, interest payments and trade and service-related foreign
exchange transactions, can be made in foreign currencies without prior SAFE approval as long as certain routine procedural requirements are fulfilled.
Therefore, our PRC subsidiary is allowed to pay dividends in foreign currencies to us without prior SAFE approval by following certain routine
procedural requirements. However, current PRC regulations permit our PRC subsidiary to pay dividends to us only out of its accumulated profits, if any,
determined in accordance with Chinese accounting standards and regulations. Our PRC subsidiary is required to set aside at least 10% of its after-tax
profits after making up previous years’ accumulated losses each year, if any, to fund certain reserve funds until the total amount set aside reaches 50% of
its registered capital. These reserves are not distributable as cash dividends. Historically, our PRC subsidiary has not paid dividends to us, and it will not
be able to pay dividends until it generates accumulated profits. Furthermore, capital account transactions, which include foreign direct investment and
loans, must be approved by and/or registered with SAFE, its local branches and certain local banks.
As a Cayman Islands exempted company and offshore holding company, we are permitted under PRC laws and regulations to provide funding to
our PRC subsidiaries only through loans or capital contributions, subject to the approval of government authorities and limits on the amount of capital
contributions and loans. This may delay us from using the proceeds from financing activities to make loans or capital contributions to our PRC
subsidiaries. We expect to invest substantially all of the proceeds from financing activities into our PRC operations for general corporate purposes
within the business scopes of our PRC subsidiaries and the VIEs. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in
China—PRC regulation of loans to and direct investment in PRC entities by offshore holding companies may delay us from using the proceeds of
financing activities to make loans or additional capital contributions to our PRC subsidiaries and to make loans to the VIEs, which could materially and
adversely affect our liquidity and our ability to fund and expand our business.”
The following table sets forth the movements of our cash flows for the periods presented:

2019 2020 2021
RMB RMB RMB US$
Selected Consolidated Cash Flow Data: (in thousands)

Net cash used in operating activities (532,895) (777,108) (1,096,652) (172,089)
Net cash used in investing activities (45,955) (1,217,701) (846,898) (132,897)
Net cash provided by financing activities 1,472,775 2,050,890 2,119,670 332,622
Effect of exchange rate changes on cash and cash equivalents 27,342 (26,884) (14,086) (2,209)
Net increase in cash and cash equivalents and restricted cash 921,267 29,197 162,034 25,427
Total cash and cash equivalents and restricted cash at beginning of year 372,885 1,294,152 1,323,349 207,662
Total cash and cash equivalents and restricted cash at end of year 1,294,152 1,323,349 1,485,383 233,089
Operating activities
Net cash used in operating activities in 2021 was RMB1,096.7 million (US$172.1 million). The difference between the net loss of
RMB1,574.1 million (US$247.0 million) and negative operating cash flow of RMB1,096.7 million was the result of additional cash of
RMB191.9 million generated due to changes in working capital accounts, and adding back non-cash expenses items such as share-based compensation
expenses of RMB226.2 million, and depreciation of property, equipment and software of RMB17.9 million. The changes in working capital accounts
mainly include (i) RMB255.1 million decrease in contract assets, (ii) RMB254.8 million decrease in prepaid expense and other asset, partially offset by
(i) RMB213.1 million decrease in deferred tax liabilities, (ii) RMB104.1 million increase in accounts receivable, and (iii) RMB52.0 million decrease in
accrued expenses and other current liabilities.
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Specifically, the decrease in contract assets was primarily due to the downsize in the FYP generated through our platform in the fourth quarter of
2021. The increases in accounts receivable was primarily due to the increase in our brokerage income as a result of the growth of our business scale in
2021. The decrease in prepaid expense and other assets was primarily due to the decrease in fund receivable from external payment service providers
through which we collect various fund in our operation. The decrease in deferred tax liabilities was primarily due to the decrease in contract assets.
Net cash used in operating activities in 2020 was RMB777.1 million. The difference between the net loss of RMB663.9 million and negative
operating cash flow of RMB777.1 million was the result of additional cash of RMB504.8 million used due to changes in working capital accounts,
partially offset by adding back non-cash expenses items such as share-based compensation expenses of RMB227.8 million, fair value change of the
warrant of RMB150.7 million we issued to one of our existing shareholders in June 2020 which provided the shareholder with the right to subscribe for
or purchase certain number of additional preferred shares, and depreciation of property, equipment and software of RMB12.9 million. The changes in
working capital accounts mainly include (i) RMB385.6 million increase in prepaid expense and other assets, (ii) RMB286.8 million increase in accounts
receivable, and (iii) RMB230.9 million increase in contract assets, partially offset by (i) RMB287.1 million increase in insurance premium payables,
(ii) RMB47.4 million increase in accrued expenses and other current liabilities, and (iii) RMB49.5 million increase in deferred tax liabilities.
Specifically, the increase in prepaid expense and other assets was primarily due to (i) the increase in fund receivable from external payment
service providers through which we collect various fund in our operation, and (ii) the increase in advances to suppliers as a result of increase in the
prepayments to third-party traffic channels. The increases in accounts receivable and contract assets were primarily due to the increase in our brokerage
income as a result of the growth of our business scale. The increase in accrued expenses and other current liabilities was primarily due to (i) increase in
marketing expenses to be paid to our third-party user traffic channels, and (ii) increase in share-based compensation liabilities, partially offset by the
decrease in payable related to mutual aid plans and medical crowdfunding as a result of the shortened settlement cycle with certain third-party payment
platform. The increase in insurance premium payables was primarily due to the increase in the FYP generated through our platform from
RMB6,668 million in 2019 to RMB14,426 million in 2020. The net cash outflow from increase in insurance premium payables (premium collected)
offset by the fund receivable from external payment service providers (premium receivable) was RMB81.6 million in 2020. The increase in deferred tax
liabilities was primarily due to the increase in contract assets.
Net cash used in operating activities in 2019 was RMB532.9 million. The difference between the net loss of RMB321.5 million and negative
operating cash flow of RMB532.9 million was the result of additional cash of RMB246.1 million used due to changes in working capital accounts,
partially offset by adding back non-cash expenses items such as share-based compensation expenses of RMB28.0 million, and depreciation of property
and equipment of RMB6.7 million. The changes in working capital accounts mainly include RMB528.6 million increase in contract assets,
(ii) RMB153.7 million increase in prepaid expense and other assets, and (iii) RMB147.3 million increase in accounts receivable, partially offset by
(i) RMB303.4 million increase in accrued expenses and other current liabilities, (ii) RMB154.3 million increase in insurance premium payables, and
(iii) RMB142.3 million increase in deferred tax liabilities.
Specifically, the increases in contract assets and accounts receivable were primarily due to the increase in our brokerage income as a result of the
growth of our business scale. The increase in prepaid expense and other assets was primarily due to (i) the increase in fund receivable from external
payment service providers through which we collect various fund in our operation, and (ii) the increase in advances to suppliers as a result of increase in
the prepayments to third-party traffic channels. The increase in accrued expenses and other current liabilities was primarily due to the increases in
marketing expenses to be paid to our external user acquisition channels, payroll and welfare payable and payable related to mutual aid plans and medical
crowdfunding business in line with our growing business. The increase in insurance premium payables was primarily due to the increase in the FYP
generated through our platform from RMB972 million in 2018 to RMB6,668 million in 2019. The net cash inflow from increase in insurance premium
payables (premium collected) offset by the fund receivable from external payment service providers (premium receivable) was RMB148.8 million in
2019. The increase in deferred tax liabilities was primarily due to the increase in contract assets.
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Investing activities
Net cash used in investing activities in 2021 was RMB846.9 million (US$132.9 million), consisting primarily of net cash used in purchase of
short-term investment products, and cash paid for purchase of property, equipment and software.
Net cash used in investing activities in 2020 was RMB1,217.7 million, consisting primarily of net cash used in purchase of short-term investment
products, net cash used to acquire Tairui Insurance Agency Co., Ltd. and cash paid for purchase of property, equipment and software.
Net cash used in investing activities in 2019 was RMB46.0 million, consisting primarily of net cash used in purchase of short-term investment
products and cash paid for purchase of property, equipment and software.
Financing activities
Net cash provided by financing activities in 2021 was RMB2,119.7 million (US$332.6 million), consisting primarily of net proceeds from our
IPO, partially offset by the payment of share repurchase program.
Net cash provided by financing activities in 2020 was RMB2,050.9 million, consisting primarily of net proceeds from issuance of convertible
redeemable preferred shares.
Net cash provided by financing activities in 2019 was RMB1,472.8 million, consisting primarily of net proceeds from issuance of convertible
redeemable preferred shares, partially offset by the repayment of short-term borrowings.
Material cash requirements

Our material cash requirements as of December 31, 2021 and any subsequent interim period primarily include our capital expenditures, operating
lease commitments, and financing lease commitments.
Our capital expenditures primarily represent cash paid for purchase of property, equipment and software. We made capital expenditures of
RMB13.3 million, RMB26.7 million and RMB35.7 million (US$5.6 million) in 2019, 2020 and 2021, respectively. We will continue to make capital
expenditures to meet the expected growth of our business.
Our operating lease commitments and financing lease commitments consist of the commitments under the lease agreements for our office
premises and certain office equipment. Contractual obligation as of December 31, 2021 for our operating lease commitments and financing lease
commitments amounted to RMB62.2 million (US$9.8 million) and RMB0.3 million (US$0.1 million), respectively.
We intend to fund our existing and future material cash requirements with our existing cash balance and other financing alternatives. We will
continue to make cash commitments, including capital expenditures, to support the growth of our business.
We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. We do not have
retained or contingent interests in assets transferred. We have not entered into contractual arrangements that support the credit, liquidity or market risk
for transferred assets. We do not have obligations that arise or could arise from variable interests held in an unconsolidated entity, or obligations related
to derivative instruments that are both indexed to and classified in our own equity, or not reflected in the statement of financial position.
Other than as discussed above, we did not have any significant capital and other commitments, long-term obligations or guarantees as of
December 31, 2021.
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Holding Company Structure

Our Company, Waterdrop Inc., is a holding company with no material operations of its own. We conduct our operations primarily through our
WFOE and the VIEs. As a result, the ability of Waterdrop Inc. to pay dividends depends upon dividends paid by our WFOE.
If our WFOE or any newly formed PRC subsidiaries incur debt on their own behalf in the future, the instruments governing their debt may restrict
their ability to pay dividends to us. In addition, our WFOE is permitted to pay dividends to us only out of its retained earnings, if any, as determined in
accordance with PRC accounting standards and regulations. Under PRC law, each of our WFOE and the VIEs is required to set aside at least 10% of its
after-tax profits each year, if any, to fund certain statutory reserve funds until such reserve funds reach 50% of its registered capital. In addition, our
WFOE may allocate a portion of its after-tax profits based on PRC accounting standards to enterprise expansion funds and staff bonus and welfare funds
at its discretion, and the VIEs may allocate a portion of their after-tax profits based on PRC accounting standards to a discretionary surplus fund at its
discretion. The statutory reserve funds and the discretionary funds are not distributable as cash dividends. Remittance of dividends by a wholly foreign-
owned company out of China is subject to examination by the banks designated by SAFE. As of December 31, 2021, as our WFOE, almost all other
PRC subsidiaries, the VIEs and the subsidiaries of the VIEs are all in an accumulated loss position, no statutory reserve was appropriated. Our WFOE
has not paid dividends and will not be able to pay dividends until it generates accumulated profits and meets the requirements for statutory reserve fund.
C. Research and Development

See “Item 4. Information on the Company—B. Business Overview— Technology and Infrastructure,” and “Item 4. Information on the Company
—B. Business Overview—Intellectual Property.”
D. Trend Information
Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the
year ended December 31, 2021 that are reasonably likely to have a material and adverse effect on our net revenues, income, profitability, liquidity or
capital resources, or that would cause the disclosed financial information to be not necessarily indicative of future results of operations or financial
conditions.
E. Critical Accounting Estimates

For our critical accounting estimates, see “Item 5. Operating and Financial Review and Prospects—Critical Accounting Policies.”
F. Safe Harbor
See “Forward-Looking Information” on page 2 of this annual report.
Item 6. Directors, Senior Management and Employees

A. Directors and Senior Management
The following table sets forth information regarding our executive officers and directors.
Directors and Executive Officers Age Position/Title

Peng Shen 34 Chairman of the Board of Directors and Chief Executive Officer
Guang Yang 36 Director and General Manager of Insurance Marketplace
Yao Hu 35 Director and General Manager of Crowdfunding and Healthcare
Haiyang Yu 39 Director
Kai Huang 35 Director
Nina Zhou 46 Director
Heping Feng 62 Independent Director
Chenyang Wei 49 Independent Director
Kangping Shi 46 Chief Financial Officer
Hui Teng 43 Chief Actuary
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Mr. Peng Shen is our founder, and has served as the chairman of our board of directors and chief executive officer since our inception. Mr. Shen is
a serial entrepreneur with extensive experience and expertise in the technology and internet sectors in China. Prior to founding Waterdrop in April 2016,
Mr. Shen joined Meituan (HKSE: 03690), a leading e-commerce platform for services in China, at its early stage, and was one of the founding team
members of Meituan Waimai, which provides food delivery services, and had served as business head of Meituan Waimai since July 2013 and led the
launch and rapid nationwide growth of this business. Mr. Shen was named to Fortune China’s list of the “2021 40 under 40 in China” and Forbes Asia’s
list of the “2017 30 under 30 in Asia”, both being annual selections of the most influential young entrepreneurs. Mr. Shen received a master’s degree in
retail management from NEOMA Business School in France and an EMBA from Tsinghua University School of Economics and Management. Mr. Shen
completed the future science and technology program of Tencent’s Qingteng University in January 2019.
Mr. Guang Yang is our co-founder, and has served as our director and general manager of insurance marketplace since November 2016. Mr. Yang
is responsible for our insurance business. Prior to co-founding Waterdrop in April 2016, Mr. Yang served as the director of the strategy and investment
department of Meituan (HKSE: 03690) from March 2015 to August 2016. Prior to that, Mr. Yang served as a senior manager at CEC Capital Group and
served as a senior consultant of the merger and acquisition transaction service team at Deloitte Touche Tohmatsu Limited. Mr. Yang received an honors
degree in actuarial science specializing in finance from the University of Waterloo.
Mr. Yao Hu is our co-founder, and has served as our director and general manager of crowdfunding and healthcare since our inception. Mr. Hu is
responsible for our crowdfunding business. Prior to co-founding Waterdrop in April 2016, Mr. Hu served as a project vice president at New Leaf Music
Education from August 2014 to February 2016, where he was responsible for the intelligent self-learning tools and online live-streaming business. Prior
to that, Mr. Hu served as a senior engineer at Meituan (HKSE: 03690) from May 2013 to June 2014, where he led the research and development of
several product innovation projects. From September 2008 to August 2012, Mr. Hu worked at Renren Inc., a NYSE-listed company which operated
social media services in China, with a focus on technical research and development, and his last position held was senior engineer. Mr. Hu received a
bachelor’s degree in computer software engineering from Nankai University.
Mr. Haiyang Yu has served as our director since October 2019. Mr. Yu currently serves as the vice general manager of Tencent Investment. Prior to
joining Tencent (HKSE: 00700) in August 2011, Mr. Yu worked as a senior associate at WI Harper Group from March 2010 to August 2011. Prior to
that, Mr. Yu worked as an associate at China Growth Capital from April 2007 to February 2010. Mr. Yu obtained a bachelor’s degree in civil engineering
from Tsinghua University.
Mr. Kai Huang has served as our director since March 2019. Mr. Huang currently serves as an executive director of Boyu Capital. Prior to joining
Boyu Capital in June 2011, Mr. Huang worked as a senior accountant at Ernst & Young Consulting (China) from September 2010 to June 2011, and an
accountant at Ernst & Young Huaming Accounting Firm from September 2008 to September 2010. Mr. Huang received a bachelor’s degree in
accounting from Shanghai Jiao Tong University.
Ms. Nina Zhou has served as our director since June 2020. Ms. Zhou currently serves as a managing director at Swiss Re, a world’s leading
reinsurance company. Prior to joining Swiss Re, Ms. Zhou served as a managing director at Credit Ease from May 2016 to April 2018. Prior to that,
Ms. Zhou had over 15 years of experiences in investment banking and served as a managing director at Standard Chartered, Barclays Capital and Credit
Suisse. Ms. Zhou received double bachelor’s degrees in economics and finance from New York University.
Mr. Heping Feng has served as our independent director since May 2021. Mr. Feng has served as the chairman of Beijing Daohexin Management
Consulting Co., Ltd. since September 2017. From September 2014 to March 2017, Mr. Feng served as a senior advisor in PricewaterhouseCoopers.
From April 2011 to August 2014, Mr. Feng served as the vice chairman of Morgan Stanley (China). Prior to joining Morgan Stanley (China), Mr. Feng
was an audit partner in PricewaterhouseCoopers from 1997 to 2011. From 1993 to 1997, Mr. Feng served as an audit manager in Arthur Andersen LLP.
From 1985 to 1993, Mr. Feng served as an auditor in China Accounting and Financial Management Consulting Company. Mr. Feng currently serves as
an independent director of Tahoe Group Co., Ltd. (SZSE: 000732) and Sunstone Development Co., Ltd. (SSE: 603612). Mr. Feng received a bachelor’s
degree in accounting from Shanxi University of Finance and Economics in 1982 and a master’s degree in western accounting from the Institute of Fiscal
Science, Ministry of Finance of the PRC in 1985. He is a Certified Public Accountant in China.
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Mr. Chenyang Wei has served as our independent director since May 2021. Mr. Wei has served as the Associate Dean of Institute for Fintech
Research, Tsinghua University and Director of China Insurance and Pension Research Center, the National Institute of Financial Research, Tsinghua
University PBC School of Finance since April 2019. From December 2016 to March 2019, Mr. Wei served as a senior managing director and chief U.S.
economist in Zenity Asset Management Inc., a silicon valley based asset management firm focusing on multi-sector asset allocation in the U.S. financial
market. Prior to joining Zenity, Mr. Wei served as a director and head of credit research at AIG from August 2012 to December 2016. From June 2011 to
August 2012, Mr. Wei was a senior economist with Federal Reserve Bank of Philadelphia. From 2006 to 2011, Mr. Wei was an economist with Federal
Reserve Bank of New York. Mr. Wei received a bachelor’s degree in finance from Tsinghua University in 1996, a master’s degree in economics from
McCombs School of Business, University of Texas at Austin in 2000, and a Ph.D. in finance from Leonard N. Stern School of Business, New York
University in 2006.
Mr. Kangping Shi has served as our chief financial officer since November 2020. Mr. Shi has over 20 years’ experience in accounting and finance.
Prior to joining us, Mr. Shi served as the chief financial officer of Maoyan Entertainment (HKSE: 01896), a leading internet platform in China’s
entertainment industry, from February 2018 to November 2020. Prior to that, Mr. Shi served as the chief financial officer at Ping An Healthcare and
Technology Company Limited (HKSE: 01833), from December 2016 to December 2017. Prior to that, Mr. Shi worked at Baidu, Inc. (NASDAQ:
BIDU), and served as the director of its financial planning and analysis department from August 2014 to December 2016, and as the director of its
internal audit department from September 2011 to August 2014. From July 2007 to September 2011, Mr. Shi worked at Microsoft. Prior to that, Mr. Shi
worked at the transaction services department of PricewaterhouseCoopers LLP (Beijing) from January 2002 to July 2005, and at Arthur Andersen LLP
before 2002. Mr. Shi currently serves as an independent non-executive director of Life Concepts Holdings Limited (HKSE: 08056). Mr. Shi received a
bachelor’s degree in accounting from Tsinghua University and a master’s degree in business administration from the University of Michigan. Mr. Shi
has been a Chartered Professional Accountant of Canada since August 2000.
Mr. Hui Teng has served as our chief actuary since November 2019. Mr. Teng has over 10 years’ experience in insurance actuary. Prior to joining
us, Mr. Teng served as the chief actuary at ZhongAn Online P&C Insurance Co. Ltd. (HKSE: 06060), an online insurance company in China, from May
2013 to July 2019. Prior to that, Mr. Teng served as a chief actuary officer at Sompo Japan Insurance (China) Co., Ltd. from November 2008 to May
2013, and at Tianan Insurance Company Limited from June 2006 to September 2008. Mr. Teng received a bachelor’s degree in theory and applied
mechanics and a master’s degree in economics from Fudan University.
B. Compensation
Compensation of Directors and Executive Officers
In 2021, we paid an aggregate of RMB3.3 million (US$0.5 million) in cash to our executive officers, and we paid cash compensation to our
non-executive directors of RMB0.6 million (US$0.1 million). We have not set aside or accrued any amount to provide pension, retirement or other
similar benefits to our directors and executive officers. Our PRC subsidiaries and the VIEs are required by law to make contributions equal to certain
percentages of each employee’s salary for his or her pension insurance, medical insurance, unemployment insurance and other statutory benefits and a
housing provident fund.
Employment Agreements and Indemnification Agreements

We have entered into employment agreements with each of our executive officers. Under these agreements, each of our executive officers is
employed for a specified time period. We may terminate employment for cause, at any time, for certain acts of the executive officer, such as continued
failure to satisfactorily perform, willful misconduct or gross negligence in the performance of agreed duties, conviction or entry of a guilty or nolo
contendere plea of any felony or any misdemeanor involving moral turpitude, or dishonest act that results in material to our detriment or material of the
employment agreement. We may also terminate an executive officer’s employment without cause upon 60-day advance written notice. In such case of
termination by us, we will provide severance payments to the executive officer as may be agreed between the executive officer and us. The executive
officer may resign at any time with a 60-day advance written notice.
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Each executive officer has agreed to hold, both during and after the termination or expiry of his or her employment agreement, in strict confidence
and not to use, except as required in the performance of his or her duties in connection with the employment or pursuant to applicable law, any of our
confidential information or trade secrets, any confidential information or trade secrets of our clients or prospective clients, or the confidential or
proprietary information of any third party received by us and for which we have confidential obligations. The executive officers have also agreed to
disclose in confidence to us all inventions, designs and trade secrets which they conceive, develop or reduce to practice during the executive officer’s
employment with us and to assign all right, title and interest in them to us, and assist us in obtaining and enforcing patents, copyrights and other legal
rights for these inventions, designs and trade secrets.
In addition, each executive officer has agreed to be bound by non-competition and non-solicitation restrictions during the term of his or her
employment and typically for one year following the last date of employment. Specifically, each executive officer has agreed not to (i) solicit from any
customer doing business with us during the effective term of the employment agreement business of the same or of a similar nature to our business;
(ii) solicit from any of our known potential customer business of the same or of a similar nature to that which has been the subject of our known written
or oral bid, offer or proposal, or of substantial preparation with a view to making such a bid, proposal or offer; (iii) solicit the employment or services of,
or hire or engage, any person who is known to be employed or engaged by us; or (iv) otherwise interfere with our business or accounts, including, but
not limited to, with respect to any relationship or agreement between any vendor or supplier and us.
We have also entered into indemnification agreements with each of our directors and executive officers. Under these agreements, we agree to
indemnify our directors and executive officers against certain liabilities and expenses incurred by such persons in connection with claims made by
reason of their being a director or officer of our company.
Share Incentive Plans

2018 Share Incentive Plan
In March 2019, our shareholders and board of directors approved the 2018 Share Incentive Plan, as amended and restated, which we refer to as the
2018 Plan in this annual report, to attract and retain the best available personnel, provide additional incentives to directors, employees and consultants,
and promote the success of our business. The maximum aggregate number of Class A ordinary shares that may be issued under the 2018 Plan is
384,159,746 Class A ordinary shares. As of Mach 31, 2022, options to purchase a total of 318,707,760 Class A ordinary shares and 2,902,000 restricted
share units are outstanding under the 2018 Plan.
The following paragraphs summarize the principal terms of the 2018 Plan.
Type of Awards. The 2018 Plan permits the awards of options, restricted shares, restricted share units or any other types of awards approved by the
plan administrator or the board of directors.
Plan Administration. A committee appointed by the board of directors will administer the 2018 Plan. The plan administrator will determine the
participants to receive awards, the type and number of awards to be granted to each participant, and the terms and conditions of each award.
Award Agreement. Awards granted under the 2018 Plan are evidenced by an award agreement that sets forth the terms, conditions and limitations
for each award, the provisions applicable in the event that the grantee’s employment or service terminates, and our authority to unilaterally or bilaterally
amend, modify, suspend, cancel or rescind the award.
Eligibility. We may grant awards to our directors, employees and consultants of our company. However, we may grant options that are intended to
qualify as incentive share options only to our employees and employees of our parent companies or subsidiaries.
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Vesting Schedule. In general, the plan administrator determines the vesting schedule, which is specified in the relevant award agreement.
Exercise Price. The plan administrator determines the exercise price for each award, which is stated in the award agreement.
Term of the Awards. Options that are vested and exercisable will terminate if they are not exercised prior to the time as the plan administrator
determines at the time of grant. However, the maximum exercisable term is ten years from the date of a grant.
Transfer Restrictions. Awards may not be transferred in any manner by the participant other than in accordance with the exceptions provided in
the 2018 Plan or the relevant award agreement or otherwise determined by the plan administrator, such as transfers by will or the laws of descent and
distribution.
Termination and Amendment. Unless terminated earlier, the 2018 Plan has a term of ten years from its date of effectiveness. Our board of directors
and the plan administrator have the authority to terminate, amend or modify the plan. However, no such action may adversely affect in any material way
any awards previously granted without the written consent of the participant.
2021 Share Incentive Plan

In April 2021, our shareholders and board of directors approved the 2021 Share Incentive Plan, as amended and restated, which we refer to as the
2021 Plan in this annual report, to attract and retain the best available personnel, provide additional incentives to directors, employees and consultants,
and promote the success of our business. The maximum aggregate number of Class A ordinary shares that may be issued pursuant to all awards under
the 2021 Plan is initially 80,508,501 Class A ordinary shares, plus an annual increase on the first day of each year during the ten-year term of the plan
commencing with the year beginning January 1, 2022, by an amount equal to 2% of the total number of shares issued and outstanding on an
as-converted fully diluted basis on the last day of the immediately preceding year, or an lessor amount as may be determined by the board of directors.
As of March 31, 2022, no award has been granted under the 2021 Plan.
The following paragraphs summarize the principal terms of the 2021 Plan.
Types of Awards. The 2021 Plan permits the awards of options, restricted shares, restricted share units or any other type of awards approved by the
plan administrator or the board of directors.
Plan Administration. Our board of directors or a committee of one or more members of the board of directors will administer the 2021 Plan. The
committee or the full board of directors, as applicable, will determine the participants to receive awards, the type and number of awards to be granted to
each participant, and the terms and conditions of each award.
Award Agreement. Awards granted under the 2021 Plan are evidenced by an award agreement that sets forth the terms, conditions and limitations
for each award, the provisions applicable in the event that the grantee’s employment or service terminates, and our authority to unilaterally or bilaterally
amend, modify, suspend, cancel or rescind the award.
Eligibility. We may grant awards to our employees, directors and consultants of our company. However, we may grant options that are intended to
qualify as incentive share options only to our employees and employees of our subsidiaries.
Vesting Schedule. In general, the plan administrator determines the vesting schedule, which is specified in the relevant award agreement.
Exercise Price. The plan administrator determines the exercise price for each award, which is stated in the award agreement.
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Term of the Awards. Options that are vested and exercisable will terminate if they are not exercised prior to the time as the plan administrator
determines at the time of grant. However, the maximum exercisable term is ten years from the date of a grant.
Transfer Restrictions. Awards may not be transferred in any manner by the participant other than in accordance with the exceptions provided in
the 2021 Plan or the relevant award agreement or otherwise determined by the plan administrator, such as transfers by will or the laws of descent and
distribution.
Termination and Amendment. Unless terminated earlier, the 2021 Plan has a term of ten years from its date of effectiveness. Our board of directors
has the authority to amend or terminate the plan. However, no such action may adversely affect in any material way any awards previously granted
without the written consent of the participant.
The following table summarizes, as of March 31, 2022, the number of ordinary shares underlying outstanding options that we granted to our
directors and executive officers.
Ordinary Shares
Underlying Exercise Price
Name Options (US$/Share) Date of Grant Date of Expiration
Yao Hu * 0.003 September 1, 2018 September 1, 2028
* 0.08 March 25, 2021 March 25, 2031
Kangping Shi * 0.003 November 16, 2020 November 16, 2030
* 0.08 March 25, 2021 March 25, 2031
Hui Teng * 0.003 May 1, 2020 May 1, 2030
* 0.003 October 31, 2020 October 31, 2030
* 0.08 March 25, 2021 March 25, 2031
Heping Feng * 0.08 June 25, 2021 June 25, 2030
Chenyang Wei * 0.08 June 25, 2021 June 25, 2030
All directors and executive officers as a group 18,420,000
Note:
Less than 1% of our total ordinary shares on an as-converted basis outstanding as of March 31, 2022.
As of March 31, 2022, our employees other than our directors and officers as a group held options to purchase 300,287,760 Class A ordinary
shares, with exercise prices ranging from US$0.003 per share to US$0.08 per share, and 2,902,000 restricted share units.
C. Board Practices
Board of Directors
Our board of directors consists of eight directors. A director is not required to hold any shares in our company by way of qualification. A director
who is in any way, whether directly or indirectly, interested in a contract or transaction or proposed contract or transaction with our company is required
to declare the nature of his interest at a meeting of our directors. Subject to the New York Stock Exchange rules and disqualification by the chairman of
the relevant board meeting, a director may vote in respect of any contract or transaction or proposed contract or transaction notwithstanding that he may
be interested therein, and if he does so his vote shall be counted and he shall be counted in the quorum at any meeting of our directors at which any such
contract or transaction or proposed contract or transaction is considered, provided (i) such director, if his or her interest in such contract or arrangement
is material, has declared the nature of his or her interest at the earliest meeting of the board at which it is practicable for him or her to do so, either
specifically or by way of a general notice and (ii) if such contract or arrangement is a transaction with a related party, such transaction has been
approved by the audit committee. Our directors may exercise all the powers of our company to raise or borrow money and to mortgage or charge its
undertaking, property and assets (present and future) and uncalled capital or any part thereof, to issue debentures, debenture stock, bonds and other
securities, whether outright or as collateral security for any debt, liability or obligation of our company or of any third party.
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Committees of the Board of Directors

We have established three committees under the board of directors: an audit committee, a compensation committee and a nominating and
corporate governance committee. We have adopted a charter for each of the three committees. Each committee’s members and functions are described
below.
Audit Committee. Our audit committee consists of Heping Feng, Peng Shen and Chenyang Wei. Heping Feng is the chairman of our audit
committee. We have determined that Heping Feng and Chenyang Wei satisfy the “independence” requirements of Section 303A of the Corporate
Governance Rules of the New York Stock Exchange and Rule 10A-3 under the Exchange Act. We have determined that Heping Feng qualifies as an
“audit committee financial expert.” The audit committee oversees our accounting and financial reporting processes and the audits of the financial
statements of our company. The audit committee is responsible for, among other things:
• appointing the independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by the
independent auditors;
• reviewing with the independent auditors any audit problems or difficulties and management’s response;
• discussing the annual audited financial statements with management and the independent auditors;
• reviewing the adequacy and effectiveness of our accounting and internal control policies and procedures and any steps taken to
monitor and control major financial risk exposures;
• reviewing and approving all proposed related party transactions;
• meeting separately and periodically with management and the independent auditors; and
• monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our
procedures to ensure proper compliance.
Compensation Committee. Our compensation committee consists of Chenyang Wei, Peng Shen and Heping Feng. Chenyang Wei is the chairman
of our compensation committee. We have determined that Chenyang Wei and Heping Feng satisfy the “independence” requirements of Section 303A of
the Corporate Governance Rules of the New York Stock Exchange. The compensation committee assists the board in reviewing and approving the
compensation structure, including all forms of compensation, relating to our directors and executive officers. Our chief executive officer may not be
present at any committee meeting during which his compensation is deliberated. The compensation committee is responsible for, among other things:
• reviewing and approving, or recommending to the board for its approval, the compensation for our chief executive officer and other
executive officers;
• reviewing and recommending to the board for determination with respect to the compensation of our non-employee directors;
• reviewing periodically and approving any incentive compensation or equity plans, programs or similar arrangements; and
• selecting compensation consultant, legal counsel or other adviser only after taking into consideration all factors relevant to that
person’s independence from management.
Nominating and Corporate Governance Committee. Our nominating and corporate governance committee consists of Peng Shen, Chenyang Wei
and Heping Feng. Peng Shen is the chairperson of our nominating and corporate governance committee. Chenyang Wei and Heping Feng satisfy the
“independence” requirements of Section 303A of the Corporate Governance Rules of the New York Stock Exchange. The nominating and corporate
governance committee assists the board of directors in selecting individuals qualified to become our directors and in determining the composition of the
board and its committees. The nominating and corporate governance committee is responsible for, among other things:
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• selecting and recommending to the board nominees for election by the shareholders or appointment by the board;
• reviewing annually with the board the current composition of the board with regards to characteristics such as independence,
knowledge, skills, experience and diversity;
• making recommendations on the frequency and structure of board meetings and monitoring the functioning of the committees of the
board; and
• advising the board periodically with regards to significant developments in the law and practice of corporate governance as well as
our compliance with applicable laws and regulations, and making recommendations to the board on all matters of corporate
governance and on any remedial action to be taken.
Duties of Directors
Under Cayman Islands law, our directors owe fiduciary duties to our company, including a duty of loyalty, a duty to act honestly and a duty to act
in what they consider in good faith to be in our best interests. Our directors must also exercise their powers only for a proper purpose. Our directors also
owe to our company a duty to act with skill and care. It was previously considered that a director need not exhibit in the performance of his duties a
greater degree of skill than may reasonably be expected from a person of his knowledge and experience. However, English and Commonwealth Courts
have moved toward an objective standard with regard to the required skill and care and these authorities are likely to be followed in the Cayman Islands.
In fulfilling their duty of care to us, our directors must ensure compliance with our memorandum and articles of association, as amended and restated
from time to time, and the class rights vested thereunder in the holders of the shares. In certain limited exceptional circumstances, a shareholder may
have the right to seek damages in our name if a duty owed by our directors is breached.
Our board of directors has all the powers necessary for managing, and for directing and supervising, our business affairs. The functions and
powers of our board of directors include, among others:
• convening shareholders’ annual and extraordinary general meetings and reporting its work to shareholders at such meetings;
• declaring dividends and distributions;
• appointing officers and determining the term of office of the officers;
• exercising the borrowing powers of our company and mortgaging the property of our company; and
• approving the transfer of shares in our company, including the registration of such shares in our share register.
Terms of Directors and Officers

Our directors may be elected by an ordinary resolution of our shareholders. Alternatively, our board of directors may, by the affirmative vote of a
simple majority of the directors present and voting at a board meeting appoint any person as a director to fill a casual vacancy on our board or as an
addition to the existing board. Our directors are not automatically subject to a term of office and hold office until such time as they are removed from
office by an ordinary resolution of our shareholders. In addition, a director will cease to be a director if he (i) becomes bankrupt or makes any
arrangement or composition with his creditors; (ii) dies or is found to be or becomes of unsound mind; (iii) resigns his office by notice in writing;
(iv) without special leave of absence from our board, is absent from meetings of our board for three consecutive meetings and our board resolves that his
office be vacated; or (v) is removed from office pursuant to any other provision of our articles of association.
Our officers are appointed by and serve at the discretion of the board of directors, and may be removed by our board of directors.
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D. Employees
We had 5,010 full-time employees, 4,291 full-time employees and 2,936 full-time employees as of December 31, 2019, 2020 and 2021,
respectively. The decrease from December 31, 2020 to December 31, 2021 was mainly due to our outsource of certain sales and marketing functions to
third-parties as well as upgrade of our middle office functionality. Substantially all of our full-time employees are located in China. The following table
sets forth the number of our full-time employees as of December 31, 2021:
Function Number of Employees

Operating 1,696
Sales and marketing 581
General and administrative 286
Research and development 373
Total 2,936
Our success depends on our ability to attract, motivate, train and retain qualified personnel. We believe we offer our employees competitive
compensation packages and an environment that encourages self-development and, as a result, have generally been able to attract and retain qualified
employees. We have established comprehensive training programs covering new employee training, customized training as well as leadership training.
Depending on the position, employee reviews are conducted either quarterly or annually.
As required by laws and regulations in China, we participate in various employee social security plans that are organized by municipal and
provincial governments including, among other things, pension, medical insurance, unemployment insurance, maternity insurance, work-related injury
insurance and housing fund plans through a PRC government-mandated benefit contribution plan. We are required under PRC law to make contributions
to employee benefit plans at specified percentages of the salaries, bonuses and certain allowances of our employees, up to a maximum amount specified
by the local government from time to time.
We enter into standard employment agreements, as well as confidentiality and non-compete agreements with our employees in accordance with
market practice.
We believe that we maintain a good working relationship with our employees, and we have not experienced any material labor disputes. Working
together, our employees build our corporate culture that cares for individuals, fosters innovation, pursues credibility and integrity, and embraces
changes, and has significantly contributed to our achievements.
E. Share Ownership
Except as specifically noted, the following table sets forth information with respect to the beneficial ownership of our ordinary shares on an
as-converted basis as of March 31, 2022 by:
• each of our directors and executive officers; and
• each of our principal shareholders who beneficially own more than 5% of our total issued and outstanding shares.
The calculations in the table below are based on 3,131,147,091 Class A ordinary shares (excluding 75,506,610 Class A ordinary shares,
comprising of Class A ordinary shares issued to the depositary for bulk issuance of ADSs and reserved for future issuances upon the exercise or vesting
of awards granted under share incentive plans, and Class A ordinary shares in the form of ADSs held in treasury), and 801,904,979 Class B ordinary
shares, issued and outstanding as of March 31, 2022.
Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially
owned by a person and the percentage ownership of that person, we have included shares that the person has the right to acquire within 60 days,
including through the exercise of any option, warrant or other right or the conversion of any other security. These shares, however, are not included in
the computation of the percentage ownership of any other person.
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Ordinary Shares Beneficially Owned

Class A Class B Total Ordinary % of Total Ordinary
Ordinary Ordinary Shares on Shares on an As- % of Aggregate
Shares Shares an As-converted Basis converted Basis Voting Power†
Directors and Executive Officers**:
Peng Shen(1) 159,835,949 801,904,979 961,740,928 24.5 71.3
Guang Yang(2) — — — — —
Yao Hu(3) * — * * —
Haiyang Yu — — — — —
Kai Huang — — — — —
Nina Zhou — — — — —
Heping Feng * * — * —
Chenyang Wei * * — * —
Kangping Shi * * — * —
Hui Teng * * — * —
All Directors and Executive Officers as a
Group 167,265,909 801,904,979 969,170,888 24.6 71.3
Principal Shareholders:
Neptune Max Holdings Limited(l) — 801,904,979 801,904,979 20.4 69.7
Entities affiliated with Tencent(4) 830,085,007 — 830,085,007 21.1 8.0
Investment funds affiliated with Boyu
Capital(5) 470,735,258 — 470,735,258 12.0 4.5
Investment funds affiliated with Gaorong
Capital(6) 238,203,080 — 238,203,080 6.1 2.3
Swiss Re Principal Investments
Company Asia Pte. Ltd.(7) 206,362,384 — 206,362,384 5.2 2.0
Notes:
* Less than 1% of our total ordinary shares on an as-converted basis outstanding as of March 31, 2022.
** Except as indicated otherwise below, the business address of our directors and executive officers is Block C, Wangjing Science and Technology
Park, No. 2 Lize Zhonger Road, Chaoyang District, Beijing, China. The business address of Mr. Kai Huang is Suite 3601B-3604, 36/F, Tower 2,
Jing An Kerry Centre, 1539 Nanjing West Road, Jing An District, Shanghai, China. The business address of Mr. Haiyang Yu is 29/F, Three Pacific
Place, No. 1 Queen’s Road East, Wanchai, Hong Kong. The business address of Ms. Nina Zhou is 12 Marina View, #16-01, Asia Square Tower 2,
Singapore. The business address of Mr. Heping Feng is Room 1401, Beijing Mansion, 58 Dong Si Huan Zhong Road, Chaoyang District, Beijing,
China. The business address of Mr. Chenyang Wei is Shuangqing Building 2-801, 77 Shuangqing Road, Haidian District, Beijing, China.
† For each person or group included in this column, percentage of total voting power represents voting power based on both Class A and Class B
ordinary shares held by such person or group with respect to all outstanding shares of our Class A and Class B ordinary shares as a single class.
Each holder of our Class A ordinary shares is entitled to one vote per share. Each holder of our Class B ordinary shares is entitled to nine votes per
share. Our Class B ordinary shares are convertible at any time by the holder into Class A ordinary shares on a one-for-one basis, while Class A
ordinary shares are not convertible into Class B ordinary shares under any circumstances. In addition, the Class B ordinary shares held by
Mr. Peng Shen or his affiliated entities shall be automatically immediately converted into the same number of Class A ordinary shares in the event
that Mr. Shen ceases to be employed by and ceases to act as a director of our Company.
(1) Represents (i) 801,904,979 Class B Ordinary Share held of record by Neptune Max Holdings Limited, a British Virgin Islands company. Neptune
Max Holdings Limited is 99% owned by a family trust set up by Mr. Shen and 1% owned by Mr. Shen. Mr. Shen acts as the sole director of
Neptune Max Holdings Limited, and possesses the sole voting power over the shares held by Neptune Max Holdings Limited; (ii) 86,386,000
Class A Ordinary Shares held of record by Proton Fortune Holdings Limited, a British Virgin Islands company that is 98% owned by a family trust
set up by Mr. Guang Yang, 1% owned by Mr. Guang Yang, and 1% owned by Mr. Shen. Mr. Shen owns 100% of the voting power of Proton
Fortune Holdings Limited and acts as the sole director of Proton Fortune Holdings Limited; (iii) 73,445,939 Class A Ordinary Shares held of
record by Xibo Holdings Limited, a British Virgin Islands company that is 98% owned by a family trust set up by Mr. Yao Hu, 1% owned by
Mr. Yao Hu, and 1% owned by Mr. Shen. Mr. Shen owns 100% of the voting power of Xibo Holdings Limited and acts as the sole director of Xibo
Holdings Limited; and (iv) 4,010 Class A Ordinary Shares directly held by Maple Ocean L.P., a British Virgin Islands limited partnership. First
Principles Z Holdings Limited, a British Virgin Islands company, is the general partner of Maple Ocean L.P. Mr. Shen acts as the sole director of
First Principles Z Holdings Limited.
The registered address of Neptune Max Holdings Limited, Proton Fortune Holdings Limited, Xibo Holdings Limited, First Principles Z Holdings
Limited and Maple Ocean L.P. is Sertus Chambers, P.O. Box 905, Quastisky Building, Road Town, Tortola, British Virgin Islands.
(2) See Footnote (1) above.
(3) See Footnote (1) above. Represents the Class A ordinary shares Mr. Hu has the right to acquire within 60 days through the exercise of options.
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(4) Represents (i) 805,085,007 Class A ordinary shares directly held by Image Frame Investment (HK) Limited, a company incorporated in Hong
Kong, and (ii) 25,000,000 Class A ordinary shares represented by 2,500,000 ADSs, directly held by Tencent Mobility Limited, a company
incorporated in Hong Kong. Information regarding beneficial ownership is reported as of May 6, 2021. Image Frame Investment (HK) Limited
and Tencent Mobility Limited are investing entities wholly owned by Tencent Holdings Limited. Tencent Holdings Limited is a limited liability
company incorporated in the Cayman Islands and is listed on the Hong Kong Stock Exchange. The registered address of Image Frame Investment
(HK) Limited, Tencent Mobility Limited and Tencent Holdings Limited is 29/F, Three Pacific Place, No. 1 Queen’s Road East, Wanchai, Hong
Kong.
(5) Represents (i) 434,235,258 Class A ordinary shares directly held by Harmonious Ocean Limited, an exempted company with limited liability
incorporated under the laws of the Cayman Islands, and (ii) 36,500,000 Class A ordinary shares represented by 3,650,000 ADSs, directly held by
Boyu Capital Opportunities Master Fund. Boyu Capital Fund IV, L.P., a limited partnership organized under the laws of the Cayman Islands, holds
100% of the outstanding shares of Harmonious Ocean Limited. Boyu Capital General Partner IV, Ltd., an exempted company incorporated under
the laws of the Cayman Islands, is the general partner of Boyu Capital Fund IV, L.P. Boyu Capital Group Holdings Ltd., an exempted company
incorporated under the laws of the Cayman Islands, holds 100% of the outstanding shares of Boyu Capital General Partner IV, Ltd. XYXY
Holdings Ltd., a company incorporated in the British Virgin Islands, is the controlling shareholder of Boyu Capital Group Holdings Ltd.
Mr. Xiaomeng Tong holds 100% of the outstanding shares in XYXY Holdings Ltd. The registered office of Harmonious Ocean Limited is do
Maples Corporate Services Limited, PO Box 309 Ugland House, Grand Cayman, KY1-1104, Cayman Islands.
(6) Represents (i) 118,230,053 Class A ordinary shares directly held by Gaorong Technology Consulting Limited, a company limited by shares
incorporated under the laws of the British Virgin Islands, (ii) 86,052,718 Class A ordinary shares directly held by Gaorong Group Holdings
Limited, a company limited by shares incorporated under the laws of the British Virgin Islands, (iii) 31,880,733 Class A ordinary shares directly
held by Banyan Partners Fund III, L.P., an exempted partnership with limited liability formed under the laws of the Cayman Islands, and (iv)
2,039,576 Class A ordinary shares held by Banyan Partners Fund III-A, L.P., an exempted partnership with limited liability formed under the laws
of the Cayman Islands. Information regarding beneficial ownership is reported as of December 31, 2021, based on the information contained in the
Schedule 13G jointly filed by Gaorong Technology Consulting Limited and others with SEC on February 11, 2022.
Banyan Partners Fund III, L.P. and Banyan Partners Fund III-A, L.P. hold 93.33% of the total share capital of Gaorong Group Holdings Limited.
The general partner of Banyan Partners Fund III, L.P. and Banyan Partners Fund III-A, L.P. is Banyan Partners III Ltd, an exempted company with
limited liability incorporated under the laws of the Cayman Islands. Messrs. Zhen Zhang, Bin Yue and Xiang Gao are the shareholders of Banyan
Partners III Ltd. The registered offices of Banyan Partners Fund III, L.P. and Banyan Partners Fund III-A, L.P. are c/o Walkers Corporate Limited,
190 Elgin Avenue, George Town, Grand Cayman, KY1-9008, Cayman Islands. The registered office of Gaorong Group Holdings Limited is OMC
Chambers, Wickhams Cay 1, Road Town, Tortola, British Virgin Islands.
Gaorong Technology Consulting Limited is wholly owned by Suzhou Industry Park Gaorong Growth Investment Center (Limited Partnership), a
limited partnership incorporated under the laws of the PRC, whose general partner is Xizang Gaorong Capital Management Co., Ltd., a company
incorporated under the laws of the PRC. Xizang Gaorong Capital Management Co., Ltd. is wholly owned by Beijing Gaorong Capital
Management Consulting Co., Ltd, a company incorporated under the laws of the PRC. Messrs. Zhen Zhang, Bin Yue and Xiang Gao are the
shareholders of Beijing Gaorong Capital Management Consulting Co., Ltd.
(7) Represents 206,362,384 Class A ordinary shares directly held by Swiss Re Principal Investments Company Asia Pte. Ltd., a corporation
incorporated under the laws of Singapore. Information regarding beneficial ownership is reported as of December 31, 2021, based on the
information contained in the Schedule 13G jointly filed by Swiss Re Ltd and others with SEC on January 28, 2022. Swiss Re Principal
Investments Company Asia Pte. Ltd. is an investment entity indirectly wholly owned by Swiss Re Ltd, a company limited by shares with its
registered office in Zurich, Switzerland, with its shares listed on the SIX Swiss Exchange and trading under the symbol SREN.
To our knowledge and with reference to the addresses in our shareholder register, as of March 31, 2022, none of our ordinary shares are held by
record holders in the United States. There may be beneficial owners of our ADSs in the United States.
We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company.
Item 7. Major Shareholders and Related Party Transactions

A. Major Shareholders
Please refer to “Item 6. Directors, Senior Management and Employees—E. Share Ownership.”
B. Related Party Transactions
Contractual Arrangements with the Variable Interest Entities and Their Respective Shareholders
See “Item 4. Information on the Company—C. Organizational Structure.”
Employment Agreements and Indemnification Agreements

See “Item 6. Directors, Senior Management and Employees—B. Compensation.”
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Share Incentive Plans

See “Item 6. Directors, Senior Management and Employees—B. Compensation.”
Other Related Party Transactions
Transactions with Tencent Group. Tencent Group is one of our investors. We engage Tenpay as one of our payment processing platforms to collect
payment from our insurance consumers, participants of our mutual aid plans, and users on our crowdfunding platform, where Tencent Group charges
service fee for each transaction occurred. For the years ended December 31, 2019, 2020 and 2021, we paid payment processing fee to Tencent Group of
RMB77.9 million, RMB34.1 million and RMB38.0 million (US$6.0 million), respectively. Tencent Group started to provide marketing service to us
since 2020, which amounted to RMB187.2 million and RMB487.1 million (US$76.4 million) in 2020 and 2021, respectively. In addition, Tencent
Group provides cloud technology services to us, which amounted to RMB15.0 million, RMB26.9 and RMB45.3 million (US$7.1 million) for the years
ended December 31, 2019, 2020 and 2021, respectively. As of December 31, 2019,2020 and 2021, we had amount due to Tencent Group of
RMB5.1 million, RMB9.8 million and RMB20.4 million (US$3.2 million), respectively.
We started to provide advertising services to Tencent Group in 2020, which amounted to RMB0.8 million and RMB2.0 million (US$0.3 million)
in 2020 and 2021, respectively. We had amount due from Tencent Group of RMB0.8 million and RMB1.0 million (US$0.2 million) as of December 31,
2020 and 2021, respectively.
Transactions with other related parties. We have historically extended loans to Mr. Peng Shen, our founder, chairman of the board of directors and
chief executive officer, and to certain other entities controlled by Mr. Shen. As of December 31, 2019, we recorded outstanding principal amounts of
RMB1.8 million due from these related parties under such loans, primarily consisting of (i) RMB1.7 million due from Mr. Peng Shen,
(ii) RMB20.0 thousand due from Tianjin Shuidibao, (iii) RMB25.0 thousand due from Tianjin Shuidi Huzhu, (iv) RMB16.0 thousand due from Tianjin
Shuidichou, and (v) RMB30.0 thousand due from Tianjin Pengchuang. All of these loans have been fully repaid in September 2020.
Shareholders Agreement
We entered into our fifth amended and restated shareholders agreement on November 20, 2020, with our shareholders, which consist of holders of
ordinary shares and preferred shares. The fifth amended and restated shareholders agreement provides for certain shareholders’ rights, including
information rights, preemptive rights, right of first refusal and co-sale rights, drag along rights and contains provisions governing our board of directors
and other corporate governance matters. The special rights other than registration rights, as well as the corporate governance provisions, automatically
terminated upon the completion of our IPO.
Registration Rights
We have granted certain registration rights to our shareholders. Set forth below is a description of the registration rights granted under the
shareholders agreement.
Demand Registration Rights. At any time after the earlier of (i) June 28, 2025 or (ii) six months following the closing of a qualified initial public
offering, holders of at least 25% of the voting power of the then outstanding registrable securities held by all such holders may request in writing that we
effect a registration of at least 20%, or any less percentage if the anticipated gross proceeds would exceed US$5,000,000, of the registrable securities.
Upon such a request, we shall promptly give notice of such requested registration to the other shareholders and thereupon shall use reasonable best
efforts to effect, as soon as practicable, the registration under the Securities Act of all registrable securities that the holders request to be registered and
included in such registration by written notice given by such holders to us within twenty days after receipt of our notice of the demand registration.
However, we are not obliged to effect any such registration if we have, within the six month period preceding the date of such request, already effected a
registration under the Securities Act in which the Holders had an opportunity to participate. We are obligated to effect no more than two demand
registrations that have been declared effective. Further, if the registrable securities are offered by means of an underwritten offering and the underwriters
advise us that marketing factors require a limitation of the number of securities to be underwritten, the number of registrable securities that may be
included in the underwriting shall be reduced as required by the underwriters and allocated among the holders of registrable securities on a pro rata basis
according to the number of registrable securities then outstanding held by each holder requesting registration; provided that at least 20%, or any lesser
percentage if the anticipated gross proceeds would exceed US$5,000,000, of registrable securities requested to be registered shall be so included, but
only after first excluding all other securities from the registration and underwritten offering.
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Piggyback Registration Rights. If we propose to file a registration statement for a public offering of our securities, we shall offer shareholders an
opportunity to include in the registration all or any part of the registrable securities held by such holders. If the managing underwriters of any
underwritten offering determine that marketing factors require a limitation of the number of shares to be underwritten, and the number of shares that
may be included in the registration and the underwriting shall be allocated (i) first, to us, (ii) second, to each holder requesting inclusion of its registrable
securities in such registration statement on a pro rata basis based on the total number of registrable securities then held by each such holder; provided
that at least 25% of the registrable securities requested by the holders to be included in the underwriting and registration shall be so included and all
shares that are not registrable securities shall first be excluded from such registration and underwriting before any registrable securities are so excluded.
Form F-3 Registration Rights. Our shareholders may request us in writing to file an unlimited number of registration statements on Form F-3 if
we qualify for registration on Form F-3. We have a right to defer filing of a registration statement for the period during which such filing would be
materially detrimental to us or our members on the condition that we furnish to the holders requesting registration a certificate signed by our chief
executive officer stating that in the good faith judgment of our board of directors, it would be materially detrimental to us and our shareholders for such
registration statement to be filed in the near future. However, we cannot exercise the deferral right more than once during any 12-month period for a
period of not more than 60 days and cannot 197 register any other securities during such 60 day period. We are obligated to effect no more than two
demand registrations that have been declared effective within any 12-month period.
Expenses of Registration. We will bear all registration expenses, other than underwriting discounts and selling commissions applicable to sale of
registrable securities. However, expenses in excess of US$25,000 of any special audit required in connection with a demand registration shall be borne
pro rata by the holders participating in such registration.
C. Interests of Experts and Counsel

Not applicable.
Item 8. Financial Information

A. Consolidated Statements and Other Financial Information
We have appended consolidated financial statements filed as part of this annual report.
Legal Proceedings
We may from time to time be subject to various legal or administrative claims and proceedings arising in the ordinary course of business.
Litigation or any other legal or administrative proceeding, regardless of the outcome, is likely to result in substantial cost and diversion of our resources,
including our management’s time and attention.
On September 14, 2021, a complaint was filed in the U.S. District Court for the Southern District of New York against our company and our
company’s certain executives and directors, authorized process agent in the U.S. and IPO underwriters, alleging violations of the Securities Act of 1933
in relation to our company’s IPO. The case is captioned Sandoz v. Waterdrop Inc. et al, 1:21-cv-07683-VSB. The plaintiff sought to represent all
purchasers of our company’s American Depositary Shares in or traceable to the IPO. On December 8, 2021, the court appointed a lead plaintiff and
approved a lead plaintiff counsel. On February 21, 2022, the lead plaintiff filed an amended complaint. On April 22, 2022, our company filed a motion
to dismiss the amended complaint, which is currently pending before the court.
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The action remains in its preliminary stages. We are defending against the action vigorously. For risks and uncertainties relating to the pending
case against us, please see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—We have been named as a
defendant in putative shareholder class action lawsuits that could have a material adverse impact on our business, financial condition, results of
operation, cash flows and reputation.”
Dividend Policy
Our board of directors has discretion on whether to distribute dividends, subject to certain requirements of Cayman Islands law. In addition, our
shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our board of directors. In either
case, all dividends are subject to certain restrictions under Cayman Islands law, namely that our company may only pay dividends out of profits or share
premium, and provided always that, in no circumstances may a dividend be paid if this would result in our company being unable to pay its debts as they
fall due in the ordinary course of business. Even if we decide to pay dividends, the form, frequency and amount will depend upon our future operations
and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may
deem relevant.
We do not have any present plan to pay any cash dividends on our ordinary shares in the foreseeable future. We currently intend to retain most, if
not all, of our available funds and any future earnings to operate and expand our business.
We are a holding company incorporated in the Cayman Islands. We may rely on dividends from our subsidiaries in China for our cash
requirements, including any payment of dividends to our shareholders. PRC regulations may restrict the ability of our PRC subsidiaries to pay dividends
to us. See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations on Dividend Distribution.”
If we pay any dividends on our Class A ordinary shares, we will pay those dividends which are payable in respect of the Class A ordinary shares
underlying the ADSs to the depositary, as the registered holder of such Class A ordinary shares, and the depositary then will pay such amounts to the
ADS holders in proportion to the Class A ordinary shares underlying the ADSs held by such ADS holders, subject to the terms of the deposit agreement,
including the fees and expenses payable thereunder. Cash dividends on our Class A ordinary shares, if any, will be paid in U.S. dollars.
B. Significant Changes
Except as disclosed elsewhere in this annual report, we have not experienced any significant changes since the date of our audited consolidated
financial statements included in this annual report.
Item 9. The Offer and Listing

A. Offering and Listing Details
Our ADSs have been listed on the New York Stoc Exchange since May 7, 2021. Our ADSs trade under the symbol “WDH.” Each ADS represents
ten of our Class A ordinary shares.
B. Plan of Distribution
Not applicable.
C. Markets
Our ADSs have been listed on the New York Stoc Exchange since May 7, 2021 under the symbol “WDH.”
D. Selling Shareholders
Not applicable.
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E. Dilution
Not applicable.
F. Expenses of the Issue

Not applicable.
Item 10. Additional Information

A. Share Capital
Not applicable.
B. Memorandum and Articles of Association

The following are summaries of material provisions of the our currently effective memorandum and articles of association and of the Companies
Act, insofar as they relate to the material terms of our ordinary shares.
Objects of Our Company. Under our current memorandum and articles of association, the objects of our company are unrestricted and we have the
full power and authority to carry out any object not prohibited by the laws of the Cayman Islands.
Ordinary Shares. Our ordinary shares are divided into Class A ordinary shares and Class B ordinary shares. Holders of our Class A ordinary shares
and Class B ordinary shares have the same rights except for voting and conversion rights. Each Class A ordinary share shall entitle the holder thereof to
one vote on all matters subject to vote at our general meetings, and each Class B ordinary share shall entitle the holder thereof to nine votes on all
matters subject to vote at our general meetings. Our ordinary shares are issued in registered form and are issued when registered in our register of
members. We may not issue shares to bearer. Our shareholders who are nonresidents of the Cayman Islands may freely hold and vote their shares.
Conversion. Class B ordinary shares may be converted into the same number of Class A ordinary shares at the option of the holders thereof at any
time, while Class A ordinary shares cannot be converted into Class B ordinary shares under any circumstances. Upon any sale, transfer, assignment or
disposition of Class B ordinary shares by a holder thereof to any person other than our founder, chairman and chief executive officer, Mr. Peng Shen,
one of his affiliates or any other “Founder Affiliate” as defined in our current memorandum and articles of association, or upon a change of control of
the ultimate beneficial ownership of any Class B ordinary share to any person other than Mr. Shen, one of his affiliates or any other “Founder Affiliate”
as defined in our current memorandum and articles of association, such Class B ordinary shares shall be automatically and immediately converted into
the same number of Class A ordinary shares.
Dividends. The holders of our ordinary shares are entitled to such dividends as may be declared by our board of directors or declared by our
shareholders by ordinary resolution (provided that no dividend may be declared by our shareholders which exceeds the amount recommended by our
directors). Our current memorandum and articles of association provide that dividends may be declared and paid out of our profits, realized or
unrealized, or from any reserve set aside from profits which our board of directors determine is no longer needed. Under the laws of the Cayman Islands,
our company may pay a dividend out of either profit or share premium account, provided that in no circumstances may a dividend be paid if this would
result in our company being unable to pay its debts as they fall due in the ordinary course of business.
Voting Rights. Holders of Class A ordinary shares and Class B ordinary shares shall, at all times, vote together as one class on all matters
submitted to a vote by the members at any general meeting of the Company. Each Class A ordinary share shall be entitled to one vote on all matters
subject to the vote at general meetings of our Company, and each Class B ordinary share shall be entitled to nine votes on all matters subject to the vote
at general meetings of our Company. Voting at any meeting of shareholders is by show of hands unless a poll (before or on the declaration of the result
of the show of hands) is demanded. A poll may be demanded by the chairperson of such meeting or any one shareholder present in person or by proxy.
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An ordinary resolution to be passed at a meeting by the shareholders requires the affirmative vote of a simple majority of the votes attaching to the
ordinary shares cast at a meeting, while a special resolution requires the affirmative vote of no less than two-thirds of the votes cast attaching to the
outstanding and issued ordinary shares cast at a meeting. A special resolution will be required for important matters such as a change of name or making
changes to our current memorandum and articles of association. Our shareholders may, among other things, divide or combine their shares by ordinary
resolution.
General Meetings of Shareholders. As a Cayman Islands exempted company, we are not obliged by the Companies Act to call shareholders’
annual general meetings. Our current memorandum and articles of association provide that we may (but are not obliged to) in each year hold a general
meeting as our annual general meeting in which case we shall specify the meeting as such in the notices calling it, and the annual general meeting shall
be held at such time and place as may be determined by our directors.
Shareholders’ general meetings may be convened by a majority of our board of directors. Advance notice of at least seven days is required for the
convening of our annual general shareholders’ meeting (if any) and any other general meeting of our shareholders. A quorum required for any general
meeting of shareholders consists of at least one shareholder present or by proxy, representing not less than one-third of all votes attaching to the issued
and outstanding shares in our company entitled to vote at the general meeting.
The Companies Act provides shareholders with only limited rights to requisition a general meeting, and does not provide shareholders with any
right to put any proposal before a general meeting. However, these rights may be provided in a company’s articles of association. Our current
memorandum and articles of association provide that upon the requisition of any one or more of our shareholders who together hold shares which carry
in aggregate not less than one-third of all votes attaching to the issued and outstanding shares of our company entitled to vote at general meetings, our
board will convene an extraordinary general meeting and put the resolutions so requisitioned to a vote at such meeting. However, our current
memorandum and articles of association do not provide our shareholders with any right to put any proposals before annual general meetings or
extraordinary general meetings not called by such shareholders.
Transfer of Ordinary Shares. Subject to the restrictions set out in our current memorandum and articles of association as set out below, any of our
shareholders may transfer all or any of his or her ordinary shares by an instrument of transfer in the usual or common form or any other form approved
by our board of directors.
Our board of directors may, in its absolute discretion, decline to register any transfer of any ordinary share which is not fully paid up or on which
we have a lien. Our board of directors may also decline to register any transfer of any ordinary share unless:
• the instrument of transfer is lodged with us, accompanied by the certificate for the ordinary shares to which it relates and such other
evidence as our board of directors may reasonably require to show the right of the transferor to make the transfer;
• the instrument of transfer is in respect of only one class of ordinary shares;
• the instrument of transfer is properly stamped, if required;
• in the case of a transfer to joint holders, the number of joint holders to whom the ordinary share is to be transferred does not exceed
four; and
• a fee of such maximum sum as the New York Stock Exchange may determine to be payable or such lesser sum as our directors may
from time to time require is paid to us in respect thereof.
If our directors refuse to register a transfer they shall, within three months after the date on which the instrument of transfer was lodged, send to
each of the transferor and the transferee notice of such refusal.
The registration of transfers may, after compliance with any notice required of NYSE, be suspended and the register closed at such times and for
such periods as our board of directors may from time to time determine, provided, however, that the registration of transfers shall not be suspended nor
the register closed for more than 30 days in any year as our board may determine.
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Liquidation. On the winding up of our company, if the assets available for distribution amongst our shareholders shall be more than sufficient to
repay the whole of the share capital at the commencement of the winding up, the surplus shall be distributed amongst our shareholders in proportion to
the par value of the shares held by them at the commencement of the winding up, subject to a deduction from those shares in respect of which there are
monies due, of all monies payable to our company for unpaid calls or otherwise. If our assets available for distribution are insufficient to repay all of the
paid-up capital, the assets will be distributed so that the losses are borne by our shareholders in proportion to the par value of the shares held by them.
Calls on Shares and Forfeiture of Shares. Our board of directors may from time to time make calls upon shareholders for any amounts unpaid on
their shares in a notice served to such shareholders at least 14 days prior to the specified time and place of payment. The shares that have been called
upon and remain unpaid are subject to forfeiture.
Redemption, Repurchase and Surrender of Shares. We may issue shares on terms that such shares are subject to redemption, at our option or at the
option of the holders of these shares, on such terms and in such manner as may be determined by our board of directors. Our company may also
repurchase any of our shares on such terms and in such manner as have been approved by our board of directors or by an ordinary resolution of our
shareholders. Under the Companies Act, the redemption or repurchase of any share may be paid out of our Company’s profits or out of the proceeds of a
new issue of shares made for the purpose of such redemption or repurchase, or out of capital (including share premium account and capital redemption
reserve) if our company can, immediately following such payment, pay its debts as they fall due in the ordinary course of business. In addition, under
the Companies Act no such share may be redeemed or repurchased (a) unless it is fully paid up, (b) if such redemption or repurchase would result in
there being no shares issued and outstanding or (c) if the company has commenced liquidation. In addition, our company may accept the surrender of
any fully paid share for no consideration.
Variations of Rights of Shares. If at any time, our share capital is divided into different classes of shares, the rights attached to any class may be
materially adversely varied with the consent in writing of the holders of at least two-thirds (2/3) of the issued shares of that class or with the sanction of
a special resolution passed at a separate meeting of the holders of the shares of that class. The rights conferred upon the holders of the shares of any
class issued shall not, be deemed to be materially adversely varied by the creation, allotment or issue of further shares ranking pari passu with or
subsequent to them or the redemption or purchase of any shares of any class by the Company. The rights of the holders of shares shall not be deemed to
be materially adversely varied by the creation or issue of shares with preferred or other rights including, without limitation, the creation of shares with
enhanced or weighted voting rights.
Issuance of Additional Shares. Our current memorandum and articles of association authorize our board of directors to issue additional ordinary
shares from time to time as our board of directors shall determine, to the extent out of available authorized but unissued ordinary shares.
Our current memorandum and articles of association also authorize our board of directors to establish from time to time one or more series of
preferred shares and to determine, with respect to any series of preferred shares, the terms and rights of that series, including:
• the designation of the series;
• the number of shares of the series;
• the dividend rights, dividend rates, conversion rights, voting rights; and
• the rights and terms of redemption and liquidation preferences.
Our board of directors may issue preferred shares without action by our shareholders to the extent out of authorized but unissued preferred shares.
Issuance of these shares may dilute the voting power of holders of ordinary shares.
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Inspection of Books and Records. Holders of our ordinary shares will have no general right under Cayman Islands law to inspect or obtain copies
of our list of shareholders or our corporate records (other than our memorandum and articles of association, our register of mortgages and charges, and
special resolutions of our shareholders). However, we will provide our shareholders with annual audited financial statements. See “Where You Can Find
Additional Information.”
Anti-Takeover Provisions. Some provisions of our current memorandum and articles of association may discourage, delay or prevent a change of
control of our company or management that shareholders may consider favorable, including provisions that:
• authorize our board of directors to issue preferred shares in one or more series and to designate the price, rights, preferences,
privileges and restrictions of such preferred shares without any further vote or action by our shareholders; and
• limit the ability of shareholders to requisition and convene general meetings of shareholders.
However, under Cayman Islands law, our directors may only exercise the rights and powers granted to them under our current memorandum and
articles of association for a proper purpose and for what they believe in good faith to be in the best interests of our company.
Exempted Company. We are an exempted company with limited liability under the Companies Act. The Companies Act distinguishes between
ordinary resident companies and exempted companies. Any company that is registered in the Cayman Islands but conducts business mainly outside of
the Cayman Islands may apply to be registered as an exempted company. The requirements for an exempted company are essentially the same as for an
ordinary company except that an exempted company:
• does not have to file an annual return of its shareholders with the Registrar of Companies;
• is not required to open its register of members for inspection;
• does not have to hold an annual general meeting;
• may obtain an undertaking against the imposition of any future taxation (such undertakings are usually given for 20 years in the first
instance);
• may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands;
• may register as a limited duration company; and may register as a segregated portfolio company.
“Limited liability” means that the liability of each shareholder is limited to the amount unpaid by the shareholder on the shares of the company
(except in exceptional circumstances, such as involving fraud, the establishment of an agency relationship or an illegal or improper purpose or other
circumstances in which a court may be prepared to pierce or lift the corporate veil).
Exclusive Forum. Unless we consent in writing to the selection of an alternative forum, the United States District Court for the Southern District
of New York (or, if the United States District Court for the Southern District of New York lacks subject matter jurisdiction over a particular dispute, the
state courts in New York County, New York) shall be the exclusive forum within the United States for the resolution of any complaint asserting a cause
of action arising out of or relating in any way to the federal securities laws of the United States, regardless of whether such legal suit, action, or
proceeding also involves parties other than us. Any person or entity purchasing or otherwise acquiring any share or other securities in our company, or
purchasing or otherwise acquiring American depositary shares issued pursuant to deposit agreements, shall be deemed to have notice of and consented
to the provisions of this article. Without prejudice to the foregoing, if the provision in this article is held to be illegal, invalid or unenforceable under
applicable law, the legality, validity or enforceability of the rest of articles of association shall not be affected and this article shall be interpreted and
construed to the maximum extent possible to apply in the relevant jurisdiction with whatever modification or deletion may be necessary so as best to
give effect to our intention.
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Differences in Corporate Law

The Companies Act is derived, to a large extent, from the older Companies Acts of England but does not follow recent English statutory
enactments and accordingly there are significant differences between the Companies Act and the current Companies Act of England. In addition, the
Companies Act differs from laws applicable to U.S. corporations and their shareholders. Set forth below is a summary of certain significant differences
between the provisions of the Companies Act applicable to us and the laws applicable to companies incorporated in the United States and their
shareholders.
Mergers and Similar Arrangements. The Companies Act permits mergers and consolidations between Cayman Islands companies and between
Cayman Islands companies and non-Cayman Islands companies. For these purposes, (i) “merger” means the merging of two or more constituent
companies and the vesting of their undertaking, property and liabilities in one of such companies as the surviving company, and (ii) a “consolidation”
means the combination of two or more constituent companies into a consolidated company and the vesting of the undertaking, property and liabilities of
such companies to the consolidated company. In order to effect such a merger or consolidation, the directors of each constituent company must approve
a written plan of merger or consolidation, which must then be authorized by (a) a special resolution of the shareholders of each constituent company, and
(b) such other authorization, if any, as may be specified in such constituent company’s articles of association. The written plan of merger or
consolidation must be filed with the Registrar of Companies of the Cayman Islands together with a declaration as to the solvency of the consolidated or
surviving company, a list of the assets and liabilities of each constituent company and an undertaking that a copy of the certificate of merger or
consolidation will be given to the members and creditors of each constituent company and that notification of the merger or consolidation will be
published in the Cayman Islands Gazette. Court approval is not required for a merger or consolidation which is effected in compliance with these
statutory procedures.
A merger between a Cayman parent company and its Cayman subsidiary or subsidiaries does not require authorization by a resolution of
shareholders of that Cayman subsidiary if a copy of the plan of merger is given to every member of that Cayman subsidiary to be merged unless that
member agrees otherwise. For this purpose a company is a “parent” of a subsidiary if it holds issued shares that together represent at least ninety percent
(90%) of the votes at a general meeting of the subsidiary.
The consent of each holder of a fixed or floating security interest over a constituent company is required unless this requirement is waived by a
court in the Cayman Islands.
Save in certain limited circumstances, a shareholder of a Cayman constituent company who dissents from the merger or consolidation is entitled to
payment of the fair value of his shares (which, if not agreed between the parties, will be determined by the Cayman Islands court) upon dissenting to the
merger or consolidation, provided that the dissenting shareholder complies strictly with the procedures set out in the Companies Act. The exercise of
dissenter rights will preclude the exercise by the dissenting shareholder of any other rights to which he or she might otherwise be entitled by virtue of
holding shares, save for the right to seek relief on the grounds that the merger or consolidation is void or unlawful.
Separate from the statutory provisions relating to mergers and consolidations, the Companies Act also contains statutory provisions that facilitate
the reconstruction and amalgamation of companies by way of schemes of arrangement, provided that the arrangement is approved by a majority in
number of each class of shareholders and creditors with whom the arrangement is to be made, and who must in addition represent three-fourths in value
of each such class of shareholders or creditors, as the case may be, that are present and voting either in person or by proxy at a meeting, or meetings,
convened for that purpose. The convening of the meetings and subsequently the arrangement must be sanctioned by the Grand Court of the Cayman
Islands. While a dissenting shareholder has the right to express to the court the view that the transaction ought not to be approved, the court can be
expected to approve the arrangement if it determines that:
• the statutory provisions as to the required majority vote have been met;
• the shareholders have been fairly represented at the meeting in question and the statutory majority are acting bona fide without
coercion of the minority to promote interests adverse to those of the class;
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• the arrangement is such that may be reasonably approved by an intelligent and honest man of that class acting in respect of his
interest; and the arrangement is not one that would more properly be sanctioned under some other provision of the Companies Act.
The Companies Act also contains a statutory power of compulsory acquisition which may facilitate the “squeeze out” of dissentient minority
shareholders upon a tender offer. When a tender offer is made and accepted by holders of 90.0% of the shares affected within four months, the offeror
may, within a two-month period commencing on the expiration of such four-month period, require the holders of the remaining shares to transfer such
shares to the offeror on the terms of the offer. An objection can be made to the Grand Court of the Cayman Islands but this is unlikely to succeed in the
case of an offer which has been so approved unless there is evidence of fraud, bad faith or collusion.
If an arrangement and reconstruction by way of scheme of arrangement is thus approved and sanctioned, or if a tender offer is made and accepted
in accordance with the foregoing statutory procedures, a dissenting shareholder would have no rights comparable to appraisal rights, which would
otherwise ordinarily be available to dissenting shareholders of Delaware corporations, providing rights to receive payment in cash for the judicially
determined value of the shares.
Shareholders’ Suits. In principle, we will normally be the proper plaintiff to sue for a wrong done to us as a company, and as a general rule a
derivative action may not be brought by a minority shareholder. However, based on English authorities, which would in all likelihood be of persuasive
authority in the Cayman Islands, the Cayman Islands court can be expected to follow and apply the common law principles (namely the rule in Foss v.
Harbottle and the exceptions thereto) so that a non-controlling shareholder may be permitted to commence a class action against or derivative actions in
the name of the company to challenge actions where:
• a company acts or proposes to act illegally or ultra vires (and is therefore incapable of ratification by the shareholder);
• the act complained of, although not ultra vires, could only be effected duly if authorized by more than a simple majority vote that has
not been obtained; and those who control the company are perpetrating a “fraud on the minority.”
Indemnification of Directors and Executive Officers and Limitation of Liability. Cayman Islands law does not limit the extent to which a
company’s memorandum and articles of association may provide for indemnification of officers and directors, except to the extent any such provision
may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of
committing a crime. Our current memorandum and articles of association provide that that we shall indemnify our officers and directors against all
actions, proceedings, costs, charges, expenses, losses, damages or liabilities incurred or sustained by such directors or officer, other than by reason of
such person’s dishonesty, willful default or fraud, in or about the conduct of our company’s business or affairs (including as a result of any mistake of
judgment) or in the execution or discharge of his duties, powers, authorities or discretions, including, without prejudice to the generality of the
foregoing, any costs, expenses, losses or liabilities incurred by such director or officer in defending (whether successfully or otherwise) any civil
proceedings concerning our company or its affairs in any court whether in the Cayman Islands or elsewhere. This standard of conduct is generally the
same as permitted under the Delaware General Corporation Law for a Delaware corporation.
In addition, we have entered into indemnification agreements with our directors and executive officers that provide such persons with additional
indemnification beyond that provided in our current memorandum and articles of association.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or persons controlling us under
the foregoing provisions, we have been informed that in the opinion of the SEC, such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
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Directors’ Fiduciary Duties. Under Delaware corporate law, a director of a Delaware corporation has a fiduciary duty to the corporation and its
shareholders. This duty has two components: the duty of care and the duty of loyalty. The duty of care requires that a director act in good faith, with the
care that an ordinarily prudent person would exercise under similar circumstances. Under this duty, a director must inform himself of, and disclose to
shareholders, all material information reasonably available regarding a significant transaction. The duty of loyalty requires that a director acts in a
manner he reasonably believes to be in the best interests of the corporation. He must not use his corporate position for personal gain or advantage. This
duty prohibits self-dealing by a director and mandates that the best interest of the corporation and its shareholders take precedence over any interest
possessed by a director, officer or controlling shareholder and not shared by the shareholders generally. In general, actions of a director are presumed to
have been made on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the corporation. However,
this presumption may be rebutted by evidence of a breach of one of the fiduciary duties. Should such evidence be presented concerning a transaction by
a director, the director must prove the procedural fairness of the transaction, and that the transaction was of fair value to the corporation.
As a matter of Cayman Islands law, a director of a Cayman Islands company is in the position of a fiduciary with respect to the company and
therefore it is considered that he owes the following duties to the company — a duty to act bona fide in the best interests of the company, a duty not to
make a profit based on his position as director (unless the company permits him to do so), a duty not to put himself in a position where the interests of
the company conflict with his personal interest or his duty to a third party, and a duty to exercise powers for the purpose for which such powers were
intended. A director of a Cayman Islands company owes to the company a duty to act with skill and care. It was previously considered that a director
need not exhibit in the performance of his duties a greater degree of skill than may reasonably be expected from a person of his knowledge and
experience. However, English and Commonwealth courts have moved towards an objective standard with regard to the required skill and care and these
authorities are likely to be followed in the Cayman Islands.
Shareholder Action by Written Consent. Under the Delaware General Corporation Law, a corporation may eliminate the right of shareholders to
act by written consent by amendment to its certificate of incorporation. Cayman Islands law and our current memorandum and articles of association
provide that our shareholders may approve corporate matters by way of a unanimous written resolution signed by or on behalf of each shareholder who
would have been entitled to vote on such matter at a general meeting without a meeting being held.
Shareholder Proposals. Under the Delaware General Corporation Law, a shareholder has the right to put any proposal before the annual meeting
of shareholders; provided it complies with the notice provisions in the governing documents. A special meeting may be called by the board of directors
or any other person authorized to do so in the governing documents, but shareholders may be precluded from calling special meetings.
right to put any proposal before a general meeting. However, these rights may be provided in a company’s articles of association. Our current
memorandum and articles of association allow any one or more of our shareholders holding shares which carry in aggregate not less than one-third of
the total number of votes attaching to all issued and the outstanding shares of our company entitled to vote at general meetings to requisition an
extraordinary general meeting of our shareholders, in which case our board is obliged to convene an extraordinary general meeting and to put the
resolutions so requisitioned to a vote at such meeting. Other than this right to requisition a shareholders’ meeting, our current memorandum and articles
of association do not provide our shareholders with any other right to put proposals before annual general meetings or extraordinary general meetings.
As a Cayman Islands exempted company, we are not obliged by law to call shareholders’ annual general meetings.
Cumulative Voting. Under the Delaware General Corporation Law, cumulative voting for elections of directors is not permitted unless the
corporation’s certificate of incorporation specifically provides for it. Cumulative voting potentially facilitates the representation of minority shareholders
on a board of directors since it permits the minority shareholder to cast all the votes to which the shareholder is entitled on a single director, which
increases the shareholder’s voting power with respect to electing such director. There are no prohibitions in relation to cumulative voting under the laws
of the Cayman Islands but our current memorandum and articles of association do not provide for cumulative voting. As a result, our shareholders are
not afforded any less protections or rights on this issue than shareholders of a Delaware corporation.
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Removal of Directors. Under the Delaware General Corporation Law, a director of a corporation with a classified board may be removed only for
cause with the approval of a majority of the issued and outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise.
Under our current memorandum and articles of association, directors may be removed with or without cause, by an ordinary resolution of our
shareholders. A director will also cease to be a director if he (i) becomes bankrupt or makes any arrangement or composition with his creditors; (ii) dies
or is found to be or becomes of unsound mind; (iii) resigns his office by notice in writing; (iv) without special leave of absence from our board, is absent
from meetings of our board for three consecutive meetings and our board resolves that his office be vacated; or (v) is removed from office pursuant to
any other provision of our articles of association.
Transactions with Interested Shareholders. The Delaware General Corporation Law contains a business combination statute applicable to
Delaware corporations whereby, unless the corporation has specifically elected not to be governed by such statute by amendment to its certificate of
incorporation, it is prohibited from engaging in certain business combinations with an “interested shareholder” for three years following the date that
such person becomes an interested shareholder. An interested shareholder generally is a person or a group who or which owns or owned 15% or more of
the target’s outstanding voting share within the past three years. This has the effect of limiting the ability of a potential acquirer to make a two-tiered bid
for the target in which all shareholders would not be treated equally. The statute does not apply if, among other things, prior to the date on which such
shareholder becomes an interested shareholder, the board of directors approves either the business combination or the transaction which resulted in the
person becoming an interested shareholder. This encourages any potential acquirer of a Delaware corporation to negotiate the terms of any acquisition
transaction with the target’s board of directors.
Cayman Islands law has no comparable statute. As a result, we cannot avail ourselves of the types of protections afforded by the Delaware
business combination statute. However, although Cayman Islands law does not regulate transactions between a company and its significant shareholders,
it does provide that such transactions must be entered into bona fide in the best interests of the company and not with the effect of constituting a fraud on
the minority shareholders.
Dissolution; Winding up. Under the Delaware General Corporation Law, unless the board of directors approves the proposal to dissolve,
dissolution must be approved by shareholders holding 100% of the total voting power of the corporation. Only if the dissolution is initiated by the board
of directors may it be approved by a simple majority of the corporation’s outstanding shares. Delaware law allows a Delaware corporation to include in
its certificate of incorporation a supermajority voting requirement in connection with dissolutions initiated by either an order of the courts of the
Cayman Islands or by the board of directors.
Under Cayman Islands law, a company may be wound up by either an order of the courts of the Cayman Islands or by a special resolution of its
members or, if the company is unable to pay its debts as they fall due, by an ordinary resolution of its members. The court has authority to order winding
up in a number of specified circumstances including where it is, in the opinion of the court, just and equitable to do so.
Variation of Rights of Shares. Under the Delaware General Corporation Law, a corporation may vary the rights of a class of shares with the
approval of a majority of the outstanding shares of such class, unless the certificate of incorporation provides otherwise. Under our current
memorandum and articles of association, if our share capital is divided into more than one class of shares, the rights attached to any such class may,
subject to any rights or restrictions for the time being attached to any class, only be materially adversely varied with the consent in writing of the holders
of at least two-thirds (2/3) of the issued shares of that class or with the sanction of a special resolution passed at a separate meeting of the holders of the
shares of that class. The rights conferred upon the holders of the shares of any class issued with preferred or other rights shall not, subject to any rights
or restrictions for the time being attached to the shares of that class, be deemed to be materially adversely varied by the creation, allotment or issue of
further shares ranking pad passu with or subsequent to them or the redemption or purchase of any shares of any class by our company. The rights of the
holders of shares shall not be deemed to be materially adversely varied by the creation or issue of shares with preferred or other rights including, without
limitation, the creation of shares with enhanced or weighted voting rights.
Amendment of Governing Documents. Under the Delaware General Corporation Law, a corporation’s governing documents may be amended with
the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. Under the Companies Act
and our current memorandum and articles of association, our memorandum and articles of association may only be amended by a special resolution of
our shareholders.
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Rights of Non-resident or Foreign Shareholders. There are no limitations imposed by our current memorandum and articles of association on the
rights of non-resident or foreign shareholders to hold or exercise voting rights on our shares. In addition, there are no provisions in our current
memorandum and articles of association governing the ownership threshold above which shareholder ownership must be disclosed.
C. Material Contracts
Other than in the ordinary course of business and other than those described in “Item 4. Information on the Company” or “Item 7. Major
Shareholders and Related Party Transactions—B. Related Party Transactions” or elsewhere in this annual report, we have not entered into any material
contract during the two years immediately preceding the date of this annual report.
D. Exchange Controls
See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations Relating to Foreign Exchange.”
E. Taxation
The following summary of the material Cayman Islands, PRC and U.S. federal income tax consequences of an investment in our ADSs or
ordinary shares is based upon laws and relevant interpretations thereof in effect as of the date of this annual report, all of which are subject to change.
This summary does not deal with all possible tax consequences relating to an investment in our ADSs or ordinary shares, such as the tax consequences
under U.S. state and local tax laws or under the tax laws of jurisdictions other than the Cayman Islands, PRC and the United States.
Cayman Islands Taxation

The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no
taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us levied by the government of the Cayman
Islands except for stamp duties which may be applicable on instruments executed in, or, after execution, brought within the jurisdiction of the Cayman
Islands. The Cayman Islands is not party to any double tax treaties that are applicable to any payments made to or by our company. There are no
exchange control regulations or currency restrictions in the Cayman Islands.
Payments of dividends and capital in respect of our ordinary shares and ADSs will not be subject to taxation in the Cayman Islands and no
withholding will be required on the payment of a dividend or capital to any holder of our ordinary shares or the ADSs, nor will gains derived from the
disposal of our ordinary shares or the ADSs be subject to Cayman Islands income or corporation tax.
PRC Taxation
Under the PRC Enterprise Income Tax Law and its implementation rules, an enterprise established outside of the PRC with a “de facto
management body” within the PRC is considered a resident enterprise and will be subject to the enterprise income tax at the rate of 25% on its global
income. The implementation rules define the term “de facto management body” as the body that exercises full and substantial control over and overall
management of the business, production, personnel, accounts and properties of an enterprise. In April 2009, the State Administration of Taxation issued
a circular, known as Circular 82, which provides certain specific criteria for determining whether the “de facto management body” of a PRC-controlled
enterprise that is incorporated offshore is located in China. Although this circular only applies to offshore enterprises controlled by PRC enterprises or
PRC enterprise groups, not those controlled by PRC individuals or foreigners, the criteria set forth in the circular may reflect the State Administration of
Taxation’s general position on how the “de facto management body” test should be applied in determining the tax resident status of all offshore
enterprises. According to Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be regarded as a
PRC tax resident by virtue of having its “de facto management body” in China only if all of the following conditions are met: (i) the primary location of
the day-to-day operational management is in the PRC; (ii) decisions relating to the enterprise’s financial and human resource matters are made or are
subject to approval by organizations or personnel in the PRC; (iii) the enterprise’s primary assets, accounting books and records, company seals, and
board and shareholder resolutions are located or maintained in the PRC; and (iv) at least 50% of voting board members or senior executives habitually
reside in the PRC.
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We believe that Waterdrop Inc. is not a PRC resident enterprise for PRC tax purposes. Waterdrop Inc. is not controlled by a PRC enterprise or
PRC enterprise group and we do not believe that Waterdrop Inc. meets all of the conditions above. Waterdrop Inc. is a company incorporated outside the
PRC. As a holding company, its key assets are its ownership interests in its subsidiaries, and its key assets are located, and its records (including the
resolutions of its board of directors and the resolutions of its shareholders) are maintained, outside the PRC. For the same reasons, we believe our other
entities outside of China are not PRC resident enterprises either. However, the tax resident status of an enterprise is subject to determination by the PRC
tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body.” There can be no assurance that the
PRC government will ultimately take a view that is consistent with ours.
If the PRC tax authorities determine that Waterdrop Inc. is a PRC resident enterprise for enterprise income tax purposes, we may be required to
withhold a 10% withholding tax from dividends we pay to our shareholders that are non-resident enterprises, including the holders of the ADSs. In
addition, non-resident enterprise shareholders (including the ADS holders) may be subject to a 10% PRC tax on gains realized on the sale or other
disposition of ADSs or ordinary shares, if such income is treated as sourced from within the PRC. It is unclear whether our non-PRC individual
shareholders (including the ADS holders) would be subject to any PRC tax on dividends or gains obtained by such non-PRC individual shareholders in
the event we are determined to be a PRC resident enterprise. If any PRC tax were to apply to such dividends or gains, it would generally apply at a rate
of 20% (and such PRC tax may be withheld at source in the case of dividends). Any PRC income tax liability may be reduced under applicable tax
treaties. However, it is unclear whether non-PRC shareholders of Waterdrop Inc. would in practice be able to obtain the benefits of any tax treaties
between their country of tax residence and the PRC in the event that Waterdrop Inc. is treated as a PRC resident enterprise.
Provided that our Cayman Islands holding company, Waterdrop Inc., is not deemed to be a PRC resident enterprise, holders of the ADSs and
ordinary shares who are not PRC residents will not be subject to PRC income tax on dividends distributed by us or gains realized from the sale or other
disposition of our shares or ADSs. However, under Bulletin 7 and Bulletin 37, where a non-resident enterprise conducts an “indirect transfer’ by
transferring taxable assets, including, in particular, equity interests in a PRC resident enterprise, indirectly by disposing of the equity interests of an
overseas holding company, the non-resident enterprise, being the transferor, or the transferee, or the PRC entity which directly owns such taxable assets
may report to the relevant tax authority such indirect transfer. Using a “substance over form” principle, the PRC tax authority may disregard the
existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding or
deferring PRC tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax, and the transferee or other person
who is obligated to pay for the transfer is obligated to withhold the applicable taxes, currently at a rate of 10% for the transfer of equity interests in a
PRC resident enterprise. However, sales of shares and ADSs by investors through a public stock exchange where such shares or ADSs are acquired on a
public stock exchange are currently exempt from these indirect transfer rules under Bulletin 7 and Bulletin 37. We and our non-PRC resident investors
may be at risk of being required to file a return and being taxed under Bulletin 7 and Bulletin 37, and we may be required to expend valuable resources
to comply with Bulletin 7 and Bulletin 37, or to establish that we should not be taxed under these circulars. See “Item 3. Key Information—D. Risk
Factors—Risks Related to Doing Business in China—We face uncertainties with respect to indirect transfers of equity interests in PRC resident
enterprises by their non-PRC holding companies.”
United States Federal Income Tax Considerations
The following discussion is a summary of U.S. federal income tax considerations generally applicable to the ownership and disposition of the
ADSs or ordinary shares by a U.S. Holder (as defined below). This summary applies only to U.S. Holders that hold the ADSs or ordinary shares as
“capital assets” (generally, property held for investment) under the U.S. Internal Revenue Code of 1986, as amended, or the Code. This discussion is
based upon existing U.S. federal tax law, which is subject to differing interpretations or change, possibly with retroactive effect. There can be no
assurance that the IRS or a court will not take a contrary position. This discussion, moreover, does not address the U.S. federal estate, gift, Medicare,
and alternative minimum tax considerations, or any state, local and non-U.S. tax considerations, relating to the ownership or disposition of the ADSs or
ordinary shares. The following summary does not address all aspects of U.S. federal income taxation that may be important to particular investors in
light of their individual circumstances or to persons in special tax situations such as:
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• banks and other financial institutions;

• insurance companies;
• pension plans;
• cooperatives;
• regulated investment companies;
• real estate investment trusts;
• broker-dealers;
• traders that elect to use a mark-to-market method of accounting;
• certain former U.S. citizens or long-term residents;
• tax-exempt entities (including private foundations);
• holders who acquire their ADSs or ordinary shares pursuant to any employee share option or otherwise as compensation;
• investors that will hold their ADSs or ordinary shares as part of a straddle, hedge, conversion, constructive sale or other integrated
transaction for U.S. federal income tax purposes;
• investors that have a functional currency other than the U.S. dollar;
• persons holding their ADSs or ordinary shares in connection with a trade or business conducted outside the United States;
• persons that actually or constructively own 10% or more of our stock (by vote or value); or
• partnerships or other entities taxable as partnerships for U.S. federal income tax purposes, or persons holding the ADSs or ordinary
shares through such entities, all of whom may be subject to tax rules that differ significantly from those discussed below.
Each U.S. Holder is urged to consult its tax advisor regarding the application of U.S. federal taxation to its particular circumstances, and the state,
local, non-U.S. and other tax considerations of the ownership and disposition of the ADSs or ordinary shares.
General
For purposes of this discussion, a “U.S. Holder” is a beneficial owner of the ADSs or ordinary shares that is, for U.S. federal income tax purposes:
• an individual who is a citizen or resident of the United States;
• a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created in or organized under the law of
the United States or any state thereof or the District of Columbia;
• an estate the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source; or
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• a trust (A) the administration of which is subject to the primary supervision of a U.S. court and which has one or more U.S. persons
who have the authority to control all substantial decisions of the trust or (B) that has otherwise validly elected to be treated as a U.S.
person under the Code.
If a partnership (or other entity treated as a partnership for U.S. federal income tax purposes) is a beneficial owner of the ADSs or ordinary shares,
the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. Partnerships
holding the ADSs or ordinary shares and their partners are urged to consult their tax advisors regarding an investment in the ADSs or ordinary shares.
For U.S. federal income tax purposes, a U.S. Holder of ADSs will generally be treated as the beneficial owner of the underlying shares
represented by the ADSs. The remainder of this discussion assumes that a U.S. Holder of the ADSs will be treated in this manner. Accordingly, deposits
or withdrawals of ordinary shares for ADSs will generally not be subject to U.S. federal income tax.
Passive Foreign Investment Company Considerations

A non-U.S. corporation, such as our company, will be a PFIC, for U.S. federal income tax purposes for any taxable year, if either (i) 75% or more
of its gross income for such year consists of certain types of “passive” income or (ii) 50% or more of the value of its assets (generally determined on the
basis of a quarterly average) during such year is attributable to assets that produce or are held for the production of passive income. For this purpose,
cash and assets readily convertible into cash are generally categorized as a passive asset and the company’s goodwill and other unbooked intangibles are
taken into account. Passive income generally includes, among other things, dividends, interest, rents, royalties, and gains from the disposition of passive
assets. We will be treated as owning a proportionate share of the assets and earning a proportionate share of the income of any other corporation in
which we own, directly or indirectly, 25% or more (by value) of the stock.
Although the law in this regard is not entirely clear, we treat the VIEs and their subsidiaries as being owned by us for U.S. federal income tax
purposes because we control their management decisions and are entitled to substantially all of the economic benefits associated with them. As a result,
we consolidate their result of operations in our consolidated U.S. GAAP financial statements. If it were determined, however, that we are not the owner
of the VIE for U.S. federal income tax purposes, we would likely be treated as a PFIC for the current taxable year and any subsequent taxable year.
Assuming that we are the owner of the VIEs and their subsidiaries for U.S. federal income tax purposes, and based upon our income and assets,
we do not believe we were a PFIC for the taxable year ended December 31, 2021, and we do not presently expect to be a PFIC for the current taxable
year or the foreseeable future. However, no assurance can be given in this regard because the determination of whether we are or will become a PFIC is
a factual determination made annually that will depend, in part, upon the composition of our income and assets. Fluctuations in the market price of the
ADSs may cause us to be or become a PFIC for the current or future taxable years because the value of our assets for purposes of the asset test,
including the value of our goodwill and unbooked intangibles, may be determined by reference to the market price of the ADSs from time to time
(which may be volatile). In particular, recent declines in the market price of our ADSs significantly increased our risk of becoming a PFIC for the
current taxable year. The market price of our ADSs may continue to fluctuate considerably and, consequently, we cannot assure you of our PFIC status
for any taxable year. The composition of our income and assets may also be affected by how, and how quickly, we use our liquid assets. Under
circumstances where our revenue from activities that produce passive income significantly increases relative to our revenue from activities that produce
non-passive income, or where we determine not to deploy significant amounts of cash for active purposes, our risk of being or becoming a PFIC may
substantially increase. Because there are uncertainties in the application of the relevant rules, and because our PFIC status is an annual factual
determination, there can be no assurance that we will not be a PFIC for the current taxable year or any future taxable year.
If we are a PFIC for any year during which a U.S. Holder holds the ADSs or ordinary shares, we generally will continue to be treated as a PFIC
for all succeeding years during which such U.S. Holder holds the ADSs or ordinary shares.
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The discussion below under “— Dividends” and “— Sale or Other Disposition” is written on the basis that we will not be or become a PFIC for
U.S. federal income tax purposes. The U.S. federal income tax rules that apply generally if we are treated as a PFIC are discussed below under “—
Passive Foreign Investment Company Rules.”
Dividends
Any cash distributions paid on the ADSs or ordinary shares (including the amount of any PRC tax withheld) out of our current or accumulated
earnings and profits, as determined under U.S. federal income tax principles, will generally be includible in the gross income of a U.S. Holder as
dividend income on the day actually or constructively received by the U.S. Holder, in the case of ordinary shares, or by the depositary, in the case of
ADSs. Because we do not intend to determine our earnings and profits on the basis of U.S. federal income tax principles, any distribution we pay will
generally be treated as a “dividend” for U.S. federal income tax purposes. Dividends received on the ADSs or ordinary shares will not be eligible for the
dividends-received deduction allowed to corporations in respect of dividends received from U.S. corporations.
Individuals and other non-corporate U.S. Holders will be subject to tax at the lower capital gain tax rate applicable to “qualified dividend income”;
provided that certain conditions are satisfied, including that (1) the ADSs or ordinary shares on which the dividends are paid are readily tradable on an
established securities market in the United States, or, in the event that we are deemed to be a PRC resident enterprise under the PRC tax law, we are
eligible for the benefit of the United States-PRC income tax treaty (the “Treaty”), (2) we are neither a PFIC nor treated as such with respect to a U.S.
Holder (as discussed below) for the taxable year in which the dividend is paid and the preceding taxable year, and (3) certain holding period and other
requirements are met. We intend to list the ADSs on the New York Stock Exchange. Provided that this listing is approved, we believe that the ADSs will
generally be considered to be readily tradable on an established securities market in the United States. There can be no assurance that the ADSs will
continue to be considered readily tradable on an established securities market in later years. Because the ordinary shares will not be listed on a U.S.
exchange, we do not believe that dividends received with respect to ordinary shares that are not represented by ADSs will be treated as qualified
dividends. Non-corporate U.S. Holders are urged to consult their tax advisors regarding the availability of the lower rate for dividends paid with respect
to the ADSs or ordinary shares.
In the event that we are deemed to be a PRC resident enterprise under the PRC Enterprise Income Tax Law (see “Item 10. Additional Information
—E. Taxation—PRC Taxation”), we may be eligible for the benefits of the Treaty. If we are eligible for such benefits, dividends we pay on our ordinary
shares, regardless of whether such shares are represented by the ADSs, and regardless of whether the ADSs are readily tradable on an established
securities market in the United States, would be eligible for the reduced rates of taxation described in the preceding paragraph, provided that certain
holding period and other requirements are met and that we are neither a PFIC nor treated as such with respect to a U.S. Holder for the taxable year in
which the dividend is paid and the preceding taxable year.
For U.S. foreign tax credit purposes, dividends paid on the ADSs or ordinary shares generally will be treated as income from foreign sources and
generally will constitute passive category income. In the event that we are deemed to be a PRC resident enterprise under the PRC Enterprise Income Tax
Law, a U.S. Holder may be subject to PRC withholding taxes on dividends paid on the ADSs or ordinary shares (see “Item 10. Additional Information—
E. Taxation—PRC Taxation”). Depending on the U.S. Holder’s particular facts and circumstances and subject to a number of complex conditions and
limitations, PRC withholding taxes on dividends that are non-refundable under the Treaty may be treated as foreign taxes eligible for credit against a
U.S. Holder’s U.S. federal income tax liability. A U.S. Holder who does not elect to claim a foreign tax credit for foreign tax withheld may instead claim
a deduction for U.S. federal income tax purposes, in respect of such withholding, but only for a year in which such holder elects to do so for all
creditable foreign income taxes. The rules governing the foreign tax credit are complex and U.S. Holders are urged to consult their tax advisors
regarding the availability of the foreign tax credit under their particular circumstances.
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Sale or Other Disposition

A U.S. Holder will generally recognize gain or loss upon the sale or other disposition of ADSs or ordinary shares in an amount equal to the
difference between the amount realized upon the disposition and the holder’s adjusted tax basis in such ADSs or ordinary shares. The gain or loss will
generally be capital gain or loss. Any capital gain or loss will be long term if the ADSs or ordinary shares have been held for more than one year. The
deductibility of a capital loss may be subject to limitations. Any such gain or loss that the U.S. Holder recognizes will generally be treated as U.S.
source income or loss for foreign tax credit limitation purposes, which may limit the availability of foreign tax credits. As described in “Item 10.
Additional Information—E. Taxation—PRC Taxation,” if we are deemed to be a PRC resident enterprise under the PRC Enterprise Income Tax Law,
gains from the disposition of the ADSs or ordinary shares may be subject to PRC income tax and will generally be U.S. source, which may limit the
ability to receive a foreign tax credit. If a U.S. Holder is eligible for the benefits of the Treaty, such holder may be able to elect to treat such gain as PRC
source income under the Treaty. Pursuant to recently issued United States Treasury regulations, however, if a U.S. Holder is not eligible for the benefits
of the Treaty or does not elect to apply the Treaty, then such holder may not be able to claim a foreign tax credit arising from any PRC tax imposed on
the disposition of the ADSs or ordinary shares. The rules regarding foreign tax credits and deduction of foreign taxes are complex. U.S. Holders should
consult their tax advisors regarding the availability of a foreign tax credit or deduction in light of their particular circumstances, including their
eligibility for benefits under the Treaty, and the potential impact of the recently issued United States Treasury regulations.
Passive Foreign Investment Company Rules

If we are a PFIC for any taxable year during which a U.S. Holder holds the ADSs or ordinary shares, and unless the U.S. Holder makes a
mark-to-market election (as described below), the U.S. Holder will generally be subject to special tax rules on (i) any excess distribution that we make
to the U.S. Holder (which generally means any distribution paid during a taxable year to a U.S. Holder that is greater than 125 percent of the average
annual distributions paid in the three preceding taxable years or, if shorter, the U.S. Holder’s holding period for the ADSs or ordinary shares), and
(ii) any gain realized on the sale or other disposition including, under certain circumstances, a pledge, of ADSs or ordinary shares. Under the PFIC rules:
• the excess distribution or gain will be allocated ratably over the U.S. Holder’s holding period for the ADSs or ordinary shares;
• the amount allocated to the current taxable year and any taxable years in the U.S. Holder’s holding period prior to the first taxable
year in which we are a PFIC (each, a “pre-PFIC year”) will be taxable as ordinary income; and
• the amount allocated to each prior taxable year, other than a pre-PFIC year, will be subject to tax at the highest tax rate in effect for
individuals or corporations, as appropriate, for that year, increased by an additional tax equal to the interest on the resulting tax
deemed deferred with respect to each such taxable year.
If we are a PFIC for any taxable year during which a U.S. Holder holds the ADSs or ordinary shares, and any of our subsidiaries, the VIEs or any
of the subsidiaries of the VIEs is also a PFIC (a “lower-tier PFIC”), such U.S. Holder would be treated as owning a proportionate amount (by value) of
the shares of the lower-tier PFIC for purposes of the application of these rules. U.S. Holders are urged to consult their tax advisors regarding the
application of the PFIC rules to any of our subsidiaries, the VIEs or any of the subsidiaries of the VIEs.
As an alternative to the foregoing rules, a U.S. Holder of “marketable stock” (as defined below) in a PFIC may make a mark-to-market election
with respect to such stock. If a U.S. Holder makes a mark-to-market election with respect to the ADSs, the holder will generally (i) include as ordinary
income for each taxable year that we are a PFIC the excess, if any, of the fair market value of ADSs held at the end of the taxable year over the adjusted
tax basis of such ADSs and (ii) deduct as an ordinary loss the excess, if any, of the adjusted tax basis of the ADSs over the fair market value of such
ADSs held at the end of the taxable year, but such deduction will only be allowed to the extent of the amount previously included in income as a result
of the mark-to-market election. The U.S. Holder’s adjusted tax basis in the ADSs would be adjusted to reflect any income or loss resulting from the
mark-to-market election. If a U.S. Holder makes a mark-to-market election in respect of the ADSs and we cease to be a PFIC, the holder will not be
required to take into account the gain or loss described above during any period that we are not a PFIC. If a U.S. Holder makes a mark-to-market
election, any gain such U.S. Holder recognizes upon the sale or other disposition of the ADSs in a year when we are a PFIC will be treated as ordinary
income and any loss will be treated as ordinary loss, but such loss will only be treated as ordinary loss to the extent of the net amount previously
included in income as a result of the mark-to-market election.
The mark-to-market election is available only for “marketable stock,” which is stock that is traded in other than de minimis quantities on at least
15 days during each calendar quarter (“regularly traded”) on a qualified exchange or other market, as defined in applicable United States Treasury
regulations. The ADSs, but not our ordinary shares, will be treated as marketable stock upon their listing on the New York Stock Exchange. We
anticipate that the ADSs should qualify as being regularly traded, but no assurances may be given in this regard.
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Because a mark-to-market election cannot technically be made for any lower-tier PFICs that we may own, a U.S. Holder may continue to be
subject to the PFIC rules with respect to such U.S. Holder’s indirect interest in any investments held by us that are treated as an equity interest in a PFIC
for U.S. federal income tax purposes.
We do not intend to provide information necessary for U.S. Holders to make qualified electing fund elections which, if available, would result in
tax treatment different from (and generally less adverse than) the general tax treatment for PFICs described above.
If a U.S. Holder owns the ADSs or ordinary shares during any taxable year that we are a PFIC, the holder must generally file an annual IRS
Form 8621. U.S. Holders are urged to consult their tax advisor regarding the U.S. federal income tax consequences of owning and disposing of the
ADSs or ordinary shares if we are or become a PFIC.
F. Dividends and Paying Agents

Not applicable.
G. Statement by Experts
Not applicable.
H. Documents on Display
We previously filed a registration statement on Form F-1 (Registration No. 333-255298) with the SEC to register the issuance and sale of our
ordinary shares represented by ADSs in our IPO. We have also filed a registration statement on Form F-6 (Registration No. 333-255650) with the SEC
to register the ADSs.
We are subject to periodic reporting and other informational requirements of the Exchange Act as applicable to foreign private issuers, and are
required to file reports and other information with the SEC. Specifically, we are required to file annually an annual report on Form 20-F within four
months after the end of each fiscal year, which is December 31. All information filed with the SEC can be obtained over the internet at the SEC’s
website at www.sec.gov. As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of
quarterly reports and proxy statements, and officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery
provisions contained in Section 16 of the Exchange Act.
We will furnish Citibank, N.A., the depositary of the ADSs, with our annual reports, which will include a review of operations and annual audited
consolidated financial statements prepared in conformity with U.S. GAAP, and all notices of shareholders’ meetings and other reports and
communications that are made generally available to our shareholders. The depositary will make such notices, reports and communications available to
holders of ADSs and, upon our request, will mail to all record holders of ADSs the information contained in any notice of a shareholders’ meeting
received by the depositary from us.
I. Subsidiary Information
Not applicable.
Item 11. Quantitative and Qualitative Disclosures about Market Risk

Foreign exchange risk
Substantially all of our net revenues and expenses are denominated in Renminbi. We do not believe that we currently have any significant direct
foreign exchange risk and have not used any derivative financial instruments to hedge exposure to such risk. Although our exposure to foreign exchange
risks should be limited in general, the value of your investment in our ADSs will be affected by the exchange rate between U.S. dollar and Renminbi
because the value of our business is effectively denominated in Renminbi, while our ADSs will be traded in U.S. dollars.
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The conversion of RMB into foreign currencies, including U.S. dollars, is based on rates set by the People’s Bank of China. The RMB has
fluctuated against the U.S. dollar, at times significantly and unpredictably. It is difficult to predict how market forces or PRC or U.S. government policy
may impact the exchange rate between RMB and the U.S. dollar in the future.
Concentration of credit risk

Details of the customers accounting for 10% or more of net operating revenue are as follows, including the amount of net operating revenue and
as percentages of total net operating revenue for the periods presented:

2019 2020 2021
RMB in RMB in RMB in
thousands % thousands % thousands %
Customer A 667,376 44.2 602,985 19.9 240,650 7.5
Customer B 331,533 21.9 753,456 24.9 457,995 14.3
Customer C 52,754 3.5 335,514 11.1 367,434 11.5
1,051,663 69.6 1,691,955 55.9 1,066,079 33.3
Details of the customers which accounted for 10% or more of accounts receivable and contract assets are as follows, including the amount of
accounts receivable and contract assets and as percentages of total accounts receivable and contract assets for the periods presented:
As of December 31,
2020 2021
RMB in RMB in
thousands % thousands %
Customer A 258,060 18.6 134,292 10.9
Customer B 411,637 29.7 190,284 15.4
Customer C 118,887 8.6 109,676 8.9
788,584 56.9 434,252 35.2
We perform ongoing credit evaluations of our customers and generally does not require collateral on accounts receivable.
Item 12. Description of Securities Other than Equity Securities

A. Debt Securities
Not applicable.
B. Warrants and Rights

Not applicable.
C. Other Securities
Not applicable.
D. American Depositary Shares

Fees and Charges Our ADS holders May Have to Pay
As an ADS holder, you will be required to pay the following fees under the terms of the deposit agreement:
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Service Fees
Issuance of ADSs (e.g., an issuance of ADS upon a deposit of Class A Up to US$0.05 per ADS issued
ordinary shares, upon a change in the ADS(s)-to-Class A ordinary share ratio,
or for any other reason), excluding ADS issuances as a result of distributions
of Class A ordinary shares
Cancellation of ADSs (e.g., a cancellation of ADSs for delivery of deposited Up to US$0.05 per ADS cancelled
property, upon a change in the ADS(s)-to-Class A ordinary share ratio, or for
any other reason)
Distribution of cash dividends or other cash distributions (e.g., upon a sale of Up to US$0.05 per ADS held
rights and other entitlements)
Distribution of ADSs pursuant to (i) stock dividends or other free stock Up to US$0.05 per ADS held
distributions, or (ii) exercise of rights to purchase additional ADSs
Distribution of securities other than ADSs or rights to purchase additional Up to US$0.05 per ADS held
ADSs (e.g., upon a spin-off)
ADS Services Up to US$0.05 per ADS held on the applicable record date(s) established
by the depositary
Registration of ADS transfers (e.g., upon a registration of the transfer of Up to US$0.05 per ADS (or fraction thereof) transferred
registered ownership of ADSs, upon a transfer of ADSs into DTC and vice
versa, or for any other reason)
Conversion of ADSs of one series for ADSs of another series (e.g., upon Up to US$0.05 per ADS (or fraction thereof) converted
conversion of Partial Entitlement ADSs for Full Entitlement ADSs, or upon
conversion of Restricted ADSs (each as defined in the Deposit Agreement)
into freely transferable ADSs, and vice versa).
As an ADS holder, you will also be responsible to pay certain charges such as:
• taxes (including applicable interest and penalties) and other governmental charges;
• the registration fees as may from time to time be in effect for the registration of Class A ordinary shares on the share register and
applicable to transfers of Class A ordinary shares to or from the name of the custodian, the depositary or any nominees upon the
making of deposits and withdrawals, respectively;
• certain cable, telex and facsimile transmission and delivery expenses;
• the fees, expenses, spreads, taxes and other charges of the depositary and/or service providers (which may be a division, branch or
affiliate of the depositary) in the conversion of foreign currency;
• the reasonable and customary out-of-pocket expenses incurred by the depositary in connection with compliance with exchange
control regulations and other regulatory requirements applicable to Class A ordinary shares, ADSs and ADRs; and
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• the fees, charges, costs and expenses incurred by the depositary, the custodian, or any nominee in connection with the ADR program.
ADS fees and charges for (i) the issuance of ADSs, and (ii) the cancellation of ADSs are charged to the person for whom the ADSs are issued (in
the case of ADS issuances) and to the person for whom ADSs are cancelled (in the case of ADS cancellations). In the case of ADSs issued by the
depositary into DTC, the ADS issuance and cancellation fees and charges may be deducted from distributions made through DTC, and may be charged
to the DTC participant(s) receiving the ADSs being issued or the DTC participant(s) holding the ADSs being cancelled, as the case may be, on behalf of
the beneficial owner(s) and will be charged by the DTC participant(s) to the account of the applicable beneficial owner(s) in accordance with the
procedures and practices of the DTC participants as in effect at the time. ADS fees and charges in respect of distributions and the ADS service fee are
charged to the holders as of the applicable ADS record date. In the case of distributions of cash, the amount of the applicable ADS fees and charges is
deducted from the funds being distributed. In the case of (i) distributions other than cash and (ii) the ADS service fee, holders as of the ADS record date
will be invoiced for the amount of the ADS fees and charges and such ADS fees and charges may be deducted from distributions made to holders of
ADSs. For ADSs held through DTC, the ADS fees and charges for distributions other than cash and the ADS service fee may be deducted from
distributions made through DTC, and may be charged to the DTC participants in accordance with the procedures and practices prescribed by DTC and
the DTC participants in turn charge the amount of such ADS fees and charges to the beneficial owners for whom they hold ADSs. In the case of
(i) registration of ADS transfers, the ADS transfer fee will be payable by the ADS Holder whose ADSs are being transferred or by the person to whom
the ADSs are transferred, and (ii) conversion of ADSs of one series for ADSs of another series, the ADS conversion fee will be payable by the Holder
whose ADSs are converted or by the person to whom the converted ADSs are delivered.
In the event of refusal to pay the depositary fees, the depositary may, under the terms of the deposit agreement, refuse the requested service until
payment is received or may set off the amount of the depositary fees from any distribution to be made to the ADS holder. Certain depositary fees and
charges (such as the ADS services fee) may become payable shortly after the closing of the ADS offering. Note that the fees and charges you may be
required to pay may vary over time and may be changed by us and by the depositary. You will receive prior notice of such changes.
Fees and Other Payments Made by the Depositary to Us

The depositary may reimburse us for certain expenses incurred by us in respect of the ADR program, by making available a portion of the ADS
fees charged in respect of the ADR program or otherwise, upon such terms and conditions as we and the depositary agree from time to time.
Responsibility for payment of such fees, charges and reimbursements may from time to time be changed by agreement between us and the depositary. In
the year ended December 31, 2021, we receive payment of US$0.4 million from the depositary for our expenses incurred in connection with the
establishment and maintenance of the ADS program.
Taxes
You will be responsible for the taxes and other governmental charges payable on the ADSs and the securities represented by the ADSs. We, the
depositary and the custodian may deduct from any distribution the taxes and governmental charges payable by holders and may sell any and all property
on deposit to pay the taxes and governmental charges payable by holders. You will be liable for any deficiency if the sale proceeds do not cover the
taxes that are due.
The depositary may refuse to issue ADSs, to deliver, transfer, split and combine ADRs or to release securities on deposit until all taxes and
charges are paid by the applicable holder. The depositary and the custodian may take reasonable administrative actions to obtain tax refunds and reduced
tax withholding for any distributions on your behalf. However, you may be required to provide to the depositary and to the custodian proof of taxpayer
status and residence and such other information as the depositary and the custodian may require to fulfill legal obligations. You are required to
indemnify us, the depositary and the custodian for any claims with respect to taxes based on any tax benefit obtained for you.
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PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies

None.
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
Material Modifications to the Rights of Security Holders
None.
Use of Proceeds
The following “Use of Proceeds” information relates to the registration statement on Form F-1 for our IPO (File Number 333-255298), which was
declared effective by the SEC on May 6, 2021. Our IPO closed in May 2021. Goldman Sachs (Asia) L.L.C., Morgan Stanley & Co. LLC and BofA
Securities, Inc. were the representatives of the underwriters for our IPO. We offered and sold an aggregate of 30,000,000 ADSs at an IPO price of
US$12.00 per ADS. We raised US$334.8 million in net proceeds from our IPO after deducting underwriting commissions and discounts and the offering
expenses payable by us.
The total expenses incurred for our company’s account in connection with our IPO was US$5.4 million. None of the transaction expenses included
payments to directors or officers of our company or their associates, persons owning more than 10% or more of our equity securities or our affiliates.
None of the net proceeds from the IPO were paid, directly or indirectly, to any of our directors or officers or their associates, persons owning 10% or
more of our equity securities or our affiliates.
For the period from May 6, 2021, the date that the registration statement was declared effective by the SEC, to December 31, 2021, we used
approximately US$0.1 billion of the net proceeds from our IPO to enhance and expand our operations in healthcare service and insurance business, for
research and development and general corporate purposes.
There is no material change in the use of proceeds as described in the registration statement.
Item 15. Controls and Procedures

Evaluation of Disclosure Controls and Procedures
Our management, under the supervision and with the participation of our chief executive officer and chief financial officer, carried out an
evaluation of the effectiveness of our disclosure controls and procedures, which is defined in Rules 13a-15(e) of the Exchange Act, as of December 31,
2021. Disclosure controls and procedures means controls and other procedures that are designed to ensure that information required to be disclosed by
us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the
SEC’s rule and forms and that such information required to be disclosed by us in the reports that we file or submit under the Exchange Act is
accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar
functions, as appropriate to allow timely decisions regarding required disclosures.
Based upon that evaluation, our management, with the participation of our chief executive officer and chief financial officer, has concluded that,
our disclosure controls and procedures were effective as of December 31, 2021.
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Management’s Annual Report on Internal Control over Financial Reporting and Attestation Report of the Registered Public Accounting Firm
This annual report does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report
by our independent registered public accounting firm due to a transition period established by rules of the SEC for newly public companies.
Internal Control over Financial Reporting

Prior to our IPO in May 2021, we have been a private company with limited accounting personnel and other resources with which we address our
internal control over financial reporting. In connection with the audits of our consolidated financial statements as of and for the years ended
December 31, 2018, 2019 and 2020, we and our independent registered public accounting firm identified one material weakness in our internal control
over financial reporting. As defined in the standards established by the U.S. Public Company Accounting Oversight Board, a “material weakness” is a
deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material
misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
The material weakness that has been identified relates to our lack of sufficient skilled staff with appropriate knowledge of U.S. GAAP for the
purpose of financial reporting and our lack of formal accounting policies and procedures manual to ensure proper financial reporting to comply with
U.S. GAAP and SEC requirements.
We have implemented a number of measures to address the material weaknesses identified, including: (i) hiring additional qualified financial and
accounting staff with working experience of U.S. GAAP and SEC reporting requirements, (ii) further expediting and streamlining our reporting process
and develop our compliance process, including establishing a comprehensive accounting policies and procedures manual, to allow early detection,
prevention and resolution of potential compliance issues, (iii) conducting regular and continuous U.S. GAAP accounting and financial reporting
programs and sending our financial staff to attend external U.S. GAAP training courses, and (v) adding resources to strengthen the financial reporting
function and setting up a financial and system control framework.
Because such remediation measures were fully implemented, management concluded that the material weakness was fully remediated as of
December 31, 2021.
As a company with less than US$1.07 billion in revenues for fiscal year of 2021, we qualify as an “emerging growth company” pursuant to the
JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable
generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley
Act of 2002 in the assessment of the emerging growth company’s internal control over financial reporting.
Changes in Internal Control over Financial Reporting

Other than as described above, there were no changes in our internal controls over financial reporting that occurred during the period covered by
this annual report on Form 20-F that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 16A. Audit Committee Financial Expert

Our board of directors has determined that Mr. Heping Feng, an independent director (under the standards set forth in Section 303A of the
Corporate Governance Rules of the NYSE and Rule 10A-3 under the Exchange Act) and member of our audit committee, is an audit committee
financial expert.
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Item 16B. Code of Ethics

Our board of directors adopted a code of business conduct and ethics that applies to our directors, officers and employees in April 2021. We have
posted a copy of our code of business conduct and ethics on our website at ir.waterdrop-inc.com.
Item 16C. Principal Accountant Fees and Services

The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered by
Deloitte Touche Tohmatsu Certified Public Accountants LLP, our principal external auditors, for the periods indicated.
2020 2021
(in thousands)
Audit fees(1) US$ 768 US$ 1,967
All other fees(2) US$ 27 US$ —
(1) “Audit fees” means the aggregate fees billed in each of the fiscal years listed for professional services rendered by our principal auditors for the
audit of our annual financial statements and assistance with and review of documents filed with the SEC. In 2020 and 2021, the audit refers to
financial audit.
(2) “All other fees” means the aggregate fees billed in each of the fiscal years listed for professional services rendered by our principal auditors
associated with certain permitted tax services.
The policy of our audit committee is to pre-approve all audit and non-audit services provided by Deloitte Touche Tohmatsu Certified Public
Accountants LLP, including audit services, audit-related services, tax services and other services as described above, other than those for de minimis
services which are approved by the audit committee prior to the completion of the audit.
Item 16D. Exemptions from the Listing Standards for Audit Committees
Not applicable.
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
On September 8, 2021, we announced a share repurchase program, pursuant to which we were authorized to repurchase our own ordinary shares,
in the form of ADSs, with an aggregate value of up to US$50 million during the 12-month period effective from September 8, 2021. We had purchased
an aggregate of 3,086,422 ADSs for US$5.1 million on the open market under this program, at a weighted average price of US$1.64 per ADS, including
repurchase commissions.
The following table sets forth some information about our repurchases during the periods presented.
(d) Maximum Dollar

(c) Total Number of Value of ADSs that
ADSs Purchased as May Yet be
(b) Average Price Part of Publicly Purchased Under the
(a) Total Number of Paid per ADS Announced Plans or Plans or Programs
Period ADSs Purchased (US$) Programs (US$ in thousands)
September 1 – September 30, 2021 492,496 2.78 492,496 48,630
October 1 – October 31, 2021 — N/A 492,496 48,630
November 1 – November 30, 2021 — N/A 492,496 48,630
December 1 – December 31, 2021 868,127 1.39 1,360,623 47,421
January 1 – January 31, 2022 246,768 1.39 1,607,391 47,078
February 1 – February 28, 2022 566,891 1.58 2,174,282 46,182
March 1 – March 31, 2022 912,140 1.38 3,086,422 44,924
Total 3,086,422 1.64 3,086,422 N/A
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Item 16F. Change in Registrant’s Certifying Accountant

Not applicable.
Item 16G. Corporate Governance

As a Cayman Islands company listed on the NYSE, we are subject to the listing standards of the NYSE. However, NYSE rules permit a foreign
private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in the Cayman Islands,
which is our home country, may differ significantly from the NYSE listing standards. If we choose to follow home country practice in the future, our
shareholders may be afforded less protection than they otherwise would under the NYSE listing standards applicable to U.S. domestic issuers. See “Item
3. Key Information—D. Risk Factors—Risks Related to Our ADSs—As a company incorporated in the Cayman Islands, we are permitted to adopt
certain home country practices in relation to corporate governance matters that differ significantly from the NYSE listing standards.”
As a company newly listed on the NYSE, we are allowed to rely on the exemption under Rule 10A-3(b)(1)(iv)(A)(2), which exempts a minority
of the members of the audit committee from the independence requirement for one year from the effective date of the registration statement, filed in
connection with the IPO. We are currently relying on such exemption.
We are a “controlled company” as defined under the NYSE’s corporate governance rules. For so long as we remain a controlled company under
that definition, we are permitted to elect to rely, and may rely, on certain exemptions from corporate governance rules, including an exemption from the
rule that a majority of our board of directors must be independent directors or that we have to establish a nominating committee and a compensation
committee composed entirely of independent directors.
Item 16H. Mine Safety Disclosure

Not applicable.
Item 16I. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

Not applicable.
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PART III
Item 17. Financial Statements
We have elected to provide financial statements pursuant to Item 18.
Item 18. Financial Statements

The consolidated financial statements of Waterdrop Inc., its subsidiaries and its consolidated variable interest entities are included at the end of
this annual report.
Item 19. Exhibits
Exhibit
Number Description of Document
1.1 Seventh Amended and Restated Memorandum and Articles of Association of the Registrant (incorporated hereby reference to Exhibit
4.1 to the registration statement on Form S-8 (File No. 333-261408) filed with the Securities and Exchange Commission on
November 30, 2021)
2.1 Registrant’s Specimen American Depositary Receipt (included in Exhibit 2.3)
2.2 Registrant’s Specimen Certificate for Class A Ordinary Shares (incorporated hereby reference to Exhibit 4.2 to the registration
statement on Form F-1 (File No. 333-255298), as amended, initially filed with the Securities and Exchange Commission on April 16,
2021)
2.3 Deposit Agreement, dated May 6, 2021, among the Registrant, the depositary and the holders and beneficial owners of American
Depositary Shares issued thereunder (incorporated hereby reference to Exhibit 4.3 to the registration statement on Form S-8 (File
No. 333-261408) filed with the Securities and Exchange Commission on November 30, 2021)
2.4 Fifth Amended and Restated Shareholders Agreement between the Registrant and other parties thereto dated November 20, 2020
(incorporated hereby reference to Exhibit 4.4 to the registration statement on Form F-1 (File No. 333-255298), as amended, initially
filed with the Securities and Exchange Commission on April 16, 2021)
2.5* Description of Securities
4.1 2018 Share Incentive Plan (incorporated hereby reference to Exhibit 10.1 to the registration statement on Form F-1 (File
No. 333-255298), as amended, initially filed with the Securities and Exchange Commission on April 16, 2021)
4.2 2021 Share Incentive Plan (incorporated hereby reference to Exhibit 10.2 to the registration statement on Form F-1 (File
4.3 Form of Indemnification Agreement between the Registrant and its directors and executive officers (incorporated hereby reference to
Exhibit 10.3 to the registration statement on Form F-1 (File No. 333-255298), as amended, initially filed with the Securities and
Exchange Commission on April 16, 2021)
4.4 Form of Employment Agreement between the Registrant and its executive officers (incorporated hereby reference to Exhibit 10.4 to
the registration statement on Form F-1 (File No. 333-255298), as amended, initially filed with the Securities and Exchange
Commission on April 16, 2021)
4.5 English translation of the executed form of the Powers of Attorney granted by shareholders of Zongqing Xiangqian, as currently in
effect, and a schedule of all executed Powers of Attorney adopting the same form (incorporated hereby reference to Exhibit 10.5 to
the registration statement on Form F-1 (File No. 333-255298), as amended, initially filed with the Securities and Exchange
Commission on April 16, 2021)
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4.6 English translation of the Loan Agreement among Absolute Health and shareholders of Zongqing Xiangqian dated November 27, 2019
4.7 English translation of the Equity Interest Pledge Agreement among Absolute Health, Zongqing Xiangqian and shareholders of Zongqing
Xiangqian dated November 27, 2019 (incorporated hereby reference to Exhibit 10.7 to the registration statement on Form F-1 (File
4.8 English translation of the Exclusive Business Cooperation Agreement between Absolute Health and Zongqing Xiangqian dated
November 2, 2018 (incorporated hereby reference to Exhibit 10.8 to the registration statement on Form F-1 (File No. 333-255298), as
amended, initially filed with the Securities and Exchange Commission on April 16, 2021)
4.9 English translation of the Exclusive Option Agreement among Absolute Health, Zongqing Xiangqian and shareholders of Zongqing
Xiangqian dated November 27, 2019 (incorporated hereby reference to Exhibit 10.9 to the registration statement on Form F-1 (File
4.10 English translation of the executed form of the Spousal Consent Letter granted by the spouse of each shareholder of Zongqing
Xiangqian, as currently in effect, and a schedule of all executed Spousal Consent Letters adopting the same form (incorporated hereby
reference to Exhibit 10.10 to the registration statement on Form F-1 (File No. 333-255298), as amended, initially filed with the Securities
and Exchange Commission on April 16, 2021)
4.11 English translation of the Powers of Attorney granted by the shareholder of Shuidi Hubao dated November 2, 2018 (incorporated hereby
reference to Exhibit 10.11 to the registration statement on Form F-1 (File No. 333-255298), as amended, initially filed with the Securities
and Exchange Commission on April 16, 2021)
4.12 English translation of the Equity Interest Pledge Agreement among Absolute Health, Shuidi Hubao and the shareholder of Shuidi Hubao
dated November 2, 2018 (incorporated hereby reference to Exhibit 10.12 to the registration statement on Form F-1 (File
4.13 English translation of the Exclusive Business Cooperation Agreement between Absolute Health and Shuidi Hubao dated November 2,
2018 (incorporated hereby reference to Exhibit 10.13 to the registration statement on Form F-1 (File No. 333-255298), as amended,
initially filed with the Securities and Exchange Commission on April 16, 2021)
4.14 English translation of the Exclusive Option Agreement among Absolute Health, Shuidi Hubao and the shareholder of Shuidi Hubao
dated November 2, 2018 (incorporated hereby reference to Exhibit 10.14 to the registration statement on Form F-1 (File
4.15 English translation of the Spousal Consent Letter granted by the spouse of the shareholder of Shuidi Hubao dated November 2, 2018
4.16 English translation of the executed form of the Powers of Attorney granted by shareholders of Shuidi Hulian, as currently in effect, and a
schedule of all executed Powers of Attorney adopting the same form (incorporated hereby reference to Exhibit 10.16 to the registration
2021)
4.17 English translation of the Equity Interest Pledge Agreement among Absolute Health, Shuidi Hulian and shareholders of Shuidi Hulian
dated July 31, 2019 (incorporated hereby reference to Exhibit 10.17 to the registration statement on Form F-1 (File No. 333-255298), as
151
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4.18 English translation of the Exclusive Business Cooperation Agreement between Absolute Health and Shuidi Hulian dated July 31, 2019
4.19 English translation of the Exclusive Option Agreement among Absolute Health, Shuidi Hulian and shareholders of Shuidi Hulian dated
July 31, 2019 (incorporated hereby reference to Exhibit 10.19 to the registration statement on Form F-1 (File No. 333-255298), as
4.20 English translation of the executed form of the Spousal Consent Letter granted by the spouse of each shareholder of Shuidi Hulian, as
currently in effect, and a schedule of all executed Spousal Consent Letters adopting the same form (incorporated hereby reference to
4.21 English translation of the executed form of the Powers of Attorney granted by shareholders of Zhuiqiu Jizhi, as currently in effect, and a
schedule of all executed Powers of Attorney adopting the same form (incorporated hereby reference to Exhibit 10.21 to the registration
2021)
4.22 English translation of the Loan Agreement among Absolute Health and shareholders of Zhuiqiu Jizhi dated October 28, 2019
4.23 English translation of the Equity Interest Pledge Agreement among Absolute Health, Zhuiqiu Jizhi and shareholders of Zhuiqiu Jizhi
dated October 28, 2019 (incorporated hereby reference to Exhibit 10.23 to the registration statement on Form F-1 (File
4.24 English translation of the Exclusive Business Cooperation Agreement between Absolute Health and Zhuiqiu Jizhi dated October 25,
2019 (incorporated hereby reference to Exhibit 10.24 to the registration statement on Form F-1 (File No. 333-255298), as amended,
initially filed with the Securities and Exchange Commission on April 16, 2021)
4.25 English translation of the Exclusive Option Agreement among Absolute Health, Zhuiqiu Jizhi and shareholders of Zhuiqiu Jizhi dated
October 28, 2019 (incorporated hereby reference to Exhibit 10.25 to the registration statement on Form F-1 (File No. 333-255298), as
4.26 English translation of the executed form of the Spousal Consent Letter granted by the spouse of each shareholder of Zhuiqiu Jizhi, as
currently in effect, and a schedule of all executed Spousal Consent Letters adopting the same form (incorporated hereby reference to
4.27* English translation of the Exclusive Business Cooperation Agreement between Absolute Health and Guangmu Weichen dated
December 8, 2021
4.28* English translation of the Exclusive Option Agreement among Absolute Health, Guangmu Weichen and shareholders of Guangmu
Weichen dated December 8, 2021
4.29* English translation of the Equity Interest Pledge Agreement among Absolute Health, Guangmu Weichen and shareholders of Guangmu
Weichen dated December 8, 2021
4.30* English translation of the Powers of Attorney granted by Ms. Xiaolei Sun dated December 8, 2021
4.31* English translation of the Powers of Attorney granted by Ms. Nian Liu dated December 8, 2021
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4.32* English translation of the Spousal Consent Letter granted by the spouse of Ms. Nian Liu dated December 8, 2021
8.1* List of Significant Subsidiaries and VIEs of the Registrant
11.1 Code of Business Conduct and Ethics of the Registrant (incorporated hereby reference to Exhibit 99.1 to the registration statement on
Form F-1 (File No. 333-255298), as amended, initially filed with the Securities and Exchange Commission on April 16, 2021)
12.1* Certification by Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
12.2* Certification by Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
13.1** Certification by Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
13.2** Certification by Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
15.1* Consent of Deloitte Touche Tohmatsu Certified Public Accountants LLP, an independent registered public accounting firm
15.2* Consent of Han Kun Law Offices
101.INS* Inline XBRL Instance Document — the instance document does not appear in the Interactive Data File because its XBRL tags are
embedded within the Inline XBRL document
101.SCH* Inline XBRL Taxonomy Extension Scheme Document
101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document
104* Cover Page Interactive Data File — the cover page XBRL tags are embedded within the Exhibit 101 Inline XBRL document set
* Filed with this Annual Report on Form 20-F.

** Furnished with this Annual Report on Form 20-F.
153
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SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing its annual report on Form 20-F and that it has duly caused and
authorized the undersigned to sign this annual report on its behalf.
Waterdrop Inc.
By: /s/ Peng Shen

Name: Peng Shen
Title: Chairman of the Board of Directors and Chief
Executive Office
Date: April 28, 2022
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WATERDROP INC.
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Report of Independent Registered Public Accounting Firm (PCAOB ID: 1113) F-2
Consolidated Balance Sheets as of December 31, 2020 and 2021 F-3
Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2019, 2020 and 2021 F-6
Consolidated Statements of Changes in Shareholders’ (Deficit)/Equity for the Years Ended December 31, 2019, 2020 and 2021 F-7
Consolidated Statements of Cash Flows for the Years Ended December 31, 2019, 2020 and 2021 F-8
Notes to the Consolidated Financial Statements F-10
Schedule 1-Condensed Financial Statements of Waterdrop Inc. F-52
F-1
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF WATERDROP INC.

Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Waterdrop Inc., and its subsidiaries (the “Company”) as of December 31, 2020 and
2021, the related consolidated statements of comprehensive loss, changes in shareholders’ (deficit)/equity, and cash flows, for each of the three years in
the period ended December 31, 2021, and the related notes and the financial statement schedule (collectively referred to as the “financial statements”).
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2021,
and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting
principles generally accepted in the United States of America.
Convenience Translation
Our audits also comprehended the translation of Renminbi amounts into United States dollar amounts and, in our opinion, such translation has been
made in conformity with the basis stated in Note 2 to the financial statements. Such United States dollar amounts are presented solely for the
convenience of readers outside the People’s Republic of China.
Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)
(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not
required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to
obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures
in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Deloitte Touche Tohmatsu Certified Public Accountants LLP
Beijing, the People’s Republic of China
April 28, 2022
We have served as the Company’s auditor since 2020.
F-2
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WATERDROP INC.
CONSOLIDATED BALANCE SHEETS
(All amounts in thousands, except for share and per share data, or otherwise noted)
As of December 31,
2020 2021
RMB RMB USD
(Note 2)
Assets
Current assets
Cash and cash equivalents 1,061,962 817,719 128,318
Restricted cash 261,387 667,664 104,771
Short-term investments 1,193,160 1,969,362 309,036
Accounts receivable 539,791 643,843 101,033
Current contract assets 824,544 563,611 88,443
Amount due from related parties 813 1,049 165
Prepaid expense and other assets 651,080 369,794 58,027
Total current assets 4,532,737 5,033,042 789,793
Non-current assets
Non-current contract assets 24,006 29,889 4,690
Property, equipment and software, net 28,724 44,762 7,024
Intangible assets, net 53,034 56,753 8,906
Long-term investments 2,741 11,812 1,854
Right of use assets, net 60,694 59,081 9,271
Deferred tax assets — 11,840 1,858
Goodwill 3,119 3,420 537
Total non-current assets 172,318 217,557 34,140
Total assets 4,705,055 5,250,599 823,933
The accompanying notes are an integral part of these consolidated financial statements.
F-3
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WATERDROP INC.
CONSOLIDATED BALANCE SHEETS (Continued)
As of December 31,
2020 2021
RMB RMB USD
(Note 2)
Liabilities, Mezzanine Equity and Shareholders’ (Deficit)/Equity
Current liabilities
Amount due to related parties (including amounts of the consolidated VIEs and subsidiaries of VIEs without
recourse to the Company of RMB nil and RMB nil as of December 31, 2020 and 2021, respectively) 9,789 20,449 3,209
Insurance premium payables (including amounts of the consolidated VIEs and subsidiaries of VIEs without
recourse to the Company of RMB 607,326 and RMB 685,028 as of December 31, 2020 and 2021,
respectively) 607,326 685,028 107,496
Deferred revenue (including amounts of the consolidated VIEs and subsidiaries of VIEs without recourse to the
Company of RMB 22,017 and RMB 803 as of December 31, 2020 and 2021, respectively) 22,017 803 126
Accrued expenses and other current liabilities (including amounts of the consolidated VIEs and subsidiaries of
VIEs without recourse to the Company of RMB 447,211 and RMB 413,438 as of December 31, 2020 and
2021, respectively) 595,606 498,752 78,265
Current lease liabilities (including amounts of the consolidated VIEs and subsidiaries of VIEs without recourse
to the Company of RMB 10,594 and RMB 16,452 as of December 31, 2020 and 2021, respectively) 36,551 44,113 6,922
Total current liabilities 1,271,289 1,249,145 196,018
Non-current liabilities
Non-current lease liabilities (including amounts of the consolidated VIEs and subsidiaries of VIEs without
recourse to the Company of RMB 8,181 and RMB 12,921 as of December 31, 2020 and 2021, respectively) 27,709 14,477 2,272
Deferred tax liabilities (including amounts of the consolidated VIEs and subsidiaries of VIEs without recourse
to the Company of RMB 225,320 and RMB 13,126 as of December 31, 2020 and 2021, respectively) 225,745 13,551 2,126
Total non-current liabilities 253,454 28,028 4,398
Total liabilities 1,524,743 1,277,173 200,416
F-4
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WATERDROP INC.
CONSOLIDATED BALANCE SHEETS (Continued)
As of December 31,
2020 2021
RMB RMB USD
(Note 2)
Liabilities, Mezzanine Equity and Shareholders’ (Deficit)/Equity (Continued)
Commitments and contingencies (Note 20)
Mezzanine equity
Series Pre-A convertible redeemable preferred shares (US$0.000005 par value per share; 241,148,000 and nil shares
authorized, issued and outstanding as of December 31, 2020 and 2021, respectively) 56,185 — —
Series A convertible redeemable preferred shares (US$ 0.000005 par value per share; 334,926,000 and nil shares
Series A+ convertible redeemable preferred shares (US$ 0.000005 par value per share; 157,896,000 and nil shares
Series B convertible redeemable preferred shares (US$ 0.000005 par value per share; 352,107,646 and nil shares
Series C convertible redeemable preferred shares (US$ 0.000005 par value per share; 542,794,072 and nil shares
authorized, issued and outstanding as of December 31, 2020 and 2021, respectively) 1,222,224 — —
Series C+ convertible redeemable preferred shares (US$ 0.000005 par value per share; 170,632,018 and nil shares
Series C++ convertible redeemable preferred shares (US$ 0.000005 par value per share; 120,971,053 and nil shares
Series D convertible redeemable preferred shares (US$ 0.000005 par value per share; 517,264,501 and nil shares
Total mezzanine equity 4,837,336 — —
Shareholders’ (deficit)/equity
Ordinary shares (US$ 0.000005 par value; 10,000,000,000 shares authorized, 1,203,526,000 shares issued
and outstanding as of December 31, 2020; 8,900,000,000 Class A ordinary shares authorized,
3,206,653,701 Class A ordinary shares issued, 3,140,896,631 Class A ordinary shares outstanding as of
December 31, 2021; 1,000,000,000 Class B ordinary shares authorized, 801,904,979 Class B ordinary
shares issued and outstanding as of December 31, 2021) 41 134 21
Additional paid-in capital — 7,329,420 1,150,146
Accumulated other comprehensive income/(loss) 14,956 (21,492) (3,373)
Accumulated deficit (1,672,021) (3,334,636) (523,277)
Total shareholders’ (deficit)/equity (1,657,024) 3,973,426 623,517
Total liabilities, mezzanine equity and shareholders’ (deficit)/equity 4,705,055 5,250,599 823,933
F-5
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WATERDROP INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
Year Ended December 31,

2019 2020 2021
RMB RMB RMB USD
(Note 2)
Operating revenue, net 1,510,965 3,027,948 3,205,914 503,078
Operating costs (291,310) (742,258) (1,054,475) (165,470)
Sales and marketing expenses (1,056,494) (2,130,535) (3,104,769) (487,206)
General and administrative expenses (142,995) (407,171) (530,522) (83,250)
Research and development expenses (214,646) (244,230) (378,990) (59,472)
Total operating costs and expenses (1,705,445) (3,524,194) (5,068,756) (795,398)
Operating loss (194,480) (496,246) (1,862,842) (292,320)
Interest income 10,533 26,515 48,662 7,636
Fair value change of warrant — (150,685) — —
Foreign currency exchange gain/(loss) 4,152 (1,335) 9,349 1,467
Others, net 817 8,052 9,764 1,532
Loss before income tax, and share of results of equity method investee (178,978) (613,699) (1,795,067) (281,685)
Income tax (expense)/bebefit (142,528) (50,155) 220,987 34,678
Share of results of equity method investee (29) (15) — —
Net loss attributable to Waterdrop Inc. (321,535) (663,869) (1,574,080) (247,007)
Deemed dividend on modification on preferred shares — (67,975) — —
Deemed dividend upon issuance of warrants — (90,268) — —
Preferred shares redemption value accretion (136,839) (285,668) (152,287) (23,897)
Net loss attributable to ordinary shareholders (458,374) (1,107,780) (1,726,367) (270,904)
Other comprehensive income/(loss):
Foreign currency translation adjustment 27,771 (14,008) (36,640) (5,750)
Unrealized gains on available for sale investments, net of tax 209 1,724 192 30
Total comprehensive loss (293,555) (676,153) (1,610,528) (252,727)
Weighted average number of ordinary shares used in computing net loss
per share
Basic and diluted 1,203,526,000 1,174,583,516 2,990,507,749 2,990,507,749
Net loss per share attributable to ordinary shareholders
Basic and diluted (0.38) (0.94) (0.58) (0.09)
F-6
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WATERDROP INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’
(DEFICIT)/EQUITY
Ordinary shares Treasury stock Accumulated other Total

Additional comprehensive Accumulated shareholders’
Number Amount Number Amount paid-in capital income/(loss) deficit (deficit)/equity
RMB RMB RMB RMB RMB RMB
Balance at January 1, 2019 1,203,526,000 41 — — 38,831 (740) (338,923) (300,791)
Preferred shares redemption value accretion — — — — (63,697) — (73,142) (136,839)
Share-based payment compensation — — — — 24,866 — — 24,866
Net loss for the year — — — — — — (321,535) (321,535)
Other comprehensive income — — — — — 27,980 — 27,980
Balance at December 31, 2019 1,203,526,000 41 — — — 27,240 (733,600) (706,319)
Net loss for the year — — — — — — (663,869) (663,869)
Deemed dividend on modification on preferred
shares (Note 16) — — — — — — (67,975) (67,975)
Deemed dividend upon issuance of warrants
(Note 16) — — — — — — (90,268) (90,268)
Other comprehensive loss — — — — — (12,284) — (12,284)
Balance at December 31, 2020 1,203,526,000 41 — — — 14,956 (1,672,021) (1,657,024)
Issuance of ordinary shares, net of issuance cost
of RMB 28,233 upon initial public offering
(Note 15) 300,000,000 10 — — 2,133,427 — — 2,133,437
Conversion of convertible redeemable preferred
shares upon initial public offering (Note 16) 2,437,739,290 83 — — 4,989,540 — — 4,989,623
Share repurchase — — (13,606,230) — * (16,546) — — (16,546)
Exercise of share options (Note 17) 15,142,550 — — — 3,460 — — 3,460
Net loss for the year — — — — — — (1,574,080) (1,574,080)
Other comprehensive loss — — — — — (36,448) — (36,448)
Balance at December 31, 2021 3,956,407,840 134 (13,606,230) — 7,329,420 (21,492) (3,334,636) 3,973,426
* Less than RMB1 thousand
The accompanying notes form an integral part of these consolidated financial statements.
F-7
Table of Contents
WATERDROP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

2019 2020 2021
RMB RMB RMB USD
(Note 2)
Cash flows from operating activities:
Net loss (321,535) (663,869) (1,574,080) (247,007)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation of property, equipment and software 6,687 12,892 17,906 2,810
Amortization of intangible assets — 173 186 29
Fair value change of warrant — 150,685 — —
Share of results of equity method investee 29 15 — —
Share-based compensation expense 27,996 227,828 226,161 35,490
Loss from disposal of property and equipment 12 178 548 86
(Gain)/loss from disposals of subsidiaries — (180) 252 40
Impairment loss — — 40,501 6,355
Changes in operating assets and liabilities:
Accounts receivable (147,327) (286,839) (104,052) (16,328)
Contract assets (528,614) (230,862) 255,050 40,023
Prepaid expense and other assets (153,730) (385,554) 254,815 39,985
Amount due from/to related party 2,671 3,918 10,424 1,636
Deferred revenue (12,713) 347 (21,214) (3,329)
Insurance premium payables 154,254 287,089 77,702 12,193
Deferred tax assets — — (11,840) (1,858)
Deferred tax liabilities 142,348 49,514 (213,121) (33,443)
Accrued expenses and other current liabilities 303,361 47,400 (52,025) (8,164)
Right of use assets, net (49,197) (10,974) 1,613 253
Operating lease liabilities 42,863 21,131 (5,478) (860)
Net cash used in operating activities (532,895) (777,108) (1,096,652) (172,089)
Cash flows from investing activities:
Purchase of property, equipment and software. (13,267) (26,709) (35,659) (5,595)
Disposal of property, equipment and software — — 27 4
Purchase of intangible assets — — (816) (128)
Purchase of short-term investments (528,719) (1,282,428) (13,054,640) (2,048,558)
Proceeds from maturity of short-term investments 503,260 110,000 12,253,325 1,922,814
Purchase of long-term investments (2,072) — (9,900) (1,554)
Acquisitions of subsidiaries, net of cash acquired (5,070) (28,710) 765 120
Disposal of subsidiaries, net of cash disposed — 8,355 — —
Loans to related parties (1,220) (1) — —
Repayment of loans to related parties 1,133 1,792 — —
Net cash used in investing activities (45,955) (1,217,701) (846,898) (132,897)
F-8
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WATERDROP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

2019 2020 2021
RMB RMB RMB USD
(Note 2)
Cash flows from financing activities:
Proceeds from issuance of convertible redeemable preferred shares, net 1,491,983 2,048,986 — —
Proceeds from initial public offering, net of offering cost — — 2,133,437 334,782
Repayment of short-term borrowings (19,140) — — —
Proceeds from exercise of share option — 2,073 2,971 466
Payment for share repurchase — — (16,546) (2,596)
Principal payments under finance lease obligation (68) (169) (192) (30)
Net increase in cash and cash equivalents and restricted cash 921,267 29,197 162,034 25,427
Total cash and cash equivalents and restricted cash at beginning of year 372,885 1,294,152 1,323,349 207,662
Reconciliation to amounts on consolidated balance sheets:
Cash and cash equivalents 964,476 1,061,962 817,719 128,318
Restricted cash 329,676 261,387 667,664 104,771
Supplemental disclosure of cash flow information
Cash paid for interest 311 — — —
Cash paid for income tax 149 704 2,532 397
Supplemental disclosure of non-cash investing and financing activities
Accrued expenses and other current liabilities related to purchase of property and equipment 7,507 1,203 71 11
Accrued expenses and other current liabilities related to acquisitions of subsidiaries 612 — — —
Issuance of preferred share upon conversion of warrant — 226,876 — —
The accompanying notes form an integral part of these consolidated financial statements.
F-9
Table of Contents
WATERDROP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Principal activities and reorganization

(a) History and Reorganization
Waterdrop Inc. (“Waterdrop” or the “Company”) was incorporated in May 2018 under the laws of the Cayman Islands. The Company, its
subsidiaries, its consolidated variable interest entities (“VIEs”) and VIEs’ subsidiaries (collectively referred to as the “Group”) primarily provide online
insurance brokerage services to match and connect users with relevant insurance products underwritten by insurance companies in the People’s Republic
of China (“PRC”). The Group operated Waterdrop Mutual Aid platform since May 2016, which was terminated in March 2021. The Group also operates
a medical crowdfunding platform.
Prior to the incorporation of the Company, the Group commenced its operation in 2016 and mainly carried out its business operation through
Beijing Zongqing Xiangqian Technology Co., Ltd (“Zongqing Xiangqian”) and its wholly-owned subsidiaries Beijing Shuidi Hubao Technology Co.,
Ltd. (“Shuidi Hubao”) and Beijing Shuidi Hulian Technology Co., Ltd. (“Shuidi Hulian”). Zongqing Xiangqian is a limited liability company founded in
2016 by Mr. Shen Peng, the founder and the Chief Executive Officer (the “CEO” or the “Founder”) of the Company.
On May 7, 2021, the Company completed its initial public offering on the New York Stock Exchange under the code “WDH”. The Company
issued 30,000,000 ADS, representing 300,000,000 Class A ordinary shares, at US Dollar (US$”) 12.0 per ADS. Net proceeds from the global offering
after deducting underwriting commissions, share issuance costs and offering expenses approximately amounted to RMB2.1 billion.
As PRC laws and regulations prohibit and restrict foreign ownership of value-added telecommunication businesses, the Company established,
through a Hong Kong intermediary company, a wholly-owned foreign invested subsidiary in the PRC, Beijing Absolute Health Ltd. (“Absolute Health”
or the “WFOE”) in October 2018.
The WFOE entered into a series of contractual arrangements (see Note 2(b)) in November 2018 with Zongqing Xiangqian and Shuidi Hubao and
their respective shareholders. In July 2019, the WFOE further entered into a series of contractual arrangements (see Note 2(b)) with Shuidi Hulian and
their respective shareholders. The series of contractual agreements include a power of attorney, an exclusive call option agreement, an equity pledge
agreement, an exclusive business cooperation agreement, and a spouse consent agreement. The Group believes that these contractual agreements would
enable the WFOE to (1) have power to direct the activities that most significantly affects the economic performance of the VIE and its subsidiaries and
(2) receive the economic benefits of the VIE and its subsidiaries that could be significant to them. Accordingly, the Group believes that the WFOE is the
primary beneficiary of the VIE and its subsidiaries.
F-10
Table of Contents
WATERDROP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Principal activities and reorganization (continued)

(a) History and Reorganization (continued)
As of December 31, 2021, the Company’s major subsidiaries, consolidated VIEs and principal subsidiary of VIEs are as follows:
Percentage
Of Direct
Date of Place of or Indirect
Incorporation/ Incorporation/ Economic
Name of Company Establishment Establishment Interest Principal Activities
Principal Subsidiaries
Waterdrop Group HK Limited (“Waterdrop HK”) May 31, 2018 Hong Kong 100% Investment holding
Absolute Health October 17, 2018 PRC 100% Research and development
service for the Group
VIEs and its principal subsidiaries
Zongqing Xiangqian August 2, 2013 PRC 100% Operating management
service for the Group
Shuidi Hubao December 12, 2016 PRC 100% Medical crowdfunding
platform services
Shuidi Hulian December 12, 2016 PRC 100% Mutual aid platform services1
Shuidi Insurance Brokerage Co., Ltd October 19, 2012 PRC 100% Insurance brokerage services
1 The business was terminated in March, 2021.
2. Summary of Significant Accounting Policies

(a) Basis of Presentation
The Group’s consolidated financial statements as of December 31, 2020 and 2021 and during the years ended December 31, 2019, 2020 and 2021
are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of financial
statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the
accompanying consolidated financial statements and related disclosures. Actual results may differ from those estimates. Significant accounting policies
followed by the Group in the preparation of the accompanying consolidated financial statements are summarized below.
(b) Basis of Consolidation

Consolidation through contractual agreements:
The consolidated financial statements include the financial information of the Company, its wholly-owned subsidiaries and its VIEs and VIEs’
subsidiaries. All intercompany balances and transactions have been eliminated upon consolidation.
Applicable PRC laws and regulations currently limit foreign ownership of companies that provide value-added telecommunication businesses.
The Company is deemed a foreign legal person under PRC laws and accordingly subsidiaries owned by the Company are not eligible to engage in the
provisions of value-added telecommunication services. The Group therefore operates its business, primarily through the VIEs and the subsidiaries of the
VIEs.
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2. Summary of Significant Accounting Policies (continued)

(b) Basis of Consolidation (continued)
Consolidation through contractual agreements: (continued)
The Company, through its WFOE, entered into a series of contractual arrangements (the “VIE agreements”) with the VIEs and their respective
shareholders that enable the Company to (1) have power to direct the activities that most significantly affects the economic performance of the VIEs,
and (2) receive the economic benefits of the VIEs that could be significant to the VIEs.
Agreements that provide the Group effective control over the VIEs include:
Power of Attorney:
Pursuant to the power of attorney signed between each of the shareholders of the VIEs and the WFOE, each shareholder irrevocably appointed the
WFOE as its attorney-in-fact to exercise on each shareholder’s behalf all rights that each shareholder has in respect of its equity interest in the VIEs
(including but not limited to executing the exclusive right to the voting rights and the right to appoint directors and executive officers of the VIEs). The
shareholders cannot revoke the authorization and entrustment as long as the shareholders remain a shareholder of the VIEs. The power of attorney will
remain in force as long as the shareholders remain shareholders of the VIEs.
Executive Call Option Agreements:

Pursuant to the exclusive call option agreement entered into between each of the shareholders of the VIEs and the WFOE, the shareholders
irrevocably granted the WFOE a call option to request the shareholders to transfer or sell any part or all of its equity interests in the VIEs, to the WFOE,
or their designees. The purchase price of the equity interests in the VIEs shall be equal to the higher of Renminbi 1 or the minimum price required by
PRC law or an amount equal to the registered capital contributed by the relevant shareholder. Without the WFOE’s prior written consent, the VIEs and
their shareholders shall not amend its articles of association, increase or decrease the registered capital, sell or otherwise dispose of its assets or
beneficial interest, issue any additional equity or right to receive equity, provide any loans, distribute dividends in any form.
Loan Agreements:
Pursuant to the loan agreements entered into between the WFOE and each of the shareholders of two VIEs (including Zongqing Xiangqian and
Beijing Zhuiqiu Jizhi Technology Co., Ltd.), the WFOE extended loans to the shareholders of the two VIEs who had contributed the loan principals to
the relevant VIEs mainly as registered capital. The shareholders of the two VIEs may repay the loans only by transferring their respective equity
interests in the VIEs to WFOE or its designated person(s) pursuant to the exclusive option agreements. These loan agreements will remain effective until
the date of full performance by the parties of their respective obligations thereunder.
Equity Interest Pledge Agreements:

Each shareholder of the VIEs has also entered into an equity pledge agreement with the WFOE, pursuant to which each shareholder pledged
his/her interest in the WFOE to guarantee the performance of obligations of the WFOE and its shareholders under the exclusive business cooperation
agreement, exclusive call option agreement, and power of attorney. If the VIEs or any of the shareholders breach their contractual obligations, the
WFOE will be entitled to certain rights and interests regarding the pledged equity interests including the right to dispose the pledged equity interests.
None of the shareholders shall, without the prior written consent of the WFOE, assign or transfer to any third party, create or cause any security interest
and any liability in whatsoever form to be created on, all or any part of the equity interests it holds in the VIEs. This agreement is not terminated until all
of the agreements under the power of attorney, exclusive call option agreement and the exclusive business cooperation agreement are fully performed.
Exclusive Business Cooperation Agreements:

Pursuant to the exclusive business cooperation agreement entered into by the WFOE and the VIEs, the WFOE provides exclusive technical
support and consulting services in return for fees based on 100% of the VIE’s total consolidated profit, which is adjustable at the sole discretion of the
WFOE.
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Exclusive Business Cooperation Agreements: (continued)
Without the WFOE’s consent, the VIEs cannot procure services from any third party or enter into similar service arrangements with any other
third party, except for those from the WFOE.
Spouse Consent letters:

The spouse of each shareholder of the VIEs has entered into a spouse consent letter to acknowledge that he or she consents to the disposition of
the equity interests held by his or her spouse in the VIEs in accordance with the exclusive option agreement, the power of attorney and the equity pledge
agreement regarding the VIE structure described above, and any other supplemental agreement(s) may be consented by his or her spouse from time to
time. Each such spouse further agrees that he or she will not take any action or raise any claim to interfere with the arrangements contemplated under the
above mentioned agreements. In addition, each such spouse further acknowledges that any right or interest in the equity interests held by his or her
spouse in the VIEs do not constitute property jointly owned with his or her spouse and each such spouse unconditionally and irrevocably waives any
right or interest in such equity interests.
These contractual arrangements allow the Company, through its WFOE, to effectively control the VIEs, and to derive substantially all of the
economic benefits from them. Accordingly, the Company has consolidated the VIEs.
The Group believes that the contractual arrangements with the VIEs are in compliance with PRC laws and are legally enforceable. However,
uncertainties in the PRC legal system could limit the Group’s ability to enforce the contractual arrangements. If the legal structure and contractual
arrangements were found to be in violation of PRC laws and regulations, the PRC government could:
• revoke or refuse to grant or renew the Group’s business and operating licenses;
• restrict or prohibit related party transactions between the wholly-owned subsidiaries of the Group and the VIEs;
• impose fines, confiscate income or other requirements which the Group may find difficult or impossible to comply with;
• require the Group to alter, discontinue or restrict its operations;
• restrict or prohibit the Group’s ability to finance its operations;
• place restrictions on the Group’s right to collect revenues;
• shut down the Group’s servers or blocking the Group’s app/websites; or
• take other regulatory or enforcement actions against the Group that could be harmful to the Group’s business.
The imposition of any of these restrictions or actions could result in a material adverse effect on the Group’s ability to conduct its business. In
such case, the Group may not be able to operate or control the VIEs, which may result in the deconsolidation of the VIEs in the Group’s consolidated
financial statements. In the opinion of management, the likelihood for the Group to lose such ability is remote based on current facts and circumstances.
The Group’s operations depend on the VIEs to honor their contractual arrangements with the Group. These contractual arrangements are governed by
PRC laws and disputes arising out of these agreements are expected to
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Spouse Consent letters: (continued)
be decided by arbitration in the PRC. The management believes that each of the contractual arrangements constitutes valid and legally binding
obligations of each party to such contractual arrangements under PRC laws. However, the interpretation and implementation of the laws and regulations
in the PRC and their application to an effect on the legality, binding effect and enforceability of contracts are subject to the discretion of competent PRC
authorities, and therefore there is no assurance that relevant PRC authorities will take the same position as the Group herein in respect of the legality,
binding effect and enforceability of each of the contractual arrangements. Meanwhile, since the PRC legal system continues to rapidly evolve, the
interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws, regulations and rules involve uncertainties,
which may limit legal protections available to the Group to enforce the contractual arrangements should the VIEs or the nominee shareholders of the
VIEs fail to perform their obligations under those arrangements.
The following table sets forth the assets, liabilities, results of operations and cash flows of the VIEs and their subsidiaries, which are included in
the Group’s consolidated financial statements. Transactions between the VIEs and their subsidiaries are eliminated in the balances presented below:
As of December 31,
2020 2021
RMB RMB
ASSETS
Current assets
Cash and cash equivalents 755,941 731,189
Restricted cash 253,557 667,664
Short-term investments 274,390 351,451
Accounts receivable 536,644 635,235
Current contract assets 824,544 563,611
Other current assets 620,710 316,489
Total current assets 3,265,786 3,265,639
Non-current assets
Non-current contract assets 24,006 29,889
Intangible assets, net 49,406 53,202
Deferred tax assets — 11,840
Other non-current assets 33,828 57,154
Total non-current assets 107,240 152,085
Total assets 3,373,026 3,417,724
LIABILITIES
Current liabilities
Insurance premium payables 607,326 685,028
Deferred revenue 22,017 803
Accrued expenses and other current liabilities 447,211 413,438
Current lease liabilities 10,594 16,452
Total current liabilities 1,087,148 1,115,721
Total non-current liabilities 233,501 26,047
Total liabilities 1,320,649 1,141,768
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2019 2020 2021
RMB RMB RMB
Operating revenue, net 1,510,965 3,013,546 3,193,807
Net income/(loss) 20,477 233,434 (505,603)
Net cash used in operating activities (381,917) (301,869) (240,527)
Net cash provided by/(used in) investing activities 75,528 (277,521) (99,240)
Net cash used in financing activities (19,190) — —
There are no consolidated VIEs’ assets that are collateral for the VIEs’ obligations and which can only be used to settle the VIEs’ obligations. No
creditors (or beneficial interest holders) of the VIEs have recourse to the general credit of the Company or any of its consolidated subsidiaries. No terms
in any arrangements, considering both explicit arrangements and implicit variable interests, require the Company or its subsidiaries to provide financial
support to the VIEs. However, if the VIEs ever need financial support, the Company or its subsidiaries may, at its option and subject to statutory limits
and restrictions, provide financial support to the VIEs through loans to the shareholders of the VIEs or entrustment loans to the VIEs.
Mutual Aid Platform:

The Group, as a manager and a fiduciary of the plan, operated a mutual aid platform, which consisted of several mutual aid plans that provided its
participants with health protection against different types of illnesses.
The Group did not consolidate the plans as it determined that those plans did not meet the definition of a legal entity. The plans required
contributions from its participants which accumulated and served as a reserve pool of protection. Contributions from participants were not recorded in
the Group’s consolidated balance sheets as they were maintained in a custodian account, separated from the Company’s own bank accounts and could
not be used for any other purposes other than to reimburse the related medical expenses of the participants.
The Company terminated its Waterdrop Mutual Aid business at the end of March 2021.
(c) Use of Estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Significant accounting estimates reflected in the Group’s financial statements are
estimates and judgments applied in the consolidation of the VIEs, revenue recognition, realization of deferred tax assets, allowance for doubtful account,
valuation of ordinary shares and warrants, and valuation of share- based compensation arrangements. Actual results could differ from such estimates.
(d) Comprehensive Income and Foreign Currency Translation

The Group’s operating results are reported in the consolidated statements of comprehensive loss and consist of two components: net loss and other
comprehensive income/(loss) (“OCI”). The Group’s OCI is comprised of gains and losses resulting from translating foreign currency financial
statements of entities, of which the functional currency is other than the RMB which is the reporting currency of the Group, and unrecognized gains
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(d) Comprehensive Income and Foreign Currency Translation (continued)
and losses from available for sale investments, net of related income taxes, where applicable. Such subsidiaries’ assets and liabilities are translated into
RMB at period-end exchange rates, and revenues and expenses are translated at the average exchange rates prevailing during the period. Adjustments
that result from translating amounts from a subsidiary’s functional currency to the RMB (as described above) are reported net of tax, where applicable,
in accumulated OCI in the consolidated balance sheets.
(e) Convenience Translation

The Group’s business is primarily conducted in China and all of the revenues are denominated in RMB. However, periodic reports made to
shareholders will include current period amounts translated into US dollars (“US$” or “USD”) using the exchange rate as of balance sheet date, for the
convenience of the readers. Translations of balances in the consolidated balance sheets and the related consolidated statements of operations,
comprehensive loss, change in shareholders’ deficit and cash flows from RMB into USD as of and for the year ended December 31, 2021 are solely for
the convenience of the readers and were calculated at the rate of US$1.00=RMB6.3726, representing the noon buying rate set forth in the H.10 statistical
release of the U.S. Federal Reserve Board on December 30, 2021. No representation is made that the RMB amounts could have been, or could be,
converted, realized or settled into US$ at that rate on December 31, 2021, or at any other rate.
(f) Cash and Cash Equivalents

Cash and cash equivalents represent cash on hand, demand deposits and highly liquid investments placed with banks or other financial institutions,
which have original maturities less than three months. The Group considers all highly liquid investments with stated maturity dates of three months or
less from the date of purchase to be cash equivalents.
(g) Restricted Cash

Restricted cash mostly include premiums received from certain insured collected by the Group in a fiduciary capacity until disbursed to the
appropriate insurance companies and amounted to RMB 243,557 and RMB 657,464 as of December 31, 2020 and 2021. Restricted cash also included
guarantee deposits required by China Banking and Insurance Regulatory Commission in order to protect from insurance premium appropriation by the
insurance broker and guarantee deposit related to foreign exchange settlement contracts.
(h) Short-term Investments

Short-term investments include wealth management products, which are mainly deposits with fixed interest rates placed with financial institutions
and are restricted as to withdrawal and use. Investments are classified as held-to-maturity when the Group has the positive intent and ability to hold the
securities to maturity, and are recorded at amortized cost. The original maturities of the short-term investments are less than twelve months.
Investment products not classified as trading or as held-to-maturity are classified as available-for-sale debt securities, which are reported at fair
value, with unrealized gains and losses recorded in “Accumulated other comprehensive (loss) / income” on the consolidated balance sheets. Realized
gains or losses are included in earnings during the period in which the gain or loss is realized.
(i) Accounts Receivable

Accounts receivable are recorded at the invoiced amount and do not bear interest. Accounts receivable mainly represent brokerage commission
fees and technical service fees receivable from insurance companies.
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(i) Accounts Receivable (continued)
The allowance for doubtful accounts is the Group’s best estimate of the amount of probable credit losses over the Group’s existing accounts receivable
balance. The Group determines the allowance based on historical write-off experience. The Group reviews its allowance for doubtful accounts regularly.
(j) Fair Value Measurement

Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair
value, the Group considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants
would use when pricing the asset or liability.
Authoritative literature provides a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three
broad levels. The level in the hierarchy within which the fair value measurement in its entirety falls is based upon the lowest level of input that is
significant to the fair value measurement as follows:
• Level 1—inputs are based upon unadjusted quoted prices for identical assets or liabilities traded in active markets.
• Level 2—inputs are based upon quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets
and liabilities in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in
the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
• Level 3—inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would
use in pricing the asset or liability. The fair value are therefore determined using model based valuation techniques that include option
pricing models, discounted cash flow models, and similar techniques.
(k) Financial Instruments

The Group’s financial instruments consist primarily of cash and cash equivalents, restricted cash, available for sale investments, held to maturity
investments, accounts receivable, other receivable, insurance premium payables, other current liabilities and amount due from/to related parties. As of
December 31, 2020 and 2021, the carrying values of cash and cash equivalents, restricted cash, held to maturity investments, accounts receivable, other
receivable, insurance premium payables, other current liabilities and amount due from/to related parties approximated their fair values due to the short
term maturities of those instruments. Available-for-sale investments and share-based compensation liabilities are recorded at fair value in the
consolidated financial statements.
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(l) Property, Equipment and Software, Net
Property, equipment and software are stated at cost. Depreciation is calculated using the straight line method over the following estimated useful
lives, taking into account the residual value, if any. The table below sets forth the estimated useful life and residual value:
Category Estimated useful life Residual value

Office furniture and equipment 5 years 5%
Computer and electronic equipment 3 years 5%
Leasehold improvements shorter of remaining lease period and estimated useful life Nil
Software 10 years Nil
(m) Intangible Assets, Net

Intangible assets with an indefinite useful life represent the insurance brokerage license, insurance adjusting license, insurance agency license and
medical institution license. Intangible assets with an indefinite life are not amortized and are tested for impairment annually or more frequently if events
or changes in circumstances indicate that they might be impaired.
Intangible assets with finite lives represent purchased trademark and software copyright. These intangible assets are amortized on a straight line
basis over their estimated useful lives of the respective assets, which is 10 years. The Group compares the carrying amount of intangible assets with
finite lives against the estimated undiscounted future cash flows associated with it. Impairment exists when the estimated undiscounted future cash flows
are less than the carrying value of the asset being evaluated. Impairment loss is calculated as the amount by which the carrying value of the asset
exceeds its fair value.
Impairment for intangible assets were RMB nil, RMB nil and RMB 717 for the years ended December 31, 2019, 2020 and 2021, respectively.
(n) Asset Acquisition

When the Company acquires other entities, if the assets acquired and liabilities assumed do not constitute a business, the transaction is accounted
for as an asset acquisition. Assets are recognized based on the cost, which generally includes the transaction costs of the asset acquisition, and no gain or
loss is recognized unless the fair value of noncash assets given as consideration differs from the assets’ carrying amounts on the Company’s financial
statements. The cost of a group of assets acquired in an asset acquisition is allocated to the individual assets acquired or liabilities assumed based on
their relative fair value and does not give rise to goodwill.
(o) Long-Term Investments

The Group’s long-term investments consist of equity securities without readily determinable fair value and equity method investments.
i. Equity securities without readily determinable fair value
The Group accounts for equity investments that do not have a readily determinable fair value under the measurement alternative prescribed within
Accounting Standards Update (“ASU”) 2016-01, Recognition and
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(o) Long-Term Investments (continued)
Measurement of Financial Assets and Financial Liabilities, to the extent such investments are not subject to consolidation or the equity method. Under
the measurement alternative, these financial instruments are carried at cost, less any impairment, plus or minus changes resulting from observable price
changes in orderly transactions for an identical or similar investment of the same issuer. In addition, income is recognized when dividends are received
only to the extent they are distributed from net accumulated earnings of the investee. Otherwise, such distributions are considered returns of investment
and are recorded as a reduction of the cost of the investment. The Group recorded RMB nil, RMB nil and RMB 784 impairment on its equity securities
without readily determinable fair value during the years ended December 31, 2019, 2020 and 2021, respectively.
ii. Equity method investments
Investee companies over which the Group has the ability to exercise significant influence, but does not have a controlling interest, are accounted
for using the equity method. Significant influence is generally considered to exist when the Group has an ownership interest in the voting stock of the
investee between 20% and 50%. Other factors, such as representation on the investee’s board of directors, voting rights and the impact of commercial
arrangements, are also considered in determining whether the equity method of accounting is appropriate. The Group also uses the equity method of
accounting for its investments in variable interest entity where the Group is not considered the primary beneficiary but holds significant influences.
Under the equity method of accounting, the Group’s share of the earnings or losses of the investee company, impairments, and other adjustments
required by the equity method are reflected in “share of results of equity method investee” in the consolidated statements of comprehensive loss.
An impairment charge is recorded if the carrying amount of the investment exceeds its fair value and this condition is determined to be other-than
temporary. The Group estimated the fair value of the investee company based on comparable quoted price for similar investment in active market, if
applicable, or discounted cash flow approach which requires significant judgments, including the estimation of future cash flows, which is dependent on
internal forecasts, the estimation of long term growth rate of a company’s business, the estimation of the useful life over which cash flows will occur,
and the determination of the weighted average cost of capital. The Group did not record any impairment on its equity method investments during the
years ended December 31, 2019, 2020 and 2021.
(p) Short-Term Borrowings

Short-term borrowings represent the Group’s borrowings from commercial banks for the Group’s working capital. Short-term borrowings includes
borrowings with maturity terms shorter than one year.
(q) Insurance Premium Payables

Insurance premium payables are insurance premiums collected from insurance policyholder on behalf of insurance companies but not yet remitted
to the insurance companies as of the balance sheet dates.
(r) Share-Based Compensation

Equity classified share option awards
Share-based payment transactions with employees (including management), such as share options, are measured based on the grant date fair value
of the equity instrument. The Group has elected to recognize compensation expenses over the requisite service period of the award using the straight line
method for all employee equity
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(r) Share-Based Compensation (continued)
Equity classified share option awards (continued)
awards granted with graded vesting provided that the amount of compensation cost recognized at any date is at least equal to the portion of the grant-
date fair value of the options that are vested at that date. The Group elects to recognize forfeitures when they occur.
Liability-classified share option awards

Awards accounted for under ASC 718-Compensation-Stock Options (“ASC 718”), with a repurchase feature that is probable for the grantor to
prevent the grantee from bearing the risks and rewards of ownership for a reasonable period of time from the date the options vested, are required to be
classified as liabilities. Upon termination of a grantee’s continuous services within the vesting period, the Group has a right (but not the obligation) to
repurchase the vested options at a price no more than the fair value of the awards, which was automatically terminated upon initial public offering. As
such, it is probable that Group would prevent the grantee from bearing the risks and rewards of ownership for a reasonable period of time from the date
the options were vested.
Upon an employee’s termination prior to the initial public offering in May 2021, the Group reclassifies any vested awards held by the employees
into liability as the repurchase price is below fair value. The Group subsequently measures the liability awards at fair value at each reporting date until
the initial public offering, with changes in fair value recognized as compensation expense. The repurchase feature expired upon the initial public
offering in May 2021, thus the awards were reclassified from liability to equity, and a corresponding increase in fair value in additional paid-in capital,
upon the initial public offering.
(s) Revenue recognition

Insurance Brokerage Services
The Group provides insurance brokerage services distributing various health and life insurance policies on behalf of insurance companies (its
customers). As an agent of the insurance company, the Group sells insurance policies on behalf of the insurance company and earns brokerage
commissions determined as a percentage of premiums paid by the policyholder. The Group has identified its promise to sell insurance policies on behalf
of an insurance company as the performance obligation in its contracts with the insurance companies. The Group’s performance obligation to the
insurance company is satisfied and commission revenue is recognized at the point in time when an insurance policy becomes effective. The Group also
provides policyholder inquiry (call center) services which is considered administrative in nature that transfers minimal benefit to the customer.
Additionally, certain contracts with insurance companies include a promise to provide certain services to the insurance company such as information
gathering and payment collection. The Group has concluded that such services are immaterial in the context of the contract. The Group accrues the costs
of providing such services when the related revenue is recognized (i.e., when an insurance policy becomes effective).
The term for short-term health insurance policies sold by the Group is typically 12 months, while the term for long-term health and life insurance
policies sold by the Group typically ranges from 6 to 30 years. The insurance company pays the Group a commission either upfront or in monthly or
annual instalments based on the underlying cash flows of the insurance policy (i.e., payments of the related premiums for the insurance policy
purchased). The Group’s contract terms can give rise to variable consideration due to the nature of its commission structure (e.g., policy changes or
cancellations).
The Group determines the transaction price of its contracts by estimating commissions that the entity expects to be entitled to over the premium
collection term of the policy based on historical experience regarding
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(s) Revenue recognition (continued)
Insurance Brokerage Services (continued)
premium retention and assumptions about future policyholder behaviour and market conditions. Such estimates are ‘constrained’ in accordance with
ASC 606, that is, the Group uses the expected value method and only includes estimated amounts in the transaction price to the extent it is probable that
a significant reversal of cumulative revenue recognized for such transactions will not occur.
Beginning in November 2019, for certain long-term insurance policies sold, the Group is also entitled to a performance bonus from insurance
companies if the retention rate for a certain period exceeds a predetermined percentage. As the consideration for the bonus is contingent on the
occurrence (or non-occurrence) of a future event, the bonus represents variable consideration. Consistent with the policy described above, the Group
uses the expected value method to estimate the variable consideration and may constrain the estimate to the extent that it is probable that a significant
reversal of revenue in the future will not occur.
Management of Mutual Aid Platform

The Group, as a manager and a fiduciary of the plan, operated a mutual aid platform, which consisted of several mutual aid plans that provided its
participants (who are the Group’s customer) with health protection against different types of critical illnesses.
Prior to March 2019, the Group had provided plan managing services free of charge. Beginning in March 2019, the Group charged a management
fee calculated as a fixed percentage of each approved payout. The Group’s managing services primarily comprised daily payout processing activities
that were substantially the same and had the same pattern of transfer to the customer. As such, the Group has identified a single performance obligation,
a series of distinct services, related to the mutual aid platform managing services in its contracts, which was satisfied overtime. The transaction price
represented variable consideration in its entirety. The Group determined that the variable consideration related specifically to the Group’s efforts to
perform and transfer payout processing services during the period, which were distinct from the services the Group provided in other periods. Therefore,
as the payout processing services were performed, the variable consideration earned during the period was allocated to those services and recognized in
the period control transfers.
Participants also had a choice to upgrade their plan. The upgraded plan provided them with additional protection and further reimbursements if the
illness was cancer-related and the payout from the basic plan was insufficient. Under this plan, the Group also assigned a dedicated service
representative to the participant during the membership period. The Group charged an annual membership fee at the beginning of each period. The
Group determined that the nature of the membership service was a stand-ready obligation to provide management services to the participants of this plan
as well as continuous and dedicated customer service representatives and accordingly, the Group recognized the membership fee ratably over the
membership period after the waiting period, described below, ends.
Both the basic and the upgraded mutual plans included a waiting period before any new participant could submit a claim for reimbursements.
During that period, any membership fee received from the upgraded plan was refundable and was recorded in accrued expenses and other current
liabilities in the consolidated balance sheet.
Starting from March 2021, with the cessation of the Waterdrop Mutual Aid operation, the corresponding management fee income was no longer
be a revenue stream. As part of the transition, the Group voluntarily offered to cover participants’ eligible medical expense during the transition period
using its own cash. To further attract plan participants to migrate as potential insurance policyholders to its insurance marketplace, the Group also
voluntarily offered a one-year complementary health insurance policy for each participant with a similar coverage enjoyed under the original mutual aid
plan. The additional medical expense coverage payout made by the Group and the premium cost of the one-year insurance were accounted for as a
reduction of management fee revenue previously recognized for each participant to the extent of the cumulative amount earned until March 26, 2021.
Any portion in excess was recorded as an expense.
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Technical Services
The Group provides various technical services to certain insurance companies through its customer relationship management system and customer
behavioural analysis system. Under these arrangements, the Group provides customer relationship maintenance, customer complaint management and
claim review services for insurance companies. The Group has identified itself as a principal in these transactions. Consideration received for technical
services reflects stand-alone selling prices and are settled monthly based on standard unit prices and service volumes rendered during the period.
Revenue is recognized over time as the insurance companies are simultaneously receiving and consuming the benefits of those services.
As part of the technical services offering, the Group also provides marketing services to certain companies on its various website channels and
mobile apps, including pay for performance marketing services whereby customers are charged based on effective clicks on their product information,
and display advertising services that allow customers to place advertisements on various websites or mobile apps. The Group recognizes revenues from
pay for performance marketing services based on effective clicks, and recognizes revenues from display advertising services based on the number of
articles published or the number of times that the advertisement has been displayed. Revenues from both types of transactions are recorded at a point in
time when a user clicks on the product information or the advertisement has been displayed.
The Group also provides technical services to selected insurance brokerage or agency companies where the Group allows other insurance
brokerage or agency companies to use its customer relationship management (“CRM”) system without taking possession of its software. The Group has
determined that the insurance brokerage or agency companies are its customers. Consideration received for such services include monthly fees that
provide other insurance brokerage or agency companies with access to the Group’s CRM system. The related revenue is recognized overtime over the
contract term. In addition, the Group further refers potential users to other insurance brokerage or agency companies and is entitled to a variable
consideration calculated as a percentage of the first two-year’s policy premiums to be received by the insurance brokerage or agency companies for
insurance policies sold through the Group’s CRM system. The Group recognizes the referral revenue at a point in time when the insurance policy
becomes effective as the Group has no further obligation to the insurance brokerage or agency companies after the initial sale of a policy. The Group
estimates the services fee that it expects to be entitled to over the first two-year of the long-term insurance policy and such estimates are ‘constrained’ in
accordance with ASC 606.
Other Revenues
Other revenues mainly include commission revenue from online sale of agriculture products and health products, and membership fee from
Waterdrop Medicine. The Group’s performance obligation under these contracts is to arrange for the provision of the specified goods or services by
those third-party merchants. Revenue is recognized for the net amount of consideration the Group is entitled to retain in exchange for its services at a
point in time upon successful sales. The Group recognized the membership fee ratably over the membership period.
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Disaggregation of revenues
The following table provides further disaggregation by types and timing of revenues recognized:

2019 2020 2021
RMB RMB RMB
Operating revenue
Insurance brokerage income
Short-term insurance brokerage income 1,134,984 2,045,191 2,037,677
Long-term insurance brokerage income 173,192 650,129 789,790
Subtotal 1,308,176 2,695,320 2,827,467
Management fee income 142,683 109,828 2,745
Technical service income 51,705 194,130 243,542
Other revenues 8,401 28,670 132,160
Total 1,510,965 3,027,948 3,205,914
Deferred Revenue
As of December 31, 2020, the Group’s deferred revenue of RMB 22,017 was mainly related to the membership fees received for the Group’s
upgraded mutual plan for which revenue recognition criteria have not been met. The Group recognized as revenue its entire deferred revenue balance as
of December 31, 2020 in the year ended December 31, 2021. Starting from March 2021, with the cessation of the Waterdrop Mutual Aid operation, no
deferred revenues related to the Group’s upgraded mutual plan were recognized. As of December 31, 2021, the Group’s deferred revenue amounted to
RMB 803 derives from other revenue stream, which is immaterial.
Value Added Tax

The Group is subject to Value Added Taxes (“VAT”) at the rate of 3% or 6%, depending on whether the entity is a general tax payer or small scale
tax payer, and the related surcharges on revenue generated from providing services. VAT are reported as a deduction to revenue when incurred and
amounted to RMB 71,276, RMB 229,209 and RMB 309,891 for the years ended December 31, 2019, 2020 and 2021, respectively. Entities that are VAT
general taxpayers are allowed to offset qualified input VAT paid to suppliers against their output VAT liabilities. Net VAT balance between input VAT
and output VAT is recorded in accrued expenses and other current liabilities on the consolidated balance sheets.
Value added tax recoverable represents amounts paid by the Group for purchases. The amounts were recorded as current assets considering they
are expected to be deducted from future value added tax payables arising on the Group’s revenues which it expects to generate in the future.
Contract assets
Contract assets are recorded for arrangements when the Group has provided the insurance brokerage services but for which the related payments
are not yet due. Contract assets are attributable to the brokerage commission that is contingent upon the future premium payment of the policy holders
and retention based bonus.
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Contract assets (continued)
Contract assets are stated at the historical carrying amount net of write offs and allowance for uncollectible accounts. When contract assets are
assessed for impairment, the Group uses estimates based on the historical experience. The historical data is adjusted on the basis of the relevant
observable data that reflects current economic conditions.
Contract assets as of December 31, 2020 and 2021 are as follows. The contract asset balance as of December 31, 2020 and 2021 includes
immaterial adjustment to the estimate of the transaction price for performance obligation satisfied during the years ended December 31, 2019 and 2020.
December 31, December 31,

2020 2021
RMB RMB
Contract assets 848,550 593,500
Less: Allowance for uncollectible accounts — —
Total 848,550 593,500
(t) Operating cost

Operating costs primarily consist of (i) payroll and related expenses for insurance agents, consultants and employees involved in the payout
investigation function for mutual aid plans and customer service personnel, (ii) payout investigation cost of mutual aid plans, which is in the form of
service fees paid to third-party investigation companies, (iii) transaction fees charged by third-party payment platforms related to insurance brokerage
service and management of mutual aid plan, (iv) charges for the usage of the server and cloud service incurred for operational support of the platforms,
and the associated expenses of facilities and equipment, such as depreciation expenses, rental and others attributed to the Group’s principal operations,
and (v) cost of medical expenses and cost of one-year health insurance coverage related to the termination of the mutual aid plans.
(u) Sales and Marketing Expenses

Sales and marketing expenses primarily consist of (i) marketing expenses for user acquisition and brand building, (ii) payroll and related expenses
for employees involved in selling and marketing functions, as well as the associated expenses of facilities and equipment, such as depreciation expenses,
rental and others, and (iii) promotional rewards to policy holders, which mainly include gift insurance products, medical green channel services and gift
physical examination services.
In order to attract new users, promote services, improve users’ activities as well as expand the overall coverage and participation of users on its
platform, the Group conducts user promotions through different types of incentives including the gift insurance products, medical green channel services
and gift physical examination services. Such marketing and promotion benefits are given to users for free and are recorded in sales and marketing
expenses.
(v) Research and Development Expenses

Research and development expenses primarily consist of (i) payroll and related expenses for employees involved in platform and new function
development and significant improvement, (ii) charges for the usage of the server and cloud service incurred to support research, design and
development activities by research and
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WATERDROP INC.

(v) Research and Development Expenses (continued)
development personnel, as well as the associated expenses of facilities and equipment, such as depreciation expenses, rental and others. The Group has
expensed all research and development expenses when incurred.
(w) Taxation
Current income taxes are provided for in accordance with the laws of the relevant tax authorities. Deferred income taxes are recognized when
temporary differences exist between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements. Net
operating loss carry forwards and credits are applied using enacted statutory tax rates applicable to future years. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more-likely-than-not that a portion of or all of the deferred tax assets will not be realized.
The impact of an uncertain income tax position on the income tax return is recognized at the largest amount that is more-likely-than- not to be
sustained upon audit by the relevant tax authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being
sustained. Interest and penalties on income taxes will be classified as a component of the provisions for income taxes.
(x) Net Loss Per Share

Basic net loss per ordinary share is computed by dividing net loss attributable to ordinary shareholders by the weighted average number of
ordinary shares outstanding during the period.
The Group’s convertible redeemable participating preferred shares are participating securities as they participate in undistributed earnings on an
as-if converted basis. The Group determined that the nonvested restricted shares owned by the Founder and management team are participating
securities as the holder of these nonvested restricted shares have nonforfeitable rights to receive dividends with all ordinary shares but these nonvested
restricted shares do not have a contractual obligation to fund or otherwise absorb the Group’s loss. Accordingly, the Group uses the two-class method,
whereby undistributed net loss for the period is allocated to ordinary shares only because the convertible redeemable participating preferred shares and
nonvested restricted shares owned by the Founder are not contractually obligated to share the loss.
Diluted net loss per ordinary share reflects the potential dilution that would occur if securities were exercised or converted into ordinary shares.
The Group has participating convertible redeemable preferred shares, restricted shares and share options which could potentially dilute basic net loss per
ordinary share in the future. Diluted net loss per ordinary share is computed using the two-class method or the as-if-converted method, whichever is
more dilutive.
(y) Leases
The Group leases offices in different cities in the PRC under operating leases. The Group determines whether an arrangement constitutes a lease at
inception and records lease liabilities and right-of-use assets (“ROU”) on its consolidated balance sheets at the lease commencement. The Group
measures its lease liabilities based on the present value of the total lease payments not yet paid discounted based on its incremental borrowing rate, as
the rates implicit in its leases are not determinable. The Group’s incremental borrowing rate is the estimated rate the Group would be required to pay for
a collateralized borrowing equal to the total lease
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WATERDROP INC.

(y) Leases (continued)
payments over the term of the lease. The Group estimates its incremental borrowing rate based on an analysis of publicly traded debt securities of
companies with credit and financial profiles similar to its own. The Group measures right-of-use assets based on the corresponding lease liability
adjusted for payments made to the lessor at or before the commencement date, and initial direct costs it incurs under the lease. The Group begins
recognizing rent expense when the lessor makes the underlying asset available to the Group. The Group’s leases have remaining lease terms of up to
three years, some of which include options to extend the leases for an additional period which has to be agreed with the lessors based on mutual
negotiation. After considering the factors that create an economic incentive, the Group did not include renewal option periods in the lease term for
which it is not reasonably certain to exercise.
The Group has made an accounting policy election to exempt leases with an initial term of 12 months or less without a purchase option that is
likely to be exercised from being recognized on the balance sheets. Payments related to those leases continue to be recognized in the consolidated
statements of comprehensive loss on a straight line basis over the lease term.
(z) Significant Risk and Uncertainties

Currency Risk
The RMB is not a freely convertible currency. The State Administration for Foreign Exchange, under the authority of the People’s Bank of China,
controls the conversion of RMB into foreign currencies. The value of RMB is subject to changes in central government policies and international
economic and political developments that affect supply and demand in the China Foreign Exchange Trading System market of cash and cash
equivalents and restricted cash. The cash and cash equivalents and restricted cash of the Group included aggregate amounts of RMB 1,018,758, and
RMB 1,406,313, which were denominated in RMB at December 31, 2020 and 2021, respectively, representing 76.98% and 94.68% of the cash and cash
equivalents and restricted cash at December 31, 2020 and 2021, respectively.
Concentration of Credit Risk

Details of the customers accounting for 10% or more of operating revenue, net are as follows:

2019 2020 2021
RMB % RMB % RMB %
Customer A 667,376 44.17% 602,985 19.91% 240,650 7.51%
Customer B 331,533 21.94% 753,456 24.88% 457,995 14.29%
Customer C 52,754 3.49% 335,514 11.08% 367,434 11.46%
1,051,663 69.60% 1,691,955 55.87% 1,066,079 33.26%
Details of the customers which accounted for 10% or more of accounts receivable and contract assets are as follows:
As of December 31,
2020 2021
RMB % RMB %
Customer A 258,060 18.59% 134,292 10.85%
Customer B 411,637 29.65% 190,284 15.38%
Customer C 118,887 8.56% 109,676 8.86%
788,584 56.80% 434,252 35.09%
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WATERDROP INC.

(z) Significant Risk and Uncertainties (continued)
Concentration of Credit Risk (continued)
The Group performs ongoing credit evaluations of its customers and generally does not require collateral on accounts receivable.
The Group places its cash and cash equivalents with financial institutions with high-credit ratings and quality.
(aa) Recent Accounting Pronouncements not yet adopted

In June 2016, the FASB issued ASU 2016-13, Credit Losses, Measurement of Credit Losses on Financial Instruments. This ASU provides more
useful information about expected credit losses to financial statement users and changes how entities will measure credit losses on financial instruments
and timing of when such losses should be recognized. This ASU is effective for annual and interim periods beginning after December 15, 2019 for
issuers and December 15, 2020 for non-issuers. Early adoption is permitted for all entities for annual periods beginning after December 15, 2018, and
interim periods therein. In May 2019, the FASB issued ASU 2019-05, Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief. This
update adds optional transition relief for entities to elect the fair value option for certain financial assets previously measured at amortized cost basis to
increase comparability of similar financial assets. The updates should be applied through a cumulative-effect adjustment to retained earnings as of the
beginning of the first reporting period in which the guidance is effective (that is, a modified retrospective approach). In November 19, 2019, the FASB
issued ASU 2019-10 to amend the effective date for ASU 2016-13 to be fiscal years beginning after December 15, 2022 and interim periods therein. The
Group is in the process of evaluating the impact on its consolidated financial statements upon adoption.
3. Acquisitions and disposal of subsidiary

Asset acquisitions
In June 2020, the Group entered into purchase agreements with shareholders of Tairui Insurance Agency Co., Ltd. (“Tairui”) to acquire 100% of
Tairui’s equity ownership for a gross consideration of RMB75,358, of which RMB43,000 was related to the effective settlement of the selling
shareholder’s loan payable to Tairui upon closing. This resulted in a net cash consideration of RMB32,358. Tairui holds an insurance agency license.
In August 2020, the Group entered into purchase agreements with shareholders of Hainan Puluo Medical Technology Co., Ltd. (“Puluo”) to
acquire 100% of Puluo’s equity ownership for a gross consideration of RMB2,063, among of which RMB1,500 was prepaid in 2020. In January 2021,
the Group completed the acquisition. Puluo holds a medical institution license and a trademark and software copyright.
The Company evaluated the acquisition of the purchased assets under ASC 805-Business Combination (ASC 805), and concluded that as
substantially all of the fair value of the gross assets acquired is concentrated in
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WATERDROP INC.
3. Acquisitions and disposal of subsidiary (continued)

Asset acquisitions (continued)
an identifiable group of similar assets, the transaction did not meet the requirements to be accounted for as a business combination and therefore was
accounted for as an asset acquisition.
The purchase price of the assets are as follows:
As of
December 31,
2020 2021
Cash 5,858 —
Intangible assets-Insurance agency licenses 35,130 —
Intangible assets- Medical institution license — 3,708
Intangible assets- Trademark and software copyright — 98
Total assets acquired 40,988 3,806
Deferred tax liabilities (8,630) (927)
Accrued expenses and other current liabilities — (816)
Total liabilities assumed (8,630) (1,743)
Net assets acquired 32,358 2,063
The Company recognized any excess consideration transferred over the fair value of the net assets acquired on a relative fair value basis to the
identifiable net assets. The Company determined the estimated fair values using Level 3 inputs after review and consideration of relevant quoted market
prices of comparable companies and relevant information.
Business acquisitions
In March 2020 and August 2020, the Group completed two business combinations to complement its existing businesses. Total cash consideration
transferred for the acquisitions amounted to RMB 1,598. The purchase price allocated to the fair value of assets acquired and liabilities assumed were
RMB nil and RMB 50, respectively. Goodwill recognized in these acquisitions amounted to RMB 1,648, which was primarily attributable to the
synergies expected to be achieved from these acquisitions. The goodwill recognized is not deductible for tax purposes.
In December 2021, the Group completed one business combination to complement its existing businesses with RMB nil consideration in exchange
for 100% of Beijing Yifan Fengshun Medical Technology Co., Ltd.’s equity interest. The acquiree operates clinical trial patient recruitment services. The
transaction was considered a business acquisition and therefore was recorded using the acquisition method of accounting. The consideration transferred
was determined based on the acquisition-date fair value of the equity interest acquired, and was allocated based on the fair values of the acquired assets
and liabilities, which were RMB 13,507 (including cash acquired of RMB 1,328) and RMB 13,809, respectively. Goodwill recognized in this
acquisition amounted to RMB 302, which was primarily attributable to the synergies expected to be achieved from this acquisition. The goodwill
recognized is not deductible for tax purposes.
Disposal of subsidiary
In September 2020, pursuant to a share purchase agreement, the Group transferred 100% ownership interest in Zunsheng (Beijing) Investment
Management Co., Ltd. (“Zunsheng”), a subsidiary of the Group who holds certain equity investments, to third parties in return for cash consideration of
RMB 8,390. As a result, the Group lost control over Zunsheng. A disposal gain of RMB 180 was recognized under line-item “others, net” in the
consolidated statement of comprehensive loss, which is the difference between the disposal consideration of RMB 8,390 and the carrying value in
Zunsheng, amounted to net assets of RMB 8,210.
In May 2021, pursuant to a share purchase agreement, the Group transferred 100% ownership interest in Jinan Yifangda Pharmacy Co., Ltd.
(“Yifangda”), a subsidiary of the Group, to third parties in return for cash consideration of Renminbi 1. As a result, the Group lost control over
Yifangda. A disposal loss of RMB 252 was recognized under line-item “others, net” in the consolidated statement of comprehensive loss, which is the
difference between the disposal consideration of Renminbi 1 and the carrying value in Yifangda, amounted to net assets of RMB 252.
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WATERDROP INC.
4. Short-term Investments
Short-term Investments consist of the following:
As of December 31,
2020 2021
RMB RMB
Held-to-maturity investments 195,878 1,360,304
Available-for-sale investments 997,282 609,058
Total 1,193,160 1,969,362
As of December 31, 2020 and 2021, the maturity dates for the held-to-maturity investments and available-for-sale investments were within one
year. Held-to-maturity investments were mainly deposits in commercial banks with maturities less than one year and wealth management products
issued by commercial banks and other financial institutions for which the Group has the positive intent and ability to hold those securities to maturity.
Available-for-sale investments include wealth management products issued by commercial banks and other financial institutions which are not classified
as trading securities or as held-to-maturity securities. For the years ended December 31, 2019, 2020 and 2021, the gross unrecognized holding gains on
held-to-maturity investments were RMB nil, RMB 128 and RMB 5,411, respectively. For the years ended December 31, 2019, 2020 and 2021, the gross
unrealized gains on available-for-sale investments were RMB 209, RMB 1,724 and RMB 192, respectively.
5. Prepaid Expense and Other Assets

Prepaid expense and other assets consist of the following:
As of December 31,
2020 2021
RMB RMB
Fund receivable from external payment network providers(1) 435,816 87,609
Advances to suppliers 115,135 162,136
Prepayments and deposits 58,220 65,200
Value-added tax recoverable 12,053 33,688
Claims receivable on behalf of insurers 11,410 33,870
Others 18,446 26,291
Total 651,080 408,794
Less: impairment provision(2) — (39,000)
Prepaid expense and other assets, net 651,080 369,794
(1) The Group opened accounts with external online payment service providers to collect and transfer insurance premiums to insurance companies, as
well as to collect donor’s donation and mutual aid funds prior to transferring them to custodian bank. The balance of funds receivable from
external payment network providers mainly includes accumulated amounts of donation, mutual aid fund received at the balance sheet date, which
were subsequently transferred to the Group’s bank accounts or custodian accounts if they related to donor’s donations. The balance also includes
insurance premium collected by the Group on behalf of insurance companies but not yet transferred to the insurance companies deposited in
accounts of external online payment service providers. The amount was settled shortly after year end.
(2) Impairment provision for the years ended December 31, 2020 and 2021 were RMB nil and RMB 39,000 respectively. A provision of RMB39,000
was provided over prepayment, which was recorded in general and administrative expenses for the year ended December 31, 2021.
6. Fair Value of Assets and Liabilities

Recurring
The following table presents the fair value hierarchy for assets and liabilities measured at fair value on a recurring basis subsequent to initial
recognition:
Balance at
December 31, 2020 Level 1 Level 2 Level 3 Fair Value
RMB RMB RMB RMB
Assets
Available for sale investments — 997,282 — 997,282
Total Assets — 997,282 — 997,282
Liabilities
Share-based compensation liabilities — — 58,213 58,213
Total Liabilities — — 58,213 58,213
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WATERDROP INC.
6. Fair Value of Assets and Liabilities (continued)

Balance at
December 31, 2021 Level 1 Level 2 Level 3 Fair Value
RMB RMB RMB RMB
Assets
Available-for-sale investments — 609,058 — 609,058
Total Assets — 609,058 — 609,058
The Group calculated the estimated fair value of its available-for-sale investments as of December 31, 2020 and 2021 using alternative pricing
sources and models with market observable inputs. Accordingly, the Group classifies the fair value measurement calculated using valuation techniques
that use these inputs as Level 2 measurement.
The following table presents a rollforward of the fair value of the level 3 liabilities recorded at fair value as of December 31, 2020 and 2021:
Share-based
compensation
liabilities
Balance as of December 31, 2019 3,153
Changes in estimated fair value 7,037
Addition in share-based compensation liabilities 48,023
Balance as of December 31, 2020 58,213
Changes in estimated fair value 74,178
Addition in share-based compensation liabilities 4,762
Foreign currency translation adjustment (1,081)
Reclassification of share-based compensation liabilities to equity (136,072)
Balance as of December 31, 2021 —
The Group calculated the estimated fair value of the share options as of December 31, 2020 using the Black- Scholes pricing model with the
assistance from an independent valuation firm, with the significant unobservable inputs further disclosed below. The Group classified the valuation
technique that use these inputs as Level 3 measurement.
Significant Unobservable Inputs
Inputs as of
Financial instrument Unobservable Input December 31, 2020
Share-based compensation
liabilities Risk free rate of interest 2.33%
Volatility 24.73%
Dividend yield —
Life of options 4 months
Fair value of underlying ordinary shares $0.55
Non-recurring
Certain assets, such as prepayment, intangible asset, long-term investment are measured at fair value only if they were determined to be impaired.
The fair values were measured under income approach, based on the Company’s best estimation. Significant inputs (level 3) used in the income
approach primarily included future estimated cash flows and discount rate.
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7. Property, Equipment and Software, Net

Property, equipment and software, net, consist of the following:
As of December 31,
2020 2021
RMB RMB
Computer and electronic equipment 19,138 26,853
Office furniture and equipment 866 1,121
Leasehold improvements 22,156 32,053
Software 8,419 22,685
Total 50,579 82,712
Less: accumulated depreciation (21,855) (37,950)
Property, equipment and software, net 28,724 44,762
Depreciation expenses for the years ended December 31, 2019, 2020 and 2021 were RMB 6,687, RMB 12,892, and RMB 17,906, respectively. No
impairment on property, equipment and software was recorded for the years ended December 31, 2019, 2020 and 2021.
8. Intangible Assets, Net
Intangible assets, net consisted of the following:
As of December 31,
2020 2021
RMB RMB
Brokerage licenses 14,558 14,558
Insurance adjusting license 2,293 2,293
Insurance agency license 35,130 35,130
Trademark and software copyright 1,226 2,142
Medical institution license — 3,708
Total 53,207 57,831
Less: Accumulated amortization (173) (361)
Less: Impairment — (717)
Intangible assets, net 53,034 56,753
Amortization expense on intangible assets for the years ended December 31, 2019, 2020 and 2021 were RMB nil, RMB 173 and RMB 186
respectively. As of December 31, 2021, the Group expects to record amortization expenses related to intangible assets RMB 139 for each of the next five
years from January 1, 2022 and RMB 369 thereafter. RMB nil, RMB nil and RMB 717 of impairment charges were recognized on intangible assets and
were included under “others, net” in the consolidated statement of comprehensive loss for the years ended December 31, 2019, 2020 and 2021,
respectively. The impairment charges for the year end December 31, 2021 was related to the trademark.
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9. Long-Term Investments
Equity securities
without readily
determinable fair value Equity Method Total
RMB RMB RMB
Balances at January 1, 2019 1,784 890 2,674
Additions 2,089 — 2,089
Share of results of equity method investee — (29) (29)
Balances at December 31, 2019 3,873 861 4,734
Share of results of equity method investee — (15) (15)
Disposal (1,000) (846) (1,846)
Foreign currency translation adjustment (132) — (132)
Balances at December 31, 2020 2,741 — 2,741
Additions 9,900 — 9,900
Impairment (784) — (784)
Foreign currency translation adjustment (45) — (45)
Balances at December 31, 2021 11,812 — 11,812
Equity Securities Without Readily Determinable Fair Value

In 2021, the Group invested less than 5% equity interest in certain preferred shares of a private company. The investment contains various right,
protection, and a liquidation preference. As this investment was neither debt security nor in-substance common stock, they were accounted as an equity
securities without readily determinable fair values, were accounted for under the measurement alternative and were measured at cost, less impairment,
subject to upward and downward adjustments resulting from observable price changes for identical or similar investments of the same issuer. No
observable price changes were noted during the years ended December 31, 2020 and 2021.
10. Accrued Expenses and Other Current Liabilities

Components of accrued expenses and other current liabilities are as follows:
As of December 31,
2020 2021
RMB RMB
Accrued marketing and customer service expenses(1) 253,118 87,071
Payable related to mutual aid plans and medical crowdfunding(2) 43,636 121,561
Payroll and welfare payable 118,691 184,903
Tax payable 13,537 22,020
Payable related to services fee 46,884 43,889
Share-based compensation liabilities 58,213 —
Advance from customer(3) 15,301 —
Others 46,226 39,308
Total 595,606 498,752
(1) Amount represents the accrued channel cost and customer service expense payable to third-party companies.
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10. Accrued Expenses and Other Current Liabilities (continued)

(2) Amount represents the fund collected through the third-party external payment network providers that have not transferred to the custodian bank
and the accrued payable for medical expense and one-year health insurance related to termination of mutual aid. The accrued payable for medical
expense and one-year health insurance related to termination of mutual aid as of the year ended December 31, 2020 and 2021 are RMB nil and
RMB 71,609, respectively. See note 5 for disclosure related to fund receivable from third-party external payment network providers.
(3) Amount represents the membership fee received from the participants related to the upgraded mutual aid plan. The amount is refundable during
the initial waiting period and recorded as advance from customers. Advances from customers for the year ended December 31, 2021 were RMB
nil due to the termination of the Waterdrop Mutual Aid business by the end of March 2021.
11. Segment Information

The Group’s chief operating decision maker is the Chief Executive Officer who reviews the consolidated results of operations when making
decisions about allocating resources and assessing performance of the Group. The Group operates and manages its business as a single segment.
Substantially all of the Group’s revenues for the years ended December 31, 2019, 2020 and 2021 were generated from the PRC.
As of December 31, 2020 and 2021, all of the long-lived assets of the Group were located in the PRC.
12. Employee Benefits

Full-time employees of the Group in the PRC are entitled to welfare benefits including pension insurance, medical insurance unemployment
insurance, maternity insurance, on-the-job injury insurance, and housing fund plans through a PRC government-mandated defined contribution plan.
Chinese labor regulations require that the Group makes contributions to the government for these benefits based on certain percentages of the
employees’ salaries, up to a maximum amount specified by the local government. The Group has no legal obligation for the benefits beyond the
contributions. Total contributions by the Group for such employee benefits were RMB 75,004, RMB 86,847 and RMB 236,238 for the years ended
December 31, 2019, 2020 and 2021, respectively.
13. Related Party Balances and Transactions

The table below sets major related parties of the Group and their relationships with the Group:
Entity or individual name Relationship with the Group

Shen Peng Chief Executive Officer and the Founder
Tencent Holdings Limited and its subsidiaries (“Tencent Group”) Shareholder of the Group
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13. Related Party Balances and Transactions (continued)

Detail of related party balances and transactions as of and for the years ended December 31, 2019, 2020 and 2021 are as follows:
(1) Service provided by related parties:
Year ended December 31,

2019 2020 2021
RMB RMB RMB
Marketing services from Tencent Group(1) — 187,236 487,085
Payment processing fee to Tencent Group(2) 77,898 34,061 37,986
Others 15,147 26,931 45,403
Total 93,045 248,228 570,474
(1) The Company entered into a series of cooperation agreements with Tencent Group since 2020. The Company uses Tencent Group as its platform
to provide marketing service.
(2) The Company entered into a series of agreements with Tencent Group in 2016. The Company uses Tenpay (from Tencent Group) as one of its
payment processing platforms to collect cash from insurance policy holders, participants of its mutual aid plan, and users on its medical
crowdfunding platform. Tencent Group charges service fee for each transaction processed.
(2) Service provided to related parties:

2019 2020 2021
RMB RMB RMB
Advertising services to Tencent Group — 844 1,988
Total — 844 1,988
(3) Amount due from related parties:
As of December 31,
2020 2021
RMB RMB
Tencent Group(1) 813 1,049
Total 813 1,049
(1) In addition, prepayments of RMB 76,274 and RMB 120,459 were recorded separately as of December 31, 2020 and 2021 under “Prepaid
expense and other assets” in relation to the traffic channel service fee paid to Tencent Group, and the balance is amortized based on traffic
volume consumed.
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13. Related Party Balances and Transactions (continued)

(4) Amount due to related parties:
As of December 31,
2020 2021
RMB RMB
Cloud technology services from Tencent Group 9,789 20,449
Total 9,789 20,449
14. Income Taxes

Cayman Islands
The Company was incorporated in the Cayman Islands. Under the current laws of the Cayman Islands, the Company is not subject to tax on
income or capital gain. Additionally, upon payments of dividends to the shareholders, no Cayman Islands withholding tax will be imposed.
Hong Kong
According to the Hong Kong regulations, Hong Kong entities are subject to a two-tiered income tax rate for taxable income earned in Hong Kong
with effect from April 1, 2018. The first HK$2 million of profits earned by HK entity will be taxed at 8.25%, while the remaining profits will continue
to be taxed at the existing 16.5% tax rate. In addition, to avoid abuse of the two-tiered income tax rate regime, each group of connected entities can
nominate only one entity to benefit from the two-tiered income tax rate. Additionally, payments of dividends by the subsidiaries incorporated in Hong
Kong to the Company are not subject to any Hong Kong withholding tax. Under the Hong Kong tax laws, the Company is exempted from the Hong
Kong income tax on foreign-derived income.
China
The Company’s subsidiaries, consolidated VIEs and subsidiaries of the VIEs established in the PRC are mainly subject to statutory income tax at a
rate of 25%.
Certain enterprises benefit from a preferential tax rate of 15% under the Enterprise Income Tax (“EIT”) Law if they qualify as high and new
technology enterprises (“HNTE”). Under such law, Absolute Health is qualified for HNTE status and are eligible to the preferential tax rate of 15% for
the years ended 2021. Certain enterprises (including Puluo, Chongqing Hecheng Insurance Adjusting Co., Ltd., etc.) are qualified as “small enterprises
with low profits” and thus enjoyed a preferential income tax rate of 20% for 2021.
Composition of Income Tax Expense

The current and deferred components of income tax expense included in the consolidated statements of comprehensive loss were as follows:

2019 2020 2021
RMB RMB RMB
Current income tax 181 641 3,974
Deferred income tax 142,347 49,514 (224,961)
Income tax expense/(benefit) 142,528 50,155 (220,987)
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14. Income Taxes (continued)

Tax Reconciliation
Reconciliation between the income tax benefit computed by applying the EIT tax rate to loss before income tax and income tax expense/(benefit)
were as follows:
For the Year ended December 31,

2019 2020 2021
RMB RMB RMB
Loss before income tax (178,978) (613,699) (1,795,067)
Tax benefit at EIT tax rate of 25%(1) (44,745) (153,425) (448,767)
Expenses not deductible for tax purposes 23,199 65,034 52,051
Research and development super deduction (10,343) (44,143) (37,492)
Effect of different tax rates of subsidiaries operating in other jurisdictions 376 37,673 4,149
Effect of PRC preferential tax rates — — 52,502
Changes in valuation allowance 174,041 145,016 156,570
Income tax expense/(benefit) 142,528 50,155 (220,987)
(1) The Group’s major operations during the years ended December 31, 2019, 2020 and 2021 were conducted in PRC, and thus all losses were
attributable to the Group’s operations in the PRC (or foreign operation). Accordingly, the Group prepared its tax rate reconciliation starting with
the PRC statutory tax rate during the years ended December 31, 2019, 2020 and 2021.
Deferred Tax Assets and Deferred Tax Liabilities

As of December 31,
2020 2021
RMB RMB
Deferred tax assets
Deductible advertising expenses exceeding the tax limit(2) 31,351 45,438
Accrued expenses 16,504 41,458
Other deductible expenses exceeding the tax limit(2) 300 427
Provisions for the prepayments and other non-current assets — 10,125
Operating loss carry forward 361,627 579,821
Less: valuation allowances (390,833) (499,090)
Total deferred tax assets 18,949 178,179
Deferred tax liabilities
Intangible assets 12,623 13,551
Contract assets 212,138 148,375
Advance from customer 19,933 17,964
Total deferred tax liabilities 244,694 179,890
As of December 31,
2020 2021
RMB RMB
Classification in the consolidated balance sheets:
Deferred tax assets — 11,840
Deferred tax liabilities 225,745 13,551
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Movement of valuation allowance
As of December 31,
2020 2021
RMB RMB
Balance at the beginning of the year 245,817 390,833
Additions 165,581 153,780
Reversals (20,565) (45,523)
Balance at end of the year 390,833 499,090
(2) Deferred income tax assets are recognized for advertising expenses and other deductible expenses that exceeds the tax deduction limit in a
particular tax year to the extent that the realization of the related tax benefits through future taxable income is probable. Advertising expenses
carry-forwards are permanently available for use by the Group. Other deductible expenses (mainly charitable donations) carry forwards generally
expire within 3 years.
Valuation allowance is provided against deferred tax assets when the Group determines that it is more- likely-than-not that the deferred tax assets
will not be utilized in the future. The Group considers positive and negative evidence to determine whether some portion or all of the deferred tax assets
will be more-likely- than-not realized. This assessment considers, among other matters, the nature, frequency and severity of recent losses and forecasts
of future profitability. These assumptions require significant judgment and the forecasts of future taxable income are consistent with the plans and
estimates the Group is using to manage the underlying businesses.
As of December 31, 2020 and 2021, the Group had net operating loss carry forward of approximately RMB 1,443,696 and RMB 2,706,859,
respectively, which arose from the subsidiaries, VIEs and the VIEs’ subsidiaries established in PRC. As of December 31, 2021, the tax losses in the PRC
can be carried forward for five years to offset future taxable income and the period was extended to ten years for entities qualified as HNTE in 2021 and
thereafter.
In general, the PRC tax authorities have up to five years to conduct examinations of the Group’s tax filings. As of December 31, 2021, the PRC
subsidiaries’ 2017 to 2021 tax returns remain open to examination.
Uncertain Tax Positions

The Enterprise Income Tax (“EIT”) Law includes a provision specifying that legal entities organized outside of the PRC will be considered
resident enterprises for the PRC income tax purposes if the place of effective management or control is within the PRC. The implementation rules to the
EIT Law provide that non-resident legal entities will be considered as PRC resident enterprises if substantial and overall management and control over
the manufacturing and business operations, personnel, accounting, properties, etc., occurs within the PRC. Despite the present uncertainties resulting
from the limited PRC tax guidance on the issue, the Group does not believe that the Group’s entities organized outside of the PRC should be treated as
resident enterprises for the PRC income tax purposes. If the PRC tax authorities subsequently determine that the Company and its subsidiaries registered
outside the PRC should be deemed resident enterprises, the Company and its subsidiaries registered outside the PRC will be subject to the PRC income
tax, at a rate of 25%.
In accordance with the EIT Law, dividends, which arise from profits of foreign invested enterprises (“FIEs”) earned after January 1, 2008, are
subject to a 10% withholding income tax. In addition, under the double tax arrangement between the PRC and Hong Kong, if the foreign investor is
incorporated in Hong Kong and
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Uncertain Tax Positions (continued)
qualifies as the beneficial owner, the applicable withholding tax rate is reduced to 5%, if the investor holds at least 25% in the FIE, or 10%, if the
investor holds less than 25% in the FIE. A deferred tax liability should be recognized for the undistributed profits of PRC subsidiaries unless the Group
has sufficient evidence to demonstrate that the undistributed dividends will be reinvested and the remittance of the dividends will be postponed
indefinitely. The Chinese subsidiary of the Group are in accumulated loss position and will not distribute profits. Therefore, no withholding income
taxes for undistributed profits of the Group’s subsidiaries have been provided as of December 31, 2020 and 2021.
The Group did not identify significant unrecognized tax benefits for the years ended December 31, 2019, 2020 and 2021. The Group did not incur
any interest related to unrecognized tax benefits, did not recognize any penalties as income tax expense and also does not anticipate any significant
change in unrecognized tax benefits within 12 months from December 31, 2021.
15. Ordinary Shares

The Company’s Memorandum and Articles of Association authorizes the Company to issue up to 10,000,000,000 ordinary shares with a par value
of US$0.000005 per shares. As of December 31, 2020, the Company has 1,203,526,000 shares issued and outstanding. Each ordinary share is entitles to
one vote. The holders of ordinary shares are also entitled to receive dividends whenever funds are legally available and when declared by the Board of
Directors, subject to prior rights of holders of all other classes of shares outstanding.
On March 28, 2019, the Company effected a 1-to-2 share split of the Company’s shares. Upon effectiveness of the share split, every share of the
Company’s authorized, issued and outstanding ordinary shares, par value of US$0.00001 per share was split into two authorized, issued and outstanding
ordinary shares, par value of US$0.000005 per share. All share and per share information has been retrospectively adjust to reflect the share split.
According to the Amended and Restated Memorandum and Articles of Association on 16 April 2021, the ordinary shares of the Company are
classified as Class A and Class B and 1,203,526,000 ordinary shares outstanding then were designated to 401,621,021 Class A ordinary shares and
801,904,979 Class B ordinary shares, respectively. Holders of Class A ordinary shares and Class B ordinary shares have the same rights except for
voting and conversion rights. Each Class A ordinary share is entitled to one vote, and each Class B ordinary share is entitled to nine votes and is
convertible into one Class A ordinary share at the option of the holder thereof. In May 2021, the Company completed its initial public offering and
issued 30,000,000 ADSs (representing 300,000,000 Class A ordinary shares). The net proceeds raised from initial public offering were RMB 2,133,437
net of issuance cost of RMB 28,233. Upon the completion of initial public offering, 2,437,739,290 preferred shares were converted and re-designated on
a 1:1 basis as Class A ordinary shares.
On September 7, 2021, the Company’s Board of Directors approved a share repurchase program under which the Company was authorized to
repurchase up to US$50,000 of its ordinary shares in the form of ADSs over the following 12 months. 1,360,623 ADSs (equivalent to 13,606,230 Class
A ordinary shares) were repurchased for the year ended December 31, 2021 at a total consideration of RMB16,546. The repurchased shares were
presented as treasury stock, using the par value method on the consolidated balance sheets as of December 31, 2021.
As of December 31, 2021, the Company has 3,942,801,610 shares issued and outstanding, including 3,140,896,631 Class A ordinary shares and
801,904,979 Class B ordinary shares.
16. Convertible Redeemable Preferred Shares

In July 2016, Zongqing Xiangqian issued 16% of Pre-A equity interest with preferential features to certain third party shareholders for a net cash
consideration of US$5.9 million (equivalent to RMB39.7 million), which is net of issuance cost amounting to US$49.9 thousand (equivalent to RMB0.3
million).
In March 2017, Zongqing Xiangqian issued 18% of A equity interest with preferential features to certain third party shareholders for a net cash
consideration of US$14.0 million (equivalent to RMB96.5 million), which is net of issuance cost amounting to US$69.1 thousand (equivalent to
RMB0.5 million).
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16. Convertible Redeemable Preferred Shares (continued)

In August and December 2017, Zongqing Xiangqian issue 8% of A+ equity interest with preferential features to certain third party shareholders
for a net cash consideration of US$9.5 million (equivalent to RMB62.9 million), which is net of issuance cost amounting to US$15.2 thousand
(equivalent to RMB0.1 million).
During 2018, the Company repurchased 0.39% equity interest with Series A+ preferential features from a third-party investor. Any cash paid in
excess of fair value of the preferred shares was recorded as deemed dividend.
As part of the Reorganization disclosed in Note 1, investors exchanged all of their Series Pre-A, A, and A+ equity interest in Zongqing Xiangqian
into the equivalent Series Pre-A, A and A+ convertible redeemable preferred shares of the Company. The terms of the Series Pre-A, A and A+
effectively mirrored those of the Series Pre-A, A and A+ equity interesting. As this transaction represented an exchange as opposed to an
extinguishment of preferred shares, only an increase in fair value required accounting. The Company calculated the increase in fair value of the Series
Pre-A, A and A+ shares compared to the initial Series Pre-A, A and A+ equity interest and concluded that the increase was insignificant.
In November 2018, the Group issued 352,107,646 Series B preferred shares to certain third party shareholders for a net cash consideration of
US$61.0 million (equivalent to RMB420.4 million), which is net of issuance cost amounting to US$0.4 million (equivalent to RMB2.5 million). The
Group received payment amounting to US$50.5 million (equivalent to RMB348.2 million) during the year ended December 31, 2018 and received the
remaining amount in 2019. The Group recorded the unpaid amount as subscription receivable under Mezzanine equity in its consolidated balance sheet
as at December 31, 2018.
In March 2019, the Group issued 542,794,072 Series C preferred shares to certain third party shareholders for a net cash consideration of
US$147.5 million (equivalent to RMB993.8 million), which is net of issuance cost amounting to US$2.5 million (equivalent to RMB16.9 million).
In October 2019, the Group issued 170,632,018 Series C+ preferred shares to certain third party shareholders for a net cash consideration of
US$60.3 million (equivalent to RMB426.0 million), which is net of issuance cost amounting to US$0.2 million (equivalent to RMB1.2 million).
In March 2020, the Group issued an aggregate of 120,971,053 Series C++ preferred shares to certain third party shareholders for a net cash
RMB85.4 thousand).
In June 2020, the Group issued an aggregate of 220,257,916 Series D preferred shares to certain third party shareholders for a net cash
RMB87.9 thousand). The Group issued a warrant to one of its existing shareholder in June 2020. The warrant provided the shareholder with the right to
subscribe for or purchase certain number of additional Series D Preferred Shares at US$0.48 per share, which is equal to the Series D issue price to other
investors in June 2020. The warrant is exercisable at any time and expires in three months after the completion date of Series D. Upon issuance of the
warrant, the fair value of the warrant was recorded as deemed dividend in the amount of RMB 90,268 thousand (RMB 0.30 per share).
In November 2020, the Group further issued an aggregate of 297,006,585 Series D preferred shares through the shareholder’s exercise of the
warrant described above for a net cash consideration of US$143.9 million (equivalent to RMB944.3 million).
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The convertible redeemable preferred shares issued by the Company carry the following rights:
Voting Right
The holders of preferred shares may vote at general meetings of the Company in the same manner as holders of ordinary shares on an as-converted
basis and not as a separate class.
Redemption
Redemption condition for convertible redeemable preferred shares:
The convertible redeemable preferred shares are redeemable in the event of the Company fails to complete a qualified IPO before June 28, 2025;
The redemption price of the investor of Series C, Series C+, Series C++ and Series D is the investment amount of the investors plus the annual
rate of return on compound interest of 10% per annum. The redemption price of the investor of Series pre-A, Series A, Series A+ and Series B is the
investment amount of the investors plus the internal rate of return of compound interest of 8% per annum.
Dividends Rights
The convertible redeemable preferred shareholders shall be entitled to receive a preferential dividend equal to a simple interest rate of at least 6%
per annum of the applicable subscription price per share, when, as and if declared by the shareholders holding more than two-thirds of the voting power.
The preferred dividend is non-cumulative.
Conversion
Each holder of preferred shares have the right to convert any or all of its preferred shares into ordinary shares at the quotient of subscription price
per share of the preferred shares, resulting in an initial conversion ratio for the preferred shares to ordinary shares of 1:1. In addition, all outstanding
preferred shares shall be automatically converted into ordinary shares prior to the consummation of a qualified initial public offering (“Qualified IPO”).
Liquidation
If a liquidation event occurs, distributions to the shareholders of the Group shall be made in the following manner:
First, the Company shall pay to the holders of Series D preferred shares, Series C++ preferred shares, Series C+ preferred shares, Series C
preferred shares, Series B preferred shares, Series A+ preferred shares and Series A preferred shares then outstanding, prior to and in preference of any
payments to holders of ordinary shares and all other holders of share capital of the Company, the aggregate of: (i) the subscription price per share and
annual compound interest calculated at twelve percent (12%) per annum on the subscription price per share; and (ii) all accrued but unpaid, or declared
but not distributed dividends with respect to each Preferred Share (“First Liquidation Preference”). The liquidation preference is exercised in the
sequence of Series D preferred shares, Series C++ preferred shares, Series C+ preferred shares, Series C preferred shares, Series B preferred shares,
Series A+ preferred shares, and Series A preferred shares.
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Liquidation (continued)
Second, (a) following the full payment of the First Liquidation Preference in respect of the Series D preferred shares, Series C++ preferred shares,
Series C+ preferred shares, Series C preferred shares, Series B preferred shares, Series A+ preferred shares and Series A preferred shares, to the extent
that there are any assets of the Company and its subsidiaries legally available for distribution, the holders of Series Pre-A preferred shares shall, in
priority over holders of ordinary shares, be entitled to be paid by the Company an amount represented by 120% of the subscription price per share plus
all declared and unpaid dividends with respect to each Series Pre-A preferred shares (the “Second Liquidation Preference”).
Third, (a) following the full payment of the First Liquidation Preference in respect of Series C+ preferred shares, Series C preferred shares, Series
B preferred shares, Series A+ preferred shares and Series A preferred shares and the Second Liquidation Preference in respect of Series Pre-A preferred
shares, to the extent that there are any assets of the Company and its subsidiaries legally available for distribution, the angel shareholders shall be
entitled to be paid the liquidation preference as follows: (i) Maple Ocean L.P. shall be entitled to be paid an amount equal to the sum of RMB5.6 million
and all declared and unpaid dividends with respect to the shares it holds; and (ii) Light Up Investment Holdings Limited shall be entitled to be paid by
the Company an amount equal to the sum of RMB3.0 million and all declared and unpaid dividends with respect to the shares it holds (together the
“Third Liquidation Preference”).
Fourth, if there are any assets of the Company and its subsidiaries legally available for distribution after the payments as stated above, all holders
of preferred shares and ordinary shares then outstanding shall be entitled to participate in the residual assets of the Company and its subsidiaries on a pro
rata and as-converted basis.
Modification of preferred shares

In June 2020, the Company and the Series Pre-A, A, A+, B, C, C+ and C++ Preferred Share investors agreed to extend the original redemption
date of each respective series Preferred Shares from March 28, 2024 to June 28, 2025. Upon completion of the issuance, the definition of a Qualified
IPO was further modified. As the above transactions represented a modification as opposed to an extinguishment of preferred shares, only an increase in
fair value required accounting. The Company calculated the increase in fair value of each series Preferred Share at each respective modification date
resulting from the changes described and concluded that the increase was insignificant. The increase in fair value was recorded as deemed dividend in
the amount of RMB67,975 (RMB 0.08 per share).
Accounting for the Convertible Redeemable Preferred Shares

The Company classified the convertible redeemable preferred shares as mezzanine equity in the consolidated balance sheets because they are
redeemable at the holders’ option any time after a certain date and are contingently redeemable upon the occurrence of certain events outside of the
Company’s control. The convertible redeemable preferred shares are recorded initially at fair value, net of issuance costs.
The Group has determined that there was no embedded beneficial conversion feature (“BCF”) attributable to the convertible redeemable preferred
shares. In making this determination, the Group compared the initial effective conversion prices of the convertible redeemable preferred shares and the
fair values of the Group’s ordinary shares determined by the Group at the issuance dates. The initial effective conversion prices were greater than the fair
values of the ordinary shares to which the convertible redeemable preferred shares are convertible into at the issuance dates.
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Accounting for the Convertible Redeemable Preferred Shares (continued)
Subsequently, the carrying amount is increased by periodic accretion, using the interest method, so that the carrying amount will equal to
redemption amount as of each period end.
The movement in the carrying value of the preferred shares is as follows:
Series Series Series Series

Pre-A Series A A+ Series B Series C C+ C++ Series D Total
RMB RMB RMB RMB RMB RMB RMB
Balances as of January 1, 2019 48,122 110,806 66,447 353,634 — — — — 579,009
Settlement of Series B convertible redeemable
preferred shares subscription receivable — — — 72,201 — — — — 72,201
Issuance of convertible redeemable preferred shares — — — — 993,777 426,005 — — 1,419,782
Accretion on convertible redeemable preferred
shares to redemption value 3,877 8,902 5,324 34,265 76,981 7,490 — — 136,839
Balances as of December 31, 2019 51,999 119,708 71,771 460,100 1,070,758 433,495 — — 2,207,831
Issuance of convertible redeemable preferred shares — — — — — — 349,480 1,699,506 2,048,986
Deemed dividend on modification on preferred
shares — — — — 42,696 13,607 11,672 — 67,975
Exercise of warrant — — — — — — — 226,876 226,876
shares to redemption value 4,186 9,615 5,749 37,006 108,770 43,469 27,773 49,100 285,668
Balances as of December 31, 2020 56,185 129,323 77,520 497,106 1,222,224 490,571 388,925 1,975,482 4,837,336
shares to redemption value 1,561 3,585 2,144 13,797 41,303 16,507 13,025 60,365 152,287
Converted into ordinary shares1 (57,746) (132,908) (79,664) (510,903) (1,263,527) (507,078) (401,950) (2,035,847) (4,989,623)
Balances as of December 31, 2021 — — — — — — — — —
1 Upon the completion of the initial public offering, all of the Company’s Preferred Share were converted into 2,437,739,290 ordinary shares on an
one-to-one basis.
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17. Share-Based Compensation

Restricted shares owned by the management
In March 2020, several shareholders who are members of the management team (the “Restricted Shareholders”) entered into share restriction
agreements with the Company and the Founder. Pursuant to these agreements, all or a portion of ordinary shares held by these Restricted Shareholders
were converted into restricted shares (“Restricted Shareholders Shares”) which will vest in a maximum of 3 years provided that those Restricted
Shareholders remain full-time employees of the Group. According to the share restriction agreements, the Founder obtained a right to repurchase the
unvested Restricted Shareholders Shares at par value, the Company or the Founder has the right to repurchase the vested Restricted Shareholders Shares
below fair value, upon termination of the employment of the Restricted Shareholders during the vesting period. The share restriction described above
was accounted for as a grant of restricted stock award under a share-based compensation plan. Accordingly, the Group measured the fair value of the
Restricted Shareholders Shares at the grant date and recognized the amount as compensation expense over the service period.
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17. Share-Based Compensation (continued)

Restricted share owned by the management (continued)
A summary of non-vested Restricted Shareholders Shares activity for the year ended December 31, 2021 is presented below:
Number of
shares
Outstanding as of December 31, 2020 12,554,722
Vested 12,554,722
Outstanding as of December 31, 2021 —
The Group determined that the nonvested Restricted Shareholders Shares are participating securities as the nonvested Restricted Shareholders
Shares have a nonforfeitable right to receive dividends but do not have a contractual obligation to fund or otherwise absorb the Group’s losses. The
weighted-average grant date fair value of the Restricted Shareholders Shares is USD$0.20 per share.
During the year ended December 31, 2020 and 2021, the Group recorded share-based compensation expense of RMB 60,623 and RMB 16,403
respectively related to the Restricted Shareholders Shares.
Upon the termination of the Restricted Shareholders’ continuous services during the vesting period, the Company has a right (but not the
obligation) to repurchase the vested Restricted Shareholders Shares at a price below fair value of the Restricted Shareholders Shares which is to be
determined by the board of directors of the Company. The Company reclassified vested Restricted Shareholders Shares as liability in the consolidated
balance sheets upon the termination of the managements’ service as the repurchase price is below fair value. No repurchase occurred during the year
ended December 31, 2021. Such liability classified awards are remeasured at fair value subsequently at each reporting date until initial public offering,
with the changes in fair value recorded as compensation expenses. The repurchase feature expired upon the initial public offering, thus the awards were
reclassified from liability to equity, and an RMB 67,505 corresponding increase in additional paid-in capital, upon the initial public offering. During the
year ended December 31, 2020 and 2021, RMB 33,100 and RMB 36,786 respectively related share based compensation expenses were recognized.
During the year ended December 31, 2020, two executive management terminated their services. As a result, an aggregate of 3,535,833 unvested
Restricted Shareholders Shares were transferred to the Founder of the Company at par value and became immediately vested. The Company recorded
RMB 6,654 of share-based compensation expense representing the excess of the fair value of the ordinary shares over the purchase price.
Share Option
In 2019, the Group adopted the 2018 share incentive plan (the “2018 Plan”), which permits the grant of three types of awards: options, restricted
shares, and restricted share units. Persons eligible to participate in the 2018 Plan includes employees (including members of management) of the Group
or any of its affiliates, which include the Group’s parent company, subsidiaries and the Group. Upon the adoption of the 2018 Plan, the maximum
ordinary shares available for issuance were 62,504,000. According to the resolutions of the board of director in 2019, the Group reserved additional
321,655,746 ordinary shares for the 2018 Plan, and the maximum ordinary shares available for issuance were increased to 384,159,746.
During the year ended December 31, 2020, the Group granted 83,521,862 options under the 2018 Plan with a weighted average exercise prices of
US$0.04 (RMB0.31). During the year ended December 31, 2021, the
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Share Option (continued)
Group granted 82,665,350 options under the 2018 Plan with a weighted average exercise prices of US$ 0.08 (RMB 0.51). The term of the option is fixed
and does not exceed 10 years from the date of the grant. The options will be vested in accordance with the vesting schedules set out in the respective
share option agreements with vesting period ranging from 1 to 4 years.
In 2021, the Group adopted the 2021 share incentive plan (the “2021 Plan”), the maximum aggregate number of shares which may be issued
pursuant to all awards under the 2021 Plan shall initially be 80,508,501 shares, plus an annual increase on the first day of each year during the ten-year
term of the 2021 Plan commencing with the year beginning January 1, 2022, by an amount equal to the lesser of (i) 2% of the total number of shares
issued and outstanding on an as-converted fully diluted basis on the last day of the immediately preceding year and (ii) such number of shares as may be
determined by the board. The annual increase shall cease to occur upon expiry of the ten-year term of the 2021 Plan.
During the year ended December 31,2021, no options granted under the 2021 Plan.
The vesting of the share options granted during the years ended December 31, 2020 and 2021 are only subject to service condition.
The following table sets forth the activities under the Company’s share options for the years ended December 31, 2020 and 2021:
Weighted Weighted
Weighted Average Average
Average remaining Grant- Aggregate
Number of Exercise contractual date Fair Intrinsic
Options Price life Value Value
RMB RMB
Outstanding as of December 31, 2019 146,226,800 0.38 8.91 0.63 85,927
Granted 83,521,862 0.31 — 1.86 —
Exercised — — — — —
Forfeited (12,832,333) 0.46 — 0.63 —
Granted 82,665,350 0.51 — 4.93 —
Exercised (15,142,550) 0.41 — 1.42 —
Forfeited (37,430,787) 0.29 — 2.41 —
Exercisable as of December 31, 2021 113,445,534 0.20 6.98 0.85 104,682
The total grant-date fair value of options vested during the years ended December 31, 2020 and 2021 was RMB 24,045 and RMB 75,347,
respectively.
The Group calculated the estimated fair value of the share options on the respective grant dates using the binomial option pricing model with the
assistance from an independent valuation firm, with the following assumptions.
Year ended December 31

2020 2021
Risk free rate of interest 2.51%-3.29% 1.47%-3.20%
Volatility 26%-28% 27%-28%
Dividend yield — —
Exercise multiples 2.2-2.8 2.2-2.8
Life of options (years) 10 10
Fair value of underlying ordinary shares $ 0.17~$0.55 $0.14~$0.98
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(1) Risk free rate of interest
Based on the daily treasury long term rate of U.S. Department of the treasury with a maturity period close to the expected term of the option.
(2) Volatility
The volatility factor estimated was based on the annualized standard deviation of the daily return embedded in historical share prices of the
selected guideline companies with a time horizon close to the expected expiry of the term.
(3) Dividend yield

The Company has never declared or paid any cash dividends on the Company’s ordinary shares, and does not anticipate any dividend payments on
the Company’s ordinary shares in the foreseeable future.
(4) Exercise multiples

The expected exercise multiple was estimated as the average ratio of the stock price as at the time when employees would decide to voluntarily
exercise their vested options. As the Group did not have sufficient information of past employee exercise history, it was estimated by referencing to
academic research publications. For key management grantee and non-key management grantee, the exercise multiple was estimated to be 2.8 and 2.2
respectively.
(5) Fair value of underlying ordinary shares

The estimated fair value of the ordinary shares underlying the options as of the respective grant dates was determined based on a valuation with
the assistance of a third party appraiser. The fair values of the underlying ordinary shares on each date of grant after May 7, 2021, were the closing
prices of the Company’s ordinary shares traded in the Stock Exchange.
In June 2020, an executive management of the Company transferred 44,142,283 shares to the Founder of the Company at transfer price of $0.12.
The Company recorded RMB 55,837 of share-based compensation expense, representing the excess of the fair value of ordinary shares at the time of the
transaction over the purchase price.
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WATERDROP INC.

A summary of share-based compensation expense recognized related to share options granted and ordinary shares transfers is as follows:
Year ended
December 31,
2020 2021
RMB RMB
Sales and marketing expenses 4,538 10,853
General and administrative expenses 210,011 190,252
Research and development expenses 13,279 25,056
227,828 226,161
As of December 31, 2021, unrecognized compensation cost related to unvested option awards granted to employees of the Group was RMB
362,867. As of December 31, 2021, such cost was expected to be recognized over a weighted average period of 2.7 years.
Upon the termination of the grantee’s continuous services during the vesting period, the Company has a right (but not the obligation) to repurchase
the vested award at a price no more than the fair value of the awards which is to be determined by the board of directors of the Company. The Company
reclassified vested awards held by employees as liability in the consolidated balance sheets upon the termination of the employees’ service as the
repurchase price is below fair value. No repurchase occurred in the years ended December 31, 2019, 2020 and 2021. Such liability classified awards are
remeasured at fair value subsequently at each reporting date, with the changes in fair value recorded as compensation expenses. During the years ended
December 31, 2019, 2020 and 2021, RMB3,130, RMB25,369 and RMB 42,154 related share based compensation expenses were recognized. The
repurchase feature expired upon the initial public offering in May 2021, thus the awards were reclassified from liability to equity, an RMB 68,567
corresponding increase in additional paid-in capital upon the initial public offering.
Employee Benefit Trust

In October 2020, the Company established ARK Trust (Hong Kong) Limited, a company controlled by the Company as a vehicle to hold shares
that will be used to provide incentives and rewards to management team members who contribute to the success of the Company’s operations (the
“Shareholding Platform”). The Shareholding Platform has no activities other than administrating the incentive programs and does not have any
employees. Mr. Guo Nanyang, vice president of the Company, was appointed as the authorized representative of the Company to instruct the trustee to
process the eligible participants to whom awards will be granted to.
In October 2020, the board of the Company approved to grant 102,762,450 restricted shares to certain management (the “Selected Management”)
to replace options previously granted under the 2018 Plan. The Selected Management paid the purchase price of the restricted shares of US$0.003 per
share, which is lower than the exercised price of the original options. The vesting and other requirements imposed on the restricted shares were the same
as those under the original option granted. As a result, the Group accounted for the reduction of the exercise price of the options and the issuance of
restricted shares in exchange of the options of the Selected Management as a modification which requires the re-measurement of the fair value of these
share options. This remeasurement resulted in a total incremental share-based compensation of RMB26,330, RMB5,702 of which is recognized on the
modification date, and the remaining will be amortized through the vesting period of the restricted shares.
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WATERDROP INC.
18. Net Loss Per Share

Loss per share was computed by dividing net loss available to ordinary shareholders by the weighted average number of ordinary shares
outstanding:

2019 2020 2021
RMB RMB RMB
Numerator:
Net loss for the period attributable to Waterdrop Inc. (321,535) (663,869) (1,574,080)
Deemed dividend — (158,243) —
Change in redemption value in preferred shares (136,839) (285,668) (152,287)
Net loss attributable to ordinary shareholders for computing basic and diluted net loss per
ordinary shares (458,374) (1,107,780) (1,726,367)
Denominator:
Weighted average ordinary shares outstanding used in computing basic and diluted net loss per
ordinary shares 1,203,526,000 1,174,583,516 2,990,507,749
Net loss per ordinary share attributable to ordinary shareholders basic and diluted (0.38) (0.94) (0.58)
The following shares outstanding were excluded from the calculation of diluted net loss per ordinary share, as their inclusion would have been
anti-dilutive for the periods prescribed.

2019 2020 2021
RMB RMB RMB
Shares issuable upon exercise of share options 46,239,164 140,815,045 60,029,916
Shares issuable upon vesting of nonvested restricted shares — 41,520,896 3,983,115
Shares issuable upon conversion of Series pre-A convertible preferred shares 241,148,000 241,148,000 82,811,813
Shares issuable upon conversion of Series A convertible preferred shares 334,926,000 334,926,000 115,015,797
Shares issuable upon conversion of Series A+ convertible preferred shares 157,896,000 157,896,000 54,222,527
Shares issuable upon conversion of Series B convertible preferred shares 352,107,646 352,107,646 120,916,087
Shares issuable upon conversion of Series C convertible preferred shares 413,415,759 542,794,072 186,399,063
Shares issuable upon conversion of Series C+ convertible preferred shares 29,919,039 170,632,018 58,596,160
Shares issuable upon conversion of Series C++ convertible preferred shares — 95,851,381 41,542,257
Shares issuable upon conversion of Series D convertible preferred shares — 145,205,580 177,632,040
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WATERDROP INC.
19. Leases
The Group leases certain office premises and equipment to support its core business under noncancelable leases. The Group determines if an
arrangement is a lease at inception. Some lease agreements contain lease and non-lease components, which the Group chooses not to account for as
separate components as the Group has elected the practical expedient. The Group also elected the short-term lease exemption for all contracts with lease
terms of 12 months or less. As of December 31, 2020 and 2021, the Group had 4 long-term leases that were classified as financing leases. As of
December 31, 2020 and 2021, the Group had no significant lease contract that has been entered into but not yet commenced.
A summary of supplemental information related to operating leases and financing leases were as follow:

2019 2020 2021
RMB RMB RMB
Operating leases-Weighted average remaining lease term 1.73 0.84 1.66
Financing leases-Weighted average remaining lease term 3.79 2.28 1.53
Operating leases-Weighted average discount rate 7.55% 7.49% 8.04%
Financing leases-Weighted average discount rate 9.50% 8.20% 8.39%
The components of lease expense were as follows:

2019 2020 2021
RMB RMB RMB
Operating lease cost 27,099 42,447 47,905
Financing lease cost:
Amortization of right-of-use assets 60 161 204
Interest on lease liabilities 23 33 29
Short-term lease cost 6,016 10,612 13,902
Total 33,198 53,253 62,040
Supplemental information related to the Group’s leases were as follows:

2019 2020 2021
RMB RMB RMB
Cash paid for operating leases 33,973 31,889 50,926
Cash paid for financing leases:
Operating cash flows from finance leases 5 16 41
Financing cash flows from finance leases 68 169 192
Non-cash ROU assets in exchange for new lease liabilities:

2019 2020 2021
RMB RMB RMB
Operating leases 77,453 58,329 28,021
Financing leases — 304 19
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WATERDROP INC.
19. Leases (continued)

The following is a maturity analysis as of December 31, 2021:
As of December 31,
2021
Operating Financing
Leases Leases
RMB RMB
2021 — —
2022 45,795 205
2023 14,368 75
2024 2,026 —
2025 and thereafter — —
Subtotal 62,189 280
Less: imputed interest (3,863) (16)
Lease liabilities 58,326 264
20. Commitments and Contingencies

The Group is subject to periodic legal or administrative proceedings in the ordinary course of business. The Group does not believe that any
currently pending legal or administrative proceeding to which the Group is a party will have a material effect on its business or financial condition.
In March 2021, the Founder of the Company who, as one of the nominee shareholders, holds 99% equity interest of Zongqing Xiangqian, received
a letter regarding a claim brought by an individual against him, alleging that he enjoyed a right to 1.25% of the equity interest in Zongqing Xiangqian
held by the Founder as his nominee after Zongqing Xiangqian’s equity financing in 2017. As of the date of this report, the Founder has not received any
court notification regarding such claim. Based on the PRC litigation counsel’s advice to the Company and the Founder, there are meritorious defenses to
such claims. As of the date of this report, as advised by its PRC legal counsel, the Group cannot reasonably predict the outcome related to the above
claim and there can be no assurance that the Founder will be able to prevail in the claim.
In the event the alleging party were able to prevail in this claim for the alleged equity interest in Zongqing Xiangqian and the Founder must
transfer the relevant equity interest of Zongqing Xiangqian to the alleging party and the alleging party does not become a party to the VIE agreements, it
would not affect the performance of the VIE agreements that are currently in place which enable the Company to consolidate Zongqing Xiangqian as its
primary beneficiary. In addition, the Company would need to recognize a non-controlling interest relating to the alleged equity interest of Zongqing
Xiangqian and the operation results attributable to the Company will be diluted as a result of the decrease in the ownership of Zongqing Xiangqian.
Based on the financial position and operating results of Zongqing Xiangqian, the Company does not expect the decrease in its ownership of Zongqing
Xiangqian would have a material adverse impact on its consolidated financial statements.
On September 14, 2021, a complaint (case No. l:21-cv-07683-VSB) was filed in the U.S. District Court for the Southern District of New York (the
“Court”) against the Group, certain executives and directors of the Group, the Group’s authorized process agent in the U.S, and the underwriters of the
Group’s initial public offering. The action allege that defendants made misstatements and omissions in connection with the Group’s initial public
offering in May 2021 in violation of the federal securities laws. On December 8, 2021, the Court appointed a lead plaintiff and approved a lead plaintiff
counsel. On February 21, 2022, the lead plaintiff filed an amended complaint. On April 22, 2022, the parties completed briefing on Defendants’ Motion
to Dismiss the State Court Action, and a decision is currently pending. The action remains in preliminary stages. The Group is defending against the
action vigorously.
21. Statutory Reserves and Restricted Net Asset

In accordance with the PRC laws and regulations, the Group’s PRC subsidiaries and VIEs are required to make appropriation to certain statutory
reserves, namely general reserve, enterprise expansion reserve, and staff welfare and bonus reserve, all of which are appropriated from net profit as
reported in their PRC statutory accounts. The Group’s PRC subsidiaries and VIEs are required to appropriate at least 10% of their after-tax profits to the
general reserve until such reserve has reached 50% of their respective registered capital.
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WATERDROP INC.
21. Statutory Reserves and Restricted Net Asset (continued)

Appropriations to the enterprise expansion reserve and the staff welfare and bonus reserve are to be made at the discretion of the board of directors
of each of the Group’s PRC subsidiaries and VIEs. There were no appropriations to these reserves by the Group’s PRC entities for the years ended
December 31, 2019, 2020 and 2021.
As a result of PRC laws and regulations and the requirement that distributions by the PRC entity can only be paid out of distributable profits
computed in accordance with the PRC GAAP, the PRC entity is restricted from transferring a portion of their net assets to the Company. Amounts
restricted include paid-in capital and statutory reserves of the Group’s subsidiaries and VIEs. As of December 31, 2021, the aggregate amounts of
paid-in capital and statutory reserves represented the amount of net assets of the relevant entity in the Group not available for distribution amounted to
RMB 888,895.
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WATERDROP INC.
SCHEDULE 1-CONDENSED BALANCE SHEETS
As of December 31,
2020 2021
RMB RMB USD
(Note 2)
Assets
Current assets
Cash and cash equivalents 32,145 8,483 1,331
Short-term investments 653,609 414,921 65,110
Prepaid expense and other assets — 14,993 2,353
Amount due from its subsidiaries and the consolidated VIEs 2,073 1,786 280
Total current assets 687,827 440,183 69,074
Non-current assets
Long-term investments 2,552,965 3,885,718 609,754
Total non-current assets 2,552,965 3,885,718 609,754
Total assets 3,240,792 4,325,901 678,828
Liabilities
Current liabilities
Accrued expenses and other current liabilities 60,480 3,734 586
Amount due to its subsidiaries and the consolidated VIEs — 348,741 54,725
Total current liabilities 60,480 352,475 55,311
Total liabilities 60,480 352,475 55,311
Mezzanine equity
Series Pre-A convertible redeemable preferred shares (US$ 0.000005 par value per share; 241,148,000 and nil shares
Series A convertible redeemable preferred shares (US$ 0.000005 par value per share; 334,926,000 and nil shares
Series A+ convertible redeemable preferred shares (US$ 0.000005 par value per share; 157,896,000 and nil shares
Series B convertible redeemable preferred shares (US$ 0.000005 par value per share; 352,107,646 and nil shares
Series C convertible redeemable preferred shares (US$ 0.000005 par value per share; 542,794,072 and nil shares
Series C+ convertible redeemable preferred shares (US$ 0.000005 par value per share; 170,632,018 and nil shares
Series C++ convertible redeemable preferred shares (US$0.000005 par value per share; 120,971,053 and nil shares
Series D convertible redeemable preferred shares (US$0.000005 par value per share; 517,264,501 and nil shares
Total mezzanine equity 4,837,336 — —
Shareholders’ (Deficit)/Equity:
Ordinary shares (US$ 0.000005 par value; 10,000,000,000 shares authorized, 1,203,526,000 shares issued and
outstanding as of December 31, 2020; 8,900,000,000 Class A ordinary shares authorized, 3,206,653,701 Class A
ordinary shares issued, 3,140,896,631 Class A ordinary shares outstanding as of December 31, 2021; 1,000,000,000
Class B ordinary shares authorized, 801,904,979 Class B ordinary shares issued and outstanding as of December 31,
2021) 41 134 21
Additional paid-in capital — 7,329,420 1,150,146
Accumulated other comprehensive income/(loss) 14,956 (21,492) (3,373)
Accumulated deficit (1,672,021) (3,334,636) (523,277)
Total shareholders’ (deficit)/equity (1,657,024) 3,973,426 623,517
Total liabilities, mezzanine equity and shareholders’ (deficit)/equity 3,240,792 4,325,901 678,828
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WATERDROP INC.
SCHEDULE 1-CONDENSED STATEMENTS OF COMPREHENSIVE LOSS

2019 2020 2021
RMB RMB RMB USD
(Note 2)
Operating revenue, net — — 2,279 358
Operating costs and expenses (30,090) (229,413) (250,814) (39,358)
Interest income 1,212 2,293 8,666 1,360
Fair value change of warrant — (150,685) — —
Foreign currency exchange loss (16) (3) (2,114) (332)
Income tax expense (118) (39) — —
Others, net — — 4 1
Equity in loss of subsidiaries and VIEs (292,523) (286,022) (1,332,101) (209,036)
Net loss (321,535) (663,869) (1,574,080) (247,007)
Deemed dividend on modification on preferred shares — (67,975) — —
Deemed dividend upon issuance of warrants — (90,268) — —
Preferred shares redemption value accretion (136,839) (285,668) (152,287) (23,897)
Net loss attributable to ordinary shareholders (458,374) (1,107,780) (1,726,367) (270,904)
Other comprehensive income/(loss)
Foreign currency transaction adjustments 27,771 (14,008) (36,640) (5,750)
Unrealized gains on available-for-sale investments, net of tax 209 1,724 192 30
Total comprehensive loss (293,555) (676,153) (1,610,528) (252,727)
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WATERDROP INC.
SCHEDULE 1-CONDENSED STATEMENTS OF CASH FLOW

2019 2020 2021
RMB RMB USD
(Note 2)
Cash Flows from Operating Activities: (2,827) (28) 320,097 50,230
Cash Flows from Investing Activities:
Purchase of short-term investments — (654,428) (1,875,171) (294,255)
Cash received from loan repayment 60,383 — 2,100,240 329,573
Investment in subsidiaries (1,494,523) (1,554,670) (2,683,195) (421,052)
Net cash used in investing activities (1,434,140) (2,209,098) (2,458,126) (385,734)
Cash Flows from Financing Activities:
Proceeds from issuance of convertible redeemable preferred shares, net 1,491,983 2,048,986 — —
Proceeds from exercise of share option — — 2,971 466
Payment for share repurchase — — (16,546) (2,596)
Proceeds from initial public offering, net — — 2,142,104 336,143
Net increase/(decrease) in cash and cash equivalents and restricted cash 87,038 (186,262) (23,662) (3,713)
Total cash and cash equivalents and restricted cash at beginning of year 131,369 218,407 32,145 5,044
Total cash and cash equivalents and restricted cash at end of year 218,407 32,145 8,483 1,331
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WATERDROP INC.
SCHEDULE 1-CONDENSED STATEMENTS OF CASH FLOW (Continued)
1. Schedule I has been provided pursuant to the requirements of Rule 12-04(a) and 5-04(c) of Regulation S-X, which require condensed financial
information as to the financial position, changes in financial position and results of operations of a parent company as of the same dates and for the
same periods for which audited consolidated financial statements have been presented when the restricted net assets of consolidated subsidiaries
exceed 25 percent of consolidated net assets as of the end of the most recently completed fiscal year.
2. The condensed financial information of Waterdrop Inc. has been prepared using the same accounting policies as set out in the accompanying
consolidated financial statements except that the equity method has been used to account for investments in its subsidiaries.
3. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been
condensed or omitted. The footnote disclosures contain supplemental information relating to the operations of the Group and, as such, these
statements should be read in conjunction with the notes to the consolidated financial statements of the Group as of December 31, 2020 and 2021
and the years ended 2019, 2020 and 2021. No dividend was paid by the Group’s subsidiaries to Waterdrop Inc. in 2019, 2020 and 2021.
4. As of December 31, 2021, there were no material contingencies, significant provisions of long term obligations, and mandatory dividend or
redemption requirements of redeemable shares or guarantees of the Group, except for those which have been separately disclosed in the
Consolidated Financial Statement, if any.
F-55
Exhibit 2.5
DESCRIPTION OF RIGHTS OF EACH CLASS OF SECURITIES

REGISTERED UNDER SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934
(THE “EXCHANGE ACT”)
American Depositary Shares (“ADSs”) each representing ten Class A ordinary shares of Waterdrop Inc., (the “we,” “our,” “our company,” or “us”)
are listed and traded on the New York Stock Exchange and, in connection with this listing (but not for trading), the Class A ordinary shares are
registered under Section 12(b) of the Exchange Act. This exhibit contains a description of the rights of (i) the holders of Class A ordinary shares and
(ii) the holders of ADSs. Underlying Class A ordinary shares represented by the ADSs are held by Citibank, N.A., as depositary, and holders of ADSs
will not be treated as holders of the Class A ordinary shares.
Description of Class A Ordinary Shares

The following is a summary of material provisions of our seventh amended and restated memorandum and articles of association (the
“Memorandum and Articles of Association”), as well as the Companies Act (As Revised) of the Cayman Islands (the “Companies Act”) insofar as they
relate to the material terms of our ordinary shares. Notwithstanding this, because it is a summary, it may not contain all the information that you may
otherwise deem important. For more complete information, you should read the entire Memorandum and Articles of Association, which has been filed
with the SEC as an exhibit to our Registration Statement on Form S-8 (File No. 333-261408).
Type and Class of Securities (Item 9.A.5 of Form 20-F)

Each Class A ordinary share has US$0.000005 par value. The respective number of Class A ordinary shares that have been issued as of the last
day of the respective financial year is provided on the cover of the annual report on Form 20-F (the “Form 20-F”). Our Class A ordinary shares are
issued in registered form, and are issued when registered in our register of members. Our company will not issue shares to bearer.
Preemptive Rights (Item 9.A.3 of Form 20-F)

Our shareholders do not have preemptive rights.
Limitations or Qualifications (Item 9.A.6 of Form 20-F)

We have a dual-class voting structure such that our ordinary shares are divided into Class A ordinary shares and Class B ordinary shares. Holders
of our Class A ordinary shares and Class B ordinary shares will have the same rights except for voting and conversion rights. Each Class A ordinary
share shall entitle the holder thereof to one vote on all matters subject to vote at our general meetings, and each Class B ordinary share shall entitle the
holder thereof to nine votes on all matters subject to vote at our general meetings. Due to the super voting power of Class B ordinary share holder, the
voting power of the Class A ordinary shares may be materially limited.
Rights of Other Types of Securities (Item 9.A.7 of Form 20-F)
Not applicable.
Rights of Ordinary Shares (Item 10.B.3 of Form 20-F)

Dividends
The holders of our ordinary shares are entitled to such dividends as may be declared by our board of directors or declared by our shareholders by
ordinary resolution (provided that no dividend may be declared by our shareholders which exceeds the amount recommended by our directors). Our
Memorandum and Articles of Association provide that dividends may be declared and paid out of our profits, realized or unrealized, or from any reserve
set aside from profits which our board of directors determine is no longer needed. Under the laws of the Cayman Islands, our company may pay a
dividend out of either profit or share premium account, provided that in no circumstances may a dividend be paid if this would result in our company
being unable to pay its debts as they fall due in the ordinary course of business.
Voting Rights
Holders of Class A ordinary shares and Class B ordinary shares shall, at all times, vote together as one class on all matters submitted to a vote by
the members at any general meeting of our company. Each Class A ordinary share shall be entitled to one vote on all matters subject to the vote at
general meetings of our Company, and each Class B ordinary share shall be entitled to nine votes on all matters subject to the vote at general meetings of
our Company. Voting at any meeting of shareholders is by show of hands unless a poll (before or on the declaration of the result of the show of hands) is
demanded. A poll may be demanded by the chairperson of such meeting or any one shareholder present in person or by proxy.
An ordinary resolution to be passed at a meeting by the shareholders requires the affirmative vote of a simple majority of the votes attaching to the
ordinary shares cast at a meeting, while a special resolution requires the affirmative vote of no less than two-thirds of the votes cast attaching to the
outstanding and issued ordinary shares cast at a meeting. A special resolution will be required for important matters such as a change of name or making
changes to our Memorandum and Articles of Association. Our shareholders may, among other things, divide or combine their shares by ordinary
resolution.
Transfer of Ordinary Shares

Subject to the restrictions set out in our Memorandum and Articles of Association as set out below, any of our shareholders may transfer all or any
of his or her ordinary shares by an instrument of transfer in the usual or common form or any other form approved by our board of directors.
2
Our board of directors may, in its absolute discretion, decline to register any transfer of any ordinary share which is not fully paid up or on which
we have a lien. Our board of directors may also decline to register any transfer of any ordinary share unless:
• the instrument of transfer is lodged with us, accompanied by the certificate for the ordinary shares to which it relates and such other
evidence as our board of directors may reasonably require to show the right of the transferor to make the transfer;
• the instrument of transfer is in respect of only one class of ordinary shares;
• the instrument of transfer is properly stamped, if required;
• in the case of a transfer to joint holders, the number of joint holders to whom the ordinary share is to be transferred does not exceed four;
and
• a fee of such maximum sum as the New York Stock Exchange may determine to be payable or such lesser sum as our directors may from
time to time require is paid to us in respect thereof.
If our directors refuse to register a transfer they shall, within three months after the date on which the instrument of transfer was lodged, send to
each of the transferor and the transferee notice of such refusal.
The registration of transfers may, after compliance with any notice required of New York Stock Exchange, be suspended and the register closed at
such times and for such periods as our board of directors may from time to time determine, provided, however, that the registration of transfers shall not
be suspended nor the register closed for more than 30 days in any year as our board may determine
Liquidation Rights
On the winding up of our company, if the assets available for distribution amongst our shareholders shall be more than sufficient to repay the
whole of the share capital at the commencement of the winding up, the surplus shall be distributed amongst our shareholders in proportion to the par
value of the shares held by them at the commencement of the winding up, subject to a deduction from those shares in respect of which there are monies
due, of all monies payable to our company for unpaid calls or otherwise. If our assets available for distribution are insufficient to repay all of the paid-up
capital, the assets will be distributed so that the losses are borne by our shareholders in proportion to the par value of the shares held by them.
Calls on Ordinary Shares and Forfeiture of Ordinary shares

Our board of directors may from time to time make calls upon shareholders for any amounts unpaid on their shares in a notice served to such
shareholders at least 14 days prior to the specified time and place of payment. The shares that have been called upon and remain unpaid are subject to
forfeiture.
3
Redemption, Repurchase and Surrender of Ordinary Shares
We may issue shares on terms that such shares are subject to redemption, at our option or at the option of the holders of these shares, on such
terms and in such manner as may be determined by our board of directors. Our company may also repurchase any of our shares on such terms and in
such manner as have been approved by our board of directors or by an ordinary resolution of our shareholders. Under the Companies Act, the
redemption or repurchase of any share may be paid out of our Company’s profits or out of the proceeds of a new issue of shares made for the purpose of
such redemption or repurchase, or out of capital (including share premium account and capital redemption reserve) if our company can, immediately
following such payment, pay its debts as they fall due in the ordinary course of business. In addition, under the Companies Act no such share may be
redeemed or repurchased (a) unless it is fully paid up, (b) if such redemption or repurchase would result in there being no shares issued and outstanding
or (c) if the company has commenced liquidation. In addition, our company may accept the surrender of any fully paid share for no consideration.
Requirements to Change the Rights of Holders of Ordinary Shares (Item 10.B.4 of Form 20-F)
Variations of Rights of Shares
If at any time, our share capital is divided into different classes of shares, the rights attached to any class may be materially adversely varied with
the consent in writing of the holders of at least two-thirds (2/3) of the issued shares of that class or with the sanction of a special resolution passed at a
separate meeting of the holders of the shares of that class. The rights conferred upon the holders of the shares of any class issued shall not, be deemed to
be materially adversely varied by the creation, allotment or issue of further shares ranking pari passu with or subsequent to them or the redemption or
purchase of any shares of any class by our company. The rights of the holders of shares shall not be deemed to be materially adversely varied by the
creation or issue of shares with preferred or other rights including, without limitation, the creation of shares with enhanced or weighted voting rights.
Limitations on the Rights to Own Ordinary Shares (Item 10.B.6 of Form 20-F)
There are no limitations under the laws of the Cayman Islands or under the Memorandum and Articles of Association that limit the right
of non-resident or foreign owners to hold or vote ordinary shares.
Provisions Affecting Any Change of Control (Item 10.B.7 of Form 20-F)

Anti-Takeover Provisions in the Memorandum and Articles of Association. Some provisions of our Memorandum and Articles of Association may
discourage, delay or prevent a change of control of our company or management that shareholders may consider favorable, including provisions that:
4
• authorize our board of directors to issue preferred shares in one or more series and to designate the price, rights, preferences, privileges and
restrictions of such preferred shares without any further vote or action by our shareholders; and
• limit the ability of shareholders to requisition and convene general meetings of shareholders.
However, under Cayman Islands law, our directors may only exercise the rights and powers granted to them under our Memorandum and Articles
of Association for a proper purpose and for what they believe in good faith to be in the best interests of our company.
Ownership Threshold (Item 10.B.8 of Form 20-F)

There are no provisions under the laws of the Cayman Islands applicable to our company or under the Memorandum and Articles of Association
that require our company to disclose shareholder ownership above any particular ownership threshold.
Differences between the Law of Different Jurisdictions (Item 10.B.9 of Form 20-F)
The Companies Act of the Cayman Islands is derived, to a large extent, from the older Companies Acts of England but does not follow recent
English statutory enactments and accordingly there are significant differences between the Companies Act of the Cayman Islands and the current
Companies Act of England. In addition, the Companies Act of the Cayman Islands differs from laws applicable to U.S. corporations and their
shareholders. Set forth below is a summary of certain significant differences between the provisions of the Companies Act applicable to us and the laws
applicable to companies incorporated in the United States and their shareholders.
Mergers and Similar Arrangements. The Companies Act permits mergers and consolidations between Cayman Islands companies and between
Cayman Islands companies and non-Cayman Islands companies. For these purposes, (i) “merger” means the merging of two or more constituent
companies and the vesting of their undertaking, property and liabilities in one of such companies as the surviving company, and (ii) a “consolidation”
means the combination of two or more constituent companies into a consolidated company and the vesting of the undertaking, property and liabilities of
such companies to the consolidated company. In order to effect such a merger or consolidation, the directors of each constituent company must approve
a written plan of merger or consolidation, which must then be authorized by (a) a special resolution of the shareholders of each constituent company, and
(b) such other authorization, if any, as may be specified in such constituent company’s articles of association. The written plan of merger or
consolidation must be filed with the Registrar of Companies of the Cayman Islands together with a declaration as to the solvency of the consolidated or
surviving company, a list of the assets and liabilities of each constituent company and an undertaking that a copy of the certificate of merger or
consolidation will be given to the members and creditors of each constituent company and that notification of the merger or consolidation will be
published in the Cayman Islands Gazette. Court approval is not required for a merger or consolidation which is effected in compliance with these
statutory procedures.
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A merger between a Cayman parent company and its Cayman subsidiary or subsidiaries does not require authorization by a resolution of
shareholders of that Cayman subsidiary if a copy of the plan of merger is given to every member of that Cayman subsidiary to be merged unless that
member agrees otherwise. For this purpose a company is a “parent” of a subsidiary if it holds issued shares that together represent at least ninety percent
(90%) of the votes at a general meeting of the subsidiary.
The consent of each holder of a fixed or floating security interest over a constituent company is required unless this requirement is waived by a
court in the Cayman Islands.
Save in certain limited circumstances, a shareholder of a Cayman constituent company who dissents from the merger or consolidation is entitled to
payment of the fair value of his shares (which, if not agreed between the parties, will be determined by the Cayman Islands court) upon dissenting to the
merger or consolidation, provide the dissenting shareholder complies strictly with the procedures set out in the Companies Act. The exercise of dissenter
rights will preclude the exercise by the dissenting shareholder of any other rights to which he or she might otherwise be entitled by virtue of holding
shares, save for the right to seek relief on the grounds that the merger or consolidation is void or unlawful.
Separate from the statutory provisions relating to mergers and consolidations, the Companies Act also contains statutory provisions that facilitate
the reconstruction and amalgamation of companies by way of schemes of arrangement, provided that the arrangement is approved by a majority in
number of each class of shareholders and creditors with whom the arrangement is to be made, and who must in addition represent three-fourths in value
of each such class of shareholders or creditors, as the case may be, that are present and voting either in person or by proxy at a meeting, or meetings,
convened for that purpose. The convening of the meetings and subsequently the arrangement must be sanctioned by the Grand Court of the Cayman
Islands. While a dissenting shareholder has the right to express to the court the view that the transaction ought not to be approved, the court can be
expected to approve the arrangement if it determines that:
• the statutory provisions as to the required majority vote have been met;
• the shareholders have been fairly represented at the meeting in question and the statutory majority are acting bona fide without coercion of
the minority to promote interests adverse to those of the class;
• the arrangement is such that may be reasonably approved by an intelligent and honest man of that class acting in respect of his interest; and
• the arrangement is not one that would more properly be sanctioned under some other provision of the Companies Act.
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The Companies Act also contains a statutory power of compulsory acquisition which may facilitate the “squeeze out” of dissentient minority
shareholder upon a tender offer. When a tender offer is made and accepted by holders of 90.0% of the shares affected within four months, the offeror
may, within a two-month period commencing on the expiration of such four-month period, require the holders of the remaining shares to transfer such
shares to the offeror on the terms of the offer. An objection can be made to the Grand Court of the Cayman Islands but this is unlikely to succeed in the
case of an offer which has been so approved unless there is evidence of fraud, bad faith or collusion.
If an arrangement and reconstruction by way of scheme of arrangement is thus approved and sanctioned, or if a tender offer is made and accepted
in accordance with the foregoing statutory procedures, a dissenting shareholder would have no rights comparable to appraisal rights, which would
otherwise ordinarily be available to dissenting shareholders of Delaware corporations, providing rights to receive payment in cash for the judicially
determined value of the shares.
Shareholders’ Suits. In principle, we will normally be the proper plaintiff to sue for a wrong done to us as a company, and as a general rule a
derivative action may not be brought by a minority shareholder. However, based on English authorities, which would in all likelihood be of persuasive
authority in the Cayman Islands, the Cayman Islands court can be expected to follow and apply the common law principles (namely the rule in Foss v.
Harbottle and the exceptions thereto) so that a non-controlling shareholder may be permitted to commence a class action against or derivative actions in
the name of the company to challenge actions where:
• a company acts or proposes to act illegally or ultra vires;
• the act complained of, although not ultra vires, could only be effected duly if authorized by more than a simple majority vote that has not
been obtained; and
• those who control the company are perpetrating a “fraud on the minority.”
Indemnification of Directors and Executive Officers and Limitation of Liability. Cayman Islands law does not limit the extent to which a
company’s Memorandum and Articles of Association may provide for indemnification of officers and directors, except to the extent any such provision
may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of
committing a crime. Our Memorandum and Articles of Association provide that that we shall indemnify our officers and directors against all actions,
proceedings, costs, charges, expenses, losses, damages or liabilities incurred or sustained by such directors or officer, other than by reason of such
person’s dishonesty, willful default or fraud, in or about the conduct of our company’s business or affairs (including as a result of any mistake of
judgment) or in the execution or discharge of his duties, powers, authorities or discretions, including, without prejudice to the generality of the
foregoing, any costs, expenses, losses or liabilities incurred by such director or officer in defending (whether successfully or otherwise) any civil
proceedings concerning our company or its affairs in any court whether in the Cayman Islands or elsewhere. This standard of conduct is generally the
same as permitted under the Delaware General Corporation Law for a Delaware corporation.
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In addition, we have entered into indemnification agreements with our directors and executive officers that provide such persons with additional
indemnification beyond that provided in our Memorandum and Articles of Association.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or persons controlling us under
the foregoing provisions, we have been informed that in the opinion of the SEC, such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
Directors’ Fiduciary Duties. Under Delaware corporate law, a director of a Delaware corporation has a fiduciary duty to the corporation and its
shareholders. This duty has two components: the duty of care and the duty of loyalty. The duty of care requires that a director act in good faith, with the
care that an ordinarily prudent person would exercise under similar circumstances. Under this duty, a director must inform himself of, and disclose to
shareholders, all material information reasonably available regarding a significant transaction. The duty of loyalty requires that a director acts in a
manner he reasonably believes to be in the best interests of the corporation. He must not use his corporate position for personal gain or advantage. This
duty prohibits self-dealing by a director and mandates that the best interest of the corporation and its shareholders take precedence over any interest
possessed by a director, officer or controlling shareholder and not shared by the shareholders generally. In general, actions of a director are presumed to
have been made on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the corporation. However,
this presumption may be rebutted by evidence of a breach of one of the fiduciary duties. Should such evidence be presented concerning a transaction by
a director, the director must prove the procedural fairness of the transaction, and that the transaction was of fair value to the corporation.
As a matter of Cayman Islands law, a director of a Cayman Islands company is in the position of a fiduciary with respect to the company and
therefore it is considered that he owes the following duties to the company—a duty to act bona fide in the best interests of the company, a duty not to
make a profit based on his position as director (unless the company permits him to do so), a duty not to put himself in a position where the interests of
the company conflict with his personal interest or his duty to a third party, and a duty to exercise powers for the purpose for which such powers were
intended. A director of a Cayman Islands company owes to the company a duty to exercise the skill they actually possess and such care and diligence
that a reasonably prudent person would exercise in comparable circumstances. It was previously considered that a director need not exhibit in the
performance of his duties a greater degree of skill than may reasonably be expected from a person of his knowledge and experience. However, English
and Commonwealth courts have moved towards an objective standard with regard to the required skill and care and these authorities are likely to be
followed in the Cayman Islands.
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Shareholder Action by Written Consent. Under the Delaware General Corporation Law, a corporation may eliminate the right of shareholders to
act by written consent by amendment to its certificate of incorporation. Cayman Islands law and our Memorandum and Articles of Association provide
that our shareholders may approve corporate matters by way of a unanimous written resolution signed by or on behalf of each shareholder who would
have been entitled to vote on such matter at a general meeting without a meeting being held.
Shareholder Proposals. Under the Delaware General Corporation Law, a shareholder has the right to put any proposal before the annual meeting
of shareholders; provided it complies with the notice provisions in the governing documents. A special meeting may be called by the board of directors
or any other person authorized to do so in the governing documents, but shareholders may be precluded from calling special meetings.
right to put any proposal before a general meeting. However, these rights may be provided in a company’s articles of association. Our Memorandum and
Articles of Association allow any one or more of our shareholders holding shares which carry in aggregate not less than one-tenth of the total number
votes attaching to all issued and the outstanding shares of our company entitled to vote at general meetings to requisition an extraordinary general
meeting of our shareholders, in which case our board is obliged to convene an extraordinary general meeting and to put the resolutions so requisitioned
to a vote at such meeting. Other than this right to requisition a shareholders’ meeting, our Memorandum and Articles of Association do not provide our
shareholders with any other right to put proposals before annual general meetings or extraordinary general meetings. As a Cayman Islands exempted
company, we are not obliged by law to call shareholders’ annual general meetings.
Cumulative Voting. Under the Delaware General Corporation Law, cumulative voting for elections of directors is not permitted unless the
corporation’s certificate of incorporation specifically provides for it. Cumulative voting potentially facilitates the representation of minority shareholders
on a board of directors since it permits the minority shareholder to cast all the votes to which the shareholder is entitled on a single director, which
increases the shareholder’s voting power with respect to electing such director. There are no prohibitions in relation to cumulative voting under the laws
of the Cayman Islands but our Memorandum and Articles of Association do not provide for cumulative voting. As a result, our shareholders are not
afforded any less protections or rights on this issue than shareholders of a Delaware corporation.
Removal of Directors. Under the Delaware General Corporation Law, a director of a corporation with a classified board may be removed only for
cause with the approval of a majority of the issued and outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise.
Under our Memorandum and Articles of Association, directors may be removed with or without cause, by an ordinary resolution of our shareholders. A
director will also cease to be a director if he (i) becomes bankrupt or makes any arrangement or composition with his creditors; (ii) dies or is found to be
or becomes of unsound mind; (iii) resigns his office by notice in writing; (iv) without special leave of absence from our board, is absent from meetings
of our board for three consecutive meetings and our board resolves that his office be vacated; or (v) is removed from office pursuant to any other
provision of our articles of association.
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Transactions with Interested Shareholders. The Delaware General Corporation Law contains a business combination statute applicable to
Delaware corporations whereby, unless the corporation has specifically elected not to be governed by such statute by amendment to its certificate of
incorporation, it is prohibited from engaging in certain business combinations with an “interested shareholder” for three years following the date that
such person becomes an interested shareholder. An interested shareholder generally is a person or a group who or which owns or owned 15% or more of
the target’s outstanding voting share within the past three years. This has the effect of limiting the ability of a potential acquirer to make a two-tiered bid
for the target in which all shareholders would not be treated equally. The statute does not apply if, among other things, prior to the date on which such
shareholder becomes an interested shareholder, the board of directors approves either the business combination or the transaction which resulted in the
person becoming an interested shareholder. This encourages any potential acquirer of a Delaware corporation to negotiate the terms of any acquisition
transaction with the target’s board of directors.
Cayman Islands law has no comparable statute. As a result, we cannot avail ourselves of the types of protections afforded by the Delaware
business combination statute. However, although Cayman Islands law does not regulate transactions between a company and its significant shareholders,
it does provide that such transactions must be entered into bona fide in the best interests of the company and not with the effect of constituting a fraud on
the minority shareholders.
Dissolution; Winding up. Under the Delaware General Corporation Law, unless the board of directors approves the proposal to dissolve,
dissolution must be approved by shareholders holding 100% of the total voting power of the corporation. Only if the dissolution is initiated by the board
of directors may it be approved by a simple majority of the corporation’s outstanding shares. Delaware law allows a Delaware corporation to include in
its certificate of incorporation a supermajority voting requirement in connection with dissolutions initiated by either an order of the courts of the
Cayman Islands or by the board of directors.
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Under Cayman Islands law, a company may be wound up by either an order of the courts of the Cayman Islands or by a special resolution of its
members or, if the company is unable to pay its debts as they fall due, by an ordinary resolution of its members. The court has authority to order winding
up in a number of specified circumstances including where it is, in the opinion of the court, just and equitable to do so.
Variation of Rights of Shares. Under the Delaware General Corporation Law, a corporation may vary the rights of a class of shares with the
approval of a majority of the outstanding shares of such class, unless the certificate of incorporation provides otherwise. Under our Memorandum and
Articles of Association, if our share capital is divided into more than one class of shares, the rights attached to any such class may, subject to any rights
or restrictions for the time being attached to any class, only be materially adversely varied with the consent in writing of the holders of at least
two-thirds of the issued shares of that class or with the sanction of a special resolution passed at a separate meeting of the holders of the shares of that
class. The rights conferred upon the holders of the shares of any class issued with preferred or other rights shall not, subject to any rights or restrictions
for the time being attached to the shares of that class, be deemed to be materially adversely varied by the creation, allotment or issue of further shares
ranking pari passu with or subsequent to them or the redemption or purchase of any shares of any class by our company. The rights of the holders of
shares shall not be deemed to be materially adversely varied by the creation or issue of shares with preferred or other rights including, without
limitation, the creation of shares with enhanced or weighted voting rights.
Amendment of Governing Documents. Under the Delaware General Corporation Law, a corporation’s governing documents may be amended with
the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. Under the Companies Act
and our Memorandum and Articles of Association, our Memorandum and Articles of Association may only be amended by a special resolution of our
shareholders.
Rights of Non-resident or Foreign Shareholders. There are no limitations imposed by our Memorandum and Articles of Association on the rights
of non-resident or foreign shareholders to hold or exercise voting rights on our shares. In addition, there are no provisions in our Memorandum and
Articles of Association that require our company to disclose shareholder ownership above any particular ownership threshold.
Changes in Capital (Item 10.B.10 of Form 20-F)

Our shareholders may from time to time by ordinary resolution:
• increase its share capital by new shares of such amount as it thinks expedient;
• consolidate and divide all or any of its share capital into shares of a larger amount than its existing shares;
• subdivide its shares, or any of them, into shares of an amount smaller than that fixed by the Memorandum, provided that in the subdivision
the proportion between the amount paid and the amount, if any, unpaid on each reduced share shall be the same as it was in case of the
share from which the reduced share is derived; and
• cancel any shares that, at the date of the passing of the resolution, have not been taken or agreed to be taken by any person and diminish
the amount of its share capital by the amount of the shares so cancelled.
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Our shareholders may by special resolution reduce its share capital and any capital redemption reserve in any manner authorized by the
Companies Act.
Debt Securities (Item 12.A of Form 20-F)

Not applicable.
Warrants and Rights (Item 12.B of Form 20-F)

Not applicable.
Other Securities (Item 12.C of Form 20-F)

Not applicable.
Description of American Depositary Shares (Items 12.D.1 and 12.D.2 of Form 20-F)
Citibank, N.A. acts as the depositary for the American Depositary Shares. Citibank’s depositary offices are located at 388 Greenwich Street, New
York, New York 10013. American Depositary Shares are frequently referred to as “ADSs” and represent ownership interests in securities that are on
deposit with the depositary. ADSs may be represented by certificates that are commonly known as “American Depositary Receipts” or “ADRs.” The
depositary typically appoints a custodian to safekeep the securities on deposit. In this case, the custodian is Citibank, N.A. — Hong Kong, located at 9/F
Citi Tower, One Bay East, 83 Hoi Bun Road, Kwun Tong, Kowloon, Hong Kong.
We have appointed Citibank as depositary pursuant to a deposit agreement. A copy of the deposit agreement is on file with the SEC under cover of
a Registration Statement on Form F-6. You may obtain a copy of the deposit agreement from the SEC’s Public Reference Room at 100 F Street, N.E.,
Washington, D.C. 20549 and from the SEC’s website (www.sec.gov). Please refer to Registration Number 333-255650 when retrieving such copy.
We are providing you with a summary description of the material terms of the ADSs and of your material rights as an owner of ADSs. Please
remember that summaries by their nature lack the precision of the information summarized and that the rights and obligations of an owner of ADSs will
be determined by reference to the terms of the deposit agreement and not by this summary. We urge you to review the deposit agreement in its entirety.
The deposit agreement has been filed with the SEC as exhibit 4.3 to the registration statement on Form S-8 (File No. 333-261408). The portions of this
summary description that are italicized describe matters that may be relevant to the ownership of ADSs but that may not be contained in the deposit
agreement.
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Each ADS represents the right to receive, and to exercise the beneficial ownership interests in, ten Class A ordinary shares that are on deposit with
the depositary and/or custodian. An ADS also represents the right to receive, and to exercise the beneficial interests in, any other property received by
the depositary or the custodian on behalf of the owner of the ADS but that has not been distributed to the owners of ADSs because of legal restrictions
or practical considerations. We and the depositary may agree to change the ADS-to-Share ratio by amending the deposit agreement. This amendment
may give rise to, or change, the depositary fees payable by ADS owners. The custodian, the depositary and their respective nominees will hold all
deposited property for the benefit of the holders and beneficial owners of ADSs. The deposited property does not constitute the proprietary assets of the
depositary, the custodian or their nominees. Beneficial ownership in the deposited property will under the terms of the deposit agreement be vested in
the beneficial owners of the ADSs. The depositary, the custodian and their respective nominees will be the record holders of the deposited property
represented by the ADSs for the benefit of the holders and beneficial owners of the corresponding ADSs. A beneficial owner of ADSs may or may not
be the holder of ADSs. Beneficial owners of ADSs will be able to receive, and to exercise beneficial ownership interests in, the deposited property only
through the registered holders of the ADSs, the registered holders of the ADSs (on behalf of the applicable ADS owners) only through the depositary,
and the depositary (on behalf of the owners of the corresponding ADSs) directly, or indirectly, through the custodian or their respective nominees, in
each case upon the terms of the deposit agreement.
If you become an owner of ADSs, you will become a party to the deposit agreement and therefore will be bound to its terms and to the terms of
any ADR that represents your ADSs. The deposit agreement and the ADR specify our rights and obligations as well as your rights and obligations as an
owner of ADSs and those of the depositary. As an ADS holder you appoint the depositary to act on your behalf in certain circumstances. The deposit
agreement and the ADRs are governed by New York law. However, our obligations to the holders of Class A ordinary shares will continue to be
governed by the laws of the Cayman Islands, which may be different from the laws in the United States.
In addition, applicable laws and regulations may require you to satisfy reporting requirements and obtain regulatory approvals in certain
circumstances. You are solely responsible for complying with such reporting requirements and obtaining such approvals. Neither the depositary, the
custodian, us or any of their or our respective agents or affiliates shall be required to take any actions whatsoever on your behalf to satisfy such reporting
requirements or obtain such regulatory approvals under applicable laws and regulations.
As an owner of ADSs, we will not treat you as one of our shareholders and you will not have direct shareholder rights. The depositary will hold on
your behalf the shareholder rights attached to the Class A ordinary shares underlying your ADSs. As an owner of ADSs you will be able to exercise the
shareholders rights for the Class A ordinary shares represented by your ADSs through the depositary only to the extent contemplated in the deposit
agreement. To exercise any shareholder rights not contemplated in the deposit agreement you will, as an ADS owner, need to arrange for the
cancellation of your ADSs and become a direct shareholder.
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The manner in which you own the ADSs (e.g., in a brokerage account vs. as registered holder, or as holder of certificated vs. uncertificated ADSs)
may affect your rights and obligations, and the manner in which, and extent to which, the depositary’s services are made available to you. As an owner
of ADSs, you may hold your ADSs either by means of an ADR registered in your name, through a brokerage or safekeeping account, or through an
account established by the depositary in your name reflecting the registration of uncertificated ADSs directly on the books of the depositary (commonly
referred to as the “direct registration system” or “DRS”). The direct registration system reflects the uncertificated (book-entry) registration of ownership
of ADSs by the depositary. Under the direct registration system, ownership of ADSs is evidenced by periodic statements issued by the depositary to the
holders of the ADSs. The direct registration system includes automated transfers between the depositary and The Depository Trust Company (“DTC”),
the central book-entry clearing and settlement system for equity securities in the United States. If you decide to hold your ADSs through your brokerage
or safekeeping account, you must rely on the procedures of your broker or bank to assert your rights as ADS owner. Banks and brokers typically hold
securities such as the ADSs through clearing and settlement systems such as DTC. The procedures of such clearing and settlement systems may limit
your ability to exercise your rights as an owner of ADSs. Please consult with your broker or bank if you have any questions concerning these limitations
and procedures. All ADSs held through DTC will be registered in the name of a nominee of DTC, which nominee will be the only “holder” of such
ADSs for purposes of the deposit agreement and any applicable ADR. This summary description assumes you have opted to own the ADSs directly by
means of an ADS registered in your name and, as such, we will refer to you as the “holder.” When we refer to “you,” we assume the reader owns ADSs
and will own ADSs at the relevant time.
The registration of the Class A ordinary shares in the name of the depositary or the custodian shall, to the maximum extent permitted by applicable
law, vest in the depositary or the custodian the record ownership in the applicable Class A ordinary shares with the beneficial ownership rights and
interests in such Class A ordinary shares being at all times vested with the beneficial owners of the ADSs representing the Class A ordinary shares. The
depositary or the custodian shall at all times be entitled to exercise the beneficial ownership rights in all deposited property, in each case only on behalf
of the holders and beneficial owners of the ADSs representing the deposited property.
Dividends and Distributions

As a holder of ADSs, you generally have the right to receive the distributions we make on the securities deposited with the custodian. Your receipt
of these distributions may be limited, however, by practical considerations and legal limitations. Holders of ADSs will receive such distributions under
the terms of the deposit agreement in proportion to the number of ADSs held as of the specified record date, after deduction of the applicable fees, taxes
and expenses.
Distributions of Cash
Whenever we make a cash distribution for the securities on deposit with the custodian, we will deposit the funds with the custodian. Upon receipt
of confirmation of the deposit of the requisite funds, the depositary will arrange for the funds received in a currency other than U.S. dollars to be
converted into U.S. dollars and for the distribution of the U.S. dollars to the holders, subject to the laws and regulations of the Cayman Islands.
The conversion into U.S. dollars will take place only if practicable and if the U.S. dollars are transferable to the United States. The depositary will
apply the same method for distributing the proceeds of the sale of any property (such as undistributed rights) held by the custodian in respect of
securities on deposit.
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The distribution of cash will be made net of the fees, expenses, taxes and governmental charges payable by holders under the terms of the deposit
agreement. The depositary will hold any cash amounts it is unable to distribute in a non-interest bearing account for the benefit of the applicable holders
and beneficial owners of ADSs until the distribution can be effected or the funds that the depositary holds must be escheated as unclaimed property in
accordance with the laws of the relevant states of the United States.
Distributions of Shares
Whenever we make a free distribution of Class A ordinary shares for the securities on deposit with the custodian, we will deposit the applicable
number of Class A ordinary shares with the custodian. Upon receipt of confirmation of such deposit, the depositary will either distribute to holders new
ADSs representing the Class A ordinary shares deposited or modify the ADS-to- Class A ordinary shares ratio, in which case each ADS you hold will
represent rights and interests in the additional Class A ordinary shares so deposited. Only whole new ADSs will be distributed. Fractional entitlements
will be sold and the proceeds of such sale will be distributed as in the case of a cash distribution.
The distribution of new ADSs or the modification of the ADS-to-Class A ordinary shares ratio upon a distribution of Class A ordinary shares will
be made net of the fees, expenses, taxes and governmental charges payable by holders under the terms of the deposit agreement. In order to pay such
taxes or governmental charges, the depositary may sell all or a portion of the new Class A ordinary shares so distributed.
No such distribution of new ADSs will be made if it would violate a law (e.g., the U.S. securities laws) or if it is not operationally practicable. If
the depositary does not distribute new ADSs as described above, it may sell the Class A ordinary shares received upon the terms described in the deposit
agreement and will distribute the proceeds of the sale as in the case of a distribution of cash.
Distributions of Rights
Whenever we intend to distribute rights to subscribe for additional Class A ordinary shares, we will give prior notice to the depositary and we will
assist the depositary in determining whether it is lawful and reasonably practicable to distribute rights to subscribe for additional ADSs to holders.
The depositary will establish procedures to distribute rights to subscribe for additional ADSs to holders and to enable such holders to exercise
such rights if it is lawful and reasonably practicable to make the rights available to holders of ADSs, and if we provide all of the documentation
contemplated in the deposit agreement (such as opinions to address the lawfulness of the transaction). You may have to pay fees, expenses, taxes and
other governmental charges to subscribe for the new ADSs upon the exercise of your rights. The depositary is not obligated to establish procedures to
facilitate the distribution and exercise by holders of rights to subscribe for new Class A ordinary shares other than in the form of ADSs.
The depositary will not distribute the rights to you if:

• We do not timely request that the rights be distributed to you or we request that the rights not be distributed to you; or
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• We fail to deliver satisfactory documents to the depositary; or
• It is not reasonably practicable to distribute the rights.
The depositary will sell the rights that are not exercised or not distributed if such sale is lawful and reasonably practicable. The proceeds of such
sale will be distributed to holders as in the case of a cash distribution. If the depositary is unable to sell the rights, it will allow the rights to lapse.
Elective Distributions
Whenever we intend to distribute a dividend payable at the election of shareholders either in cash or in additional shares, we will give prior notice
thereof to the depositary and will indicate whether we wish the elective distribution to be made available to you. In such case, we will assist the
depositary in determining whether such distribution is lawful and reasonably practicable.
The depositary will make the election available to you only if it is reasonably practicable and if we have provided all of the documentation
contemplated in the deposit agreement. In such case, the depositary will establish procedures to enable you to elect to receive either cash or additional
ADSs, in each case as described in the deposit agreement.
If the election is not made available to you, you will receive either cash or additional ADSs, depending on what a shareholder in the Cayman
Islands would receive upon failing to make an election, as more fully described in the deposit agreement.
Other Distributions
Whenever we intend to distribute property other than cash, Class A ordinary shares or rights to subscribe for additional Class A ordinary shares,
we will notify the depositary in advance and will indicate whether we wish such distribution to be made to you. If so, we will assist the depositary in
determining whether such distribution to holders is lawful and reasonably practicable.
If it is reasonably practicable to distribute such property to you and if we provide to the depositary all of the documentation contemplated in the
deposit agreement, the depositary will distribute the property to the holders in a manner it deems practicable.
The distribution will be made net of fees, expenses, taxes and governmental charges payable by holders under the terms of the deposit agreement.
In order to pay such taxes and governmental charges, the depositary may sell all or a portion of the property received.
The depositary will not distribute the property to you and will sell the property if:
• We do not request that the property be distributed to you or if we request that the property not be distributed to you; or
• We do not deliver satisfactory documents to the depositary; or
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• The depositary determines that all or a portion of the distribution to you is not reasonably practicable.
The proceeds of such a sale will be distributed to holders as in the case of a cash distribution.
Redemption
Whenever we decide to redeem any of the securities on deposit with the custodian, we will notify the depositary in advance. If it is practicable and
if we provide all of the documentation contemplated in the deposit agreement, the depositary will provide notice of the redemption to the holders.
The custodian will be instructed to surrender the shares being redeemed against payment of the applicable redemption price. The depositary will
convert into U.S. dollars upon the terms of the deposit agreement the redemption funds received in a currency other than U.S. dollars and will establish
procedures to enable holders to receive the net proceeds from the redemption upon surrender of their ADSs to the depositary. You may have to pay fees,
expenses, taxes and other governmental charges upon the redemption of your ADSs. If less than all ADSs are being redeemed, the ADSs to be retired
will be selected by lot or on a pro rata basis, as the depositary may determine.
Changes affecting Class A ordinary shares

The Class A ordinary shares held on deposit for your ADSs may change from time to time. For example, there may be a change in nominal or par
value, split-up, cancellation, consolidation or any other reclassification of such Class A ordinary shares or a recapitalization, reorganization, merger,
consolidation or sale of assets of the Company.
If any such change were to occur, your ADSs would, to the extent permitted by law and the deposit agreement, represent the right to receive the
property received or exchanged in respect of the Class A ordinary shares held on deposit. The depositary may in such circumstances deliver new ADSs
to you, amend the deposit agreement, the ADRs and the applicable Registration Statement(s) on Form F-6, call for the exchange of your existing ADSs
for new ADSs and take any other actions that are appropriate to reflect as to the ADSs the change affecting the Shares. If the depositary may not
lawfully distribute such property to you, the depositary may sell such property and distribute the net proceeds to you as in the case of a cash distribution.
Issuance of ADSs upon Deposit of Class A ordinary shares

Upon completion of the offering, the Class A ordinary shares being offered pursuant to the prospectus will be deposited by us with the custodian.
Upon receipt of confirmation of such deposit, the depositary will issue ADSs to the underwriters named in the prospectus.
After the closing of the offer, the depositary may create ADSs on your behalf if you or your broker deposit Class A ordinary shares with the
custodian. The depositary will deliver these ADSs to the person you indicate only after you pay any applicable issuance fees and any charges and taxes
payable for the transfer of the Class A ordinary shares to the custodian. Your ability to deposit Class A ordinary shares and receive ADSs may be limited
by U.S. and Cayman Islands legal considerations applicable at the time of deposit.
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The issuance of ADSs may be delayed until the depositary or the custodian receives confirmation that all required approvals have been given and
that the Class A ordinary shares have been duly transferred to the custodian. The depositary will only issue ADSs in whole numbers.
When you make a deposit of Class A ordinary shares, you will be responsible for transferring good and valid title to the depositary. As such, you
will be deemed to represent and warrant that:
• The Class A ordinary shares are duly authorized, validly issued, fully paid, non-assessable and legally obtained.
• All preemptive (and similar) rights, if any, with respect to such Class A ordinary shares have been validly waived or exercised.
• You are duly authorized to deposit the Class A ordinary shares.
• The Class A ordinary shares presented for deposit are free and clear of any lien, encumbrance, security interest, charge, mortgage or
adverse claim, and are not, and the ADSs issuable upon such deposit will not be, “restricted securities” (as defined in the deposit
agreement).
• The Class A ordinary shares presented for deposit have not been stripped of any rights or entitlements.
If any of the representations or warranties are incorrect in any way, we and the depositary may, at your cost and expense, take any and all actions
necessary to correct the consequences of the misrepresentations.
Transfer, Combination, and Split Up of ADRs

As an ADR holder, you will be entitled to transfer, combine or split up your ADRs and the ADSs evidenced thereby. For transfers of ADRs, you
will have to surrender the ADRs to be transferred to the depositary and also must:
• ensure that the surrendered ADR is properly endorsed or otherwise in proper form for transfer;
• provide such proof of identity and genuineness of signatures as the depositary deems appropriate;
• provide any transfer stamps required by the State of New York or the United States; and
• pay all applicable fees, charges, expenses, taxes and other government charges payable by ADR holders pursuant to the terms of the
deposit agreement, upon the transfer of ADRs.
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To have your ADRs either combined or split up, you must surrender the ADRs in question to the depositary with your request to have them
combined or split up, and you must pay all applicable fees, charges and expenses payable by ADR holders, pursuant to the terms of the deposit
agreement, upon a combination or split up of ADRs.
Withdrawal of Class A ordinary shares Upon Cancellation of ADSs

As a holder, you will be entitled to present your ADSs to the depositary for cancellation and then receive the corresponding number of underlying
Class A ordinary shares at the custodian’s offices. Your ability to withdraw the Class A ordinary shares held in respect of the ADSs may be limited by
U.S. and Cayman Islands legal considerations applicable at the time of withdrawal. In order to withdraw the Class A ordinary shares represented by your
ADSs, you will be required to pay to the depositary the fees for cancellation of ADSs and any charges and taxes payable upon the transfer of the Class A
ordinary shares. You assume the risk for delivery of all funds and securities upon withdrawal. Once canceled, the ADSs will not have any rights under
the deposit agreement.
If you hold ADSs registered in your name, the depositary may ask you to provide proof of identity and genuineness of any signature and such
other documents as the depositary may deem appropriate before it will cancel your ADSs. The withdrawal of the Class A ordinary shares represented by
your ADSs may be delayed until the depositary receives satisfactory evidence of compliance with all applicable laws and regulations. Please keep in
mind that the depositary will only accept ADSs for cancellation that represent a whole number of securities on deposit.
You will have the right to withdraw the securities represented by your ADSs at any time except for:
• Temporary delays that may arise because (i) the transfer books for the Class A ordinary shares or ADSs are closed, or (ii) Class A ordinary
shares are immobilized on account of a shareholders’ meeting or a payment of dividends.
• Obligations to pay fees, taxes and similar charges.
• Restrictions imposed because of laws or regulations applicable to ADSs or the withdrawal of securities on deposit.
The deposit agreement may not be modified to impair your right to withdraw the securities represented by your ADSs except to comply with
mandatory provisions of law.
Voting Rights
As a holder, you generally have the right under the deposit agreement to instruct the depositary to exercise the voting rights for the Class A
ordinary shares represented by your ADSs. The voting rights of holders of Class A ordinary shares are described in the section of this prospectus titled
“Description of Share Capital”.
At our request, the depositary will distribute to you any notice of shareholders’ meeting received from us together with information explaining
how to instruct the depositary to exercise the voting rights of the securities represented by ADSs. In lieu of distributing such materials, the depositary
may distribute to holders of ADSs instructions on how to retrieve such materials upon request.
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If the depositary timely receives voting instructions from a holder of ADSs, it will endeavor to vote the securities (in person or by proxy)
represented by the holder’s ADSs in accordance with such voting instructions.
Securities for which no voting instructions have been received will not be voted (except as otherwise contemplated in the deposit agreement).
Please note that the ability of the depositary to carry out voting instructions may be limited by practical and legal limitations and the terms of the
securities on deposit. We cannot assure you that you will receive voting materials in time to enable you to return voting instructions to the depositary in
a timely manner.
Amendments and Termination

We may agree with the depositary to modify the deposit agreement at any time without your consent. We undertake to give holders of ADSs 30
days’ prior notice of any modifications that would materially prejudice any of their substantial rights under the deposit agreement. We will not consider
to be materially prejudicial to your substantial rights any modifications or supplements that are reasonably necessary for the ADSs to be registered under
the Securities Act or to be eligible for book-entry settlement, in each case without imposing or increasing the fees and charges you are required to pay.
In addition, we may not be able to provide you with prior notice of any modifications or supplements that are required to accommodate compliance with
applicable provisions of law.
You will be bound by the modifications to the deposit agreement if you continue to hold your ADSs after the modifications to the deposit
agreement become effective. The deposit agreement cannot be amended to prevent you from withdrawing the Class A ordinary shares represented by
your ADSs (except as permitted by law).
We have the right to direct the depositary to terminate the deposit agreement. Similarly, the depositary may in certain circumstances on its own
initiative terminate the deposit agreement. In either case, the depositary must give notice to the holders at least 30 days before termination. Until
termination, your rights under the deposit agreement will be unaffected.
After termination, the depositary will continue to collect distributions received (but will not distribute any such property until you request the
cancellation of your ADSs) and may sell the securities held on deposit. After the sale, the depositary will hold the proceeds from such sale and any other
funds then held for the holders of ADSs in a non-interest bearing account. At that point, the depositary will have no further obligations to holders other
than to account for the funds then held for the holders of ADSs still outstanding (after deduction of applicable fees, taxes and expenses).
In connection with any termination of the deposit agreement, the depositary may make available to owners of ADSs a means to withdraw the
Class A ordinary shares represented by ADSs and to direct the depositary of such Class A ordinary shares into an unsponsored American depositary
share program established by the depositary. The ability to receive unsponsored American depositary shares upon termination of the deposit agreement
would be subject to satisfaction of certain U.S. regulatory requirements applicable to the creation of unsponsored American depositary shares and the
payment of applicable depositary fees.
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Books of Depositary
The depositary will maintain ADS holder records at its depositary office. You may inspect such records at such office during regular business
hours but solely for the purpose of communicating with other holders in the interest of business matters relating to the ADSs and the deposit agreement.
The depositary will maintain in New York facilities to record and process the issuance, cancellation, combination, split-up and transfer of ADSs.
These facilities may be closed from time to time, to the extent not prohibited by law.
Transmission of Notices, Reports and Proxy Soliciting Material

The depositary will make available for your inspection at its office all communications that it receives from us as a holder of deposited securities
that we make generally available to holders of deposited securities. Subject to the terms of the deposit agreement, the depositary will send you copies of
those communications or otherwise make those communications available to you if we ask it to.
Limitations on Obligations and Liabilities

The deposit agreement limits our obligations and the depositary’s obligations to you. Please note the following:
• We and the depositary are obligated only to take the actions specifically stated in the deposit agreement without negligence or bad faith.
• The depositary disclaims any liability for any failure to carry out voting instructions, for any manner in which a vote is cast or for the effect
of any vote, provided it acts in good faith and in accordance with the terms of the deposit agreement.
• The depositary disclaims any liability for any failure to accurately determine the lawfulness or practicality of any action, for the content of
any document forwarded to you on our behalf or for the accuracy of any translation of such a document, for the investment risks associated
with investing in Class A ordinary shares, for the validity or worth of the Class A ordinary shares, for any tax consequences that result from
the ownership of ADSs or other deposited property, for the credit-worthiness of any third party, for allowing any rights to lapse under the
terms of the deposit agreement, for the timeliness of any of our notices or for our failure to give notice or for any act or omission of or
information provided by DTC or any DTC participant.
• The depositary shall not be liable for acts or omissions of any successor depositary in connection with any matter arising wholly after the
resignation or removal of the depositary.
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• We and the depositary will not be obligated to perform any act that is inconsistent with the terms of the deposit agreement.
• We and the depositary disclaim any liability if we or the depositary are prevented or forbidden from or subject to any civil or criminal
penalty or restraint on account of, or delayed in, doing or performing any act or thing required by the terms of the deposit agreement, by
reason of any provision, present or future of any law or regulation, including regulations of any stock exchange or by reason of present or
future provision of any provision of our articles of association, or any provision of or governing the securities on deposit, or by reason of
any act of God or war or other circumstances beyond our control.
• We and the depositary disclaim any liability by reason of any exercise of, or failure to exercise, any discretion provided for in the deposit
agreement or in our articles of association or in any provisions of or governing the securities on deposit.
• We and the depositary further disclaim any liability for any action or inaction in reliance on the advice or information received from legal
counsel, accountants, any person presenting Shares for deposit, any holder of ADSs or authorized representatives thereof, or any other
person believed by either of us in good faith to be competent to give such advice or information.
• We and the depositary also disclaim liability for the inability by a holder or beneficial holder to benefit from any distribution, offering,
right or other benefit that is made available to holders of Class A ordinary shares but is not, under the terms of the deposit agreement, made
available to you.
• We and the depositary may rely without any liability upon any written notice, request or other document believed to be genuine and to
have been signed or presented by the proper parties.
• We and the depositary also disclaim liability for any consequential or punitive damages for any breach of the terms of the deposit
agreement.
• We and the depositary disclaim liability arising out of losses, liabilities, taxes, charges or expenses resulting from the manner in which a
holder or beneficial owner of ADSs holds ADSs, including resulting from holding ADSs through a brokerage account.
• No disclaimer of any Securities Act liability is intended by any provision of the deposit agreement.
• Nothing in the deposit agreement gives rise to a partnership or joint venture, or establishes a fiduciary relationship, among us, the
depositary and you as ADS holder.
• Nothing in the deposit agreement precludes Citibank (or its affiliates) from engaging in transactions in which parties adverse to us or the
ADS owners have interests, and nothing in the deposit agreement obligates Citibank to disclose those transactions, or any information
obtained in the course of those transactions, to us or to the ADS owners, or to account for any payment received as part of those
transactions.
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Foreign Currency Conversion
The depositary will arrange for the conversion of all foreign currency received into U.S. dollars if such conversion is practical, and it will
distribute the U.S. dollars in accordance with the terms of the deposit agreement. You may have to pay fees and expenses incurred in converting foreign
currency, such as fees and expenses incurred in complying with currency exchange controls and other governmental requirements.
If the conversion of foreign currency is not practical or lawful, or if any required approvals are denied or not obtainable at a reasonable cost or
within a reasonable period, the depositary may take the following actions in its discretion:
• Convert the foreign currency to the extent practical and lawful and distribute the U.S. dollars to the holders for whom the conversion and
distribution is lawful and practical.
• Distribute the foreign currency to holders for whom the distribution is lawful and practical.
• Hold the foreign currency (without liability for interest) for the applicable holders.
Governing Law/Waiver of Jury Trial

The deposit agreement, the ADRs and the ADSs will be interpreted in accordance with the laws of the State of New York. The rights of holders of
Class A ordinary shares (including Class A ordinary shares represented by ADSs) are governed by the laws of the Cayman Islands.
As an owner of ADSs, you irrevocably agree that any legal action arising out of the Deposit Agreement, the ADSs or the ADRs, involving the
Company or the Depositary, may only be instituted in a state or federal court in the city of New York.
AS A PARTY TO THE DEPOSIT AGREEMENT, YOU IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, YOUR RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF THE DEPOSIT
AGREEMENT OR THE ADRs AGAINST US AND/OR THE DEPOSITARY.
The deposit agreement provides that, to the extent permitted by law, ADS holders waive the right to a jury trial of any claim they may have against
us or the depositary arising out of or relating to our Class A ordinary shares, the ADSs or the deposit agreement, including any claim under U.S. federal
securities laws. If we or the depositary opposed a jury trial demand based on the waiver, the court would determine whether the waiver was enforceable
in the facts and circumstances of that case in accordance with applicable case law. However, you will not be deemed, by agreeing to the terms of the
deposit agreement, to have waived our or the depositary’s compliance with U.S. federal securities laws and the rules and regulations promulgated
thereunder.
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Exhibit 4.27
Exclusive Business Cooperation Agreement
This Exclusive Business Cooperation Agreement (this “Agreement”) is made and entered into by and between the following parties on
December 8, 2021, in Beijing, the People’s Republic of China (“China” or the “PRC”).
Party A: Beijing Absolute Health Co., Ltd.

Address: 201, 2nd Floor, Tower C, No. 2, Lize 2nd Middle Park, Chaoyang District, Beijing;
Party B: Beijing Guangmu Weichen Technology Co., Ltd.

Address: 231 South, No. 2202 B, 2nd Floor, Building No. 1, No. 208, Lize 1st Middle Park, Chaoyang District, Beijing;
In this Agreement, each of Party A and Party B shall be hereinafter referred to as a “Party” individually, and as the “Parties” collectively.
Whereas:
1. Party A is a wholly foreign-owned enterprise established in China, and has sufficient capacity and resources for providing technical development,
technical promotion, technical transfer, technical consultation, technical services and organizing cultural and artistic exchange activities;
2. Party B is a company established in China with exclusive domestic capital and, is permitted by the relevant PRC government authorities to engage
in technical development, technical consultation, technology transfer and promotion; retailing of Class I and II medical devices; health
management (excluding medical treatment activities which need approvals); health consultation (excluding medical treatment activities which
need approvals); software development; basis software services; application software services (excluding medical softwares); computer system
services; data processing; enterprise management; market researching; economics and trading consultancy; enterprise management consulting;
enterprise planning; advertisement designing, producing, agency and distribution; organizing exhibition activities; meeting services; packaging
design; model design; trademark agency; organizing cultural and artistic exchange activities (excluding performances); Internet information
services. The businesses conducted by Party B currently and at any time during the term of this Agreement are collectively referred to as the
“Principal Business”;
3. Party A is willing to provide Party B with technical support, consultation and other services on an exclusive basis in relation to the Principal
Business during the term of this Agreement, utilizing its advantages in technology, team, and information, and Party B is willing to accept such
services provided by Party A or Party A’s designee(s), each on the terms set forth herein.
Now, therefore, through mutual discussion, the Parties have reached the following agreements:
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1. Services Provided by Party A
1.1 Party B hereby appoints Party A as Party B’s exclusive services provider to provide Party B with comprehensive technical support,
consulting services and other services during the term of this Agreement, in accordance with the terms and conditions of this Agreement,
including but not limited to the following:
(1) Licensing Party B to use the related software legally owned by Party A;
(2) Development, maintenance and updating of related application software necessary for Party B’s business;
(3) Design, installation, daily management, maintenance and updating of network systems, hardware equipment and database;
(4) Technical support and training for employees of Party B;
(5) Assisting Party B in consulting, collection and research of technology and market information (excluding market research business
that wholly foreign-owned enterprises are prohibited from conducting under PRC law);
(6) Providing business and management consultation for Party B;
(7) Providing marketing and promotional services for Party B;
(8) Provide customer order management and customer services for Party B;
(9) Leasing of equipment or properties; and
(10) Other related services requested by Party B from time to time to the extent permitted under PRC law.
1.2 Party B agrees to accept all the services provided by Party A. The Parties agree that Party A may designate its affiliates or other qualified
service providers (such designated party may execute certain agreements described in Section 1.5 of this Agreement with Party B) to
provide Party B with the services specified in this Agreement. Party B further agrees that unless with Party A’s prior written consent,
during the term of this Agreement, Party B shall not directly or indirectly accept the same or any similar services provided by any third
party and shall not establish similar corporation relationships with any third party regarding the matters contemplated by this Agreement.
Both Parties agree that Party A may appoint or designate other parties to provide Party B with the services under this Agreement (the
designated parties may enter into certain agreements as described in Section 1.3 with Party B).
1.3 Party A shall be entitled to inspect the accounts of Party B either on regularly basis or from time to time, and Party B shall ensure accurate
and timely account recording and provide Party A with its accounts at the request of Party A. During the validity term of this Agreement
and subject to any applicable laws, Party B agrees to cooperate with Party A and its shareholders (including, direct or indirect shareholders
) to audit the Party B’s accounts (including, without limitation, audit of related-party transactions and other aspects), to provide Party A, its
shareholders and/or the auditors appointed by Party A with related information and data concerning the operation, business, clients, finance
and employees of Party B and Party B’s subsidiaries, and agrees that Party A’s shareholders may disclose such information and data to
satisfy its listed securities regulatory requirements. The Parties agree that, during the validity term of this Agreement, Party A shall be
entitled to consolidate the financial results of Party B into that of Party A in accordance with applicable accounting standards as if Party B
was a wholly owned subsidiary of Party A. However, Party A shall not bear any legal liabilities for any debts or other obligations or risks
of Party B.
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1.4 If Party B goes into liquidation or dissolution for any reason, to the extent permitted by the PRC laws, Party B shall form a liquidation
team comprising members recommended by Party A to manage the properties of Party B and its subsidiaries. In such case, notwithstanding
the enforceability of this Agreement, Party B agrees that it shall deliver all liquidated assets of Party B to Party A in accordance with PRC
laws and regulations.
1.5 Service Providing Methodology and Financial Support
1.5.1 Party A and Party B agree that during the term of this Agreement, where necessary, Party B may enter into further service
agreements with Party A or any other party designated by Party A, which shall provide the specific contents, methods, personnel,
and fees for the specific services.
1.5.2 To fulfill this Agreement, Party A and Party B agree that during the term of this Agreement, where necessary, Party B may enter into
equipment or property lease agreements with Party A or any other party designated by Party A which shall permit Party B to use
Party A’s relevant equipment or property based on the business needs of Party B.
1.5.3 Party B hereby grants to Party A an irrevocable and exclusive option to purchase from Party B, at Party A’s sole discretion, any or all
of the assets and business of Party B, to the extent permitted under PRC law, and at the lowest purchase price permitted by PRC law.
The Parties shall then enter into a separate assets or business transfer agreement, specifying the terms and conditions of the transfer
of the assets.
1.5.4 In order to ensure that the cash flow requirements in the ordinary course of business of Party B are satisfied and/or offset any losses
arising from its course of business, Party A may provide financial support for Party B depending on the actual conditions ( but only
within the scope and in a manner permitted by PRC laws). Party A may provide financial support for Party B by means of bank
entrusted loans or other applicable lending methods, and enter into separate necessary agreements with Party B.
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1.6 The Parties agree that the services provided by Party A to Party B under this Agreement shall be also applicable to the subsidiaries
controlled by Party B, and Party B shall cause the subsidiaries controlled by it to exercise rights and perform obligations under this
Agreement.
2. The Calculation and Payment of the Service Fees

2.1 During the term of this Agreement, the fees that Party B shall pay to Party A shall be calculated in the following way:
2.1.1 With regard to services provided by Party A to Party B, Party B shall pay Party A service fees annually. The service fees under this
Agreement shall be the balance of the 100% gross consolidated profits of Party B for any financial year after offsetting the
accumulated losses (if any) of Party B and its subsidiaries for the preceding financial years and deducting the working capital,
expenses, taxes and other statutory contributions required for any financial year, and reasonable operation profits determined in
accordance with applicable PRC tax law principles and tax practice.
2.1.2 In the event that Party A transfers technology to Party B or Party A is entrusted by Party B to develop software or other technology,
or Party A leases equipment or properties to Party B, the technology transfer fees, entrusted development fees or rents shall be
determined by the Parties based on the actual situation.
2.1.3 In addition to the service fees, Party B shall bear all the reasonable expenses, advance payments and out-of-pocket expenses in any
form paid or incurred by Party A when performing or providing services, and shall pay Party A compensation accordingly.
2.1.4 The Parties shall respectively bear the taxes and fees for its execution and performance of this Agreement payable in accordance
with laws. If requested by Party A, Party B shall use its best effort to assist Party A to obtain the treatment of exemption from value-
added taxes on all or any part of its service fees income under this Agreement.
Party B hereby acknowledges and agrees that, without prior written consent of Party A or persons designated by Party A, Party B
will not conduct or prompt any activities or transactions that may materially affect Party B’s assets, business, personnel, obligations,
rights or operations, or conduct or promote any activities or transactions that may materially affect Party B’s ability to perform its
obligations under this Agreement.
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3. Intellectual Property Rights and Confidentiality Clauses
3.1 Party A shall have sole and exclusive ownership, rights and interests in any and all intellectual properties arising out of or created or
developed during the performance of this Agreement, including but not limited to copyrights, patents, rights for patent applications,
software, technical secrets, trade secrets and others. Party A shall be entitled to exercise such rights with no consideration.
3.2 For the needs of Party B’s business, Party A agrees that Party B may register part of the intellectual properties designated by Party A under
Party B’s name. Notwithstanding the foregoing, if requested by Party A, Party B shall execute all appropriate documents, take all
appropriate actions, submit all documents and/or applications, render all appropriate assistance and conduct other activities deemed to be
necessary by Party A at its sole discretion, in order to grant the ownership, right or interest of any such intellectual properties to Party A,
and/or to strengthen the protections for Party A’s rights for such intellectual properties. Party B unconditionally and irrevocably authorizes
Party A to use any intellectual property registered in the name of Party B with no consideration.
3.3 The Parties acknowledge that the existence and the terms of this Agreement and any oral or written information exchanged between the
Parties in connection with the preparation and performance of this Agreement are regarded as confidential information. Each Party shall
maintain confidentiality of all such confidential information, and without obtaining the written consent of the other Party, it shall not
disclose any relevant confidential information to any third party, except for the information that: (a) is or will be in the public domain
(other than through the receiving Party’s unauthorized disclosure); (b) is under the obligation to be disclosed pursuant to the applicable
laws or regulations, rules of any stock exchange, or orders of the court or other government authorities; or (c) is required to be disclosed by
any Party to its shareholders, directors, employees, legal counsels or financial advisors regarding the transaction contemplated hereunder,
provided that such shareholders, directors, employees, legal counsels or financial advisors shall be bound by the confidentiality obligations
similar to those set forth in this Section. Disclosure of any confidential information by the shareholders, director, employees of or agencies
engaged by any Party shall be deemed disclosure of such confidential information by such Party and such Party shall be held liable for
breach of this Agreement.
4. Representations and Warranties

4.1 Party A hereby represents, warrants and covenants as follows:
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4.1.1 Party A is a wholly foreign-owned enterprise legally established and validly existing in accordance with the laws of China; Party A
or the service providers designated by Party A will obtain all government permits and licenses necessary for providing the service
under this Agreement before providing such services.
4.1.2 Party A has taken all necessary corporate actions, obtained all necessary authorizations as well as all consents and approvals from
third parties and government agencies (if required) for the execution, delivery and performance of this Agreement. Party A’s
execution, delivery and performance of this Agreement do not violate any explicit requirements under any law or regulation.
4.1.3 This Agreement constitutes Party A’s legal, valid and binding obligations, enforceable against it in accordance with its terms.
4.2 Party B hereby represents, warrants and covenants as follows:
4.2.1 Party B is a company legally established and validly existing in accordance with the laws of China, and Party B has obtained and
will maintain all government permits and licenses required to engage in the Principal Business.
4.2.2 Party B has taken all necessary corporate actions, obtained all necessary authorizations as well as all consents and approvals from
third parties and government agencies (if required) for the execution, delivery and performance of this Agreement. Party B’s
execution, delivery and performance of this Agreement do not violate any explicit requirements under any law or regulation.
4.2.3 This Agreement constitutes Party B’s legal, valid and binding obligations, and shall be enforceable against it in accordance with its
terms.
4.2.4 There is no occurred and ongoing litigation, arbitration or other judicial or administrative procedures that will affect Party B’s
performance of the obligations under this Agreement, and no one has threatened to take the abovementioned actions to Party B’s
knowledge.
4.2.5 Party B shall pay Party A the service fees in full and in time in accordance with the provisions of this Agreement.
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5. Term of Agreement
5.1 This Agreement shall become effective upon duly executed by both Parties and shall remain effective permanently unless expressly
provided hereof or determined to be terminated by Party A in writing.
5.2 During the term of this Agreement, each Party shall renew its operation term upon the expiration thereof, so as to enable this Agreement to
remain effective. This Agreement shall be terminated upon the expiration of the operation term of a Party if the application for the renewal
of its operation term is not approved or permitted by the competent government authorities.
5.3 Both Parties covenant that, in the event that Party A is permitted to directly hold the equity in Party B and Party A and/or its affiliates or
branches are permitted to engage in Party B’s business under PRC laws, this Agreement shall be terminated immediately upon the equity in
Party B is transferred to Party A according to the Exclusive Option Agreement entered into by and between Party B’ direct and indirect
existing shareholders on the same day of this Agreement.
5.4 The rights and obligations of the Parties under Sections 3, 6, 7 and this Section 5.4 shall survive the termination of this Agreement.
6. Governing Law and Resolution of Disputes

6.1 The execution, effectiveness, construction, performance, amendment and termination of this Agreement and the resolution of disputes
hereunder shall be governed by the laws of the PRC.
6.2 In the event of occurrence of any dispute arising from or with respect to the interpretation and performance of this Agreement, the Parties
shall first resolve the dispute through friendly negotiations. Where the dispute is not solved within thirty (30) days after delivery of request
for friendly negotiation by any Party to other Parties, either Party may submit the relevant dispute to the China International Economic and
Trade Arbitration Commission for arbitration in accordance with its arbitration rules. The arbitration tribunal shall be consisted of three
(3) arbitrators appointed according to abovementioned arbitration rules, one (1) arbitrator shall be appointed by the claimant, one
(1) arbitrator shall be appointed by the respondent, and the third arbitrator shall be appointed by the negotiated designation of the first two
arbitrators. The place of arbitration shall be Beijing. The arbitration award shall be final and binding on the Parties.
6.3 Under the appropriate circumstances permitted by PRC laws, the arbitral tribunal may grant any remedies, including temporary and
permanent injunctive remedies (such as injunctive remedies for commercial activities, or injunctive remedies for forced transfer of assets),
actual performance of contractual obligations, remedies for Party B’s equity or assets and rulings ordering Party B to wind up. Subject to
PRC laws, while waiting for the formation of the arbitration tribunal or under appropriate circumstances, both Parties are entitled to seek
temporary injunctive remedies or other temporary remedies from the court with jurisdiction to support the arbitration. In this regard, both
Parties have reached a consensus that subject to applicable laws, the courts of Hong Kong, Cayman Islands, PRC and the location of Party
B’s main assets shall all be deemed to have jurisdiction .
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6.4 During the process of arbitration regarding any dispute arising from or with respect to the interpretation and performance of this
Agreement or any other dispute, the Parties shall continue to exercise their respective rights under this Agreement and perform their
respective obligations under this Agreement except for the matters under dispute.
7. Breach of Agreement and Indemnification

7.1 If Party B materially breaches any provision under this Agreement, Party A is entitled to terminate this Agreement and/or require Party B
to compensate the losses. This Section 7.1 shall not prejudice any other rights of Party A under this Agreement.
7.2 Unless otherwise required by the applicable laws, Party B shall not terminate this Agreement in any event.
7.3 Party B shall indemnify Party A and hold Party A harmless from any losses, damages, obligations or expenses caused by any lawsuit,
requests or other demands raised against Party A arising from or caused by the services provided by Party A to Party B pursuant this
Agreement, except where such losses, damages, obligations or expenses arise from the gross negligence or willful misconduct of Party A.
8. Force Majeure
8.1 In the case of any force majeure events (“Force Majeure”) such as earthquakes, typhoons, floods, fires, flu, wars, strikes or any other
events that cannot be predicted and are unpreventable and unavoidable by the affected Party, which directly causes the failure of either
Party to perform or fully perform this Agreement, the Party affected by such Force Majeure shall not be liable for such failure in
performance, partial performance. However, the Party affected by such Force Majeure shall give the other Party written notices without
any delay, and shall provide details evidencing such event within 15 days after sending out such notice, explaining the reasons for such
failure in performance, partial performance or delay in performance.
8.2 If such Party claiming Force Majeure fails to notify the other Party and furnish it with proof pursuant to the above provision, such Party
shall not be excused from the non-performance of its obligations hereunder. The Party so affected by the event of Force Majeure shall use
reasonable efforts to minimize the consequences of such Force Majeure and to promptly resume performance hereunder whenever the
causes of such excuse are cured. Should the Party so affected by the event of Force Majeure fail to resume performance hereunder when
the causes of such excuse are cured, such Party shall be liable to the other Party.
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8.3 In the event of Force Majeure, the Parties shall immediately consult with each other to find an equitable solution and shall use all
reasonable endeavours to minimize the consequences of such Force Majeure.
9. Notices
9.1 All notices and other communications required to be given or otherwise made pursuant to this Agreement shall be delivered personally, or
sent by registered mail, prepaid postage, a commercial courier service or facsimile transmission to the receiving Party’s following address
with an additional copy delivered via email. The dates on which notices shall be deemed to have been effectively given shall be determined
as follows:
9.1.1 Notices given by personal delivery, express services or registered mail, postage prepaid shall be deemed effectively given on the date
of receipt or rejection at the designated address of notices;
9.1.2 Notices given by facsimile transmission shall be deemed effectively given on the date of successful delivery (which shall be
evidenced by the automatically generated transmission confirmation message).
9.1.3 Notice given by e-mail shall be deemed effectively given on the date of successful delivery if the sending party receive a system
massage indicating the delivery was successful or do not receive a system massage indication the e-mail has not been delivered or
has been returned within 24 hours. However, if the e-mail is delivered later than 5:00 pm or on a non-business day at the place of
delivery, the next business day of the date shown on the date record shall be the date of successful delivery.
9.2 For the purpose of notices, the addresses of the Parties are as follows:
Mailing Address: 201, 2nd Floor, Tower C, No. 2, Lize 2nd Middle Park, Chaoyang District, Beijing
Attn: SONG Nan
Tel.: 13601193404
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Party B: Beijing Guangmu Weichen Technology Co., Ltd.
Mailing Address: 231 South, No. 2202 B, 2nd Floor, Building No. 1, No. 208, Lize 1st Middle Park, Chaoyang District, Beijing
Attn: XING Liang
Tel.: 18513505608
9.3 Any Party may at any time change its address for notices by a notice delivered to the other Party in accordance with the terms of this
Section.
10. Assignment
10.1 Without Party A’s prior written consent, Party B shall not assign its rights and obligations under this Agreement to any third party.
10.2 Party B agrees that Party A may assign its obligations and rights under this Agreement to any third party and in case of such assignment,
Party A is only required to give written notice to Party B and does not need any consent from Party B for such assignment.
11. Severability
In the event that one or several of the provisions of this Agreement are held to be invalid, illegal or unenforceable in any aspect in accordance with
any laws or regulations, the validity, legality or enforceability of the remaining provisions of this Agreement shall not be affected or compromised
in any aspect. The Parties shall negotiate in good faith to replace such invalid, illegal or unenforceable provisions with effective provisions that
accomplish to the greatest extent permitted by law and the intentions of the Parties, and the economic effect of such effective provisions shall be
as close as possible to the economic effect of those invalid, illegal or unenforceable provisions.
12. Amendments and Supplements

This Agreement may be amended or supplemented by a written agreement executed by both Parties. Any amendment agreement and
supplementary agreement duly executed by the Parties hereto with regard to this Agreement shall constitute an integral part of this Agreement,
and shall have equal legal validity as this Agreement.
13. Entire Agreement

Except for the amendments, supplements or revision in writing executed after the execution of this Agreement, this Agreement shall constitute the
entire agreement reached by and among the Parties hereto with respect to the subject matter hereof, and shall supersede all prior oral and written
consultations, representations and contracts reached with respect to the subject matter of this Agreement
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14. Waivers
Any Party may waive the terms and conditions of this Agreement, provided that such waiver must be provided in writing and executed by both
Parties. The waiver by a Party in certain circumstances with respect to a breach by the other Party shall not be deemed as a waiver with respect to
any similar breach in other circumstances.
15. Language and Counterparts

This Agreement is written in Chinese in two copies. Each Party has one copy. Each copy shall have the same effect.
[The reminder of this page is intentionally left blank.]
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IN WITNESS WHEREOF, the Parties have caused their authorized representatives to execute this Exclusive Business Cooperation Agreement on the
date first mentioned above, which shall take effects in accordance with provisions hereof.
Party A: Beijing Absolute Health Co., Ltd. (seal)

Authorized Representative: /s / SHEN Peng
(Company seal: /s/ Beijing Absolute Health Co., Ltd.)
Party B: Beijing Guangmu Weichen Technology Co., Ltd. (seal)

Authorized Representative: /s/ SUN Xiaolei
(Company seal: /s/ Beijing Guangmu Weichen Technology Co., Ltd.)
Signature Page to Exclusive Business Cooperation Agreement

Exhibit 4.28
Exclusive Option Agreement
This Exclusive Option Agreement (this “Agreement”) is executed by and among the following Parties as of December 8, 2021, in Beijing, the
People’s Republic of China (“China” or the “PRC”):
Party A: Beijing Absolute Health Co., Ltd., a limited liability company organized and existing under the laws of the PRC, with its registered
address at 201, 2nd Floor, Tower C, No. 2, Lize 2nd Middle Park, Chaoyang District, Beijing;
Party B: Shareholders of Party C as listed in Annex 1 to this Agreement
Party C: Beijing Guangmu Weichen Technology Co., Ltd., a limited liability company organized and existing under the laws of the PRC, with its
registered address at 231 South, No. 2202 B, 2nd Floor, Building No. 1, No. 208, Lize 1st Middle Park, Chaoyang District, Beijing;
In this Agreement, each of Party A, Party B and Party C shall be hereinafter referred to as a “Party” individually, and as the “Parties” collectively.
Whereas:
1. Party B are the shareholders of Party C and as of the date hereof hold all of the equity interests in Party C. As of the date hereof, the amount of
Party B’s capital contribution and shareholding percentage in Party C’s registered capital is specified in Annex I. Party C is a limited liability
company established and registered in Beijing.
2. Party B agrees to grant Party A an exclusive option right pursuant to this Agreement, and Party A agrees to accept such exclusive option right
upon exercise of which to purchase all or part of the equity interests held by Party B in Party C.
In this regard, the Parties have reached the following agreement upon mutual discussion and negotiation:
1. Sale and Purchase of Equity Interest

1.1 Option Granted
Party B hereby irrevocably grants Party A an irrevocable and exclusive right to purchase, or designate one or more persons (each, a
“Designee”) to purchase the equity interests in Party C then held by Party B one or more times at any time in part or in whole at Party A’s
sole and absolute discretion at the price described in Section 1.3 herein to the extent permitted by PRC laws (such right being the “Equity
Interest Purchase Option”). Except for Party A and the Designee(s), no other person shall be entitled to the Equity Interest Purchase
Option or other rights with respect to the equity interests of Party B. Party C hereby agrees to the grant by Party B of the Equity Interest
Purchase Option to Party A. Each of Party B hereby waives its respective preemptive right regarding Party C’s equity under Party C’s
articles of association and PRC laws, and hereby irrevocably agrees to transfer Party C’s equity to Party A and/or the Designee. The term
“person” as used herein shall refer to individuals, corporations, partnerships, partners, enterprises, trusts or non-corporate organizations.
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1.2 Steps for Exercise of the Equity Interest Purchase Option
Subject to the provisions of the laws and regulations of China, Party A may exercise the Equity Interest Purchase Option by issuing a
written notice to Party B (the “Equity Interest Purchase Option Notice”), specifying:(a) Party A’s or the Designee(s)’ decision to exercise
the Equity Interest Purchase Option; (b) the respective portion of equity interests to be purchased by Party A or the Designee from Party B
(the “Optioned Interests”); and (c) the date for purchasing the Optioned Interests or the date for the transfer of the Optioned Interests. If
Party A and/or other foreign-invested or foreign entities designated by Party A are permitted to directly hold part or all of Party C’s equity
interests and engage in foreign investment restriction/prohibition business through Party C under the laws and regulations of PRC, Party A
shall issue the Equity Interest Purchase Option Notice as soon as practicable. The proportion of Party C’s equity interests that the
Designee(s) purchase(s) from Party B shall not be less than the maximum limit of Party C’s equity interests permitted under PRC laws to
be held by Party A and/or other foreign-invested or foreign entities designated by Party A.
1.3 Equity Interest Purchase Price
The total price for the purchase by Party A of all equity interest held by Party B upon exercise of the Equity Interest Purchase Option by
Party A shall equal to the amount of registered capital contributed by Party B in Party C for such Optioned Interests (or such price may be
as set forth in the equity share transfer contract to be executed between Party A (or the Designee) and Party B separately, provided that
such price does not violate PRC laws and regulations and is acceptable to Party A, if required by Party A); if Party A exercises the Equity
Interest Purchase Option to purchase part of the Optioned Interests held by Party B in Party C, then the purchase price shall be calculated
on a pro rata basis. If at the time when Party A exercises the Equity Interest Purchase Option, the PRC laws impose mandatory
requirements on the purchase price of such Optioned Interests, such that the minimum price permitted under PRC law is higher than the
aforementioned price, then the purchase price shall be such minimum price permitted by PRC law (collectively, the “Equity Interest
Purchase Price”).
1.4 Transfer of Optioned Interests
For each exercise of the Equity Interest Purchase Option:
1.4.1 Party B shall cause Party C to promptly convene a shareholders’ meeting, at which a resolution shall be adopted approving Party
B’s transfer of the Optioned Interests to Party A and/or the Designee(s);
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1.4.2 Party B shall obtain written statements from the other shareholders of Party C giving consent to the transfer of the Optioned
Interests by Party B to Party A and/or the Designee(s) and waiving any right of first refusal with respect thereto;
1.4.3 Party B shall execute an share transfer contract with respect to each transfer with Party A and/or each Designee (whichever is
applicable), in accordance with the provisions of this Agreement and the Equity Interest Purchase Option Notice regarding the
Optioned Interests;
1.4.4 Related Parties shall execute all other necessary contracts, agreements or documents with relevant parties, obtain all necessary
government approvals and permits, and conduct all necessary actions, so as to transfer valid ownership of the Optioned Interests
to Party A and/or the Designee(s), unencumbered by any security interests, and cause Party A and/or the Designee(s) to become
the registered owner(s) of the Optioned Interests. For the purpose of this Section and this Agreement, “security interests” shall
include securities, mortgages, third party’s rights or interests, any stock options, acquisition right, right of first refusal, right to
offset, ownership retention or other security arrangements, but shall be deemed to exclude any security interest created by this
Agreement, Party B’s Equity Interest Pledge Agreement and Party B’s Power of Attorney. “Party B’s Equity Interest Pledge
Agreement” as used in this Agreement shall refer to the Interest Pledge Agreement executed by and among Party A, Party B and
Party C on the date hereof and any modification, amendment and restatement thereto.; “Party B’s Power of Attorney” as used in
this Agreement shall refer to the Power of Attorney executed by Party B on the date hereof granting Party A with a power of
attorney and any modification, amendment and restatement thereto.
1.5 Assets Purchase Option
Party C hereby grants Party A an irrevocable and exclusive right to purchase, or Designee(s) to purchase the any part of or all of the assets
of Party C at Party A’s sole and absolute discretion to the extent permitted by PRC laws and at the price permitted by PRC laws. Under
such circumstances, Party A or the Designee(s) and Party C shall otherwise execute an asset transfer contract to agree on the terms and
conditions of such asset transfer. “Assets” under this contract refer to assets directly or indirectly owned or controlled by the company
from time to time and related to the company’s business operations, including current assets, capital equity for outbound investment, fixed
assets, and intangible assets (including but not limited to patent and non-patented technology), deferred assets, the available benefits under
all contracts entered into, and any other benefits that should be obtained by the company, including assets directly or indirectly owned or
controlled by the company’s branches and offices from time to time.
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2. Covenants
2.1 Covenants regarding Party C
Party B (as a shareholder of Party C) and Party C hereby covenant as follows:
2.1.1 Without the prior written consent of Party A, they shall not in any manner supplement, change or amend the articles of
association of Party C, increase or decrease Party C’s registered capital, or change its structure of registered capital in other
manners;
2.1.2 They shall maintain Party C’s corporate existence in accordance with good financial and business standards and practices, obtain
and maintain all necessary government licenses and permits by prudently and effectively operating its business and handling its
affairs;
2.1.3 Without the prior written consent of Party A, Party C shall not at any time following the date hereof, sell, transfer, mortgage or
dispose of in any manner any material assets of Party C or legal or beneficial interest exceeding RMB 100,000 in the material
business or revenues of Party C, or allow the encumbrance thereon of any security interest;
2.1.4 Without the prior written consent of Party A, Party C shall not incur, inherit, guarantee or suffer the existence of any debt,
except for payables incurred in the ordinary course of business other than through loans;
2.1.5 Party C shall always operate its businesses within the ordinary course of business to maintain the asset value of Party C and
refrain from any action/omission that may adversely affect Party C’s operating status and asset value;
2.1.6 Without the prior written consent of Party A, Party C shall not execute any major contract or any other contract inconsistent
with the major contract at present, except the contracts in the ordinary course of business (for the purpose of this subsection, a
contract with a price exceeding RMB 100,000 shall be deemed a major contract);
2.1.7 Without the prior written consent of Party A, they shall not cause Party C to provide any person with any loan or credit, or
provide guarantee to the debt of any third parties;
2.1.8 They shall provide Party A with information on Party C’s business operations and financial condition at Party A’s request;
2.1.9 If requested by Party A, they shall procure and maintain insurance in respect of Party C’s assets and business from an insurance
carrier acceptable to Party A, at an amount and type of coverage typical for companies that operate similar businesses;
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2.1.10 Without the prior written consent of Party A, they shall not cause or permit Party C to merge, consolidate with, acquire or invest
in any person;
2.1.11 They shall immediately notify Party A of the occurrence or possible occurrence of any litigation, arbitration or administrative
proceedings relating to Party C’s assets, business, revenue or equity interest;
2.1.12 To maintain the ownership by Party C of all of its assets, they shall execute all necessary or appropriate documents, take all
necessary or appropriate actions, file all necessary or appropriate complaints, and raise necessary or appropriate defenses against
all claims;
2.1.13 Without the prior written consent of Party A, Party C shall not in any manner distribute dividends to its shareholders, provided
that upon Party A’s written request, Party C shall immediately distribute all distributable profits to its shareholders;
2.1.14 At the request of Party A, they shall appoint any person designated by Party A as the director or executive director, shareholder
representative supervisor or other company management personnel who should be appointed and removed by shareholders of
Party C;
2.1.15 Without Party A’s prior written consent, they shall not engage in any business in competition with Party A or its affiliates;
2.1.16 Unless otherwise required by PRC law, Party C shall not be dissolved or liquated without prior written consent by Party A;
2.1.17 If Party C is dissolved and liquidated in accordance with PRC laws, Party A may exercise Equity Interest Purchase Option and
exercise all investor rights to Party C, and distribute Party C’s remaining properties in accordance with the laws (i.e., remaining
properties after paying liquidation expenses, employee salaries, social insurance expenses and statutory compensation, paying
taxes owed paying off company debts). If Party A does not exercise the Equity Interest Purchase Option by then, Party B shall
timely donate the liquidation proceeds of Party C to Party A or any person designated by Party A in accordance with PRC laws.
2.2 Covenants of Party B
Party B hereby covenants as follows:
2.2.1 Without the prior written consent of Party A, Party B shall not sell, transfer, mortgage or dispose of in any other manner any
legal or beneficial interest in the equity interests in Party C held by Party B, or allow the encumbrance thereon, except for the
interest placed in accordance with Party B’s Equity Interest Pledge Agreement and Party B’s Power of Attorney;
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2.2.2 Without the prior written consent of Party A, Party B shall cause the shareholders’ meeting and/or the directors (or the executive
director) of Party C not to approve any sale, transfer, mortgage or disposition in any other manner of any legal or beneficial
interest in the equity interests in Party C held by Party B, or allow the encumbrance thereon of any security interest, except for
the approval of interest placed in accordance with Party B’s Equity Interest Pledge Agreement and Party B’s Power of Attorney;
2.2.3 Without the prior written consent of Party A, Party B shall cause the shareholders’ meeting and/or the directors (or the executive
director) of Party C not to approve the merger or consolidation with any person, or the acquisition of or investment in any
person;
2.2.4 Party B shall immediately notify Party A of the occurrence or possible occurrence of any litigation, arbitration or administrative
proceedings relating to the equity interests in Party C held by Party B;
2.2.5 Party B shall ensure the shareholders (shareholders’ meeting) or the directors (or the executive director) of Party C to vote in
favor of the transfer of the Optioned Interests as set forth in this Agreement and to take any and all other actions that may be
requested by Party A;
2.2.6 To the extent necessary to maintain Party B’s ownership in Party C, Party B shall execute all necessary or appropriate
documents, take all necessary or appropriate actions, file all necessary or appropriate complaints, and raise necessary or
appropriate defenses against all claims;
2.2.7 Party B shall appoint any designee of Party A as the director or the executive director of Party C, at the request of Party A;
2.2.8 Party B hereby waives all of its right of first refusal (if any) in the event that other shareholders of Party C transfer equity
interests to Party A. Party B gives consent to the execution by each of the other shareholders of Party C with Party A and Party
C of the exclusive option agreement, the equity interest pledge agreement and the power of attorney similar to this Agreement,
Party B’s Equity Interest Pledge Agreement and Party B’s Power of Attorney, and undertakes not to take any action in conflict
with such documents executed by such other shareholders;
2.2.9 Party B shall promptly donate all such profit, interest, dividend or proceeds of liquidation received from Party C to Party A or
any other person designated by Party A in accordance with the applicable PRC laws;
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2.2.10 If Party B fails to fulfill its tax obligations under applicable laws which results in the impediment for Party A to exercise of
Equity Interest Purchase Option and/or asset purchase option, Party A shall be entitled to require Party B to perform such tax
obligations, or require Party B to pay such taxes to Party A, and Party A will pay such taxes; and
2.2.11 Party B shall strictly abide by the provisions of this Agreement and other contracts jointly or separately executed by and among
Party B, Party C and Party A, perform the obligations hereunder and thereunder, and refrain from any action/omission that may
affect the effectiveness and enforceability thereof. To the extent that Party B has any remaining rights with respect to the equity
interests subject to this Agreement hereunder or under the Party B’s Equity Interest Pledge Agreement or under the Party B’s
Power of Attorney, Party B shall not exercise such rights except in accordance with the written instructions of Party A.
3. Representations and Warranties

Party B and Party C hereby represent and warrant to Party A, jointly and severally, as of the date of this Agreement and each date of the transfer of
the Optioned Interests, that:
3.1 They have the power, capacity and authority to execute and deliver this Agreement and any share transfer contract to which they are
parties concerning each transfer of the Optioned Interests as described thereunder (each, a “Transfer Contract”), and to perform their
obligations under this Agreement and any Transfer Contracts. Party B and Party C agree to enter into Transfer Contracts substantially
consistent with the terms of this Agreement upon Party A’s exercise of the Equity Interest Purchase Option. This Agreement and the
Transfer Contracts to which they are parties constitute or will constitute their legal, valid and binding obligations and shall be
enforceable against them in accordance with the provisions thereof;
3.2 Party B and Party C have obtained any and all approvals and consents from the competent government authorities and third parties (if
required) for the execution, delivery and performance of this Agreement.
3.3 The execution and delivery of this Agreement or any Transfer Contracts and the obligations under this Agreement or any Transfer
Contracts shall not: (i) cause any violation of any applicable laws of China; (ii) be inconsistent with the articles of association, bylaws
or other organizational documents of Party C; (iii) cause the violation of any contracts or instruments to which they are a party or which
are binding on them, or constitute any breach under any contracts or instruments to which they are a party or which are binding on
them; (iv) cause any violation of any condition for the grant and/or continued effectiveness of any licenses or permits issued to either of
them; or (v) cause the suspension or revocation of or imposition of additional conditions to any licenses or permits issued to either of
them;
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3.4 Party B has the legal and complete title to the equity interests held by it in Party C. Except for Party B’s Equity Interest Pledge
Agreement and Party B’s Power of Attorney, Party B has not placed any security interest or encumbrances on such equity interests;
3.5 Party C represents that Party C has good and sellable ownership of all assets, and there are no liens, mortgages, claims and other
security rights and third-party rights on Party C’s assets;
3.6 Party C represents that Party C does not have any outstanding debts, except for (i) debt incurred during the ordinary course of business;
and (ii) debts disclosed to Party A for which Party A’s written consent has been obtained.
3.7 Party C represents that Party C has complied with all PRC laws and regulations applicable to the acquisition of asset; and
3.8 Party C represents that there is no pending or threatened litigation, arbitration or administrative proceedings relating to the equity
interests in Party C, assets of Party C or Party C.
4. Effective Date and Term

4.1 This Agreement shall become effective upon execution by the Parties, and remain effective until all equity interests held by Party B in
Party C have been transferred or assigned to Party A and/or any other person designated by Party A in accordance with this Agreement.
4.2 During the term this Agreement, Party A may decide to terminate this Agreement unconditionally by issuing a written notice to Party B in
advance without any liability at Party A’s own discretion. Except as otherwise required by PRC laws, Party B and Party C shall have no
right to unilaterally terminate this agreement.
5. Governing Law and Resolution of Disputes

5.1 Governing Law
The execution, effectiveness, interpretation, performance, amendment and termination of this Agreement and the resolution of disputes
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5.2 Methods of Resolution of Disputes
In the event of any dispute with respect to the interpretation and performance of this Agreement, the Parties shall first resolve the dispute
through friendly negotiations. In the event the Parties fail to reach an agreement on the dispute within thirty (30) days upon a written
notice requesting a negotiated settlement sent by one Party to the other Party, either Party may submit the relevant dispute to the China
International Economic and Trade Arbitration Commission in Beijing for arbitration, in accordance with the arbitration rules of such
arbitration commission effective at that time. The arbitration tribunal shall be consisted of three (3) arbitrators appointed according to
abovementioned arbitration rules, one (1) arbitrator shall be appointed by the claimant, one (1) arbitrator shall be appointed by the
respondent, and the third arbitrator shall be appointed by the negotiated designation of the first two arbitrators. The place of the hearing of
the arbitration shall be Beijing. The arbitration award shall be final and binding on both Parties.
5.3 Under the appropriate circumstances permitted by PRC laws, the arbitral tribunal may grant any remedies, including temporary and
permanent injunctive remedies (such as injunctive remedies for commercial activities, or injunctive remedies for forced transfer of assets),
actual performance of contractual obligations, remedies for Party B’s equity or assets and rulings ordering Party B to wind up. As
permitted by PRC laws, while waiting for the formation of the arbitration tribunal or under appropriate circumstances, both Parties are
entitled to seek temporary injunctive remedies or other temporary remedies to support the arbitration. In this regard, both Parties have
reached a consensus that the courts of Hong Kong courts, Cayman Islands, PRC and the courts of where Party B’s main assets are located
shall all be deemed to have jurisdiction without violating applicable laws.
5.4 Upon the occurrence of any disputes arising from the interpretation and performance of this Agreement or during the pending arbitration of
any dispute, except for the matters under dispute, the Parties shall continue to exercise their respective rights under this Agreement and
perform their respective obligations under this Agreement.
6. Taxes and Fees

Each Party shall pay any and all transfer and registration taxes, expenses and fees incurred thereby or levied thereon in accordance with the laws
of China in connection with the preparation and execution of this Agreement and the Transfer Contracts, as well as the consummation of the
transactions contemplated under this Agreement and the Transfer Contracts.
7. Notices
7.1 All notices and other communications required to be given or otherwise made pursuant to this Agreement shall be delivered personally, or
sent by registered mail, prepaid postage, a commercial courier service or facsimile transmission to the receiving Party’s following address
with an additional copy delivered via email. The dates on which notices shall be deemed to have been effectively given shall be
determined as follows:
7.1.1 Notices given by personal delivery, express services or registered mail, postage prepaid shall be deemed effectively given on the date
of signed receipt or rejection;
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7.1.2 Notices given by facsimile transmission shall be deemed effectively given on the date of successful delivery (which shall be
evidenced by the automatically generated transmission confirmation message).
massage indicating the delivery was successful or do not receive a system massage indication the e-mail has not been delivered or
has been returned within 24 hours. However, if the e-mail is delivered later than 5:00 pm or on a non-business day at the place of
delivery, the next business day of the date shown on the date record shall be the date of successful delivery.
7.2 For the purpose of notices, the contact information of the Parties are as follows:
Address: 201, 2nd Floor, Tower C, No. 2, Lize 2nd Middle Park, Chaoyang District, Beijing
Attn: SONG Nan
Telephone: 13601193404
If to Party B and Party C:
Address: 231 South, No. 2202 B, 2nd Floor, Building No. 1, No. 208, Lize 1st Middle Park, Chaoyang District, Beijing
Attn: XING Liang
7.3 Any Party may at any time change its address for notices by a notice delivered to the other Party in accordance with the terms of this
Section.
8. Confidentiality
The Parties acknowledge that the existence and the terms of this Agreement, and any oral or written information exchanged between the Parties in
connection with the preparation and performance of this Agreement are regarded as confidential information. Each Party shall maintain
confidentiality of all such confidential information, and without obtaining the written consent of other Parties, it shall not disclose any relevant
confidential information to any third parties, except for the information that: (a) is or will be in the public domain (other than through the
receiving Party’s unauthorized disclosure); (b) is under the obligation to be disclosed pursuant to the applicable laws or regulations, rules of any
stock exchange, or orders of the court or other government authorities; or (c) is required to be disclosed by any Party to its shareholders, directors,
employees, legal counsels or financial advisors regarding the transaction contemplated hereunder, provided that such shareholders, directors,
employees, legal counsels, or financial advisors shall be bound by the confidentiality obligations similar to those set forth in this Section.
Disclosure of any confidential information by the shareholders, director, employees of, or agencies engaged by any Party shall be deemed
disclosure of such confidential information by such Party and such Party shall be held liable for breach of this Agreement.
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9. Further Warranties
The Parties agree to promptly execute documents that are reasonably required for or are conducive to the implementation of the provisions and
purposes of this Agreement and take further actions that are reasonably required for or are conducive to the implementation of the provisions and
purposes of this Agreement.
10. Breach of Agreement

10.1 If Party B or Party C materially breaches any provision under this Agreement, Party A is entitled to terminate this Agreement and/or
require Party B or Party C to compensate the losses. This Section 10 shall not prejudice any other rights of Party A under this Agreement.
10.2 Unless otherwise required by the applicable laws, Party B or Party C shall not terminate this Agreement in any event.
11. Miscellaneous
11.1 Amendments, changes and supplements
The amendment, change and supplement to this Agreement shall be made by all of the Parties in writing agreement.
11.2 Entire agreement
Except for the amendments, supplements or changes in writing executed after the execution of this Agreement, this Agreement shall
constitute the entire agreement reached by and among the Parties hereto with respect to the subject matter hereof, and shall supersede all
prior oral and written consultations, representations and contracts reached with respect to the subject matter of this Agreement.
11.3 Headings
The headings of this Agreement are for convenience only, and shall not be used to interpret, explain or otherwise affect the meanings of
the provisions of this Agreement.
11.4 Language
This Agreement is written in both Chinese in four copies, each Party having one copy.
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11.5 Severability
In the event that one or several of the provisions of this Agreement are held to be invalid, illegal or unenforceable in any aspect in
accordance with any laws or regulations, the validity, legality or enforceability of the remaining provisions of this Agreement shall not be
affected or compromised in any respect. The Parties shall strive in good faith to replace such invalid, illegal or unenforceable provisions
with effective provisions that accomplish to the greatest extent permitted by law and the intentions of the Parties, and the economic effect
of such effective provisions shall be as close as possible to the economic effect of those invalid, illegal or unenforceable provisions.
11.6 Successors
The terms of this Agreement shall be binding on the Parties hereto and their respective successors and permitted assigns by each Party, and
shall be valid.
11.7 Survival
11.7.1 Any obligations that occurred or that are due in connection with this Agreement before the expiration or early termination of this
Agreement shall survive the expiration or early termination thereof.
11.7.2 The provisions of Sections 5, 8, 10 and this Section 11.7 shall survive the termination of this Agreement.
11.8 Waivers
Any Party may waive the terms and conditions of this Agreement, provided that such a waiver must be provided in writing and shall
require the signatures of the Parties. No waiver by any Party in certain circumstances with respect to a breach by other Parties shall operate
as a waiver by such a Party with respect to any similar breach in other circumstances.
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IN WITNESS WHEREOF, the Parties have caused their authorized representatives to execute this Exclusive Option Agreement as of the date first
above written.

Authorized Representative: /s/ SHEN Peng
Party B: /s/ SUN Xiaolei
Party B: /s/ LIU Nian
Party C: Beijing Guangmu Weichen Technology Co., Ltd. (seal)

Signature Page to Exclusive Option Agreement

Annex I
Shareholding Structure of Party C
Subscribed
Registered Shareholding
Name of Shareholder Capital (RMB) Percentage
SUN Xiaolei 990,000.00 99%
LIU Nian 10,000.000 1%
Total 1,000,000.00 100%
Annex I to Exclusive Option Agreement

Exhibit 4.29
Equity Interest Pledge Agreement
This Equity Interest Pledge Agreement (this “Agreement”) has been executed by and among the following parties on December 8, 2021 in
Beijing, the People’s Republic of China (“China” or “PRC”).
Party A: Beijing Absolute Health Co., Ltd. (hereinafter the “Pledgee”), a limited liability company established and existing under the laws of the
PRC, with its registered address at 201, 2nd Floor, Tower C, No. 2, Lize 2nd Middle Park, Chaoyang District, Beijing.
Party B: Party C’s all shareholders as listed in Annex I of this Agreement (Herein- after referred to individually as “Pledgor”, collectively as
“Pledgors”); and
Party C: Beijing Guangmu Weichen Technology Co., Ltd., a limited liability company established and existing under the laws of the PRC, with its
registered address at 231 South, No. 2202 B, 2nd Floor, Building No. 1, No. 208, Lize 1st Middle Park, Chaoyang District, Beijing.
In this Agreement, each of Pledgee, Pledgors and Party C shall be referred to individually as a “Party”, collectively as the “Parties”.
Whereas:
1. Pledgors are the registered shareholders of Party C and lawfully hold all the equity of Party C. As of the effective date of this Agreement, Party
C’s ownership structure is as shown in Annex I hereto. Party C is a limited liability company registered in Beijing, China. Party C acknowledges
the respective rights and obligations of Pledgors and Pledgee under this Agreement, and intends to provide any necessary assistance in
registering the Pledge;
2. Pledgee is a wholly foreign owned enterprise registered in China. Pledgee and Party C which is wholly owned by the Pledgors have executed an
Exclusive Business Cooperation Agreement (as defined below) in Beijing; Pledgee, Pledgors and Party C have executed an Exclusive Option
Agreement (as defined below); each Pledgor has executed a Power of Attorney (as defined below) in favor of Pledgee.
3. To ensure that Party C and Pledgors fully perform their obligations under the Exclusive Business Cooperation Agreement, the Exclusive Option
Agreement and the Power of Attorney, each Pledgor hereby pledges to the Pledgee all of the equity interest that such Pledgor holds in Party C as
security for fulfillment by Party C and Pledgors of their obligations under the Exclusive Business Cooperation Agreement, the Exclusive Option
Agreement and the Power of Attorney .
To perform the provisions of the Transaction Documents (as defined below), the Parties have mutually agreed to execute this Agreement upon the
following terms.
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Section 1 Definitions
Unless otherwise provided herein, the terms below shall have the following meanings:
1.1 Pledge: shall refer to the security interest granted by Pledgors to Pledgee pursuant to Section 2 of this Agreement, i.e., the right of
Pledgee to be compensated on a preferential basis with the conversion, auction or sales price of the Equity Interest.
1.2 Equity Interest: shall refer to all equity interests in Party C lawfully owned by Pledgors as of the date of this Agreement (for details of
Equity Interest of each Pledgor, please refer to Annex I), and all of the equity interests hereafter acquired by Pledgors in Party C.
1.3 Term of Pledge: shall refer to the term set forth in Section 3 of this Agreement.
1.4 Transaction Documents: the Exclusive Business Cooperation Agreement executed on December 8, 2021 (“Exclusive Business
Cooperation Agreement”) by and between Party C and Pledgee; the Exclusive Option Agreement executed on December 9, 2021
(“Exclusive Option Agreement”) by and among Party C, Pledgors and Pledgee and the Power of Attorney executed by the Pledgors on
December 8, 2021 (“Power of Attorney”), and any modification, amendment and/or restatement to the aforementioned documents.
1.5 Contract Obligations: shall refer to all the obligations of Pledgors under the Exclusive Option Agreement, the Loan Agreement, the
Power of Attorney and this Agreement; all the obligations of Party C under the Exclusive Business Cooperation Agreement, the
Exclusive Option Agreement, the Loan Agreement and this Agreement.
1.6 Secured Indebtedness: shall refer to all the direct, indirect and derivative losses and losses of anticipated profits, suffered by Pledgee,
incurred as a result of any Event of Default. The amount of such loss shall be calculated in accordance with the reasonable business plan
and profit forecast of Pledgee, the consulting and service fees payable to Pledgee under the Exclusive Business Cooperation Agreement,
all expenses occurred in connection with enforcement by Pledgee of Pledgors’ and/or Party C’s Contract Obligations and etc..
1.7 Event of Default: shall refer to any of the circumstances set forth in Section 7 of this Agreement.
1.8 Notice of Default: shall refer to the notice issued by Pledgee in accordance with this Agreement declaring an Event of Default.
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Section 2 The Pledge
2.1 Pledgors agree to pledge all the Equity Interest as security for performance of the Contract Obligations and payment of the Secured
Indebtedness under this Agreement. Party C hereby assents that Pledgors pledge the Equity Interest to the Pledgee pursuant to this
Agreement.
2.2 During the term of the Pledge, Pledgee is entitled to receive dividends distributed on the Equity Interest. Pledgors may receive
dividends distributed on the Equity Interest only with prior written consent of Pledgee. Dividends received by Pledgors on Equity
Interest after deduction of individual income tax paid by Pledgors shall be, as required by Pledgee, (1) deposited into an account
designated and supervised by Pledgee and used to secure the Contract Obligations and pay the Secured Indebtedness prior and in
preference to any other payment; or (2) unconditionally donated to Pledgee or any other person designated by Pledgee to the extent
permitted under applicable PRC laws.
2.3 Pledgors may subscribe for capital increase in Party C only with prior written consent of Pledgee. Any equity interest obtained by
Pledgors as a result of such Pledgors’ subscription of the increased registered capital of Party C shall also be deemed as Equity Interest.
2.4 In the event that Party C is required by PRC law to be liquidated or dissolved, any interest distributed to Pledgors upon Party C’s
dissolution or liquidation shall, upon the request of the Pledgee, be (1) deposited into an account designate and supervised by Pledgee
and used to secure the Contract Obligations and pay the Secured Indebtedness prior and in preference to any other payment; or
(2) unconditionally donated to Pledgee or any other person designated by Pledgee under the premise of compliance with applicable
PRC laws.
Section 3 Term of Pledge

3.1 The Pledge shall become effective on such date when the pledge of the Equity Interest contemplated herein has been registered with
relevant administration for market regulation (the “AMR”), and thereafter shall be continuously valid until all Contract Obligations
have been fulfilled and all Secured Indebtedness have been repaid up. Pledgors and Party C shall (a) register the Pledge hereof in the
shareholders’ register of Party C within 3 business days following the execution of this Agreement, and (b) fulfill the registration of the
Pledge hereof at AMR as soon as possible following the execution of this Agreement. The Parties jointly confirm that for the purpose of
registering the Pledge with the AMR, the Parties and other shareholders of Party C shall, submit a copy of this Agreement or an equity
pledge agreement executed in the form required by the local AMR where Party C resides which shall truly reflect the information of the
Pledge hereunder (the “AMR Equity Pledge Agreement”) to the AMR. Where there is any inconsistency between AMR Equity Pledge
Agreement and this Agreement and Transaction Documents, this Agreement and Transaction Documents shall prevail. Pledgors and
Party C shall submit all necessary documents and complete all necessary procedures, pursuant to the PRC laws and regulations and the
requirements of relevant AMR, to ensure that the Pledge shall be registered as soon as possible after filing.
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3.2 During the Term of the Pledge, in the event the Pledgors and/or Party C fail to perform the Contract Obligations or pay Secured
Indebtedness, the Pledgee shall have the right, but not the obligation, to exercise the Pledge in accordance with the provisions of this
Agreement.
Section 4 Custody of Records for Equity Interest subject to Pledge

4.1 During the Term of the Pledge set forth in this Agreement, the Pledgors shall deliver to the Pledgee’s custody the capital contribution
certificate for the Equity Interest and the shareholders’ register containing the Pledge within one week from the execution of this
Agreement. The Pledgee shall have custody of such documents during the entire Term of the Pledge set forth in this Agreement.
Section 5 Representations and Warranties of Pledgors and Party C

As of the execution of this Agreement, Pledgors and Party C hereby jointly and respectively represent and warrant to Pledgee that:
5.1 Pledgors are the sole legal and beneficial owner of the Equity Interest.
5.2 Pledgee shall have the right to dispose of and transfer the Equity Interest in accordance with the provisions set forth in this Agreement.
5.3 Except for the Pledge and the Transaction Documents, Each Pledgor has not placed any security interest or other encumbrance on the
Equity Interest.
5.4 Pledgors and Party C have obtained any and all approvals and consents from applicable government authorities and third parties (if
required) for execution, delivery and performance of this Agreement.
5.5 The execution, delivery and performance of this Agreement will not: (i) violate any relevant PRC laws; (ii) conflict with Party C’s
Sections of association or other constitutional documents; (iii) result in any breach of or constitute any default under any contract or
instrument to which it is a party or by which it is otherwise bound; (iv) result in any violation of any related condition for the grant
and/or maintenance of any permit or approval granted to any Party; or (v) cause any permit or approval granted to any Party to be
suspended, cancelled or attached with additional conditions.
Section 6 Covenants of Pledgors and Party C

6.1 During the term of this Agreement, Pledgors and Party C hereby jointly and respectively covenant to the Pledgee:
6.1.1 Pledgors shall not transfer the Equity Interest, place or permit the existence of any security interest or other encumbrance on the
Equity Interest or any portion thereof, without the prior written consent of Pledgee, except for the performance of the
Transaction Documents;
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6.1.2 Pledgors and Party C shall comply with the provisions of all laws and regulations related to the pledge of rights, and within ten
(10) days of receipt of any notice, order or recommendation issued or prepared by relevant competent authorities regarding the
Pledge, shall present the aforementioned notice, order or recommendation to Pledgee, and shall comply with the aforementioned
notice, order or recommendation or submit objections and representations with respect to the aforementioned matters upon
Pledgee’s reasonable request or upon consent of Pledgee;
6.1.3 Pledgors and Party C shall promptly notify Pledgee of any event or notice received by Pledgors that may cause any impact on
the Equity Interest or any portion thereof, as well as any event or notice received by Pledgors that may have an impact on any
guarantees and other obligations of Pledgors arising out of this Agreement.
6.1.4 To maintain the validity of this Agreement, Party C shall complete the registration for the extension of its operation term within
three (3) months prior to the expiration of its operation term.
6.2 Pledgors agree that the rights acquired by Pledgee in accordance with this Agreement with respect to the Pledge shall not be interrupted
or harmed by Pledgors or any heirs or representatives of such Pledgors or any other persons through any legal proceedings.
6.3 To protect or perfect the security interest granted by this Agreement for fulfillment of Contract Obligations and repayment of Secured
Indebtedness, Pledgors hereby undertake to execute in good faith and to cause other parties who have an interest in the Pledge to
execute all certificates, agreements, deeds and/or covenants required by Pledgee. Pledgors also undertake to perform and to cause other
parties who have an interest in the Pledge to perform actions required by Pledgee, to facilitate the exercise by Pledgee of its rights and
authority granted thereto by this Agreement, and to enter into all relevant documents regarding ownership of Equity Interest with
Pledgee or designee(s) of Pledgee (natural persons/legal persons). Pledgors undertake to provide Pledgee within a reasonable time with
all notices, orders and decisions regarding the Pledge that are required by Pledgee.
6.4 Pledgors hereby undertake to comply with and perform all guarantees, promises, agreements, representations and conditions under this
Agreement. In the event of failure or partial performance of its guarantees, promises, agreements, representations and conditions,
Pledgors shall indemnify Pledgee for all losses resulting therefrom.
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Section 7 Event of Default
7.1 The following circumstances shall be deemed Event of Default:
7.1.1 Pledgors’ any breach to any obligations under the Transaction Documents and/or this Agreement.
7.1.2 Party C’s any breach to any obligations under the Transaction Documents and/or this Agreement.
7.2 Upon notice or discovery of the occurrence of any circumstances or event that may lead to the aforementioned circumstances described
in Section 7.1, Pledgors and Party C shall immediately notify Pledgee in writing accordingly.
7.3 Unless an Event of Default set forth in this Section 7.1 has been successfully resolved to Pledgee’s satisfaction within twenty (20) days
after the Pledgee and/or Party C delivers a notice to the Pledgors requesting rectification of such Event of Default, Pledgee may issue a
Notice of Default to Pledgors in writing at any time thereafter, demanding the exercise of Pledge in accordance with the provisions of
Section 8 of this Agreement.
Section 8 Exercise of Pledge

8.1 Pledgee shall issue a Notice of Default to Pledgors when exercising the Pledge.
8.2 Subject to the provisions of Section 7.3, Pledgee may exercise the right to enforce the Pledge at any time after the issuance of the Notice
of Default. Once Pledgee elects to enforce the Pledge, Pledgors shall cease to be entitled to any rights or interests associated with the
Equity Interest.
8.3 After Pledgee issues a Notice of Default to Pledgors in accordance with Section 8.1, Pledgee may exercise any remedy measure under
applicable PRC laws, the Transaction Documents and this Agreement, including but not limited to being paid in priority with the Equity
Interest based on the monetary valuation that such Equity Interest is converted into or from the proceeds from auction or sale of the
Equity Interest. The Pledgee shall not be liable for any loss incurred by its duly exercise of such rights and powers.
8.4 The proceeds from exercise of the Pledge by Pledgee shall be used to pay for tax and expenses incurred as result of disposing the Equity
Interest and to perform Contract Obligations and pay the Secured Indebtedness to the Pledgee prior and in preference to any other
payment. After the payment of the aforementioned amounts, the remaining balance shall be returned to Pledgors or any other person
who have rights to such balance under applicable laws or be deposited to the local notary public office where such Pledgor resides, with
all expense incurred being borne by such Pledgor. To the extent permitted under applicable PRC laws, Pledgors shall unconditionally
donate the aforementioned proceeds to Pledgee or any other person designated by Pledgee.
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8.5 Pledgee may exercise any remedy measure available simultaneously or in any order. Pledgee may exercise the right to being paid in
priority with the Equity Interest based on the monetary valuation that such Equity Interest is converted into or from the proceeds from
auction or sale of the Equity Interest under this Agreement, without exercising any other remedy measure first.
8.6 Pledgee is entitled to designate an attorney or other representatives to exercise the Pledge on its behalf, and Pledgors or Party C shall
not raise any objection to such exercise.
8.7 When Pledgee disposes of the Pledge in accordance with this Agreement, Pledgors and Party C shall provide necessary assistance to
enable Pledgee to enforce the Pledge in accordance with this Agreement.
8.8 Any expenses incurred by the Pledgee in disposing of the Pledge in accordance with this Agreement (including appointing its lawyers
or other agents to exercise its pledge) shall be borne by Party C.
Section 9 Breach of Agreement

9.1 If Pledgors or Party C conducts any material breach of any term of this Agreement, Pledgee shall have right to terminate this Agreement
and/or require Pledgors or Party C to indemnify all damages; this Section 9 shall not prejudice any other rights of Pledgee herein;
9.2 Pledgors and Party C shall not have any right to terminate this Agreement in any event unless otherwise required by the applicable laws.
Section 10 Assignment
10.1 Without Pledgee’s prior written consent, Pledgors and Party C shall not have the right to donate or assign their rights and obligations
under this Agreement.
10.2 This Agreement shall be binding on Pledgors and his/her heirs and permitted assigns, and shall be valid with respect to Pledgee and
each of his/her heirs and assigns.
10.3 At any time, Pledgee may assign any and all of its rights and obligations under the Transaction Documents and under this Agreement to
its designee(s), in which case the designee shall have the rights and obligations of Pledgee under the Transaction Documents and this
Agreement, as if it were the original party to the Transaction Documents and this Agreement.
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10.4 In the event of a change in Pledgee due to an assignment, Pledgors and/or Party C shall, at the request of Pledgee, execute a new pledge
agreement with the new pledgee on the same terms and conditions as this Agreement, and register the same with the relevant AMR.
10.5 Pledgors and Party C shall strictly abide by the provisions of this Agreement and other contracts jointly or separately executed by the
Parties hereto or any of them, including the Transaction Documents, perform the obligations hereunder and thereunder, and refrain from
any action/omission that may affect the effectiveness and enforceability thereof. Any remaining rights of Pledgors with respect to the
Equity Interest pledged hereunder shall not be exercised by any Pledgors except in accordance with the written instructions of Pledgee.
Section 11 Termination
11.1 This Agreement shall be terminated upon the fulfillment of all Contract Obligations and the full repayment of all Secured Indebtedness.
Upon the fulfillment of all Contract Obligations and the full repayment of all Secured Indebtedness by Pledgors and Party C, Pledgee
shall release the Pledge under this Agreement upon Pledgors’ request as soon as reasonably practicable and shall assist Pledgors to
de-register the Pledge from the shareholders’ register of Party C and cancel the registration of Pledge with relevant AMR.
11.2 The provisions under Sections 9, 13, 14 and 11.2 herein of this Agreement shall survive the expiration or termination of this Agreement.
Section 12 Handling Fees and Other Expenses

All fees and out of pocket expenses relating to this Agreement, including but not limited to legal costs, costs of production, stamp tax and any
other taxes and fees, shall be borne by Party C.
Section 13 Confidentiality
The Parties acknowledge that the existence and the terms of this Agreement and any oral or written information exchanged between the Parties
in connection with the preparation and performance this Agreement are regarded as confidential information. Each Party shall maintain the
confidentiality of all such confidential information, and without obtaining the written consent of the other Party, it shall not disclose any relevant
confidential information to any third parties, except for the information that: (a) is or will be in the public domain (other than through the
receiving Party’s unauthorized disclosure); (b) is under the obligation to be disclosed pursuant to the applicable laws or regulations, rules of any
stock exchange, or orders of the court or other government authorities; or (c) is required to be disclosed by any Party to its shareholders,
directors, employees, legal counsels or financial advisors regarding the transaction contemplated hereunder, provided that such shareholders,
directors, employees, legal counsels or financial advisors shall be bound by the confidentiality obligations similar to those set forth in this
Section. Disclosure of any confidential information by the shareholders, director, employees of or agencies engaged by any Party shall be
deemed disclosure of such confidential information by such Party and such Party shall be held liable for breach of this Agreement.
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Section 14 Governing Law and Resolution of Disputes
14.1 The execution, effectiveness, construction, performance, amendment and termination of this Agreement and the resolution of disputes
14.2 In the event of occurrence of any dispute arising from or with respect to the interpretation and performance of this Agreement, the
Parties shall first resolve the dispute through friendly negotiations. Where the dispute is not solved within 30 days after delivery of
request for friendly negotiation by any Party to other Parties, either Party may submit the relevant dispute to the China International
Economic and Trade Arbitration Commission for arbitration in accordance with its arbitration rules. The place of arbitration shall be
Beijing. The arbitration tribunal shall be consisted of three (3) arbitrators appointed according to abovementioned arbitration rules, one
(1) arbitrator shall be appointed by the claimant, one (1) arbitrator shall be appointed by the respondent, and the third arbitrator shall be
appointed by the negotiated designation of the first two arbitrators. The arbitration award shall be final and binding on the Parties.
14.3 Where appropriate, the arbitration tribunal or arbitrators may, in accordance with this Section 14 and/or applicable PRC law, rule on
remedies in respect of Party C’s equity or assets or the assets of the Pledgors, including restrictions on business operations, restrictions
or prohibitions on transfers or selling equity or assets or proposing to liquidate Party C. In addition, during the formation of the
arbitration tribunal, the Pledgee has the right to grant interim relief to any court of competent jurisdiction (including the courts of PRC,
Hong Kong and the Cayman Islands).
14.4 During the process of arbitration regarding any dispute arising from or with respect to the interpretation and performance of this
Agreement or any other dispute, the Parties shall continue to exercise their respective rights under this Agreement and perform their
respective obligations under this Agreement except for the matters under dispute.
Section 15 Notices
15.1 All notices and other communications required or permitted to be given pursuant to this Agreement shall be delivered personally or sent
by registered mail, postage prepaid, by a commercial courier service or by facsimile transmission to the address of such party below. A
confirmation copy of each notice shall also be sent by E-mail. The dates on which notices shall be deemed to have been effectively
given shall be determined as follows:
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15.1.1 Notices given by personal delivery, courier service, registered mail or prepaid postage shall be deemed effectively given on the
date of receipt or refusal at the address set forth below.
15.1.2 Notices given by facsimile transmission shall be deemed effectively given on the date of successful transmission to the Fax no.
set forth below (as evidenced by an automatically generated confirmation of transmission).
massage indicating the delivery was successful or do not receive a system massage indication the e-mail has not been delivered
or has been returned within 24 hours. However, if the e-mail is delivered later than 5:00 pm or on a non-business day at the
place of delivery, the next business day of the date shown on the date record shall be the date of successful delivery.
15.2 For the purpose of notices, the addresses of the Parties are as follows:
Address: 201, 2nd Floor, Tower C, No. 2, Lize 2nd Middle Park, Chaoyang District, Beijing
Attn: SONG Nan
If to Party B and Party C:
Address: 231 South, No. 2202 B, 2nd Floor, Building No. 1, No. 208, Lize 1st Middle Park, Chaoyang District, Beijing
Attn: XING Liang
15.3 Any Party may at any time change its address for notices by a notice delivered to the other Parties in accordance with the terms of this
Section.
Section 16 Severability
In the event that one or several of the provisions of this Contract are found to be invalid, illegal or unenforceable in any aspect in accordance
with any laws or regulations, the validity, legality or enforceability of the remaining provisions of this Contract shall not be affected or
compromised in any respect. The Parties shall strive in good faith to replace such invalid, illegal or unenforceable provisions with effective
provisions that accomplish to the greatest extent permitted by law and the intentions of the Parties, and the economic effect of such effective
provisions shall be as close as possible to the economic effect of those invalid, illegal or unenforceable provisions.
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Section 17 Effectiveness
17.1 This Agreement shall become effective upon execution by the Parties
17.2 Any amendments, supplements and changes to this Agreement shall be in writing and shall become effective upon completion of the
governmental filing procedures (if applicable) after the affixation of the signatures or seals of the Parties.
Section 18 Language and Counterparts

This Agreement is written in Chinese in five copies. The Pledgors, the Pledgee and Party C shall hold one copy respectively and the other copy
shall be used for registration.
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IN WITNESS WHEREOF, the Parties have caused their authorized representatives to execute this Equity Interest Pledge Agreement as of the date first
above written.

Authorized Representative: /s / SHEN Peng
Party B: /s/ SUN Xiaolei
Party B: /s/ LIU Nian
Party C: Beijing Guangmu Weichen Technology Co., Ltd. (seal)

Signature Page to Equity Interest Pledge Agreement

Annex I
Party C’s Ownership Structure
Subscribed
Registered Shareholding
Name of Shareholder Capital (RMB) Percentage
SUN Xiaolei 990,000.00 99%
LIU Nian 10,000.000 1%
Total 1,000,000.00 100%
Annex I to Equity Interest Pledge Agreement

Exhibit 4.30
Power of Attorney
I, SUN Xiaolei, a citizen of the People’s Republic of China (“China” or the “PRC”) whose Identification Card No. is [***], and a holder of 99%
of the registered capital of Beijing Guangmu Weichen Technology Co., Ltd. (“Guangmu Weichen”) as of the date of this Power of Attorney, hereby
irrevocably authorize and entrust Beijing Absolute Health Co., Ltd. (“WFOE”) to exercise the following rights and handle the following matters on my
behalf relating to all equity interests held by me now and in the future (“My Shareholding”) in Guangmu Weichen, during the term of this Power of
Attorney:
WFOE or any person(s) designated by WFOE (including but not limited to directors of WFOE’s parent company Waterdrop Group HK Limited,
successors of such directors and liquidators in replacement of such directors, excluding any non-independent persons or persons who may result in the
conflicts of interest) (“Agent”) is hereby authorized to act on my behalf as my sole and exclusive agent to exercise the rights with respect to all matters
concerning My Shareholding, including without limitation to: (1) as the shareholder’s proxy, convening and attending shareholders’ meetings of
Guangmu Weichen according to the company’s articles of association, (2) exercising all of the shareholder’s rights and shareholder’s voting rights that I
am entitled to under the laws of China and the articles of association of Guangmu Weichen (including any other shareholder voting rights stipulated after
the amendments to the articles of association), including without limitation handling the sale, transfer, pledge or disposition of My Shareholding in part
or in whole, (3) representing myself in appointing and nominating any legal representative, director, supervisor, chief manager and other executive of
Guangmu Weichen, and (4) sign the notice of the shareholders meeting, the meeting minutes and resolutions on behalf of the shareholders, and submit
the documents required for the approval, registration and filing related to the company’s operation to the relevant government departments (including
the company registration management department) on behalf of the shareholders.
Without limiting the generality of the powers granted hereunder, the Agent shall have the power and authority to, on behalf of myself, execute:
(1) the Exclusive Option Agreement executed on December 8, 2021 by and among me, WFOE, Guangmu Weichen and other related parties, and (2) the
Equity Interest Pledge Agreement executed on December 8, 2021 by and among me, WFOE, Guangmu Weichen and other related parties (in each case,
including any modification, amendment or restatement to the aforementioned documents, collectively referred to as the “Transaction Documents”),
and any documents and agreements I shall sign as required in the aforesaid agreements (including without limitation the “Share Transfer Contract” as
described under the Exclusive Option Agreement).
All the actions associated with My Shareholding conducted by the Agent shall be deemed as my own actions, and all the documents related to My
Shareholding executed by the Agent shall be deemed to be executed by me. I hereby acknowledge and ratify the actions taken by the Agent and the
documents executed by the Agent in relation to My Shareholding.
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The Agent has the right to re-authorize or assign one or multiple matters and its rights related to such matters under this Power of Attorney to any
other person or entity at its own discretion and without obtaining my prior consent. If required by PRC laws, the Agent shall designate a qualified PRC
citizen to handle such matters and exercise such rights as set forth in this Power of Attorney.
During the period that I am a shareholder of Guangmu Weichen, This Power of Attorney shall be irrevocable and continuously effective and valid
from the date of execution of this Power of Attorney. This Power of Attorney takes effect as of the date hereof and shall become effective until all equity
or all assets of Guangmu Weichen have been transferred to the WFOE and/or other entities or individuals designated by it in accordance with the
Exclusive Option Agreement signed by the parties on the date of execution of this Power of Attorney.
I hereby declare and covenant the following: (1) I am a Chinese citizen with full capacity and a registered lawful shareholder of Guangmu
Weichen. I have full and independent legal status and legal capacity, and have been duly authorized to sign, deliver and perform this Power of Attorney.
I can independently act as a party of litigation, (2) There is no litigation, arbitration or other judicial or administrative action that has arisen and is
pending that will affect my ability to perform the obligations under this Power of Attorney, (3) natural person shareholders have made proper
arrangements and signed necessary documents to ensure that in the event of his or her death, incapacity, bankruptcy, divorce or other events that may
affect their exercise of equity, the heirs, guardians, creditors, spouses and other persons who may acquire equity or related rights as a result, shall not
affect or hinder the performance of this Power of Attorney.
During the term of this Power of Attorney, I hereby waive all the rights associated with My Shareholding, which have been authorized to the
Agent through this Power of Attorney, and shall not exercise such rights by myself.
This Power of Attorney is dated on December 8, 2021.
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Principal: /s/ SUN Xiaolei
Accepted by: Beijing Absolute Health Co., Ltd. (seal)

Signature Page to Power of Attorney

Exhibit 4.31
Power of Attorney
I, LIU Nian, a citizen of the People’s Republic of China (“China” or the “PRC”) whose Identification Card No. is [***] and a holder of 1% of the
registered capital of Beijing Guangmu Weichen Technology Co., Ltd. (“Guangmu Weichen”) as of the date of this Power of Attorney, hereby
irrevocably authorize and entrust Beijing Absolute Health Co., Ltd. (“WFOE”) to exercise the following rights and handle the following matters on my
behalf relating to all equity interests held by me now and in the future (“My Shareholding”) in Guangmu Weichen, during the term of this Power of
Attorney:
WFOE or any person(s) designated by WFOE (including but not limited to directors of WFOE’s parent company Waterdrop Group HK Limited,
successors of such directors and liquidators in replacement of such directors, excluding any non-independent persons or persons who may result in the
conflicts of interest) (“Agent”) is hereby authorized to act on my behalf as my sole and exclusive agent to exercise the rights with respect to all matters
concerning My Shareholding, including without limitation to: (1) as the shareholder’s proxy, convening and attending shareholders’ meetings of
Guangmu Weichen according to the company’s articles of association, (2) exercising all of the shareholder’s rights and shareholder’s voting rights that I
am entitled to under the laws of China and the articles of association of Guangmu Weichen (including any other shareholder voting rights stipulated after
the amendments to the articles of association), including without limitation handling the sale, transfer, pledge or disposition of My Shareholding in part
or in whole, (3) representing myself in appointing and nominating any legal representative, director, supervisor, chief manager and other executive of
Guangmu Weichen, and (4) sign the notice of the shareholders meeting, the meeting minutes and resolutions on behalf of the shareholders, and submit
the documents required for the approval, registration and filing related to the company’s operation to the relevant government departments (including
the company registration management department) on behalf of the shareholders.
Without limiting the generality of the powers granted hereunder, the Agent shall have the power and authority to, on behalf of myself, execute:
(1) the Exclusive Option Agreement executed on December 8, 2021 by and among me, WFOE, Guangmu Weichen and other related parties, and (2) the
Equity Interest Pledge Agreement executed on December 8, 2021 by and among me, WFOE, Guangmu Weichen and other related parties (in each case,
including any modification, amendment or restatement to the aforementioned documents, collectively referred to as the “Transaction Documents”),
and any documents and agreements I shall sign as required in the aforesaid agreements (including without limitation the “Share Transfer Contract” as
described under the Exclusive Option Agreement).
All the actions associated with My Shareholding conducted by the Agent shall be deemed as my own actions, and all the documents related to My
Shareholding executed by the Agent shall be deemed to be executed by me. I hereby acknowledge and ratify the actions taken by the Agent and the
documents executed by the Agent in relation to My Shareholding.
1
The Agent has the right to re-authorize or assign one or multiple matters and its rights related to such matters under this Power of Attorney to any
other person or entity at its own discretion and without obtaining my prior consent. If required by PRC laws, the Agent shall designate a qualified PRC
citizen to handle such matters and exercise such rights as set forth in this Power of Attorney.
During the period that I am a shareholder of Guangmu Weichen, This Power of Attorney shall be irrevocable and continuously effective and valid
from the date of execution of this Power of Attorney. This Power of Attorney takes effect as of the date hereof and shall become effective until all equity
or all assets of Guangmu Weichen have been transferred to the WFOE and/or other entities or individuals designated by it in accordance with the
Exclusive Option Agreement signed by the parties on the date of execution of this Power of Attorney.
I hereby declare and covenant the following: (1) I am a Chinese citizen with full capacity and a registered lawful shareholder of Guangmu
Weichen. I have full and independent legal status and legal capacity, and have been duly authorized to sign, deliver and perform this Power of Attorney.
I can independently act as a party of litigation, (2) There is no litigation, arbitration or other judicial or administrative action that has arisen and is
pending that will affect my ability to perform the obligations under this Power of Attorney, (3) natural person shareholders have made proper
arrangements and signed necessary documents to ensure that in the event of his or her death, incapacity, bankruptcy, divorce or other events that may
affect their exercise of equity, the heirs, guardians, creditors, spouses and other persons who may acquire equity or related rights as a result, shall not
affect or hinder the performance of this Power of Attorney.
During the term of this Power of Attorney, I hereby waive all the rights associated with My Shareholding, which have been authorized to the
Agent through this Power of Attorney, and shall not exercise such rights by myself.
This Power of Attorney is dated on December 8, 2021.
The Remainder of this page is intentionally left blank
2
Principal: /s/ LIU Nian
Accepted by: Beijing Absolute Health Co., Ltd. (seal)

Signature Page to Power of Attorney

Exhibit 4.32
Spousal Consent Letter
The undersigned, YAN Shi, (Identification Card No. [***]), is the lawful spouse of LIU Nian (Identification Card No. [***]). I hereby confirm I
have understood, and unconditionally and irrevocably issue this Spousal Consent Letter in respect of the equity interest held by LIU Nian in Beijing
Guangmu Weichen Technology Co., Ltd. (“Guangmu Weichen”) as following:
I have understood:
(1) All of the equity interests held by LIU Nian in Guangmu Weichen will be disposed of in accordance with the Exclusive Option Agreement
executed on December 8, 2021 by and among LIU Nian and Beijing Absolute Health Co., Ltd. (“WFOE”) and related parties, and such
equity interests are subject to the control formed by WFOE and/or its subsidiaries through a series of agreement arrangements.
(2) All of the equity interests held by LIU Nian in Guangmu Weichen will be disposed of in accordance with the Equity Interest Pledge
Agreement executed on December 8, 2021 by and among LIU Nian, WFOE, Guangmu Weichen and related parties.
(3) All of the equity interests held by LIU Nian in Guangmu Weichen will be disposed of in accordance with the Power of Attorney executed
on December 8, 2021 issued by LIU Nian to WFOE.
I hereby confirm I understand and agree that LIU Nian executed the Exclusive Option Agreement, the Equity Interest Pledge Agreement and the
Power of Attorney (in each case, including any modification, amendment or restatement to the aforementioned documents, collectively referred to as the
“Transaction Documents”), and to dispose of the corresponding equity and interest attached thereto in Guangmu Weichen in accordance with the
Transaction Documents. I will not take any action at any time to impede the arrangements for the disposal of the aforesaid shareholding.
I hereby confirm and agree that the equity interests and any rights and interests attached thereto in Guangmu Weichen currently and hereafter held
by my spouse is her individual property, and shall not constitute the jointly owned properties between my spouse and I, which my spouse is entitled to
dispose of on her own. I hereby unconditionally and irrevocably waive any right or interest with respect to such equity interest and its corresponding
assets that I may be entitled to under any applicable laws, and undertake not to raise any claim with respect to such equity interest and its corresponding
assets, including claiming that such equity interest and its corresponding assets constitute the jointly owned property between my spouse and me, and
thereby claiming to participate in the daily operation and management of Guangmu Weichen or cast vote or in any way impact the decision of my
spouse regarding such equity interests or any rights and interest attached thereto.
1
I further confirm that, no separate authority or consent on my part is required for LIU Nian to perform the Transaction Documents, amend or
terminate the Transaction Documents.
I hereby undertake to execute all necessary documents and take all necessary actions to ensure appropriate performance of the Transaction
Documents (as amended from time to time).
I hereby agree and covenant that, if I acquire any equity interests or any rights or interest attached thereto from Guangmu Weichen for any reason,
I shall be bound by the Transaction Documents (as amended from time to time), and comply with the obligations of shareholders of Guangmu Weichen
under the Transaction Documents (as amended from time to time). For such purpose, at the request of WFOE, I will execute a series of written
documents with the form and substance substantially the same as the Transaction Documents (as amended from time to time).
I hereby further confirm, covenant and undertake, in all cases, including without limitation, the occurrence of the divorce between my spouse and
me, my spouse shall be entitled to independently dispose the equity interest and the corresponding assets he/she holds in Guangmu Weichen, and I will
not take any actions that may affect or prevent my spouse’s performance of her duties under the Transaction Documents, including but not limited to
raising any claim for the equity interest in Guangmu Weichen or any rights endowed under the Transaction Documents.
I hereby agree and covenant that, I will not act in any manner or any claim or file a lawsuit that conflicts with the arrangement contemplated under
the Transaction Documents or this Spousal Consent Letter at any time whether direct or indirect, active or passive.
The Spousal Consent Letter is dated on December 8, 2021.

(Signature page to Spousal Consent Letter)
Signatory: /s/ Yan Shi

EXHIBIT 8.1
List of Significant Subsidiaries and VIEs of the Registrant
Subsidiaries Place of Incorporation

Waterdrop Group HK Limited Hong Kong
Beijing Absolute Health Ltd. PRC
Shanghai Danzheng Health Technology Co., Ltd. PRC
Consolidated Variable Interest Entities Place of Incorporation

Beijing Shuidi Hubao Technology Co., Ltd. PRC
Beijing Shuidi Hulian Technology Co., Ltd. PRC
Beijing Zhuiqiu Jizhi Technology Co., Ltd. PRC
Beijing Zongqing Xiangqian Technology Co., Ltd. PRC
Beijing Guangmu Weichen Technology Co., Ltd. PRC
Subsidiaries of Consolidated Variable Interest Entities Place of Incorporation

Tianjin Jingbin Internet Technology Co., Ltd. PRC
Shuidi Insurance Brokerage Co., Ltd. PRC
Miaoyi Hulian (Beijing) Technology Co., Ltd. PRC
Tairui Insurance Agency Co., Ltd. PRC
Beijing Yifan Fengshun Medical Technology Co., Ltd. PRC
Exhibit 12.1
Certification by the Principal Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Peng Shen, certify that:
1. I have reviewed this annual report on Form 20-F of Waterdrop Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this report is being prepared;
(b) [reserved];
(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by
the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting;
and
5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting,
to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal
control over financial reporting.
By: /s/ Peng Shen

Name: Peng Shen
Title: Chief Executive Officer
Exhibit 12.2
Certification by the Principal Financial Officer

I, Kangping Shi, certify that:
1. I have reviewed this annual report on Form 20-F of Waterdrop Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this report is being prepared;
(b) [reserved];
(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by
the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting;
and
5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting,
to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal
control over financial reporting.
By: /s/ Kangping Shi

Name: Kangping Shi
Title: Chief Financial Officer
Exhibit 13.1
Certification by the Principal Executive Officer

In connection with the Annual Report of Waterdrop Inc. (the “Company”) on Form 20-F for the year ended December 31, 2021 as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), I, Peng Shen, Chief Executive Officer of the Company, certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
By: /s/ Peng Shen

Name: Peng Shen
Title: Chief Executive Officer
Exhibit 13.2
Certification by the Principal Financial Officer

In connection with the Annual Report of Waterdrop Inc. (the “Company”) on Form 20-F for the year ended December 31, 2021 as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), I, Kangping Shi, Chief Financial Officer of the Company, certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
By: /s/ Kangping Shi

Name: Kangping Shi
Title: Chief Financial Officer
Exhibit 15.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement No. 333-261408 on Form S-8 of our report dated April 28, 2022, relating
to the financial statements of Waterdrop Inc., appearing in this Annual Report on Form 20-F for the year ended December 31, 2021.
/s/ Deloitte Touche Tohmatsu Certified Public Accountants LLP

Deloitte Touche Tohmatsu Certified Public Accountants LLP
Beijing, the People’s Republic of China
April 28, 2022
Exhibit 15.2
9/F, Office Tower C1, Oriental Plaza, 1 East Chang An Avenue

Beijing 100738, P. R. China
Tel: +86 10 8525 5500 Fax: +86 10 6525 5511 / 8525 5522
Beijing · Shanghai · Shenzhen · Hong Kong
www.hankunlaw.com
Consent of Han Kun Law Offices
To:
Waterdrop Inc.
Dear Sirs,
We consent to the reference to our firm under the headings “Item 3.D—Risk Factors—Risks Related to Our Corporate Structure” and “Item 4.C—
Organizational Structure—Contractual Arrangements with the Variable Interest Entities and Their Shareholders” in Waterdrop Inc.’s Annual Report on
Form 20-F for the year ended December 31, 2021, which will be filed with the Securities and Exchange Commission (the “SEC”) on the date hereof,
and further consent to the incorporation by reference of the summaries of our opinion under these headings into the Registration Statement on Form S-8
(File No. 333-261408) that was filed on November 30, 2021. We also consent to the filing of this consent letter with the SEC as an exhibit to the Annual
Report on Form 20-F for the year ended December 31, 2021.
Yours faithfully,
/s/ HAN KUN LAW OFFICES
HAN KUN LAW OFFICES
CONFIDENTIALITY. This document contains confidential information which may be protected by privilege from disclosure. Unless you are the
intended or authorised recipient, you shall not copy, print, use or distribute it or any part thereof or carry out any act pursuant thereto and shall advise
Han Kun Law Offices immediately by telephone, e-mail or facsimile and return it promptly by mail. Thank you.

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Table of Contents

For the fiscal year ended December 31, 2021.

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF

☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

Date of event requiring this shell company report

For the transition period from to

Commission file number: 001-40376

Block C, Wangjing Science and Technology Park

Kangping Shi, Chief Financial Officer

Telephone: +86 10 5339-4997

Block C, Wangjing Science and Technology Park

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Trading Name of each exchange

Securities registered or to be registered pursuant to Section 12(g) of the Act:

U.S. GAAP ☒ International Financial Reporting Standards as issued Other ☐

Item 2. Offer Statistics and Expected Timetable

Item 3. Key Information

Our Holding Company Structure and VIE Contractual Arrangements

Permissions Required from the PRC Authorities for Our Operations

The Holding Foreign Companies Accountable Act

Cash Transfers and Dividend Distribution

Years Ended December 31,

Financial Information Related to the VIEs

As of December 31, 2021 As of December 31, 2020

A. Selected Financial Data

For the Year Ended December 31,

For the Year Ended December 31,

B. Capitalization and Indebtedness

C. Reasons for the Offer and Use of Proceeds

Risks Related to Our Business and Industry

Risks Related to Our Corporate Structure

Risks Related to Doing Business in China

Risks Related to Our ADSs

Risks Relating to Our Business and Industry

We face uncertainties relating to the change of regulatory regime.

We may fail to maintain the capability and accuracy in actuarial analysis.

We are subject to payment processing risk.

We may fail to protect our intellectual properties.

We may be subject to intellectual property infringement claims.

Risks Related to Our Corporate Structure

Risks Related to Doing Business in China

Risks Related to Our ADSs

You may be subject to limitations on transfer of your ADSs.

Certain judgments obtained against us by our shareholders may not be enforceable.

Item 4. Information on the Company

Waterdrop Insurance Marketplace

Consumers of Waterdrop Insurance Marketplace

Products Tailored for Consumers of Waterdrop Insurance Marketplace

For the Years Ended December 31,

For the Years Ended December 31,

For the Years Ended December 31,

For the Years Ended December 31,

Experience on Waterdrop Insurance Marketplace

Al-driven intelligent claim review system

Data Origination and Analysis

Partnership with Insurance Carriers

Selection of Insurance Carriers

Connected systems with insurance carriers

Waterdrop Medical Crowdfunding

Online dissemination end fundraising