0001193125-22-115083 | 20-F | XBRL Viewer | Gracell Biotechnologies INC

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Cover Page	12 Months Ended
Cover Page	Dec. 31, 2021 shares
Document Information [Line Items]
Document Type	20-F
Entity Interactive Data Current	Yes
Amendment Flag	false
Document Period End Date	Dec. 31, 2021
Document Fiscal Year Focus	2021
Document Fiscal Period Focus	FY
Entity Registrant Name	Gracell Biotechnologies Inc.
Entity Central Index Key	0001826492
Current Fiscal Year End Date	--12-31
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Entity Filer Category	Accelerated Filer
Entity Current Reporting Status	Yes
Entity Shell Company	false
Entity Emerging Growth Company	true
Document Annual Report	true
Entity Ex Transition Period	false
Document Shell Company Report	false
Document Registration Statement	false
Document Transition Report	false
Entity Common Stock, Shares Outstanding	346,282,226
ICFR Auditor Attestation Flag	false
Auditor Name	PricewaterhouseCoopers Zhong Tian LLP
Auditor Firm ID	1424
Auditor Location	Shanghai, the People’s Republic of China
Entity File Number	001-39838
Entity Incorporation, State or Country Code	E9
Entity Address, Address Line One	Building 12, Block B, Phase II
Entity Address, Address Line Two	Biobay Industrial Park
Entity Address, Address Line Three	218 Sangtian St.
Entity Address, City or Town	Suzhou
Entity Address, Country	CN
Entity Address, Postal Zip Code	215123
Document Accounting Standard	U.S. GAAP
Business Contact [Member]
Document Information [Line Items]
Contact Personnel Name	Yili Kevin Xie
Entity Address, Address Line One	Building 12, Block B, Phase II
Entity Address, Address Line Two	Biobay Industrial Park
Entity Address, Address Line Three	218 Sangtian St.
Entity Address, City or Town	Suzhou
Entity Address, Country	CN
Entity Address, Postal Zip Code	215123
Contact Personnel Email Address	Email: ir@gracellbio.com
City Area Code	86 512
Local Phone Number	6262-6701
ADR [Member]
Document Information [Line Items]
Security Exchange Name	NASDAQ
Title of 12(b) Security	American depositary shares
Trading Symbol	GRCL
Common Stock [Member]
Document Information [Line Items]
Security Exchange Name	NASDAQ
Title of 12(b) Security	Ordinary shares
No Trading Symbol Flag	true

Consolidated Balance Sheet ¥ in Thousands, $ in Thousands	Dec. 31, 2021 CNY (¥)	Dec. 31, 2021 USD ($)	Dec. 31, 2020 CNY (¥)
Current assets:
Cash and cash equivalents	¥ 1,829,006	$ 287,011	¥ 754,308
Short-term investments	3,615	567	18,743
Prepayments and other current assets	52,459	8,232	42,418
Total current assets	1,885,080	295,810	815,469
Property, equipment and software, net	123,818	19,430	119,083
Operating lease right-of-use assets	29,652	4,653	0
Other non-current assets	21,587	3,387	30,398
TOTAL ASSETS	2,060,137	323,280	964,950
Current liabilities:
Accruals and other current liabilities (including accruals and other current liabilities of the consolidated VIEs without recourse to the Company of RMB11,157 and RMB35,685 as of December 31, 2020 and 2021, respectively)	69,120	10,846	42,401
Short-term borrowings (including short-term borrowings of the consolidated VIEs without recourse to the Company of RMB49,990 and RMB66,100 as of December 31, 2020 and 2021, respectively)	66,100	10,373	49,990
Operating lease liabilities, current (including operating lease liabilities, current of the consolidated VIEs without recourse to the Company of nil and RMB4,367 as of December 31, 2020 and 2021, respectively)	17,527	2,750	0
Current portion of long-term borrowings (including current portion of long-term borrowings of the consolidated VIEs without recourse to the Company of RMB970 and RMB2,376 as of December 31, 2020 and 2021, respectively)	2,376	373	970
Total current liabilities	155,123	24,342	93,361
Operating lease liabilities, non-current (including operating lease liabilities, non-current of the consolidated VIEs without recourse to the Company of nil and RMB730 as of December 31, 2020 and 2021, respectively)	14,830	2,327	0
Long-term borrowings (including long-term borrowings of the consolidated VIEs without recourse to the Company of RMB51,926 and RMB54,349 as of December 31, 2020 and 2021, respectively)	54,349	8,529	51,926
Other non-current liabilities	8,464	1,328	0
TOTAL LIABILITIES	232,766	36,526	145,287
Commitments and Contingencies
Mezzanine equity:
Total mezzanine equity	0	0	1,407,536
Shareholders' equity (deficit):
Ordinary shares (par value of US$0.0001 per share; 500,000,000 and 500,000,000 shares authorized; 99,044,776 and 337,969,926 shares issued and outstanding as of December 31, 2020 and 2021, respectively)	223	35	68
Additional paid-in capital	2,902,856	455,521	0
Accumulated other comprehensive loss	(57,936)	(9,091)	(23,912)
Accumulated deficit	(1,017,772)	(159,711)	(564,029)
Total shareholders' equity (deficit)	1,827,371	286,754	(587,873)
TOTAL LIABILITIES, MEZZANINE EQUITY AND SHAREHOLDERS' EQUITY(DEFICIT)	2,060,137	323,280	964,950
Series A Redeemable Convertible Preferred Shares [Member]
Mezzanine equity:
Total mezzanine equity	0	0	110,468
Series B One Redeemable Convertible Preferred Shares [Member]
Mezzanine equity:
Total mezzanine equity	0	0	142,481
Series B Two Redeemable Convertible Preferred Shares [Member]
Mezzanine equity:
Total mezzanine equity	0	0	495,799
Series C Redeemable Convertible Preferred Shares [Member]
Mezzanine equity:
Total mezzanine equity	¥ 0	$ 0	¥ 658,788

Consolidated Balance Sheet (Parenthetical) ¥ in Thousands, $ in Thousands	Dec. 31, 2021 CNY (¥) shares	Dec. 31, 2021 USD ($) $ / shares shares	Dec. 31, 2020 CNY (¥) shares	Dec. 31, 2020 $ / shares
Common Stock, Par or Stated Value Per Share \| $ / shares		$ 0.0001		$ 0.0001
Common Stock, Shares Authorized	500,000,000	500,000,000	500,000,000
Common Stock, Shares, Issued	337,969,926	337,969,926	99,044,776
Common Stock, Shares, Outstanding	337,969,926	337,969,926	99,044,776
Short term bank borrowings	¥ 66,100	$ 10,373	¥ 49,990
Operating lease liabilities, current	17,527	2,750	0
Current portion of long term debt	2,376	373	970
Operating lease liabilities, noncurrent	14,830	2,327	0
Long term borrowings net of current portion	¥ 54,349	$ 8,529	¥ 51,926
Series A Redeemable Convertible Preferred Shares [Member]
Temporary Equity, Par or Stated Value Per Share \| $ / shares		$ 0.0001		0.0001
Temporary Equity, Shares Authorized	0	0	31,343,284
Temporary Equity, Shares Issued	0	0	31,343,284
Temporary Equity, Shares Outstanding	0	0	31,343,284
Series B One Redeemable Convertible Preferred Shares [Member]
Temporary Equity, Par or Stated Value Per Share \| $ / shares		$ 0.0001		0.0001
Temporary Equity, Shares Authorized	0	0	21,735,721
Temporary Equity, Shares Issued	0	0	21,735,721
Temporary Equity, Shares Outstanding	0	0	21,735,721
Series B Two Redeemable Convertible Preferred Shares [Member]
Temporary Equity, Par or Stated Value Per Share \| $ / shares		$ 0.0001		0.0001
Temporary Equity, Shares Authorized	0	0	59,327,653
Temporary Equity, Shares Issued	0	0	59,327,653
Temporary Equity, Shares Outstanding	0	0	59,327,653
Series C Redeemable Convertible Preferred Shares [Member]
Temporary Equity, Par or Stated Value Per Share \| $ / shares		$ 0.0001		$ 0.0001
Temporary Equity, Shares Authorized	0	0	61,364,562
Temporary Equity, Shares Issued	0	0	61,364,562
Temporary Equity, Shares Outstanding	0	0	61,364,562
Variable Interest Entity, Primary Beneficiary [Member]
Accounts Payable and Accrued Liabilities, Current \| ¥	¥ 35,685		¥ 11,157
Operating lease liabilities, current \| ¥	4,367		0
Operating lease liabilities, noncurrent \| ¥	730		0
Variable Interest Entity, Primary Beneficiary [Member] \| Nonrecourse [Member]
Short term bank borrowings \| ¥	66,100		49,990
Current portion of long term debt \| ¥	2,376		970
Long term borrowings net of current portion \| ¥	¥ 54,349		¥ 51,926

Consolidated Statements of Comprehensive Loss ¥ in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2021 CNY (¥) ¥ / shares shares	Dec. 31, 2021 USD ($) $ / shares shares	Dec. 31, 2020 CNY (¥) ¥ / shares shares	Dec. 31, 2019 CNY (¥) ¥ / shares shares
Revenues
Licensing and collaboration revenue	¥ 366	$ 57
Expenses
Research and development expenses	(326,899)	(51,298)	¥ (168,830)	¥ (119,218)
Administrative expenses	(137,040)	(21,505)	(45,566)	(27,362)
Loss from operations	(463,573)	(72,746)	(214,396)	(146,580)
Interest income	9,116	1,430	2,870	3,932
Interest expense	(5,063)	(794)	(2,155)
Other income	9,120	1,431	4,707	1,449
Foreign exchange gain (loss), net	(1,297)	(204)	(2,914)	2,556
Others, net	(57)	(9)	(12)	(21)
Loss before income tax	(451,754)	(70,892)	(211,900)	(138,664)
Income tax expense
Net loss	(451,754)	(70,892)	(211,900)	(138,664)
Deemed dividend to convertible redeemable preferred shareholders \| ¥				(25,390)
Accretion of convertible redeemable preferred shares to redemption value	(1,989)	(312)	(62,733)	(36,802)
Net loss attributable to Gracell Biotechnologies Inc.'s ordinary shareholders	(453,743)	(71,204)	(274,633)	(200,856)
Other comprehensive loss
Foreign currency translation adjustments, net of nil tax	(34,024)	(5,339)	(20,753)	(3,159)
Total comprehensive loss attributable to Gracell Biotechnologies Inc.'s ordinary shareholders	¥ (487,767)	$ (76,543)	¥ (295,386)	¥ (204,015)
Weighted average number of ordinary shares used in per share calculation:
—Basic	328,866,599	328,866,599	99,044,776	99,053,363
—Diluted	328,866,599	328,866,599	99,044,776	99,053,363
Net loss per share attributable to Gracell Biotechnologies Inc.'s ordinary shareholders
—Basic \| (per share)	¥ (1.38)	$ (0.22)	¥ (2.77)	¥ (2.03)
—Diluted \| (per share)	¥ (1.38)	$ (0.22)	¥ (2.77)	¥ (2.03)

Consolidated Statements of Comprehensive Loss (Parenthetical) - CNY (¥) ¥ in Thousands	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020	Dec. 31, 2019
Statement of Comprehensive Income [Abstract]
Foreign currency translation adjustments tax	¥ 0	¥ 0	¥ 0

Consolidated Statements of Changes in Shareholders' Equity (Deficit) ¥ in Thousands, $ in Thousands	CNY (¥) shares	USD ($) shares	Ordinary shares CNY (¥) shares	Additional paid-in capital CNY (¥)	Accumulated other comprehensive loss CNY (¥)	Accumulated deficit CNY (¥)
Beginning Balance at Dec. 31, 2018	¥ (81,021)		¥ 69	¥ 0		¥ (81,090)
Beginning Balance (Shares) at Dec. 31, 2018 \| shares			100,089,552
Accumulated Other Comprehensive Income (Loss) [Line Items]
Net loss	(138,664)					(138,664)
Repurchase of ordinary shares (Note 9) (Shares) \| shares			(1,044,776)
Repurchase of ordinary shares (Note 9)	(7,451)		¥ (1)			(7,450)
Repurchase of convertible redeemable preferred shares (Note 10)	(25,390)					(25,390)
Accretions of convertible redeemable preferred shares to redemption value	(36,802)					(36,802)
Foreign currency translation adjustment	(3,159)				¥ (3,159)
Ending Balance at Dec. 31, 2019	(292,487)		¥ 68	0	(3,159)	(289,396)
Ending Balance (Shares) at Dec. 31, 2019 \| shares			99,044,776
Accumulated Other Comprehensive Income (Loss) [Line Items]
Net loss	(211,900)					(211,900)
Accretions of convertible redeemable preferred shares to redemption value	(62,733)					(62,733)
Foreign currency translation adjustment	(20,753)				(20,753)
Ending Balance at Dec. 31, 2020	(587,873)		¥ 68	0	(23,912)	(564,029)
Ending Balance (Shares) at Dec. 31, 2020 \| shares			99,044,776
Accumulated Other Comprehensive Income (Loss) [Line Items]
Net loss	(451,754)	$ (70,892)				(451,754)
Accretions of convertible redeemable preferred shares to redemption value	(1,989)	(312)				(1,989)
Foreign currency translation adjustment	(34,024)	$ (5,339)			(34,024)
Share-based compensation	60,384			60,384
Conversion of preferred shares to ordinary shares upon the completion of initial public offering ("IPO") (Shares) \| shares			173,771,220
Conversion of preferred shares to ordinary shares upon the completion of initial public offering ("IPO")	1,409,525		¥ 113	1,409,412
Issuance of ordinary shares upon IPO and over-allotment, net of issuance cost (Shares) \| shares			63,250,000
Issuance of ordinary shares upon IPO and over-allotment, net of issuance cost	¥ 1,431,357		¥ 41	1,431,316
Exercise of options and restricted share units (Shares) \| shares	530,110	530,110	1,903,930
Exercise of options and restricted share units	¥ 1,745	$ 274	¥ 1	1,744
Ending Balance at Dec. 31, 2021	¥ 1,827,371	$ 286,754	¥ 223	¥ 2,902,856	¥ (57,936)	¥ (1,017,772)
Ending Balance (Shares) at Dec. 31, 2021 \| shares			337,969,926

Consolidated Statements of Cash Flow ¥ in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2021 CNY (¥)	Dec. 31, 2021 USD ($)	Dec. 31, 2020 CNY (¥)	Dec. 31, 2019 CNY (¥)
Cash flows from operating activities:
Net loss	¥ (451,754)	$ (70,892)	¥ (211,900)	¥ (138,664)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation of property, equipment and software	44,870	7,041	21,589	5,124
Share-based compensation	60,384	9,476
Amortization of right-of use assets and interest of lease liabilities	15,397	2,416
Foreign exchange (gain) loss, net	1,297	204	2,914	(2,556)
Changes in operating assets and liabilities:
Prepayments and other current assets	(10,040)	(1,576)	(18,295)	(10,023)
Accrued liabilities and other current liabilities	43,760	6,867	7,543	10,726
Other non-current assets	(1,619)	(254)
Lease liabilities	(15,309)	(2,402)
Other non-current liabilities	8,464	1,328
Net cash used in operating activities	(304,550)	(47,792)	(198,149)	(135,393)
Cash flows from investing activities:
Purchase of property, equipment and software	(56,743)	(8,904)	(79,400)	(56,432)
Investments in short-term investments	(10,000)	(1,569)	(28,055)	(80,200)
Proceeds from disposal of short-term investments	25,127	3,943	13,514	178,000
Net cash (used in) generated from investing activities	(41,616)	(6,530)	(93,941)	41,368
Cash flows from financing activities:
Proceeds from initial public offering and over-allotment, net of underwriting commissions	1,448,959	227,373
Proceeds from exercise of options and restricted share units	1,745	274
Repayment of convertible loans	0	0	(138,695)
Proceeds from issuance of convertible redeemable preferred shares, net of issuance costs			795,420	439,501
Repurchase of ordinary shares and preferred shares	0	0		(44,705)
Proceeds from bank borrowings	71,233	11,178	103,008
Repayments of bank borrowings	(51,294)	(8,049)	(122)
Payment of initial public offering costs	(14,458)	(2,269)	(3,144)
Net cash generated from financing activities	1,456,185	228,507	756,467	394,796
Effect of exchange rate on cash and cash equivalents	(35,321)	(5,541)	(22,127)	(603)
Net increase in cash and cash equivalents	1,074,698	168,644	442,250	300,168
Cash and cash equivalents at the beginning of year	754,308	118,367	312,058	11,890
Cash and cash equivalents at the end of year	1,829,006	287,011	754,308	312,058
Supplemental cashflow disclosures:
Interest paid	5,063	795	2,155
Non-cash activities:
Deemed dividend to convertible redeemable preferred shareholders				25,390
Accretion of convertible redeemable preferred shares to redemption value	¥ 1,989	$ 312	62,733	¥ 36,802
Payables for deferred initial public offering cost			¥ 14,924

Organization and Basis of Presentation

12 Months Ended

Dec. 31, 2021

Organization, Consolidation and Presentation of Financial Statements [Abstract]

ORGANIZATION AND BASIS OF PRESENTATION

1. ORGANIZATION AND BASIS OF PRESENTATION

(a) Nature of operations

Gracell Biotechnologies Inc. (the “Company”), an exempted company with limited liability, was incorporated in Cayman Islands on May 22, 2018. The Company, through its consolidated subsidiaries and variable interest entity (“VIE”) (collectively referred to as the “Group”) engaged primarily in the business of discovering and developing cell therapies to resolve industry challenges and fulfill unmet medical needs in the treatment of cancer (collectively referred to as the “Gracell Business”). The Group’s principal operation and geographic market is in the People’s Republic of China (“PRC”).

(b) Reorganization

The Group carried out its principal business in the People’s Republic of China (the “PRC”) since May 22, 2017 mainly through Gracell Biotechnologies (Shanghai) Co., Ltd. (“Gracell Biotechnologies” or the “VIE”) in the PRC. In connection with the Company’s initial public offering on the overseas capital market and facilitate offshore financing, the Group underwent a reorganization through which Gracell Biotechnologies (HK) Limited and Gracell Bioscience (Shanghai) Co., Ltd., (the “WFOE”), were established. The Company then entered into a series of contractual arrangements among the WFOE, the VIE and the VIE’s shareholders in January 2019 and the VIE’s shareholders swapped their shares in the VIE for shares in the Company to establish the Company as the ultimate holding company and the VIE became the variable interest entity of the Group (“Reorganization”).

As of December 31, 2021, the Company’s principal subsidiaries are as follows:


	Date of incorporation	Place of incorporation	Percentage of legal ownership by the Company			Principal activities
Subsidiaries
Gracell Biotechnologies Holdings Limited (“Gracell BVI”)	May 22, 2018	British Virgin Islands		100	%	Investment holding
Gracell Biotechnologies (HK) Limited (“Gracell HK”)	June 7, 2018	Hong Kong		100	%	Investment holding
Gracell Bioscience (Shanghai) Co., Ltd.	August 24, 2018	The PRC		100	%	Research and development of innovative medicines
Gracell Biopharmaceuticals, Inc.	February 11, 2020	The United States of America		100	%	Research and development of innovative medicines
Gracell Biomedicine (Shanghai) Co., Ltd.	August 19, 2020	The PRC		100	%	Research and development of innovative medicines
Hainan Gracell Biomedicine Co., Ltd.	June 25, 2021	The PRC		100	%	Research and development of innovative medicines
Suzhou Gracell Bioscience Co., Ltd.	July 12, 2021	The PRC		100	%	Research and development of innovative medicines

VIE
Gracell Biotechnologies (Shanghai) Co., Ltd.	May 22, 2017	The PRC		—		Research and development of innovative medicines

VIE’s subsidiary
Suzhou Gracell Biotechnologies Co., Ltd. (“Suzhou Gracell”)	April 23, 2018	The PRC		—		Research and development of innovative medicines

On January 12, 2021, the Company completed its Initial Public Offering and became listed on the Nasdaq Global Selected Market (see Note

for details).

The Reorganization consists of transferring the Gracell Business to the Group, which is controlled by William Wei Cao (the “Founder”) immediately before and after the Reorganization. The Reorganization was a recapitalization with no substantial changes in the shareholding of the Company. Accordingly, the Reorganization is accounted for as a transaction under common control. Therefore, the accompanying consolidated financial statements include the assets, liabilities, revenue, expenses and cash flows of the Gracell Business for the periods presented and are prepared on a carryover basis as if the corporate structure of the Group after the Reorganization had been in existence throughout the periods presented. Accordingly, the effect of the ordinary shares and the preferred shares issued by the Company pursuant to the Reorganization have been presented retrospectively as of the beginning of the earliest period presented on the consolidated financial statements or the original issue date, whichever is later, as if such shares were issued by the Company when the Group issued such interests.

(d) Contractual agreements with the VIE

The Group operates certain of its businesses in the PRC through its VIE, whose equity interests are ultimately held by the

ounder and other shareholders of the Group through the VIE’s nominee shareholder. The Company obtained control over the VIE by entering into a series of contractual arrangements with the VIE’s legal shareholder who is also referred to as nominee shareholder. The nominee shareholder is the legal owner of the VIE. However, the rights of the nominee shareholder have been transferred to the Group through the contractual arrangements.

The contractual arrangements used to control the VIE are the voting rights proxy agreement, call option agreement, technology consultation and service agreement, business cooperation agreement and equity pledge agreement. The Company’s management concluded that the Company, through the contractual arrangements, has the power to direct the activities that most significantly impact the VIE’s economic performance and bears the risks of and enjoys the rewards normally associated with ownership of the VIE. Therefore, the Company is the ultimate primary beneficiary of the VIE. As such, the Company consolidates the financial statements of the VIE and its subsidiary, and the financial results of the VIE were included in the Group’s consolidated financial statements in accordance with the basis of presentation as stated in Note 2.

The following is a summary of the principal terms of the contractual agreements entered into by and among the WFOE, the VIE and the nominee shareholders of the VIE are described below:

Voting rights proxy agreement

The WFOE, the Group’s VIE and the nominee shareholders of the VIE have entered into an voting rights proxy agreement, pursuant to which the nominee shareholders of the Group’s VIE irrevocably appointed the WFOE or its designated persons as their

attorney-in-fact

to exercise all of their rights as a shareholder of the VIE, including, but not limited to, propose to hold a shareholders’ meeting, exercise all shareholder’s voting rights with respect to all matters to be discussed and voted in the shareholders’ meeting including but not limited to designate and appoint the director, the chief executive officer and other senior management members of the VIE and exercise other voting rights the shareholders are entitled to.

The agreement will remain in force for twenty (20) years and can be extended only if the WFOE gives its written notice of the extension of this agreement before the expiration of this agreement and the other parties shall agree with this extension without reserve.

Call option agreement

The WFOE, the Group’s VIE and the nominee shareholders of the VIE have entered into a call option agreement, pursuant to which the shareholders of the VIE irrevocably granted the WFOE an exclusive option to purchase, or have its designated person to purchase, at its discretion, to the extent permitted under PRC law, all or part of their equity interests in the VIE and the purchase price shall be the lowest price permitted by applicable PRC law. The shareholders undertake that, without the prior written consent of the WFOE, they shall not sell, transfer, mortgage or otherwise dispose of its equity interests in the VIE or allow the encumbrance thereon of any security interest, increase or decrease the registered capital of the VIE, appoint or replace any directors of the VIE, sell, transfer, mortgage or dispose of the VIE’s assets or beneficial interest in the business or revenues, conduct any merger, acquisition or investments, declare or distribution any dividend; change or amend articles of association or incur any debts or guarantee liabilities. The exclusive option agreement will remain effective until all equity interests in the VIE are transferred or assigned to the WFOE or its designated representative(s).

Technology consultation and service agreement

The WFOE and the VIE entered into a technology consultation and service agreement under which the VIE engages the WFOE as its exclusive consultant and provider of fund, human, technology and intellectual properties services and technical support, consulting services and other commercial services on exclusive basis in relation to the principal business. The WFOE has exclusive and proprietary rights and interests in all rights, ownership, interests and intellectual properties arising out of or created during the performance of this agreement. During the term of the agreement, the VIE may not enter into any agreement with third parties for the provision of identical or similar service without prior consent of the WFOE. In exchange, the VIE agrees to pay an annual service fee to the WFOE and such fee is determined by the WFOE based on its services provided including various factors such as the WFOE’s incurred technology support and consulting services fees, performance data and the VIE’s revenues. The agreement will remain in force for twenty (20) years and can be extended with the WFOE’s written notice of the extension before the expiration of this agreement and the VIE shall agree with this extension without reserve.

Business cooperation agreement

Under the business cooperation agreement entered between the VIE and the WFOE, the WFOE has the exclusive right to provide to the VIE technology support, consulting services and other commercial services including market analysis and consultation, products research and development, training and operation management consultation services. The VIE can’t sell, dispose, pledge the intellectual property rights created by the performance of this agreement which should be exclusively owned by the WFOE. In exchange, the VIE agrees to pay a monthly service fee to the WFOE based on the services provided including various factors such as WFOE’s incurred technology support and consulting services fees, performance data and the VIE’s profit. The agreement shall maintain effective unless terminated under applicable PRC laws and regulations.

Equity Pledge Agreement

Pursuant to the share pledge agreement entered between the VIE and its shareholders and the WFOE, the shareholders of the VIE have to pledge all of their equity interests in the VIE to the WFOE to guarantee the performance by the VIE and its shareholders’ performance of their respective obligations under the call option agreement, technology consultation and service agreement, business cooperation agreement and voting rights proxy agreement. If the VIE and/or its shareholders breach their contractual obligations under those agreements, the WFOE, as pledgee, will be entitled to certain rights, including the right to sell the pledged equity interests. The shareholders of the VIE also undertakes that, during the term of the equity pledge agreements, they shall not dispose of the pledged equity interests or create or allow any encumbrance on the pledged equity interests. During the term of the equity pledge agreement, the WFOE has the right to receive all of the dividends and profits distributed on the pledged equity interests. The pledge will remain binding until the VIE and their shareholders discharge all their obligations under the contractual arrangements.

Spouse Consent Letter

On January 3, 2019, the spouse of the Founder, unconditionally and irrevocably agreed that the equity interest in the VIE held by the Founder will be disposed of pursuant to the equity pledge agreement, the voting rights proxy agreement and the call option agreement. The spouse agreed not to make any assertions in connection with the equity interest in the VIE held by the Founder.

Risks in relation to the VIE structure

A significant part of the Group’s business is conducted through the VIE of the Group, of which the Company is the ultimate primary beneficiary. In the opinion of the management, the contractual arrangements with the VIE and the nominee shareholder are in compliance with PRC laws and regulations and is legally binding and enforceable. Nominee shareholders indicate that they will not act contrary to the contractual arrangements. However, there are substantial uncertainties regarding the interpretation and application of the PRC laws and regulations including those that govern the contractual arrangements, which could limit the Group’s ability to enforce these contractual arrangements and if nominee shareholders of the VIE was to reduce their interests in the Group, their interest may diverge from that of the Group and that may potentially increase the risk that they would seek to act contrary to the contractual arrangements. It is possible that the Group’s operation of certain of its operations and businesses through the VIE could be found by PRC authorities to be in violation of PRC law and regulations prohibiting or restricting foreign ownership of companies that engage in such operations and businesses. While the Group’s management considers the possibility of such a finding by PRC regulatory authorities under current law and regulations to be remote, on March 15, 2019, the National People’s Congress adopted the Foreign Investment Law of the PRC, which became effective on January 1, 2020 and replaces three laws regulating foreign investment in China, namely, the Wholly Foreign-Invested Enterprise Law of the PRC, the Sino-Foreign Cooperative Joint Venture Enterprise Law of the PRC and the Sino-Foreign Equity Joint Venture Enterprise Law of the PRC, together with their implementation rules and ancillary regulations. The Foreign Investment Law of the PRC embodies an expected PRC regulatory trend to rationalize its foreign investment regulatory regime in line with prevailing international practice and the legislative efforts to unify the corporate legal requirements for both foreign and domestic investments. However, since it is relatively new, uncertainties still exist in relation to its interpretation and implementation. For example, the Foreign Investment Law of the PRC adds a

catch-all

clause to the definition of “foreign investment” so that foreign investment, by its definition, includes “investments made by foreign investors in China through other means defined by other laws or administrative regulations or provisions promulgated by the State Council” without further elaboration on the meaning of “other means.” It leaves leeway for the future legislations promulgated by the State Council to provide for contractual arrangements as a form of foreign investment. It is therefore uncertain whether the Group’s corporate structure will be seen as violating the foreign investment rules as the Group are currently leveraging the contractual arrangements to operate certain businesses in which foreign investors are prohibited from or restricted to investing. Furthermore, if future legislations prescribed by the State Council mandate further actions to be taken by companies with respect to existing contractual arrangement, the Group may face substantial uncertainties as to whether the Group can complete such actions in a timely manner, or at all. If the Group fails to take appropriate and timely measures to comply with any of these or similar regulatory compliance requirements, the Group’s current corporate structure, corporate governance and business operations could be materially and adversely affected.

If the Group’s corporate structure or the contractual arrangements with the VIE were found to be in violation of any existing or future PRC laws and regulations, the PRC regulatory authorities could, within their respective jurisdictions:

•

revoking the business licenses and/or operating licenses of such entities;

•

discontinuing or placing restrictions or onerous conditions on the Group’s operation through any transactions between the PRC subsidiary and the VIE;

•

imposing fines, confiscating the income from the PRC subsidiary or the VIE, or imposing other requirements with which the VIE may not be able to comply;

•

requiring the Group to restructure the ownership structure or operations, including terminating the contractual arrangements with the VIE and deregistering the equity pledges of the VIE, which in turn would affect the Group’s ability to consolidate, derive economic interests from, or exert effective control over the VIE;

•

restricting or prohibiting the Group’s use of the proceeds of

the publ

offering to finance the Group’s business and operations in China; or

•

taking other regulatory or enforcement actions 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 VIE, which may result in deconsolidation of the VIE in the Group’s consolidated financial statements. In the opinion of the management, the likelihood for the Group to lose such ability is remote based on current facts and circumstances. The Group believes that the contractual arrangements among each of the VIE, their respective shareholders and relevant wholly foreign owned enterprise are in compliance with PRC law and are legally enforceable. The Group’s operations depend on the VIE to honor their contractual arrangements with the Group. These contractual arrangements are governed by PRC law and disputes arising out of these agreements are expected to be decided by arbitration in the PRC. The Company’s management believes that each of the contractual arrangements constitutes valid and legally binding obligations of each party to such contractual arrangements under the PRC laws. However, the interpretation and implementation of the laws and regulations in the PRC and their application 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 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 VIE or the nominee shareholders of the VIE fail to perform their obligations under those arrangements.

The contractual arrangements cannot be unilaterally terminated. Management concluded that the Company, through the WFOE and the contractual arrangements, has the power and control to direct the activities that most significantly impact the VIE’s economic performance, bears the risks and enjoys the rewards normally associated with ownership of the VIE, receive substantially all of the economic benefits and residual returns, and absorb substantially all the risks and expected losses from the VIE as if it was their sole shareholder and therefore the Company is the ultimate primary beneficiary of the VIE. As such, the Group consolidates the financial results of the VIE which are prepared in accordance with the basis of presentation as stated in Note 2 below.

The following financial information of the Group’s VIE and the VIE’s subsidiary as of December 31, 2020 and 2021 and for each of the three years in the period ended December 31, 2021 is includ

d in the accompanying consolidated financial statements of the Group as follows:


	As of December 31,
	2020		2021
	RMB		RMB		US$
					(Note 2)
ASSETS
Current assets:
Cash and cash equivalents		49,749		122,220		19,179
Short-term investments		18,743		3,615		567
Amounts due from Group c ompanies		48,505		65,705		10,311
Prepayments and other current assets		29,152		40,968		6,428

Total current assets		146,149		232,508		36,485
Property, equipment and software		78,401		60,944		9,564
Operating lease, right-of-use assets		—		4,827		757
Other non-current assets		9,744		7,983		1,253

TOTAL ASSETS		234,294		306,262		48,059

LIABILITIES
Current liabilities:
Amounts due to related parties		270,004		486,794		76,388
Accruals and other current liabilities		11,157		35,685		5,600
Short-term borrowings		49,990		66,100		10,373
Operating lease liabilities, current		—		4,367		685
Current portion of long-term borrowings		970		2,376		373

Total current liabilities		332,121		595,322		93,419
Amounts due to Group c ompanies		29,915		59,500		9,337
Long-term borrowings		51,926		54,349		8,528
Operating lease liabilities, non-current		—		730		115
TOTAL LIABILITIES		413,962		709,901		111,399


	For the years ended December 31,
	2019			2020			2021
	RMB			RMB			RMB			US$
										(Note 2)
Total revenue from Group c ompanies		6,604			16,906			16,226			2,546
Net loss		(83,066	)		(100,195	)		(225,650	)		(35,409	)


	For the years ended December 31,
	2019			2020			2021
	RMB			RMB			RMB			US$
										(Note 2)
Net cash used in operating activities		(87,277	)		(84,862	)		(166,777	)		(26,171	)
Net cash generated from (used in) investing activities		59,281			(68,628	)		(2,730	)		(428	)
Net cash generated from financing activities		58,259			161,086			241,978			37,972

Notes to VIE financial information

The VIE provided research and development related service to the WFOE and recognized revenue

of RMB6,604, RMB16,906 and RMB16,226

in the years ended December 31, 2019, 2020 and 2021, respectively.

The VIE received business cooperation support from the WFOE and recognized administrative expenses of RMB22,958 in total in the year ended December 31, 2021.

The VIE received loans from the Company of RMB23,000, RMB6,915 and RMB29,585 in total in the years ended December 31, 2019, 2020 and 2021, respectively.

The VIE received loans from the WFOE of RMB80,024, RMB189,980 and RMB192,454 in total in the years ended December 31, 2019, 2020 and 2021, respectively.

The

Company’s involvement with the VIE is through the contractual arrangements disclosed in Note

. All recognized assets held by the VIE are disclosed in the table above.

In accordance with various contractual agreements, the Company has the power to direct the activities of the VIE and can have assets transferred out of the VIE. Therefore, the Company considers that there are no assets in the respective VIE that can be used only to settle obligations of the respective VIE, except for the registered capital of the VIE. As the respective VIE is incorporated as limited liability company under the PRC Company Law, creditors do not have recourse to the general credit of the Company for the liabilities of the respective VIE. There is currently no contractual arrangement that would require the Company to provide additional financial support to the VIE. As the Group is conducting certain businesses in the PRC through the VIE, the Group may provide additional financial support on a discretionary basis in the future, which could expose the Group to a loss. There is no VIE in the Group where the Company or any subsidiary has a variable interest but is not the primary beneficiary.

The

Company’s ability to control the VIE also depends on the voting rights proxy and the effect of the share pledge under the Equity Pledge Agreement and the WFOE has to vote on all matters requiring shareholders’ approval in the VIE. As noted above, the Company believes this voting right proxy is legally enforceable but may not be as effective as direct equity ownership.

Summary of Significant accounting Policies

12 Months Ended

Dec. 31, 2021

Accounting Policies [Abstract]

Summary of Significant accounting Policies

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The accompany consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

Principal accounting policies followed by the Company in the preparation of the accompanying consolidated financial statements are summarized below.

Principles of Consolidation

The Group’s consolidated financial statements include the financial statements of the Company, its subsidiaries and the VIE for which the Company is the primary beneficiary. All transactions and balances among the Company, its subsidiaries, and the VIE have been eliminated upon consolidation.

A subsidiary is an entity in which the Company, directly or indirectly: (1) controls more than one half of the voting power; (2) has the power to appoint or remove the majority of the members of the board of directors; (3) casts a majority of votes at the meeting of the board of directors; or (4) governs the financial and operating policies of the investee under a statute or agreement among the shareholders or equity holders.

The Company applies the guidance codified in Accounting Standard Codification (“ASC”) 810, Consolidations, which contains guidance of accounting for VIEs. The guidance requires certain variable interest entities to be consolidated by the primary beneficiary of the entity in which it has a controlling financial interest. A consolidated VIE is an entity in which the Company, or its subsidiary, through contractual arrangements, bears the risks of, and enjoys the rewards normally associated with, ownership of the entity, and therefore the Company or its subsidiary is the primary beneficiary of the entity.

Use of estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the balance sheet dates and the reported amounts of expenses during the reporting periods. Significant estimates and assumptions reflected in the Group’s consolidated financial statements include, but are not limited to, the useful lives and impairment of long-lived assets, deferred tax valuation allowance, share-based compensation expenses. Management bases the estimates on historical experience and various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could materially differ from those estimates.

Foreign currency translation

The Group uses Chinese Renminbi (“RMB”) as its reporting currency. The United States Dollar (“US$”) is the functional currency of the Group’s entities incorporated in the Cayman Islands, British Virgin Islands, United States of America and Hong Kong, the RMB is the functional currency of the Company’s PRC subsidiaries.

Transactions denominated in currencies other than in the functional currency are translated into the functional currency using the exchange rates prevailing at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated into functional currency using the applicable exchange rates at the balance sheet date. Non-monetary items that are measured in terms of historical cost in foreign currency are re-measured using the exchange rates at the dates of the initial transactions. Exchange gains or losses arising from foreign currency transactions are included in the consolidated statements of comprehensive loss.

The consolidated financial statements of the Group are translated from the functional currency to the reporting currency, RMB. Assets and liabilities of the subsidiaries are translated into RMB using the exchange rate in effect at each balance sheet date. Income and expenses are translated at the average exchange rates prevailing during the fiscal year. Foreign currency translation adjustments arising from these are reflected in the accumulated other comprehensive income.

Translations of balances in the consolidated balance sheets, consolidated statements of comprehensive loss, consolidated statements of changes in shareholders’

equity

and consolidated statements of cash flows from RMB into US$ 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$1.00=RMB6.3726, representing the noon buying rate in The City of New York for cable transfers of RMB as certified for customs purposes by the Federal Reserve Bank of New York on December 31, 2021. No representation is made that the RMB amounts could have been, or could be, converted, realized or settled into US$ at that rate on December 31, 2021, or at any other rate. The US$ convenience translation is not required under U.S. GAAP and all US$ convenience translation amounts in the accompanying consolidated financial statements are unaudited.

Cash and cash equivalents

Cash and cash equivalents primarily consist of cash and demand deposits which are highly liquid. The Group considers highly liquid investments that are readily convertible to known amounts of cash and with original maturities from the date of purchase of three months or less to be cash equivalents. All cash and cash equivalents are unrestricted as to withdrawal and use.

Short-term investments

Short-term investments are deposits at bank with maturities of greater than three months, but less than twelve months. Short-term investments are stated at cost, which approximates fair value. Interest earned is included in interest income.

Fair value measurements

The Group applies ASC 820,

Fair Value Measurements and Disclosures

. ASC 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. ASC 820 requires disclosures to be provided for fair value measurements. ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1—Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2—Includes other inputs that are directly or indirectly observable in the marketplace.

Level 3—Unobservable inputs which are supported by little or no market activity.

ASC 820 describes three main approaches to measuring the fair value of assets and liabilities: (1) market approach; (2) income approach; and (3) cost approach. The market approach uses prices and other relevant information generated from market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value amount. The measurement is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that would currently be required to replace an asset.

The Group does not have any

non-financial

assets or liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. The carrying amounts of cash and cash equivalent, short-term investments, other current assets, accrued liabilities and other current liabilities and short-term borrowings approximate their fair values because of their generally short maturities.

Property, equipment and software

Property, equipment and software are stated at cost less accumulated depreciation and amortization. Depreciation and amortization is computed using the straight-line method over the estimated useful lives of the assets as follows:


Category		Estimated Useful Life
Machinery and laboratory equipment		5-10 years
Vehicles		4 years
Furniture and tools		3-5 years
Electronic equipment		3 years
Computer software		3-5 years
Leasehold improvements		Lesser of lease terms or estimated useful lives of the assets

Repair and maintenance costs are charged to expense as incurred, whereas the cost of renewals and betterments that extend the useful lives of property, equipment and software are capitalized as additions to the related assets. Retirements, sales and disposals of assets are recorded by removing the cost and accumulated depreciation and amortization from the asset and accumulated depreciation and amortization accounts with any resulting gain or loss reflected in the consolidated statements of comprehensive loss.

Impairment of long-lived assets

The Group evaluates the recoverability of its long-lived assets, including fixed assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. When these events occur, the Group measures impairment by comparing the carrying amount of the assets to the estimated undiscounted future cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected undiscounted cash flows is less than the carrying amount of the assets, the Group recognizes an impairment loss based on the excess of the carrying amount of the assets over their fair value. Fair value is generally determined by discounting the cash flows expected to be generated by the assets, when the market prices are not readily available. The adjusted carrying amount of the assets is the new cost basis and is depreciated over the assets’ remaining useful lives. Long-lived assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities.

No impairment loss was recorded for the years ended December 31, 2019, 2020 and 2021.

Segment reporting

In accordance with ASC 280,

Segment Reporting

, the Group’s chief operating decision maker (“CODM”) has been identified as the Chief Executive Officer. The Group’s CODM reviews the consolidated results of operations when making decisions about allocating resources and assessing performance of the Group. The Group operates and manages it business as a single segment. The Group does not distinguish between markets for the purpose of making decisions about resources allocation and performance assessment. Hence, the Group has only one operating segment and one reportable segment. No geographical segments are presented as substantially all of the Group’s long-lived assets are located in the PRC.

Research and development expenses

Elements of research and development expenses primarily include (1) payroll and other related costs of personnel engaged in research and development activities, (2) costs related to

pre-clinical

testing of the Group’s technologies under development and clinical trials such as payments to contract research organizations (“CRO”) and contract manufacturing organizations (“CMO”), investigators and clinical trial sites that conduct the clinical studies; (3) costs to develop the product candidates, including raw materials and supplies, product testing, depreciation and amortization, and facility related expenses, (4) other research and development expenses. Research and development expenses are charged to expense as incurred when these expenditures relate to the Group’s research and development services and have no alternative future uses in accordance with ASC 730,

Research and Development

. As of December 31, 2021, the Group has several ongoing clinical studies in various clinical trial stages. The contracts with CRO and CMO are generally cancellable, with notice, at the Group’s option. The Group did not record any accrued expenses related to cancellation of CRO or CMO contracts as of December 31, 2021 as the Group did not have any plan to cancel the existing CRO or CMO contracts.

Government subsidies

Government subsidies primarily consist of financial subsidies received from provincial and local governments for operating a business in their jurisdictions and compliance with specific policies promoted by the governments. The Group’s PRC based subsidiaries received government subsidies from certain local governments. The Group’s government subsidies consist of specific subsidies and other subsidies. Specific subsidies are subsidies that the local government has set certain conditions for the subsidies. Other subsidies are the subsidies that the local government has not set any conditions and are not tied to future trends or performance of the Group, receipt of such subsidy income is not contingent upon any further actions or performance of the Group and the amounts do not have to be refunded under any circumstances. For the years ended December 31, 2019, 2020 and 2021, no specific subsidies were received by the Group. Other subsidies of RMB1,449, RMB4,707 and RMB9,120 for the years ended December 31, 2019, 2020 and 2021 respectively, are recognized as other income upon receipt as further performance by the Group is not required.

Leases

The Group adopted ASC 842, Leases, on January 1, 2021.

Leases are classified at the inception date as either a finance lease or an operating lease. Leases that transfer substantially all of the benefits and risks incidental to the ownership of assets are accounted for as finance leases as if there was an acquisition of an asset and incurrence of an obligation at the inception of the lease. All other leases are accounted for as operating leases. The Group

had no

finance leases for the years ended December 31, 2020 and 2021.

Under ASC 842, at the commencement date, a lessee should recognize a financing liability equal to the present value of future lease payments and a right to use (“ROU”) asset. The expense recognition is consistent with the expense recognition under the existing lease guidance, wherein rental payments are expensed on a straight-line basis over their respective lease terms. The Group leases certain office space under

non-cancelable

operating lease agreements. Certain lease agreements contain rent holidays. Rent holidays are considered in determining the straight-line rent expense to be recorded over the lease term. The lease term begins on the date of initial possession of the leased property for purpose of recognizing lease expense on straight-line basis over the term of the lease.

The Group, as an emerging growth company, elected to early adopt the standard for annual reporting period beginning January 1, 2021, utilizing the modified retrospective transition method. The Group has recorded lease assets and liabilities of approximately RMB24.5 million on its consolidated balance sheet on January 1, 2021, with no material impact to its consolidated statements of comprehensive loss and consolidated statements of cash flows.

After the initial adoption of ASC 842 on January 1, 2021,

lease liability

measured at the present value of future base rent over the remaining lease terms discounted at 5%, which represent

the incremental borrowing rate on January 1, 2021 for a 72 months loan term in China. ROU asset

measured as the initially recognized ROU asset less the difference between (a) cumulative straight-line expense recognized after January 1, 2021 and (b) cumulative accretion of the lease liability under the effective interest rate method after January 1, 2021.

As of December 31, 2021, the Company had operating lease

ROU

assets of RMB29.7 million and operating lease liabilities of RMB

32.4 million.

Comprehensive loss

Comprehensive loss is defined as the changes in equity of the Group during a period from transactions and other events and circumstances excluding transactions resulting from investments by shareholders and distributions to shareholders. Accumulated other comprehensive loss of the Group includes foreign currency translation adjustments.

Income taxes

The Group follows the liability method of accounting for income taxes in accordance with ASC 740,

Income Taxes

(“ASC 740”). Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse. The Group records a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rate is recognized in tax expense in the period that includes the enactment date of the change in tax rate.

The Group evaluates its uncertain tax positions using the provisions of ASC 740, which prescribes a recognition threshold that a tax position is required to meet before being recognized in the consolidated financial statements.

The Group recognizes in the consolidated financial statements the benefit of a tax position which is “more likely than not” to be sustained under examination based solely on the technical merits of the position assuming a review by tax authorities having all relevant information. Tax positions that meet the recognition threshold are measured using a cumulative probability approach, at the largest amount of tax benefit that has a greater than fifty percent likelihood of being realized upon settlement. It is the Group’s policy to recognize interest and penalties related to unrecognized tax benefits, if any, as a component of income tax expense.

Borrowings

Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the consolidated statements of comprehensive loss over the period of the borrowings using the effective interest method.

Share-based compensation

The Company grants share-based awards to eligible employees and consultants and accounts for share-based compensation in accordance with ASC 718,

Compensation—Stock Compensation

The Company follows ASC 718 to determine whether a share-based award should be classified and accounted for as a liability award or equity award. All grants of share-based awards to employees, management and nonemployees classified as equity awards are recognized in the financial statements based on their grant date fair values which are calculated using the binomial option pricing model.

Employees’ share-based compensation awards are measured at the grant date fair value of the awards and recognized as expenses (a) immediately at the grant date if no vesting conditions are required; or (b) for share-based awards granted with only service conditions, using the straight-line method, over the vesting period; or (c) for share-based awards granted with service conditions and the occurrence of an IPO as performance condition, cumulative share-based compensation expenses for the options that have satisfied the service condition should be recorded upon the completion of the IPO, using the graded vesting method.

The Company early adopted Accounting Standards Update (“ASU”)

2016-09,

Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, from the earliest period presented to recognize the effect of forfeiture in compensation cost when they occur.

Net loss per share

In accordance with ASC 260,

Earnings Per Share

, basic net loss per share is computed by dividing net loss attributable to ordinary shareholders by the weighted average number of unrestricted ordinary shares outstanding during the year using the

two-class

method. Under the

two-class

method, net loss is allocated between ordinary shares and other participating securities based on dividends declared (or accumulated) and participating rights in undistributed earnings as if all the earnings for the reporting period had been distributed. The Company’s convertible redeemable preferred shares are participating securities because they are entitled to receive dividends or distributions on an as converted basis. Diluted net loss per share is calculated by dividing net loss attributable to ordinary shareholders, as adjusted for the effect of dilutive ordinary equivalent shares, if any, by the weighted average number of ordinary and dilutive ordinary equivalent shares outstanding during the period. Ordinary equivalent shares include ordinary shares issuable upon the conversion of the convertible redeemable preferred shares using the

if-converted

method, and ordinary shares issuable upon the exercise of share options, using the treasury stock method. Ordinary share equivalents are excluded from the computation of diluted earnings per share if their effects are anti-dilutive. For the periods presented herein, the computation of basic net loss per share using the

two-class

method is not applicable as the Group is in a net loss position and the participating securities do not have contractual rights and obligations to share in the losses of the Group.

Employee defined contribution plan

Full time employees of the Group in the PRC participate in a government mandated defined contribution plan, pursuant to which certain pension benefits, medical care, employee housing fund and other welfare benefits are provided to the employees. Chinese labor regulations require that the PRC subsidiaries and the VIE of the Group make 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 made. The total amounts of such employee benefit expenses, which were expensed as incurred, were approximately RMB5.46 million, RMB4.29 million and RMB15.74 million for the years ended December 31, 2019, 2020 and 2021

respectively.

Concentration of risks

Concentration of credit risk

As of December 31, 2020 and 2021, the aggregate amount of cash and cash equivalents and short-term investments of RMB771,319 and RMB1,822,364 respectively, were held at major financial institutions located in the mainland of China, and RMB1,732 and RMB10,257, respectively, were deposited with major financial institutions located outside the mainland of China. These financial institutions are of high credit quality and management continually monitors the credit worthiness of these financial institutions.

Business and economic risk

The Group believes that changes in any of the following areas could have a material adverse effect on the Group’s future consolidated financial position, results of operations or cash flows, changes in the overall demand for services; competitive pressures due to new entrants; advances and new trends in new technologies and industry standards; changes in certain strategic relationships; regulatory considerations and risks associated with the Group’s ability to attract employees necessary to support its growth. The Group’s operations could also be adversely affected by significant political, regulatory, economic and social uncertainties in the PRC.

Foreign currency exchange rate risk

A significant portion of the Group’s businesses are transacted in RMB, which is not a freely convertible currency. On January 1, 1994, the PRC government abolished the dual rate system and introduced a single rate of exchange as quoted daily by the People’s Bank of China (the “PBOC”). However, the unification of the exchange rates does not imply that the RMB may be readily convertible into US$ or other foreign currencies. All foreign exchange transactions continue to take place either through the PBOC or other banks authorized to buy and sell foreign currencies at the exchange rates quoted by the PBOC. Approval of foreign currency payments by the PBOC or other institutions requires submitting a payment application form together with suppliers’ invoices, shipping documents and signed contracts.

From July 21, 2005, the RMB is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. For U.S. dollar against RMB, there was depreciation of approximately 6.5% and 2.5% in the years ended December 31, 2020 and 2021, respectively. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the RMB and the U.S. dollar in the future.

Recently issued accounting pronouncements

The Group qualifies as an “emerging growth company”, or EGC, pursuant to the Jumpstart Our Business Startups Act of 2012, as amended, or the JOBS Act. As an EGC, the Group 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. The Group adopts the following standards based on extended transition period provided to private companies or early adopts as necessary as permitted by the respective

standards.

New and amended standards adopted by the Group

February 2016, the FASB issued ASU

No. 2016-02

(“ASU

2016-02”),

Leases (Topic 842), which modifies lease accounting for lessees to increase transparency and comparability by recording lease assets and liabilities for operating leases and disclosing key information about leasing arrangements. In July 2018, the FASB issued ASU

No. 2018-10,

Codification Improvements to Topic 842, Leases, which clarifies certain aspects of the guidance issued in ASU

2016-02;

and ASU

No. 2018-11,

Leases (Topic 842): Targeted Improvements, which provides entities with an additional (and optional) transition method to adopt the new leases standard. Under this new transition method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. Consequently, an entity’s reporting for the comparative periods presented in the financial statements in which it adopts the new leases standard will continue to be in accordance with current GAAP (Topic 840, Leases). In November 2019, the FASB issued ASU

No. 2019-10,

Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842), which extends the adoption date for certain registrants. The Group has early adopted ASU

2016-02

on January 1, 2021 utilizing the modified retrospective transition method. The Group recorded lease assets and liabilities of

approximately RMB

24.5

million on the consolidated balance sheet on January 1, 2021, with no material impact to the opening balance of accumulated deficit.

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for convertible instruments by removing certain separation models in Subtopic 470-20, Debt—Debt with Conversion and Other Options, for convertible instruments and also increases information transparency by making disclosure amendments. The standard is effective for private companies for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Group adopted ASU 2020-06 on January 1, 2021 and the impact of this adoption was not material. As of December 31, 2021, the Group did not have any convertible instruments in the Group’s own equity.

New and amended standards not yet adopted by the Group

In June 2016, the FASB issued ASU

No. 2016-13,

Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU

2016-13”).

ASU

2016-13

is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. This ASU requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This ASU requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of the Group’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. In November 2019, the FASB issued ASU

2019-10,

which extends the adoption date for certain registrants. The amendments in ASU

2016-13

are effective for fiscal years beginning after December 15, 2023, including interim periods within fiscal years beginning after December 15, 2023 for the Group. The Group does not plan to early adopt ASU

2016-13

and is currently in the process of evaluating the impact of adoption of this guidance on its consolidated financial statements.

In December 2019, the FASB issued ASU

2019-12,

Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This update simplifies the accounting for income taxes as part of the FASB’s overall initiative to reduce complexity in accounting standards. The amendments include removal of certain exceptions to the general principles of ASC 740, Income taxes, and simplification in several other areas such as accounting for a franchise tax (or similar tax) that is partially based on income. The update is effective in fiscal years beginning after December 15, 2022, and interim periods therein, and early adoption is permitted. Certain amendments in this update should be applied retrospectively or modified retrospectively, all other amendments should be applied prospectively. The Group does not plan to early adopt ASU

2019-12

and is currently evaluating the impact on its financial statements of adopting this guidance.

Prepayments and Other Current Assets

12 Months Ended

Dec. 31, 2021

Prepaid Expense and Other Assets [Abstract]

PREPAYMENTS AND OTHER CURRENT ASSETS

3. PREPAYMENTS AND OTHER CURRENT ASSETS

Prepayments and other current assets consist of the following:


	As of December 31,
	2020		2021
	RMB		RMB		US$
					(Note 2)
Deductible value-added tax input		30,961		40,690		6,385
Prepayments for CRO and other services		3,295		4,614		724
Deposits		3,326		4,083		641
Others		4,836		3,072		482

		42,418		52,459		8,232

Property, Equipment And Software

12 Months Ended

Dec. 31, 2021

Property, Plant and Equipment [Abstract]

PROPERTY, EQUIPMENT AND SOFTWARE

4. PROPERTY, EQUIPMENT AND SOFTWARE

Property, equipment and software consist of the following:


	As of December 31,
	2020			2021
	RMB			RMB			US$
							(Note 2)
Machinery and laboratory equipment		63,172			100,693			15,801
Leasehold improvements		53,405			85,177			13,366
Construction in Progress		28,403			5,149			808
Vehicles		1,088			1,066			167
Others		2,940			6,528			1,025

Total property, equipment and software		149,008			198,613			31,167
Less: accumulated depreciation and amortization		(29,925	)		(74,795	)		(11,737	)

Property, equipment and software, net		119,083			123,818			19,430

Depreciation and amortization expenses recognized for the years ended December 31,

2019,

2020 and 2021 were

RMB5,124,

RMB21,589 and RMB44,870, respectively.

Leases

12 Months Ended

Dec. 31, 2021

Leases [Abstract]

LEASES

5. LEASES

As of December 31, 2021, the Company has operating leases recorded on its balance sheet for certain office spaces and facilities that expire on various dates through 2023. The Group does not plan to cancel the existing lease agreements for its existing facilities prior to their respective expiration dates. When determining the lease term, the Group includes options to extend or terminate the lease when it is reasonably certain that it will exercise that option, if any. All of the Group’s leases qualify as operating leases.

Information related to operating leases as of December 31, 2020 and 2021 is as follows.


	As of December 31,
	2020		2021
	RMB		RMB		US$
					(Note 2)
Assets
Operating lease right-of-use assets		—		29,652		4,653
Liabilities
Operating lease liabilities, current		—		17,527		2,750
Operating lease liabilities, non-current		—		14,830		2,327

		—		32,357		5,077

Future minimum payments under

non-cancelable

operating leases with initial terms in excess of one year consist of the following as of December 31, 2021:


	RMB			US$
				(Note 2)
For the years ending:
2022		20,230			3,175
2023		13,657			2,143
2024		—			—
2025		—			—
2026 and thereafter		—			—

Total undiscounted lease payments		33,887			5,318
Less: imputed interest		(1,530	)		(241	)
Total lease liabilities		32,357			5,077

The below table summarizes lease costs and other information for year ended December 31, 2021:


	As of December 31,
	2021
	RMB			US$
Lease cost				(Note 2)
Operating lease cost		15,563			2,442
Short-term lease cost		775			122

Total lease cost		16,338			2,564

Other information
Cash paid for amounts included in the measurement of lease liabilities		15,309			2,402
Right-of-use assets obtained in exchange for new operating lease liabilities		18,972			2,977
Weighted-average remaining lease term		1.9 years			1.9 years
Weighted-average discount rate		5.0	%		5.0	%

For the year ended December 31, 2021, the Company did not have variable lease cost or sublease income.

For the years ended December 31, 2019, 2020, total operating lease expense amounted to RMB11,104 and RMB11,536, respectively.

Under the prior lease guidance, future minimum payments under non-cancelable operating leases with initial terms in excess of one year consist of the following as of December 31, 2020:


	RMB
For the years ending:
2021		8,949
2022		9,712
2023		6,956
2024		—
2025 and thereafter		—
Total		25,617

Other Non-Current Assets

12 Months Ended

Dec. 31, 2021

Other Assets, Noncurrent [Abstract]

OTHER NON-CURRENT ASSETS

6. OTHER

NON-CURRENT

ASSETS

Other

non-current

assets consist of the following:


	As of December 31,
	2020		2021
	RMB		RMB		US$
					(Note 2)
Prepayment for property, equipment and software		30,398		19,968		3,133
Long-term deposit		—		1,619		254
		30,398		21,587		3,387

Accruals And Other Current Liabilities

12 Months Ended

Dec. 31, 2021

Payables and Accruals [Abstract]

ACCRUALS AND OTHER CURRENT LIABILITIES

7. ACCRUALS AND OTHER CURRENT LIABILITIES

Accruals and other current liabilities consist of the following:


	As of December 31,
	2020		2021
	RMB		RMB		US$
					(Note 2)
Accrued external research and development related expenses		9,425		36,389		5,710
Salary and welfare payables		12,119		20,909		3,281
Professional service fees		15,399		5,161		810
Deferred income for reimbursement of the expenses related to the establishment of the ADS facility		—		2,902		455
Rental fees		2,835		—		—
Others		2,623		3,759		590

		42,401		69,120		10,846

Borrowings

12 Months Ended

Dec. 31, 2021

Debt Disclosure [Abstract]

Borrowings

8. BORROWINGS


	As of December 31,
	2020		2021
	RMB		RMB		US$
					(Note 2)
Current
Short-term borrowings:
Bank loans		49,990		66,100		10,373
Current portion of long-term borrowings		970		2,376		373

Total current borrowings		50,960		68,476		10,746
Non-Current
Long-term borrowings:
Bank loans		51,926		54,349		8,529
Total non-current borrowings		51,926		54,349		8,529
Total borrowings		102,886		122,825		19,275

Short-term borrowings

In May 2020, Suzhou Gracell entered into a loan agreement with China Construction Bank, under which Suzhou Gracell borrowed an aggregate principal amount of RMB5.0 million in the form of a term loan for 12 months. Interest on the outstanding loan balance accrues at a fixed annual rate equal to the one-year loan prime rate plus 0.5%. Suzhou Gracell is required to make interest payments on the loan on a monthly basis and repay principal at the end of the loan term. In June 2020, Suzhou Gracell entered into another loan agreement with China Construction Bank, under which Suzhou Gracell borrowed additional RMB5.0 million for a term of 12 months at an interest rate equal to

the one-year loan

prime rate plus 0.15%. In July 2020, Suzhou Gracell entered into the third loan agreement with China Construction Bank, under which Suzhou Gracell borrowed additional RMB5.0 million for a term of 12 months at an interest rate equal to

the one-year loan

prime rate minus 0.2%. In September 2020, Suzhou Gracell entered into the fourth loan agreement with China Construction Bank, under which Suzhou Gracell borrowed additional RMB5.0 million for a term of 12 months at an interest rate equal to

the one-year loan

prime rate. In November 2020, Suzhou Gracell entered into the fifth loan agreement with China Construction Bank, under which Suzhou Gracell borrowed additional RMB5.0 million for a term of 12 months at a fixed annual rate equal to

the

one-year loan

prime rate plus 0.5%. In December 2020, Suzhou Gracell entered into the sixth loan agreement with China Construction Bank, under which Suzhou Gracell borrowed additional RMB5.0 million for a term of 12 months at a fixed annual rate equal to

the one-year loan

prime rate plus 0.5%. These loans were paid back to the bank during 2021.

In June 2021, Suzhou Gracell entered into the seventh loan agreement with China Construction Bank, under which Suzhou Gracell borrowed additional RMB6.1 million for a term of 12 months at a fixed annual rate equal to

the one-year loan

prime rate plus 0.45%. In July 2021, Suzhou Gracell entered into the eighth loan agreement with China Construction Bank, under which Suzhou Gracell borrowed additional RMB5.0 million for a term of 12 months at a fixed annual rate equal to

the one-year loan

prime rate plus 0.45%. In August 2021, Suzhou Gracell entered into the ninth loan agreement with China Construction Bank, under which Suzhou Gracell borrowed additional RMB 5.0 million for a term of 12 months at a fixed annual rate equal to

the one-year loan

prime rate plus 0.45%. In November 2021, Suzhou Gracell entered into the tenth loan agreement with China Construction Bank, under which Suzhou Gracell borrowed additional RMB5.0 million for a term of 12 months at a fixed annual rate equal to

the one-year loan

prime rate plus 0.45%. In December 2021, Suzhou Gracell entered into the eleventh loan agreement with China Construction Bank, under which Suzhou Gracell borrowed additional RMB5.0 million for a term of 12 months at a fixed annual rate equal to

the one-year loan

prime rate plus 0.45%.

Other than the interest rate, these loan agreements with China Construction Bank have substantially the same terms and conditions. The effective interest rate of these borrowing is 3.65% to 4.35% per annum.

In December 2020, Suzhou Gracell entered into two loan agreements with China CITIC Bank. Under each agreement Suzhou Gracell borrowed a principal amount of RMB5.0 million respectively in the form of a term loan for 12 months. Interest on the outstanding loan balance accrues at a fixed annual rate equal to

the

one-year loan

prime rate. Suzhou Gracell is required to make interest payments on the loan on a monthly basis and repay principal at the end of the loan term. These loans were paid back to the bank during 2021.

In March 2021, Suzhou Gracell entered into a loan agreement with China CITIC Bank. Under

the

agreement Suzhou Gracell borrowed a principal amount of RMB10.0 million in the form of a term loan for 12 months.

Interest on the outstanding loan balance accrues at a fixed annual rate equal to

the one-year loan

prime

rate plus 0.15%.

Suzhou Gracell is required to make interest payments on the loan on a monthly basis and repay principal at the end of the loan term.

In December 2020, Suzhou Gracell entered into a loan agreement with China Industrial Bank Co., Ltd., under which Suzhou Gracell borrowed an aggregate principal amount of RMB9.99 million in the form of a term loan for 12 months. Interest on the outstanding loan balance accrues at a fixed annual rate equal to

the one-year loan

prime rate plus 0.85%. Suzhou Gracell is required to make interest payments on the loan on a monthly basis and repay principal at the end of the loan term. This loan was paid back to the bank during 2021.

In October and November 2021, Suzhou Gracell entered into two loan agreements with Hangzhou Bank. Under the agreements, Suzhou Gracell borrowed principal amounts of RMB10.0 million and RMB20.0 million in the form of two term loans for 12 months. The effective interest rate of these borrowings is 4.35% per annum. Suzhou Gracell is required to make interest payments on the loan on a monthly basis and repay principal at the end of the loan term.

Long-term borrowings

In January 2020, Suzhou Gracell entered into a loan agreement with Bank of China, under which Suzhou Gracell obtained a term loan facility of RMB69.0 million for a term of 72 months commencing from the first drawdown date. Interest on the outstanding loan balance accrues at a variable annual rate equal to the five-year loan prime rate plus 0.2%. Suzhou Gracell is required to make interest payments on the loan on a semi-annual basis and payments of principal according to the agreed repayment schedule which will commence from the end of the 42nd month after the first drawdown date. Suzhou Gracell borrowed an aggregate principal amount of RMB44.28 million within the facility limit as of December 31, 2021. The effective interest rate of these borrowings is 4.85% to 5.00% per annum.

In July 2020, Suzhou Gracell entered into a loan agreement with China Merchants Bank, under which Suzhou Gracell obtained a term loan facility of RMB29.0 million for a term of 60 months commencing from June 2, 2020 and ending on June 1, 2025. During the term, Suzhou Gracell may make multiple drawdowns within the facility limit. Interest on the outstanding loan balance accrues quarterly at a variable annual rate equal to the

one-year

loan prime rate plus 1%. Suzhou Gracell is required to make payments of principal and interest on the loan on a semi-annual basis unless otherwise agreed by the parties. Suzhou Gracell borrowed an aggregate principal amount of RMB13.87 million within the facility limit and repaid 1.43 million as of December 31, 2021. The effective interest rate of these borrowing is 4.85% per annum.

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

+ References

Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
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Reference 2: http://www.xbrl.org/2003/role/disclosureRef
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-Name Accounting Standards Codification
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+ Details

Ordinary Shares	12 Months Ended
Ordinary Shares	Dec. 31, 2021
Stockholders' Equity Note [Abstract]
ORDINARY SHARES	9. ORDINARY SHARES As of December 31, 2019 and 2020, 500,000,000 ordinary shares with a par value of $0.0001 had been authorized by the Company. Each ordinary share is entitled 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 of the Company. In 2017, the VIE issued 9,800,000 ordinary shares to William Wei Cao with total consideration of RMB2,150 and 208,955 ordinary shares to Shanghai Guidance Capital Ltd. (“Shanghai Zhaoheng”) and Suzhou Tonghe Venture Investment Partnership II (L.P.) (“Tonghe II”) for a total consideration of RMB200. On January 3, 2019, the VIE repurchased 104,478 shares of ordinary shares held by Shanghai Zhaoheng. As part of the Reorganization in January 2019, the former ordinary shares were exchanged for ordinary shares of the Company on a 1:10 basis. On March 6, 2020, 1,044,776 ordinary shares of the Company was transferred from Tonghe II to OrbiMed Asia Partners III, L.P., King Star Med LP, LAV Granite Limited, LAV Biosciences Fund V, L.P., Victory Treasure Limited and OrbiMed Asia Partners III, L.P. On October 14, 2020, William Cao Wei transferred 5,910,000 ordinary shares of the Company to Michelia Figo Holding Limited with an aggregate consideration of US$1.00 per share. On January 12, 2021, the Company completed its IPO. At the closing of its IPO, the Company issued 11,000,000 American depositary shares (“ADSs”) at public offering price of US$19.00 per ADS. The number of ADSs issued at closing included the exercise in full of the underwriters’ option to purchase 1,650,000 additional ADSs from the Company. The aggregate gross proceeds from the IPO were approximately US$240 million, before deducting underwriting discounts and commissions and estimated offering expenses payable by the Company. Each ADS represents 5 ordinary shares of the Company. Upon the completion of the IPO, the Company’s then outstanding 31,343,284 Series A Preferred Shares, 21,735,721 Series B-1 Preferred Shares, 59,327,653 Series B-2 Preferred Shares and 61,364,562 Series C Preferred Shares were converted into 31,343,284, 21,735,721, 59,327,653 and 61,364,562 ordinary shares, respectively. As of December 31, 2021, 337,969,926 shares of ordinary shares were issued and outstanding.

- Definition

The entire disclosure for shareholders' equity comprised of portions attributable to the parent entity and noncontrolling interest, including other comprehensive income. Includes, but is not limited to, balances of common stock, preferred stock, additional paid-in capital, other capital and retained earnings, accumulated balance for each classification of other comprehensive income and amount of comprehensive income.

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+ Details

Convertible Redeemable Preferred Shares

12 Months Ended

Dec. 31, 2021

Temporary Equity [Abstract]

CONVERTIBLE REDEEMABLE PREFERRED SHARES

10. CONVERTIBLE REDEEMABLE PREFERRED SHARES

On August 8, 2017, the VIE issued 3,656,716 shares of Series A convertible redeemable preferred shares (“Series A Preferred Shares”) to certain investors at US$3.032 per share for a total consideration of US$11,087 (equivalent to approximately RMB69,800).

On August 14, 2018, the Company, the VIE and certain investors entered into a convertible loan agreement and a warrant agreement. Prior to the obtaining of requisite overseas direct investment approvals (“ODI approval”), the investors agreed to provide a convertible loan in an aggregate principal amount of US$22,000 (equivalent to approximately RMB138,695) to the VIE, with no interest and acquire warrants to subscribe for a total number of 21,735,721 Series B1 Preferred Shares of the Company at US$1.0122 per share.

On January 3, 2019, the VIE repurchased 104,478 shares of ordinary shares and 522,388 shares of Series A Preferred Shares for an aggregate price of US$6,657 (equivalent to approximately RMB44,705). The consideration exceeded the carrying value of repurchased ordinary shares and Series A Preferred Shares by RMB32,840, which was recorded as deemed dividend to the ordinary and preferred shareholders.

As part of the Reorganization in January 2019, the former Series A Preferred Shares were exchanged for 31,343,284 Series A Convertible Redeemable Preferred Shares of the Company (“Series A Preferred Shares”) on a 1:10 basis at US$0.3032 per share.

On February 22, 2019, the Company issued 59,327,653 shares of Series

B-2

convertible redeemable preferred shares (“Series

B-2

Preferred Shares”) to certain investors at US$1.0619 per share for total consideration of US$63,000 (equivalent to approximately RMB439,501). Series

B-1

Preferred Shares and Series

B-2

Preferred Shares are collectively referred to as the Series B Preferred Shares.

As disclosed in Note 1(b), the Group had undergone the Reorganization and changed the issuer of the Series A Preferred Shares to be the reporting entity through share swaps. The major terms and number of shares of the Series A Preferred Shares have remained the same. Thus, there is no accounting impact as a result of the Reorganization at the consolidated level. As further discussed in Note 1(b), the Reorganization was a transaction by Group entities under common control. The equity section of the Company after the Reorganization is assumed to have existed from the earliest period presented in the consolidated financial statements.

During the period from July 2, 2020 to September 9, 2020, the Company issued 21,735,721 Series

B-1

Preferred Shares upon conversion of convertible loan and exercise of the warrants.

On October 20, 2020, the Company issued 61,364,562 shares of Series C convertible redeemable preferred shares (“Series C Preferred Shares”) to certain investors at US$ 1.635331 per share for total consideration of US$100,351.

The key features of the Series A, Series B and Series C Preferred Shares (collectively the “Preferred Shares”) are as follows:

Dividends right

Each Preferred Share shall have the right to receive

non-cumulative

dividends, pari passu with Ordinary Shares, on an

as-converted

basis, when, as and if declared by the Board.

Liquidation preference

In the event of any liquidation, dissolution or winding up of the Company, either voluntarily or involuntarily, all assets and funds of the Company legally available for distribution (after satisfaction of all creditors’ claims and claims that may be preferred by law) shall be distributed in the following preference order:

(i) Holders of the Series C Preferred Shares shall be entitled to receive a per share amount equal to 100% of the issue price of Series C Preferred Shares, respectively, plus all declared but unpaid dividends and minus all paid dividends.

(ii) Holders of the Series B Preferred Shares shall be entitled to receive a per share amount equal to 140% of the issue price of Series B Preferred Shares, respectively, plus all declared but unpaid dividends and minus all paid dividends.

(iii) Holders of the Series A Preferred Shares shall be entitled to receive a per share amount equal to 150% of the issue price of Series A Preferred Shares, respectively, plus all declared but unpaid dividends and minus all paid dividends.

Conversion right

Each Preferred Share may be converted at any time into ordinary shares at the option of the preferred shareholders based on the then-effective conversion price. The initial conversion ratio is 1:1, subject to adjustment in the event of share splits and combinations, ordinary share dividends and distributions, reorganizations, mergers, consolidations, exchanges, substitutions, or dilutive issuance.

All Preferred Shares are converted automatically into ordinary shares at the then effective applicable conversion price upon a Qualified Public Offering (public offering of the Company’s shares with an offering price (exclusive of underwriting discounts and registration expenses) that reflects the minimum market capitalization and other conditions set forth in the Company’s articles).

Redemption right

At any time following the first occurrence of any redemption event specified in the shareholders’ agreement (“Redemption Events”), the outstanding preferred shareholders may request a redemption up to all of the outstanding shares held.

The Redemption Events shall mean:

(i) the Company fails to complete a Qualified Public Offering within five (5) years from October 20, 2020;

(ii) any material breach or violation by any Group Company, the Founder or the Founder Holding Company of any of its representations, warranties or covenants contained in the Transaction Documents made to any Investor alone or together with any other Person and such breach or violation is not curable or is not cured within thirty (30) days from the date of occurrence;

(iii) the Founder ceases to hold the offices of Chairman and president of the Company or ceases to be in full-time employment by any Group Company in any other capacity within five (5) years from October 20, 2020 unless otherwise approved by the Board (including all Investor Directors);

(iv) the exercise of redemption right by any holders with redemption right.

The price at which each Preferred Share shall be redeemed equals to:

(i) in respect of each Series C Preferred Share, 100% of the original issue price on each preferred share, plus all declared but unpaid dividends on such Series C Preferred Share accrued as of the redemption payment date; and

(ii) in respect of each Series B Preferred Share, 140% of the original issue price on each preferred share, plus all declared but unpaid dividends on such Series B Preferred Share accrued as of the redemption payment date; and

(iii) in respect of each Series A Preferred Share, 150% of the issue price of Series

B-2

Preferred Share on each Series A Preferred, minus all paid dividends on such Series A Preferred Share.

After the liquidation amounts of all series of the Preferred Shares have been paid in full, any remaining funds or assets of the Company legally available for distribution to shareholders shall be distributed ratably among the holders of the Preferred Shares, on an

as-converted

basis, together with the holders of the ordinary shares.

Accounting of Preferred Shares

The Preferred Shares are classified as mezzanine equity in the consolidated balance sheets because they are contingently redeemable upon the occurrence of an event outside of the Company’s control (e.g. the Company not achieving a Qualified Public Offering or a deemed liquidation event before October 20, 2025 (“Target QIPO Date”). The Preferred Shares were determined to be mezzanine equity with no embedded feature to be bifurcated and no beneficial conversion features to be recognized. The Preferred Shares are initially recorded at their respective issuance date fair value, net of issuance cost. The Company incurred issuance cost with amount of RMB13,386 (US$2,000) for the issuance of Series C Preferred Shares. The cumulative undeclared dividends are not recorded in the consolidated balance sheet as the Company does not have the obligation to pay the cumulative dividend before it is declared by the board of directors.

The Company concluded that the Preferred Shares are not currently redeemable, but are probable to become redeemable. The Company accreted changes in the redemption value over the period from the date of issuance to the earliest redemption date using the effective interest method. The accretion is recorded against retained earnings, or in the absence of retained earnings, by charges against additional

paid-in-capital,

or in the absence of additional

paid-in-capital,

by charges to accumulated deficit. The accretion of the Preferred Shares was RMB36,802, RMB62,733 and RMB1,989 for the years ended December 31, 2019

, 2020

and 202

The convertible loans and warrants were issued contemporaneously and in contemplation of each other. The warrants cannot be separately exercised; hence, they are not freestanding financial instruments. The convertible loans are accounted for as liabilities recorded using amortized cost. Upon the cancellation of convertible loans and exercise of the warrants, the convertible loans were debit with a corresponding entry to credit the issued preferred shares.

Modification of Preferred Shares

On January 3, 2019, the Target QIPO Date was extended from November 15, 2022 to February 22, 2024 upon issuance of Series

B-2

Preferred Shares. The amendment is accounted for as modification rather than extinguishment as the fair values of these Preferred Shares immediately after the amendment were not significantly different from their respective fair values immediately before the amendment. When Preferred Shares are modified and such modification results in value transfer between preferred shareholders and ordinary shareholders, the value transferred is treated as a deemed dividend to or deemed contribution from the preferred shareholders. The change in fair value of Series A Preferred Shares immediately before and after the modification was RMB625. The decrease in fair value of the ordinary shares is RMB625, in substance, a transfer of wealth from the ordinary shareholders to the Series A preferred shareholders.

On March 6, 2020, the redemption price of Series A Preferred Shares was amended. Before modification, the redemption price of each share of Series A Preferred Shares equals to 150% of the original issue price on each preferred share, plus the interest at an annual compound rate of eight percent (8%) on the original issue price on each preferred share accrued from August 8, 2017 to the redemption payment date minus all paid dividends on such Series A Preferred Share. The amendment is accounted for as a modification rather than extinguishment as the fair values of these Preferred Shares immediately after the amendment were not significantly different from their respective fair values immediately before the amendment. When Preferred Shares are modified and such modification results in value transfer between preferred shareholders and ordinary shareholders, the value transferred is treated as a deemed dividend to or deemed contribution from the preferred shareholders. The change in fair value of Series A Preferred Shares immediately before and after the modification was RMB9,055. The decrease in fair value of the ordinary shares is RMB9,055, in substance, a transfer of wealth from the ordinary shareholders to the Series A preferred shareholders.

On October 20, 2020, the Target QIPO Date was extended from February 22, 2024 to October 20, 2025 upon issuance of Series C Preferred Shares. The amendment is accounted for as a modification rather than extinguishment as the fair values of these Preferred Shares immediately after the amendment were not significantly different from their respective fair values immediately before the amendment. When Preferred Shares are modified and such modification results in value transfer between preferred shareholders and ordinary shareholders, the value transferred is treated as a deemed dividend to or deemed contribution from the preferred shareholders. The change in fair value of Series A, Series

B-1

and Series

B-2

Preferred Shares immediately before and after the modification was RMB1,284, RMB82 and RMB394, respectively. The increase in fair value of the ordinary shares is RMB1,760, in substance, a transfer of wealth from the preferred shareholders to the ordinary shareholders, respectively.

On January 12, 2021, the Company completed its IPO. Upon the completion of the IPO, the Company’s then outstanding 31,343,284 Series A Preferred Shares, 21,735,721 Series

B-1

Preferred Shares, 59,327,653

Series B-2 Preferred

Shares and 61,364,562 Series C Preferred Shares were converted into 31,343,284, 21,735,721, 59,327,653 and 61,364,562 ordinary shares, respectively.

The Company’s Preferred Shares activities for the periods presented are summarized below:


Mezzanine equity	Series A			Series B-1			Series B-2			Series C			Total
	RMB			RMB			RMB			RMB			RMB
Balance as of December 31, 2018		83,404			—			—			—			83,404
Issuance of Series B-2 Preferred Shares		—			—			439,501			—			439,501
Repurchase of Series A Preferred Shares		(11,864	)		—			—			—			(11,864	)
Accretion of Series A Preferred Shares to redemption value		10,794			—			—			—			10,794
Accretion of Series B-2 Preferred Shares to redemption value		—			—			26,008			—			26,008

Balance as of December 31, 2019		82,334			—			465,509			—			547,843
Issuance of Series B-1 Preferred Shares		—			138,695			—			—			138,695
Issuance of Series C Preferred Shares		—			—			—			658,265			658,265
Accretion of Series A Preferred Shares to redemption value		28,134			—			—			—			28,134
Accretion of Series B-1 Preferred Shares to redemption value		—			3,786			—			—			3,786
Accretion of Series B-2 Preferred Shares to redemption value		—			—			30,290			—			30,290
Accretion of Series C Preferred Shares to redemption value		—			—			—			523			523

Balance as of December 31, 2020		110,468			142,481			495,799			658,788			1,407,536
Accretion of Series A Preferred Shares to redemption value		867			—			—			—			867
Accretion of Series B-1 Preferred Shares to redemption value		—			302			—			—			302
Accretion of Series B-2 Preferred Shares to redemption value		—			—			733			—			733
Accretion of Series C Preferred Shares to redemption value		—			—			—			87			87
Conversion of preferred shares to ordinary shares upon the IPO		(111,335	)		(142,783	)		(496,532	)		(658,875	)		(1,409,525	)

Balance as of December 31, 2021		—			—			—			—			—

Share-Based Compensation

12 Months Ended

Dec. 31, 2021

Share-based Payment Arrangement [Abstract]

SHARE-BASED COMPENSATION

11. SHARE-BASED COMPENSATION

(a) Employee Stock Option Plan

On August 8, 2017, the Company adopted the 2017 Employee Stock Option Plan (“PRC Plan” or “2017 Plan”), which was replaced by the Amended and Restated 2017 Employee Stock Option Plan (“Global Plan”) on April 15, 2019 to reserve a pool of 4,388,060 shares of the Company’s ordinary shares to be granted to the officers, directors, employees and consultants of the Company as part of the Reorganization. The replacement of PRC Plan with Global Plan and revocation of the original 2017 Plan are viewed as having no accounting impacts as the 2017 Plan has remained effective throughout and there’s essentially no change but merely just to change the form of the plan due to the Reorganization. In July 2020, the Company adopted the Second Amended and Restated Employee Stock Option Plan (“the Second Global Plan”) and increased the maximum number of shares issuable to 7,388,060. In October 2020, the Company adopted the Third Amended and Restated Employee Stock Option Plan (“the Third Global Plan”) and increased the maximum number of shares issuable to 10,216,234. The terms of the Second Global Plan and the Third Global Plan are substantially the same other than the maximum aggregate number of shares the Company may issue under the respective plan.

Share options granted will be exercisable upon the Company completes a listing and the grantee renders service to the Company in accordance with a stipulated service. Grantees are generally subject to a four-year vesting schedule, under which the shares vest in four equal instalments over the four years. The share option, to the extent then vested, shall become exercisable only upon the earlier of (i) a listing,

(ii) a sale of all or substantially all of the issued share capital of the Company,

(iii) a sale by the Company of all or substantially all of its assets (but excluding any internal reorganization).

Prior to the Company completes a listing, all share options granted to a grantee shall be forfeited at the time the grantee terminates his service with the Group. After the Company completes a listing, vested options not exercised by a grantee shall be exercised until later of: (i) 90 days after the date when the options become exercisable, or (ii) 3 months after the date of cessation of employment or directorship, or such longer period as the Board may determine. The share option awards shall expire no more than 10 years from their grant dates (“Option Period”). If a listing is not achieved, a share option will lapse automatically upon the expiry of the Option Period.

In December 2020, the Company adopted 2020 Share Incentive Plan (the “2020 Plan”), which will become effective immediately prior to the completion of the Company’s IPO. Under the 2020 Plan, the maximum aggregate number of ordinary shares available for issuance shall initially be three percent (3%) of the ordinary shares of the Company outstanding immediately upon completion of the Company’s IPO. Subsequently, the maximum aggregate number of ordinary shares available for issuance will be increased on an annual basis on the first calendar day of the fiscal year to be the lesser of a number determined by the board of directors or one percent (1%) of the total issued and outstanding ordinary shares on the last day of the immediately preceding fiscal year. The 2020 Plan is governed by the Company’s board of directors or a designated committee and permits various types of awards to be granted to eligible persons under specific terms and vesting schedule evidenced by an award agreement.

The following table sets forth the share options activities for the years ended December 31, 2019, 2020 and 2021:


	Number of Options			Weighted–Average Exercise Price		Weighted–Average Grant Date Fair Value		Weighted–Average Grant Date Fair Value		Weighted–Average Remaining Contractual Term		Aggregate Intrinsic Value
				US$ per option		US$ per option		RMB per option		Years		RMB

Outstanding at January 1, 2019		1,907,500			0.30		0.24		1.59		9.33		3,798
Granted		941,814			1.06		0.38		2.65		—		—
Forfeited		(92,190	)		0.71		0.30		2.06		—		—