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Cover Page	12 Months Ended
Cover Page	Dec. 31, 2019 shares
Document Information [Line Items]
Document Type	20-F
Amendment Flag	false
Document Period End Date	Dec. 31, 2019
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	FY
Entity Registrant Name	Canaan Inc.
Entity Central Index Key	0001780652
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Interactive Data Current	Yes
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Entity Well-known Seasoned Issuer	No
Entity Shell Company	false
Document Shell Company Report	false
Entity Emerging Growth Company	true
Entity Ex Transition Period	false
Document Accounting Standard	U.S. GAAP
Entity File Number	001-39127
Entity Incorporation, State or Country Code	E9
Entity Address, Address Line One	30/F
Entity Address, Address Line Two	Dicara Silver Tower
Entity Address, Address Line Three	29 Jiefang East Road
Entity Address, City or Town	Jianggan District, Hangzhou
Entity Address, Country	CN
Entity Address, Postal Zip Code	310016
Document Annual Report	true
Document Transition Report	false
Document Registration Statement	false
Class A Ordinary Shares
Document Information [Line Items]
Entity Common Stock, Shares Outstanding	2,015,597,778
Title of each class	Class A ordinary shares, par value US$0.00000005 per share*
Name of each exchange on which registered	NASDAQ
No Trading Symbol Flag	true
Class B Ordinary Shares
Document Information [Line Items]
Entity Common Stock, Shares Outstanding	356,624,444
American Depositary Shares
Document Information [Line Items]
Title of each class	American Depositary Shares, each representing 15 Class A ordinary share
Trading Symbol	CAN
Name of each exchange on which registered	NASDAQ
Business Contact
Document Information [Line Items]
Entity Address, Address Line One	30/F
Entity Address, Address Line Two	Dicara Silver Tower
Entity Address, Address Line Three	29 Jiefang East Road
Entity Address, City or Town	Jianggan District, Hangzhou
Entity Address, Country	CN
Entity Address, Postal Zip Code	310016
Contact Personnel Name	Quanfu Hong, Chief Financial Officer
City Area Code	+86-571
Local Phone Number	8999-5063
Contact Personnel Email Address	IR@canaan-creative.com

CONSOLIDATED BALANCE SHEETS ¥ in Thousands, $ in Thousands	Dec. 31, 2019 CNY (¥)	Dec. 31, 2019 USD ($)	Dec. 31, 2018 CNY (¥)
Current assets:
Cash and cash equivalents	¥ 516,607	$ 74,206	¥ 258,940
Restricted cash	8,239	1,183	286,270
Short-term investments	11,005	1,581
Accounts receivable	2,872	413	23,687
Inventories	196,067	28,163	585,672
Prepayments and other current assets	206,020	29,593	186,737
Income tax receivable			27,054
Amounts due from related parties			68
Total current assets	940,810	135,139	1,368,428
Non-current assets:
Property, equipment and software	22,602	3,247	27,926
Right-of-use assets, net	22,764	3,270
Other non-current assets	5,250	754	6,340
Total non-current assets	50,616	7,271	34,266
Total assets	991,426	142,410	1,402,694
Current liabilities：
Short-term debts	99,903	14,350	1,049,011
Accounts payable	99,050	14,228	47,240
Notes payable	27,462	3,945
Contract liabilities	8,288	1,190	6,904
Income tax payable			609
Accrued liabilities and other current liabilities	40,691	5,845	57,952
Lease liabilities, current	9,838	1,413
Total current liabilities	285,232	40,971	1,161,716
Non-current liabilities:
Lease liabilities, non-current	13,399	1,925
Total liabilities	298,631	42,896	1,161,716
Contingencies (Notes 19)
Shareholders’ equity:
Ordinary shares (US$0.00000005 par value; 1,000,000,000,000 shares authorized, 2,000,000,000 and 2,372,222,222 shares issued, 1,948,376,000 and 2,350,123,270 (including 1,993,498,826 Class A and 356,624,444 Class B) shares outstanding as of December 31, 2018 and 2019, respectively)	1		1
Subscriptions receivable from shareholders	(1)		(1)
Additional paid-in capital	1,631,609	234,366	154,970
Statutory reserves	97,307	13,977	97,307
Accumulated other comprehensive loss	(55,542)	(7,978)	(65,230)
Retained earnings (accumulated deficit)	(980,579)	(140,851)	53,931
Total shareholders’ equity	692,795	99,514	240,978
Total liabilities and shareholders’ equity	¥ 991,426	$ 142,410	¥ 1,402,694

CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Dec. 31, 2019	Dec. 31, 2018	Jun. 30, 2018	Mar. 23, 2018
Ordinary shares, par value	$ 0.00000005	$ 0.00000005	$ 0.00000005	$ 0.0001
Ordinary shares, shares authorized	1,000,000,000,000	1,000,000,000,000	1,000,000,000,000	500,000,000
Ordinary shares, shares issued	2,372,222,222	2,000,000,000	500,000,000
Ordinary shares, shares outstanding	2,350,123,270	1,948,376,000
Treasury stocks, par value	$ 0.00000005	$ 0.00000005
Treasury stock, shares	22,098,952	51,624,000
Class A Ordinary Shares
Ordinary shares, shares outstanding	1,993,498,826
Class B Ordinary Shares
Ordinary shares, shares outstanding	356,624,444

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) ¥ in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2019 CNY (¥) ¥ / shares shares	Dec. 31, 2019 USD ($) $ / shares shares	Dec. 31, 2018 CNY (¥) ¥ / shares shares	Dec. 31, 2017 CNY (¥) ¥ / shares shares
Net revenues
Leases revenue	¥ 24,548	$ 3,526
Other revenues	2,548	366	¥ 741	¥ 309
Total net revenues	1,422,623	204,347	2,705,291	1,308,083
Cost of revenues	(1,938,626)	(278,466)	(2,197,172)	(703,699)
Gross profit (loss)	(516,003)	(74,119)	508,119	604,384
Operating expenses:
Research and development expenses	(168,982)	(24,273)	(189,680)	(99,769)
Sales and marketing expenses	(21,917)	(3,148)	(38,731)	(20,724)
General and administrative expenses	(347,633)	(49,934)	(146,684)	(125,263)
Total operating expenses	(538,532)	(77,355)	(375,095)	(245,756)
Income (loss) from operations
Interest income	3,853	553	4,234	243
Investment income	3,055	439	3,162	5,598
Interest expense and guarantee fee	(20,038)	(2,878)	(53,069)
Foreign exchange (loss) gains, net	6,809	978	(1,178)	(1,187)
Value added tax refunds	1,253	180	110,231	38,811
Other (loss) income, net	25,093	3,604	3,838	(1,124)
Income (loss) before income tax expense	(1,034,510)	(148,598)	200,242	400,969
Income tax expense \| ¥			(77,810)	(25,153)
Net income (loss)	(1,034,510)	(148,598)	122,432	375,816
Foreign currency translation adjustment, net of nil tax	9,688	1,392	(65,230)
Total comprehensive income (loss)	¥ (1,024,822)	$ (147,206)	¥ 57,202	¥ 375,816
Weighted average number of shares used in per share calculation:
— Basic	2,153,172,769	2,153,172,769	1,964,499,660	1,971,589,429
— Diluted	2,153,172,769	2,153,172,769	1,978,161,073	1,971,589,429
Net earnings (loss) per share (cent per share)
— Basic \| (per share)	¥ (48.05)	$ (6.90)	¥ 6.23	¥ 19.06
— Diluted \| (per share)	¥ (48.05)	$ (6.90)	¥ 6.19	¥ 19.06
Share-based compensation expenses were included in:
Share-based compensation expenses	¥ 270,242	$ 38,818	¥ 18,586	¥ 95,525
Research and development expenses
Share-based compensation expenses were included in:
Share-based compensation expenses	22,465	3,227	9,611	25,086
Sales and marketing expenses
Share-based compensation expenses were included in:
Share-based compensation expenses	358	51	1,088	123
General and administrative expenses
Share-based compensation expenses were included in:
Share-based compensation expenses	247,419	35,540	7,887	70,316
Product
Net revenues
Net revenues	1,392,859	200,072	2,698,594	1,303,093
Service
Net revenues
Net revenues	¥ 2,668	$ 383	¥ 5,956	¥ 4,681

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - Parenthetical (Details) ¥ in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2019 CNY (¥)	Dec. 31, 2019 USD ($)	Dec. 31, 2018 CNY (¥)	Dec. 31, 2017 CNY (¥)
Statement Of Income And Comprehensive Income [Abstract]
Foreign currency translation adjustment, tax	¥ 0	$ 0	¥ 0	¥ 0

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY ¥ in Thousands, $ in Thousands	CNY (¥) shares	USD ($) shares	Initial Public Offering CNY (¥)	Ordinary Shares CNY (¥) shares	Ordinary Shares Initial Public Offering shares	Subscription Receivables From Shareholders CNY (¥)	Treasury Stock shares	Additional Paid-in Capital CNY (¥)	Additional Paid-in Capital Initial Public Offering CNY (¥)	Statutory Reserves CNY (¥)	Accumulated Other Comprehensive Loss CNY (¥)	Retained Earnings (Accumulated Deficit) CNY (¥)
Beginning Balance at Dec. 31, 2016	¥ 235,900			¥ 1		¥ (1)		¥ 178,117		¥ 6,074		¥ 51,709
Beginning Balance (in shares) at Dec. 31, 2016 \| shares				1,906,577,853
Share-based compensation expense	95,525							95,525
Capital contribution from a shareholder	150,000							150,000
Capital contribution from a shareholder (in shares) \| shares				93,422,147
Net income (loss)	375,816											375,816
Profit appropriations to statutory reserves	22,732									22,732		(22,732)
Ending Balance at Dec. 31, 2017	857,241			¥ 1		(1)		423,642		28,806		404,793
Ending Balance (in shares) at Dec. 31, 2017 \| shares				2,000,000,000
Ordinary share contributed by shareholders for the equity incentive plan (in shares) \| shares				(51,624,000)			51,624,000
Share-based compensation expense	18,586							18,586
Foreign currency translation	(65,230)										¥ (65,230)
Deemed distribution	(692,051)							(287,258)				(404,793)
Net income (loss)	122,432											122,432
Profit appropriations to statutory reserves	68,501									68,501		(68,501)
Ending Balance at Dec. 31, 2018	¥ 240,978			¥ 1		(1)		154,970		97,307	(65,230)	53,931
Ending Balance (in shares) at Dec. 31, 2018 \| shares	1,948,376,000	1,948,376,000		1,948,376,000			51,624,000
Issuance of ordinary shares	¥ 669,559		¥ 536,629					669,559	¥ 536,629
Issuance of ordinary shares (in shares) \| shares				222,222,222	150,000,000
Ordinary share contributed by shareholders for the equity incentive plan (in shares) \| shares				(403,157)			403,157
Share-based compensation expense	270,242							270,242
Foreign currency translation	9,688	$ 1,392									9,688
Vesting of restricted share units and restricted shares	209							209
Vesting of restricted share units and restricted shares (in shares) \| shares				29,928,205			(29,928,205)
Net income (loss)	(1,034,510)	(148,598)										(1,034,510)
Profit appropriations to statutory reserves	0
Ending Balance at Dec. 31, 2019	¥ 692,795	$ 99,514		¥ 1		¥ (1)		¥ 1,631,609		¥ 97,307	¥ (55,542)	¥ (980,579)
Ending Balance (in shares) at Dec. 31, 2019 \| shares	2,350,123,270	2,350,123,270		2,350,123,270			22,098,952

CONSOLIDATED STATEMENTS OF CASH FLOWS ¥ in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2019 CNY (¥)	Dec. 31, 2019 USD ($)	Dec. 31, 2018 CNY (¥)	Dec. 31, 2017 CNY (¥)
Cash flows from operating activities
Net income (loss)	¥ (1,034,510)	$ (148,598)	¥ 122,432	¥ 375,816
Adjustments for:
Depreciation and amortization of property, equipment and software	13,704	1,969	13,145	9,083
Depreciation of operating lease assets	20,458	2,939
Foreign exchange loss (gain)	(9,636)	(1,385)	2,224	1,296
Reversal of allowance for doubtful receivables			(2,152)	(543)
Loss on disposal of property, equipment and software			2,033	1,620
Loss on disposal of subsidiaries				579
Share-based compensation expenses	270,242	38,818	18,586	95,525
Deferred income tax (benefit) expenses			1,062	(10)
Investment income	(3,055)	(439)	(3,162)	(5,598)
Amortization of right-of-use asset	10,928	1,569
Interest of lease liabilities	1,746	251
Changes in assets and liabilities:
Accounts receivable	20,815	2,990	(20,228)	11,479
Inventories	369,147	53,025	(325,825)	(123,927)
Prepayments and other current assets	(20,256)	(2,910)	449,657	(587,056)
Income tax receivable	27,054	3,886	(27,054)
Amount due from a related party	68	10	(68)
Other non-current assets	1,090	157	(2,144)	(3,382)
Prepaid interest expense and guarantee fee	7,873	1,131	(7,970)
Accounts payable	51,810	7,442	(3,198)	27,589
Notes payable	27,462	3,945
Contract liabilities	1,384	199	(195,573)	201,026
Income tax payable	(609)	(87)	(23,255)	23,832
Accrued liabilities and other current liabilities	(24,545)	(3,526)	(11,253)	63,870
Lease liabilities	(11,228)	(1,613)
Net cash provided by (used in) operating activities	(280,058)	(40,227)	(12,743)	91,199
Cash flows from investing activities:
Payment for short-term investments	(554,700)	(79,678)	(1,405,520)	(941,360)
Proceeds from disposal of short-term investments	546,750	78,536	1,498,682	859,848
Purchase of property, equipment and software	(8,380)	(1,204)	(24,910)	(12,656)
Proceeds from disposal of property, equipment and software			211	13,802
Net cash (outflow) inflow arising from disposal of subsidiaries			15,515	(6,409)
Net cash (used in) provided by investing activities	(16,330)	(2,346)	83,978	(86,775)
Cash flows from financing activities:
Proceeds from issuance of ordinary shares-	669,559	96,176
Proceeds from issuance of ordinary shares upon IPO, net of cost of issuance-	544,122	78,158
Proceeds from capital contribution of a shareholder				150,000
Proceeds from borrowings	200,000	28,728	1,952,198
Repayment of borrowings	(1,135,730)	(163,137)	(964,947)
Payment for deemed distribution (Note 1(b))			(692,051)
Net cash provided by financing activities	277,951	39,925	295,200	150,000
Net increase (decrease) in cash and cash equivalents, restricted cash	(18,437)	(2,648)	366,435	154,424
Effect of exchange rate changes on cash and cash equivalents, restricted cash	(1,927)	(278)	2,275	(1,296)
Cash and cash equivalents, restricted cash at the beginning of year	545,210	78,315	176,500	23,372
Cash and cash equivalents, restricted cash at the end of year	524,846	75,389	545,210	176,500
Supplemental disclosure of cash flow information:
Cash paid for interest	11,583	1,664	35,773
Cash paid for guarantee fee	7,145	1,026	19,146
Cash paid for income tax	3,510	504	¥ 127,155	1,442
Supplemental disclosure of non-cash investing and financing activity:
Disposal of subsidiaries included in receivables				¥ 15,515
Acquisition of operating lease assets	99,523	14,296
Disposal of operating lease assets	79,065	11,357
Accrued initial public offering related cost	¥ 7,493	$ 1,076

Organization and Principal Activities

12 Months Ended

Dec. 31, 2019

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Organization and Principal Activities

1.	Organization and principal activities

(a)

Principal activities

Canaan Inc. (the “Company”), an exempted company with limited liability incorporated in the Cayman Islands and its subsidiaries are collectively referred to as the “Group”. The Group are principally engaged in integrated circuit (the “IC”) design and sale and lease of final system products by integrating its IC products for Bitcoin mining and related components in the People’s Republic of China (the “PRC”) and other countries and regions. The Group utilizes third-party suppliers to fabricate, package and test the IC products.

As of December 31, 2019, the Company’s subsidiaries are as follows:

Name of subsidiaries	Date of incorporation	Place of incorporation	Equity interest held	Principal activities
Canaan Creative (HK) Holdings Limited	February 22, 2018	Hong Kong	100%	Research and development of ICs
Hangzhou Canaan Creative Information Technology Co., Ltd.	April 9, 2013	Hangzhou, China	100%	Research and development of ICs
Canaan Creative Co., Ltd.	April 1, 2013	Beijing, China	100%	Research and development of ICs
Langfang Creative Technology Co., Ltd.	May 15, 2014	Langfang, China	100%	Assembly of system products
Hangzhou Ruihong Technology Co., Ltd.	June 30, 2015	Hangzhou, China	100%	Supply chain and distribution of system products
Hangzhou Lifeng Intelligence Agriculture Co., Ltd.	November 13, 2015	Hangzhou, China	100%	Distribution of system products
Hangzhou Canaan Blockchain Technology Co., Ltd.	November 11, 2016	Hangzhou, China	100%	Research and development of ICs
Canaan Convey Co., Ltd.	November 2, 2017	Beijing, China	100%	International distribution of system products
Zhejiang Avalon Technology Co., Ltd.	December 5, 2017	Hangzhou, China	100%	Distribution of system products
Canaan Mingxin (Beijing) Technology Co., Ltd.	December 24, 2018	Beijing, China	100%	International distribution of system products
Hangzhou Canaan Chuangxin Technology Co., Ltd.	December 26, 2018	Hangzhou, China	100%	Research and development of ICs

(b)

Reorganization

Prior to the incorporation of the Company, the Group’s business was carried out by Hangzhou Canaan Creative Information Technology Co., Ltd. (“Hangzhou Canaan”) and its subsidiaries. Hangzhou Canaan was established by co-founders Mr. Zhang Nangeng (“Mr. Zhang”), Mr. Li Jiaxuan (“Mr. Li”) and Mr. Liu Xiangfu (“Mr. Liu”) (collectively, “Co-Founders”). To facilitate offshore financing, an offshore corporate structure was formed in March 2018 (the “Reorganization”), which was carried out as follows:

On February 6, 2018, the Company was incorporated in the Cayman Islands by the Co-Founders.

On February 22, 2018, Canaan Creative (HK) Holdings Limited (“Canaan HK”) was incorporated in Hong Kong with 100% ownership by the Company.

On March 12, 2018, Mr. Kong Jianpin (“Mr. Kong”) entered into a share transfer agreement with WWXD Limited, a Hong Kong company wholly-owned by an independent third party, whereby WWXD Limited acquired 1% of equity interest in Hangzhou Canaan from Mr. Kong at a consideration of RMB7 million.

On March 21, 2018, Canaan HK acquired the 1% equity interest in Hangzhou Canaan from WWXD Limited and the remaining 99% equity interest in Hangzhou Canaan from its other shareholders at an aggregate cash consideration of RMB692,051, which was recorded as deemed distribution to these shareholders. This deemed distribution reduced retained earnings with amount of RMB404,793, and in the absence of retained earnings, reduced additional paid-in capital with amount of RMB287,258. Hangzhou Canaan then became a wholly-owned subsidiary of Canaan HK. The acquisition of equity interest was financed by a borrowing with principal of HK$885,000 withdrawn from a facility provided by CMB International Financial Limited (“CMBI Finance”) (Note 10).

As the shareholdings in the Company and Hangzhou Canaan were with a high degree of common ownership immediately before and after the Reorganization, even though no single investor controlled Hangzhou Canaan or Canaan Inc., the transaction of the Reorganization was determined as recapitalization with lack of economic substance, and was accounted for in a manner similar to a common control transaction. Consequently, the financial information of the Group is presented on a carryover basis for all periods presented. The number of outstanding shares in the consolidated balance sheets, the consolidated statements of changes in shareholders’ equity, and per share information including the net earnings (loss) per share have been presented retrospectively as of the beginning of the earliest period presented on the consolidated financial statements to reflect the final shares issued in the Reorganization.

On November 21, 2019, the Company consummated its initial public offering (the “IPO”) on the Nasdaq Global Market, where 10,000,000 American Depositary Shares (“ADSs”) were issued at the price of US$9.00 per ADS for a total gross proceeds of US$90 million. Each ADS represents 15 Class A ordinary shares.

Principal Accounting Policies

12 Months Ended

Dec. 31, 2019

Accounting Policies [Abstract]

Principal Accounting Policies

2.	Principal Accounting Policies

(a)

Basis of preparation

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

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

(b)

Use of estimates

The preparation of the Group’s consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from such estimates.

The Company believes that valuation and recognition of share-based compensation, accounting estimation of variable consideration for revenue recognition, write-down for inventories and prepayments, allowance for doubtful accounts and valuation allowance for deferred tax assets reflect significant judgments and estimates used in the preparation of its consolidated financial statements.

Management bases the estimates on historical experience and on various other assumptions as discussed elsewhere to the consolidated financial statements 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 these estimates.

(c)

Consolidation

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

Subsidiaries are those entities in which the Company, directly or indirectly, controls more than one half of the voting powers; or has the power to appoint or remove the majority of the members of the board of directors; or to cast a majority of votes at the meeting of directors; or has the power to govern the financial and operating policies of the investee under a statute or agreement among the shareholders or equity holders.

(d)

Functional currency and foreign currency translation

The Group uses Renminbi (“RMB”) as its reporting currency. The functional currency of the Company and its subsidiaries incorporated outside of PRC is the United States dollar (“US$”), while the functional currency of the PRC entities in the Group is RMB as determined based on the criteria of ASC 830, Foreign Currency Matters.

Transactions denominated in other than the functional currencies are re-measured into the functional currency of the entity at the exchange rates prevailing on the transaction dates. Financial assets and liabilities denominated in other than the functional currency are re-measured at the balance sheet date exchange rate. The resulting exchange differences are included in the consolidated statements of comprehensive income (loss) as foreign exchange related gains or loss.

The financial statements of the Group are translated from the functional currency to the reporting currency, RMB. Assets and liabilities of the Company and its subsidiaries incorporated outside of PRC are translated into RMB at fiscal year-end exchange rates, Income and expense items are translated at average exchange rates prevailing during the fiscal year, representing the index rates stipulated by the People’s Bank of China. Translation adjustments arising from these are reported as foreign currency translation adjustments and are shown as a separate component of shareholders’ equity on the consolidated financial statement. The exchange rates used for translation on December 31, 2018 and 2019 were US$1.00= RMB6.8632 and RMB6.9762, respectively, representing the index rates stipulated by the People’s Bank of China.

(e)

Convenience translation

The unaudited United States dollar (“US$”) amounts disclosed in the accompanying financial statements are presented solely for the convenience of the readers. Translations of amounts from RMB into US$ for the convenience of the reader were calculated at the rate of US$1.00=RMB6.9618 on December 31, 2019, representing the noon buying rate in The City of New York for cable transfers of RMB as certified for customs purposes by the Federal Reserve Board. No representation is made that the RMB amounts could have been, or could be, converted into US$ at that rate on December 31, 2019, or at any other rate.

(f)

Fair value of financial instruments

Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Group considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.

The established fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

The three levels of inputs that may be used to measure fair value include:

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: Observable, market-based inputs, other than quoted prices, in active markets for identical assets or liabilities.

Level 3: Unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

Accounting guidance also 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 Group’s financial instruments consist principally of cash and cash equivalents, short-term investments, accounts receivable, accounts payable and other liabilities.

As of December 31, 2018 and 2019, the carrying values of cash and cash equivalents, accounts receivable, accounts payable and other liabilities approximated to their fair values reported in the consolidated balance sheets due to the short term nature of these instruments.

On a recurring basis, the Group measures its short-term investments at fair value.

The following table sets forth the Group’s assets that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy:

As of December 31, 2019

Level 1

Level 2

Level 3

Balance at

fair value

Assets

Short-term investments

—

11,005

—

11,005

As of December 31, 2018, there was no financial asset that was measured at fair value on a recurring basis.

The Group values its investments in wealth management products based on quoted prices of similar products provided by banks at the end of each period, and accordingly, the Group classifies the valuation techniques that use these inputs as Level 2.

(g)

Cash and cash equivalents

Cash and cash equivalents include cash in bank and time deposits placed with banks or other financial institutions, which have original maturities of three months or less at the time of purchase and are readily convertible to known amounts of cash.

(h)

Restricted cash

Restricted cash includes cash and cash equivalents that are not readily available for the Company’s normal disbursements. Restricted cash are primarily related to cash deposits with banks and financial institutions required as part of collateral for the Company’s short-term debts (Note 10) and notes payable (Note 11) arrangements .

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230) (“ASU 2016-18”). This ASU affects all entities that have restricted cash or restricted cash equivalents and are required to present a statement of cash flows under Topic 230. ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. This update was required to be adopted for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019, and early adoption is permitted in any interim or annual period. The Group elected to early adopt this ASU and applied this guidance retrospectively to all periods presented.

(i)

Short-term investments

Short-term investments include investments in wealth management products issued by certain banks which are redeemable by the Company at any time. The wealth management products are unsecured with variable interest rates. The Company measures the short-term investments at fair value and fair value is estimated based on quoted prices of similar products provided by banks at the end of each period. The change in fair value is recorded as investment income amounted to RMB5,598, RMB3,162 and RMB3,055 in the consolidated statements of comprehensive income (loss) for the years ended December 31, 2017, 2018 and 2019, respectively.

(j)

Accounts receivable

Accounts receivable are presented net of allowance for doubtful accounts. The Group uses specific identification in providing for bad debts when facts and circumstances indicate that collection is doubtful and based on factors listed in the following paragraph. If the financial conditions of its customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowance may be required.

The Company maintains an allowance for doubtful accounts which reflects its best estimate of amounts that potentially will not be collected. The Company determines the allowance for doubtful accounts on general basis taking into consideration various factors including but not limited to historical collection experience and credit-worthiness of the customers as well as the age of the individual receivables balance. Additionally, the Company makes specific bad debt provisions based on any specific knowledge the Company has acquired that might indicate that an account is uncollectible. The facts and circumstances of each account may require the Company to use substantial judgment in assessing its collectability.

(k)

Inventories

Inventories, consisting of finished goods, work in process, raw materials and goods in transit, which are purchased from contract manufacturers and component suppliers. Inventories are stated at the lower of cost and net realizable value. Cost of inventory is determined using the weighted average cost method. Adjustments are recorded to write down the cost of inventory to the estimated net realizable value due to slow-moving and obsolete inventory, which is dependent upon factors such as historical and forecasted consumer demand, and promotional environment. The Group takes ownership, risks and rewards of the products purchased.

In accordance with ASC 855-10-55-1(b), the Group considers all data available, including future demand and subsequent changes in product prices that may provide additional information about the valuation of inventories at the balance sheet date.

(l)

Operating lease assets

Operating lease assets consist of lease contracts for system products for Bitcoin mining with customers, which are reclassified from inventories at the beginning of lease period. Operating lease assets are recorded at cost less accumulated depreciation and impairment losses. Depreciation is provided using a straight-line method over the estimated economic lives which is generally 18 months. Depreciation expenses are included in costs of revenues. The Group monitors accounting estimates relating to the depreciation period. Changes made to estimates are reflected in depreciation expense on a prospective basis.

(m)

Property, equipment and software

Property, equipment and software are stated at historical cost less accumulated depreciation, amortization and impairment loss, if any. Depreciation and amortization is calculated using the straight-line method over the shorter of their estimated useful lives of these assets or the term of the related leases. The estimated useful lives are as follows:

Leasehold improvements	the shorter of their useful lives and the lease terms
Computers and electronic equipment	3 to 5 years
Mechanical equipment	5 years
Motor vehicles	5 years
Software	3 years

Expenditures for maintenance and repairs are expensed as incurred. The gain or loss on the disposal of property, equipment and software is the difference between the net sales proceeds and the carrying amount of the relevant assets and is recognized in the consolidated statements of comprehensive income (loss).

Construction in progress represents assets under construction. Construction in progress is transferred to property, equipment and software and depreciation or amortization commences when an asset is ready for its intended use.

(n)

Impairment of long-lived assets

For other long-lived assets including property, equipment and software and other non-current assets, the Group evaluates for impairment whenever events or changes (triggering events) indicate that the carrying amount of an asset may no longer be recoverable. The Group assesses the recoverability of the long-lived assets by comparing the carrying value of the long-lived assets to the estimated undiscounted future cash flows expected to receive from use of the assets and their eventual disposition. Such assets are considered to be impaired if the sum of the expected undiscounted cash flows is less than the carrying amount of the assets. The impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.

(o)

Contract liabilities

Cash proceeds received from customers before product delivery is recognized as contract liabilities and is recognized as revenues when revenue recognition criteria are met.

The prepayments received from customers as of December 31, 2018 and 2019 was RMB6,904 and RMB8,288, respectively. The revenue recognized during the years ended December 31, 2017, 2018 and 2019 for such contract liability was RMB1,451,RMB202,477 and RMB 6,904, respectively.

(p)

Revenue from contracts with customers (ASC 606)

The Group has adopted the new revenue standard, ASC 606, Revenue from Contracts with Customers (Topic 606) for all periods presented. Consistent with the criteria of Topic 606, the Group recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to receive in exchange for those goods or services.

Products revenue

The Group generates revenue primarily from the sale of Bitcoin mining machines directly to a customer, such as a business or individual engaged in Bitcoin mining activities. As the Bitcoin price fluctuates, the Group may adjust the selling price of Bitcoin mining machines on a weekly basis, as customers are only willing to pay for machines based on their ability to recover their investment through mining Bitcoin over a relatively short period of time. The Group’s sales arrangements usually require a full prepayment before the delivery of products. The Group started to offer credit sales to certain significant, long-standing customers in China in 2018. The payment terms under credit sales generally consist of 50% down payment and 50% subsequent payments over a period of 90 to 180 days. With the adoption of a more dynamic pricing strategy, the Group expects to accept a lower amount of consideration (as compared to fixed and promised consideration that is set out in the sales contracts) from its credit sales customers if the price of Bitcoin decreases in the post-sale period; hence providing implicit price concession to these customers and the ultimate amount of price concessions to be provided to these credit sales customers is highly dependent on the changes of Bitcoin prices.

Revenues from product sales are recorded at the net sales price (transaction price), which includes an estimation of variable consideration which primarily results from implicit price concessions on credit sales. The amount of variable consideration is included in the transaction price to the extent it is not constrained and that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. Actual amounts of consideration ultimately received may differ from the estimates. If actual results in the future vary from estimates, the Group will adjust these estimates, which would affect revenue and earnings in the period when such changes are known. With respect to the determination of variable consideration resulting from the amount of implicit price concession, since the Bitcoin market price is volatile and unpredictable and changes of Bitcoin price will greatly affect the implicit price concessions to be provided by the Group to its credit sales customers the Group historically has not been able to overcome the constraint on variable consideration at the time of product sale or at subsequent period-end dates until the Group has knowledge about the resolution of the uncertainty through payment by the customer. The Group uses all the subsequent information to the date of issuance of the financial statements to adjust the estimated variable consideration for the periods presented, representing updated information on the best estimate of the amount of transaction price that is probable of being received and therefore not constrained as of period-end. The Group will continue to monitor and evaluate historical data and other factors in determining the total transaction price (including implicit price concessions) that can be recognized for product sales on credit. During the years ended December 31, 2017, 2018 and 2019, the Group recognized price concessions provided to its customers in the amounts of nil, RMB152,755 and RMB22,392, respectively. During the year ended December 31, 2019, the adjustment to the previously estimated variable considerations was amounting to RMB27,719 (years ended December 31, 2017 and 2018: nil), which was recorded as revenue of this year.

The Group recognizes products revenue at a point in time based on management’s evaluation of when the control of the products have been passed to customers. The transfer of control is considered complete when products have been picked up by or shipped to the Group’s customers.

The Group offers a standard product warranty of no longer than 6 months that the product will operate under normal use. At the time revenue is recognized, an estimate of future warranty costs is recorded as a component of cost of revenues. The reserves established are regularly monitored based upon historical experience and any actual claims charged against the reserve. The amount of total warranty costs incurred was immaterial for the years ended December 31, 2017, 2018 and 2019, respectively.

Services revenue

The Company also generates a small portion of revenue from its maintenance services under separate contracts. Revenue from the maintenance service to the customer is recognized when the related services have been rendered to the customers.

(q)

Revenue from lease arrangements as lessor (ASC 842)

From July 2019, the Group also started to generate revenue from the leases of system products for Bitcoin mining to its customers typically with rental periods of six months. The leases cannot generally be extended or terminated at the customer's discretion. However, upon the mutual agreement of the parties, the leases can be early terminated after three months. Rental charges are computed based on a time rate of machine’s type and rental period. The leases of system products meet the classification of operating leases, and revenues from operating leases are recognized on a straight-line basis over the contract terms.

(r)

Value-added-tax (“VAT”) recoverable and surcharges

Value added tax recoverable represent amounts paid by the Group for purchases. The surcharges (i.e., Urban construction and maintenance tax, educational surtax, local educational surtax), vary from 10% to 12% of the value-added-tax depending on the tax payer’s location.

(s)

Cost of revenues

Amounts recorded as cost of revenue relate to direct expenses incurred in order to generate revenue. Such costs are recorded as incurred. Cost of revenues consists of product costs, including costs of raw material, contract manufacturers for production, shipping and handling costs, manufacturing and tooling equipment depreciation, warehousing costs and slow-moving, obsolete inventories write-downs, prepayments write-downs and tax surcharges.

(t)

Research and development expenses

Research and development expenses consist primarily of salary and welfare for research and development personnel, consulting and contractor expenses, testing and tooling materials and other expenses in associated with research and development personnel. The Group recognizes research and development expenses as expense when incurred.

(u)

Sales and marketing expenses

Sales and marketing expenses consist primarily of salary and welfare for sales and marketing personnel, promotion and marketing expenses and other expenses in associated with sales and marketing personnel.

Advertising expense are expensed as incurred and included in selling and marketing expenses. The advertising expenses were RMB535, RMB2,124 and RMB2,377 for the years ended December 31, 2017, 2018 and 2019, respectively.

(v)

General and administrative expenses

General and administrative expenses consist primarily of salary and welfare for general and administrative personnel, rental expenses and depreciation in associated with general and administrative personnel, allowance for doubtful receivables, entertainment expense, general office expense and professional service fees.

(w)

Government grants

Government grants represent cash subsidies received from PRC government. Cash subsidies which have no defined rules and regulations to govern the criteria necessary for companies to enjoy the benefits are recognized as “Other (loss) income, net” when received. Total government grants received were RMB1,042, RMB8,058 and RMB24,926 for the years ended December 31, 2017, 2018 and 2019, respectively.

(x)

VAT refunds

In accordance with Caishui (2011) No. 100 issued by State Tax Bureau, Hangzhou Canaan is qualified as enterprise of selling self-developed software products and enjoying an tax refund for the excess of 3% of its actual tax burden after the VAT is levied at the 16% or 13% tax rate since April 2019. Tax refund is recognized when received. Total VAT refunds received were RMB38,811, RMB110,231 and RMB1,253 for the years ended December 31, 2017, 2018 and 2019, respectively.

(y)

Lease arrangement as lessee

Prior to the adoption of ASC 842 on January 1, 2019:

Leases, mainly leases of offices, where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Payments made under operating leases are recognized as an expense on a straight-line basis over the lease term. The Group had no capital leases for any of the years stated herein.

Upon and hereafter the adoption of ASC 842 on January 1, 2019:

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, operating lease liability, and operating lease liability, non-current in the Company’s consolidated balance sheets. Please refer to Note 2(af) for the disclosures regarding the Company’s method of adoption of ASC 842 and the impacts of adoption on its financial position, results of operations and cash flows.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. When determining the lease term, the Company includes options to extend or terminate the lease when it is reasonably certain that it will exercise that option, if any. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate, which it calculates based on the credit quality of the Company and by comparing interest rates available in the market for similar borrowings, and adjusting this amount based on the impact of collateral over the term of each lease.

(z)

Employee social security and welfare benefits

Employees of the Group in the PRC are entitled to staff welfare benefits including pension, work-related injury benefits, maternity insurance, medical insurance, unemployment benefit and housing fund plans through a PRC government-mandated multi-employer defined contribution plan. The Group is required to contribute to the plan based on certain percentages of the employees’ salaries, up to a maximum amount specified by the local government.

The PRC government is responsible for the medical benefits and the pension liability to be paid to these employees and the Group’s obligations are limited to the amounts contributed and no legal obligation beyond the contributions made. Employee social security and welfare benefits included as expenses in the consolidated statements of comprehensive income (loss) amounted to RMB8,874, RMB20,618 and RMB23,026 for the years ended December 31, 2017, 2018 and 2019, respectively.

(aa)

Income taxes

The Group accounts for income taxes under the liability method. Under the liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and income tax bases of assets and liabilities and are measured using the tax income rates that will be in effect when the differences are expected to reverse. A valuation allowance is recorded if it is more likely than not that some portion or all of a deferred income tax assets will not be realized in the foreseeable future.

The Group evaluates its uncertain tax positions using the provisions of ASC 740-10, Income Taxes, which prescribes a recognition threshold that a tax position is required to meet before being recognized in the financial statements. The Group recognizes in the 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.

(ab)

Share-based compensation

The Company grants restricted shares and share options to eligible employees and accounts for share-based compensation in accordance with ASC 718, Compensation—Stock Compensation.

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 graded vesting method, net of estimated forfeitures, 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; or d) for share-based awards with service conditions and other performance condition, using the graded vesting method, net of estimated pre-vesting forfeitures, over the vesting period.

A change in any of the terms or conditions of share-based awards is accounted for as a modification of the awards. The Group calculates incremental compensation expense of a modification as the excess of the fair value of the modified awards over the fair value of the original awards immediately before its terms are modified at the modification date. For vested awards, the Group recognizes incremental compensation cost in the period when the modification occurs. For awards not being fully vested, the Group recognizes the sum of the incremental compensation expense and the remaining unrecognized compensation expense for the original awards over the remaining requisite service period after modification.

Share-based compensation in relation to the restricted shares is measured based on the fair market value of the Group’s ordinary shares at the grant date of the award. Prior to the listing, estimation of the fair value of the Group’s ordinary shares involves significant assumptions that might not be observable in the market, and a number of complex and subjective variables, including discount rate, and subjective judgments regarding the Group’s projected financial and operating results, its unique business risks, the liquidity of its ordinary shares and its operating history and prospects at the time the grants are made. Share-based compensation in relation to the share options is estimated using the Binomial Option Pricing Model. The determination of the fair value of share options is affected by the share price of the Group’s ordinary shares as well as the assumptions regarding a number of complex and subjective variables, including the expected share price volatility, risk-free interest rate, exercise multiple and expected dividend yield. The fair value of these awards was determined with the assistance from an independent valuation firm.

(ac)

Statutory reserves

The Group’s subsidiaries incorporated in the PRC are required on an annual basis to make appropriations of retained earnings set at certain percentage of after-tax profit determined in accordance with PRC accounting standards and regulations (“PRC GAAP”).

Appropriation to the statutory general reserve should be at least 10% of the after tax net income determined in accordance with the legal requirements in the PRC until the reserve is equal to 50% of the entities’ registered capital. The Group is not required to make appropriation to other reserve funds and the Group does not have any intentions to make appropriations to any other reserve funds.

The general reserve fund can only be used for specific purposes, such as offsetting the accumulated losses, enterprise expansion or increasing the registered capital. Appropriations to the general reserve funds are classified in the consolidated balance sheets as statutory reserves.

There are no legal requirements in the PRC to fund these reserves by transfer of cash to restricted accounts, and the Group has not done so.

Relevant laws and regulations permit payments of dividends by the PRC subsidiaries and affiliated companies only out of their retained earnings, if any, as determined in accordance with respective accounting standards and regulations. Accordingly, the above balances are not allowed to be transferred to the Company in terms of cash dividends, loans or advances.

The Group has made RMB22,732, RMB68,501 and nil appropriations to statutory reserve mainly for Hangzhou Canaan for the years ended December 31, 2017, 2018 and 2019, respectively.

(ad)

Earnings (loss) per share

Basic earnings (loss) per share is computed by dividing net income (loss) attributable to holders of ordinary shares by the weighted average number of ordinary shares outstanding during the year.

Diluted earnings (loss) per share is calculated by dividing net income (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 equivalents shares outstanding during the year. Dilutive equivalent shares are excluded from the computation of diluted earnings (loss) per share if their effects would be anti-dilutive. Ordinary share equivalents consist of the ordinary shares issuable in connection with the Group’s ordinary shares issuable upon the conversion of the share-based awards, using the treasury stock method.

(ae)

Comprehensive income (loss)

Comprehensive income (loss) is defined as the change in shareholders’ equity of the Company during a period arising from transactions and other events and circumstances excluding transactions resulting from investments by shareholders and distributions to shareholders.

Comprehensive income (loss) is reported in the consolidated statements of comprehensive income (loss). Accumulated other comprehensive loss of the Group include the foreign currency translation adjustments.

(af)

Segment reporting

Operating segments are defined as components of an enterprise engaging in businesses activities for which separate financial information is available that is regularly evaluated by the Group’s chief operating decision makers in deciding how to allocate resources and assess performance. The Group’s chief operating decision maker has been identified as the Chief Executive Officer, who reviews consolidated results including revenue, gross profit and operating profit at a consolidated level only. 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.

The Group's long-lived assets are substantially located in the PRC. The Group’s revenue segregated by geographic region is as follows:

Geographic region	For the Years Ended December 31,
	2017		2018		2019
PRC		1,197,378		2,057,632		1,063,630
Japan		—		—		236,206
United States of America		46,355		284,965		46,045
Canada		—		25,548		22,738
Hong Kong		12,264		91,028		11,216
Other foreign countries		52,086		246,118		42,788
Total		1,308,083		2,705,291		1,422,623

(ag)

Recently issued accounting pronouncements

New and amended standards adopted by the Group:

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to classify leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification determines whether lease expense is recognized over the lease term based on an effective interest method for financing leases or on a straight-line basis for operating leases. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expenses for such lease generally on a straight-line basis over the lease term. For public entities, the guidance was effective for annual reporting periods beginning after December 15, 2018 and for interim periods within those fiscal years.

In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842), which provided an optional transition method under which financial statements may be prepared under the revised guidance for the year of adoption, but not for prior years. Under the latter method, entities will recognize a cumulative catch-up adjustment to the opening balance of retained earnings in the period of adoption.

The Company adopted ASC 842 using the modified retrospective method with an effective date of January 1, 2019 for leases that existed on that date. Prior period results continue to be presented under ASC 840 based on the accounting standards originally in effect for such periods. This standard provides a number of optional practical expedients in transition. The Company applied certain practical expedients to leases that commenced prior to the effective date as follows: (i) elect for each lease not to separate non-lease components from lease components and instead to account for each separate lease component and the non-lease components associated with that lease component as a single lease component; (ii) for leases that have lease terms of 12 months or less and does not include a purchase option that is reasonably certain to exercise, the Company elected not to apply ASC 842 recognition requirements; and (iii) the Company elected to apply the package of practical expedients for existing arrangements entered into prior to January 1, 2019 to not reassess (a) whether an arrangement is or contains a lease, (b) the lease classification applied to existing leases, and(c) initial direct costs.

In connection with the adoption of ASC 842, on January 1, 2019, the Company recorded an impact of RMB48,940 on its assets and RMB47,967 on its liabilities for the recognition of operating lease right-of-use-assets and operating lease liabilities, respectively, which are primarily related to the lease of the Group’s offices and warehouses. The adoption of ASC 842 did not have a material impact on the Company’s results of operations or cash flows.

ii.

New and amended standards not yet adopted by the Group:

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). This guidance requires that financial assets measured at amortized cost be presented at the net amount expected to be collected. The measurement of expected credit losses is based on historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability. In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments-Credit Losses (“ASU 2018-19”), which clarifies certain topics included within ASU 2016-13. ASU 2016-13 and ASU 2018-19 are effective for the annual reporting period beginning after December 15, 2019, including interim periods within that reporting period. The Group reviewed the impact of this ASU on its consolidated financial statements and concluded that any cumulative-effect adjustment was immaterial.

In August 2018, the FASB released ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 modifies the disclosure requirements on fair value measurements. The provisions of ASU 2018-13 are to be applied using a prospective or retrospective approach, depending on the amendment, and are effective for interim periods and fiscal years beginning after October 1, 2020, with early adoption permitted. The Group is currently evaluating the impact of this accounting standard update on its consolidated financial statements.

In October 2018, the FASB issued ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities, which amends the guidance for determining whether a decision-making fee is a variable interest and requires organizations to consider indirect interests held through related parties under common control on a proportional basis rather than as the equivalent of a direct interest in its entirety. The standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. The Group reviewed the impact of this ASU on its consolidated financial statements and concluded that the impact was immaterial.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this update simplify the accounting for income taxes by removing certain exceptions and amending and clarify existing guidance. The standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted. The Group is currently evaluating the impact of this accounting standard update on its consolidated financial statements.

Risks and Concentration

12 Months Ended

Dec. 31, 2019

Risks And Uncertainties [Abstract]

Risks and Concentration

3.	Risks and concentration

(a)

Concentration of credit risk

Financial instruments that potentially expose the Group to concentrations of credit risk consist primarily of cash and cash equivalents, short-term investments and accounts receivable. The Group places its cash and cash equivalents with financial institutions with high credit ratings and quality.

The Group conducts credit evaluations of customers, and generally does not require collateral or other security from its customers. The Group establishes an allowance for doubtful accounts primarily based upon the age of the receivables and factors surrounding the credit risk of specific customers.

Accounts receivable are unsecured and are derived from revenue earned through customers. The risk with respect to accounts receivable is mitigated by credit evaluations performed on them.

Accounts receivable concentration of credit risk is as below:

	As of December 31,
	2018			2019
Customer A		29	%	*
Customer B		16	%	*
Customer C		16	%	*
Customer D		11	%	*
Customer E	*				31	%
Customer F	*				28	%
Customer G	*				14	%
Customer H	*				10	%

Less than 10%

Customers which contributed more than 10% of total revenue are as below:

	For the years ended December 31,
	2017			2018			2019
Customer I	*			*				17	%
Customer J	*				14	%	*
Customer K		11	%	*			*

Less than 10%

(b)

Supplier concentration

The Group currently purchases of its integrated circuits, an important component of its products, mainly from Taiwan Semiconductor Manufacturing Company Limited and its subsidiaries (“TSMC”). Although only a limited number of manufacturers for such integrated circuits are available, management believes that other suppliers could provide similar integrated circuits on comparable terms. A change in suppliers, however, could cause a delay in manufacturing and a possible loss of sales, which would affect operating results adversely.

Cash and Cash Equivalents

12 Months Ended

Dec. 31, 2019

Cash And Cash Equivalents [Abstract]

Cash and Cash Equivalents

4.	Cash and cash equivalents

Cash and cash equivalents represent cash on hand and demand deposits placed with banks or other financial institutions, which are unrestricted as to withdrawal or use. The following table sets forth a breakdown of cash and cash equivalents by currency denomination and jurisdiction as of December 31, 2018 and 2019:

	RMB		RMB equivalent (US$)				RMB equivalent (HK$)		Total in RMB
	China		Overseas		China		Overseas
December 31, 2018		169,484		16,129		63,254		10,073		258,940
December 31, 2019		59,705		435,152		20,381		1,369		516,607

Accounts Receivable

12 Months Ended

Dec. 31, 2019

Receivables [Abstract]

Accounts Receivable

5.	Accounts receivable

	As of December 31,
	2018			2019
Accounts receivable, gross		27,467			2,872
Less: allowance for doubtful accounts		(3,780	)		—
Accounts receivable		23,687			2,872

The following table presents movement of the allowance for doubtful accounts:

	For the Years Ended December 31,
	2017			2018			2019
Balance at the beginning of the year		(6,474	)		(5,932	)		(3,780	)
Provisions for doubtful receivables		(102	)		—			—
Collection of amounts previously in dispute		644			2,152			—
Write-off provision for doubtful receivables		—			—			3,780
Balance at the end of the year		(5,932	)		(3,780	)		—

Inventories

12 Months Ended

Dec. 31, 2019

Inventory Disclosure [Abstract]

Inventories

6.	Inventories

Inventories consist of the following:

	As of December 31,
	2018		2019
Finished goods		240,774		127,452
Raw materials		150,617		58,627
Work in process		193,012		8,728
Goods in transit		1,269		1,260
Total		585,672		196,067

During the years ended December 31, 2017, 2018 and 2019, as a result of the significant drop in the Bitcoin price throughout date of the issue of the financial statements, which drives the significant decrease in both demand and selling price, the Group recorded write-down of nil, RMB427,163 and RMB526,473 for the obsolete inventories in cost of revenues, respectively.

For year ended December 31, 2019, at the beginning of lease period, the inventories reclassified to operating lease assets were RMB99,523. At the end of lease period, the operating lease assets with net book value of RMB79,065 were reclassified to the inventories. Depreciation expense of operating lease assets of RMB20,458 was recorded in the cost of revenue for the year ended December 31, 2019.

Prepayments and Other Assets

12 Months Ended

Dec. 31, 2019

Deferred Costs Capitalized Prepaid And Other Assets Disclosure [Abstract]

Prepayments and Other Assets

7.	Prepayments and other assets

The current and non-current portions of prepayments and other assets consist of the following:

	As of December 31,
	2018		2019
Prepayments and other current assets
VAT recoverable		101,778		122,757
Prepayments to vendors (Note a)		74,277		35,801
VAT refund for export sales (Note b)		2,274		35,507
Cash in transit		—		5,854
Rental and other deposits		1,010		569
Staff advances		525		533
Interest receivable		3,068		—
Others		3,805		4,999
		186,737		206,020
Non-current assets
Rental and other deposits		6,340		5,250

Note a: Prepayments to vendors mainly represent prepayments made to third-party suppliers for foundry service. The Group also records a provision for the prepayment to third-party suppliers when the Group believes that the net realizable value (being the estimated selling price of final products, less the costs of completion and selling expenses) is less than carrying amount. During the years ended December 31, 2017, 2018 and 2019, as a result of the significant drop in the Bitcoin price throughout the date of issue of the financial statements, which drives the significant decrease in both demand and selling price, the Group recorded write-down of nil, RMB358,842 and RMB202,522 for the prepayment to third-party suppliers in cost of revenues, respectively.

Note b: Hangzhou Ruihong Technology Co., Ltd. and Canaan Convey Co., Ltd. are entitled to VAT refund for its export sales.

Property, Equipment and Software

12 Months Ended

Dec. 31, 2019

Property Plant And Equipment [Abstract]

Property, Equipment and Software

8.	Property, equipment and software

Property, equipment and software consist of the following:

	As of December 31,
	2018			2019
Cost:
Leasehold improvements		24,324			28,542
Computers and electronic equipment		15,696			18,721
Motor vehicles		1,739			1,739
Mechanical equipment		1,164			1,181
Construction in progress		369			1,325
Software		306			470
Total cost		43,598			51,978
Less: Accumulated depreciation and amortization		(15,672	)		(29,376	)
Property, equipment and software, net		27,926			22,602

Depreciation and amortization expenses recognized for the years ended December 31, 2017, 2018 and 2019 are summarized as follows:

	For the Years Ended December 31,
	2017		2018		2019
Cost of revenues		64		1,260		1,899
Research and development expenses		3,774		5,197		3,662
Sales and marketing expenses		121		21		81
General and administrative expenses		5,124		6,667		8,062
Total		9,083		13,145		13,704

Leases

12 Months Ended

Dec. 31, 2019

Leases [Abstract]

Leases

The Company leases facilities under non-cancellable operating leases expiring on different dates. The terms of substantially all of these leases are two years or less. When determining the lease term, the Company includes options to extend or terminate the lease when it is reasonably certain that it will exercise that option, if any. All of the Company’s leases qualify as operating leases. With the adoption of the new leasing standard, the Company has recorded a right-of-use asset and corresponding lease liability, by calculating the present value of future lease payments, discounted at 7.14%, the Company’s incremental borrowing rate, over the expected term. Variable lease cost and short-term leases (lease terms less than 12 months) are recognized as incurred.

(a)

The components of lease expenses were as follows:

	For the Year ended December 31, 2019
Lease cost:
Amortization of right-of-use assets		10,928
Interest of lease liabilities		1,746
Expenses for short-term lease within 12 months		605
Total lease cost		13,279

(b)

Supplemental cash flow information related to leases was as follows:

	Year ended December 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases		11,228
Right-of-use assets obtained in exchange for lease obligations:
Operating lease liabilities		—

(c)

Supplemental balance sheet information related to leases was as follows:

		As of December 31, 2019
Weighted-average remaining lease term
Operating leases		1.2year
Weighted-average discount rate
Operating lease		7.14% per annum

(d)

Maturities of lease liabilities were as follows:

Years Ending December 31,	As of December 31, 2019
2020		11,667
2021		11,492
2022		2,626
Total undiscounted lease payments		25,785
Less: imputed interest		(2,947	)
Total lease liabilities		22,838

(e)

Future minimum lease payments for the Company’s operating leases as of December 31, 2018 under ASC 840 were as follows:

Years Ending December 31,	As of December 31, 2018
2019		16,861
2020		17,208
2021		17,182
2022		4,309
Total		55,560

(f)

Future minimum lease payments for the Company’s operating leases as of December 31, 2019 under ASC 842 were as follows:

Years Ending December 31,	As of December 31, 2019
2020		11,790
2021		11,492
2022		2,626
Total		25,908

Short-Term Debts

12 Months Ended

Dec. 31, 2019

Debt Disclosure [Abstract]

Short-Term Debts

10.	Short-term debts

	As of December 31,
	2018		2019
Short-term bank loans		246,368		99,903
Bridge loans in connection with Reorganization		802,643		—
		1,049,011		99,903

Short-term bank loans

During the years ended December 31, 2018 and 2019, the Group entered into certain short-term loan agreements with various banks with aggregated principal amount of RMB500,000 with interest rates ranging from 4.35% to 6.09% per annum and RMB200,000 with interest rates ranging from 4.35% to 4.79% per annum, respectively. As of December 31, 2018 and 2019, the aggregated outstanding principal amounts under these agreements were RMB250,000 bearing interest rates ranging from 4.35% to 5.22% per annum and RMB100,000 bearing interest rate 4.35% per annum, respectively.

Bridge loans in connection with Reorganization

As disclosed in Note 1(b) and in connection with the Group’s Reorganization, on March 24, 2018, Canaan HK entered into a facility agreement with CMBI Finance amounting to HK$890,000. Canaan HK drew down HK$885,000 under this facility on March 28, 2018. The borrowing maturity period was 12 months and the interest rate was calculated and payable on monthly basis, ranging from 0.5% to 1.25% per month. The equity interest of Hangzhou Canaan held by Canaan HK was pledged to CMBI Finance as collateral for the borrowing. The borrowing was also guaranteed jointly by Co-Founders and their spouses. Hangzhou Canaan also placed a deposit of RMB300 million to CMB International Financial Limited (Shenzhen) as a collateral of the borrowing. In April 2018, Canaan HK early repaid the outstanding borrowing in advance through another facility loan with China Merchants Bank Co., Ltd., Hong Kong Branch (“CMB HK”), and above mentioned collateral and guarantee were released accordingly.

On April 25, 2018, Canaan HK entered into another facility agreement with CMB HK as facility agent and CMBI Finance as security agent, amounting to HK$930,000. Canaan HK drew down HK$921,000 under this facility. CMB HK repaid the borrowing of HK$885,000 to CMBI Finance on behalf of Canaan HK and Canaan HK received the additional borrowing amounting of approximately HK$29,083 from CMB HK. The borrowing has maturity period of earlier of 12 months period and the completion of IPO of the Company. The interest rate is Hongkong InterBank Offered Rate plus 1.3% per annum. The equity interest of Hangzhou Canaan held by Canaan HK was pledged to CMB HK as collateral for the borrowing. The borrowing is also secured by deposits in China Merchants Bank amounting to RMB286,270 placed by Hangzhou Canaan, which was recorded as restricted cash as of December 31, 2018, and RMB271,940 and RMB418,790 placed by the Company’s shareholders, Hangzhou Shuxin Investment LLP and Hangzhou Canaan Chaoxin Investment Management LLP (“Canaan Chaoxin”), respectively. The pledges and deposits will be released when the borrowing is fully repaid. In addition, Hangzhou Canaan and Canaan HK paid a guarantee fee of 1% per annum and 0.75% per quarter to secure the borrowing, respectively. Canaan HK repaid the outstanding loans in March 2019, and above mentioned collateral and guarantee were released accordingly.

The weighted average interest rate for the borrowings was approximately 7.14% and 6.25% per annum for the years ended December 31, 2018 and 2019, respectively.

Notes Payable

12 Months Ended

Dec. 31, 2019

Notes Payable [Abstract]

Notes Payable

11.Notes payable

Notes payable represent payables in the form of notes issued by the Group. The notes are endorsed by banks to ensure that noteholders will be paid after maturity. The Group is required to maintain a certain balance of cash deposit in designated bank accounts for the notes payable outstanding as of December 31, 2019. Such required cash deposit of RMB8,239 was classified as restricted cash on the consolidated balance sheet as of December 31, 2019.

Accrued Liabilities and Other Current Liabilities

12 Months Ended

Dec. 31, 2019

Payables And Accruals [Abstract]

Accrued Liabilities and Other Current Liabilities

12.	Accrued liabilities and other current liabilities

	As of December 31,
	2018		2019
Salary and welfare payable		19,852		24,034
Professional service fee accrual		23,360		7,493
Other tax payables		1,403		2,225
Other service fee payables		—		2,196
VAT received from customers related to contract liabilities		3,890		937
Guarantee fee payable		6,120		—
Interest payable		206		—
Others		3,121		3,806
Total		57,952		40,691

Ordinary Share

12 Months Ended

Dec. 31, 2019

Equity [Abstract]

Ordinary Share

13.	Ordinary share

On March 23, 2018, Canaan Inc. was incorporated as an exempted company with limited liability company with authorized share capital of US$50,000 divided into 500,000,000 shares with par value US$0.0001 each. In June 2018, the authorized share capital of US$50,000, which represented 500,000,000 issued shares, was subdivided into 1,000,000,000,000 shares of a par value of US$0.00000005 each.

In February 2019, the Company issued 222,222,222 ordinary shares to existing shareholders at a price of US$0.45 per share for a total cash consideration of US$100 million. Out of the 222,222,222 ordinary shares issued, 403,157 issued ordinary shares were contributed by the then existing shareholders to the Trust for future share awards (Note 14).

On November 21, 2019, the Company completed its IPO and became listed on the Nasdaq Global Market by issuing 10,000,000 American Depositary Shares (“ADSs”) at the price of US$9.00 per ADS for a total gross proceeds of US$90 million. Each ADS represents 15 Class A ordinary shares.

Upon the completion of the Company’s IPO, the Company’s authorized share capital was re-designated into Class A ordinary shares and Class B ordinary shares, Holders of Class A ordinary shares and Class B ordinary shares have the same rights except for voting and conversion rights. Each Class A ordinary share is entitled to one vote and each Class B ordinary share is entitled to fifteen votes. In addition, certain matters including those related to the change of control of the Company require an additional approval by the holders of a majority of Class A ordinary shares voting as a separate class. Each Class B ordinary share is convertible into one Class A ordinary share at any time by the holder thereof. Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances. Class B ordinary shares will be automatically converted into the same number of Class A ordinary shares under certain circumstances, including any transfer of Class B ordinary shares by a holder thereof to any person or entity which is not an affiliate of such holder.

As of December 31, 2019, the authorized ordinary shares are 1,000,000,000,000, of which 2,372,222,222 shares were issued and 2,350,123,270 shares were outstanding. These outstanding shares consist of (1) 1,993,498,826 Class A ordinary shares and (2) 356,624,444 Class B ordinary shares, which were held by the Chairman and CEO of the Company.

Treasury Stock

12 Months Ended

Dec. 31, 2019

Equity [Abstract]

Treasury Stocks

14.	Treasury stocks

In April 2018, the Company established a trust to hold 51,624,000 of the Company’s issued ordinary shares. These ordinary shares were contributed by the Co-Founders and employees and held in a trust (the “Trust”) for the benefit of the employees who are under the 2018 Equity Incentive Plan (Note 15).

In February 2019, 403,157 issued ordinary shares were contributed by the then existing shareholders to the Trust for future share awards.

The ordinary shares issued to the Trust are accounted for as treasury stocks of the Company and presented as such for all periods presented. The Trust does not hold any other assets or liabilities as at December 31, 2018 and 2019, nor earn any income nor incur any expenses for the years ended December 31, 2018 and 2019.

Upon the completion of the Company’s IPO in November 2019, 13,928,205 restricted share units and 16,000,000 restricted ordinary shares that have been vested under the 2018 Equity Incentive Plan (Note 15) were transferred from treasury stocks to ordinary shares. As of December 31, 2019, 22,098,952 issued ordinary shares held by the Trust are accounted as treasury stocks.

Share-Based Compensation

12 Months Ended

Dec. 31, 2019

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Share-Based Compensation

15.	Share-based compensation

On October 8, 2016, Canaan Chaoxin, which was a holding company controlled by the controlling shareholders, established of 2016 Equity Incentive Plan (the “2016 Plan”) with the purpose of which is to provide share options for employees contributing to the Company. On October 8, 2016, Canaan Chaoxin granted 39,600,000 share options to Company’s employees at an exercise price of RMB0.023 per share under the 2016 Plan. The vesting period was from October 2016 to May 2017 and the exercise period was from June 2017 to July 2017.

On November 22, 2017, Canaan Chaoxin approved the establishment of 2017 Equity Incentive Plan (the “2017 Plan”) with the purpose of which is to provide restricted share units (“RSUs”) to its employees. In November 2017, Canaan Chaoxin granted 71,200,000 RSUs to Company’s employees at an exercise price of RMB0.015 per share under the 2017 Plan, among which, 39,170,000 RSUs are vested immediately on the grant day, 30,030,000 RSUs contain two or four service years of the employees and the remaining 2,000,000 RSUs shall be vested upon occurrence of IPO.

As part of the Reorganization in 2018, the Board of Directors of the Company approved the 2018 Equity Incentive Plan (the “2018 Plan”) on April 25, 2018, which assumed Canaan Chaoxin’s obligations and duties under the share awards granted by Canaan Chaoxin. As a result, the unvested RSUs granted by Canaan Chaoxin under 2017 Plan were replaced with RSUs of the Company. Such new RSUs replaced the RSUs granted under Canaan Chaoxin’s existing RSUs in its entirety by exchanging of the RSU granted by Canaan Chaoxin for the RSU of the Company while maintaining their respective terms and vesting schedules unchanged except for the addition of performance condition of IPO. This resulted in a probable to improbable (Type II) modification, and no incremental fair value would be recognized unless and until vesting of the award under the modified conditions becomes probable. Since this modification was not beneficial to its employees, no incremental value was resulting from the modification. The Group recognized compensation cost equal to the award’s original grant-date fair value when the original vesting conditions are satisfied, regardless of whether the modified IPO condition is satisfied.

On the same day, some employees who are under the 2016 Plan entered into share award replacement agreement (the “Replacement Agreement”) with the Company under which a total of 19,594,000 ordinary shares of the Company held by the employees became restricted and shall be vested upon IPO of the Company. In the event that the employees voluntarily and unilaterally terminates his employment/service contract with any group entities or his employment, the unvested restricted shares shall automatically lapse. Deferred share-based compensation was measured for the restricted shares using the estimated fair value of the Company's ordinary shares at the date of imposition of the restriction in April 2018, and the compensation cost for the restricted shares shall be recognized upon occurrence of IPO.

Upon completion of the Company’s IPO in November 2019, 2,000,000 RSUs with IPO condition and 16,000,000 restricted ordinary shares were immediately vested and related share-based compensation expenses amounted to RMB44,789 were recognized. Share-based compensation expenses related to the share awards granted to the employees amounted to approximately RMB95,525, RMB18,586 and RMB270,242 for the years ended December 31, 2017, 2018 and 2019, respectively.

(a)

Restricted share units

The following table summarizes the RSUs activity for the years ended December 31, 2017, 2018 and 2019:

	Number of shares			Weighted average grant date fair value
				RMB
Outstanding at January 1, 2017		—			—
Granted		71,200,000			1.56
Vested		(39,170,000	)		1.57
Outstanding at December 31, 2017 and 2018		32,030,000			1.55
Forfeited		(2,368,461	)		1.51
Vested		(13,928,205	)		1.59
Outstanding at December 31, 2019		15,733,334			1.51

Based on fair value of the underlying ordinary share, the Group has used income approach involving applying appropriate discount rate to estimated cash flows that are based on earnings forecast and discount for lack of marketability to determine the fair value of the RSUs as of the grant date with assistance from an independent valuation firm.

For the certain RSUs granted to the employees before the Company’s IPO, the exercisability was dependent upon the Company’s IPO, and it was not probable that this performance condition could be achieved until the IPO was effective, no compensation expense relating to the RSUs with IPO condition was recorded for the years ended December 31, 2017 and 2018. For the year ended December 31, 2019, the Company recognized RMB3,783 as share based compensation expenses relating to 2,000,000 RSUs with IPO condition. As of December 31, 2019, there was RMB9,162 unrecognized compensation expense related to RSUs, which is expected to be recognized over a weighted-average period of 1.9 years.

(b)

Restricted ordinary shares

The following table summarizes the restricted ordinary shares activity under Replacement Agreement for the years ended December 31, 2018 and 2019:

	Number of shares			Weighted average grant date fair value
				RMB
Outstanding at January 1, 2018		—			—
Granted		19,594,000			2.56
Forfeited		(2,000,000	)		2.56
Outstanding at December 31, 2018		17,594,000			2.56
Forfeited		(1,594,000	)		2.56
Vested		(16,000,000	)		2.56
Outstanding at December 31, 2019		—			—

The Group used income approach involving applying appropriate discount rates to estimated cash flows that are based on earnings forecast and discount for lack of marketability to determine the fair value of the restricted ordinary share at the date of imposition of the restriction in April 2018 with assistance from an independent valuation firm.

For the restricted ordinary shares granted to the employees before the Company’s IPO, the exercisability was dependent upon the Company’s IPO, and it was not probable that this performance condition could be achieved until the IPO was effective, no compensation expense relating to restricted ordinary shares was recorded for the years ended December 31, 2017 and 2018. For the year ended December 31, 2019, the Company recognized RMB41,006 as share based compensation expenses relating to 16,000,000 restricted ordinary shares.

(c)

Other share-based compensation

In May 2019, certain shareholders of the Company sold 233,217,776 ordinary shares in aggregate to certain existing shareholders and certain third party investors. Out of the total 233,217,776 shares transferred, 111,217,778 shares were purchased by existing shareholders who were also the employees of the Company. The net excess of appraised fair value of the ordinary shares (acquired by employee shareholders) over the considerations amounted to RMB213,135, which was charged to general and administrative expenses as share-based compensation costs for the year ended December 31, 2019.

Income Taxes

12 Months Ended

Dec. 31, 2019

Income Tax Disclosure [Abstract]

Income Taxes

16.	Income Taxes

(a)

Cayman Islands

Under the current tax laws of Cayman Islands, the Company is not subject to income, corporation or capital gains tax, and no withholding tax is imposed upon the payment of dividends.

(b)

Hong Kong Profits Tax

One of the Company’s subsidiary incorporated in Hong Kong is subject to Hong Kong profits tax rate of 16.5% on its estimated assessable profit for the years ended December 31, 2018 and 2019. Dividends income received from subsidiaries in China are not subject to Hong Kong profits tax.

(c)

PRC Enterprise Income Tax (“EIT”)

On March 16, 2007, the National People’s Congress of the PRC enacted an Enterprise Income Tax Law (“EIT Law”), under which Foreign Investment Enterprises (“FIEs”) and domestic companies would be subject to EIT at a uniform rate of 25%. The EIT law became effective on January 1, 2008.

Canaan Creative obtained its High and New Technology Enterprises (“HNTE”) certificate with a valid period of three years in 2016. Therefore, Canaan Creative is eligible to enjoy a preferential tax rate of 15% from 2017 to 2019 to the extent it has taxable income under the EIT Law, as long as it maintains the HNTE qualification and duly conducts relevant EIT filing procedures with the relevant tax authority.

In accordance with Caishui (2012) No. 27 issued by the State Tax Bureau on April 20, 2012, Hangzhou Canaan is qualified as an integrated circuit enterprise and enjoying a 5-year tax holiday (two year full exemption followed by three year half reduction) beginning from 2016 after utilizing all prior years’ tax losses. Therefore, Hangzhou Canaan is eligible to enjoy a preferential tax rate of 0% from 2016 to 2017 and 12.5% from 2018 to 2020.

In addition, in accordance with Caishui (2012) No. 27 issued by the State Tax Bureau on April 20, 2012, Hangzhou Canaan was qualified as a key software production enterprise and enjoyed a preferential tax of 10% for the year ended December 31, 2018.

The Group’s other PRC subsidiaries are subject to the statutory income tax rate of 25%.

(d)

PRC Withholding Income Tax on Dividends

The EIT Law also provides that an enterprise established under the laws of a foreign country or region but whose “de facto management body” is located in the PRC be treated as a resident enterprise for PRC tax purposes and consequently be subject to the PRC income tax at the rate of 25% for its global income. The implementing Rules of the EIT Law merely define the location of the “de facto management body” as “the place where the exercising, in substance, of the overall management and control of the production and business operation, personnel, accounting, properties, etc., of a non-PRC company is located.”

The EIT Law also imposes a withholding income tax of 10% on dividends distributed by a FIE to its immediate holding company outside of China, if such immediate holding company is considered as a non-resident enterprise without any establishment or place within China or if the received dividends have no connection with the establishment or place of such immediate holding company within China, unless such immediate holding company’s jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement. The Cayman Islands, where the Company incorporated, does not have such tax treaty with China. According to the arrangement between Mainland China and Hong Kong Special Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal Evasion in August 2006, dividends paid by a FIE in China to its immediate holding company in Hong Kong will be subject to withholding tax at a rate of no more than 5% if the immediate holding company in Hong Kong owns directly at least 25% of the shares of the FIE and could be recognized as a Beneficial Owner of the dividend from PRC tax perspective.

As of December 31, 2018 and 2019, the Company did not record any withholding tax on the retained earnings of its subsidiaries in the PRC as the Group does not have any plan to require its PRC subsidiaries to distribute their retained earnings and intends to retain them to operate and expand its business in the PRC.

A reconciliation between the effective income tax rate and the PRC statutory income tax rate is as follows:

	For the Years Ended December 31,
	2017			2018			2019
PRC statutory income tax rates		25.0	%		25.0	%		25.0	%
Permanent book — tax difference		5.0	%		(5.8	)%		(3.3	)%
Different tax rates in other jurisdictions		(—	)%		1.7	%		(0.4	)%
Effect of tax holiday		(23.7	)%		(41.5	)%		(8.4	)%
Change in valuation allowance		(—	)%		59.5	%		(12.9	)%
Total		6.3	%		38.9	%		(—	)%
Effects of tax holidays entitled by the PRC subsidiaries		94,984			83,178			(87,043	)
Effects of tax holidays entitled by the PRC subsidiaries on basic earnings (loss) per share (RMB cent per share)		4.82			4.23			(4.04	)

Composition of income tax expense

The current and deferred portions of income tax expense included in the consolidated statements of comprehensive income (loss) are as follows:

	For the Years Ended December 31,
	2017			2018		2019
Current income tax expense		25,163			76,748		-
Deferred tax expense		(10	)		1,062		-
Income tax expense		25,153			77,810		-

Deferred tax assets and liabilities

Deferred taxes were measured using the enacted tax rates for the periods in which they are expected to be reversed. The tax effects of temporary differences that give rise to the deferred tax asset balances as of December 31, 2018 and 2019 are as follows:

	As of December 31,
	2018			2019
Deferred tax assets
Tax losses carried forward		46,807			121,948
Allowance for doubtful accounts		567			567
Provision for inventory		107,239			128,163
Unrealized (loss) gain from intragroup sale		(35,548	)		3,361
Subtotal		119,065			254,039
Less: Valuation allowance		(119,065	)		(254,039	)
Total of deferred tax assets		—			—

As of December 31, 2018 and 2019, the Company had tax loss carry forwards of approximately RMB201,001 and RMB702,845 , which mainly arose from its PRC subsidiaries and to a less extent from its HK subsidiary. As all PRC subsidiaries are qualified as HNTE or technology small and medium enterprise (“SMEs”), the carryforwards period for net operating losses under the EIT Law is changed from five years to ten years. The net operating loss carryforwards will expire in varying amounts between 2020 and 2029. Other than the expiration, there are no other limitations or restrictions upon the Group’s ability to use these operating loss carryforwards.

Valuation allowance is provided against deferred tax assets when the Group determines that it is more likely than not that the deferred tax assets will not be utilized in the future. In making such determination, the Group considered factors including future taxable income exclusive of reversing temporary differences and tax loss carry forwards. Valuation allowance was provided for tax loss carry forward because it was more likely than not that such deferred tax assets will not be realized due to lack of profitable history to support the Group’s estimate of its future taxable income. If events occur in the future that allow the Group to realize part or all of its deferred income tax, an adjustment to the valuation allowances will result in a decrease in tax expense when those events occur.

As of December 31, 2018 and 2019, valuation allowances of RMB119,065 and RMB 254,039 were provided because it was more likely than not that the Group will not be able to utilize certain tax losses carry forwards and other deferred tax assets generated by its subsidiaries. If events occur in the future that allow the Group to realize more of its deferred tax assets than the presently recorded amount, an adjustment to the valuation allowances will increase income when those events occur.

Movement of valuation allowance is as follows:

	For the Years Ended December 31,
	2017		2018		2019
Beginning balance		—		1		119,065
Additions		1		119,064		134,974
Ending balance		1		119,065		254,039

The Group evaluates each uncertain tax position (including the potential application of interest and penalties) based on the technical merits, and measure the unrecognized benefits associated with the tax positions. As of December 31, 2018 and 2019, the Group did not have any significant unrecognized uncertain tax positions.

Related Party Transactions

12 Months Ended

Dec. 31, 2019

Related Party Transactions

17.	Related party transactions

For the years ended December 31, 2017, 2018 and 2019, the related party transactions are as follows:

	For the Years Ended December 31,
	2017		2018		2019
Transaction amount with related parties
Service fee charged by a related party		110		—		—
Disposal of subsidiaries		15,515		—		—
Key management’s advance		—		68		—

As of December 31, 2018 and 2019, the related party balances are as follows:

	As of December 31,
	2018		2019
Balance amount with related parties
Amounts due from related parties		68		—

Basic and Diluted Net Earnings (Loss) Per Share

12 Months Ended

Dec. 31, 2019

Earnings Per Share Basic And Diluted [Abstract]

Basic and Diluted Net Earnings (Loss) Per Share

18.	Basic and diluted net earnings (loss) per share

Basic and diluted earnings (loss) per share have been calculated in accordance with ASC 260 on computation of earnings (loss) per share for the years ended December 31, 2017, 2018 and 2019 as follows:

	For the Years Ended December 31,
	2017		2018		2019
Basic net earnings (loss) per share calculation
Numerator:
Net income (loss)		375,816		122,432		(1,034,510	)
Denominator:
Weighted-average ordinary shares outstanding		1,971,589,429		1,964,499,660		2,153,172,769
Basic net earnings (loss) per share (RMB cent per share)		19.06		6.23		(48.05	)

	For the Years Ended December 31,
	2017		2018		2019
Diluted net earnings (loss) per share calculation
Numerator:
Net income (loss)		375,816		122,432		(1,034,510	)
Denominator:
Weighted-average ordinary shares outstanding		1,971,589,429		1,964,499,660		2,153,172,769
Add: weighted-average RSUs		—		13,661,413		—
Weighted-average number of shares used in calculating diluted net earnings (loss) per share		1,971,589,429		1,978,161,073		2,153,172,769
Diluted net earnings (loss) per share (RMB cent per share)		19.06		6.19		(48.05	)

For the year ended December 31, 2019, the effects of all outstanding RSUs have been excluded from the computation of diluted loss per share due to its anti-dilutive effect.

For the Year Ended

December 31,

2019

Weighted-average RSUs

13,923,725

Contingencies

12 Months Ended

Dec. 31, 2019

Commitments And Contingencies Disclosure [Abstract]

Contingencies

19.	Contingencies

On March 4, 2020, a putative class action was filed in the United States District Court of Oregon against the Company, certain officers and directors of the Company, and the underwriters in the Company’s IPO. The complaint alleges that the Form F-1 registration statement and related prospectus for the Company’s IPO (including amendments to and documents incorporated in the registration statement) contained material misstatements and omissions in violation of federal securities laws. Plaintiff claims, among other things, that the registration statement and related prospectus failed to disclose a related party transaction, misrepresented the Company’s financial health, and omitted material information about the Company’s distributors and clients and seeks to recover under Sections 11 and 12 of the Securities Act of 1933. On March 6, 2020, a putative class action making substantially similar allegations concerning the Form F-1 registration statement and seeking to recover under Section 11 of the Securities Act of 1933 was filed in New York County Supreme Court against the Company and certain officers and directors of the Company. The management of the Company believes that there may be defenses to one or more of the claims asserted in the lawsuits. The management of the Company has engaged counsel with the intention to vigorously defend these lawsuits.

At the date of issue of the financial statements, the Company is unable to predict the outcome of these lawsuits, or reasonably estimate a range of possible losses, if any, given the early stage of these lawsuits. Therefore, no contingent liabilities have been recorded by the Company as at December 31, 2019 in respect of these lawsuits.

Also, the Company is and, from time to time, may in the future become, involved in other legal proceedings in the ordinary course of business. The Company currently believes that the outcome of any of these existing legal proceedings, either individually or in the aggregate, will not have a material impact on the operating results, financial condition or cash flows of the Company. With respect to existing legal proceedings, the Company has either determined that the existence of a material loss is not reasonably possible or that it is unable to estimate a reasonably possible loss or range of loss. The Company may incur substantial legal fees, which are expensed as incurred, in defending against these legal proceedings.

Subsequent Events

12 Months Ended

Dec. 31, 2019

Subsequent Events [Abstract]

Subsequent Events

20.	Subsequent events

Since early 2020, the outbreak of novel coronavirus (“COVID-19”) has resulted in a widespread health crisis that adversely affected general commercial activities, the economies, financial markets, as well as the cryptocurrency market activities. This public health pandemic has posed certain risks and uncertainties, that employees suppliers, customers, logistics vendors and other business partners of the Company were prevented from or disrupted when conducting business activities throughout the date of the issue of the financial statements.

During the first few months of 2020, the Company experienced a decrease in product demand and a suppression in product pricing, which we believe is, as least to a certain extent, the result of the on-going spread of COVID-19 and the resulting market disruption. Given the dynamic nature and significant uncertainty associated with the pandemic, which has had an impact on our operations for the first quarter in 2020, management is unable to estimate the adverse impact of these events on the results of operations, financial position and cash flows for the year ending December 31, 2020, although we expect these impacts to be adverse and may be material.

Restricted net assets

12 Months Ended

Dec. 31, 2019

Restricted Net Assets [Abstract]

Restricted Net Assets

21.	Restricted net assets

Relevant PRC laws and regulations permit payments of dividends by the Group’s subsidiary incorporated in the PRC only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. In addition, the Group’s subsidiary in the PRC are required to annually appropriate 10% of their net after-tax income to the statutory general reserve fund prior to payment of any dividends, unless such reserve funds have reached 50% of their respective registered capital. As a result of these and other restrictions under PRC laws and regulations, the Group’s subsidiary incorporated in the PRC are restricted in their ability to transfer a portion of their net assets to the Company either in the form of dividends, loans or advances. There are no significant differences between US GAAP and PRC accounting standards in connection with the reported net assets of the legally owned subsidiary in the PRC. Even though the Company currently does not require any such dividends, loans or advances from the PRC entities for working capital and other funding purposes, the Company may in the future require additional cash resources from them due to changes in business conditions, to fund future acquisitions and development, or merely to declare and pay dividends or distributions to our shareholders. Except for the above, there is no other restriction on use of proceeds generated by the Group’s subsidiary to satisfy any obligations of the Company.

As of December 31, 2019, the total restricted net assets of the Company’s subsidiaries incorporated in PRC and subjected to restriction amounted to approximately RMB640,853. Even though the Company currently does not require any such dividends, loans or advances from the PRC entities for working capital and other funding purposes, the Company may in the future require additional cash resources from them due to changes in business conditions, to fund future acquisitions and development, or merely to declare and pay dividends or distributions to its shareholders. There is no other restriction on the use of proceeds generated by the Company’s subsidiaries to satisfy any obligations of the Company.

Condensed Financial Information of the Parent Company

12 Months Ended

Dec. 31, 2019

Condensed Financial Information Of Parent Company Only Disclosure [Abstract]

Condensed Financial Information of the Parent Company

22.	Condensed financial information of the parent company

Rules 12-04(a) and 4-08(e)(3) of Regulation S-X require condensed financial information as to the financial position, cash flows and results of operations of a parent company as of and for the same periods for which the audited consolidated financial statements have been presented when the restricted net assets of the consolidated and unconsolidated subsidiaries together exceed 25% of consolidated net assets as of the end of the most recently completed fiscal year.

The following condensed financial statements of the Parent Company have been prepared using the same accounting policies as set out in the Company’s consolidated financial statements except that the Parent Company used the equity method to account for its investment in its subsidiaries. Such investment is presented on the separate condensed balance sheets of the Parent Company as “Receivables from subsidiaries”. The Parent Company, its subsidiaries were included in the consolidated financial statements whereby the inter-company balances and transactions were eliminated upon consolidation. The Parent Company’s share of loss from its subsidiaries is reported as “share of loss from subsidiaries” in the condensed financial statements.

The Parent Company is a Cayman Islands company and, therefore, is not subjected to income taxes for all years presented. The footnote disclosures contain supplemental information relating to the operations of the Company and, as such, these statements should be read in conjunction with the notes to the consolidated financial statements of the Company. Certain information and footnote disclosures normally included in financial statements prepared in accordance with US GAAP have been condensed or omitted.

As of December 31, 2018 and 2019, there were no material commitments or contingencies, significant provisions for long-term obligations or guarantees of the Company, except for those which have been separately disclosed in the consolidated financial statements, if any.

As the Group’s business was operated through Hangzhou Canaan prior to the Parent Company being incorporated in 2018, no Parent Company financial information of 2017 is presented. The consolidated financial statements have been prepared as if the equity structure of the Parent Company had been in existence throughout the periods, but 100% of consolidated net assets and all of results of operations for the year ended December 31, 2017 were restricted.

Condensed Financial Information of the Parent Company

CONDENSED BALANCE SHEETS

	As of December 31,
	2018			2019
	RMB			RMB			US$ (Note 2(e))
ASSETS
Current assets:
Cash and cash equivalents		—			14			2
Receivables from subsidiaries		240,978			692,781			99,512
Total current assets		240,978			692,795			99,514
Total assets		240,978			692,795			99,514
LIABILITIES AND SHAREHOLDERS’ EQUITY
Total liabilities		—			—			—
Shareholders’ equity:
Ordinary shares (US$0.00000005 par value; 1,000,000,000,000 shares authorized, 2,000,000,000 and 2,372,222,222 shares issued and 1,948,376,000 and 2,350,123,270 (including 1,993,498,826 Class A and 356,624,444 Class B) shares outstanding as of December 31, 2018 and 2019, respectively)		1			1			—
Subscriptions receivable from shareholders		(1	)		(1	)		—
Treasury stocks (US$0.00000005 par value; 51,624,000 and 22,098,952 shares as of December 31, 2018 and 2019, respectively)		—			—			—
Additional paid-in capital		154,970			1,631,609			234,366
Statutory reserves		97,307			97,307			13,977
Accumulated other comprehensive loss		(65,230	)		(55,542	)		(7,978	)
Retained earnings (accumulated deficit)		53,931			(980,579	)		(140,851	)
Total shareholders’ equity		240,978			692,795			99,514
Total liabilities and shareholders’ equity		240,978			692,795			99,514

CONDENSED STATEMENTS OF COMPREHENSIVE LOSS

	For the period from the inception to December 31, 2018			For the year ended December 31, 2019
	RMB			RMB			US$ (Note 2(e))
Operating expenses:
Research and development expenses		(7,208	)		(22,465	)		(3,227	)
Sales and marketing expenses		(797	)		(358	)		(51	)
General and administrative expenses		(5,850	)		(247,426	)		(35,541	)
Loss from operations		(13,855	)		(270,249	)		(38,819	)
Interest income		—			5			1
Share of loss from subsidiaries		(526,370	)		(764,266	)		(109,780	)
Net loss		(540,225	)		(1,034,510	)		(148,598	)
Foreign currency translation adjustment, net of nil tax		(65,230	)		9,688			1,392
Total comprehensive loss		(605,455	)		(1,024,822	)		(147,206	)

CONDENSED STATEMENTS OF CASH FLOWS

	For the period from the inception to December 31, 2018		For the year ended December 31, 2019
	RMB		RMB			US$ (Note2(e))
Cash flows from operating activities
Net cash used in operating activities		—		(39	)		(6	)
Cash flows from investing activities
Increase in receivables from subsidiaries		—		(1,252,029	)		(179,843	)
Net cash used by investing activities		—		(1,252,029	)		(179,843	)
Cash flows from financing activities
Proceeds from issuance of ordinary shares		—		669,559			96,176
Proceeds from issuance of ordinary shares upon IPO		—		582,449			83,664
Net cash provided by financing activities		—		1,252,008			179,840

Net increase in cash and cash equivalents		—		(60	)		(9	)
Effect of exchange rate changes on cash		—		74			11
Cash and cash equivalents, beginning of year		—		—			—
Cash and cash equivalents, end of year		—		14			2

Principal Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2019

Accounting Policies [Abstract]

Principal Activities

(a)

Principal activities

As of December 31, 2019, the Company’s subsidiaries are as follows:

Name of subsidiaries	Date of incorporation	Place of incorporation	Equity interest held	Principal activities
Canaan Creative (HK) Holdings Limited	February 22, 2018	Hong Kong	100%	Research and development of ICs
Hangzhou Canaan Creative Information Technology Co., Ltd.	April 9, 2013	Hangzhou, China	100%	Research and development of ICs
Canaan Creative Co., Ltd.	April 1, 2013	Beijing, China	100%	Research and development of ICs
Langfang Creative Technology Co., Ltd.	May 15, 2014	Langfang, China	100%	Assembly of system products
Hangzhou Ruihong Technology Co., Ltd.	June 30, 2015	Hangzhou, China	100%	Supply chain and distribution of system products
Hangzhou Lifeng Intelligence Agriculture Co., Ltd.	November 13, 2015	Hangzhou, China	100%	Distribution of system products
Hangzhou Canaan Blockchain Technology Co., Ltd.	November 11, 2016	Hangzhou, China	100%	Research and development of ICs
Canaan Convey Co., Ltd.	November 2, 2017	Beijing, China	100%	International distribution of system products
Zhejiang Avalon Technology Co., Ltd.	December 5, 2017	Hangzhou, China	100%	Distribution of system products
Canaan Mingxin (Beijing) Technology Co., Ltd.	December 24, 2018	Beijing, China	100%	International distribution of system products
Hangzhou Canaan Chuangxin Technology Co., Ltd.	December 26, 2018	Hangzhou, China	100%	Research and development of ICs