UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

Amendment No. 1 to

FORM 20-F

oREGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: December 31, 2012

OR

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

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

Date of event requiring this shell company report . . . . . . . . . . . . . . . . . . .

For the transition period from                     to                    

Commission file number: 001-34987

Lentuo International Inc.

(Exact name of Registrant as specified in its charter)

Not Applicable

(Translation of Registrant’s name into English)

Cayman Islands

(Jurisdiction of incorporation or organization)

Building D, 2/F, 56 East 4th Ring South Road

Chaoyang District, Beijing 100023

People’s Republic of China

(Address of principal executive offices)

Jiangyu Luo, Acting Chief Financial Officer

Tel: (8610) 6546-1861

Email: chenjianping@lentuo.net

Fax: (8610) 6748-0062

Building D, 2/F, 56 East 4th Ring South Road

Chaoyang District, Beijing 100023

People’s Republic of China

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

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

Title of each class	Exchange on which registered
Ordinary shares, par value US$0.00001 per share	New York Stock Exchange*
American depositary shares, each representing two ordinary shares	New York Stock Exchange

* Not for trading but only in connection with the listing on New York Stock Exchange of the American depositary shares.

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

Number of outstanding shares of each of the issuer’s classes of capital or common stock as of December 31, 2012:

58,937,912 Ordinary Shares, par value US$0.00001 per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

o Yes   x No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or (15)(d) of the Securities Exchange Act of 1934.

o Yes   x No

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

x Yes   o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

x Yes   o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer o Non-accelerated filer x

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP x International Financial Reporting Standards as issued
by the International Accounting Standards Board o Other o

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

o Item 17   o Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes   x No

(APPLICABILITY ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 13, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

o Yes   o No

EXPLANATORY NOTE

This Amendment No. 1 to the annual report on Form 20-F of Lentuo International Inc. for the fiscal year ended December 31, 2012 that was originally filed on April 30, 2013 (the “2012 Form 20-F”), is being filed for the following purposes:

(i)amending the fifth paragraph under “Organization and Basis of Presentation — VIE Arrangements” in note 1 to the consolidated financial statements included in the 2012 Form 20-F by inserting the following sentence: “Creditors of the consolidated VIEs and subsidiaries of VIES have no recourse to the general credit of Lentuo Hong Kong, who is the primary beneficiary of the consolidated VIEs and subsidiaries of VIEs.” This sentence was included in the company’s annual reports on Form 20-F for previous fiscal years but was accidentally omitted in the 2012 Form 20-F;

(ii)amending the table under “Summary of Significant Accounting Policies — (e) Fair value of financial instruments” in note 2 to the consolidated financial statements included in the 2012 Form 20-F by replacing the number “86,850” in the table with the number “78,950”, replacing the number “18,550” with the number “26,450”, and replacing the number “2,977” with the number “4,246”;

(iii)amending the table under “Goodwill” in note 12 to the consolidated financial statements included in the 2012 Form 20-F by replacing the numbers “14,140” in the table with the numbers “14,104”; and

(iv)furnishing Interactive Data File disclosure as Exhibit 101 in accordance with Rule 405 of Regulation S-T.

A complete section of the consolidated financial statements and the notes thereto, as so amended, is included in this Amendment No. 1. Other than as described above, this Amendment No. 1 does not, and does not purport to, amend, update or restate any other information or disclosure included in the 2012 Form 20-F or reflect any events that have occurred after the initial filing of the 2012 Form 20-F.

Item 19. Exhibits

Exhibit Number	Description of Document
12.1	Certification of Chief Executive Officer required by Section 302 of the Sarbanes-Oxley Act of 2002
12.2	Certification of Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act of 2002
13.1	Certification of Chief Executive Officer required by 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
13.2	Certification of Chief Financial Officer required by 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema Document
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document

*XBRL (eXtensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

SIGNATURE

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Amendment No. 1 to Form 20-F on its behalf.

LENTUO INTERNATIONAL INC.
By:	/s/ Hetong Guo
	Name: Hetong Guo
	Title: Chairman

Date: May 28, 2012

LENTUO INTERNATIONAL INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets as of December 31, 2011 and 2012	F-3 – F-4
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2010, 2011 and 2012	F-5 – F-6
Consolidated Statements of Cash Flows for the Years Ended December 31, 2010, 2011 and 2012	F-7 – F-8
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2010, 2011 and 2012	F-9
Notes to Consolidated Financial Statements	F-10 – F-52

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of Lentuo International Inc.

We have audited the accompanying consolidated balance sheets of Lentuo International Inc. (the “Company”) as of December 31, 2012 and 2011, and the related consolidated statements of comprehensive income (loss), shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2012. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Lentuo International Inc. as of December 31, 2012 and 2011, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2012, in conformity with U.S. generally accepted accounting principles.

/s/ Ernst & Young Hua Ming LLP

Shanghai, People’s Republic of China

April 30, 2013

F-2

LENTUO INTERNATIONAL INC.

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares)

		December 31,
	Notes	2011	2012
		RMB	RMB	US$
ASSETS
Current assets:
Cash and cash equivalents		161,393	318,909	51,188
Restricted cash	4	435,770	437,875	70,284
Accounts receivable (net of allowance for doubtful accountsof nil as of December 31, 2011 and 2012)	5	48,961	41,399	6,645
Inventories, net	6	516,256	432,722	69,457
Leased automobiles held for sale, net	7	147,749	206,604	33,162
Advances to suppliers		219,936	316,067	50,732
Prepaid expenses and other current assets	8	265,199	35,148	5,642
Amounts due from related parties	20	74,857	57,830	9,283
Deferred tax assets	19	6,062	6,756	1,084
Total current assets		1,876,183	1,853,310	297,477
Non-current assets:
Property and equipment, net	9	325,308	560,700	89,999
Land use rights, net	10	18,821	18,256	2,930
Intangible assets, net	11	135,067	106,058	17,023
Goodwill	12	73,634	73,634	11,819
Long-term prepayments	13	137,750	26,500	4,254
Long-term investment	14	—	11,250	1,806
Deferred tax assets	19	4,112	9,624	1,544
Total non-current assets		694,692	806,022	129,375
TOTAL ASSETS		2,570,875	2,659,332	426,852

The accompanying notes are an integral part of these consolidated financial statements.

F-3

LENTUO INTERNATIONAL INC.

CONSOLIDATED BALANCE SHEETS (CONTINUED)

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares)

		December 31,
	Notes	2011	2012
		RMB	RMB	US$
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable		12,568	6,458	1,036
Bills payable	15	889,158	887,100	142,389
Advances from customers	16	47,990	49,974	8,021
Accrued expenses and other current liabilities	17	329,468	444,553	71,356
Amounts due to related parties	20	10,000	—	—
Unrecognized tax benefits	19	4,963	4,963	797
Taxes payable	19	33,562	54,369	8,727
Short-term loans	18	370,883	365,274	58,631
Total current liabilities		1,698,592	1,812,691	290,957
Non-current liabilities:
Deferred tax liabilities	19	39,193	31,770	5,099
Total non-current liabilities		39,193	31,770	5,099
TOTAL LIABILITIES		1,737,785	1,844,461	296,056
Commitments and contingencies	26
Shareholders’ equity:
Ordinary shares, par value US$0.00001 per share
Authorized — 500,000,000 shares as of December 31, 2011 and 2012
Issued and outstanding — 58,937,912 shares as of December 31, 2011 and 2012	21	4	4	1
Additional paid-in capital		469,761	469,761	75,401
Retained earnings		334,605	329,147	52,832
Total Lentuo International Inc. shareholders’ equity		804,370	798,912	128,234
Noncontrolling interests		28,720	15,959	2,562
TOTAL SHAREHOLDERS’ EQUITY		833,090	814,871	130,796
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		2,570,875	2,659,332	426,852

The accompanying notes are an integral part of these consolidated financial statements.

F-4

LENTUO INTERNATIONAL INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data)

		Years ended December 31,
	Notes	2010		2011		2012
		RMB		RMB		RMB		US$
Revenues:
Sales of automobiles		3,075,045		2,664,750		2,875,213		461,504
Automobile repair and maintenance services		274,076		333,755		324,974		52,162
Sales of leased automobiles		—		18,310		35,635		5,720
Other services		14,548		19,403		29,465		4,729
		3,363,669		3,036,218		3,265,287		524,115
Costs of goods sold:
Sales of automobiles		(2,883,938	)	(2,540,668	)	(2,774,529	)	(445,343	)
Automobile repair and maintenance services		(110,487	)	(163,242	)	(188,859	)	(30,314	)
Sales of leased automobiles		—		(17,330	)	(50,068	)	(8,036	)
Other services		(1,177	)	(2,802	)	(1,499	)	(241	)
		(2,995,602	)	(2,724,042	)	(3,014,955	)	(483,934	)
Gross profit		368,067		312,176		250,332		40,181
Operating expenses:
Selling, marketing and distribution expenses		(52,173	)	(91,438	)	(101,544	)	(16,298	)
General and administrative expenses		(37,824	)	(54,274	)	(63,295	)	(10,160	)
Loss from impairment of intangible assets		—		—		(26,450	)	(4,246	)
Total operating expenses		(89,997	)	(145,712	)	(191,289	)	(30,704	)
Operating income		278,070		166,464		59,043		9,477
Interest income		1,102		3,182		7,143		1,146
Interest expense	25	(53,832	)	(61,560	)	(73,673	)	(11,825	)
Exchange loss		(3,018	)	(9,100	)	(8	)	(1	)
Other income, net		2,144		1,407		1,475		237
Income (loss) before income tax expense		224,466		100,393		(6,020	)	(966	)
Income tax expense	19	(63,093	)	(33,291	)	(12,199	)	(1,958	)
Net income (loss) and comprehensive income (loss)		161,373		67,102		(18,219	)	(2,924	)
Net loss and comprehensive loss attributable to noncontrolling interests		—		(815	)	(12,761	)	(2,048	)
Net income (loss) and comprehensive income (loss) attributable to Lentuo International Inc. shareholders		161,373		67,917		(5,458	)	(876	)

The accompanying notes are an integral part of these consolidated financial statements.

F-5

LENTUO INTERNATIONAL INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (CONTINUED)

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data)

		Years ended December 31,
	Note	2010	2011	2012
		RMB	RMB	RMB		US$
Earnings per share:
Basic and diluted earnings (loss) per share	22	3.77	1.15	(0.09	)	(0.01	)
Weighted average ordinary shares outstanding:
Basic and diluted		42,727,446	58,937,912	58,937,912		58,937,912

The accompanying notes are an integral part of these consolidated financial statements.

F-6

LENTUO INTERNATIONAL INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”))

	Years ended December 31,
	2010		2011		2012
	RMB		RMB		RMB		US$
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	161,373		67,102		(18,219	)	(2,924	)
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation of property and equipment	13,729		16,560		23,328		3,745
Depreciation of leased automobiles held for sale			2,251		17,900		2,873
Deferred tax benefits	(4,456	)	(5,679	)	(13,629	)	(2,189	)
Amortization of land use rights	183		255		565		91
Amortization of intangible assets	—		1,547		2,559		411
Gain on disposal of property and equipment	(1,472	)	(1,410	)	(683	)	(110	)
Loss from impairment of intangible assets	—		—		26,450		4,246
Exchange loss	4,858		391		47		8
Changes in operating assets and liabilities:
Accounts receivable	(26,724	)	18,900		7,562		1,214
Inventories	14,119		(169,467	)	83,534		13,408
Leased automobiles held for sale	—		(150,000	)	(76,755	)	(12,320	)
Advances to suppliers	(143,634	)	211,837		(96,131	)	(15,430	)
Prepaid expenses and other current assets	(2,314	)	59,289		8,734		1,402
Accounts payable	(6,104	)	7,067		(6,110	)	(981	)
Bills payable	280,516		75,767		(2,058	)	(330	)
Advances from customers	64,831		(45,617	)	1,984		318
Deposits from third parties	(76,258	)	(85,856	)	—		—
Accrued expenses and other current liabilities	104,273		(4,407	)	115,085		18,472
Unrecognized tax benefits	(44,562	)	—		—		—
Taxes payable	92,770		(107,803	)	20,807		3,340
Amounts due to related parties	(1,229	)	—		—		—
Net cash provided by (used in) operating activities	429,899		(109,273	)	94,970		15,244
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment	(12,531	)	(85,770	)	(167,070	)	(26,817	)
Prepayments for construction	—		(131,250	)	—		—
Disposal of property and equipment	4,932		3,936		9,033		1,451
Acquisition of subsidiaries, net of cash acquired	—		(108,224	)	—		—
Loans to third parties	(24,377	)	(15,000	)	—		—
Repayments of loans provided to third parties	21,480		—		22,400		3,595
Deposits to third parties	(27,100	)	(26,117	)	(5,000	)	(803	)
Repayments of deposits to third parties	—		21,100		30,917		4,963
Deposit for a business acquisition	—		(173,000	)			—
Repayment of deposit for a business acquisition					173,000		27,768
Amounts due from related parties	227,913		(36,157	)	17,027		2,733
Amounts due to related parties	13,553		(3,553	)	(10,000	)	(1,605	)
Net cash provided by (used in) investing activities	203,870		(554,035	)	70,307		11,285

The accompanying notes are an integral part of these consolidated financial statements.

F-7

LENTUO INTERNATIONAL INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”))

	Years ended December 31,
	2010		2011		2012
	RMB		RMB		RMB		US$
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term loans	781,380		823,222		991,319		159,118
Repayments of short-term loans	(865,787	)	(782,556	)	(996,928	)	(160,018	)
Deposits for short-term loans	(3,500	)	—		—		—
Proceeds from issuance of ordinary shares	122,225		—		—		—
Proceeds from initial public offering	322,097		—		—		—
Payment of deferred initial public offering costs	(17,087	)	(11,488	)	—		—
Restricted cash	(242,107	)	(5,936	)	(2,105	)	(338	)
Net cash provided by financing activities	97,221		23,242		(7,714	)	(1,238	)
Effect of foreign exchange rate changes, net	(1,222	)	(391	)	(47	)	(8	)
Net increase (decrease) in cash and cash equivalents	729,768		(640,457	)	157,516		25,283
Cash and cash equivalents, beginning of year	72,082		801,850		161,393		25,905
Cash and cash equivalents, end of year	801,850		161,393		318,909		51,188
Supplementary disclosure of cash flow information:
Interest expense paid	28,986		39,627		63,634		10,213
Income taxes paid	19,210		149,561		5,757		924

The accompanying notes are an integral part of these consolidated financial statements

F-8

LENTUO INTERNATIONAL INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data)

	Attributable to Lentuo International Inc.
	Number of ordinary shares	Ordinary shares	Additional paid-in capital	Retainedearnings		Non controlling interests		Total shareholders’ equity
		RMB	RMB	RMB		RMB		RMB
Balance at December 31, 2009	39,908,389	1	53,973	228,395		—		282,369
Issuance of ordinary shares	6,029,523	2	122,225	(2	)	—		122,225
Issuance of ordinary shares upon initial public offering	13,000,000	1	293,563	—		—		293,564
Net income and comprehensiveincome	—	—	—	161,373		—		161,373
Distribution of assets toshareholders	—	—	—	(123,078	)	—		(123,078	)
Balance at December 31, 2010	58,937,912	4	469,761	266,688		—		736,453
Acquisition of subsidiaries	—	—	—	—		29,535		29,535
Net income (loss) and comprehensiveincome (loss)	—	—	—	67,917		(815	)	67,102
Balance at December 31, 2011	58,937,912	4	469,761	334,605		28,720		833,090
Net loss and comprehensiveloss	—	—	—	(5,458	)	(12,761	)	(18,219	)
Balance at December 31, 2012	58,937,912	4	469,761	329,147		15,959		814,871
Balance at December 31, 2012 (US$)		1	75,402	52,832		2,562		130,796

The accompanying notes are an integral part of these consolidated financial statements.

F-9

LENTUO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data)

1.ORGANIZATION AND BASIS OF PRESENTATION

Lentuo International Inc. (the “Company”) was incorporated as an exempted company with limited liability in the Cayman Islands on September 9, 2009 and is considered a foreign entity under the laws of the People’s Republic of China (the “PRC”).  The Company is principally engaged in the sale of new and leased automobiles and the provision of automobile repair and maintenance services, and to a lesser extent, the provision of automobile leasing services (collectively, the “Automobile Business”). The sale of new automobiles and provision of automobile repair and maintenance services are provided through dealerships which operate under the terms of non-exclusive franchise agreements with specific automobile manufacturers. The Company does not conduct any substantive operations on its own but instead conducts its business operations through its variable interest entities (“VIEs”) which are all located in Beijing, the PRC. The Company, its wholly-owned subsidiaries, VIEs and subsidiaries of VIEs are hereinafter referred to as the Group.

On December 15, 2010, the Company completed an initial public offering (“IPO”) on the New York Stock Exchange under the symbol “LAS” with the issuance of 6,500,000 American Depositary Shares (“ADS”) priced at US$8.00 per ADS. Each ADS represents two ordinary shares at par value US$0.00001 per ordinary share. The IPO yielded aggregate gross proceeds of US$52,000.

As more fully described below, the Company, through a series of transactions which are accounted for as a reorganization of entities under common control in a manner similar to a pooling of interest, became the ultimate parent entity of its wholly-owned subsidiaries and VIEs by June 20, 2010. Accordingly, these consolidated financial statements reflect the historical operations of the Group as if the current organization structure had existed since the beginning of the years presented.

Reorganization Transactions

Mr. Hetong Guo (“Mr. Guo”), who owned a majority of the equity interest in the Company through his wholly-owned entity, Modern Cyber International Limited (British Virgin Islands), was the Company’s ultimate controlling shareholder at the time of the reorganization. Prior to the reorganization, the Group’s operations were conducted through Beijing Lentuo Electromechanical Group Co., Ltd. (“Lentuo Electromechanical”), an entity incorporated under the Company Law of the PRC on June 10, 1994, and through its eight wholly-owned subsidiaries (“Automobile Operating Entities”) which were all entities incorporated under the Company Law of the PRC. Lentuo Electromechanical has been controlled by Mr. Guo since its inception.

In preparation for its IPO, the following transactions were undertaken to reorganize the legal structure of the Group. The Company incorporated Lentuo Automobile Trading (Hong Kong) Co., Ltd. (“Lentuo Hong Kong”) and Beijing Anhui Wanxing Science & Technology Co., Ltd. (“Lentuo Beijing”) on September 25, 2009 and November 17, 2009, respectively. Lentuo Hong Kong and Lentuo Beijing have been wholly-owned subsidiaries of the Company since their inception. On January 28, 2010 and June 20, 2010, Lentuo Hong Kong and Lentuo Beijing entered into a series of contractual arrangements (“VIE Arrangements”) with Lentuo Electromechanical, as the shareholder of the Automobile Operating Entities, whereby Lentuo Hong Kong and Lentuo Beijing, as a group, obtained effective control over the Automobile Operating Entities through the ability to exercise all the rights of the Automobile Operating Entities’ shareholder, the rights to absorb substantially all of the economic residual benefits and the obligation to fund all of the expected losses of the Automobile Operating Entities.

F-10

LENTUO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data)

1.ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)

Reorganization Transactions (continued)

Lentuo Hong Kong has been determined to be the primary beneficiary of the Automobile Operating Entities because it is most closely associated with the Automobile Operating Entities due to its obligation to absorb the expected losses of the VIEs through the provision of unlimited financial support and its power to direct the activities of the VIEs that most significantly impact the VIEs’ economic performance. In accordance with SEC Regulation SX-3A-02 and Accounting Standards Codification (“ASC”) Topic 810 (“ASC 810”), Consolidation, the Company, through Lentuo Hong Kong, consolidates the operating results of the VIEs. Since the VIE Arrangements were entered into between entities under common control, these transactions have been accounted for at their historical cost and as if they took place at the beginning of the year these entities were under common control in a manner similar to a pooling of interest. The reason the Group entered into these VIE Arrangements is due to the fact that PRC Laws and regulations (i) prohibit direct foreign control in certain industries such as advertising enterprises in which the Group has some operations and (ii) restrict an offshore company controlled or established by a PRC enterprise or natural person to acquire its PRC affiliates. As a result, in an effort to ensure that the Group is not violating such PRC laws or regulations, it structured its legal organization using the aforementioned VIE arrangements.

Further, on June 20, 2010, Lentuo Electromechanical entered into an arrangement with Beijing Huitong Auto Sales & Services Co., Ltd. (“Huitong”), one of the Automobile Operating Entities, whereby Lentuo Electromechanical transferred all of its net assets, except for certain assets which would not be used in the Automobile Business, to Huitong for nil consideration. The assets with a carrying value of RMB123,078 retained by Lentuo Electromechanical were accounted for as a distribution to the Group’s shareholders on June 20, 2010.  Lentuo Electromechanical did not have the necessary title certificates to legally transfer a building, which was historically used for the Automobile Business of Lentuo Electromechanical, to Huitong on June 20, 2010. In order to still transfer substantively all of the rights and benefits of this building to the Group, Lentuo Electromechanical entered into a lease arrangement on June 20, 2010 with Huitong. Under the lease arrangement, Huitong obtained the right to use the building for the remainder of its expected useful life of 40 years for nil consideration and was granted a bargain purchase option to acquire the building at a nominal value at the end of the lease term. Accordingly, Huitong accounted for the building with cost of RMB45,349 as a capital lease in accordance with ASC Topic 840 (“ASC 840”), Leases. The transfer of the net assets and the capital lease arrangement have been accounted for as a transaction between entities under common control in a manner similar to a pooling of interest and the retention of the assets which would not be used in the Automobile Business by Lentuo Electromechanical has been accounted for as a distribution of assets to the Group’s shareholder at the date of disposal. These assets accounted for as a distribution to shareholder on June 20, 2010 did not meet the definition of a component of an entity under ASC Topic 205 (“ASC 205”), Presentation of Financial Statements - Discontinued Operation, as their operations and cash flows were not clearly distinguished from the rest of the Group.

In January 2011, Lentuo Electromechanical established a new entity, Beijing Lentuo Tongda Automobile Sales Service Co., Ltd. (“Tongda”), to operate an automobile dealership under brand of FAW-Volkswagen with registered capital of RMB10,000 (US$1,589). On April 8, 2011, Lentuo Hong Kong and Lentuo Beijing entered into VIE Arrangements with Lentuo Electromechanical to obtain effective control over Tongda, and Tongda became one of the Company’s VIE subsidiaries.   In accordance with SEC Regulation SX-3A-02 and ASC 810, the Company, through Lentuo Hong Kong, consolidates the operating results of Tongda. Since the Tongda VIE Arrangements were entered into between entities under common control, this transaction has been accounted for at historical cost in a manner similar to a pooling of interest.

F-11

LENTUO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data)

1.ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)

VIE Arrangements

The significant terms of each VIE Arrangement are listed below:

(i)Exclusive call option agreement

Lentuo Electromechanical irrevocably granted Lentuo Hong Kong or its designated persons the exclusive option to purchase part of or the entire equity interests of the Automobile Operating Entities at any time for the minimum price permitted under PRC law. Any amount received by Lentuo Electromechanical from Automobile Operating Entities is required to be remitted back to Lentuo Hong Kong.  In addition, Lentuo Hong Kong is obligated to provide unlimited financial funding to the Automobile Operating Entities when and if required. If the Automobile Operating Entities cannot repay the funds provided by Lentuo Hong Kong, Lentuo Hong Kong must agree to forego the right to seek repayment.  Furthermore, neither Lentuo Electromechanical nor the Automobile Operating Entities are permitted to (i) enter into transactions that could materially affect the Automobile Operating Entities’ assets, liabilities, share capital or operations or (ii) distribute any dividends and grant any loan to third parties without the prior written consent of Lentuo Hong Kong. The exclusive call option agreement is effective for 10 years and Lentuo Hong Kong has the sole discretion to extend the agreement for another 10 years.

(ii)Powers of attorney

Pursuant to the powers of attorney signed between Lentuo Electromechanical, in its capacity as the shareholder of the Automobile Operating Entities, and Lentuo Hong Kong, Lentuo Electromechanical irrevocably assigns its full voting rights in the Automobile Operating Entities to Lentuo Hong Kong. The powers of attorney will remain effective as long as Lentuo Electromechanical is the shareholder of the Automobile Operating Entities.

(iii)Exclusive technology consulting and service agreement

Pursuant to the exclusive technology consulting and service agreement entered into between Lentuo Beijing and the Automobile Operating Entities, Lentuo Beijing has the exclusive and irrevocable right to provide to the Automobile Operating Entities various technical and consulting services, such as market research, business strategy development, technical training and other consultative services related to the automobile retail business. In return, the Automobile Operating Entities are required to pay Lentuo Beijing a service fee in an amount as determined at the sole discretion of Lentuo Beijing. Lentuo Beijing also has the unilateral right to change the service fee amount. The agreement is effective for 10 years and will automatically extend for another 10 years unless both Lentuo Beijing and the Automobile Operating Entities agree to terminate.

(iv)Equity interest pledge agreement

Pursuant to the equity interest pledge agreement entered into by Lentuo Beijing and Lentuo Electromechanical, in its capacity as the shareholder of the Automobile Operating Entities, Lentuo Electromechanical has pledged its entire equity interest in the Automobile Operating Entities to Lentuo Beijing (i) to guarantee the performance of the Automobile Operating Entities’ obligations under the exclusive technical consultation and service agreement and (ii) to assure that any actions of Lentuo Electromechanical are in the best interest of Lentuo Beijing. If the Automobile Operating Entities breach their respective contractual obligations under the exclusive technical consultation and service agreement, Lentuo Beijing, as pledgee, will be entitled to certain rights, including the right to sell the pledged equity interest. Lentuo Electromechanical agreed not to transfer, sell, pledge, dispose of or otherwise create any new encumbrance on its equity interest in the Automobile Operating Entities without the prior consent of Lentuo Beijing. The agreement will expire upon the termination of the exclusive technical consultation and service agreement.

The terms of the VIE Arrangements entered into after the reorganization with Tongda are identical to the terms of the VIE Arrangements with the Automobile Operating Entities.  As a result, Lentuo Hong Kong has been determined to be the primary beneficiary of Tongda.

F-12

LENTUO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data)

1.ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)

VIE Arrangements (continued)

The following assets and liabilities of the consolidated VIEs and subsidiaries of VIEs were included in the accompanying consolidated financial statements of the Company as of December 31, 2011 and 2012:

	December 31,
	2011	2012
	RMB	RMB	US$
Current assets	1,795,070	1,792,965	287,791
Non-current assets	624,198	803,703	129,003
Total assets	2,419,268	2,596,668	416,794
Current liabilities	1,698,413	1,812,512	290,928
Non-current liabilities	39,193	31,770	5,099
Total liabilities	1,737,606	1,844,282	296,027

As of December 31, 2012, there was no pledge or collateralization of the assets of the consolidated VIEs and subsidiaries of VIEs and the Company has not provided any financial support that it was not previously contractually required to provide to the consolidated VIEs and subsidiaries of VIEs.

Creditors of the consolidated VIEs and subsidiaries of VIEs have no recourse to the general credit of Lentuo Hong Kong, who is the primary beneficiary of the consolidated VIEs and subsidiaries of VIEs.  As of December 31, 2011 and 2012, the current and non-current liabilities of the consolidated VIEs and subsidiaries of VIEs equaled to the consolidated current and non-current liabilities presented on the consolidated balance sheets, with the exception of RMB179 (US$29) accrued expenses and other current liabilities attributable to the Company.

As at December 31, 2012, the following entities were included in the Company’s consolidated financial statements:

Name	Date of incorporation	Place of incorporation	Percentage of shareholdings	Principal activities
Lentuo Hong Kong	September 25, 2009	Hong Kong	100%	Investment holding
Lentuo Beijing	November 17, 2009	PRC	100%	Provision of technical support and management consultation services
Beijing Jiashi Shengtong Investment Consulting Co., Ltd. (“Jiashi Shengtong”)	April 8, 2010	PRC	100%	Provision of technical support and management consultation services

F-13

LENTUO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data)

1.ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)

As at December 31, 2012, the Company consolidated the following VIEs:

Name	Date of incorporation	Place of incorporation	Percentage of shareholdings	Principal activities
Beijing Yuantongqiao Toyota Automobile Trading Co., Ltd. (“Yuantongqiao Toyota”)	August 25, 2004	PRC	—	Sale of new motor vehicles and provision of automobile repair and maintenance services
Beijing Tuozhan Industrial& Trading Development Co., Ltd. (“Tuozhan I&C”)	September 23, 1997	PRC	—	Sale of new motor vehicles and provision of automobile repair and maintenance services
Beijing Lentuo Chengxin Commercial & Trading Co., Ltd. (“Chengxin Commercial”)	February 7, 2002	PRC	—	Sale of new motor vehicles and provision of automobile repair and maintenance services
Beijing Aotong Automobile Trading Co., Ltd. (“Aotong”)	July 20, 2001	PRC	—	Sale of new motor vehicles and provision of automobile repair and maintenance services
Beijing Tuojiacheng Commercial & Trading Co., Ltd. (“Tuojiacheng”)	December 2, 1998	PRC	—	Sale of new motor vehicles and provision of automobile repair and maintenance services
Beijing Lentuo Huitong Automobile Sales Service Co., Ltd. (“Huitong”)	September 27, 2009	PRC	—	Sale of new motor vehicles and provision of automobile repair and maintenance services
Beijing Lentuo Tongda Automobile Sales Service Co., Ltd. (“Tongda”)	January 7,2011	PRC	—	Sale of new motor vehicles and provision of automobile repair and maintenance services
Lentuo Automobile Lease Co., Ltd. (“Lentuo Lease”)	July 22, 2003	PRC	—	Provision of automobile leasing services
Beijing Tuozhan Automobile Repair Co., Ltd. (“Tuozhan Repair”)	May 16, 2003	PRC	—	Provision of automobile repair and maintenance services

F-14

LENTUO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data)

1.ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)

As at December 31, 2012, the Company consolidated the following subsidiaries of VIEs:

Name	Date of incorporation	Place of incorporation	Percentage of shareholdings	Principal activities
Tianjin Ruitai Automobile Sales Service Co., Ltd. (“Ruitai”)	December 25, 2007	PRC	—	Sale of new motor vehicles and provision of automobile repair and maintenance services
Tianjin Zhongbaotongda Commercial & Trading Co., Ltd. (“Zhongbaotongda”)	November 22, 2007	PRC	—	Investment holding company of Ruitai
Tianjin Boruiyingjie Commercial & Trading Co., Ltd. (“Boruiyingjie”)	October 29, 2007	PRC	—	Investment holding company of Ruitai
Beijing Hexinshuntong Automobile Sales Service Co., Ltd. (“Shuntong”)	September 16, 2009	PRC	—	Sale of new motor vehicles and provision of automobile repair and maintenance services
Huizhou Dazhong Automobile Sales Service Co., Ltd. (“Huizhou FAW-VW”)	November 2, 2000	PRC	—	Sale of new motor vehicles and provision of automobile repair and maintenance services
Wenling Yuchen Toyota Automobile Sales Service Co., Ltd. (“Yuchen”)	May 28, 2007	PRC	—	Sale of new motor vehicles and provision of automobile repair and maintenance services
Beijing Aoxiang Automobile Trading Co., Ltd. (“Aoxiang”)	June 21, 2011	PRC	—	Sale of new motor vehicles
Beijing Yizhong Volkswagen Automobile Sales Co., Ltd. (“Yizhong”)	November 8, 2010	PRC	—	Sale of new motor vehicles

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a)Principles of consolidation

The consolidated financial statements include the financial statements of the Company, its subsidiaries, VIEs and subsidiaries of VIEs for which a subsidiary of the Company is the primary beneficiary. All significant intercompany transactions and balances have been eliminated upon consolidation.

These consolidated financial statements have been prepared in accordance with the U.S. generally accepted accounting principles (“US GAAP”).

F-15

LENTUO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data)

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(a)Principles of consolidation (continued)

Certain items in the consolidated financial statements have been reclassified to conform to the current year’s presentation to facilitate comparison.

(b)Use of estimates

The preparation of the consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the balance sheet dates and the reported amounts of revenues and expenses during the reporting periods. Significant estimates and assumptions reflected in the consolidated financial statements include, but are not limited to, revenue recognition, estimation of rebates earned, allowance for doubtful accounts, inventory obsolescence, useful lives of long-lived assets and intangible assets, impairment of long-lived assets and goodwill, valuation allowance for deferred tax assets, uncertain tax positions and consolidation of VIEs and subsidiaries of VIEs. Actual results could differ significantly from those estimates.

(c)Foreign currency

The Company has determined its functional currency to be the Chinese Renminbi (“RMB”) while its subsidiaries, VIEs and subsidiaries of VIEs have determined their functional currency to be their respective local currencies based on the criteria of ASC topic 830 (“ASC 830”), Foreign Currency Matters. The Company’s subsidiaries, VIEs and subsidiaries of VIEs located in the PRC have determined their functional currency to be the RMB. The Company uses the RMB as its reporting currency.

Each entity in the Group maintains its financial records in its own functional currency. Transactions denominated in foreign currencies are measured at the exchange rates prevailing on the transaction dates. Monetary assets and liabilities denominated in foreign currencies are remeasured at the exchange rates prevailing at the balance sheet date. Exchange gains and losses are included in the consolidated statements of comprehensive income (loss). Non-monetary items that are measured in terms of historical cost in foreign currency are remeasured using the exchange rates at the dates of the initial transactions.

(d)Convenience translation

Amounts in United States dollars (“US$”) are presented for the convenience of  readers of the financial statements and the translations of RMB into US$ have been made at the exchange rate of RMB6.2301 to US$1.00 as set forth in the H.10 statistical release of the Federal Reserve Board on December 31, 2012. No representation is made that the RMB amounts could have been or could be converted into the US$ at this rate.

(e)Fair value of financial instruments

Financial instruments include cash equivalents, restricted cash, accounts receivable, certain other current assets, accounts payable, certain other current liabilities, amounts due from/to related parties, amounts due to employees and short-term loans. The carrying values of these financial instruments approximate their fair value due to their short-term maturities. The Company applies ASC topic 820 (“ASC 820”), Fair Value Measurements and Disclosures. ASC 820 defines fair value, establishes a framework for measuring fair value and requires disclosures to be provided on fair value measurement.

ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

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

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

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

F-16

LENTUO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data)

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(e)Fair value of financial instruments (continued)

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

The Group had no financial instruments measured at fair value on a recurring basis as of December 31, 2011 and 2012.

The following table sets forth assets measured at fair value on a nonrecurring basis as of December 31, 2012:

		Fair value at December 31, 2012 measured using
	Carrying value at December 31, 2012	Quoted price in active markets for identical assets (Level 1)	Significant other observable inputs  (Level 2)	Significant unobservable inputs(Level 3)	Total loss in 2012
	RMB	RMB	RMB	RMB	RMB	US$
Intangible assets - Acquired dealership agreements	105,400	—	—	78,950	26,450	4,246

There were no assets measured at fair value on a nonrecurring basis as of December 31, 2011.

The fair value of dealership agreements as of December 31, 2012 was measured using the income approach with significant inputs that are not observable in the market (Level 3), including a discount rate of 15% and a long-term sustainable growth rate of 3%.

In accordance with ASC subtopic 350-30 (“ASC 350-30”), Intangibles-Goodwill and Other: General Intangibles Other than Goodwill, dealership agreements with a carrying amount of RMB105,400 were written down to an implied fair value of RMB78,950, resulting in an impairment charge of RMB26,450 (US$4,246), which was included in the Group’s consolidated statements of comprehensive income (loss) for the year ended December 31, 2012 (Note 11).

(f)Cash and cash equivalents

Cash and cash equivalents include cash on hand and time deposits placed with banks or other financial institutions with original maturity of three months or less at the date of purchase and are unrestricted as to withdrawal and use.

(g)Accounts receivable

Accounts receivable are carried at net realizable value. An allowance for doubtful accounts is recorded when collection of the full amount is no longer probable based on an assessment of specific evidence including the aging of the balance, the customer’s payment history, its current credit-worthiness and current economic trends. Accounts receivable are written off after all collection effort has ceased.

F-17

LENTUO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data)

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(h)Inventories

Inventories, consisting of new automobiles, spare parts and accessories, are stated at the lower of purchased cost net of rebates or market value. Purchase cost is determined by the weighted-average method.

The Group’s purchase arrangements with certain automobile manufacturers entitle the Group to receive a specified amount of cash rebates if certain conditions are met during the stated rebate periods. The Group accounts for these rebates in accordance with ASC sub-topic 605-50 (“ASC 605-50”), Revenue Recognition: Customer Payments and Incentives. Rebates that are solely based on conditions that are fixed or can be reasonably estimated, such as volume purchase rebates, are recognized on an accrual basis based on the Group’s purchase estimates. Rebates that are based on subjective factors such as customer satisfaction results or based on the discretion of the automobile manufacturer are recognized only when realized. Rebates relating to motor vehicles purchased but still held by the Group as at the balance sheet date are recorded as a reduction to cost of inventories or cost of leased automobiles held for sale while rebates relating to motor vehicles purchased and sold during the reporting period are recorded as a reduction to cost of goods sold.

(i)Leased automobiles held for sale

On December 23, 2010, the Beijing municipal government issued a number of new measures, which became effective immediately, aimed at curbing traffic congestion in Beijing, the PRC. Under these measures, the issuance of new license plates in Beijing is subject to an annual quota and will be implemented through a monthly lottery selection system. The legal title of automobiles cannot be transferred to customers who have not obtained a new license plate from the Beijing municipal government. To assist certain customers who are in the license plate lottery, the Group will enter into a renewable lease agreement to lease the automobile which the customer intends to purchase until such time the customer acquires a license plate. The customer makes an initial payment for the full sales price of the automobile, pays a nominal monthly fee, and will either take title to the automobile upon obtaining a license plate or return it for a refund of the then fair value of the automobile. During the period the automobile is under lease, it is classified in current assets as a leased automobile held for sale and is depreciated over the expected useful life of 10 years.

(j)Property and equipment

Property and equipment are stated at cost less accumulated depreciation and are depreciated on a straight-line basis over the following estimated useful lives:

Buildings	40 years
Machinery	5 years
Office equipment	5 years
Motor vehicles	5 years

Expenditures for major additions or improvement that extend the useful lives of property and equipment are capitalized as additions to the related assets. Expenditures for minor replacements, maintenance and repairs that do not improve or extend the lives of the assets are charged to expense when incurred. Retirement, sales and disposals of assets are recorded by removing the cost and accumulated depreciation, with any resulting gain or loss reflected in the consolidated statements of comprehensive income (loss).  All direct and indirect costs that are related to the construction of property and equipment and incurred before the assets are ready for their intended use are capitalized as construction in progress. Construction in progress is transferred to specific property and equipment accounts and commences depreciation when these assets are ready for their intended use. Interest costs are capitalized if they are incurred during the acquisition, construction or production of a qualifying asset and such costs could have been avoided if expenditures for the assets have not been made. Capitalization of interest costs commences when the activities to prepare the asset are in progress and expenditures and borrowing costs are being incurred. Interest costs are capitalized until the assets are ready for their intended use. Capitalization of interest costs is suspended during extended periods in which activities related to the acquisition or construction of the qualifying assets is interrupted. Interest expense of nil, nil, and RMB10,966 (US$1,760) was capitalized during the years ended December 31, 2010, 2011 and 2012, respectively.

F-18

LENTUO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data)

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(k)Land use rights

Land use rights represent amounts paid for the right to use land in the PRC and are recorded at purchase cost less accumulated amortization. Amortization is provided on a straight-line basis over the terms of the respective land use rights agreements, which are 50 years.

(l)Business combinations

The Company accounts for its business combinations using the acquisition method of accounting in accordance with ASC topic 805 (“ASC 805”), Business Combinations. The purchase method of accounting requires that the consideration transferred to be allocated to the assets acquired, including separately identifiable assets, and liabilities assumed by the Company based on their estimated fair values. The consideration transferred of an acquisition is measured as the aggregate of the fair values at the date of exchange of the assets given, liabilities incurred, and equity instruments issued as well as the contingent considerations and all contractual contingencies as of the acquisition date. The costs directly attributable to the acquisition are expensed as incurred. Identifiable assets, liabilities, and contingent liabilities acquired or assumed are measured separately at their fair value as of the acquisition date, irrespective of the extent of any noncontrolling interests. The excess of (i) the total of cost of acquisition, fair value of the noncontrolling interests and acquisition date fair value of any previously held equity interest in the acquiree over (ii) the fair value of the identifiable net assets of the acquiree, is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly as a gain in the consolidated statements of comprehensive income (loss).

The determination and allocation of fair values to the identifiable assets acquired, liabilities assumed and noncontrolling interests is based on various assumptions and valuation methodologies requiring considerable management judgment. The most significant variables in these valuations are discount rates, terminal values, the number of years on which to base the cash flow projections, as well as the assumptions and estimates used to determine the cash inflows and outflows. The Company determines discount rates to be used based on the risk inherent in the related activity’s current business model and industry comparisons. Terminal values are based on the expected life of assets, forecasted life cycle and forecasted cash flows over that period.

(m)Intangible assets

Intangible assets are carried at cost less any accumulated amortization and recorded impairment.  Intangible assets acquired in a business combination are recognized initially at fair value at the date of acquisition. Intangible assets with finite useful lives are amortized using the straight-line method over the estimated economic useful lives of the intangible assets. The intangible assets as of December 31, 2012 include customer relationships with an estimated useful life of 10 years, and dealership agreements which have an indefinite useful life. Customer relationships are amortized on a straight-line basis over their useful life, and dealership agreements are not amortized.

The Company tests dealership agreements for impairment annually or more frequently if events or circumstances indicate possible impairment in accordance with ASC 350-30.  The impairment test for indefinite-lived intangible assets consists of comparing the carrying amount of the intangible asset to its fair value. Fair values of indefinite-lived intangible assets are determined based on discounted cash flows or appraised values, as appropriate. Any excess of the carrying amount over the asset’s fair value is recorded as an impairment charge.

(n)Goodwill

Goodwill represents the excess of the purchase price over the amounts assigned to the fair value of the assets acquired and the liabilities assumed of an acquired business. In accordance with ASC topic 350 (“ASC 350”), Goodwill and Other Intangible Assets, recorded goodwill amounts are not amortized, but rather are tested for impairment annually or more frequently if there are indicators of impairment present. In accordance with ASC 350, the Company assigned and assessed goodwill for impairment at the reporting unit level. A reporting unit is an operating segment or one level below the operating segment. The Company has determined it has eleven reporting units.

F-19

LENTUO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data)

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(n)Goodwill (continued)

The performance of the impairment test involves a two-step process. The first step of the impairment test involves comparing the fair value of the reporting unit with its carrying amount, including goodwill. Fair value is primarily determined by computing the future discounted cash flows expected to be generated by the reporting unit. If the reporting unit’s carrying value exceeds its fair value, goodwill may be impaired. If this occurs, the Company performs the second step of the goodwill impairment test to determine the amount of impairment loss. The fair value of the reporting unit is allocated to its assets and liabilities in a manner similar to a purchase price allocation in order to determine the implied fair value of the reporting unit’s goodwill. If the implied goodwill fair value is less than its carrying value, the difference is recognized as an impairment loss.

The annual goodwill impairment test is performed on December 31 of each year. For the year ended December 31, 2012, the Group adopted ASU No. 2011-08 (“ASU 2011-08”), Intangibles—Goodwill and Other (ASC 350), pursuant to which the Group has the option to first assess qualitative factors to determine whether it is necessary to perform the two-step test. If the Group believes, as a result of the qualitative assessment, that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. Otherwise, no further testing is required. For the year ended December 31, 2012, the Group assessed that it was more-likely-than-not that the fair values of its reporting units were less than their carrying amounts and performed a quantitative test.

As of December 31, 2012, the Company completed its annual impairment test on goodwill that has arisen from the business combinations during 2011. The Company determined the fair value of the reporting units using the income approach based on the discounted expected cash flows associated with the reporting unit. The discounted cash flows for the reporting units were based on six year projections. Cash flow projections were based on past experience, actual operating results, and management’s best estimates about future developments as well as certain market assumptions. Cash flows after the forecast period were estimated using a terminal value calculation, which considered terminal value growth at 3%, considering the long term revenue growth for entities in a similar industry in the PRC. The discount rate of approximately 14% was derived and used in the valuations which reflect the market assessment of the risks specific to the Company and its industry and is based on its weighted average cost of capital. The resulting fair value of the reporting units was less than the carrying value; thus, the Company was not required to complete the second step. No impairment of goodwill was recognized for the years ended December 31, 2011 and 2012.

(o)Impairment of long-lived assets

The Group evaluates its long-lived assets, including property and equipment, land use rights and intangible assets with finite lives for impairment whenever events or changes in circumstances, such as a significant adverse change to market conditions that will impact the future use of the assets, indicate that the carrying amount of an asset may not be recoverable in accordance with ASC subtopic 360-10 (“ASC 360-10”), Impairment or Disposal of Long-Lived Assets. When these events occur, the Group assesses the recoverability of long-lived assets by comparing the carrying amount of the assets to the expected future undiscounted cash flows resulting from the use of the assets and their eventual disposition. If the sum of the expected undiscounted cash flow is less than the carrying amount of the assets, the Group recognizes an impairment loss based on the excess of the carrying amount of the assets over their fair value. Fair value is generally determined by discounting the cash flows expected to be generated by the assets, when the market prices are not readily available. No impairment of long-lived assets was recognized for any of the years presented.

p)Long-term investment

The Group’s long-term investment consists of one cost method investment.

In accordance with ASC 325-20, Investments-Other: Cost Method Investments, for investments in an investee over which the Group does not have significant influence, the Group carries the investment at cost and only adjusts for other-than-temporary declines in fair value and distributions of earnings. The Group’s management regularly evaluates the impairment of its cost method investment based on the performance and financial position of the investee as well as other evidence of estimated market values.

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LENTUO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data)

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(p)Long-term investment (continued)

Such evaluation includes, but is not limited to, reviewing the investee’s cash position, recent financing, projected and historical financial performance, cash flow forecasts and current and future financing needs. An impairment loss is recognized in the consolidated statements of comprehensive income (loss) equal to the excess of the investment’s cost over its fair value at the balance sheet date of the reporting period for which the assessment is made. The fair value would then become the new cost basis of investment.

(q)Revenue recognition

For each of the significant sources of revenue stated below, revenue is recognized only when the following four criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the goods have been delivered or the services have been rendered, (iii) the price or fees are fixed or determinable, and (iv) collectability is reasonably assured.

(i)Sales of automobiles

The Group and the customer sign an agreement containing the significant terms of sales to evidence that an arrangement exists. Delivery of the automobile is evidenced by the customer’s sign-off on an acceptance form upon receipt. The purchase price is fixed or determinable because it is stipulated in the signed sales agreement and no concessions such as discounts, rebates, refunds or other price changes are provided subsequently. For the vast majority of sales, the customers pay the full purchase price in cash upon delivery of the automobile. The Group conducts thorough credit checks on customers prior to extending credit to such customers. Some customers obtain loans at market terms through third-party financial institutions. The Group arranges for the customer to pick up the automobile only after the customer’s loan application is approved and typically receives the full payment from the financial institutions within two weeks of the delivery date. Financial institutions bear full collection risk and there is no recourse to the Group in the event a customer defaults on the loan payments. The Group has not experienced any defaults on payments from financial institutions once a loan application has been approved. Therefore, collectability is considered reasonably assured by the Group when a customer’s loan application is approved. Accordingly, revenue on automobile sales is recognized by the Group upon delivery of the automobile to the customer which coincides with when all the conditions required for revenue recognition have been met.

(ii)Automobile repair and maintenance services

Revenue generated from automobile repair and maintenance services is recognized after services have been rendered and accepted by the customer. A work order detailing the services to be provided and the preliminary price estimate is signed by the end customer and service representative from the Group prior to the requested service being performed. When the service has been completed, the customer signs a settlement worksheet as evidence of acceptance of the services provided and the final fees charged for such services which signifies persuasive evidence of an arrangement and performance of services. Fees are considered fixed or determinable because no subsequent concessions such as discounts, rebates, refunds or other price changes are provided subsequent to the customer’s acceptance. The majority of repair and maintenance services provided by the Group are paid in full by the customer upon delivery of the serviced automobile to the customer. The Group also accepts repair work that is paid directly by the customer’s insurance company. Collectability is considered reasonably assured as the Group verifies that the service and charges are acceptable under the customer’s insurance policy coverage directly with the insurance company prior to performing the work. Lastly, fees charged to suppliers for repair and maintenance services covered by supplier’s warranties are based on standard rates billed to customers and insurance companies for such services. Suppliers settle fees charged for warranty-covered services on a monthly basis. Collectability is considered reasonably assured as the Group deals with only reputable insurance companies and suppliers and historically, the Group has not experienced any significant defaults for payment. Based on the above, revenue on automobile repair and maintenance services is recognized upon completion of the requested services and delivery of the serviced automobile to the customer which coincides with when all the conditions required for revenue recognition have been met.

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LENTUO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data)

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(q)Revenue recognition (continued)

(iii)Sales of leased automobiles

In connection with the limitations on license plates issued by the Beijing municipal government, certain customers first lease their automobiles from the group before taking title of their automobiles.  These customers are required to pay the full purchase price of the automobiles in cash as a deposit upon signing the lease agreement. The Group initially records these deposits as deferred revenue. The revenue is subsequently recognized if and when the customer receives a license plate for the automobile and elects to obtain the legal title of the automobile from the Group. Persuasive evidence of an arrangement is evidenced by the lease agreement. Delivery of the title of the automobile is evidence by the transfer of the legal title from the Group to customers. The purchase price is fixed or determinable because it is stipulated in the signed lease agreement and no concessions such as discounts, rebates, refunds or other price changes are provided subsequently. Collectability has been established as the customer has paid the full purchase price of the automobile in cash upon signing the lease agreement. Accordingly, revenue on leased automobile sales is recognized by the Group upon legal transfer of the automobile title to the customer which coincides with when all the conditions required for revenue recognition have been met.

(iv)Other services

Included in other services are commission fees that third-party financial institutions pay to the Group for arranging for customers to obtain automobile insurance or financing loans from these financial institutions as well as revenues from the provision of short-term automobile leasing services. The Group is not a party to the insurance or financing contracts which are solely between the third-party financial institution and the customer. Persuasive evidence of the arrangement is documented in a contract signed by the third-party financial institutions and the Group. The commission fees are fixed and non-refundable once received. Payment of the commission fee coincides with the completion of the required service which results in the recognition of revenue. The Group had limited operations relating to automobile leasing services, which accounted for an insignificant portion of total revenues for all years presented. Revenues from the provision of automobile leasing services are recognized ratably over the lease terms, typically less than one year, in accordance with ASC 840. All leases have been accounted for as operating leases.

In accordance with ASC sub-topic 605-45 (“ASC 605-45”), Revenue Recognition: Principal Agent Considerations, the Group acts as the principal in its automobile sales, leased automobiles sales and repair and maintenance transactions with its customers. Accordingly, the Group records revenues from automobile sales and automobile repair and maintenance services on a gross basis. In all such arrangements, the Group contracts directly with its end customers, serves as the primary obligor, and assumes inventory risk.

The Group’s automobile manufacturers provide certain incentives to the Group’s customers through the Group.  As the Group has direct contact with the consumer, the Group agrees to accept, at the point of sale to the consumer, the automobile manufacturer’s incentives that are tendered by the consumer. In accordance with ASC sub-topic 605-50 (“ASC 605-50”), Revenue Recognition: Customer Payments and Incentives, the Group characterizes the incentives offered to customers by manufacturers as revenue, as (i) the incentive can be tendered by a customer at any dealer for the automobile manufacturer’s product; (ii) the Group receives a direct reimbursement from the automobile manufacturer based on the face amount of the incentive; (iii) terms of reimbursement to the Group for the automobile manufacturer’s incentive offered to the consumer are not influenced by or negotiated in conjunction with any other incentive arrangements between the automobile manufacturer and the Group; and (iv) the Group is subject to an implied agency relationship with the automobile manufacturer in the sales incentive transaction between the automobile manufacturer and the customer.

F-22

LENTUO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data)

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(q)Revenue recognition (continued)

In accordance with the relevant tax laws in the PRC, value-added tax (“VAT”) is levied on the invoiced value of sales and is payable by the purchaser. The Group is required to remit the VAT it collects to the tax authority, but may deduct the VAT it has paid on eligible purchases. The difference between the amounts collected and paid is presented as VAT recoverable or payable balance on the consolidated balance sheets. VAT amounted to RMB569,351, RMB512,859 and RMB550,090 (US$88,296) for the years ended December 31, 2010, 2011 and 2012, respectively. The Group recognized revenues net of VAT.

The Group is subject to business tax on the other services revenues earned in the PRC. The applicable rate of business tax is 5% of the revenue. Revenues derived from sales of automobiles, leased automobiles and automobile repair and maintenance services are not subject to business tax. Business tax for the years ended December 31, 2010, 2011 and 2012 was RMB2,046, RMB2,430 and RMB2,279 (US$366), respectively. The Group recognized revenues net of business tax.

(r)Cost of goods sold

Cost of goods sold consists primarily of (i) purchase costs of new automobiles, net of rebates from automobile manufacturers (Note 2(h) and Note 6); (ii) depreciation of leased automobiles held for sale (Note 2(i) and Note 7); and (iii) the net carrying amount of leased automobiles held for sale upon legal transfer of the automobile title to customers (Note 2(i) and Note 7). Cost of services consists of the cost of spare parts consumed, direct labor and materials, an allocation of indirect overhead expenses attributable to repair and maintenance services, amortization of intangible assets related to customer relationships and the 5% business tax or the 6% value-added tax for technology consulting and service fees charged by Lentuo Beijing to the VIEs. Lentuo Beijing has been subject to valued-added tax of 6% effective September 2012.

(s)Advertising expenditures

Advertising expenditures are expensed as incurred. Advertising expenditures included in sales, marketing and distribution expenses, amounted to RMB9,256, RMB37,629 and RMB27,764 (US$4,456) for the years ended December 31, 2010, 2011 and 2012, respectively.

(t)Income taxes

The Group follows the liability method of accounting for income taxes in accordance to ASC topic 740 (“ASC 740”), Income Taxes. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse. The Group records a valuation allowance to offset deferred tax assets if, based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized.

The Group adopted ASC 740 to account for uncertainty in income taxes. ASC 740 clarifies the accounting for uncertainties in income taxes by prescribing the recognition threshold a tax position is required to meet before being recognized in the financial statements. The Group has elected to classify interest and penalties related to unrecognized tax benefits as interest expenses and other expenses, respectively.

(u)Comprehensive income

Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, ASC topic 220 (“ASC 220”), Comprehensive Income, requires that all items that are required to be recognized under current accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. For each of the years presented, the Group’s comprehensive income is equivalent to its net income.

The Company adopted ASU No. 2011-05 (“ASU 2011-05”), Comprehensive Income (Topic 220), Presentation of Comprehensive Income, in the year ended December 31, 2012 by presenting items of net income and other comprehensive income, if any, in one continuous statement, the consolidated statement of comprehensive income (loss).

F-23

LENTUO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data)

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(v)Employee benefits

Full time employees of the Company’s subsidiaries, VIEs and subsidiaries of VIEs in the PRC participate in a government mandated defined contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to employees. Chinese labor regulations require that the Company make contributions to the government for these benefits based on a specific percentage of the employees’ salaries up to a maximum of three times the average annual salary for the city in which the subsidiary operates for the prior year. The Company’s subsidiaries, VIEs and subsidiaries of VIEs have no legal obligation for the benefits beyond the contributions made. The total amounts for such employee benefits, which were expensed as incurred, were RMB12,526, RMB14,951 and RMB19,169 (US$3,077) for the years ended December 31, 2010, 2011 and 2012, respectively.

(w)Segment reporting

In accordance with ASC topic 280 (“ASC 280”), Segment Reporting, the Group’s chief operating decision maker has been identified as the chief executive officer, who reviews consolidated financial information by brands when making decisions about allocating resources and assessing performance of the Group. For the year ended December 31, 2010 the Group had six operating and reportable segments, namely Audi, FAW-Volkswagen, FAW-Mazda, Toyota, Shanghai-Volkswagen and Chang An-Mazda. For the years ended December 31, 2012 and 2011, the Group had seven operating and reportable segments, namely Audi, FAW-Volkswagen, FAW-Mazda, Toyota, Shanghai-Volkswagen, Chang An-Mazda, and GAC-Honda.

The accounting policies used in the Group’s segment reporting are the same as those used in the preparation of the Group’s consolidated financial statements. As substantially all of the Group’s long-lived assets and revenues are in and derived from the PRC, geographical segments are not presented.

(x)Earnings per share

In accordance with ASC topic 260 (“ASC 260”), Earnings Per Share, basic earnings per share is computed by dividing net income attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share is calculated by dividing net income attributable to ordinary shareholders as adjusted for the effect of dilutive ordinary equivalent shares, if any, by the weighted average number of ordinary and dilutive ordinary equivalent shares outstanding during the year.

(y)Leases

In accordance with ASC 840, leases are classified at the inception date as either a capital lease or an operating lease. For the lessee, a lease is a capital lease if any of the following conditions exist: (i) ownership is transferred to the lessee by the end of the lease term, (ii) there is a bargain purchase option, (iii) the lease term is at least 75% of the property’s estimated remaining economic life or (iv) the present value of the minimum lease payments at the beginning of the lease term is 90% or more of the fair value of the leased property to the lessor at the inception date. A capital lease is accounted for as if there was an acquisition of an asset and an incurrence of an obligation at the inception of the lease. All other leases are accounted for as operating leases wherein rental payments are expensed on a straight-line basis over their lease term. On June 20, 2010, Lentuo Electromechanical entered into a capital lease arrangement for a building with Huitong whereby Huitong obtained the right to use the building for the remainder of its expected useful life of 40 years for nil consideration and was granted a bargain purchase option to acquire the building at a nominal value at the end of the lease term. For the years ended December 31, 2010, 2011 and 2012, the Group recorded total rental expenses of RMB6,379, RMB8,253 and RMB11,859 (US$1,904), respectively, on its operating leases.

F-24

LENTUO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data)

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(z)Recently issued accounting standards

In July 2012, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2012-02 (“ASU 2012-02”), Testing Indefinite-Lived Intangible Assets for Impairment, which is intended to reduce the cost and complexity of performing the impairment test for indefinite-lived intangible assets other than goodwill by providing entities an option to perform a qualitative assessment to determine whether further quantitative impairment testing is necessary. If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not that an indefinite lived intangible asset is impaired, the quantitative impairment test is required. Otherwise, no further testing is required. ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted.  The Company does not expect the adoption of ASU 2012-02 to have a material impact on its consolidated financial statements.

In February 2013, the FASB issued ASU No. 2013-02 (“ASU 2013-02”), Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, which is intended to improve the reporting of reclassifications out of accumulated other comprehensive income. It does not change the current requirements for reporting net income or other comprehensive income in financial statements. However, the standard requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. For public entities, the amendments are effective prospectively for reporting periods beginning after December 15, 2012, with early adoption permitted. The Company does not expect the adoption of ASU 2013-02 to have a material impact on its consolidated financial statements.

3.BUSINESS COMBINATIONS

For the Group’s business expansion, the Company completed the following business combinations during the year ended December 31, 2011:

Acquisition of Shuntong

On July 27, 2011, Chengxin Commercial, a VIE of the Company, acquired 100% of the equity interest in Shuntong from two independent individuals for total cash consideration of RMB43,000 (US$6,902). Shuntong has operated an FAW-Mazda automobile dealership located in Beijing, the PRC, since 2009.

Acquisition of Ruitai

On July 4, 2011, Chengxin Commercial and Yuantongqiao Toyota, two VIEs of the Company, acquired 100% of the equity interests in Zhongbaotongda and Boruiyingjie, respectively, for cash consideration of RMB16,000 (US$2,568) in total.  Zhongbaotongda and Boruiyingjie each held 30% of the equity interest in Ruitai, which has operated a Honda automobile dealership located in Tianjin, the PRC, since 2008. The remaining 40% equity interest in Ruitai is held by Tianjin Tianwu Automobile Development Co., Ltd. (“Tianwu”). Through Zhongbaotongda and Boruiyingji, the Group indirectly holds 60% equity interest in Ruitai. Prior to the acquisition on July 1, 2011, the Ruitai shareholders passed a resolution to give its board of directors power over the key operating decisions of Ruitai. It was also resolved that Ruitai’s board of directors subsequent to the acquisition would consist of seven directors, including four directors assigned by Chengxin Commercial and Yuantongqiao Toyota, and all board resolutions will be passed by a simple majority.  The Group, through Chengxin Commercial and Yuantongqiao Toyota, obtained effective control of Ruitai and accounted for this acquisition as a business combination.

Acquisition of Huizhou FAW-VW

On September 1, 2011, Tuozhan I&C, a VIE of the Company, acquired 100% of the equity interest in Huizhou FAW-VW from two independent individuals for total cash consideration of RMB89,000 (US$14,285). Huizhou FAW-VW has operated an FAW-Volkswagen automobile dealership located in Huizhou, Guangdong Province in the PRC, since 2001.

F-25

LENTUO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data)

3.BUSINESS COMBINATIONS (CONTINUED)

Acquisition of Yuchen

On October 21, 2011, Yuantongqiao Toyota, a VIE of the Company, acquired 50% of the equity interest in Yuchen from two independent individuals (the “transferors”) for total cash consideration of RMB28,500 (US$4,575). Yuchen has operated a Toyota automobile dealership located in Wenling, Zhejiang Province in the PRC, since 2007.  In the share transfer agreement, the transferors guaranteed Yuantongqiao Toyota’s irrevocable control over Yuchen.  It was also agreed that Yuchen’s board of directors subsequent to the acquisition would consist of five directors, including three directors assigned by Yuantongqiao, and all board resolutions will be passed by a simple majority.  The Group, through Yuantongqiao, obtained effective control of Yuchen and accounted for this acquisition as a business combination.

The Company completed the valuations necessary to assess the fair values of the tangible and intangible assets acquired and liabilities assumed and the fair value of noncontrolling interests, resulting from which the amount of goodwill was determined and recognized as of the acquisition date. The following table summarizes the estimated fair values of the assets acquired, liabilities assumed and the noncontrolling interests as of the acquisition dates:

	Shuntong		Ruitai		Huizhou FAW-VW		Yuchen
	RMB		RMB		RMB		RMB
Total consideration	43,000		16,000		89,000		28,500
Current assets	161,549		58,903		20,680		115,086
Property and equipment	9,469		4,181		12,420		9,039
Intangible assets — customer relationships (Note 11)	3,200		9,100		8,300		10,600
Intangible assets — dealership agreements (Note 11)	26,800		16,500		40,900		21,200
Land use rights	—		—		13,500		—
Total identifiable assets acquired	201,018		88,684		95,800		155,925
Current liabilities	(159,944	)	(71,126	)	(23,874	)	(114,463	)
Deferred tax liabilities	(7,694	)	(6,400	)	(17,101	)	(8,424	)
Total liabilities assumed	(167,638	)	(77,526	)	(40,975	)	(122,887	)
Net identifiable assets acquired	33,380		11,158		54,825		33,038
Goodwill	9,620		14,104		34,175		15,735
Noncontrolling interests	—		(9,262	)	—		(20,273	)
Net assets acquired	43,000		16,000		89,000		28,500

The valuations used in the purchase price allocation described above were determined by the Group with the assistance of an independent third-party valuation firm.  The valuation reports considered generally accepted valuation methodologies such as the income, market and cost approaches. As the acquirees were all private companies, the fair value estimates of noncontrolling interests were based on significant inputs that market participants would consider, which mainly include (a) discount rates, (b) a projected terminal values based on EBITDA, (c) financial multiples of companies in the same industries and (d) adjustments for lack of control or lack of marketability.

The customer relationships acquired have estimated useful lives of ten years and the dealership agreements acquired have indefinite useful lives.

The goodwill, which is not tax deductible, is primarily attributable to synergies expected to be achieved from the acquisitions. Goodwill of RMB9,620, RMB14,104, RMB34,175, and RMB15,735 acquired from Shuntong, Ruitai, Huizhou, and Yuchen, respectively, was included in the FAW-Mazda, GAC-Honda, FAW-Volkswagen, and Toyota operating segments, respectively (Note 27).

The Group recognized RMB400 (US$64) of acquisition related costs which were included in general and administrative expenses in the year ended December 31, 2011.

F-26

LENTUO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data)

3.BUSINESS COMBINATIONS (CONTINUED)

The amount of revenue and net income (loss) of the acquired businesses included in the Group’s consolidated statements of comprehensive income (loss) from the acquisition date to December 31, 2011 are summarized as follows:

	Revenue		Net income (loss)
	RMB	US$	RMB		US$
Shuntong	82,914	13,174	(697	)	(111	)
Ruitai	119,179	18,936	(763	)	(121	)
Huizhou FAW-VW	50,855	8,080	1,162		185
Yuchen	37,655	5,983	(1,020	)	(162	)
	290,603	46,173	(1,318	)	(209	)

The following unaudited pro forma consolidated financial information for the years ended December 31, 2010 and 2011 are presented as if the acquisitions had occurred at the beginning of the periods presented. These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of what operating results would have been had the acquisition actually taken place on the date indicated.

Unaudited pro forma consolidated statements of comprehensive income:

	For the years ended December 31,
	2010	2011
	RMB	RMB	US$
Revenue	4,010,309	3,474,470	552,038
Net income attributable to the Group	149,587	67,191	10,676

These amounts have been derived after applying the Company’s accounting policies and adjusting the results of the acquirees to reflect the additional amortization that would have been charged assuming the fair value adjustments to intangible assets had been applied on January 1, 2010.

4.RESTRICTED CASH

As of December 31, 2011 and 2012, cash of RMB435,770 and RMB437,875 (US$70,284), respectively, was pledged to financial institutions as collateral for the Group’s bills payable (Note 15).

5.ACCOUNTS RECEIVABLE

The Group generally requires full payment from its customers upon delivery of its automobiles or services, except for certain credit sales, mortgage loan sales and repair and maintenance services covered by insurance and automobile manufacturers’ warranty. The credit terms are generally one month to six months after the delivery of products or services. The Group does not offer extended payment terms and all accounts receivable are non-interest-bearing. As of December 31, 2011 and 2012, all of the accounts receivable balances were within their credit terms.

F-27

LENTUO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data)

6.INVENTORIES

Inventories are summarized as follows:

	December 31,
	2011	2012
	RMB	RMB	US$
New motor vehicles	489,707	380,705	61,108
Spare parts and accessories	26,549	52,017	8,349
	516,256	432,722	69,457

No inventory obsolescence provision was recognized as of December 31, 2011 and 2012.

As of December 31, 2011 and 2012, cost of inventories and cost of leased automobiles held for sale were not reduced by rebates received from automobile manufacturers, as no new or leased automobiles purchased were still held by the Group at the balance sheet date. For the years ended December 31, 2010, 2011 and 2012, cost of goods sold was reduced by RMB194,166, RMB96,072 and RMB157,260 (US$25,242), respectively, for rebates received from automobile manufacturers related to new motor vehicles purchased and sold during the reporting period.

7.LEASED AUTOMOBILES HELD FOR SALE

Leased automobiles held for sale are summarized as follows:

	December 31,
	2011		2012
	RMB		RMB		US$
Balance at beginning of year	—		150,000		24,077
Additions	168,311		116,402		18,683
Sales	(18,311	)	(42,235	)	(6,779	)
Balance at end of year	150,000		224,167		35,981
Less: accumulated depreciation	(2,251	)	(17,563	)	(2,819	)
Leased automobiles held for sale, net	147,749		206,604		33,162

Depreciation expense related to automobiles held for sale was nil, RMB2,586 and RMB17,900 (US$2,873) for the years ended December 31, 2010, 2011 and 2012, respectively, and was recorded in cost of goods sold in the consolidated statements of comprehensive income (loss). For the years ended December 31, 2010, 2011 and 2012, cost of goods sold was reduced by nil, RMB549 and RMB1,847 (US$296), respectively, for rebates received from automobile manufacturers related to leased automobiles purchased and sold during the reporting period.

F-28

LENTUO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data)

8.PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consist of the following:

	December 31,
	2011	2012
	RMB	RMB	US$
Prepaid expenses	5,516	4,468	717
Deposits	210,498	11,065	1,776
Staff advances	6,330	2,952	474
Subsidies receivable	8,104	8,881	1,425
Loans to third parties	22,400	—	—
Prepaid advertising fees	9,000	3,000	482
Others	3,351	4,782	768
	265,199	35,148	5,642

Deposits as of December 31, 2012 consist primarily of rental deposits, investment deposits and other miscellaneous deposits. A deposit of RMB6,200 (US$995) was placed with FAW-Volkswagen in connection with a bidding process for the construction of new exhibit halls. Another deposit of  RMB4,865 (US$781) represents deposits for leasing certain buildings where the Group operates its dealership stores. During the year ended December 31, 2012, a deposit of RMB173,000 (US$27,768) in connection with a potential  acquisition of an equity interest in an automobile dealership was refunded, as the acquisition was not ultimately consummated.

Subsidies receivable as of December 31, 2012 represents receivables due in connection with the PRC government’s promotion of energy-efficient vehicles and an automobile manufacturer’s promotion of an automobile insurance program and an automobile financing program.

9.PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

	December 31,
	2011		2012
	RMB		RMB		US$
Buildings	330,802		345,359		55,434
Machinery	18,411		21,620		3,470
Office equipment	14,394		15,388		2,470
Motor vehicles	56,938		70,656		11,341
	420,545		453,023		72,715
Less: accumulated depreciation	(95,237	)	(115,724	)	(18,575	)
Property and equipment, net	325,308		337,299		54,140
Construction in progress	—		223,401		35,859
Total	325,308		560,700		89,999

Depreciation expense related to property and equipment was RMB13,729, RMB16,560 and RMB23,328 (US$3,745) for the years ended December 31, 2010, 2011 and 2012, respectively.

F-29

LENTUO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data)

9.PROPERTY AND EQUIPMENT (CONTINED)

Construction in progress as of December 31, 2012 represents expenditures for buildings under construction which are not yet ready for their intended use as of year-end, including the construction of an FAW-Volkswagen store, an Audi store, and a second-hand vehicle center as well the reconstruction and extension of existing stores. Interest amounting to RMB10,966 (US$1,760) was capitalized in construction in process as of December 31, 2012.

Depreciation expenses have been reported in the following accounts:

	Years ended December 31,
	2010	2011	2012
	RMB	RMB	RMB	US$
Cost of goods sold	5,179	5,669	7,750	1,244
Selling, marketing and distribution expenses	6,968	5,917	8,246	1,324
General and administrative expenses	1,582	4,974	7,332	1,177
	13,729	16,560	23,328	3,745

As of December 31, 2011 and 2012, short-term loans amounting to RMB158,590 and RMB76,450 (US$12,271) were secured by the pledge of buildings of the Group with an aggregate net carrying value of RMB45,725 and RMB44,368 (US$7,122), respectively.

As of December 31, 2011 and 2012, the Group has not obtained the ownership certificates related to certain buildings with a carrying value of RMB216,491 and RMB222,760 (US$35,755), respectively.

10.LAND USE RIGHTS

Land use rights consist of the following:

	December 31,
	2011		2012
	RMB		RMB		US$
Land use rights	20,959		20,959		3,364
Less: accumulated amortization	(2,138	)	(2,703	)	(434	)
Land use rights, net	18,821		18,256		2,930

As of December 31, 2011 and 2012, short-term loans amounting to RMB158,590 and RMB76,450 (US$12,271) were secured by the pledge of land use rights of the Group with an aggregate net carrying value of RMB5,663 and RMB5,520 (US$886), respectively.

Amortization expense related to land use rights was RMB183, RMB255 and RMB565 (US$91) for the years ended December 31, 2010, 2011 and 2012, respectively, and was recorded in general and administrative expenses in the consolidated statements of comprehensive income (loss). For each of the five succeeding years starting from January 1, 2013, the annual amortization expense of the land use rights is estimated to be RMB565 (US$91).

F-30

LENTUO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data)

11.INTANGIBLE ASSETS

Intangible assets consist of the following:

	December 31,
	2011		2012
	RMB		RMB		US$
Customer relationships	31,200		31,200		5,008
Less: accumulated amortization	(1,533	)	(4,092	)	(657	)
Customer relationships, net	29,667		27,108		4,351
Dealership agreements	105,400		105,400		16,918
Less: impairment	—		(26,450	)	(4,246	)
Dealership agreements, net	105,400		78,950		12,672
Intangible assets, net	135,067		106,058		17,023

Customer relationships are amortized using the straight-line method, which is the Company’s best estimate of how these assets will be economically consumed over their respective estimated useful lives of 10 years. Dealership agreements have been assigned an indefinite useful life and are not amortized.

The Company tests dealership agreements for impairment annually or more frequently if events or circumstances indicate possible impairment.  As of December 31, 2012, the Company completed its annual impairment test on the indefinite-lived dealership agreements and recorded an impairment loss of RMB26,450 (US$4,246).  The impairment loss reflected an excess of carrying amounts over fair values for certain dealership agreements as of December 31, 2012. Of the total impairment loss, RMB10,700, RMB8,700, and RMB7,050 were related to the dealership agreements acquired through business combinations with Shuntong, Yuchen, and Ruitai, respectively, which are part of the FAW-Mazda, Toyota, and GAC-Honda segments, respectively (Note 27). No impairment losses were recorded for the year ended December 31, 2011.

Amortization expenses were nil, RMB1,533, and RMB2,559  (US$411) for the years ended December 31, 2010, 2011 and 2012, respectively.

The estimated annual amortization expenses for intangible assets for each of the five succeeding years are as follows:

	2013	2014	2015	2016	2017
	RMB	RMB	RMB	RMB	RMB
Customer relationships	3,120	3,120	3,120	3,120	3,120

F-31

LENTUO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data)

12.GOODWILL

Goodwill allocated to the Group’s reportable segments as of December 31, 2011 and 2012 and changes in the carrying amount of goodwill during the years ended December 31, 2011 and 2012 are as follows:

		FAW-	FAW-		Shanghai-	Chang-an	GAC-
	Audi	Volkswagen	Mazda	Toyota	Volkswagen	Mazda	Honda	Total
	RMB	RMB	RMB	RMB	RMB	RMB	RMB	RMB
Net balance at December 31, 2010	—	—	—	—	—	—	—	—
Goodwill acquired	—	34,175	9,620	15,735	—	—	14,104	73,634
Impairment loss	—	—	—	—	—	—	—	—
Net balance at December 31, 2011	—	34,175	9,620	15,735	—	—	14,104	73,634
Goodwill acquired	—	—	—	—	—	—	—	—
Impairment loss	—	—	—	—	—	—	—	—
Net balance at December 31, 2012	—	34,175	9,620	15,735	—	—	14,104	73,634

13.LONG-TERM PREPAYMENTS

Long-term prepayments consist of the following:

	December 31,
	2011	2012
	RMB	RMB	US$
Prepayments for the expansion of automobile dealerships	120,000	20,000	3,211
Deposit for financing from Toyota Financing Corporation	6,500	6,500	1,043
Prepayment for investment in Saneguard Automobile Insurance Co., Ltd.	11,250	—	—
	137,750	26,500	4,254

Long-term prepayments as of December 31, 2012 primarily consist of (i) prepayments of RMB20,000 (US$3,211) for the expansion project of the Group’s retail stores; and (ii) a deposit of RMB6,500 (US$1,043) placed with Toyota Financing Corporation as a guarantee for financing granted to the Group by Toyota Financing Corporation.  The prepayment of RMB11,250 (US$1,806) as of December 31, 2011 was reclassified during the year ended December 31, 2012 to long-term investment on the consolidated balance sheets when the investee was established (Note 14).

F-32

LENTUO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data)

14.LONG-TERM INVESTMENT

On June 15, 2012, Aotong, a VIE of the Company, invested RMB11,250 (US$1,806) for a 2.25% equity interest in Saneguard Automobile Insurance Co., Ltd. (“Saneguard”), a privately-held insurance provider in the PRC. As Aotong does not have significant influence over Saneguard, the Group accounted for the investment in Saneguard under the cost method in accordance with ASC 325-20. There were no indicators of an other-than-temporary decline in fair value noted for this long-term investment as of December 31, 2012.

15.BILLS PAYABLE

Bills payable represent short-term bank acceptance notes issued by financial institutions that entitle the holder to receive the stated amount from the financial institutions at the maturity date of the bill, which generally ranges from three to six months from the date of issuance. The holder of the bills can obtain payment from the financial institutions prior to the stated maturity date. In such case, the Group may be required to pay the financial institution an interest charge. Interest charges from bills payable were RMB7,552, RMB15,923 and RMB21,908 (US$3,516) during the years ended December 31, 2010, 2011 and 2012, respectively. There is no recourse to the Group in the event the financial institutions default upon demand for payment by the holders of the bills. The Group has utilized bills payable to settle amounts owed to its automobile suppliers. Bills payable are secured by the Group’s restricted cash.

16.ADVANCES FROM CUSTOMERS

Advances from customers represent cash payments received from customers in advance of the delivery of new automobiles or repair and maintenance services. The advances are applied towards the purchase price and recognized as revenue when the conditions for revenue recognition have been met. Advances from customers are non-interest-bearing and refundable if the Group fails to perform.

17.ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consist of the following:

	December 31,
	2011	2012
	RMB	RMB	US$
VAT payable	84,913	72,715	11,672
Other taxes payable	18,333	23,833	3,825
Interest on late tax payments	52,950	69,330	11,128
Staff costs payable	23,821	31,233	5,013
Deposits from leased automobiles held for sale	127,342	233,060	37,409
Accrued rental expenses	6,302	4,355	699
Loans from third parties	7,251	—	—
Other accrued expenses	8,556	10,027	1,610
	329,468	444,553	71,356

Deposits from leased automobiles held for sale of RMB127,342 and RMB233,060 (US$37,409) as of December 31, 2011 and 2012, respectively, represent cash received from customers who participated in the vehicle leasing program with the Group. The deposit received is equal to the total vehicle purchase price.  If the customer opts to purchase the car, the initial deposit will be recognized as revenue.  If the customer returns the vehicle at the end of the lease term, the deposit will be refunded to the customer for the residual value of the vehicle as of the date of return.  Deposits amounting to RMB18,310 and RMB35,635 (US$5,720) were recognized as revenues during the years ended December 31, 2011 and 2012, respectively.

F-33

LENTUO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data)

18.SHORT-TERM LOANS

Short-term loans consist of the following:

	December 31,
	2011	2012
	RMB	RMB	US$
Guaranteed	148,120	271,782	43,624
Guaranteed and secured	158,590	76,450	12,272
Unsecured	64,173	17,042	2,735
Total	370,883	365,274	58,631

The Group’s short-term loans are RMB-denominated loans obtained from banks and other financial institutions with interest rates ranging from 5.00% to 8.54% per annum and 4.83% to 10.25% per annum for the years ended December 31, 2011 and 2012, respectively. The weighted average interest rate on short-term loans outstanding as of December 31, 2011 and 2012 was 6.99% and 7.91% per annum, respectively. The short-term loans are repayable between January 2013 and November 2013. The unused lines of credit for short-term financing amounted to RMB340,812 and RMB356,421 (US$57,210) as of December 31, 2012 and December 31, 2011, respectively.

Guaranteed short-term loans as of December 31, 2011 and 2012 were guaranteed by the following parties:

	December 31,
	2011	2012
	RMB	RMB	US$
Mr. Guo, Donglv Liang and Lentuo Electromechanical (collectively, the “Loan Guarantors”)*	30,000	50,000	8,026
Lentuo Electromechanical*	50,000	98,682	15,840
Mr. Guo*	—	40,000	6,420
Haowu**	35,000	30,000	4,815
Tianjin Haoxin Credit Guarantee Co., Ltd. (“Haoxin”)**	8,000	23,000	3,692
Taizhou Hengtai Automobile Service Co., Ltd.	18,500	20,000	3,210
Others	6,620	10,100	1,621
Total	148,120	271,782	43,624

*Mr Guo is the ultimate controlling shareholder of the Group, Donglv Liang is a relative of Mr. Guo and Lentuo Electromechanical is a company controlled by Mr. Guo.

**Haowu is the holding company of the noncontrolling interests in Ruitai. Haoxin’s controlling shareholder is also the controlling shareholder of Haowu.

Short-term loans amounting to RMB158,590 and RMB76,450 (US$12,271) as of December 31, 2011 and 2012, respectively, were guaranteed by the Loan Guarantors and secured by the property and equipment of the Group (Note 9), the land use rights of the Group (Note 10) and Lentuo Electromechanical’s property and equipment and land use rights (Note 20).

Interest expenses on short-term loans were RMB21,434, RMB23,704 and RMB30,760 (US$6,697), which were net of capitalized interest amounting to nil, nil and RMB10,966 (US$1,760), for the years ended December 31, 2010, 2011 and 2012, respectively.

F-34

LENTUO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data)

19.INCOME TAXES

Cayman Islands

Under the current laws of the Cayman Islands, the Company is not subject to tax on income or capital gains. In addition, upon payments of dividends by the Company to its shareholders, no Cayman Islands withholding tax will be imposed.

Hong Kong

Lentuo Hong Kong is subject to Hong Kong corporate income tax at a rate of 16.5% on the assessable profits arising in Hong Kong. For the years ended December 31, 2010, 2011 and 2012, Lentuo Hong Kong had no provision for income taxes, as it had no assessable profits during these years.

PRC

Pursuant to the PRC Corporate Income Tax Law and relevant regulations (the “CIT Law”), the Company’s subsidiaries, VIEs and subsidiaries of VIEs located in the PRC were generally subject to enterprise income taxes (“CIT”) at a statutory rate of 25%.  The Group has minimal operations in jurisdictions outside the PRC.

Under the CIT Law, dividends paid by PRC enterprises out of profits earned post-2007 to non-PRC tax resident investors are subject to PRC withholding tax of 10%. A lower withholding tax rate may be applied based on applicable tax treaty with certain countries.

Moreover, the CIT Law treats enterprises established outside the PRC with “effective management and control” located in China as PRC resident enterprises for tax purposes. The term “effective management and control” is generally defined as exercising management and control over the business, personnel, accounting, properties, etc. of an enterprise. The Company, if considered a PRC resident enterprise for tax purposes, would be subject to the PRC enterprise income tax at the rate of 25% on its worldwide income commencing on January 1, 2008. As of December 31, 2012, the Company has not accrued for PRC tax on this basis as the Group’s non-PRC entities had zero assessable profits for the years after January 1, 2008. The Company will continue to monitor its tax status with regard to the PRC tax resident enterprise regulation.

Income (loss) before income taxes consists of:

	Years ended December 31,
	2010		2011		2012
	RMB		RMB		RMB		US$
PRC	226,326		107,299		(3,150	)	(505	)
Non-PRC	(1,860	)	(6,906	)	(2,870	)	(461	)
	224,466		100,393		(6,020	)	(966	)

Income tax expenses consist of the following:

	Years ended December 31,
	2010		2011		2012
	RMB		RMB		RMB		US$
Current income tax expenses	67,549		38,970		25,828		4,147
Deferred income tax benefits	(4,456	)	(5,679	)	(13,629	)	(2,189	)
	63,093		33,291		12,199		1,958

F-35

LENTUO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data)

19.INCOME TAXES (CONTINED)

A reconciliation of the income tax computed at the statutory income tax rate of 25% applicable to PRC operations to income tax expense for the years ended December 31, 2010, 2011 and 2012 is as follows:

	Years ended December 31,
	2010	2011	2012
	RMB	RMB	RMB		US$
Income (loss) before income tax expense	224,466	100,393	(6,020	)	(966	)
Income tax computed at PRCstatutory tax rate	56,117	25,098	(1,505	)	(242	)
Non-deductible expenses	5,810	5,697	4,906		788
International tax rate difference	772	974	667		107
Changes in the valuation allowance	394	1,522	8,131		1,305
	63,093	33,291	12,199		1,958

Deferred tax assets and liabilities reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The components of deferred tax assets and liabilities are as follows:

	December 31,
	2011		2012
	RMB		RMB		US$
Deferred tax assets:
Current
Accrued expenses	3,044		3,556		571
Unpaid staff costs	3,018		3,644		584
Less: valuation allowance	—		(444	)	(71	)
Total current deferred tax assets	6,062		6,756		1,084
Non-current
Property and equipment	692		788		127
Net operating loss carry forwards	9,439		22,542		3,618
Less: valuation allowance	(6,019	)	(13,706	)	(2,201	)
Total non-current deferred tax assets	4,112		9,624		1,544
Total deferred tax assets	10,174		16,380		2,628
Deferred tax liabilities:
Non-current
Intangible assets	33,767		26,515		4,256
Land use rights	2,636		2,552		410
Property and equipment	2,790		2,703		433
Total deferred tax liabilities	39,193		31,770		5,099
Net deferred tax assets (liabilities)	(29,019	)	(15,390	)	(2,471	)

As of December 31, 2011 and 2012, the Group’s total deferred tax assets before valuation allowances were RMB16,193 and RMB30,530 (US$4,900), respectively. As of December 31, 2011 and 2012, the Group recorded valuation allowances of RMB6,019 and RMB14,150 (US$2,272), respectively, on its deferred tax assets that are sufficient to reduce the deferred tax assets to the amounts that are more-likely-than-not to be realized.

As of December 31, 2012, the Group has net tax operating tax losses carried forward from its PRC subsidiaries, VIEs and subsidiaries of VIEs of approximately RMB102,978 (US$16,529), which will expire between 2014 and 2018.

F-36

LENTUO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data)

19.INCOME TAXES (CONTINUED)

As of December 31, 2011 and 2012, the Company intends to indefinitely reinvest the undistributed earnings from its foreign subsidiaries, VIEs and subsidiaries of VIEs to fund future operations. The amount of unrecognized deferred tax liabilities for temporary differences related to investments in foreign subsidiaries is not determined because such a determination is not practicable.

As of December 31, 2011 and 2012, deferred tax liabilities have not been provided on undistributed earnings of the Company’s foreign subsidiaries, VIEs and subsidiaries of VIEs which are located in the PRC as the Company intends to indefinitely reinvest such earnings into its subsidiaries, VIEs and subsidiaries of VIEs located in the PRC. The amount of unrecognized deferred tax liabilities for temporary differences related to investments in foreign subsidiaries is not determined because such a determination is not practicable.

Unrecognized tax benefits

As of December 31, 2011 and 2012, the Group recorded unrecognized tax benefits of RMB4,963 and RMB4,963 (US$797), respectively. The unrecognized tax benefits are related to uncertain tax positions claimed in the VIEs’ years 2007, 2008 and 2009 PRC tax returns, specifically with regard to understated revenues associated with invoicing for new automobile sales and overstated costs of goods sold associated with the receipt of automobiles manufacturers’ purchase rebates. No additional unrecognized tax benefit was recorded during the years ended December 31, 2010, 2011 and 2012.  It is possible that the amount of uncertain tax positions will change in the next 12 months, pending clarification of current tax law or audit by the tax authorities; however, an estimate of the range of the possible change cannot be made at this time. All of the uncertain tax positions, if ultimately recognized, will impact the effective tax rate.

For the years ended December 31, 2010, 2011 and 2012, the Group recorded interest expense related to its uncertain tax position of RMB906 (US$145) in each of the respective years. For the years ended December 31, 2010, 2011 and 2012, no penalty was recorded. As of December 31, 2012, the tax years ended December 31, 2007 through 2012 for the Group’s PRC subsidiaries and VIEs remain open for statutory examination by the PRC tax authorities.

20.RELATED PARTY TRANSACTIONS

The principal related parties with which the Group had transactions during the years are as follows:

Name of related parties	Relationship with the Group
Mr. Guo	The ultimate controlling shareholder of the Company
Lentuo Electromechanical	A company controlled by Mr. Guo
Lentuo Second-hand Motor Vehicle Co., Ltd.	A company controlled by Mr. Guo
Beijing Lentuo Tongda Co., Ltd.	A company controlled by Mr. Guo
Beijing Lentuo Cultural Development Co., Ltd.	A company controlled by Mr. Guo
Beijing Lentuo Ruitong Investment Co., Ltd.	A company controlled by Mr. Guo
Tonghe Advertising Co., Ltd.	A company controlled by Mr. Guo
Beijing Weitzman Vehicle Co., Ltd.	A company significantly influenced by Mr. Guo
Chuanxin Sun	A shareholder of the Company
Mr. Yingjie Wang	Noncontrolling interests in Yuchen
Mr. Fuli Guo	Noncontrolling interests in Yuchen
Haowu	The holding company of noncontrolling interests in Ruitai
Tianjin Material Group	The parent company of Haowu

F-37

LENTUO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data)

20.RELATED PARTY TRANSACTIONS (CONTINUED)

The Group had the following related party transactions for the years ended December 31, 2010, 2011 and 2012:

	Years ended December 31,
	2010	2011	2012
	RMB	RMB	RMB	US$
Short-term loans to related parties:
Mr. Guo	250,669	—	—	—
Chuanxin Sun	251	—	—	—
Beijing Lentuo Ruitong Investment Co., Ltd.	50,488	—	—	—
	301,408	—	—	—
Repayments of short-term loans to related parties:
Mr. Guo	528,774	—	—	—
Chuanxin Sun	442	—	—	—
Beijing Lentuo Ruitong Investment Co., Ltd.	74,262	—	—	—
	603,478	—	—	—
Temporary funding to related parties:
Mr. Guo	—	—	24,024	3,856
Tianjin Material Group	—	—	55,343	8,883
Lentuo Electromechanical	—	186,805	—	—
Mr. Fuli Guo	—	720	6,460	1,037
Haowu	—	35,437	35,009	5,619
Beijing Lentuo Cultural Development Co., Ltd.	18,731	—	—	—
Beijing Lentuo Tongda Co., Ltd.	25,136	—	—	—
Tonghe Advertising Co., Ltd.	62,496	—	—	—
Lentuo Second-hand Motor Vehicle Co., Ltd.	4,171	—	—	—
	110,534	222,962	120,836	19,395
Repayments of temporary funding to related parties:
Mr. Guo	—	—	24,024	3,856
Mr. Yingjie Wang	—	—	2,000	321
Lentuo Electromechanical	—	186,805	—	—
Mr. Fuli Guo	—	—	41,760	6,703
Haowu	—	—	70,079	11,248
Beijing Lentuo Cultural Development Co., Ltd.	20,716	—	—	—
Beijing Weitzman Vehicle Co., Ltd.	4,030	—	—	—
Beijing Lentuo Tongda Co., Ltd.	25,136	—	—	—
Tonghe Advertising Co., Ltd.	62,496	—	—	—
Lentuo Second-hand Motor Vehicle Co., Ltd.	4,171	—	—	—
	116,549	186,805	137,863	22,128
Temporary funding from related parties:
Mr. Guo	13,553	—	27,417	4,401
Lentuo Electromechanical	—	129,935	20,000	3,210
Beijing Lentuo Ruitong Investment Co., Ltd.	433	—	—	—
	13,986	129,935	47,417	7,611

F-38

LENTUO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data)

20.RELATED PARTY TRANSACTIONS (CONTINUED)

	Years ended December 31,
	2010	2011	2012
	RMB	RMB	RMB	US$
Repayments of temporary funding from related parties:
Mr. Guo	—	13,553	27,417	4,401
Lentuo Electromechanical	—	119,935	30,000	4,815
Beijing Lentuo Tongda Co., Ltd.	1,038	—	—	—
Beijing Lentuo Ruitong Investment Co., Ltd.	433	—	—	—
Lentuo Second-hand Motor Vehicle Co., Ltd.	191	—	—	—
	1,662	133,488	57,417	9,216
Distribution of assets to shareholders:
Mr. Guo	123,078	—	—	—
Interest received from related parties:
Tianjin Material Group	—	—	352	56

The Group had the following related party balances as of December 31, 2011 and 2012:

	December 31,
	2011	2012
	RMB	RMB	US$
Amounts due from related parties:
Mr. Yingjie Wang	2,000	—	—
Mr. Fuli Guo	37,787	2,487	399
Tianjin Material Group	—	55,343	8,884
Haowu	35,070	—	—
	74,857	57,830	9,283
Amounts due to related parties:
Lentuo Electromechanical	10,000	—	—
	10,000	—	—

The unsecured interest-free temporary funding to Mr. Guo amounting to RMB24,024 was initially provided as a deposit for a business expansion opportunity of the Group to be made by Mr. Guo on behalf of the Group, and was fully repaid during the year ended December 31, 2012 when the potential opportunity did not materialize. Mr. Guo also provided temporary funding amounting to RMB27,417 to the Group to support its operations, which had been fully repaid during the year ended December 31, 2012. Amounts due to Lentuo Electromechanical as of December 31, 2011 represent unsecured interest-free loans to the Group, which were fully repaid during the year ended December 31, 2012.  During the year ended December 31, 2011, Lentuo Electromechanical assisted the Group in the pursuit of an acquisition opportunity and the Group provided an unsecured interest-free temporary funding in the amount of RMB2,000 to Lentuo Electromechanical in anticipation of the potential advance payment to the seller by Lentuo Electromechanical on the Group’s behalf.

F-39

LENTUO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data)

20.RELATED PARTY TRANSACTIONS (CONTINUED)

The temporary funding was fully repaid during the year ended December 31, 2012.  The amount due from Tianjin Material Group of RMB55,343 as of December 31, 2012 represents an unsecured loan from the Group, which carries an interest rate of 1.38% per annum and is repayable on demand.  The temporary funding was to support Tianjin Material Group’s operations.

The average balance due from related parties for the years ended December 31, 2010, 2011 and 2012 was RMB154,043, RMB37,429 and RMB66,344 (US$10,649), respectively and the average balance due to related parties for the years ended December 31, 2010, 2011 and 2012 was RMB7,391, RMB11,777 and RMB5,000 (US$ 803), respectively.

As of December 31, 2012, certain short-term loans of the Group were guaranteed by or secured by the related parties as described in Note 18.

As of December 31, 2012, the short-term loan of Lentuo Electromechanical amounting to RMB200,000 (US$32,102) was guaranteed by the Group.

21.SHARE CAPITAL

On July 27, 2010, the Company restructured its share capital to decrease the authorized capital to 500,000,000 ordinary shares with a per share par value of US$0.00001 from 50,000 ordinary shares with a per share par value of US$1.00. In addition, each existing shareholder obtained 100,000 new ordinary shares for every 1 ordinary share previously held. Pursuant to the memorandum and articles of association of the Company, the holders of ordinary shares are entitled to receive dividends when and if declared by the board of directors of the Company. Each ordinary share is entitled to one vote on all matters upon which the ordinary shares are entitled to vote.

On August 20, 2010, pursuant to a subscription agreement, the Company issued 1,510,841 ordinary shares in a private placement to Newman Investments Limited, a third party investor, in exchange for US$18,000. Under the subscription agreement, if the Group’s audited consolidated net income for the year ended December 31, 2010 (‘‘2010 Net Income’’) is lower than RMB160,000, Mr. Guo, for nil consideration, shall transfer to Newman Investments Limited such number of additional ordinary shares so that the shareholding of Newman Investments Limited will equal 1,510,841 shares multiplied by a ratio, the numerator of which is RMB160,000 and the denominator of which is equal to the 2010 Net Income (the “Feature”).  Since the Feature was provided by Mr. Guo, the principal shareholder, for the benefit of the Company in connection with a capital financing transaction, the transaction was accounted for as a shareholder’s contribution in accordance with SAB Topic 5T., Accounting for Expenses or Liabilities Paid by Principal Stockholder(s).  The total proceeds received from Newman Investments Limited were allocated between the ordinary shares issued and additional paid-in capital based on their relative fair value.  As the Feature represents a shareholder’s contribution or equity instrument, the amount allocated to additional paid-in capital is not subject to subsequent re-measurement to reflect changes in the fair value of the Feature.

In connection with the private investment transaction with Newman Investments Limited, the Company and its shareholders entered into a shareholder agreement that imposes certain restrictions on the issuance and sale of the Company’s ordinary shares.  Pursuant to the shareholder agreement, Newman Investments Limited is entitled to appoint to, and remove from, the Company’s board a non-executive director and Newman Investments Limited’s consent is required for certain corporate actions.  The shareholder agreement was terminated upon the completion of the Company’s IPO on December 15, 2010.

On October 29, 2010, the Company effected a 34,427,071 ordinary shares rights offering to all existing ordinary shareholders on that date on a pro rata basis for a subscription price of US$0.00001 per ordinary share. All ordinary share and per share information is adjusted retroactively for the above described change in share capital on July 27, 2010 and the bonus element issuance on October 29, 2010, for all years presented.

F-40

LENTUO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data)

21.SHARE CAPITAL (CONTINUED)

On December 15, 2010, the Company completed its IPO on the New York Stock Exchange with the issuance of 6,500,000 ADS, or 13,000,000 ordinary shares, priced at US$8.00 per ADS. The IPO yielded aggregate gross proceeds of US$52,000.

As of December 31, 2011 and 2012, 500,000,000 ordinary shares were authorized and 58,937,912 ordinary shares were issued and outstanding.

The Group has not paid or declared any dividends on ordinary shares to date. The payment of dividends in the future will be contingent upon the Group’s revenues and earnings, if any, capital requirements and general financial condition subsequent to the completion of a business combination. The payment of dividends will be subject to the discretion of the Group’s board of directors and subject to the requirements of Cayman Islands’ laws.

22.EARNINGS PER SHARE

Earnings per share for the years ended December 31, 2010, 2011 and 2012 were calculated as follows:

	Years ended December 31,
	2010	2011	2012
	RMB	RMB	RMB		US$
Numerator for basic and diluted earnings (loss) per share:
Net income (loss) and comprehensive income (loss) attributable to Lentuo International Inc. shareholders	161,373	67,917	(5,458	)	(876	)
Denominator for basic and diluted earnings (loss) per share:
Number of ordinary shares outstanding, opening	10,000,000	58,937,912	58,937,912
Retroactive adjustment for bonus element in rights offering on October 29, 2010 (Note 21)	31,567,302	—	—
Weighted average number of ordinary sharesissued on August 20, 2010 (1,510,841 shares)	554,665	—	—
Weighted average number of ordinary sharesissued on December 15, 2010 (13,000,000shares)	605,479	—	—
Weighted average number of ordinary shares outstanding	42,727,446	58,937,912	58,937,912
Basic and diluted earnings (loss) per share	3.77	1.15	(0.09	)	(0.01	)

The Group does not have any securities outstanding which could potentially dilute basic earnings (loss) per share for the years ended December 31, 2010, 2011 and 2012.

F-41

LENTUO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data)

23.STATUTORY RESERVES

The Company’s ability to pay dividends is primarily dependent on the Company receiving distributions from its PRC subsidiaries, VIEs and subsidiaries of VIEs. Relevant PRC statutory laws and regulations permit payments of dividends by the Company’s PRC subsidiaries, VIEs and subsidiaries of VIEs only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. The results of operations reflected in the consolidated financial statements prepared in accordance with US GAAP differ from those reflected in the statutory financial statements of the Company’s PRC subsidiary, VIEs and subsidiaries of VIEs.

In accordance with the Law of the People’s Republic of China on Foreign Invested Enterprises (“FIE”) and the Company’s articles of association, an FIE established in the PRC is required to provide for certain statutory reserves, namely the general reserve fund, enterprise expansion fund and staff welfare and bonus fund which are appropriated from net profit as reported in the enterprise’s PRC statutory accounts. A wholly-foreign owned invested enterprise (“WFOE”) is required to allocate at least 10% of its annual after-tax profit to the general reserve until such reserve has reached 50% of its respective registered capital based on the enterprise’s PRC statutory accounts. A non-wholly-owned foreign invested enterprise is permitted to provide all the above allocation of annual after-tax profit at the discretion of its board of directors, except for the general reserve fund which has the same requirement as for a WFOE. Appropriations to the enterprise expansion fund and staff welfare and bonus fund are at the discretion of the board of directors for all foreign invested enterprises. The aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends. Lentuo Beijing, established as a WFOE, is therefore subject to the above mandated restrictions on distributable profits.

Additionally, in accordance with the Company Law of the People’s Republic of China, a domestic enterprise is required to provide for a statutory common reserve of at least 10% of its annual after-tax profit until such reserve has reached 50% of its respective registered capital based on the enterprise’s PRC statutory accounts. A domestic enterprise is also required to provide for a discretionary surplus reserve, at the discretion of the board of directors, from the profits determined in accordance with the enterprise’s PRC statutory accounts. The aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends. The VIEs were established as domestic invested enterprises and therefore are subject to the above mandated restrictions on distributable profits.

As a result of the PRC laws, rules and regulations that require annual appropriations of 10% of after tax income to be set aside prior to payment of dividends as a general reserve fund, the Company’s PRC subsidiaries, VIEs and subsidiaries of VIEs are restricted in their ability to transfer a portion of their net assets in the form of dividend payments, loans or advances. The amounts restricted include paid-in capital and statutory reserves of the Company’s PRC subsidiary and the net assets of the VIEs and their subsidiaries, as determined pursuant to PRC generally accepted accounting principles, totaling RMB1,026,800and RMB1,106,498 (US$177,605) as of December 31, 2011 and 2012, respectively. No dividend appropriations were made for the years ended December 31, 2010, 2011 and 2012.

24.CONCENTRATION OF RISKS

Concentration of credit risk

Financial instruments that potentially subject the Group to significant concentrations of credit risk consist primarily of cash and cash equivalents, advances to suppliers and amounts due from related parties. As of December 31, 2011 and 2012, all of the Group’s cash and cash equivalents were managed by financial institutions which management believes are of high credit quality.

Advances to suppliers are typically unsecured and arise from deposits paid in advance for purchases of inventories from suppliers based in the PRC. As a percentage of total advances, the top six suppliers accounted for 95.5% and 99.5% as of December 31, 2011 and 2012, respectively.

F-42

LENTUO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data)

24.CONCENTRATION OF RISKS (CONTINUED)

Concentration of credit risk (continued)

	December 31,
	2011		2012
	RMB		RMB		US$
Shanghai Volkswagen Automobile Selling Co., Ltd.	42,088		82,532		13,247
FAW-Mazda Automobile Sales Co., Ltd.	13,845		25,327		4,065
FAW-VW Automobile Sales Co., Ltd.	123,837		170,601		27,383
Chang An Ford Mazda Automobile Co., Ltd.	703		7,137		1,146
FAW-Toyota Automobile Sales Co., Ltd.	21,692		24,154		3,877
GAC Honda Automobile Co., Ltd.	7,796		4,836		776
	209,961		314,587		50,494
Total advances	219,936		316,067		50,732
Percentage of advances to top six suppliers tototal advances	95.5	%	99.5	%	99.5	%

Due to the Group’s concentration of advances made to a limited number of suppliers, any negative events or deterioration in financial strength with respect to the Group’s suppliers may cause a material loss to the Group and have a material adverse effect on the Group’s financial condition and results of operations. The risk with respect to advances made to suppliers is mitigated by credit evaluations that the Group performs on suppliers and ongoing monitoring processes on outstanding balances.

Amounts due from related parties are typically unsecured, interest-free and repayable on demand, except for temporary funding to Tianjin Material Group (Note 20). In evaluating the collectability of the amounts due from related parties balance, the Group considers many factors, including the related parties’ repayment history and their credit-worthiness. An allowance for doubtful accounts is made when collection of the full amount is no longer probable.

Concentration of suppliers

A significant portion of the Group’s inventories is sourced from six largest suppliers who collectively accounted for RMB3,039,553, RMB2,721,918 and RMB3,168,963 (US$508,654) for the years ended December 31, 2010, 2011 and 2012, respectively, of the total inventory purchases. Any disruption in the supply of inventories to the Group from these suppliers may adversely affect the Group’s business, financial condition and results of operations.

Each of the Group’s dealerships operates pursuant to a franchise agreement between the applicable automobile manufacturer and the dealership.  The Group’s business depends on the franchise rights awarded by automobile manufacturers. As a result of the dependence on these franchise rights, manufacturers exercise a significant level of influence over the Group’s day-to-day operations and the terms of the franchise agreements govern key aspects of the Group’s operations and capital spending. All of the franchise agreements are nonexclusive, free-of-charge, must be renewed periodically and typically have a term of one or two years.

F-43

LENTUO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data)

24.CONCENTRATION OF RISKS (CONTINUED)

Concentration of suppliers (continued)

The typical automobile franchise agreement specifies the area within which the dealer has the right and obligation to sell the manufacturer’s automobiles and related parts and products and to perform certain approved services. The franchise agreements, together with manufacturers’ dealership manuals, service manuals and operating standards that are referenced in such franchise agreements, typically contain provisions and standards relating to the achievement of certain sales and customer satisfaction targets; inventories of new vehicles and manufacturer replacement parts; the maintenance of necessary net working capital; facilities and placement of signage; procedures for inspection, testing and evaluation by the manufacturer; advertising, marketing, deposit and warranty practices; products authorized to be offered to customers; after-sales services; data sharing regarding market trends and customer statistics; dealership management; personnel training; information systems; and dealer’s monthly and annual sales and financial reporting to the manufacturer.

The Group’s compliance with these requirements is closely monitored by the automobile manufacturers.  Any failure to comply that is not cured within a specified period of time may give rise to early termination of the franchise by manufacturers. Certain franchise agreements allow the automobile manufacturer to terminate the agreement under any circumstances as long as a prior written notice is given.  In addition, each of the franchise agreements provides the automobile manufacturer with the right to refuse to renew it after the expiration of the term of the agreement under specified circumstances. If the Group fails to obtain renewals of one or more of the franchise agreements from the automobile manufacturers or if one or more of the franchise agreements are terminated, the Group’s business, financial condition, results of operations and prospects would be materially and adversely affected.

Currency convertibility risk

Substantially all of the Group’s businesses are transacted in RMB, which is not freely convertible into foreign currencies.  On January 1, 1994, the PRC government abolished the dual rate system and introduced a single rate of exchange as quoted daily by the People’s Bank of China.  However, the unification of the exchange rates does not imply the convertibility of RMB into US$ or other foreign currencies.  All foreign exchange transactions continue to take place either through the People’s Bank of China or other banks authorized to buy and sell foreign currencies at the exchange rates quoted by the People’s Bank of China.  Approval of foreign currency payments by the People’s Bank of China or other institutions requires submitting a payment application form together with suppliers’ invoices, shipping documents and signed contracts.  Additionally, the value of the RMB is subject to changes in central government policies and international economic and political developments affecting supply and demand in the PRC foreign exchange trading system market.

Foreign currency exchange rate risk

From July 21, 2005, the RMB is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies.  The appreciation of the RMB against US$ was approximately 3.3%, 4.9% and 1.0% in the years ended December 31, 2010, 2011 and 2012, respectively. On June 19, 2010, the People’s Bank of China announced the end of the RMB’s de facto peg to US$, a policy which was instituted in late 2008 in the face of the global financial crisis, to further reform the RMB exchange rate regime and to enhance the RMB exchange rate flexibility. The exchange rate floating bands will remain the same as previously announced in the inter-bank foreign exchange market. While the international reaction to the appreciation of the RMB has generally been positive, there remains significant international pressure on the PRC Government to adopt an even more flexible currency policy, which could result in a further and potentially more significant appreciation of the RMB against the US$.

F-44

LENTUO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data)

24.CONCENTRATION OF RISKS (CONTINUED)

Current vulnerability due to certain other concentrations

The Company’s operations may be adversely affected by significant political, economic and social uncertainties in the PRC. Although the PRC Government has been pursuing economic reform policies for almost 30 years, no assurance can be given that the PRC Government will continue to pursue such policies or that such policies may not be significantly altered, especially in the event of a change in leadership, social or political disruption or unforeseen circumstances affecting the PRC’s political, economic and social conditions. There is also no guarantee that the PRC Government’s pursuit of economic reforms will be consistent or effective.

Land use rights and building ownership certification risk

The Group has not obtained land use rights and building ownership certificates for some of the properties the VIEs and subsidiaries of VIEs occupy. Aotong and Shuntong each leased a parcel of land from third parties for a term of 20 years starting from July 1, 2003 and for a term of 10 years starting from September 15, 2010, respectively, and constructed the facilities for their automobile dealerships on such lands.  These parcels of land are part of larger parcels of land that are covered by a single land use right certificate and do not have a separate land use right certificate. Due to this lack of a land use right certificate and the fact that Aotong and Shuntong hold such land through leases, Aotong and Shuntong are not permitted to apply for building ownership certificates for the facilities constructed on the land and their property rights to such facilities may be limited.

In addition, Tuozhan I&C, Yuantongqiao Toyota, Tuojiacheng, Huitong, Tongda and Ruitai have all sub-leased the respective parcels of land on which they constructed facilities to operate their current businesses.  All such land is classified as collectively-owned rural land under PRC law and was subleased from a third party who in turn leased the land from the respective rural economic collectives that own such land.  Under PRC law, collectively-owned rural land may not be used for commercial purposes unless it is converted into state-owned land and the VIEs and subsidiaries of VIEs may be required to move out of such collectively-owned rural land.  Under relevant lease and sublease agreements, the economic collectives who own the land are obligated to provide necessary assistance for the conversion of the land into state-owned land and to provide another comparable parcel of land for the VIEs’ business and operation and compensate for losses in connection with relocation in the event the VIEs and subsidiaries of VIEs are required to move out of the land.  If the land is not converted into state-owned land, the economic collectives or the third party fails to perform their obligations under the lease or sublease agreements, or the lease and sublease agreements are deemed unenforceable, the Group’s business, financial condition and results of operations could be materially and adversely affected.

25.INTEREST EXPENSES

Interest expenses consist of the following:

	Years ended December 31,
	2010	2011	2012
	RMB	RMB	RMB	US$
Interest on short-term loans	21,434	23,704	30,760	4,937
Interest on bills payable	7,552	15,923	21,908	3,516
Interest related to unrecognized tax benefits, income tax payable and other taxes payable	20,909	16,971	16,592	2,663
Bank charges	3,937	4,962	4,413	709
	53,832	61,560	73,673	11,825

F-45

LENTUO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data)

26.COMMITMENTS AND CONTINGENCIES

(a)Operating lease commitments

As of December 31, 2012, the Group had minimum lease payments under non-cancellable operating leases with initial terms in excess of one year as follows:

	December 31, 2012
	RMB	US$
2013	9,051	1,453
2014	7,426	1,192
2015	7,075	1,136
2016	6,160	989
2017	5,965	957
Thereafter	41,373	6,641
	77,050	12,368

The Group’s lease arrangements have no renewal options, rent escalation clauses, restrictions or contingent rents and are all conducted with third parties.

(b)Variable interest entity structure

The Group has nine VIEs and eight subsidiaries of VIEs as of December 31, 2012. In the opinion of management, (i) the ownership structure of the Company and the VIEs are in compliance with existing PRC laws and regulations; (ii) the contractual arrangements with the VIEs and their shareholder are valid,  binding, and enforceable and will not result in any violation of PRC laws or regulations currently in effect; and (iii) the Group’s business operations are in compliance with existing PRC laws and regulations in all material respects.

However, there are substantial uncertainties regarding the interpretation and application of current and future PRC laws and regulations. Accordingly, the Company cannot be assured that PRC regulatory authorities will not ultimately take a contrary view to its opinion. If the current ownership structure of the Group and its contractual arrangements with the VIEs are found to be in violation of any existing or future PRC laws and regulations, the Group may be required to restructure its ownership structure and operations in the PRC to comply with the changing and new PRC laws and regulations. In the opinion of management, the likelihood of loss in respect of the Group’s current ownership structure or the contractual arrangements with the VIEs is remote based on current facts and circumstances.

(c)Income taxes

As of December 31, 2012, the Group recorded RMB4,963 (US$797) of unrecognized tax benefits (Note 19). The final outcome of the tax uncertainty is dependent upon various matters including tax examinations, changes in regulatory tax laws, interpretation of those tax laws or expiration of status of limitations. However, due to the uncertainties associated with the status of examinations, including the protocols of finalizing audits by the relevant tax authorities, there is a high degree of uncertainty associated with these tax uncertainties.

(d)Capital commitment

As of December 31, 2012, the Group has contracted but unpaid cost of RMB21,113 (US$3,389) for the construction of a new Audi store which is in progress.

F-46

LENTUO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data)

27.SEGMENT AND GEOGRAPHIC INFORMATION

In accordance with ASC 280-10, the Group’s chief operating decision maker has been identified as the chief executive officer, who reviews consolidated financial information by brands when making decisions about allocating resources and assessing performance of the Group.  For the year ended December 31, 2010 the Group had six operating and reportable segments, namely Audi, FAW-Volkswagen, FAW-Mazda, Toyota, Shanghai-Volkswagen and Chang An-Mazda. For the years ended December 31, 2012 and 2011, the Group had seven operating and reportable segments, namely Audi, FAW-Volkswagen, FAW-Mazda, Toyota, Shanghai-Volkswagen, Chang An-Mazda, and GAC-Honda.  The chief operating decision maker uses net income or loss to evaluate the performance of each reportable segment.

As substantially all of the Group’s long-lived assets and revenues are located in and derived from the PRC, geographical segments are not presented.

The Group’s segment information as of and for the year ended December 31, 2010 is as follows:

			FAW-						Shanghai-		Chang An-
	Audi		Volkswagen		FAW-Mazda		Toyota		Volkswagen		Mazda		Unallocated		Eliminations		Consolidated
	RMB		RMB		RMB		RMB		RMB		RMB		RMB		RMB		RMB
Revenues
Sales of automobiles	937,043		719,370		479,549		324,943		439,402		174,738		—		—		3,075,045
Automobile repair and maintenance services	120,335		33,062		41,944		28,867		25,355		19,804		4,709		—		274,076
Other services	3,746		2,359		2,173		2,000		1,120		2,636		20,514		(20,000	)	14,548
	1,061,124		754,791		523,666		355,810		465,877		197,178		25,223		(20,000	)	3,363,669
Cost of goods sold
Sales of automobiles	(843,494	)	(664,624	)	(465,589	)	(317,699	)	(418,566	)	(173,419	)	(547	)	—		(2,883,938	)
Automobile repair and maintenance services	(46,386	)	(14,838	)	(13,575	)	(11,540	)	(11,183	)	(10,454	)	(2,511	)	—		(110,487	)
Other services	(3	)	(200	)	(165	)	(50	)	(54	)	(666	)	(20,039	)	20,000		(1,177	)
	(889,883	)	(679,662	)	(479,329	)	(329,289	)	(429,803	)	(184,539	)	(23,097	)	20,000		(2,995,602	)
Selling, marketing and distribution expenses	(20,120	)	(7,013	)	(9,260	)	(6,032	)	(6,494	)	(3,067	)	(187	)	—		(52,173	)
General and administrative expenses	(5,561	)	(3,482	)	(3,497	)	(3,283	)	(8,037	)	(6,346	)	(7,618	)	—		(37,824	)
Interest income	151		628		172		20		13		108		10		—		1,102
Interest expense	(20,315	)	(14,482	)	(6,827	)	(6,508	)	(3,060	)	(1,984	)	(656	)	—		(53,832	)
Exchange loss	—		—		—		—		—		—		(3,018	)	—		(3,018	)
Other income (loss), net	946		512		(5	)	45		598		44		4		—		2,144
Income tax expense	(31,775	)	(12,685	)	(5,974	)	(3,181	)	(5,015	)	(499	)	(3,964	)	—		(63,093	)
Net income (loss) and comprehensive income (loss)	94,567		38,607		18,946		7,582		14,079		895		(13,303	)	—		161,373
Total assets	563,666		459,625		232,568		125,429		232,754		121,889		610,668		(130,896	)	2,215,703
Total liabilities	(450,562	)	(343,859	)	(196,463	)	(92,457	)	(203,626	)	(109,924	)	(58,190	)	(24,169	)	(1,479,250	)
Capital expenditures	7,078		2,124		655		485		1,870		286		33		—		12,531
Depreciation and amortization expenses	5,515		2,716		2,260		679		1,903		741		98		—		13,912

F-47

LENTUO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data)

27.SEGMENT AND GEOGRAPHIC INFORMATION (CONTINUED)

The Group’s segment information as of and for the year ended December 31, 2011 is as follows:

			FAW-						Shanghai-		Chang An-		GAC-
	Audi		Volkswagen		FAW-Mazda		Toyota		Volkswagen		Mazda		Honda		Unallocated		Eliminations		Consolidated
	RMB		RMB		RMB		RMB		RMB		RMB		RMB		RMB		RMB		RMB
Revenues
Sales of automobiles	957,338		521,918		362,566		240,151		426,519		51,749		104,174		335		—		2,664,750
Automobile repair and maintenance services	141,623		43,549		48,512		32,969		25,432		24,271		13,872		3,527		—		333,755
Sales of leased automobiles	8,977		3,491		3,189		474		2,179		—		—		—		—		18,310
Other services	7,727		3,603		2,065		1,662		1,374		628		942		5,609		(4,207	)	19,403
	1,115,665		572,561		416,332		275,256		455,504		76,648		118,988		9,471		(4,207	)	3,036,218
Cost of goods sold
Sales of automobiles	(892,696	)	(493,049	)	(359,337	)	(236,427	)	(405,274	)	(51,213	)	(102,248	)	(4,631	)	4,207		(2,540,668	)
Automobile repair and maintenance services	(58,044	)	(26,318	)	(23,671	)	(17,026	)	(13,304	)	(12,963	)	(10,155	)	(1,761	)	—		(163,242	)
Sales of leased automobiles	(8,348	)	(3,293	)	(3,156	)	(466	)	(2,067	)	—		—		—		—		(17,330	)
Other services	(2	)	(340	)	(61	)	(72	)	(40	)	(24	)	—		(2,263	)	—		(2,802	)
	(959,090	)	(523,000	)	(386,225	)	(253,991	)	(420,685	)	(64,200	)	(112,403	)	(8,655	)	4,207		(2,724,042	)
Selling, marketing and distribution expenses	(29,415	)	(13,223	)	(12,897	)	(11,361	)	(13,513	)	(6,567	)	(1,883	)	(2,579	)	—		(91,438	)
General and administrative expenses	(8,883	)	(5,144	)	(5,224	)	(4,570	)	(7,117	)	(2,431	)	(3,585	)	(17,320	)	—		(54,274	)
Interest income	759		790		178		946		386		78		16		29		—		3,182
Interest expense	(24,863	)	(14,529	)	(7,983	)	(7,991	)	(2,593	)	(1,275	)	(2,231	)	(95	)	—		(61,560	)
Exchange loss	—		—		—		—		—		—		—		(9,100	)	—		(9,100	)
Other income (loss), net	771		123		52		213		18		(4	)	37		197		—		1,407
Income tax (expense) benefit	(25,160	)	(5,874	)	(2,572	)	(134	)	(3,436	)	(648	)	298		4,235		—		(33,291	)
Net income (loss) and comprehensive income (loss)	69,784		11,704		1,661		(1,632	)	8,564		1,601		(763	)	(23,817	)	—		67,102
Total assets	685,052		466,921		347,255		273,563		185,776		38,215		149,122		958,532		(533,561	)	2,570,875
Total liabilities	(507,737	)	(269,846	)	(275,617	)	(209,060	)	(147,431	)	(24,657	)	(134,841	)	(134,423	)	(34,173	)	(1,737,785	)
Capital expenditures	74,269		110,258		3,321		3,046		10,150		1,429		100		3,197		—		205,770
Depreciation and amortization expenses	6,970		3,161		3,010		1,446		1,943		595		1,208		29				18,362
Goodwill	—		34,175		9,620		15,735		—		—		14,104		—		—		73,634

F-48

LENTUO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data)

27.SEGMENT AND GEOGRAPHIC INFORMATION (CONTINUED)

The Group’s segment information as of and for the year ended December 31, 2012 is as follows:

	Audi				FAW- Volkswagen				FAW- Mazda				Toyota				Shanghai- Volkswagen				Chang An- Mazda				GAC- Honda				Unallocated				Eliminations				Consolidated
	RMB		US$		RMB		US$		RMB		US$		RMB		US$		RMB		US$		RMB		US$		RMB		US$		RMB		US$		RMB		US$		RMB		US$
Revenues
Sales of automobiles	845,436		135,702		814,443		130,727		336,594		54,027		325,323		52,218		313,424		50,308		62,129		9,972		177,374		28,470		490		80		—		—		2,875,213		461,504
Automobile repair and maintenance services	131,820		21,159		51,252		8,227		40,371		6,480		43,625		7,002		22,605		3,628		13,068		2,098		20,966		3,365		1,267		203		—		—		324,974		52,162
Sales of leased automobiles	11,751		1,886		7,362		1,182		11,844		1,901		899		144		3,369		541		410		66		—		—		—		—		—		—		35,635		5,720
Other services	8,725		1,400		11,043		1,773		3,116		500		2,123		341		1,746		280		844		135		1,808		290		13,482		2,164		(13,422	)	(2,154	)	29,465		4,729
	997,732		160,147		884,100		141,909		391,925		62,908		371,970		59,705		341,144		54,757		76,451		12,271		200,148		32,125		15,239		2,447		(13,422	)	(2,154	)	3,265,287		524,115
Cost of goods sold
Sales of automobiles	(803,617	)	(128,989	)	(771,782	)	(123,880	)	(329,203	)	(52,841	)	(329,778	)	(52,933	)	(307,663	)	(49,383	)	(61,936	)	(9,941	)	(183,972	)	(29,530	)	—		—		13,422		2,154		(2,774,529	)	(445,343	)
Automobile repair and maintenance services	(61,382	)	(9,852	)	(34,942	)	(5,609	)	(23,442	)	(3,763	)	(27,560	)	(4,424	)	(14,537	)	(2,333	)	(8,847	)	(1,420	)	(16,774	)	(2,692	)	(1,375	)	(221	)	—		—		(188,859	)	(30,314	)
Sales of leased automobiles	(11,171	)	(1,793	)	(6,915	)	(1,110	)	(11,613	)	(1,864	)	(914	)	(147	)	(3,308	)	(531	)	(408	)	(65	)	—		—		(15,739	)	(2,526	)	—		—		(50,068	)	(8036	)
Other services	(1	)	—		(1,015	)	(164	)	(190	)	(30	)	(85	)	(14	)	(57	)	(9	)	(58	)	(9	)	—		—		(93	)	(15	)	—		—		(1,499	)	(241	)
	(876,171	)	(140,634	)	(814,654	)	(130,763	)	(364,448	)	(58,498	)	(358,337	)	(57,518	)	(325,565	)	(52,256	)	(71,249	)	(11,435	)	(200,746	)	(32,222	)	(17,207	)	(2,762	)	13,422		2,154		(3,014,955	)	(483,934	)
Selling, marketing and distribution expenses	(26,656	)	(4,279	)	(22,518	)	(3,613	)	(16,697	)	(2,680	)	(9,004	)	(1,445	)	(14,985	)	(2,405	)	(5,900	)	(947	)	(2,348	)	(377	)	(3,436	)	(552	)	—		—		(101,544	)	(16,298	)
General and administrative expenses	(7,768	)	(1,247	)	(9,283	)	(1,490	)	(6,216	)	(998	)	(8,584	)	(1,378	)	(7,074	)	(1,135	)	(1,836	)	(295	)	(6,696	)	(1,075	)	(15,838	)	(2,542	)	—		—		(63,295	)	(10,160	)
Loss from impairment of intangible assets	—		—		—		—		(10,700	)	(1,718	)	(8,700	)	(1,396	)	—		—		—		—		(7,050	)	(1,132	)	—		—		—		—		(26,450	)	(4,246	)
Interest income	1,508		242		1,074		172		200		32		1,393		224		771		124		14		2		1,005		161		1,178		189		—		—		7,143		1,146
Interest expense	(24,562	)	(3,942	)	(18,626	)	(2,990	)	(8,385	)	(1,346	)	(15,488	)	(2,486	)	(841	)	(135	)	(611	)	(98	)	(4,069	)	(653	)	(1,091	)	(175	)	—		—		(73,673	)	(11,825	)
Exchange loss	—		—		—		—		—		—		—		—		—		—		—		—		—		—		(8	)	(1	)	—		—		(8	)	(1	)
Other income, net	252		40		777		125		225		37		84		13		—		—		—		—		89		14		48		8		—		—		1,475		237
Income tax (expense) benefit	(17,836	)	(2,863	)	(7,080	)	(1,136	)	2,604		418		5,868		942		1,365		219		718		115		3,128		502		(966	)	(155	)	—		—		(12,199	)	(1,958	)
Net income (loss) and comprehensive income (loss)	46,499		7,464		13,790		2,214		(11,492	)	(1,845	)	(20,798	)	(3,339	)	(5,185	)	(831	)	(2,413	)	(387	)	(16,539	)	(2,657	)	(22,081	)	(3,543	)	—		—		(18,219	)	(2,924	)
Total assets	751,963		120,698		622,094		99,853		220,102		35,329		232,866		37,378		201,153		32,287		31,019		4,979		126,010		20,226		1,052,360		168,915		(578,235	)	(92,813	)	2,659,332		426,852
Total liabilities	(502,540	)	(80,663	)	(401,619	)	(64,464	)	(159,981	)	(25,679	)	(189,208	)	(30,370	)	(167,940	)	(26,956	)	(19,864	)	(3,188	)	(132,156	)	(21,213	)	(246,979	)	(39,643	)	(24,174	)	(3,880	)	(1,844,461	)	(296,056	)
Capital expenditures	85,991		13,804		70,397		11,299		2,078		334		2,717		436		1,751		281		196		31		2,062		331		1,878		301		—		—		167,070		26,817
Depreciation and amortization expenses	8,725		1,400		5,707		916		3,944		633		3,085		495		1,968		316		688		110		1,752		281		583		94		—		—		26,452		4,245
Goodwill	—		—		34,175		5,485		9,620		1,544		15,735		2,526		—		—		—		—		14,104		2,264		—		—		—		—		73,634		11,819

F-49

LENTUO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data)

28.CONDENSED FINANCIAL INFORMATION OF THE COMPANY

Under PRC laws and regulations, the Company’s PRC subsidiaries, VIEs and subsidiaries of VIEs are restricted in their ability to transfer certain of their net assets to the Company in the form of dividend payments, loans or advances. The amounts restricted include paid-in capital and statutory reserves of the Company’s PRC subsidiaries and the net assets of the VIEs and subsidiaries of VIEs, as determined pursuant to PRC generally accepted accounting principles, totaling RMB1,106,498 (US$177,605) as of December 31, 2012. The following is the condensed financial information of the Company on a parent-company only basis:

Balance sheets

	December 31,
	2011	2012
	RMB	RMB	US$
ASSETS
Current assets:
Cash and cash equivalents	8,362	762	122
Total current assets	8,362	762	122
Non-current assets:
Investments in subsidiaries, VIEs and subsidiariesof VIEs	513,469	510,577	81,953
Amounts due from subsidiaries, VIEs andsubsidiaries of VIEs	282,718	287,752	46,188
Total non-current assets	796,187	798,329	128,141
TOTAL ASSETS	804,549	799,091	128,263
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accrued expenses and other current liabilities	179	179	29
Total current liabilities	179	179	29
Total liabilities	179	179	29
Shareholders’ equity:
Ordinary shares, par value US$0.00001 per share
Authorized — 500,000,000 shares as of December31, 2011 and 2012;
Issued and outstanding —58,937,912 shares as ofDecember 31, 2011 and 2012	4	4	1
Additional paid-in capital	469,761	469,761	75,401
Retained earnings	334,605	329,147	52,832
Total shareholders’ equity	804,370	798,912	128,234
TOTAL LIABILITIES AND SHAREHOLDERS’EQUITY	804,549	799,091	128,263

F-50

LENTUO INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data)

28.CONDENSED FINANCIAL INFORMATION OF THE COMPANY (CONTINUED)

Statements of comprehensive income (loss)

	Years ended December 31,
	2010		2011		2012
	RMB		RMB		RMB		US$
Revenues	—		—		—		—
Cost of goods sold	—		—		—		—
Gross profit	—		—		—		—
Operating expenses	(16	)	(835	)	(2,660	)	(427	)
Loss from operations	(16	)	(835	)	(2,660	)	(427	)
Equity in profits of subsidiaries, VIEs andsubsidiaries of VIEs	163,182		70,265		(2,892	)	(465	)
Interest income	—		6		1,173		189
Interest expense	(571	)	(3	)	(1,084	)	(174	)
Exchange (loss) gain	(1,222	)	(1,516	)	5		1
Income before income tax expense	161,373		67,917		(5,458	)	(876	)
Income tax expense	—		—		—		—
Net income (loss) and comprehensiveincome (loss)	161,373		67,917		(5,458	)	(876	)

Statements of cash flows

	Years ended December 31,
	2010		2011		2012
	RMB		RMB		RMB		US$
Cash flows used in operating activities	(587	)	(1,957	)	(2,555	)	(410	)
Cash flows used in investing activities	(99,990	)	(209,590	)	(5,034	)	(808	)
Cash flows provided by financing activities	322,097		—		—		—
Effect of foreign exchange rate changes, net	(1,222	)	(391	)	(11	)	(2	)
Net increase (decrease) in cash and cashequivalents	220,298		(211,938	)	(7,600	)	(1,220	)
Cash and cash equivalents, beginning of year	2		220,300		8,362		1,342
Cash and cash equivalents, end of year	220,300		8,362		762		122

F-51

28.CONDENSED FINANCIAL INFORMATION OF THE COMPANY (CONTINUED)

(a)Basis of presentation

In the parent-only financial statements, the Company’s investments in subsidiaries, VIEs and subsidiaries of VIEs are stated at cost plus equity in undistributed earnings of subsidiaries, VIEs and subsidiaries of VIEs since inception or acquisition. The parent-only financial statements should be read in conjunction with the Company’s consolidated financial statements.

The Company records its investments in its subsidiaries, VIEs and subsidiaries of VIEs under the equity method of accounting as prescribed in ASC topic 323-10 (“ASC 323-10”), Investment-Equity Method and Joint Ventures. Such investments are presented as “Investments in subsidiaries, VIEs and subsidiaries of VIEs” on the balance sheets and share of the subsidiaries and VIEs’ profit is presented as “Equity in profit of subsidiaries, VIEs and subsidiaries of VIEs” in the statements of comprehensive income (loss).

The subsidiaries, VIEs and subsidiaries of VIEs did not pay any dividends to the Company for the years presented.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with US GAAP have been condensed or omitted in the parent-only financial statements.

(b)Commitments

The Company did not have any significant commitments or long-term obligations as at December 31, 2011 and 2012.

F-52