REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Title of Each Class |
Trading Symbol(s) |
Name of Each Exchange on Which Registered | ||
* |
Large accelerated filer | ☐ | ☒ | ||||
Non-accelerated filer |
☐ | Emerging growth company |
+ |
The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012. |
U.S. GAAP ☐ |
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Other ☐ | ||||
by the International Accounting Standards Board ☒ |
Table of Contents
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Item 1. Identity of Directors, Senior Management and Advisers |
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66 | ||||
95 | ||||
95 | ||||
110 | ||||
122 | ||||
124 | ||||
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126 | ||||
Item 11. Quantitative and Qualitative Disclosures about Market Risk |
143 | |||
Item 12. Description of Securities Other Than Equity Securities |
144 | |||
146 | ||||
146 | ||||
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds |
146 | |||
146 | ||||
148 | ||||
149 | ||||
149 | ||||
Item 16D. Exemptions from the Listing Standards for Audit Committees |
149 | |||
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers |
149 | |||
149 | ||||
153 | ||||
154 | ||||
Item 16I. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. |
154 | |||
154 | ||||
154 | ||||
156 | ||||
156 | ||||
156 | ||||
156 |
1
INTRODUCTION
In this annual report, unless otherwise indicated or unless the context otherwise requires:
“ADS” means the American depositary share of NaaS Technology Inc., each representing 10 Class A ordinary shares of NaaS Technology Inc., par value US$0.01 per share, as listed on Nasdaq Capital Market under the symbol “NAAS” upon and after the consummation of the Mergers, and the American depositary share of RISE Education Cayman Ltd prior to the consummation of the Mergers.
“CAC” means the Cyberspace Administration of China.
“China” or “PRC” means the People’s Republic of China.
“Class A ordinary share” means each Class A ordinary share of NaaS Technology Inc., par value $0.01 per share.
“Class B ordinary share” means each Class B ordinary share of NaaS Technology Inc., par value $0.01 per share.
“Class C ordinary share” means each Class C ordinary share of NaaS Technology Inc., par value $0.01 per share.
“Closing” means the consummation of the Mergers.
“Code” means the U.S. Internal Revenue Code of 1986, as amended.
“CSRC” means the China Securities Regulatory Commission.
“COVID-19” means SARS-CoV-2 or COVID-19, and any evolutions thereof.
“Dada Auto” is an exempted company incorporated with limited liability under the laws of the Cayman Islands.
“DCFC” means direct current fast charger with 30kW power output or more.
“dedicated charger” or “dedicated DCFC” means non-DCFC EV charger or DCFC, as applicable, that is dedicated to public utility vehicles or used exclusively by government agencies, corporations, or other specific groups of users.
“Effective Time” means the effective time of the Merger, which was on June 10, 2022.
“end-users” means EV drivers, being the end-users of our EV charging services.
“EV” means electric vehicle.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
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“FA Warrants” means the warrants to initially purchase up to 238,095 ADSs we issued to a financial advisor in connection with the registered direct offering of 4,761,905 ADSs together with the Investor Warrants completed in March 2024.
“IFRS” means International Financial Reporting Standards as issued by the International Accounting Standards Board. “IRS” means the U.S. Internal Revenue Service.
“Investor Warrants” means the warrants to initially purchase up to 4,761,905 ADSs we issued to certain institutional investors in connection with the registered direct offering of 4,761,905 ADSs together with such warrants completed in March 2024.
“JOBS Act” means the United States Jumpstart Our Business Startups Act of 2012.
“Kuaidian” means the Kuaidian mobile application, and Kuaidian Weixin mini-program, each of which connects EV drivers with charging stations and chargers.
“Merger” or “Mergers” has the meaning ascribed to it in “Item 4. Information on the Company—A. History and Development of the Company.”
“Merger Agreement” has the meaning ascribed to it in “Item 4. Information on the Company—A. History and Development of the Company.”
“NaaS” means (i) prior to the completion of the Restructuring, subsidiaries and VIEs of NewLink that provided EV charging services in China, and (ii) upon and after the completion of the Restructuring, Dada Auto, its subsidiaries, and for the period during which Dada Auto maintained VIE arrangements with Kuaidian Power (Beijing) New Energy Technology Co., Ltd., the VIE Kuaidian Power (Beijing) New Energy Technology Co., Ltd.;
“Nasdaq” means The Nasdaq Stock Market LLC.
“NewLink” means Newlinks Technology Limited, an exempted company incorporated with limited liability under the laws of the Cayman Islands.
“ordinary share” means (i) each of our ordinary share, par value $0.01 per share, outstanding immediately prior to the Effective Time, and (ii) each of our Class A ordinary share, Class B ordinary share, and Class C ordinary share, par value $0.01 per share, outstanding upon and after the Effective Time.
“PCAOB” means the U.S. Public Company Accounting Oversight Board.
“PRC subsidiaries” means our subsidiaries in mainland China.
“PRC laws,” “PRC rules,” and “PRC regulations” mean the laws, rules and regulations of the PRC.
“public charger” or “public DCFC” means non-DCFC EV charger or DCFC, as applicable, that is installed in public area and accessible to the general public, and excludes, for the avoidance of doubt, dedicated charger.
“Renminbi” or “RMB” means the legal currency of the PRC, and “US$” or “U.S. dollars” means the legal currency of the United States.
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“Restructuring” means the series of transactions that NaaS completed in 2022 to restructure its organization and its EV charging service business, as described in greater detail in “Item 4. Information on the Company—A. History and Development of the Company.”
“RISE” means RISE Education Cayman Ltd, an exempted company incorporated with limited liability under the laws of the Cayman Islands, and, if applicable, its consolidated subsidiaries. Upon the consummation of the Mergers, RISE changed its name to “NaaS Technology Inc.”
“SEC” means the United States Securities and Exchange Commission.
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“Transactions” means the Mergers and all transactions contemplated by the Merger Agreement.
“VIE” means variable interest entity.
“we,” “us,” “our,” “our company,” or the “Company” means, upon and after the consummation of the Mergers, NaaS Technology Inc. and its subsidiaries and, prior to the consummation of the Mergers, RISE Education Cayman Ltd and its consolidated subsidiaries.
Our reporting currency is Renminbi. This annual report contains translations from Renminbi to U.S. dollars solely for the convenience of the reader. Unless otherwise stated, all translations from Renminbi to U.S. dollars were made at a rate of RMB7.0999 to US$1.00, the exchange rate in effect as of December 29, 2023 as set forth in the H.10 statistical release of The Board of Governors of the Federal Reserve System. The exchange rate in effect as of April 30, 2024 was RMB7.2401 to US$1.00. We make no representation that any Renminbi or U.S. dollar amounts referred to in this annual report could have been, or could be, converted to U.S. dollars or Renminbi, as the case may be, at any particular rate, or at all. The PRC government imposes control over its foreign currency reserves in part through direct regulation of the conversion of Renminbi into foreign exchange.
Any discrepancies in any table in this annual report between the amounts identified as total amounts and the sum of the amounts listed therein are due to rounding.
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FORWARD-LOOKING INFORMATION
This annual report contains forward-looking statements that reflect our current expectations and views of future events. These statements are made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. Known and unknown risks, uncertainties and other factors, including those included in “Item 3. Key Information—D. Risk Factors,” may cause our actual results, performance, or achievements to be materially different from those expressed or implied by the forward-looking statements.
You can identify these forward-looking statements by terminology such as “may,” “might,” “will,” “would,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “is/are likely to,” “potential,” “continue,” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements may include statements relating to, among other things:
• | our goals and strategies; |
• | our future business development, financial conditions and results of operations; |
• | our ability to continually develop new technology, services and products and keep up with changes in the industries in which we operate; |
• | the expected growth of China’s EV charging industry, EV charging service industry and energy solutions industry as well as our future business development; |
• | our expectations regarding demand for and market acceptance of our products and services; |
• | our ability to protect and enforce our intellectual property rights; |
• | our ability to attract and retain qualified executives and personnel; |
• | U.S.-China trade war and its effect on our operation, fluctuations of the RMB exchange rate, and our ability to obtain adequate financing for our planned capital expenditure requirements; |
• | our expectations regarding our relationships with end-users, customers, suppliers and other business partners; |
• | competition in our industries; |
• | government policies and regulations related to our industries; and |
• | fluctuations in general economic and business conditions in China and globally. |
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These forward-looking statements involve various risks and uncertainties. Although we believe that our expectations expressed in these forward-looking statements are reasonable, our expectations may later be found to be incorrect. Our actual results could be materially different from our expectations. Important risks and factors that could cause our actual results to be materially different from our expectations are generally set forth in “Item 3. Key Information—D. Risk Factors,” “Item 4. Information on the Company—B. Business Overview,” “Item 5. Operating and Financial Review and Prospects,” and other sections in this annual report on Form 20-F. You should read thoroughly this annual report and the documents that we refer to in this annual report with the understanding that our actual future results may be materially different from and worse than what we expect. We qualify all of our forward-looking statements by these cautionary statements.
We operate in an evolving environment. New risk factors and uncertainties emerge from time to time and it is not possible for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
You should not rely on forward-looking statements as predictions of future events. The forward-looking statements made in this annual report relate only to events or information as of the date on which the statements are made in this annual report. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
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PART I
Item 1. Identity of Directors, Senior Management and Advisers
Not applicable.
Item 2. Offer Statistics and Expected Timetable
Not applicable.
Item 3. Key Information
Our Holding Company Structure
NaaS Technology Inc. is not an operating company but a Cayman Islands holding company. Our operations are primarily conducted through our PRC subsidiaries. Investors in our ADSs thus are purchasing equity interest in a Cayman Islands holding company and not in an operating entity. As a holding company, NaaS Technology Inc. may rely on dividends from its subsidiaries for cash requirements, including any payment of dividends to our shareholders. The ability of our subsidiaries to pay dividends to NaaS Technology Inc. may be restricted by laws and regulations applicable to them or the debt they incur on their own behalf or the instruments governing their debt. In addition, PRC regulatory authorities could disallow our holding company structure, which would likely result in a material change in our operations and could cause the value of our securities to significantly decline or become worthless. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Our holding company structure involves unique risks to investors. If in the future we were to amend our operating structure to use any VIE again for our operations in China or if PRC regulatory authorities were to disallow our holding company structure, additional risks and uncertainties will be involved.”
Historically, the EV charging service business of NaaS in China was a part of NewLink’s businesses and was primarily conducted through NewLink’s consolidated entities including Kuaidian Power (Beijing) New Energy Technology Co., Ltd., or Kuaidian Power Beijing, and its subsidiaries. In 2022, NaaS completed a series of transactions to restructure its organization and its EV charging service business, or the Restructuring. As part of the Restructuring, Dada Auto, through a subsidiary, Zhejiang Anji Intelligent Electronics Holding Co., Ltd., or Anji Zhidian, entered into contractual arrangements with Kuaidian Power Beijing and its shareholders, or VIE Agreements, as a result of which (i) Kuaidian Power Beijing initially became a VIE of Dada Auto, and (ii) Dada Auto became entitled to receive substantially all of the economic benefits generated by Kuaidian Power Beijing as primary beneficiary and was responsible for any and all economic losses Kuaidian Power Beijing incurred. A summary of certain material terms of the VIE Agreements is as follows:
• | Exclusive Business Cooperation and Service Agreement. Under the Exclusive Business Cooperation and Service Agreement between Anji Zhidian and Kuaidian Power Beijing, Anji Zhidian had the exclusive right to provide, among other things, technical support and consulting services to Kuaidian Power Beijing. In addition, Kuaidian Power Beijing irrevocably granted Anji Zhidian an exclusive and irrevocable option to purchase any or all of the assets and business of Kuaidian Power Beijing at the lowest price permitted under PRC law. |
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• | Proxy Agreement and Power of Attorney. Under the proxy agreement and power of attorney among Anji Zhidian, Kuaidian Power Beijing, and each shareholder of Kuaidian Power Beijing, such shareholder irrevocably nominated, appointed and constituted Anji Zhidian and its successors as his or her attorney-in-fact to exercise any and all of his or her rights as a shareholder of Kuaidian Power Beijing. |
• | Exclusive Option Agreement. Under the exclusive option agreement among Anji Zhidian, Kuaidian Power Beijing and each shareholder of Kuaidian Power Beijing, such shareholder irrevocably granted Anji Zhidian or its designated person(s) an exclusive option to purchase, at any time and to the extent permitted under PRC law, all or part of his or her equity interests in Kuaidian Power Beijing at a price of RMB1 or at the lowest price permitted under the PRC law. |
• | Equity Interest Pledge Agreements. Under the equity interest pledge agreement among Anji Zhidian, Kuaidian Power Beijing and each shareholder of Kuaidian Power Beijing, such shareholder pledged all of his or her equity interests in Kuaidian Power Beijing to Anji Zhidian to secure the performance by Kuaidian Power Beijing and its shareholders of their respective obligations under the applicable VIE Agreements. If the pledger or Kuaidian Power Beijing breached his or her obligations under these contractual arrangements, Anji Zhidian, as the pledgee, would be entitled to certain rights and remedies including priority in receiving the proceeds from the auction or disposal of the pledged equity interests in Kuaidian Power Beijing. Anji Zhidian also had the right to receive dividends distributed on the pledged equity interests during the term of the pledge. |
During the process of the Restructuring, the VIE Agreements were terminated in April 2022, and Kuaidian Power Beijing ceased being a VIE of Dada Auto. Following the completion of the Restructuring, we do not have any VIE and we conduct our operations in China through our subsidiaries. For more information on our corporate history and the Restructuring, see “Item 4. Information on the Company—A. History and Development of the Company.”
If in the future we were to amend our operating structure to use any VIE again for our operations in China, we will have to rely on contractual arrangements with a VIE and its shareholders for the conduct of such operations. These contractual arrangements, however, may not be as effective as direct equity ownership in such VIE. For instance, if we were to have direct equity ownership of a VIE, we would be able to exercise our rights as a shareholder to effect changes in the board of directors of such VIE, which in turn could implement changes, subject to any applicable fiduciary obligations, at the management and operational level. On the other hand, under contractual arrangements, we will have to rely on the performance by a VIE and its shareholders of their contractual obligations in order to exercise control over such VIE. To the extent there will be any dispute relating to these contracts, we may have to incur substantial costs and expend additional resources to enforce such arrangements through the operations of PRC law and arbitration, litigation and other legal proceedings and therefore will be subject to uncertainties in the PRC legal system. Furthermore, there are substantial uncertainties regarding the interpretation and application of current and future PRC laws, regulations and rules relating to a VIE structure and it is uncertain whether any new PRC laws or regulations in this respect will be adopted or if adopted, what they would provide. Therefore, if we were to adopt a VIE again in the future, PRC regulatory authorities could disallow such structure, which, in turn, would likely result in a material change in our operations and in the value of our securities and could cause the value of our securities to significantly decline or become worthless.
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For a detailed discussion of the unique risks to investors that may be involved if we were to adopt a VIE structure in the future, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Our holding company structure involves unique risks to investors. If in the future we were to amend our operating structure to use any VIE again for our operations in China or if PRC regulatory authorities were to disallow our holding company structure, additional risks and uncertainties will be involved.”
As used in this annual report, “we,” “us,” “our,” or “our company” means, upon and after the consummation of the Mergers, NaaS Technology Inc., a Cayman Islands exempted company with limited liability, and its subsidiaries, and, prior to the consummation of the Mergers, RISE Education Cayman Ltd, a Cayman Islands exempted company with limited liability, and its consolidated subsidiaries.
The following diagram illustrates our corporate structure, including our principal subsidiaries as of the date of this annual report.
Risks Related to Doing Business in China
We face various risks and uncertainties relating to doing business in China. Our business operations are primarily conducted in China, and we are subject to complex and evolving PRC laws and regulations. For example, we face risks associated with regulatory approvals on overseas offerings, antimonopoly regulatory actions, and oversight on cybersecurity and data privacy, which may impact our ability to conduct certain businesses, accept foreign investments, or list and conduct offerings on a stock exchange in the United States or other foreign country. These risks could result in a material adverse change in our operations and the value of our ADSs, significantly limit or completely hinder our ability to continue to offer securities to investors, or cause the value of such securities to significantly decline or become worthless. For a detailed description of risks relating to doing business in China, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China.”
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The PRC government’s significant authority in regulating our operations and its oversight and control over offerings conducted overseas by, and foreign investment in, China-based issuers could significantly limit or completely hinder our ability to offer or continue to offer securities to investors. Implementation of industry-wide regulations in this nature, such as data security or anti-monopoly related regulations, may cause the value of such securities to significantly decline or become worthless. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—The PRC government has significant oversight over our business operation which, if exercised, could result in a material adverse change in our operations.”
Risks and uncertainties arising from the legal system in China, including risks and uncertainties regarding the enforcement of laws and quickly evolving rules and regulations in China, could result in a material adverse change in our operations and the value of our ADSs. For more details, see “Item 3. Key Information—D. Risk Factors-Risks Related to Doing Business in China—Uncertainties with respect to the PRC legal system could adversely affect us.”
The Holding Foreign Companies Accountable Act
Pursuant to the Holding Foreign Companies Accountable Act, as amended by the Consolidated Appropriations Act, 2023, or the HFCAA, if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspections by the PCAOB for two consecutive years, the SEC will prohibit our shares or ADSs from being traded on a national securities exchange or in the over-the-counter trading market in the United States. On December 16, 2021, the PCAOB issued a report to notify the SEC of its determination that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong, including our auditor and the auditors that issued the audit reports included in RISE’s annual report on Form 20-F for the fiscal year ended December 31, 2021. In June 2022, the SEC conclusively listed RISE as a Commission-Identified Issuer under the HFCAA following the filing of RISE’s annual report on Form 20-F for the fiscal year ended December 31, 2021. On December 15, 2022, the PCAOB issued a report that vacated its December 16, 2021 determination and removed mainland China and Hong Kong from the list of jurisdictions where it is unable to inspect or investigate completely registered public accounting firms. As of the date of this annual report, the PCAOB has not issued any new determination that it is unable to inspect or investigate completely registered public accounting firms headquartered in any jurisdiction. For this reason, we do not expect to be identified as a Commission-Identified Issuer under the HFCAA after we file our annual report on Form 20-F for the fiscal year ended December 31, 2023. Each year, the PCAOB will determine whether it can inspect and investigate completely audit firms in mainland China and Hong Kong, among other jurisdictions. If PCAOB determines in the future that it no longer has full access to inspect and investigate completely accounting firms in mainland China and Hong Kong and we continue to use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial statements filed with the SEC, we would be identified as a Commission-Identified Issuer following the filing of the annual report on Form 20-F for the relevant fiscal year. There can be no assurance that we would not be identified as a Commission-Identified Issuer for any future fiscal year, and if we were so identified for two consecutive years, we would become subject to the prohibition on trading under the HFCAA. See “Item 3. Key Information—D. Risk Factors— Risks Related to Doing Business in China—The PCAOB had historically been unable to inspect our auditor in relation to their audit work performed for our financial statements and the inability of the PCAOB to conduct inspections of our auditor in the past has deprived our investors with the benefits of such inspections.” and “Item 3. Key Information—D. Risk Factors— Risks Related to Doing Business in China—Our ADSs may be prohibited from trading in the United States under the HFCAA in the future if the PCAOB is unable to inspect or investigate completely auditors located in China. The delisting of the ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment.”
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Permissions Required from the PRC Government Authorities
We conduct our business primarily through our PRC subsidiaries. Our operations in China are governed by PRC laws and regulations. As of the date of this annual report, our PRC subsidiaries and we have obtained the business licenses issued by the Market Supervision Administration’s regional departments, being all licenses, permits, and registrations from the PRC government authorities that are required for our business operations under current PRC laws, regulations and rules, and such licenses, permits, and registrations have not been denied by any PRC government authorities.
On December 28, 2021, CAC, together with other administrative departments, jointly promulgated the Cybersecurity Review Measures which became effective on February 15, 2022, or the 2022 Cybersecurity Review Measures. According to the 2022 Cybersecurity Review Measures, an internet platform operator who possesses personal information of more than one million users shall apply for a cybersecurity review before listing in a foreign country, and the competent governmental authorities may initiate a cybersecurity review if they consider that the network products or services or data processing activities in question affect or may affect national security. The China Cybersecurity Review Technology and Certification Center, the institution designated by CAC to receive application materials for cybersecurity review and conduct examinations of such applications, confirmed with NaaS that if NaaS did not possess more than one million individuals’ personal information, it would not be required to apply for a cybersecurity review in connection with the Mergers or the Transactions. Because NaaS had transferred the ownership of Kuaidian as well as the rights to access and use certain data generated by or in the possession of Kuaidian to a third-party service provider prior to the Mergers, it did not possess more than one million individuals’ personal information. Based on the foregoing, King & Wood Mallesons, our PRC special counsel in respect of data compliance of the Mergers and the Transactions is of the view that a cybersecurity review is not required in connection with the Mergers or the Transactions under current PRC laws, regulations and rules. We are also advised by Jingtian & Gongcheng, our PRC counsel, that (i) we are not required to obtain permissions from CSRC, and (ii) we have not been asked to obtain or denied such and other permissions by any PRC government authority, under current PRC laws, regulations and rules in connection with the Mergers and the Transactions.
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On February 17, 2023, CSRC published the Interim Administrative Measures on Overseas Securities Offering and Listing by Domestic Enterprises (CSRC Announcement [2022] No. 43), or the Overseas Listing Measures, which took effect on March 31, 2023. Under the Overseas Listing Measures, a filing-based regulatory system applies to “indirect overseas offerings and listings” of companies in mainland China, which refers to securities offerings and listings in an overseas market made under the name of an offshore entity but based on the underlying equity, assets, earnings or other similar rights of a company in mainland China that operates its main business in mainland China. The Overseas Listing Measures states that an overseas listed company that conducts any post-listing offering, including issuance of shares, convertible notes and other similar securities, in the same overseas market shall submit a filing with CSRC within three business days after the completion of such offering. Therefore, any of our future offering and listing of our securities in an overseas market may be subject to the filing requirements under the Overseas Listing Measures. In connection with the Overseas Listing Measures, on February 17, 2023 CSRC also published the Notice on the Administrative Arrangements for the Filing of Overseas Securities Offering and Listing by Domestic Enterprises, or the Notice on Overseas Listing Measures. According to the Notice on Overseas Listing Measures, issuers that have already been listed in an overseas market by March 31, 2023, the date the Overseas Listing Measures became effective, are not required to make any immediate filing and are only required to comply with the filing requirements under the Overseas Listing Measures when they subsequently seek to conduct an offering in an overseas market.
Given (i) the uncertainties of interpretation and implementation of applicable laws and regulations and the enforcement practice by competent government authorities, (ii) the PRC government’s ability to intervene or influence our operations at any time, and (iii) the rapid evolvement of PRC laws, regulations, and rules which may be preceded with short advance notice, we may be required to obtain additional licenses, permits, registrations, filings or approvals for our business operations, the Mergers, the Transactions, or for our offerings overseas in the past or in the future and our conclusion on the status of our licensing compliance may prove to be mistaken. If (i) we do not receive or maintain any permission or approval required of us, (ii) we inadvertently concluded that certain permissions or approvals have been acquired or are not required, or (iii) applicable laws, regulations, or interpretations thereof change and we become subject to the requirement of additional permissions or approvals in the future, we may have to expend significant time and costs to procure them. If we are unable to do so, on commercially reasonable terms, in a timely manner or otherwise, we may become subject to sanctions imposed by the PRC regulatory authorities, which could include fines, penalties, and proceedings against us, and other forms of sanctions, and our ability to conduct our business, invest into mainland China as foreign investments or accept foreign investments, or list on a U.S. or other overseas exchange may be restricted, and our business, reputation, financial condition, and results of operations may be materially and adversely affected. Specifically, if it is determined in the future that approval and filing from CSRC, CAC or other regulatory authorities or other procedures, including the cybersecurity review under the 2022 Cybersecurity Review Measures, are required for the Mergers or the Transactions, or for our overseas offerings in the past, on a retrospective basis, it is uncertain whether such approval can be obtained or filing procedures completed, or how long it will take to obtain such approval or complete such filing procedures. Any failure to obtain or delay in obtaining such approval or complete such filing procedures, or a rescission of any such approval if obtained, would subject us to sanctions by CSRC, CAC or other PRC regulatory authorities. These regulatory authorities may impose fines and penalties on our operations in China, limit our abilities to carry out business operations in China or pay dividends outside China, delay or restrict the repatriation of our offshore funds into China or take other actions that could materially and adversely affect our business, financial condition, results of operations, and prospects, as well as the trading price of the ADSs. CSRC, CAC, and other PRC regulatory authorities may also order us, or make it advisable for us, to unwind or reverse the Mergers and the Transactions. In addition, if CSRC, CAC or other regulatory authorities in China subsequently promulgate new rules or issue directives requiring that we obtain additional approvals or complete additional filing or other regulatory procedures for the Mergers, the Transactions or our prior offerings overseas, there is no assurance that we will be able to comply with these requirements and may not be able to obtain any waiver of such requirements, if and when procedures are established to obtain such a waiver. Any of the foregoing could materially and adversely affect our business, prospects, financial condition, reputation, and the trading price of our listed securities.
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For more detailed information, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—We may be required to obtain additional licenses in relation our ongoing business operations and subject to penalties for failing to obtain certain licenses with respect to our past operations,” “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—The PRC government has significant oversight over business operations conducted in China and may intervene or influence our operations at any time, which could result in a material adverse change in our operations and the value of our ADSs,” and “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—The approval of and filing with CSRC or other PRC government authorities may be required retrospectively in connection with the Mergers and the Transactions under PRC law, and, if required, it is uncertain whether such approval can be obtained or filing completed or how long it will take to obtain such approval or complete such filing.”
Cash and Asset Flows through Our Organization
NaaS Technology Inc. is a holding company with no operations of its own. We conduct our operations in China primarily through our PRC subsidiaries. As a result, although other means are available for us to obtain financing at the holding company level, NaaS Technology Inc.’s ability to pay dividends to the shareholders and to service any debt it may incur may depend upon dividends paid by our PRC subsidiaries. If any of our subsidiaries incurs debt on its own behalf in the future, the instruments governing such debt may restrict its ability to pay dividends to NaaS Technology Inc. Under PRC laws and regulations, our PRC subsidiaries are subject to certain restrictions with respect to payment of dividends or other transfers of any of their net assets to us. Our PRC subsidiaries are permitted to pay dividends only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. PRC laws also require a foreign-invested enterprise to set aside at least 10% of its after-tax profits as the statutory common reserve fund until the cumulative amount of the statutory common reserve fund reaches 50% or more of such enterprises’ registered capital, if any, to fund its statutory common reserves, which are not available for distribution as cash dividends. Remittance of dividends by a wholly foreign-owned enterprise out of mainland China is also subject to examination by the banks designated by the PRC State Administration of Foreign Exchange, or SAFE. These restrictions are benchmarked against the paid-up capital and the statutory reserve funds of our PRC subsidiaries. To the extent cash in our business is in China or in an entity in mainland China, the funds may not be available to fund operations or for other use outside of mainland China due to interventions in or the imposition of restrictions and limitations by the PRC government on our ability to transfer cash. As a result, our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business may be materially and adversely affected.
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For risks relating to the fund flows of our operations in China, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—We may rely on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiaries to make payments to us could have a material and adverse effect on our ability to conduct our business.”
Prior to the Restructuring completed in early 2022, the EV charging service business of NaaS in China was a part of NewLink’s businesses and was primarily conducted through NewLink and its consolidated entities. See “Item 4. Information on the Company—A. History and Development of the Company.”
In 2021 and 2022, (i) payments totaling RMB279.8 million and RMB1,677.4 million were made among NewLink’s consolidated entities that conducted NaaS’s business; (ii) advances totaling RMB497.9 million and RMB1,675.7 million were made among NewLink’s consolidated entities that conducted NaaS’s business; and (iii) no dividend or other distribution were made by any of the NewLink’s consolidated entities that conducted NaaS’s business. In 2023, (i) payments totaling RMB1,400.1 million (US$197.2 million) were made among our consolidated entities; (ii) advances totaling RMB2,401.2 million (US$338.2 million) were made among our consolidated entities; and (iii) no dividend or other distribution were made by any of our consolidated entities.
NaaS Technology Inc. has established stringent controls and procedures for cash flows within its organization. Each transfer of cash between its Cayman Islands holding company and a subsidiary is subject to internal approval. The cash of the group is under the unified management of NaaS Technology Inc.’s finance department and is disbursed and applied to each operating entity based on the budget and operating conditions of the specific operating entity. Each cash requirement, after being raised by the relevant operating entity, is subject to three levels of review process by the finance department.
Under PRC law, NaaS Technology Inc. and our offshore subsidiaries may provide funding to our PRC subsidiaries only through capital contributions or loans, subject to satisfaction of applicable government registration and approval requirements, and our PRC subsidiaries are subject to certain restrictions with respect to paying dividends or transferring any of their net assets to NaaS Technology Inc. or our offshore subsidiaries. Although currently there are no equivalent or similar restrictions or limitations in Hong Kong on cash transfers in, or out of, Hong Kong or our Hong Kong subsidiaries, if certain restrictions or limitations in mainland China were to become applicable to cash transfers in and out of Hong Kong or our Hong Kong subsidiaries in the future, the funds in Hong Kong or our Hong Kong subsidiaries, likewise, may not be available to fund operations or for other use outside of Hong Kong. Therefore, to the extent cash in our business is in mainland China or Hong Kong or our mainland China subsidiaries or Hong Kong subsidiaries, the funds may not be available to fund operations or for other use outside of mainland China or Hong Kong due to interventions in or the imposition of restrictions and limitations by the PRC government on our ability to transfer cash.
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Cash transfers from our Hong Kong subsidiaries to NaaS Technology Inc. or our offshore subsidiaries are subject to tax obligations imposed by Hong Kong laws to the extent applicable. Going forward, our subsidiaries intend to retain most, if not all, of their available funds and any future earnings. For PRC and United States federal income tax considerations of an investment in our ADSs and/or ordinary shares, see “Item 10. Additional Information—E. Taxation.”
A. | [Reserved] |
B. | Capitalization and Indebtedness |
Not Applicable.
C. | Reasons For the Offer and Use of Proceeds |
Not Applicable.
D. | Risk Factors |
Summary of Risk Factors
An investment in our ADSs involves significant risks. Below is a summary of material risks that we face, organized under relevant headings. These risks are discussed more fully in “Item 3. Key Information—D. Risk Factors.”
Risks Related to Our Business and Industry
• | NaaS is an early-stage company with a history of losses, and we expect to incur significant expenses and continuing losses for the near term. |
• | NaaS experienced rapid growth and we expect to invest in growth for the foreseeable future. If we fail to manage growth effectively, our business, operating results and financial condition could be adversely affected. |
• | NaaS has a limited operating history. NaaS recently restructured certain aspects of its corporate organization and business operations, adopted a new and unproven business model and expanded into new business segments, and we are subject to significant risks in relation to such transition. |
• | The EV charging and energy solution industries and their technologies are rapidly evolving and may be subject to unforeseen changes. |
• | We face intense competition, including from a number of companies in China, and expect to face significant competition in the future. |
• | NewLink exercises substantial influence over us. Our operation is dependent on our collaboration with NewLink. We rely on our collaborative arrangements with the operator of Kuaidian in delivering our EV charging solutions. |
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• | Failure to effectively expand our sales and marketing capabilities could harm our ability to efficiently deliver our solutions, retain existing customers, increase our customer base, or achieve broader market acceptance of our solutions. |
• | We expect to raise additional funds and these funds may not be available when needed, if at all. |
• | A severe or prolonged downturn in the Chinese or global economy could materially and adversely affect our business and financial condition. |
• | We currently have a concentrated customer base with a limited number of key customers. The loss of one or more of our key customers, or a failure to renew our agreements with one or more of our key customers, could adversely affect our results of operations and ability to market our products and services. |
• | Our future growth and success is highly correlated with and thus dependent upon the continuing rapid adoption of EVs for passenger and fleet applications. |
• | Demand for EVs may also be affected by factors directly impacting automobile prices or the cost of purchasing and operating automobiles, such as sales and financing incentives, prices of raw materials and parts and components, cost of fuel and governmental regulations, including tariffs, import regulation and other taxes. Volatility in demand may lead to lower vehicle unit sales, which may result in reduced demand for EV charging services and related solutions and therefore adversely affect our business, financial condition and operating results. |
• | Our business is subject to complex and evolving PRC laws and regulations regarding cybersecurity and data privacy. |
Risks Related to Doing Business in China
• | The PRC government has significant oversight over business operations conducted in China and may intervene or influence our operations at any time, which could result in a material adverse change in our operations and the value of our ADSs. Also, the PRC government has recently indicated that it may exert more oversight and control over offerings that are conducted overseas by or foreign investment in China-based issuers. Therefore, investors of our ADSs face potential uncertainty from actions taken by the PRC government affecting our business and operations which could significantly limit or completely hinder our ability to offer or continue to offer securities and cause the value of such securities to significantly decline or be worthless. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—The PRC government has significant oversight over business operations conducted in China and may intervene or influence our operations at any time, which could result in a material adverse change in our operations and the value of our ADSs.” |
• | PRC laws, regulations, and rules are rapidly evolving which may be preceded with short advance notice and could result in a material adverse change in our operations and the value of our ADSs. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—We may be required to obtain additional licenses in relation to our ongoing business operations and may be subject to penalties for failing to obtain certain licenses with respect to our past operations.” |
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• | Changes in China’s economic, political or social conditions, or government policies could materially and adversely affect our business and operations. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China— Changes in China’s economic, political or social conditions, or government policies could materially and adversely affect our business and operations.” |
• | Risks and uncertainties arising from the legal system in China, including risks and uncertainties regarding the enforcement of laws, could result in a material adverse change in our operations and the value of our ADSs. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Uncertainties with respect to the PRC legal system could adversely affect us. “ |
• | We are a holding company and we may rely on dividends and other distributions on equity paid by our PRC subsidiaries for our cash and financing requirements. The funds in mainland China or in our PRC subsidiaries may not be available to fund operations or for other use outside of mainland China due to interventions in or the imposition of restrictions and limitations on our and our subsidiaries’ ability by the PRC government to transfer cash. Any limitation on the ability of our PRC subsidiaries to pay dividends or make other distributions to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business. Although currently there are no equivalent or similar restrictions or limitations in Hong Kong on cash transfers in, or out of, Hong Kong or our Hong Kong subsidiaries, if certain restrictions or limitations in mainland China were to become applicable to cash transfers in and out of Hong Kong or our Hong Kong subsidiaries in the future, the funds in Hong Kong or in our Hong Kong subsidiaries, likewise, may not be available to fund operations or for other use outside of Hong Kong. Therefore, to the extent cash in our business is in mainland China or Hong Kong or our mainland China subsidiaries or Hong Kong subsidiaries, the funds may not be available to fund operations or for other use outside of mainland China or Hong Kong due to interventions in or the imposition of restrictions and limitations by the PRC government on our ability to transfer cash. Cash transfers from our Hong Kong subsidiaries to NaaS Technology Inc. or our offshore subsidiaries are subject to tax obligations imposed by Hong Kong laws to the extent applicable. Uncertainties also exist as to our ability to provide prompt financial support to our PRC subsidiaries when needed and if we fail to complete such registrations or record-filings, our ability to use foreign currency, and to capitalize or otherwise fund our PRC operations may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand our business. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—We may rely on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiaries to make payments to us could have a material and adverse effect on our ability to conduct our business” and “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent us from making loans to our PRC subsidiaries or making additional capital contributions to our wholly foreign-owned subsidiaries in China, which could materially and adversely affect our liquidity and our ability to fund and expand our business.” |
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• | The PCAOB had historically been unable to inspect our auditor in relation to their audit work performed for our financial statements and the inability of the PCAOB to conduct inspections of our auditor in the past has deprived our investors with the benefits of such inspections. |
• | Our ADSs may be prohibited from trading in the United States under the HFCAA in the future if the PCAOB is unable to inspect or investigate completely auditors located in mainland China and Hong Kong. The delisting of our ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment. |
• | The approval of and filing with CSRC or other PRC government authorities may be required retrospectively in connection with the Mergers and the Transactions under PRC law, and, if required, it is uncertain whether such approval can be obtained or filing completed or how long it will take to obtain such approval or complete such filing. |
Risks Related to Our ADSs and Trading Market
• | Our multi-class share structure with different voting rights will significantly limit your ability to influence corporate matters and could discourage others from pursuing any change of control transactions that holders of the Class A ordinary shares and the ADSs may view as beneficial. |
• | The trading price of the ADSs is likely to be volatile, which could result in substantial losses to investors. |
• | We are a “controlled company” within the meaning of the Nasdaq Stock Market Rules, and as a result, may rely on exemptions from certain corporate governance requirements that provide protection to shareholders of other companies. |
• | Future issuance of ADSs or ordinary shares will result in additional dilution of the percentage ownership of our shareholders and could cause the price of the ADSs to fall. |
• | Substantial future sales or perceived sales of the ordinary shares or ADSs in the public market could cause the price of the ADSs to decline. |
• | We will not pay dividends for the foreseeable future, you must rely on price appreciation of the ADSs for return on your investment. |
• | Your right to participate in any future rights offerings may be limited, which may cause dilution to your holdings, and you may not receive cash dividends if it is impractical to make them available to you. |
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Risks Related to Our Business and Industry
NaaS is an early-stage company with a history of losses, and we expect to incur significant expenses and continuing losses for the near term.
NaaS incurred net loss of RMB260.5 million, RMB5,637.4 million and RMB1307.2 million (US$184.1 million) in 2021, 2022 and 2023, respectively, and adjusted net loss of RMB249.7 million, RMB354.1 million and RMB703.8 million (US$99.1 million) in 2021, 2022 and 2023, respectively. We expect to continue to incur operating and net losses for the near term. There can be no assurance that we will be able to achieve profitability in the future. Our potential profitability is particularly dependent upon the continued adoption of EVs by consumers and fleet operators, the widespread adoption of electric passenger and other vehicles and other electric transportation modalities, which may not occur.
NaaS experienced rapid growth and we expect to invest in growth for the foreseeable future. If we fail to manage growth effectively, our business, operating results and financial condition could be adversely affected.
The growth and expansion of NaaS’s business placed, and the continued growth and expansion of our business following the completion of the Mergers will continue to place, a significant strain on management, operations, financial infrastructure and corporate culture. We will need to continue to improve our operational, financial and management controls and reporting systems and procedures in order to manage growth in operations and personnel. Failure to manage growth effectively could result in loss of customers, difficulty in attracting new customers, declines in quality of products and services or in customer satisfaction, increases in costs, difficulties and delays in introducing new products and services or enhancing existing products and services, information security vulnerabilities or other operational difficulties, any of which could have adverse effect on our business, financial condition and results of operations.
NaaS has a limited operating history. NaaS recently restructured certain aspects of its corporate organization and business operations, adopted a new and unproven business model and expanded into new business segments, and we are subject to significant risks in relation to such transition.
NaaS launched its mobility connectivity services in 2019. Full station operation commenced in June 2020 and new initiatives were launched one month later. NaaS began to provide hardware procurement services in July 2020, and electricity procurement services in October 2020. NaaS further added SaaS products and services targeting EVs and station operation and maintenance to its portfolio of solutions in 2021. We launched our photovoltaic-related business and our energy storage services in June 2023 and September 2023, respectively, and we released an autonomous charging robot prototype in 2023.
Historically, the EV charging service business of NaaS in China was primarily carried out through NewLink and its consolidated entities. Kuaidian Power Beijing also operated Kuaidian, the mobile application and the Weixin mini-program that connect EV drivers with charging stations and chargers. In early 2022, NaaS entered into a series of transactions to restructure its organization and its EV charging service business, including transactions where (i) Dada Auto, through a subsidiary, entered into contractual arrangements with Kuaidian Power Beijing, as a result of which Kuaidian Power Beijing initially became a VIE of Dada Auto, but such arrangements were terminated in April 2022 and Kuaidian Power Beijing ceased being a VIE of Dada Auto, and (ii) the ownership of Kuaidian as well as the rights to access and use certain data generated by or in the possession of Kuaidian were transferred to a third-party service provider. For more information on our corporate history and the Restructuring, see “Item 4. Information on the Company—A. History and Development of the Company” and “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—We rely on our collaborative arrangements with the operator of Kuaidian in delivering our EV charging solutions.”
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As a result of the Restructuring, we do not have any VIE and we conduct our operations in China through our subsidiaries as of the date of this annual report. We are subject to many risks associated with NaaS’s limited operating history and the Restructuring. As a result of the divestment of the rights of NaaS in the operation of Kuaidian and related data, NaaS has been and we currently are in the process of, adjusting the business operations and model with respect to EV charging services. There is no assurance that such adjustment will be successful or will result in growth, revenue or profit. We may further experience a loss of continuity, loss of accumulated knowledge or loss of efficiency during the transitional period. Additionally, it is difficult to forecast the full impact of the Restructuring and it is uncertain whether the Restructuring will eventually be beneficial to us. We are also faced with risks and challenges with respect to our ability to:
• | manage changes in our business operations following the Restructuring; |
• | navigate an evolving and complex regulatory environment; |
• | improve and maintain our operational efficiency; |
• | establish, retain and expand our customer base; |
• | successfully market our product and service offerings; |
• | attract, retain, and motivate talented employees; |
• | anticipate and adapt to changing market conditions and demands, including technological developments and changes in competitive landscape; and |
• | build a well-recognized and respected brand as we cease to conduct our business through Kuaidian or under the “Kuaidian” brand. |
In addition, because NaaS has a limited operating history and track record and operate in a rapidly evolving market, any predictions about our future revenues and expenses may not be as accurate as they would be if NaaS had had a longer operating history or operated in a more predictable market. NaaS encountered in the past, and we will continue to encounter in the future, risks and uncertainties frequently experienced by fast-growing companies with limited operating histories in rapidly changing industries. If our assumptions regarding these risks and uncertainties, which we use to plan and operate our business, are incorrect or outdated, or if we do not address these risks successfully, our results of operations could differ materially from expectations, and our business, financial condition and results of operations could be adversely affected.
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The EV charging and energy solution industries and their technologies are rapidly evolving and may be subject to unforeseen changes.
The EV charging and energy solution markets are in their early stage and are constantly evolving. New demands and preferences continue to emerge from industry participants, especially from charging stations and other energy asset owners and EV drivers. The EV charging market in China is unique in the sense that there is overall a very high demand for public charging infrastructure due to the scarcity of private or residential charging facilities. The trend towards the primacy of public charging is expected to continue in China and our product and service offerings are tailored in anticipation of this market development. There is however no assurance that public charging will be or will remain as the predominant mode of charging in China and the possibility of a transition to private charging or battery swap as the primary mode of charging, following a change in end-user preference, legislative initiatives or otherwise, cannot be gainsaid. There are similarly uncertainties in the prospects of the energy solutions market. We will be tested on our ability to forecast and meet shifts in the market and to make timely adaptation of our product and service offerings. If we fail to do so, our business, operating results, prospects and financial condition will be adversely affected.
The EV charging and energy solution industries are also characterized by rapid technological change, which will require us to continue to innovate in our product and service offerings. Any delays in such development could adversely affect market acceptance of our solutions. Our future success will depend upon our ability to develop and introduce a variety of new capabilities and innovations to our product and service offerings, to address the changing needs of the EV charging and energy solution markets. As new products and services are introduced, gross margins tend to decline in the near term and improve as the product and services become more mature and gain traction in the market. As EV and EV charging technologies change, we may need to upgrade our technologies, software and other product and service offerings in order to serve vehicles that have the latest technology, which could involve substantial costs. We also have to keep abreast of the latest trends in the energy solution market and tailor our solutions timely and effectively. Even if we are able to keep pace with changes in technology and develop new products and services, our research and development expenses could increase, our gross margins could be adversely affected in some periods and our prior products could become obsolete more quickly than expected. There is no guarantee that any new products or services will be released in a timely manner, or at all, or achieve market acceptance. Delays in this respect could damage our relationships with customers and lead them to seek alternative providers. If we are unable to devote adequate resources to innovate and meet customer requirements on a timely basis or to remain competitive with technological alternatives, our products and services could lose market share, our revenue will decline, our may experience higher operating losses and our business and prospects could be adversely affected.
We face intense competition, including from a number of companies in China, and expect to face significant competition in the future.
The public EV charging service market and the energy solution market in China are relatively new and competition is still developing.
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For our EV charging services, we primarily compete with other EV charging service providers. Some charging station customers in China require solutions not yet available and the continual arrival of new players in this market heightens the need for us to develop and maintain our competitive edge. In addition, there are multiple competitors in China with limited funding or capabilities, which could cause poor end-user experiences, hampering overall EV adoption or trust in the EV charging service market as a whole. Because the public EV charging service market in China is relatively new, we and our charging station customers have been and are expected to continue exploring different business models and creating new product and service offerings. Our station customers are launching products and services that compete with our offerings and may continue to do so in the future. In addition, charging stations will seek to acquire and connect with end-users directly and reduce their reliance on third-party EV charging service providers like us. They may also be able to drive out EV charging service providers like us from certain geographical areas by dominating or monopolizing EV charging services in those areas. In late August 2023, three major charging station operators in China simultaneously terminated their collaboration with us in a coordinated effort. This resulted in the disconnection of a meaningful percentage of the total charging stations and charging ports on our network. There are also other means for charging EVs in China, which could affect the level of demand for public charging capabilities at charging stations. For example, certain EV OEMs have built and will continue to build their own supercharger network across China for their EVs, which could reduce overall demand for EV charging services at other sites or eliminate the need for services from third-party EV charging service providers altogether. Also, third-party contractors can provide basic electric charging capabilities to potential customers seeking to have on-premise EV charging capability as well as for home charging. In addition, many charger manufacturers and EV OEMs are offering home charging equipment, which could reduce demand for public charging infrastructure if EV owners find charging at home to be sufficient for their needs.
We have seen a significant increase in our energy solutions revenues in 2023 as compared with 2022. The increase reflects the expansion of our business, as we added a new unit focused on the delivery of our energy solutions to our existing operations, and was primarily driven by the initial phase of the Anji Green and Low-carbon Supply Chain Construction Project in Anji County, Zhejiang Province, and our acquisition of a majority stake in Sinopower Holdings International Co. Limited in June 2023. We may not be able to maintain a similar rate of growth, which is a risk often shared by companies with limited operating histories participating in rapidly evolving industries with intense competition.
Further, our current or potential competitors may be acquired by third-parties with greater available resources or greater ability to access the capital markets for additional funding. As a result, competitors may be able to respond more quickly and effectively than us to new or changing opportunities, technologies, standards or customer requirements and may have the ability to initiate or withstand substantial price competition. In addition, competitors may in the future establish cooperative relationships with vendors of complementary products, technologies or services to increase the availability of their solutions in the marketplace. This competition may also materialize in the form of costly intellectual property disputes or litigation.
New competitors or alliances may emerge in the future that have greater market share, more widely adopted proprietary technologies, greater marketing expertise and greater financial resources, which could put us at a competitive disadvantage. Future competitors could also be better positioned to serve certain segments of our current or future target markets, which could create price pressure. In light of these factors, such current or potential customers may accept competitive solutions. If we fail to adapt to changing market conditions or to continue to compete successfully with current charging service providers or new competitors, our growth will be limited, which would adversely affect our business and results of operations.
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NewLink exercises substantial influence over us. Our operation is dependent on our collaboration with NewLink.
As of the date of this annual report, NewLink has the right to vote 62.0% of our ordinary shares and has substantial influence over our affairs. We also rely on certain services provided by and cooperative arrangements entered into with NewLink and we benefit significantly from the strong market position, industrial insights, brand recognition and extensive upstream and downstream resources of NewLink.
There is no assurance that we will continue to maintain the same collaborative arrangements with or receive the same level of support from NewLink. Any failure by NewLink to perform its obligations under these arrangements or any change to NewLink’s own business, including its future operational needs, results of operations and cash flow and capital expenditure requirements, could affect our arrangements with NewLink or the level of support that NewLink is able or willing to offer to us, which in turn could have a material adverse effect on our business, financial condition, results of operations and cash flows. Prior to the completion of the Mergers, NewLink bore certain expenses which were incurred for our benefits but there is no certainty that NewLink will continue to do so. If we were to settle such expenses on our own historically, our financial condition and results of operations could be adversely affected and could have differed from those presented in this annual report. In addition, to our knowledge, NewLink intends to distribute some or all of the ordinary shares of ours that it owns to its shareholders, which could significantly reduce its shareholding. In the event that NewLink ceases to be a significant shareholder of ours as a result of such distribution, our collaborative relationship with NewLink may suffer, and NewLink may reduce the level of support it affords us or otherwise take actions that are not in our best interests or the best interests of our other shareholders, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
We rely on our collaborative arrangements with the operator of Kuaidian in delivering our EV charging solutions.
We benefit significantly from and we are expected to continue relying on Kuaidian’s existing user base and services for our mobility connectivity services, connecting end-users on Kuaidian with our charging station customers.
Historically, Kuaidian Power Beijing operated Kuaidian. As part of the Restructuring, the ownership of Kuaidian as well as the rights to access and use certain data generated by or in the possession of Kuaidian have been transferred to a third-party service provider as of the date of this annual report.
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A series of agreements, including a Business Cooperation Agreement, a Data Service Agreement and a Charging Business Cooperation Agreement, took effect in March 2022 between NaaS and the third-party service provider pursuant to which NaaS has and is expected to continue to receive certain services from such operator in relation to the delivery of EV charging solutions for an initial term of five years. There is however no assurance that we will continue to maintain the same collaborative arrangements with or receive the same level of services from the third-party service provider. If the arrangement between NaaS and the third-party service provider is terminated or expires without renewal, or if the third-party service provider fails to perform its obligations under this arrangement, becomes unable to provide its services timely and effectively, or at all, or decides to conduct its business or operate Kuaidian in a way that is detrimental to our business interests, our business may be severely interrupted and there would be a material adverse effect on our business, results of operations, financial condition, and prospects. Further, because the third-party service provider is the sole service provider through whom we are given access to Kuaidian’s existing user base and services, we also face risks resulting from our reliance on a single service provider for a key aspect of our business. For examples, if the third-party service provider terminates the business cooperation agreement with us or if the agreement expires without renewal, we may not be able to identify an alternative service provider that provides comparable services. Even if we find an alternate provider, we may not be able to enter into a similar agreement with such alternate provider in a timely manner or on terms that are acceptable to us or at all and there are also significant risks associated with any transitioning activities. This will cause significant disruption to our business, which could in turn materially and adversely impact our business, results of operations, financial condition, and prospects.
Our results of operation and future profitability are and will remain highly dependent on the success of our charging services.
Our results of operation and future profitability are and will continue to substantially depend on the commercial success and market acceptance of our charging services. As a result of such dependence, a significant decline in the demand for or pricing of our charging services would have a material adverse effect on our business, operating results and financial condition. Any decline in the market demand for these solutions or any failure to timely improve our solutions or introduce new solutions could have a material adverse effect on our business, financial condition and results of operations. To the extent that our EV charging solutions do not meet customer expectations, in terms of quality, cost or otherwise, our future profitability may be materially and adversely affected. There can also be no assurance that we will be able to broaden our product and service portfolio or reduce our reliance on charging services.
Failure to effectively expand our sales and marketing capabilities could harm our ability to efficiently deliver our solutions, retain existing customers, increase our customer base, or achieve broader market acceptance of our solutions.
Our ability to efficiently deliver our solutions, retain existing customers, grow our customer base, achieve broader market acceptance, grow revenue, and achieve and sustain profitability will depend, to a significant extent, on our ability to effectively expand our sales and marketing operations and activities. Sales and marketing expenses represent a significant percentage of our total revenue, and our operating results will suffer if sales and marketing expenditures do not contribute significantly to increasing revenue.
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We are and we expect to be dependent on our in-house business development team to identify new charging station customers and explore near-term and long-term opportunities and convert them into our customers. We expect to continue expanding our direct business development force but we may not be able to recruit or retain a sufficient number of qualified personnel, which may adversely affect our ability to expand our business development capabilities. New hires require significant training and time before they achieve full productivity, particularly in new sales territories. Furthermore, hiring business development personnel in new regions can be costly, complex and time-consuming, and requires additional set up and upfront costs that may be disproportionate to the initial revenue expected from those countries. There is significant competition for qualified business development personnel with strong sales skills and technical knowledge. Our ability to achieve significant revenue growth in the future will depend, in large part, on our success in recruiting, training, incentivizing and retaining a sufficient number of qualified business development personnel and on such personnel attaining desired productivity levels within a reasonable amount of time.
We also seek to improve the efficiency of our mobility connectivity services and attract more charging stations and end-users to join our network through a variety of online and offline marketing and branding activities and promotions targeting end-users and other users of our EV charging network. This continues to require us to improve our marketing approaches and experiment with new marketing methods to keep pace with industry developments and end-user preferences. Failure to refine our existing marketing strategies or to introduce new marketing activities in a cost-effective manner could reduce our customer mindshare, lower the effectiveness of the EV charging solutions we provide to our station customers and negatively impact our revenues, and consequently affect our profitability.
Our business will be harmed if we fail to continue investing in our sales and marketing capabilities or if our continuing investment does not generate a proportionate increase in revenue.
We rely on marketing, branding and promotional activities to maintain, enhance and protect our reputation and brand recognition, expand our business and improve the efficiency of our solutions, which activities may be costly and may not be effective.
We believe that maintaining and enhancing our reputation and brand recognition is critical to our relationships with both our end-users and our station customers. We seek to improve the efficiency of our mobility connectivity services and attract more charging stations to join our network through a range of marketing, branding and promotional activities that target our end-users.
The promotion of our brand may require us to make substantial investments, including incentives offered to end users, and we anticipate that, as the market becomes increasingly competitive, these marketing initiatives may become increasingly difficult and expensive. Our marketing activities may not be successful or yield increased revenue, and to the extent that these activities yield increased revenue, the increased revenue may not offset the expenses we incur and our results of operations could be harmed. If we scale back our marketing activities or if our marketing efforts or the channels we use to promote our products and services become less effective, or if our competitors decide to devote more resources to marketing activities, we may fail to attract new end-users or charging stations or to retain our existing end-users or charging stations, in which case our business, operating results and financial condition, would be materially and adversely affected.
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We expect to raise additional funds and these funds may not be available when needed, if at all.
We expect to raise additional capital to further scale and expand our business. We may raise additional funds through the issuance of equity, equity-related or debt securities, or through obtaining credit from government or financial institutions. In addition, the fact that NaaS has a limited operating history means there is limited historical data for us to project the demand for our products and services in the future. As a result, our future capital requirements may be uncertain and actual capital requirements may be different from what we currently anticipate. Our ability to obtain the necessary financing to carry out our business plan is subject to a number of factors, including general market conditions and investor acceptance of our business plan. These factors may make the timing, amount, terms and conditions of such financing unattractive or unavailable to us. There is no certainty that additional funds will be available on favorable terms when required, or at all. If additional funds cannot be obtained when needed, our financial condition, results of operations, business and prospects could be materially and adversely affected.
We may raise funds through the issuance of debt securities or through loan arrangements, the terms of which could require significant interest payments, contain covenants that restrict our business, or other unfavorable terms. In addition, to the extent we raise funds through the sale of additional equity securities, our shareholders would experience additional dilution.
Historically we had net operating cash outflows. There can be no assurance that we will not experience net operating cash outflow or liquidity problems in the future. If we fail to generate sufficient cash flow from our operations, or if we fail to maintain sufficient cash or obtain additional external financing, our liquidity position may be adversely affected. If we do not have sufficient cash flows to fund our business, operations and capital expenditure, our business and financial position will be materially and adversely affected.
A severe or prolonged downturn in the Chinese or global economy could materially and adversely affect our business and financial condition.
COVID-19 had a severe and negative impact on the Chinese and the global economy from 2020 through 2022, and the global macroeconomic environment still faces numerous challenges. The growth rate of the Chinese economy has been slowing since 2010 and the Chinese population began to decline in 2022. The Federal Reserve and other central banks outside of China have raised interest rates. The Russia-Ukraine conflict, the Hamas-Israel conflict and attacks on shipping in the Red Sea have heightened geopolitical tensions across the world. The impact of the Russia-Ukraine conflict on Ukraine food exports has contributed to increases in food prices and thus to inflation more generally. There have also been concerns about the relationship between China and other countries which may potentially have economic effects. In particular, there is significant uncertainty about the future relationship between the United States and China with respect to a wide range of issues including trade policies, treaties, government regulations and tariffs. See also “—Heightened tensions in international relations, particularly between the United States and China, may adversely impact our business, financial condition, and results of operations.” Economic conditions in China are sensitive to global economic conditions, as well as changes in domestic economic and political policies and the expected or perceived overall economic growth rate in China. Any severe or prolonged slowdown in the global or Chinese economy may materially and adversely affect our business, results of operations and financial condition
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We derived a significant portion of our revenue from a limited number of energy solutions customers. The loss of one or more of our key customers could adversely affect our results of operations.
For the year ended December 31, 2023, two energy solutions customers accounted for approximately 23% and 17%, respectively, of our total revenues. A substantial portion of our revenue may continue to be derived from a relatively limited number of customers. If we were to lose any of our key customers, or if any of such customers decides to conduct its business in a way that is not aligned with our business interests, or take other actions that are detrimental to our interests, there could be a material adverse effect on our results of operations, business, financial condition, and prospects. Key customers may also seek, and on occasion receive, pricing, payment or other commercial terms that are less favorable to us and can hurt our competitive position.
Our future growth and success is highly correlated with and thus dependent upon the continuing rapid adoption of EVs for passenger and fleet applications.
Our future growth is highly dependent upon the adoption of EVs by businesses and consumers. The market for EVs is still rapidly evolving, characterized by rapidly changing technologies, competitive pricing and competitive factors, evolving government regulation and industry standards and changing consumer demands and behaviors, changing levels of concern related to environmental issues and governmental initiatives related to climate change and the environment generally. Although the demand for EVs has grown in recent years, there is no guarantee of continuing future demand. If the market for EVs develops more slowly than expected, or if the demand for EVs decreases, our business, prospects, financial condition and operating results would be harmed. The market for EVs could be affected by numerous factors, such as:
• | perceptions about EV features, quality, safety, performance and cost; |
• | perceptions about the limited range over which EVs may be driven on a single battery charge; |
• | competition, including from other types of alternative fuel vehicles, plug-in hybrid electric vehicles and high fuel-economy internal combustion engine vehicles; |
• | volatility in the cost of oil and gasoline; |
• | concerns regarding the stability of the electrical grid; |
• | the decline of EV battery’s ability to hold a charge over time; |
• | availability of service for EVs; |
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• | consumers’ perception about the convenience and cost of charging EVs; |
• | increases in fuel efficiency; |
• | government regulations and economic incentives, including adverse changes in, or expiration of, favorable tax incentives related to EVs, EV charging stations or decarbonization generally; |
• | relaxation of government mandates or quotas regarding the sale of EVs; and |
• | concerns about the future viability of EV manufacturers. |
In addition, sales of vehicles in the automotive industry can be cyclical, which may affect growth in the acceptance of EVs. It is uncertain how macroeconomic factors will impact demand for EVs, particularly since they can be more expensive than traditional gasoline-powered vehicles, when the automotive industry globally has been experiencing a recent decline in sales. There have been fluctuations in terms of year-over-year growth in sales volume in China recently for passenger vehicles in general as well as for EVs. It cannot be predicted how the consumer demand for EVs and for passenger vehicles in general will develop in the future. Amid the market slowdown, certain automakers operating in China have suffered declining performance or financial difficulties. If the consumer demand for EVs in China abates, our business, financial condition and results of operations could be materially and adversely affected.
Demand for EVs may also be affected by factors directly impacting automobile prices or the cost of purchasing and operating automobiles, such as sales and financing incentives, prices of raw materials and parts and components, cost of fuel and governmental regulations, including tariffs, import regulation and other taxes. Volatility in demand may lead to lower vehicle unit sales, which may result in reduced demand for EV charging services and related solutions and therefore adversely affect our business, financial condition and operating results.
The EV market in China has benefited from the availability of rebates, tax credits and other financial incentives from governments, utilities and others to offset the purchase or operating cost of EVs and EV charging stations. Any reduction, modification, or elimination of such benefits could cause reduced demand for EVs and EV charging services, which would adversely affect our financial results.
Our growth benefits from PRC government policies at central and local levels that favor the adoption of EVs and expansion of EV charging stations.
The PRC government has been implementing strict vehicle emission standards for internal combustion engine vehicles. Certain municipal governments in China impose quotas and lottery or bidding systems to limit the number of license plates issued to internal combustion engine vehicles, but exempt qualified EVs from these restrictions to incentivize the development of the EV market.
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The PRC government also provides incentives to end-users and purchasers of EVs and EV charging stations in the form of tax exemptions, subsidies, other financial incentives and preferential utility rates for charging facilities. The EV market relies on these governmental rebates, tax credits and other financial incentives to significantly lower the effective price of EVs and EV charging services to end-users. However, these incentives may expire on a particular date, end when the allocated funding is exhausted, or be reduced or terminated as a matter of regulatory or legislative policy. As an example, the PRC central government has recently implemented a phase-out schedule for the subsidies provided for purchasers of certain EVs. On December 31, 2021, the Ministry of Finance, the Ministry of Industry and Information Technology, the Ministry of Science and Technology and the National Development and Reform Commission jointly issued the Notice on the Promotion and Application of Financial Subsidy Policies for New Energy Vehicles in 2022. According to the notice, the level of subsidy for new energy vehicles was reduced by 30% in 2022 compared with 2021. The notice also stipulates that the subsidy for new energy vehicle purchases would terminate on December 31, 2022, and vehicles registered after December 31, 2022 will no longer be entitled to any government subsidy. The termination or scaling back of any governmental support or incentive could adversely affect our business, financial condition and operating results.
We are subject to risks related to the restatement of NaaS’s financial statements for the years ended December 31, 2020 and 2021 and the pro forma information for the year ended December 31, 2021.
We have amended and restated (i) the combined financial statements of NaaS as of and for the years ended December 31, 2020, and 2021, together with the notes thereto, and (ii) the pro forma condensed combined statement as of and for the year ended December 31, 2021, together with the notes thereto, each as included in the Shell Company Report on Form 20-F originally filed by us on June 16, 2022, as amended, to correct the presentation of revenues to be consistent with our recognition and measurement policy for each class of revenues and to reflect certain other adjustments that we found necessary, or the Restatement.
We may receive additional inquiries from regulatory authorities regarding the Restatement. We and our current and former directors and officers may be subject to future claims, investigations or proceedings arising from the Restatement. Any future inquiries from the SEC or other regulatory authorities, or future claims or proceedings as a result of the Restatement will, regardless of the outcome, likely consume a significant amount of our internal resources and result in additional costs. In addition, we may be the subject of negative publicity focusing on the Restatement and adjustment of NaaS’s financial statements, and we may be adversely impacted by negative reactions from our customers or others with whom we do business, including negative perceptions of or concerns over our internal controls. Such adverse publicity and potential reactions from customers and other business partners could harm our business and have an adverse effect on our financial condition.
If we do not appropriately maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002, we may be unable to accurately report our financial results and the market price of our securities may be adversely affected.
We are subject to reporting obligations under the U.S. securities laws. The SEC, as required under Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules requiring every public company to include a management report on such company’s internal control over financial reporting in its annual report, which contains management’s assessment of the effectiveness of the company’s internal control over financial reporting. In addition, an independent registered public accounting firm must attest to and report on the effectiveness of the company’s internal control over financial reporting.
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Our management has concluded that our internal control over financial reporting was effective as of December 31, 2023. See “Item 15. Controls and Procedures.” Our independent registered public accounting firm has issued an attestation report, which has concluded that our internal control over financial reporting was effective in all material aspects as of December 31, 2023. However, if we fail to maintain an effective system of internal control over financial reporting in the future, our management and our independent registered public accounting firm may not be able to conclude that we have effective internal control over financial reporting at a reasonable assurance level. This could in turn result in loss of investor confidence in the reliability of our financial statements and negatively impact the trading price of our Class A ordinary shares and ADSs. Furthermore, we have incurred and anticipate that we will continue to incur considerable costs, management time and other resources in an effort to comply with Section 404 of the Sarbanes-Oxley Act and other requirements.
Our business is subject to complex and evolving PRC laws and regulations regarding cybersecurity and data privacy.
Historically, our PRC subsidiary, Kuaidian Power Beijing, operated Kuaidian. As part of the Restructuring, the ownership of Kuaidian as well as the rights to access and use certain data generated by or in the possession of Kuaidian have been transferred to a third-party service provider as of the date of this annual report. NaaS entered into a business cooperation agreement with the third-party service provider, pursuant to which NaaS will receive certain services from such operator in relation to the delivery of EV charging solutions.
We and the third-party service provider face challenges with respect to the complex and evolving laws and regulations regarding cybersecurity and data privacy in China, including without limitation, the PRC Criminal Law, PRC Civil Code, PRC Cybersecurity Law, PRC Data Security Law, and PRC Personal Information Protection Law. These laws and regulations mandate the protection of the confidentiality, integrity, availability, and authenticity of the information of end-users. While we believe the third-party service provider has adopted information security policies and deployed measures to implement the policies, there could be compromise or breach of its information system due to increased level of expertise of hackers or otherwise. If the third-party service provider is unable to protect its systems, and hence the information stored in its systems, from unauthorized access, use, disclosure, disruption, modification, or destruction, such problems or security breaches could cause the termination or suspension of the business of the third-party service provider or otherwise result in material adverse impact on its operations and thereby its collaborative arrangement with us. This could in turn have material adverse impact on our business, prospects, financial condition and operating results.
The PRC Criminal Law, as most recently amended on March 1, 2024, prohibits institutions, companies and their employees from selling or otherwise illegally disclosing a PRC citizen’s personal information obtained during the course of performing duties or providing services, or obtaining such information through theft or other illegal ways. On November 7, 2016, the Standing Committee of the National People’s Congress of the PRC issued the PRC Cyber Security Law, which became effective on June 1, 2017. Pursuant to the Cyber Security Law, network operators must not collect users’ personal information without their consent and may only collect users’ personal information necessary to the provision of services. Providers are also obligated to provide security maintenance for their products and services and to comply with provisions regarding the protection of personal information as stipulated under the applicable laws and regulations. On September 14, 2022, CAC issued a proposed revision of the Cyber Security Law, purporting to increase fines for serious violations of up to RMB 50 million or 5% of annual revenues from the prior year. The PRC Civil Code (issued by the National People’s Congress of the PRC on May 28, 2020, and effective from January 1, 2021) provides the main legal basis for privacy and personal information infringement claims under Chinese civil law.
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PRC regulators have been increasingly focused on regulation in areas of data security and data protection. The PRC regulatory requirements regarding cybersecurity are constantly evolving. For instance, various regulatory bodies in China, including CAC, the Ministry of Industry and Information Technology, the Ministry of Public Security and the State Administration for Market Regulation, have enforced data privacy and protection laws and regulations with varying and evolving standards and interpretations. In addition, certain Internet platforms in China have reportedly been subject to heightened regulatory scrutiny in relation to cybersecurity matters.
In April 2020 the Chinese government promulgated the Cybersecurity Review Measures, which came into effect on June 1, 2020. On December 28, 2021, the Chinese government promulgated the 2022 Cybersecurity Review Measures, which came into effect on February 15, 2022. According to the 2022 Cybersecurity Review Measures, (i) critical information infrastructure operators’ purchase of network products and services and internet platform operators’ data processing activities shall be subject to cybersecurity review in accordance with the 2022 Cybersecurity Review Measures if such activities affect or may affect national security; and (ii) internet platform operators holding personal information of more than one million users and seeking to have their securities listed on a stock exchange in a foreign country are required to file for cybersecurity review with the Cybersecurity Review Office. Under the Regulation on Protecting the Security of Critical Information Infrastructure promulgated by the State Council on July 30, 2021, effective September 1, 2021, “critical information infrastructure” is defined as important network facilities and information systems in important industries and fields, such as public telecommunication and information services, energy, transportation, water conservancy, finance, public services, e-government and national defense, science, technology and industry, as well as other important network facilities and information systems that, in case of destruction, loss of function or leak of data, may severely damage national security, the national economy and the people’s livelihood and public interests. As of the date of this annual report, neither we nor the third-party service provider has been informed by any PRC governmental authority that we or it operates any “critical information infrastructure.”
The 2022 Cybersecurity Review Measures provides, among others, that: (i) internet platform operators who are engaged in data processing are also subject to the regulatory scope; (ii) CSRC is included as one of the regulatory authorities for purposes of jointly establishing the state cybersecurity review mechanism; (iii) internet platform operators holding personal information of more than one million users and seeking to have their securities list on a stock exchange in a foreign country shall file for cybersecurity review with the Cybersecurity Review Office; (iv) the risks of core data, important data or large amounts of personal information being stolen, leaked, destroyed, damaged, illegally used or illegally transmitted to overseas parties and the risks of critical information infrastructure, core data, important data or large amounts of personal information being influenced, controlled or used maliciously by foreign governments and any cybersecurity risk associated with a company’s listing on a stock exchange shall be collectively taken into consideration during the cybersecurity review process; and (v) critical information infrastructure operators and internet platform operators covered by the 2022 Cybersecurity Review Measures shall take measures to prevent and mitigate cybersecurity risks in accordance with the requirements therein. On November 14, 2021, CAC released the draft Administrative Regulation on Network Data Security for public comments through December 13, 2021. Under the daft regulation, (i) data processors, i.e., individuals and organizations who can decide on the purpose and method of their data processing activities at their own discretion, that process personal information of more than one million individuals shall apply for cybersecurity review before listing in a foreign country; (ii) overseas data processors shall carry out annual data security evaluation and submit the evaluation report to the municipal cyberspace administration authority; and (iii) where the data processor undergoes merger, reorganization or subdivision that involves important data and personal information of more than one million individuals, the transaction shall be reported to the authority in-charge at the municipal level (by data processor or data recipient).
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As of the date of this annual report, neither we nor the third-party service provider has been directed by any PRC governmental authority to apply for cybersecurity review, or received any inquiry, notice, warning, sanction in such respect or been denied permission from any Chinese authority with respect to the listing on a stock exchange in any foreign country, the Mergers or the Transactions. However, as the PRC government has the authority and discretion to interpret and implement these laws and regulations and there remains uncertainty in the interpretation and enforcement of PRC cybersecurity laws and regulations, there is no assurance that we or the third-party service provider will not be deemed to be subject to PRC cybersecurity review requirements under the 2022 Cybersecurity Review Measures or the Draft Administrative Regulations on Network Data Security (if enacted) as a critical information infrastructure operator or an interact platform operator that is engaged in data processing activities that affect or may affect national security or holds personal information of more than one million users, nor can it be assured that we or the third-party service provider would be able to pass any cybersecurity review if required. In addition, we and the third-party service provider could become subject to enhanced cybersecurity review or investigations launched by PRC regulators in the future pursuant to any new laws, regulations or policies. Any failure or delay in the completion of the cybersecurity review or any other non-compliance with applicable laws and regulations may result in fines, suspension of business, prospects, website closure, revocation of business licenses or other penalties, as well as reputational damage or legal proceedings or actions against us or the third-party service provider, which may have a material adverse effect on our business, financial condition and results of operations.
On June 10, 2021, the Standing Committee of the National People’s Congress of the PRC, promulgated the PRC Data Security Law, which became effective in September 2021. The PRC Data Security Law imposes data security and privacy obligations on entities and individuals carrying out data activities, and introduces a data classification and hierarchical protection system based on the importance of data in economic and social development and the degree of harm it will cause to national security, public interests or the rights and interests of individuals or organizations when such data is tampered with, destroyed, leaked or illegally acquired or used. The PRC Data Security Law also provides for a national security review procedure for data activities that may affect national security and imposes export restrictions on certain data and information. On August 20, 2021, the Standing Committee of the National People’s Congress promulgated the Personal Information Protection Law, effective November 1, 2021. The Personal Information Protection Law clarifies the required procedures for personal information processing, the obligations of personal information processors, and individuals’ personal information rights and interests. The Personal Information Protection Law provides that, among other things, (i) the processing of personal information is only permissible under certain circumstances, such as prior consent from the subject individual, fulfillment of contractual and legal obligations, furtherance of public interests or other circumstances prescribed by laws and regulations; (ii) the processing of personal information should be conducted in a disciplined manner with as little impact on individuals’ rights and interests as possible, and (iii) excessive collection of personal information is prohibited. In particular, the Personal Information Protection Law provides that personal information processors should ensure the transparency and fairness of automated decision-making based on personal information, refrain from offering unreasonably differentiated transaction terms to different individuals and, when sending commercial promotions or information updates to individuals selected through automated decision-making, simultaneously offer such individuals an option not based on such individuals’ specific characteristics or a more convenient way for such individuals to turn off such promotions.
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On July 7, 2022, CAC promulgated the Measures on Security Assessment of Cross-border Data Transfer which became effective on September 1, 2022. Such data export measures requires that any data processor which processes or exports personal information exceeding certain volume threshold under such measures shall apply for security assessment by CAC before transferring any personal information abroad, including the following circumstances: (i) important data will be provided overseas by any data processor; (ii) personal information will be provided overseas by any operator of critical information infrastructure or any data processor who processes the personal information of more than 1,000,000 individuals; (iii) personal information will be provided overseas by any data processor who has provided the personal information of more than 100,000 individuals in aggregate or has provided the sensitive personal information of more than 10,000 individuals in aggregate since January 1 of last year; and (iv) other circumstances where the security assessment is required as prescribed by CAC. The security assessment requirement also applies to any transfer of important data outside of China.
The Ministry of Industry and Information Technology promulgated the Administrative Measures on Data Security in the Field of Industry and Information Technology (for Trial Implementation), effect on January 1, 2023. The Measures applies to the data processing activities in the field of industry and information technology carried out within the territory of China, and sets out a series of data security protection obligations for data processors in such field, such as establishing a full life-cycle data security management system, appointing data security management personnel, and conducting filings for the important data and core data processed by the data processors.
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Pursuant to the 2022 Cybersecurity Review Measures, we conducted a self-assessment with respect to the status of our compliance with the Cyber Security Law, the Data Security Law, the Personal Information Protection Law, and the implementing regulations and we implemented various measures to improve the overall compliance level. We are of the view that our existing practices are compliant with applicable requirements imposed under the foregoing laws, rules and regulations, including the regulations or policies that have been issued by CAC to date, in all material respects. However, regulatory requirements on cybersecurity and data privacy are evolving and can be subject to varying interpretations or significant changes. While NaaS transferred the ownership of Kuaidian as well as the rights to access and use certain data generated by or in the possession of Kuaidian to the third-party service provider and despite our efforts to comply with laws and regulations relating to privacy, data protection and information security, there is no guarantee that the current security measures, practices and operations of ours and of the third-party service provider are and will remain compliant with applicable laws. In the event of non-compliance or any compromise of security that results in unauthorized access, use or release of personally identifiable information or other data, or the perception or allegation that any of the foregoing types of failure or compromise has occurred, our reputation could be harmed and we may be subject to investigations and penalties by PRC governmental authorities, including fines, suspension of business, and revocation of required licenses, as well as private claims and litigations, any of which could materially and adversely affect our business, prospects, financial condition and operating results and could result in a material impact on the value of our securities.
We rely on the service of our founders and certain members of our executive management team, and the loss of any of them may adversely affect our operations. Further, if we are unable to attract or retain key employees and hire qualified management, technical, engineering and sales personnel, our ability to compete and successfully grow our business would be harmed
Our continued success is and will continue to depend to a significant extent on the efforts and abilities of Mr. Zhen Dai, Ms. Yang Wang, Mr. Alex Wu and Ms. Wu Ye, serving as our chairman of board of directors, chief executive officer, chief financial officer and chief strategy officer, respectively, and each of whom is and will continue to be actively engaged in our management and determines our strategic direction. The departure of any of the foregoing key individuals from or their reduced attention to us could have a material adverse effect on our operations, financial condition and operating results. Mr. Dai, Ms. Wang and Ms. Wu also serve as chairman, president and management partner of NewLink, respectively, and may not be able to devote her full efforts to our affairs.
We are and will continue to be dependent upon the services of members of our executive management team. Our future performance will also depend on their continued services and continuing contributions to formulate and execute our business plan and to identify and pursue new opportunities and product innovations. The loss of services of any of these individuals, or the ineffective management of any leadership transitions could significantly delay or prevent the achievement of our development and strategic objectives, which could adversely affect our business, financial condition, and operating results.
Our success also depends, in part, on the continuing ability to identify, hire, attract, train and develop and retain highly qualified personnel. The inability to recruit and retain qualified personnel in the future, could have an adverse effect on our business and financial condition. Competition for employees can be intense and the ability to attract, hire and retain them will depend on our ability to provide competitive compensation. We may not be able to attract, assimilate, develop or retain qualified personnel in the future.
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We expect to incur research and development costs in and to devote significant resources to the development of new products and services, which could significantly reduce our profitability and may never result in revenue.
Our future growth depends on penetrating new markets, adapting existing products and services to new applications and customer requirements, and introducing new products and services that achieve market acceptance. NaaS’s research and development expenses were RMB30.3 million, RMB36.6 million and RMB63.1 million (US$8.9 million) in 2021, 2022 and 2023, respectively. We are expected to incur greater research and development expenses in the future as part of our efforts to design, develop and market new products and services and enhance existing products and services. Further, our research and development program may not produce successful results, and our new products may not achieve market acceptance, create additional revenue or become profitable.
We may not be able to adequately establish, maintain, protect and enforce our intellectual property and proprietary rights or prevent others from unauthorized use of our technology and intellectual property rights, which could harm our business and competitive position and also make us subject to ligations brought by third parties.
Our intellectual property is an essential asset of our business and such intellectual property forms an essential part of our asset. Failure to adequately protect such intellectual property rights could result in our competitors offering similar products and services, potentially resulting in the loss of our competitive advantage and a decrease in our revenue, which would adversely affect our business prospects, financial condition and operating results. Our success depends on the ability to protect our core technology and intellectual property. We expect to rely on a combination of intellectual property rights, such as patents, trademarks, copyrights and trade secrets (including know-how), in addition to employee and third-party nondisclosure agreements, intellectual property licenses and other contractual rights, to establish, maintain, protect and enforce our rights in our technology, proprietary information and processes. Intellectual property laws and our procedures and restrictions will provide only limited protection and any of our intellectual property rights may be challenged, invalidated, circumvented, infringed or misappropriated. If we fail to protect our intellectual property rights adequately, we may lose an important advantage in the markets in which we compete. While we are expected to take measures to protect our intellectual property, such efforts may be insufficient or ineffective, and any of our intellectual property rights may be challenged, which could result in them being narrowed in scope or declared invalid or unenforceable. Other parties may also independently develop technologies that are substantially similar or superior. We may also be forced to bring claims against third parties, or defend claims that they may bring against us, to determine the ownership of what we regard as our intellectual property. However, the measures we will take to protect our intellectual property from unauthorized use by others may not be effective and there can be no assurance that our intellectual property rights will be sufficient to protect against others offering products, services or technologies that are substantially similar or superior to those of ours and that compete with our business.
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Litigation may be necessary in the future to enforce our intellectual property rights and to protect our trade secrets. Our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property. Any litigation initiated concerning the violation by third parties of our intellectual property rights is likely to be expensive and time-consuming and could lead to the invalidation of, or render unenforceable, our intellectual property, or could otherwise have negative consequences for us. Furthermore, it could result in a court or governmental agency invalidating or rendering unenforceable our patents or other intellectual property rights upon which the suit is based. We will not be able to protect our intellectual property if we are unable to enforce our rights or if we fail to detect unauthorized use of our intellectual property. Our inability to protect our proprietary technology against unauthorized copying or use, as well as any costly litigation or diversion of our management’s attention and resources, could delay the introduction and implementation of new technologies. Moreover, policing unauthorized use of technologies, trade secrets and intellectual property may be difficult, expensive and time-consuming. If we fail to meaningfully establish, maintain, protect and enforce our intellectual property and proprietary rights, our business, operating results and financial condition could be adversely affected.
We may need to defend against intellectual property infringement or misappropriation claims, which may be time-consuming and expensive.
From time to time, the holders of intellectual property rights may assert their rights and urge us to take licenses, and/or may bring suits alleging infringement, misappropriation or other violation of such rights. There can be no assurance that we will be able to mitigate the risk of potential suits or other legal demands by competitors or other third-parties. Accordingly, we may consider entering into licensing agreements with respect to such rights, although no assurance can be given that such licenses can be obtained on acceptable terms or that litigation will not occur, and such licenses and associated litigation could significantly increase our operating expenses. In addition, if we are determined to have or believe there is a high likelihood that we have infringed upon, misappropriated or otherwise violated a third party’s intellectual property rights, we may be required to cease making, selling or incorporating certain key components or intellectual property into the products and services we offer, to pay substantial damages and/or royalties, to redesign our products and services, and/or to establish and maintain alternative branding. In addition, to the extent that our customers and business partners become the subject of any allegation or claim regarding the infringement, misappropriation or other violation of intellectual property rights related to our products and services, we may be required to indemnify such customers and business partners. If we were required to take one or more such actions, our business, prospects, operating results and financial condition could be materially and adversely affected. In addition, any litigation or claims, whether or not valid, could result in substantial costs, negative publicity and diversion of resources and management attention.
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Unpatented proprietary technology, trade secrets, processes and know-how are relied on.
We rely on proprietary information (such as trade secrets, know-how and confidential information) to protect intellectual property that may not be patentable, or that we believe is best protected by means that do not require public disclosure. We expect to protect this proprietary information by entering into confidentiality agreements, or consulting, services or employment agreements that contain non-disclosure and non-use provisions with our employees, consultants, contractors, scientific advisors and third parties. However, there is no guarantee that we will enter into such agreements with each party that has or may have had access to our trade secrets or proprietary information and, even if entered into, these agreements may be breached or may otherwise fail to prevent disclosure, third-party infringement or misappropriation of our proprietary information, may be limited as to their term and may not provide an adequate remedy in the event of unauthorized disclosure or use of proprietary information. We will have limited control over the protection of trade secrets used by our third-party manufacturers and suppliers and could lose future trade secret protection if any unauthorized disclosure of such information occurs. In addition, our proprietary information may otherwise become known or be independently developed by our competitors or other third parties. To the extent that our employees, consultants, contractors and other third parties use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain protection for our proprietary information could adversely affect our competitive business position. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor or other third party, we would have no right to prevent them from using that trade secret. If any of our trade secrets were to be disclosed (whether lawfully or otherwise) to or independently developed by a competitor or other third party, our business, operating results, and financial condition will be materially and adversely affected.
We utilize open-source software, which may pose particular risks and could be harmful.
We utilize open-source software to develop our products and services. Some open-source software licenses require those who distribute open-source software as part of their own software products to publicly disclose all or part of the source code to such software product or to make available any modifications or derivative works of the open-source code on unfavorable terms or at no cost. This could result in our proprietary software being made available in the source code form and/or licensed to others under open-source licenses, which could allow our competitors or other third parties to use our proprietary software freely without spending the development effort, and which could lead to a loss of the competitive advantage of our proprietary technologies and, as a result, sales of our products and services. The terms of many open-source licenses have not been interpreted by courts, and there is a risk that open-source software licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to provide or distribute our products or services or retain ownership of our proprietary intellectual property. Additionally, we could face claims from third parties claiming ownership of, or demanding release of, the open-source software or derivative works that we developed using such software, which could include our proprietary source code, or otherwise seeking to enforce the terms of, or alleging breach of, the applicable open-source license. These claims could result in litigation and could require us to make our proprietary software source code freely available, purchase a costly license, or cease offering the implicated products or services unless and until our can re-engineer them to avoid breach of the applicable open-source software licenses or potential infringement. This re-engineering process could require us to expend significant additional research and development resources and may not be successful.
Additionally, the use of certain open-source software can lead to greater risks than use of third-party commercial software, as open-source licensors generally do not provide warranties or controls on the origin of software. There is typically no support available for open-source software, the authors of such open-source software may not implement or push updates to address security risks and may abandon further development and maintenance. Many of the risks associated with the use of open-source software, such as the lack of warranties or assurances of title, non-infringement or performance, cannot be eliminated, and could, if not properly addressed, negatively affect our business. Any of these risks could be difficult to eliminate or manage, and, if not addressed properly, could adversely affect our ownership of proprietary intellectual property, the quality and security of our services and products, or our business, results of operations and financial condition.
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We depend on the information systems of our own and those of third parties for the effective delivery and performance of our products and services, and the overall effective and efficient functioning of our business. Failure to maintain or protect our information systems and data integrity effectively could harm our business, financial condition and results of operations.
We depend on our information systems for the effective and efficient functioning of our business, as well as for accounting, data storage, compliance, purchasing and inventory management. Our and our third-party collaborator’s information systems may be subject to computer viruses, ransomware or other malware, attacks by computer hackers, failures during the process of upgrading or replacing software, databases or components thereof, damage or interruption from fires or other natural disasters, hardware failures, telecommunication failures and user errors, among other malfunctions and other cyber-attacks. We and our third-party collaborators could be subject to an unintentional event that involves a third-party gaining unauthorized access to our systems, which could disrupt our operations, corrupt our data or result in release of confidential information. Any attempts by cyber attackers to disrupt our or our third-party collaborators’ services or systems, if successful, could harm our business, introduce liability to data subjects, result in the misappropriation of funds, be expensive to remedy, subject us to substantial fines, penalties, damages and other liabilities under applicable laws and regulations, lead to a loss of protection of our intellectual property or trade secrets and damage our reputation or brand. Additionally, theft of our intellectual property or proprietary business information could require substantial expenditures to remedy and even then may not be able to be remedied in full. We may have been and going forward will continue to be the target of events of this nature as cybersecurity threats have been rapidly evolving in sophistication and becoming more prevalent in the industry. Third parties upon whom we rely or with whom we have business relationships, including our customers, collaborators, suppliers, and others are subject to similar risks that could potentially have an adverse effect on our business.
To date, we have not experienced a system failure, cyber-attack or security breach that has resulted in a material interruption in our operations or material adverse effect on our financial condition. In the event we or our third-party collaborators experience significant disruptions, we may, despite having developed emergency plans for security incidents, be unable to repair such systems in an efficient and timely manner. Accordingly, such events may disrupt or reduce the efficiency of our entire operation and harm our business, financial condition and results of operations. Insurance may not be sufficient to cover significant expenses and losses related to cyber-attacks. Our information systems require an ongoing commitment of significant resources to maintain, protect and enhance. Efforts to prevent cyber attackers from entering computer systems are expensive to implement, and we may not be able to cause the implementation or enforcement of such preventions with respect to our third-party vendors. Though it is difficult to determine what, if any, harm may directly result from any specific interruption or attack, any failure to maintain performance, reliability, security and availability of systems and technical infrastructure may, in addition to other losses, harm our reputation, brand and ability to attract customers.
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If our products or services are unavailable when our customers and end-users attempt to access them, they may seek other services, which could reduce demand for our solutions. Processes and procedures designed to enable quick recovery from a disaster or catastrophe and continued business operations and with tested capability under controlled circumstances, are in place. However, there are several factors ranging from human error to data corruption that could materially impact the efficacy of such processes and procedures, including by lengthening the time services are partially or fully unavailable to customers and users. It may be difficult or impossible to perform some or all recovery steps and continue normal business operations due to the nature of a particular disaster or catastrophe, especially during peak periods, which could cause additional reputational damages, or loss of revenue, any of which could adversely affect our business and financial results.
The obligation to disclose information publicly may put us at a disadvantage to our competitors that are private companies.
As a publicly listed company, we are required to file periodic reports with the SEC upon the occurrence of matters that are material to ourselves and our shareholders. In some cases, we may need to disclose material agreements or results of financial operations that we would not be required to disclose if we were a private company. Our competitors may have access to this information, which would otherwise be confidential. This may give such competitors advantages in competing with us. Similarly, as a U.S.-listed public company, we will be governed by U.S. laws which our non-publicly traded competitors are not required to follow. To the extent compliance with U.S. laws increases our expenses or decreases our competitiveness against such companies, it could affect our results of operations.
Our management team has limited experience managing a public company.
Most members of our management team have not previously served as management of a publicly traded company and may not have experience complying with the increasingly complex laws pertaining to public companies. Our management team may not successfully or efficiently manage a public company that is subject to significant regulatory oversight and reporting obligations under the federal securities laws as well as the continuous scrutiny of securities analysts and investors like us. These new obligations and constituents will require significant attention from our management and could divert their attention away from the day-to-day management of our business, which could adversely affect our business and financial performance.
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We may face inventory risk
In connection with our hardware procurement solutions, we may in the future maintain an inventory of hardware, such as chargers, and to directly undertake the procurement and sales activities. As a result, we may be exposed to significant inventory risks that may adversely affect our results of operations of due to seasonality, new product launches, rapid changes in product cycles and pricing, defective merchandise, changes in charging station demand and preference and charging station spending patterns, spoilage, and other factors. Demand for charging station hardware products may change between the time inventory or components are ordered and the date of sale. The acquisition of certain types of inventory or components may require significant lead-time and prepayment and they may not be returnable. Any one of the inventory risk factors set forth above may adversely affect our business, financial condition, and results of operations.
Heightened tensions in international relations, particularly between the United States and China, may adversely impact our business, financial condition, and results of operations.
Recently there have been heightened tensions in international relations, particularly between the United States and China, but also as a result of the war in Ukraine and sanctions on Russia. These tensions have affected both diplomatic and economic ties among countries. Heightened tensions could reduce levels of trade, investments, technological exchanges, and other economic activities between the major economies. The existing tensions and any further deterioration in the relationship between the United States and China may have a negative impact on the general, economic, political, and social conditions in both countries and, given our reliance on the Chinese market, adversely impact our business, financial condition, and results of operations.
Acquisitions or strategic investments could be difficult to identify and integrate, divert the attention of key management personnel, disrupt our business, dilute shareholder value and adversely affect our results of operations and financial condition.
As part of the business strategy, NaaS made investments in and we are expected to make acquisitions of, or investments in, businesses, services or technologies, including with our affiliates, that are complementary to our EV charging services or otherwise.
The process of identifying and consummating acquisitions and investments, and the subsequent integration of new assets and businesses into our own business, requires attention from our management and could result in a diversion of resources from our existing business, which in turn could have an adverse effect on our operations. In addition, NewLink continues to have significant influence in determining the outcome of our corporate actions and may from time to time make strategic decisions, including in respect of our investments and mergers and acquisitions activities and strategies, that it believes are in the best interests of its business as a whole. These decisions may be different from the decision that we would have made on our own and may be made in ways that favor NewLink and may not coincide with the interests of our other shareholders.
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Even if we identify an appropriate acquisition or investment target, we may not be able to negotiate the terms of the proposed transaction or finance the proposed transaction successfully, or we or the sellers may not be able to fulfill all of the closing conditions. Failure to consummate such transactions could cause the costs and management time incurred thereby, which could be significant, to be futile. As a result, our results of operations and financial condition may be materially and adversely impacted. On August 22, 2023, we entered into a share purchase agreement with the existing shareholders of Charge Amps to acquire 100% of its issued and outstanding shares. The agreement was terminated on November 22, 2023 and the acquisition was not closed. We may be subject to claims, liabilities and litigations in connection with this termination, and our business, prospects, financial condition and operating results and the value of our securities could be materially and adversely affected as a result.
Even if the desired acquisitions or investments are completed successfully, the acquired assets or businesses may not generate the expected financial results. Acquisitions or investments could also result in the use of cash, potentially dilutive issuances of equity securities, the occurrence of goodwill impairment charges, amortization expenses for other intangible assets and exposure to potential unknown liabilities of the acquired business or investment. In addition, our due diligence may fail to identify all of the problems, liabilities or other shortcomings or challenges of an acquired business, product, technology or investment, including issues related to intellectual property, product quality or product architecture, regulatory compliance practices, revenue recognition or other accounting practices or issues with employees or customers.
Our past and future acquisitions or investments may not ultimately strengthen our competitive position or achieve our goals and business strategy; we may be subject to claims or liabilities assumed from acquired companies, products, or technologies; acquisitions or investments we complete could be viewed negatively by our customers, investors, and securities analysts; and we may incur costs and expenses necessary to address, or be subject to claims and penalties arising from, an acquired company’s failure to comply with laws and governmental rules and regulations, including data protection laws. Additionally, we may be subject to litigation or other claims or unforeseen and unexpected liabilities in connection with the acquired company, including claims from terminated employees, former shareholders or other third parties, which may differ from or be more significant than the risks its business faces. An acquired company may also need to implement or improve its controls, procedures and policies, and we may face associated risks if any of those controls, procedures or policies are insufficiently effective. We may face challenges in addressing possible differences in corporate cultures and management philosophies. We may also face retention or cultural challenges associated with integrating employees from the acquired company into our organization, or we may be unable to retain key business relationships. If we are unsuccessful at integrating acquisitions or investments, in a timely manner, our revenue and operating results could be adversely affected. Any integration process may require significant time and resources, which may disrupt our ongoing business and divert management’s attention, and we may not be able to manage the integration process successfully or in a timely manner. We may not successfully evaluate or utilize the acquired technology or personnel, realize anticipated synergies from the acquisition or investment, or accurately forecast the financial impact of an acquisition or investment transaction or the related integration of such acquisition or investment, including accounting charges and any potential impairment of goodwill and intangible assets recognized in connection with such transaction. We may also face difficulties in managing tax costs or inefficiencies associated with integrating the operation costs of the combined group. NaaS have and may continue to pay cash, incur debt, or issue equity or equity-linked securities to pay for any acquisitions or investments, each of which could adversely affect our financial condition. Furthermore, the sale of equity or issuance of equity-linked debt to finance any such transaction could result in dilution to our shareholders. The occurrence of any of these risks could harm our business, operating results, and financial condition.
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Our business is subject to risks associated with construction, cost overruns and delays, and other contingencies that may arise in the course of completing installations, and such risks may increase in the future as we expand the scope of such services with other parties.
We do not typically install charging stations at customer sites. These installations are typically performed by our partners or electrical contractors with an existing relationship with the customer and/or knowledge of the site. The installation of charging stations at a particular site is generally subject to oversight and regulation in accordance with PRC laws and regulations related to building codes, safety, environmental protection and related matters, and typically requires various local and other governmental approvals and permits. In addition, building codes, accessibility requirements or regulations may hinder EV charger installation because they end up costing the developer or installer more in order to meet the code requirements. Meaningful delays or cost overruns may impact our recognition of revenue in certain cases and/or impact customer relationships, either of which could impact our business and profitability.
Furthermore, we may in the future undertake to construct charging stations or install chargers at customer sites or manage contractors. Working with contractors may require us to obtain licenses or require us or our charging station customers to comply with additional rules, working conditions and other union requirements, which can add costs and complexity to a construction or installation project. In addition, if we or the contractors are unable to provide timely, thorough and quality construction or installation-related services, station customers could fall behind their construction schedules leading to liability to us or cause station customers to become dissatisfied with the solutions our offers and our overall reputation would be harmed.
Natural disasters, terrorist activities, political unrest, and other outbreaks could disrupt our production, delivery, and operations, which could materially and adversely affect our business, financial condition, and results of operations.
Global pandemics, epidemics in China or elsewhere in the world, or fear of spread of contagious diseases, such as COVID-19, Ebola virus disease, Middle East respiratory syndrome, severe acute respiratory syndrome, H1N1 flu, H7N9 flu, and avian flu, as well as hurricanes, earthquakes, tsunamis, or other natural disasters could disrupt our business operations, reduce or restrict our supply of materials and services, incur significant costs to protect our employees and facilities, or result in regional or global economic distress, which may materially and adversely affect our business, financial condition, and results of operations. Actual or threatened war, terrorist activities, political unrest, civil strife, and other geopolitical uncertainty could have a similar adverse effect on our business, financial condition, and results of operations. Any one or more of these events may impede our production and delivery efforts and adversely affect our sales results, or even for a prolonged period of time, which could materially and adversely affect our business, financial condition, and results of operations.
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We are also vulnerable to natural disasters and other calamities. Although we have servers that are hosted in an offsite location, our backup system does not capture data on a real-time basis and we may be unable to recover certain data in the event of a server failure. We cannot assure you that any backup systems will be adequate to protect us from the effects of fire, floods, typhoons, earthquakes, power loss, telecommunications failures, break-ins, war, riots, terrorist attacks, or similar events. Any of the foregoing events may give rise to interruptions, damage to our property, delays in production, breakdowns, system failures, technology platform failures, or internet failures, which could cause the loss or corruption of data or malfunctions of software or hardware as well as adversely affect our business, financial condition, and results of operations.
Risks Related to Doing Business in China
The PRC government has significant oversight over business operations conducted in China, and may intervene or influence our operations at any time, which could result in a material adverse change in our operations and the value of our ADSs.
The PRC government has significant oversight over business operations conducted in mainland China, Hong Kong and Macau, and the PRC government may intervene and influence our operations at any time, which could result in a material adverse change in our operation and the value of the ADSs. Specifically, the operational risks associated with being based in and having operations in mainland China also apply to operations in Hong Kong and Macau. While entities and businesses in Hong Kong and Macau operate under different sets of laws from mainland China, the legal risks associated with being based in and having operations in mainland China could apply to operations in Hong Kong and Macau, if the laws applicable to mainland China become applicable to entities and businesses in Hong Kong and Macau in the future.
Also, the PRC government has recently indicated that it may exert more oversight and control over offerings that are conducted overseas by or foreign investment in China-based issuers which may significantly limit or completely hinder our ability to offer or continue to offer securities and cause the value of such securities to significantly decline or be worthless. For example, on July 6, 2021, PRC government authorities published the Opinions on Strictly Scrutinizing Illegal Securities Activities in Accordance with the Law. These opinions emphasized the need to strengthen the administration over illegal securities activities and the supervision on overseas listings by China-based companies and proposed to take effective measures, such as promoting the establishment of regulatory systems to deal with the risks and incidents faced by China-based overseas-listed companies. On November 14, 2021, CAC released the Administrative Regulation on Network Data Security for public comments through December 13, 2021 for public comments, which stipulates, among others, that a prior cybersecurity review is required for the overseas listing of data processors who process over one million users’ personal information, and the listing of data processors in Hong Kong which affects or may affect national security. On December 28, 2021, the Chinese government promulgated the 2022 Cybersecurity Review Measures, which came into effect on February 15, 2022. According to the 2022 Cybersecurity Review Measures, (i) critical information infrastructure operators that purchase network products and services and internet platform operators that conduct data processing activities shall be subject to cybersecurity review in accordance with the 2022 Cybersecurity Review Measures if such activities affect or may affect national security; and (ii) internet platform operators holding personal information of more than one million users and seeking to have their securities listed on a stock exchange in a foreign country are required to file for cybersecurity review with the Cybersecurity Review Office.
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There is a general lack of official guidance with respect to the implementation and interpretation of the 2022 Cybersecurity Review Measures and the Opinions given the recency of their issuance. It is also uncertain when and in what form will the Draft Regulations be enacted and how they will be interpreted and implemented by PRC governmental authorities once in effect. As a result, we may be retrospectively required to obtain regulatory approvals from and complete additional procedures with CSRC, CAC or other PRC governmental authorities for the Mergers and the Transactions. In addition, if CSRC, CAC or other regulatory agencies subsequently promulgate new rules or regulations that require us to obtain additional approvals or complete additional procedures for the Mergers or the Transactions, or for our listing or offering overseas, such approvals may not be obtained and such procedures may not be completed in a timely manner or at all. Any such circumstance could significantly limit or completely hinder our ability to offer or continue to offer securities and cause the value of such securities to significantly decline or be worthless. In addition, implementation of industry-wide regulations directly targeting our operations could cause the value of the ADSs to significantly decline. Therefore, investors of the ADSs face potential uncertainty from actions taken by the PRC government affecting our business.
Changes in China’s economic, political or social conditions, or government policies could materially and adversely affect our business and operations.
Substantially all of our assets and operations are located in China. Accordingly, our business, financial condition, results of operations, and prospects may be influenced to a significant degree by political, economic, and social conditions in China generally and by continued yet slowing economic growth in China as a whole.
The Chinese economy differs from the economies of most developed countries in many respects, including the level of government involvement, level of development, growth rate, control of foreign exchange, and allocation of resources. Although the PRC government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets, and the establishment of improved corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the government. In addition, the PRC government continues to play a significant role in regulating industry development by imposing industrial policies. The PRC government also exercises significant control over China’s economic growth through resource allocation, controlling payment of foreign currency-denominated obligations, setting monetary policy, and providing preferential treatment to particular industries or companies.
While the Chinese economy has experienced significant growth over the past decades, growth has been uneven, both geographically and among various sectors of the economy, and the rate of growth has been slowing down in recent years. Any adverse changes in economic conditions in China, in the policies of the PRC government or in the laws and regulations in China could have a material adverse effect on the overall economic growth of China. Such developments could lead to reduction in demand for our services and products and adversely affect our competitive position, and could adversely affect our business and operating results. The PRC government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures may benefit the overall Chinese economy, but may have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations. In addition, in the past the PRC government has implemented certain measures, including interest rate adjustment, to control the pace of economic growth. These measures may cause decreased economic activity in China, which may adversely affect our business and operating results.
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Uncertainties with respect to the PRC legal system could adversely affect us.
We conduct our business primarily through subsidiaries in China. Operations in China are governed by PRC laws and regulations. The PRC legal system is a civil law system based on written statutes. Unlike the common law system, prior court decisions under the civil law system may be cited for reference but have limited precedential value. The PRC legal system is evolving rapidly, and the interpretation and enforcement of many laws, regulations and rules may involve uncertainties.
From time to time, we may have to resort to administrative and court proceedings to enforce our legal rights. Any administrative and court proceedings in China may be protracted, resulting in substantial costs and diversion of resources and management attention. Since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy. These uncertainties may impede our ability to enforce the contracts we have entered into and could materially and adversely affect our business and results of operations. Furthermore, the PRC legal system is based, in part, on government policies and internal rules, some of which may have retroactive effect. As a result, we may not always be aware of any potential violation of these policies and rules. Such unpredictability towards our contractual, property and procedural rights could adversely affect our business and impede our ability to continue our operations.
The PRC government has significant oversight over the conduct of our business and it has recently indicated an intent to exert more oversight over offerings that are conducted overseas and/or foreign investment in China-based issuers. Any such action could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless.
The PCAOB had historically been unable to inspect our auditor in relation to their audit work performed for our financial statements and the inability of the PCAOB to conduct inspections of our auditor in the past has deprived our investors with the benefits of such inspections.
Our auditor, the independent registered public accounting firm that issues the audit report included elsewhere in this annual report, as an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. The auditor is located in mainland China, a jurisdiction where the PCAOB was historically unable to conduct inspections and investigations completely before 2022. As a result, we and investors in our ADSs were deprived of the benefits of such PCAOB inspections. The inability of the PCAOB to conduct inspections of auditors in mainland China in the past has made it more difficult to evaluate the effectiveness of our independent registered public accounting firm’s audit procedures or quality control procedures as compared to auditors outside of China that are subject to the PCAOB inspections. On December 15, 2022, the PCAOB issued a report that vacated its December 16, 2021 determination and removed mainland China and Hong Kong from the list of jurisdictions where it is unable to inspect or investigate completely registered public accounting firms. However, if the PCAOB determines in the future that it no longer has full access to inspect and investigate completely accounting firms in mainland China and Hong Kong, and we use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial statements filed with the Securities and Exchange Commission, we and investors in our ADSs would be deprived of the benefits of such PCAOB inspections again, which could cause investors and potential investors in our ADSs to lose confidence in our audit procedures and reported financial information and the quality of our financial statements.
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Our ADSs may be prohibited from trading in the United States under the HFCAA in the future if the PCAOB is unable to inspect or investigate completely auditors located in mainland China and Hong Kong. The delisting of our ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment.
Pursuant to the HFCAA, if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspections by the PCAOB for two consecutive years, the SEC will prohibit our shares or our ADSs from being traded on a national securities exchange or in the over-the-counter trading market in the United States. On December 16, 2021, the PCAOB issued a report to notify the SEC of its determination that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong and our auditor was subject to that determination. In May 2022, the SEC conclusively listed RISE as a Commission-Identified Issuer under the HFCAA following the filing of RISE’s annual report on Form 20-F for the fiscal year ended December 31, 2021. On December 15, 2022, the PCAOB removed mainland China and Hong Kong from the list of jurisdictions where it is unable to inspect or investigate completely registered public accounting firms. As of the date of this annual report, the PCAOB has not issued any new determination that it is unable to inspect or investigate completely registered public accounting firms headquartered in any jurisdiction. For this reason, we do not expect to be identified as a Commission-Identified Issuer under the HFCAA after we file our annual report on Form 20-F for the fiscal year ended December 31, 2023.
Each year, the PCAOB will determine whether it can inspect and investigate completely audit firms in mainland China and Hong Kong, among other jurisdictions. If the PCAOB determines in the future that it no longer has full access to inspect and investigate completely accounting firms in mainland China and Hong Kong and we use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial statements filed with the Securities and Exchange Commission, we would be identified as a Commission-Identified Issuer following the filing of the annual report on Form 20-F for the relevant fiscal year. In accordance with the HFCAA, our securities would be prohibited from being traded on a national securities exchange or in the over-the-counter trading market in the United States if we are identified as a Commission-Identified Issuer for two consecutive years in the future. If our shares and ADSs are prohibited from trading in the United States, there is no certainty that we will be able to list on a non-U.S. exchange or that a market for our ADSs will develop outside of the United States. A prohibition of being able to trade in the United States would substantially impair your ability to sell or purchase our ADSs when you wish to do so, and the risk and uncertainty associated with delisting would have a negative impact on the price of our ADSs. Also, such a prohibition would significantly affect our ability to raise capital on terms acceptable to us, or at all, which would have a material adverse impact on our business, financial condition and prospects.
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We may be required to obtain additional licenses in relation to our ongoing business operations and may be subject to penalties for failing to obtain certain licenses with respect to our past operations.
We conducts our business in China through our PRC subsidiaries, each of which is required to obtain, and has obtained, a business license and, where applicable, certain additional operating licenses and permits in connection with their operations.
Considering (i) the uncertainties around the interpretation and implementation of PRC laws and regulations and the enforcement practice by government authorities, (ii) the PRC government’s ability to intervene in or influence our operations at any time, and (iii) the rapid evolvement of PRC laws, regulations, and rules which may be preceded with little or no advance notice, we may be subject to additional licensing requirements, and our conclusion on the status of our licensing compliance may prove to be mistaken. If (i) we do not receive or maintain any permission or approval required of us, (ii) we inadvertently concluded that certain permissions or approvals have been acquired or are not required, or (iii) applicable laws, regulations, or interpretations thereof change and we become subject to the requirement of additional permissions or approvals in the future, we may have to expend significant time and costs to procure them. If we are unable to do so, on commercially reasonable terms, in a timely manner or otherwise, we may become subject to sanctions imposed by the PRC regulatory authorities, which could include fines and penalties, proceedings against us, and other forms of sanctions, and our ability to conduct our business, invest into Mainland China as foreign investments or accept foreign investments, or list on a U.S. or other overseas exchange may be restricted, and our business, reputation, financial condition, and results of operations may be materially and adversely affected.
As an example, the People’s Bank of China issued the Administrative Measures on Non-Financial Institution Payment Service in June 2010 pursuant to which a non-financial institution offering payment services must obtain a payment business license. The People’s Bank of China subsequently issued a notification in November 2017, or the People’s Bank of China Notice, relating to the investigation and administration of illegal offering of settlement services by financial institutions and third-party payment service providers to unlicensed entities. As part of NaaS’s business operation prior to the Restructuring, end-users were required to make prepayments through Kuaidian under certain circumstances, including to initiate certain services through Kuaidian. This could potentially have constituted issuance of prepaid cards by NaaS under then prevailing PRC laws and regulations and required a payment business license. In line of market practice, NaaS had previously engaged licensed entities such as third-party payment institutions and commercial bank to provide payment settlement services. However, because there were and remain to be uncertainties with respect to the implementation and interpretation of the applicable laws and as these laws continue to evolve, the People’s Bank of China and other governmental authorities may find NaaS’s settlement mechanisms to be in violation of the Administrative Measures on Non-Financial Institution Payment Service, the People’s Bank of China Notice or other related regulations. If such determination is made, we may be subject to penalties and our businesses and results of operations could be materially and adversely affected.
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The approval of and filing with CSRC or other PRC government authorities may be required retrospectively in connection with the Mergers and the Transactions under PRC law, and, if required, it is uncertain whether such approval can be obtained or filing completed or how long it will take to obtain such approval or complete such filing.
Most of our operations are based in China. We are and will be subject to PRC laws relating to, among others, restrictions over foreign investments and data security. The Chinese government has recently sought to exert more control and impose more restrictions on China-based companies raising capital offshore and such efforts may continue or intensify in the future. The Chinese government’s exertion of more control over overseas listing of, offerings conducted overseas by and/or foreign investment in China-based companies could retrospectively affect the Mergers and result in a material change in our operations, significantly limit or completely hinder our abilities to offer or continue to offer securities to foreign investors, and cause the value of ADSs to significantly decline or be worthless.
The Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, adopted by six PRC regulatory agencies in 2006 and amended in 2009, requires an overseas special purpose vehicle formed for listing purposes through acquisitions of PRC domestic companies and controlled by PRC persons or entities to obtain the approval of CSRC prior to the listing and trading of such special purpose vehicle’s securities on an overseas stock exchange. The interpretation and application of the regulations remain unclear, and the Mergers and the Transactions may ultimately require approval of CSRC. If it is determined that CSRC approval is required retrospectively for the Mergers or the Transactions, it is uncertain whether we can or how long we will take to obtain the approval and, even if such CSRC approval is obtained, the approval could be rescinded. Any failure to obtain or delay in obtaining the CSRC approval for the Mergers and the Transactions, or a rescission of such approval if obtained, could subject us to sanctions imposed by CSRC or other PRC regulatory authorities, which could include fines and penalties on our operations, restrictions or limitations on our abilities to pay dividends outside of China, and other forms of sanctions that may materially and adversely affect their business, financial condition, and results of operations.
On July 6, 2021, PRC government authorities issued Opinions on Strictly Cracking Down Illegal Securities Activities in Accordance with the Law. These opinions emphasized the need to strengthen the administration over illegal securities activities and the supervision on overseas listings by China-based companies and proposed to take effective measures, such as promoting the establishment of regulatory systems to deal with the risks and incidents faced by China-based overseas-listed companies.
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On February 17, 2023, CSRC published the Overseas Listing Measures which took effect on March 31, 2023. Under the Overseas Listing Measures, a filing-based regulatory system applies to “indirect overseas offerings and listings” of companies in mainland China, which refers to securities offerings and listings in an overseas market made under the name of an offshore entity but based on the underlying equity, assets, earnings or other similar rights of a company in mainland China that operates its main business in mainland China. The Overseas Listing Measures states that, any post-listing follow-on offering by an issuer in an overseas market, including issuance of shares, convertible notes and other similar securities, shall be subject to filing requirement within three business days after the completion of the offering. Therefore, any of our future offering and listing of our securities in an overseas market may be subject to the filing requirements under the Overseas Listing Measures. In connection with the Overseas Listing Measures, on February 17, 2023 CSRC also published the Notice on Overseas Listing Measures. According to the Notice on Overseas Listing Measures, issuers that have already been listed in an overseas market by March 31, 2023, the date the Overseas Listing Measures became effective, are not required to make any immediate filing and are only required to comply with the filing requirements under the Overseas Listing Measures when it subsequently seeks to conduct a follow-on offering.
On December 27, 2021, the National Development and Reform Commission, or the NDRC, and the Ministry of Commerce, jointly issued the Special Administrative Measures (Negative List) for Foreign Investment Access (2021 Version), or the 2021 Negative List, which became effective on January 1, 2022. Pursuant to the 2021 Negative List, if a PRC domestic company, which engages in any prohibited business set out in the list, seeks an overseas offering or listing, it must first obtain the approval from the competent governmental authorities. In addition, the foreign investors in such company must not be involved in its operation or management, and their ownership interest should be subject to limitations imposed under regulations on investments in domestic securities by foreign investors. Because the 2021 Negative List is recently issued, there remain substantial uncertainties as to the interpretation and implementation of these new requirements, and it is unclear as to whether and to what extent we will be subject to these new requirements. If we are required to comply with these requirements but fail to do so on a timely basis if at all, our business operation, financial conditions and business prospect may be adversely and materially affected.
In addition, there is no assurance that new rules or regulations promulgated in the future will not impose additional requirements on us, including retrospectively with respect to the Mergers and the Transactions. If it is determined in the future that approval and filing from CSRC or other regulatory authorities or other procedures, including the cybersecurity review under the 2022 Cybersecurity Review Measures and the Draft Administrative Regulations on Network Data Security, are required for the Mergers or Transactions, on a retrospective basis, it is uncertain whether such approval can be obtained or filing procedures completed, or how long it will take to obtain such approval or complete such filing procedures. Any failure to obtain such approval or complete such filing procedures or any delay in obtaining such approval or completing such filing procedures for the Mergers or Transactions, or a rescission of any such approval if obtained, would subject us to sanctions by CSRC or other PRC regulatory authorities. These regulatory authorities may impose fines and penalties on our operations in China, limit our abilities to carry out business operations in China or pay dividends outside China, delay or restrict the repatriation of our offshore funds into China or take other actions that could materially and adversely affect our business, financial condition, results of operations, and prospects, as well as the trading price of the ADSs. CSRC and other PRC regulatory authorities may also order us, or make it advisable for us, to unwind or reverse the Mergers and the Transactions. In addition, if CSRC or other regulatory authorities in China subsequently promulgate new rules or issue directives requiring that we obtain additional approvals or complete additional filing or other regulatory procedures for our prior offerings overseas, there is no assurance that we will be able to comply with these requirements and may not be able to obtain any waiver of such requirements, if and when procedures are established to obtain such a waiver. Any of the foregoing could materially and adversely affect our business, prospects, financial condition, reputation, and the trading price of our listed securities.
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We may rely on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiaries to make payments to us could have a material and adverse effect on our ability to conduct our business.
We are a holding company and we may rely on dividends and other distributions on equity paid by our PRC subsidiaries for our cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders and service any debt we may incur. If these subsidiaries incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other distributions to us.
Under PRC laws and regulations, our wholly foreign-owned subsidiaries in China may pay dividends only out of their respective accumulated profits as determined in accordance with PRC accounting standards and regulations. In addition, a PRC enterprise is required to set aside at least 10% of its accumulated after-tax profits each year, if any, to fund certain statutory reserve fund, until the aggregate amount of such fund reaches 50% of its registered capital.
Any limitation on the ability of our PRC subsidiaries to pay dividends or make other distributions to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business. The funds in mainland China or in our PRC subsidiaries may not be available to fund operations or for other use outside of mainland China due to interventions in or the imposition of restrictions and limitations by the PRC government on our or our subsidiaries’ ability to transfer cash. Although currently there are no equivalent or similar restrictions or limitations in Hong Kong on cash transfers in, or out of, Hong Kong or our Hong Kong subsidiaries, if certain restrictions or limitations in mainland China were to become applicable to cash transfers in and out of Hong Kong or our Hong Kong subsidiaries in the future, the funds in Hong Kong or our Hong Kong subsidiaries, likewise, may not be available to fund operations or for other use outside of Hong Kong. Therefore, to the extent cash in our business is in mainland China or Hong Kong or our mainland China subsidiaries or Hong Kong subsidiaries, the funds may not be available to fund operations or for other use outside of mainland China or Hong Kong due to interventions in or the imposition of restrictions and limitations by the PRC government on our ability to transfer cash. Cash transfers from our Hong Kong subsidiaries to NaaS Technology Inc. or our offshore subsidiaries are subject to tax obligations imposed by Hong Kong laws to the extent applicable.
Our holding company structure involves unique risks to investors. If in the future we were to amend our operating structure to use any VIE again for our operations in China or if PRC regulatory authorities were to disallow our holding company structure, additional risks and uncertainties will be involved.
NaaS Technology Inc. is not an operating company but a Cayman Islands holding company and our operations are primarily conducted through our PRC subsidiaries. PRC regulatory authorities could disallow this holding company structure.
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We do not have any VIE and we conduct our operations in China through our subsidiaries following the completion of the Restructuring. If in the future we were to amend our operating structure to use any VIE again for our operations in China, the PRC government could disallow this structure or find the contractual arrangement that we may adopt to establish a VIE structure to be non-compliant with PRC regulations relating to the relevant industries and as a result we could be subject to severe penalties.
There are substantial uncertainties regarding the interpretation and application of current and future PRC laws, regulations and rules relating to a VIE structure and it is uncertain whether any new PRC laws or regulations in this respect will be adopted or if adopted, what they would provide. Meanwhile, there are very few precedents and little formal guidance as to how contractual arrangements in the context of a consolidated variable interest entity should be interpreted or enforced under PRC law.
If our current holding company structure is disallowed by PRC regulatory authorities or if we were to adopt a VIE structure in the future and if we or any VIE that we may establish were to be found in violation of any existing or future PRC laws or regulations, or fail to obtain or maintain any of the required permits or approvals, PRC governmental authorities would have broad discretion to take action in dealing with such violations or failures, including:
• | revoking the business licenses and/or operating licenses of the relevant entities; |
• | imposing fines on the relevant entities; |
• | confiscating the income of the relevant entities that is deemed to be obtained through illegal operations; |
• | discontinuing or placing restrictions or onerous conditions on the operations of the relevant entities; |
• | placing restrictions on the right to collect revenues of the relevant entities; |
• | shutting down the servers or blocking the app/websites of the relevant entities; or |
• | requiring the relevant entity to restructure its ownership structure or operations. |
Any of these actions could cause significant disruption to our business operations, severely damage our reputation, and have a material adverse effect on our financial condition and results of operations, which, in turn, would likely result in a material change in our operations and in the value of our securities and could cause the value of our securities to significantly decline or become worthless.
In addition, if we were to adopt a VIE structure for our operations in China in the future, we will have to rely on contractual arrangements with the VIE and its shareholders for the conduct of such operations. These contractual arrangements, however, may not be as effective as direct ownership in the VIE. If we were to have direct ownership of the VIE, we would be able to exercise our rights as a shareholder to effect changes in the board of directors of the VIE, which in turn could implement changes, subject to any applicable fiduciary obligations, at the management and operational level. On the other hand, under contractual arrangements, we will have to rely on the performance by the VIE and its shareholders of their contractual obligations in order to exercise control over the VIE. The VIE and its shareholders could breach their contractual arrangements with us by, among other things, failing to conduct the operations of the VIE in an acceptable manner or taking other actions that are detrimental to our interests. To the extent there will be any dispute relating to these contracts, we may have to incur substantial costs and expend additional resources to enforce such arrangements through the operations of PRC law and arbitration, litigation and other legal proceedings and therefore will be subject to uncertainties in the PRC legal system. We may also have to rely on legal remedies under PRC law, including seeking specific performance or injunctive relief, and contractual remedies, which we cannot assure you will be sufficient or effective under PRC law.
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PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent us from making loans to our PRC subsidiaries or making additional capital contributions to our wholly foreign-owned subsidiaries in China, which could materially and adversely affect our liquidity and our ability to fund and expand our business.
We are an offshore holding company conducting our operations in China through our PRC subsidiaries. We may make loans to our PRC subsidiaries subject to the approval from governmental authorities and limitation of amount, or we may make additional capital contributions to our wholly foreign-owned subsidiaries in China.
Any loans to our wholly foreign-owned subsidiaries in China, which are treated as foreign-invested enterprises under PRC law, are subject to PRC regulations and foreign exchange loan registrations. For example, loans by us to any of our wholly foreign-owned subsidiaries in China to finance its activities cannot exceed statutory limits, i.e., the difference between its total amount of investment and its registered capital, or certain amount calculated based on elements including capital or net assets, the cross-border financing leverage ratio and the macro prudential coefficient, or Macro-prudential Management Mode, under applicable PRC laws and the loans must be registered with the local counterpart of the State Administration of Foreign Exchange, or SAFE, or filed with SAFE in its information system. According to the Circular of the People’s Bank of China and the State Administration of Foreign Exchange on Adjusting the Macro-prudent Adjustment Parameter for Cross-border Financing issued on January 7, 2021, the limit for the total amount of foreign debt under the Macro-prudential Management Mode is adjusted to two times of our subsidiary’s net assets.
Moreover, any medium or long-term loan to be provided by us to our PRC subsidiaries must also be registered with the NDRC.
We may also decide to finance our wholly foreign-owned subsidiaries in China by means of capital contributions. These capital contributions shall go through record-filing procedures from competent administration for market regulation. SAFE issued the Circular on the Management Concerning the Reform of the Payment and Settlement of Foreign Currency Capital of Foreign-Invested Enterprises, or SAFE Circular 19, which took effect on June 1, 2015. SAFE Circular 19 allows for the use of RMB converted from the foreign currency-denominated capital for equity investments in the PRC provided that such usage shall fall into the scope of business of the foreign-invested enterprise, which will be regarded as the reinvestment of foreign-invested enterprise. In addition, SAFE promulgated the Circular Regarding Further Promotion of the Facilitation of Cross-Border Trade and Investment on October 23, 2019, or SAFE Circular 28, pursuant to which all foreign-invested enterprises can make equity investments in China with their capital funds in accordance with the law. The Circular Regarding Further Optimizing the Cross-border RMB Policy to Support the Stabilization of Foreign Trade and Foreign Investment jointly promulgated by the People’s Bank of China, NDRC, the Ministry of Commerce, the State-owned Assets Supervision and Administration Commission of the State Council, the China Banking and Insurance Regulatory Commission and SAFE on December 31, 2020 and effective on February 4, 2021 allows the non-investment foreign-invested enterprises to make domestic reinvestment with RMB capital in accordance with the law on the premise that they comply with prevailing regulations and the invested projects in China are authentic and compliant. In addition, if a foreign-invested enterprise uses RMB income under capital accounts to conduct domestic reinvestment, the invested enterprise is not required to open a special deposit account for RMB capital.
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In light of the various requirements imposed by PRC regulations on loans to and direct investment in PRC entities by offshore holding companies, we cannot assure you that we will be able to complete the necessary government registrations or record-filings on a timely basis, or at all, with respect to future loans or future capital contributions to our PRC subsidiaries. As a result, uncertainties exist as to our ability to provide prompt financial support to our PRC subsidiaries when needed. If we fail to complete such registrations or record-filings, our ability to use foreign currency, and to capitalize or otherwise fund our PRC operations may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand our business.
There are uncertainties with respect to indirect transfers of equity interests in PRC resident enterprises by our non-PRC holding companies.
Pursuant to the Circular on Strengthening Administration of Enterprise Income Tax for Share Transfers by Non-PRC Resident Enterprises, or SAT Circular 698, issued by the SAT in 2009 with retroactive effect from January 1, 2008, where a non-resident enterprise transfers the equity interests of a PRC resident enterprise indirectly by disposition of the equity interests of an overseas holding company, or an Indirect Transfer, and such overseas holding company is located in a tax jurisdiction that: (a) has an effective tax rate less than 12.5% or (b) does not tax foreign income of its residents, the non-resident enterprise, being the transferor, must report the Indirect Transfer to the competent tax authority of the PRC resident enterprise.
On February 3, 2015, the SAT issued a Public Notice Regarding Certain Corporate Income Tax Matters on Indirect Transfer of Properties by Non-Resident Enterprises, or SAT Public Notice 7. SAT Public Notice 7 supersedes certain rules with respect to the Indirect Transfer under SAT Circular 698 but does not touch upon the other provisions of SAT Circular 698, which remain in force. SAT Public Notice 7 has introduced a new tax regime that is significantly different from the previous one contemplated under SAT Circular 698. SAT Public Notice 7 extends its tax jurisdiction to not only Indirect Transfers set forth under SAT Circular 698 but also transactions involving transfer of other taxable assets through the offshore transfer of a foreign intermediate holding company. In addition, SAT Public Notice 7 provides clearer criteria than SAT Circular 698 for assessment of reasonable commercial purposes and has introduced safe harbors for internal restructurings of group companies and the purchase and sale of equity through a public securities market. SAT Public Notice 7 also brings challenges to both foreign transferors and transferees (or other person who is obligated to pay for the transfer) of taxable assets. Where a non-resident enterprise transfers taxable assets indirectly by disposing of the equity interests of an overseas holding company, which will be deemed as an Indirect Transfer, the non-resident enterprise as either transferor or transferee, or the PRC entity that directly owns the taxable assets, may report such Indirect Transfer to the tax authority. Using a “substance over form” principle, the PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding or deferring PRC tax. As a result, gains derived from a Indirect Transfer may be subject to PRC enterprise income tax, and the transferor will be subject to the obligation to withhold applicable taxes, currently at a rate of 10%.
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On October 17, 2017, SAT issued the Announcement of the State Administration of Taxation on Issues Concerning the Withholding of Nonresident Enterprise Income Tax at Source, or SAT Bulletin 37, which became effective on December 1, 2017 and abolished SAT Circular 698 as well as certain provisions in SAT Circular 7. The SAT Bulletin 37 further clarifies the practice and procedure for the withholding of non-resident enterprise income tax. Pursuant to SAT Bulletin 37, where the party responsible to withhold such income tax did not or was unable to withhold, and the nonresident enterprise receiving such income failed to declare and pay the taxes that should have been withheld to the tax authority, both parties may be subject to penalties.
We face uncertainties as to the reporting and other implications of certain past and future transactions where PRC taxable assets are involved, including the Mergers and the Transactions. We may be subject to filing obligations or taxed or subject to withholding obligations with respect to such transactions, under SAT Public Notice 7 and SAT Bulletin 37. For transfers of shares in us by investors that are non-PRC resident enterprises, our PRC subsidiaries may be requested to assist in the filing under SAT Public Notice 7 and SAT Bulletin 37. As a result, we may be required to expend valuable resources to comply with SAT Public Notice 7 and SAT Bulletin 37 or to request the transferors from whom our purchase taxable assets to comply with these circulars, or to establish that our should not be taxed under these circulars, which may have a material adverse effect on our financial condition and results of operations.
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It is unclear whether we will be considered a PRC “resident enterprise” under the PRC Enterprise Income Tax Law and, depending on the determination of our PRC “resident enterprise” status, our global income may be subject to the 25% PRC enterprise income tax, which could materially and adversely affect our results of operations.
Under the PRC Enterprise Income Tax Law, which became effective in January 2008 and was amended on February 24, 2017 and December 29, 2018, and its implementation rules, an enterprise established outside of the PRC with a “de facto management body” within China is considered a PRC resident enterprise and will be subject to enterprise income tax at the rate of 25% on its global income. The implementation rules of the PRC Enterprise Income Tax Law define the term “de facto management bodies” as “establishments that carry out substantial and overall management and control over the manufacturing and business operations, personnel, accounting, properties, etc., of an enterprise.” On April 22, 2009, the State Taxation Administration issued the Notice Regarding the Determination of Chinese-Controlled Offshore Incorporated Enterprises as PRC Tax Resident Enterprises on the Basis of De Facto Management Bodies, or STA Circular 82, which was partially amended by Announcement on Issues concerning the Determination of Resident Enterprises Based on the Standards of Actual Management Institutions issued by the State Taxation Administration on January 29, 2014, and further partially amended by Decision on Issuing the Lists of Invalid and Abolished Tax Departmental Rules and Taxation Normative Documents issued by the State Taxation Administration on December 29, 2017. STA Circular 82, as amended, provides certain specific criteria for determining whether the “de facto management body” of a Chinese-controlled offshore-incorporated enterprise is located in China. Further, STA Circular 82 states that certain Chinese-controlled enterprises will be classified as “resident enterprises” if the following are located or resident in China: senior management personnel and departments that are responsible for daily production, operation and management; financial and personnel decision making bodies; key properties, accounting books, company seal, and minutes of board meetings and shareholders’ meetings; and half or more of the senior management or directors having voting rights. In addition, the State Taxation Administration issued the Bulletin on Promulgation of the Administrative Measures for Income Tax of Chinese-Controlled Offshore-Incorporated Resident Enterprises (Trial Implementation) on July 27, 2011, effective from September 1, 2011 and partially amended on April 17, 2015, June 28, 2016, and June 15, 2018, or STA Bulletin 45, providing more guidance on the implementation of STA Circular 82. STA Bulletin 45 clarifies matters including resident status determination, post-determination administration and competent tax authorities. See “Item 4.B. Information on the Company—Business Overview—Regulations—Regulations Related to Tax—Enterprise Income Tax.” Although both STA Circular 82 and STA Bulletin 45 only apply to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreigners, the determining criteria set forth in STA Circular 82 and STA Bulletin 45 may reflect STA’s general position on how the “de facto management body” test should be applied in determining the tax resident status of all offshore enterprises, regardless of whether they are controlled by PRC enterprises or individuals. In addition to the uncertainty regarding how the new resident enterprise classification may apply, it is also possible that the rules may change in the future, possibly with retroactive effect. Although we do not believe that our legal entities organized outside of the PRC constitute PRC resident enterprises, it is possible that the PRC tax authorities could reach a different conclusion. In such case, we may be considered a PRC resident enterprise and may therefore be subject to enterprise income tax at 25% on our global income as well as PRC enterprise income tax reporting obligations. If we are considered a PRC resident enterprise and earn income other than dividends from our PRC subsidiaries, a 25% enterprise income tax on our global income could significantly increase our tax burden and materially and adversely affect our cash flow and profitability.
Certain transactions completed as part of the Restructuring may not have received the necessary approval.
According to the M&A Rules, where a domestic company, enterprise or natural person intends to acquire its or his/her related domestic company in the name of an offshore company which it or he/she lawfully established or controls, the acquisition should be subject to the examination and approval of the Ministry of Commerce. Historically, NaaS’s acquisition of several PRC entities could have fallen within the ambit of the M&A Rules and required the prior approval of the Ministry of Commerce. No such approval had been applied for or obtained and the acquisition could be deemed invalid.
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Failure to make adequate contributions to various employee benefit plans as required by PRC regulations may subject us to penalties.
Companies operating in China are required to participate in various government sponsored employee benefit plans, including certain social insurance, housing funds and other welfare-oriented payment obligations, and contribute to these plans based on the salaries, including bonuses and allowances, of the employees subject to any maximum amount of contribution specified by local authorities from time to time. This has however not been implemented consistently by local authorities. Certain of our subsidiaries in China have not made adequate employee benefit payments, and as a result, we may be required to make up for the contributions due and to pay late fees and fines.
It may be difficult for overseas regulators to conduct investigation or collect evidence within China.
Shareholder claims or regulatory investigation that are common in the United States generally are difficult to pursue as a matter of law or practicality in China. For example, in China, there are significant legal and other obstacles to providing information needed for regulatory investigations or litigation initiated outside China. Although PRC government authorities may establish a regulatory cooperation mechanism with the securities regulatory authorities of another country or region to implement cross-border supervision and administration, such cooperation with the securities regulatory authorities in the Unities States may not be efficient in the absence of mutual and practical cooperation mechanism. Furthermore, according to Article 177 of the PRC Securities Law, or Article 177, which became effective in March 2020, no overseas securities regulator is allowed to directly conduct investigation or evidence collection activities within the territory of the PRC. While detailed interpretation of or implementation rules under Article 177 have yet to be promulgated, the inability for an overseas securities regulator to directly conduct investigation or evidence collection activities within China may further increase difficulties faced by you in protecting your interests.
Any failure to comply with PRC regulations regarding the registration requirements for employee stock incentive plans may subject the PRC plan participants or us to fines and other legal and administrative sanctions.
Pursuant to the Notice on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Publicly Listed Company, issued by SAFE in February 2012, employees, directors, supervisors and other senior management participating in any stock incentive plan of an overseas publicly listed company who are PRC citizens or who are non-PRC citizens residing in China for a continuous period of not less than one year, subject to exceptions, are required to register with SAFE through a domestic qualified agent, which could be a PRC subsidiary of such overseas listed company, and complete certain other procedures. We and our directors, executive officers and other employees who are PRC citizens or who reside in the PRC for a continuous period of not less than one year and who have been granted restricted shares, restricted share units or options are subject to these regulations. Failure to complete the SAFE registrations may result in fines and legal sanctions and may also limit our ability to contribute additional capital into our subsidiaries in China and limit these subsidiaries’ ability to distribute dividends to us. We also face regulatory uncertainties that could restrict our ability to adopt additional incentive plans for our directors and employees under PRC law.
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Risks Related to Our ADSs and Trading Market
Our multi-class share structure with different voting rights will significantly limit your ability to influence corporate matters and could discourage others from pursuing any change of control transactions that holders of the Class A ordinary shares and the ADSs may view as beneficial.
Our authorized and issued ordinary shares are divided into Class A ordinary shares, Class B ordinary shares and Class C ordinary shares. In respect of matters requiring the votes of our shareholders, holders of Class A ordinary shares, Class B ordinary shares and Class C ordinary shares vote together as one class, and holders of Class A ordinary shares are entitled to one vote per share while holders of Class B ordinary shares and Class C ordinary shares are entitled to ten votes per share and two votes per share, respectively. Each Class B ordinary share and each Class C ordinary share is convertible into one Class A ordinary shares at any time by the holder thereof, while Class A ordinary shares are not convertible into Class B ordinary share or Class C ordinary shares under any circumstances. Our currently effective memorandum and articles of association prohibits any Class B ordinary shares held by NewLink from being disposed of or otherwise transferred to any person other than to Mr. Zhen Dai and persons affiliated with him. Our currently effective memorandum and articles of association also requires any Class B ordinary shares or Class C ordinary shares to be automatically converted into Class A ordinary shares upon a transfer of such Class B ordinary shares or Class C ordinary shares to any person other than to Mr. Zhen Dai and persons affiliated with him.
As of the date of this annual report, NewLink beneficially owns 242,662,399 Class B ordinary shares and 1,364,885,373 Class C ordinary shares, held directly by NewLink or indirectly through Newlinks Envision Limited, which collectively account for an aggregate of 83.7% of the voting power represented by all our issued and outstanding shares. As a result, NewLink will have the power to control all matters submitted to our shareholders for approval, including the election of directors, amendments of our organizational documents and any merger, consolidation, sale of all or substantially all of our assets and all other major corporate transactions. Mr. Zhen Dai, as the chairman of the board of directors and chief executive officer of NewLink, is expected to be able to exercise, through NewLink, significant influence and vote power over matters submitted to our shareholders for approval. In addition, NewLink may choose to distribute all or any of our ordinary shares to NewLink’s shareholders. By way of example, a distribution of 100% of our ordinary shares owned by NewLink to its shareholders will result in all issued and outstanding Class C ordinary shares being converted into Class A ordinary shares and all issued and outstanding Class B ordinary shares being held by Mr. Zhen Dai or his affiliates, and those Class B ordinary shares are expected to account for approximately 52.8% of the voting power represented by all our issued and outstanding shares, giving Mr. Zhen Dai the direct power to control all matters submitted to our shareholders for approval.
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Each of NewLink and Mr. Zhen Dai may have interests that differ from the interests of our other shareholders and may vote its Class B ordinary shares and/or Class C ordinary shares in ways with which other shareholders may disagree or which may be adverse to such other shareholders’ interests. The concentrated control over us will likely exist regardless of whether and to what extent NewLink distributes to its shareholders any ordinary shares, and will have the effect of delaying, preventing or deterring a change in control of us, could deprive our shareholders of an opportunity to receive a premium for their shares as part of a sale of us, and could have a negative effect on the market price of our ordinary shares or ADSs.
The trading price of our ADSs is likely to be volatile, which could result in substantial losses to investors.
The trading price of our ADSs has fluctuated significantly and will continue to be volatile and could fluctuate widely. Many factors that are beyond our control may materially adversely affect the market price and marketability of our ADSs and our ability to raise capital through equity financings. These factors include the following:
• | regulatory developments affecting us or our industries; |
• | variations in our revenues, earnings, cash flow and data related to our operations; |
• | changes in market condition, market potential and competitive landscape; |
• | announcements of new investments, acquisitions, strategic partnerships or joint ventures by us or our competitors; |
• | fluctuations in global and Chinese economies; |
• | changes in financial estimates by securities analysts; |
• | adverse publicity about us or our industries; |
• | additions or departures of key personnel and senior management; |
• | release of lock-up or other transfer restrictions on our outstanding equity securities or sales of additional equity securities; and |
• | potential litigation or regulatory investigations. |
In the past, shareholders of public companies have often brought securities class action suits against those companies following periods of instability in the market price of their securities. If we were involved in a class action suit, it could divert a significant amount of our management’s attention and other resources from our business and operations and require us to incur significant expenses to defend the suit, which could harm our results of operations. Any such class action suit, whether or not successful, could harm our reputation and restrict our ability to raise capital in the future. In addition, if a claim is successfully made against us, it may be required to pay significant damages, which could have a material adverse effect on our financial condition and results of operations.
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We are a “controlled company” within the meaning of the Nasdaq Stock Market Rules, and as a result, may rely on exemptions from certain corporate governance requirements that provide protection to shareholders of other companies.
NewLink has the right to vote 62.0% of our ordinary shares. As a result, we are considered a “controlled company” as defined under the Nasdaq Stock Market Rules as set forth in Listing Rule 5605(b), because NewLink owns more than 50% of our total voting power. For so long as we remain a controlled company, we will be permitted to elect to rely, and may rely, on certain exemptions from corporate governance rules, including an exemption from the rule that a majority of our board of directors must be independent directors or that we have to establish a nominating committee and a compensation committee composed entirely of independent directors. As a result, you will not have the same protection afforded to shareholders of companies that are subject to these corporate governance requirements.
Future issuance of ADSs or ordinary shares will result in additional dilution of the percentage ownership of our shareholders and could cause the price of the ADSs to fall.
5,000,000 ADSs are issuable upon exercise of the Investor Warrants and FA Warrants. Additional ADSs are issuable upon conversion of the LMR Convertible Notes. The Investor Warrants and the LMR Convertible Notes provide for a fluctuating conversion price, which is subject to anti-dilution adjustments (including for certain offerings of our ADSs and ordinary shares) and certain floor price. The exercise of the Investor Warrants and FA Warrants, and the conversion of some or all of our LMR Convertible Notes will dilute the ownership interests of our shareholders and holders of our ADSs, and the lower the prevailing price of our ADSs is at the time of the relevant exercise or conversion, the larger dilution would result from such conversion. Furthermore, any sales in the public market of such additional ADSs issuable upon exercise of the Investor Warrants and FA Warrants and conversion of the LMR Convertible Notes may create a downward pressure on the market price of our ADSs and/or may increase the opportunities to create short positions with respect to the ADSs, which could in turn further adversely affect the prevailing market price of our ADSs. In addition, the existence of the Investor Warrants, FA Warrants and LMR Convertible Notes, in itself, may encourage short selling by market participants because their exercise or conversion could trigger the market dynamic that would depress the price of our ADSs.
We may also need additional capital in the future to finance our operations. We may sell ordinary shares, convertible securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time. Furthermore, we may issue additional ADSs and ordinary shares in connection with the grant of equity awards to employees under our equity incentive plans. Any such issuance of additional share capital may cause shareholders to experience significant dilution of their ownership interests and the value of our securities to decline.
Substantial future sales or perceived sales of our ordinary shares or ADSs in the public market could cause the price of our ADSs to decline.
Sales of our ordinary shares or ADSs, either in the public market or through private placement, or the perception that these sales could occur, could cause the market price of our ADSs to decline. It cannot be predicted what effect, if any, market sales of securities held by our significant shareholders or any other shareholder or the availability of these securities for future sale will have on the market price of our ADSs.
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There can be no assurance that the Investor Warrants or FA Warrants will be in the money at the time they become exercisable, and they may expire worthless.
The initial exercise price for the Investor Warrants and FA Warrants is US$1.49 per ADS. There can be no assurance that such warrants will be in the money following the time they become exercisable and prior to their expiration, and as such, these warrants may expire worthless.
There is no public market for the Investor Warrants or FA Warrants.
There is no established trading market for the Investor Warrants or FA Warrants, and we do not plan on applying to list these warrants on Nasdaq, any other national securities exchange or any other nationally recognized trading system. Accordingly, we do not expect an active market for these warrants to develop or be sustained and it may be difficult for you to sell your warrants at the time you wish to sell them, at a price that is attractive to you, or at all.
Holders of the Investor Warrants and FA Warrants will have no rights as holders of ADSs or our ordinary shares until they acquire such ADSs and underlying ordinary shares.
Until investors acquire our ADSs and underlying ordinary shares upon exercise of the Investor Warrants or FA Warrants, they will have no rights with respect to our ADSs or ordinary shares. Upon exercise of the Investor Warrants or FA Warrants, holders will be entitled to exercise the rights of a holder of our ADSs only as to matters for which the record date occurs after the exercise date.
We will not pay dividends for the foreseeable future, you must rely on price appreciation of the ADSs for return on your investment.
We intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect to declare or pay any dividends in the foreseeable future. As a result, you may only receive a return on your investment in our ADSs if the market price of our ADSs increases.
Your right to participate in any future rights offerings may be limited, which may cause dilution to your holdings, and you may not receive cash dividends if it is impractical to make them available to you.
We may from time to time distribute rights to our shareholders, including rights to acquire our securities. However, we cannot make rights available to you in the United States unless we register both the rights and the securities to which the rights relate under the Securities Act or an exemption from the registration requirements is available. Under the deposit agreement, the depositary will not make rights available to you unless both the rights and the underlying securities to be distributed to ADS holders are either registered under the Securities Act or exempt from registration under the Securities Act. We are under no obligation to file a registration statement with respect to any such rights or securities or to endeavor to cause a registration statement, if filed, to be declared effective. There might not be an exemption from registration under the Securities Act available to us for our rights offering. Accordingly, you may be unable to participate in our rights offerings and may experience dilution in your holdings.
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The depositary of our ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on our ordinary shares or other deposited securities after deducting its fees and expenses. You will receive these distributions in proportion to the number of ordinary shares your ADSs represent. However, the depositary may, at its discretion, decide that it is inequitable or impractical to make a distribution available to any holders of ADSs. For example, the depositary may determine that it is not practicable to distribute certain property through the mail, or that the value of certain distributions may be less than the cost of mailing them. In these cases, the depositary may decide not to distribute such property to you.
You may be subject to limitations on transfer of your ADSs.
Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deems expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary deems it advisable to do so because of any requirement of law or of any government or government body, or under any provision of the deposit agreement, or for any other reason.
You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because we are incorporated under Cayman Islands law.
We are an exempted company incorporated under the laws of the Cayman Islands with limited liability. Our corporate affairs are governed by our memorandum and articles of association as may be amended form time to time, the Companies Act (As Revised) of the Cayman Islands and the common law of the Cayman Islands. The rights of shareholders to take action against us and our directors, actions by minority shareholders and the fiduciary duties of our directors under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from the English common law, which are generally of persuasive authority, but are not binding, on a court in the Cayman Islands. The rights of our shareholders and the fiduciary duties of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a different body of securities laws than the United States, and provide significantly less protection to investors. In addition, with respect to Cayman Islands companies, plaintiffs may face special obstacles, including but not limited to those relating to jurisdiction and standing, in attempting to assert derivative claims in state or federal courts of the United States There is no statutory recognition in the Cayman Islands of judgments obtained in the United States, although the courts of the Cayman Islands will in certain circumstances, recognize and enforce a non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits.
Shareholders of Cayman Islands exempted companies like us have no general rights under Cayman Islands law to inspect corporate records (other than our memorandum and articles of association, the register of mortgages and charges, and copies of any special resolutions passed by our shareholders) or to obtain copies of lists of shareholders of these companies. Our directors have discretion under our currently effective memorandum and articles of association, to determine whether or not, and under what conditions, our corporate records may be inspected by our shareholders, but are not obliged to make them available to our shareholders. This may make it more difficult for you to obtain the information needed to establish any facts necessary for a shareholder resolution or to solicit proxies from other shareholders in connection with a proxy contest.
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Certain corporate governance practices in the Cayman Islands differ significantly from requirements for companies incorporated in other jurisdictions such as the U.S. If we choose to follow our home country practice in the future, our shareholders may be afforded less protection than they otherwise would under rules and regulations applicable to U.S. domestic issuers.
As a result of all of the above, public shareholders may have greater difficulty in protecting their interests in the face of actions taken by our management, members of the board of directors or controlling shareholders than they would as public shareholders of a company incorporated in the United States.
Our corporate structure, together with applicable law, may impede our shareholders from asserting claims against us and our principals.
Most of our operations and records, and most of our senior management are located in China. Shareholders of companies such as us have limited ability to assert and collect on claims in litigation against our PRC subsidiaries and their principals. In addition, China has very restrictive secrecy laws that prohibit the delivery of many of the financial records maintained by a business located in China to third parties absent PRC government’s approval. Since discovery is an important part of proving a claim in litigation, and since most if not all of our records will be in China, PRC secrecy laws could frustrate efforts to prove a claim against us or our management. In addition, in order to commence litigation in the United States against an individual such as an officer or director, that individual must be served. Generally, service requires the cooperation of the country in which a defendant resides. China has a history of failing to cooperate in efforts to affect such service upon PRC citizens in China.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, the market price for our ADS and trading volume could decline.
The trading market for our ADSs will depend in part on the research and reports that securities or industry analysts publish about us or our business. If research analysts do not establish and maintain adequate research coverage or if one or more of the analysts who cover us downgrade our ADSs or publish inaccurate or unfavorable research about our business, the market price for our ADSs would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial markets, which, in turn, could cause the market price or trading volume for our ordinary shares to decline.
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As a company incorporated in the Cayman Islands, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from the Nasdaq Stock Market listing standards.
As a Cayman Islands company listed on the Nasdaq Stock Market, we are subject to the Nasdaq Stock Market listing standards, which requires listed companies to have, among other things, a majority of their board members to be independent and independent director oversight of executive compensation and nomination of directors. However, Nasdaq Stock Market rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in the Cayman Islands, which is our home country, may differ significantly from the Nasdaq Stock Market listing standards.
We are permitted to elect to rely on home country practice to be exempted from the corporate governance requirements. If we choose to follow home country practice in the future, our shareholders may be afforded less protection than they would otherwise enjoy if we complied fully with the Nasdaq Stock Market listing standards.
We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to U.S. domestic public companies.
We qualify as a foreign private issuer under the Exchange Act, and exempt from certain provisions of the securities rules and regulations in the United States that are applicable to U.S. domestic issuers, including:
• | the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q or current reports on Form 8-K; |
• | the sections of the Exchange Act regulating the solicitation of proxies, consents, or authorizations in respect of a security registered under the Exchange Act; |
• | the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and |
• | the selective disclosure rules by issuers of material nonpublic information under Regulation FD promulgated by SEC. |
We are required to file an annual report on Form 20-F within four months of the end of each fiscal year. However, the information we are required to file with or furnish to the SEC are less extensive and less timely compared to that required to be filed with the SEC by U.S. domestic issuers. As a result, you may not be afforded the same protections or information that would be made available to you were you investing in a U.S. domestic issuer.
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There can be no assurance that we will not be classified as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for any taxable year, which could result in adverse U.S. federal income tax consequences to U.S. Holders of our ADSs or Class A ordinary shares.
A non-U.S. corporation, such as our company, will be classified as a passive foreign investment company, or PFIC, for any taxable year if either (i) at least 75% of its gross income for such year consists of certain types of “passive” income; or (ii) at least 50% of the value of its assets (generally determined on the basis of a quarterly average) during such year is attributable to assets that produce passive income or are held for the production of passive income, or the asset test. Based on the current and anticipated value of our assets and composition of our income and assets, we do not expect to be a PFIC for the taxable year ended December 31, 2023 or the foreseeable future.
While we do not expect to be or become a PFIC for the taxable year ended December 31, 2023, no assurance can be given in this regard because the determination of whether we are or will become a PFIC for any taxable year is a fact-intensive inquiry made on an annual basis that depends, in part, upon the composition and classification of our income and assets. In particular, increased volatility in the market price of our ADSs may significantly increase our risk of becoming a PFIC. The market price of our ADSs may continue to fluctuate widely and, consequently, we cannot assure you of our PFIC status for any taxable year. Fluctuations in the market prices of our ADSs and Class A ordinary shares may cause us to be or become a PFIC for the current or subsequent taxable years because the value of our assets for the purpose of the asset test, including the value of our goodwill and other unhooked intangibles, may be determined by reference to the market price of our ADSs from time to time (which may be volatile). The composition of our income and assets may also be affected by how, and how quickly, we use our liquid assets.
If we were to be or become a PFIC for any taxable year during which a U.S. Holder (as defined in “Item 10. Additional Information—E. Taxation—United States Federal Income Tax Considerations”) holds our ADSs or Class A ordinary shares, certain adverse U.S. federal income tax consequences could apply to such U.S. Holder. See “Item 10. Additional Information—E. Taxation—United States Federal Income Tax Considerations—Passive Foreign Investment Company Rules.”
Our multi-class voting structure may render the ADSs representing our Class A ordinary shares ineligible for inclusion in certain stock market indices, and thus adversely affect the trading price and liquidity of our ADSs.
We cannot predict whether our multi-class share structure with different voting rights will result in a lower or more volatile market price of our ADSs, adverse publicity, or other adverse consequences. Certain index providers have announced restrictions on including companies with multi-class share structures in certain of their indices. For example, S&P Dow Jones and FTSE Russell have changed their eligibility criteria for inclusion of shares of public companies on certain indices, including the S&P 500, to exclude companies with multiple classes of shares and companies whose public shareholders hold no more than 5% of total voting power from being added to such indices. As a result, our multi-class voting structure may prevent the inclusion of the ADSs representing our Class A ordinary shares in such indices, which could adversely affect the trading price and liquidity of the ADSs representing our Class A ordinary shares. In addition, several shareholder advisory firms have announced their opposition to the use of multiple class structure and our multi-class structure may cause shareholder advisory firms to publish negative commentary about our corporate governance, in which case the market price and liquidity of our ADSs could be adversely affected.
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Our memorandum and articles of association contain anti-takeover provisions that could have a material adverse effect on the rights of holders of our Class A ordinary shares and ADSs.
Our currently effective memorandum and articles of association contain provisions to limit the ability of others to acquire control of our company or cause us to engage in change-of-control transactions. These provisions could have the effect of depriving our shareholders of an opportunity to sell their shares at a premium over prevailing market prices by discouraging third parties from seeking to obtain control of our company in a tender offer or similar transaction. Our board of directors has the authority, without further action by our shareholders, to issue preferred shares in one or more series and to fix their designations, powers, preferences, privileges and relative participating, optional or special rights and the qualifications, limitations or restrictions, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights associated with our ordinary shares, including ordinary shares represented by ADSs. Preferred shares could be issued quickly with terms calculated to delay or prevent a change in control of our company or make removal of management more difficult. If our board of directors decides to issue preferred shares, the price of our ADSs may fall and the voting and other rights of the holders of our ordinary shares and our ADSs may be materially and adversely affected.
ADS holders may not be entitled to a jury trial with respect to claims arising under the deposit agreement, which could result in less favorable outcomes to the plaintiff(s) in any such action.
The deposit agreement governing the ADSs representing our ordinary shares provides that, subject to the depositary’s right to require a claim to be submitted to arbitration, the federal or state courts in the City of New York have exclusive jurisdiction to hear and determine claims arising under the deposit agreement and in that regard, to the fullest extent permitted by law, ADS holders waive the right to a jury trial of any claim they may have against us or the depositary arising out of or relating to our shares, our ADSs or the deposit agreement, including any claim under the U.S. federal securities laws.
If we or the depositary opposed a jury trial demand based on the waiver, the court would determine whether the waiver was enforceable based on the facts and circumstances of that case in accordance with the applicable state and federal law. To our knowledge, the enforceability of a contractual pre-dispute jury trial waiver in connection with claims arising under the federal securities laws has not been finally adjudicated by the U.S. Supreme Court. However, we believe that a pre-dispute contractual waiver of jury trial is generally enforceable, including under the laws of the State of New York, which govern the deposit agreement, by the United States District Court for the Southern District of New York or a state court in New York County, New York. In determining whether to enforce a pre-dispute contractual waiver of jury trial, courts will generally consider whether a party knowingly, intelligently and voluntarily waived the right to a jury trial. We believe that this is the case with respect to the deposit agreement and our ADSs. It is advisable that you consult legal counsel regarding the jury waiver provision before entering into the deposit agreement.
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If you or any other holders or beneficial owners of ADSs bring a claim against us or the depositary in connection with matters arising under the deposit agreement or our ADSs, including claims under federal securities laws, you or such other holder or beneficial owner may not be entitled to a jury trial with respect to such claims, which may have the effect of limiting and discouraging lawsuits against us and the depositary. If a lawsuit is brought against either or both of us and the depositary under the deposit agreement, it may be heard only by a judge or justice of the applicable trial court, which would be conducted according to different civil procedures and may result in different outcomes than a trial by jury would have, including results that could be less favorable to the plaintiffs in any such action.
Nevertheless, if this jury trial waiver provision is not enforced, to the extent a court action proceeds, it would proceed under the terms of the deposit agreement with a jury trial. No condition, stipulation or provision of the deposit agreement or ADSs shall relieve us or the depositary from our respective obligations to comply with the Securities Act and the Exchange Act.
The voting rights of holders of ADSs are limited by the terms of the deposit agreement, and you may not be able to exercise your right to direct the voting of the underlying ordinary shares represented by your ADSs.
Our ADS holders do not have the same rights as our registered shareholders. As a holder of our ADSs, you will only be able to exercise the voting rights with respect to the underlying ordinary shares in accordance with the provisions of the deposit agreement. Under the deposit agreement, you must vote by giving voting instructions to the depositary. Upon receipt of your voting instructions, the depositary will try, as far as is practicable, to vote the underlying ordinary shares represented by your ADSs in accordance with your instructions. You will not be able to directly exercise your right to vote with respect to the underlying shares unless you withdraw the shares and become the registered holder of such shares prior to the record date for the general meeting. When a general meeting is convened, you may not receive sufficient advance notice to withdraw the shares underlying your ADSs and become the registered holder of such shares to allow you to attend the general meeting and vote with respect to any specific matter or resolution to be considered and voted upon at the general meeting. In addition, under our currently effective memorandum and articles of association, for the purposes of determining those shareholders who are entitled to attend and vote at any general meeting, our directors may close our register of members and/or fix in advance a record date for such meeting, and such closure of our register of members or the setting of such a record date may prevent you from withdrawing the ordinary shares underlying your ADSs and becoming the registered holder of such shares prior to the record date, so that you would not be able to attend the general meeting or to vote directly. If we ask for your instructions, the depositary will notify you of the upcoming vote and will arrange to deliver our voting materials to you. We cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote your shares. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for their manner of carrying out your voting instructions. This means that you may not be able to exercise your right to vote and you may have no legal remedy if the shares underlying your ADSs are not voted as you requested.
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Item 4. Information on the Company
A. | History and Development of the Company |
Corporate History of RISE
In July 2013, Bain Capital Rise Education II Cayman Limited was incorporated as an exempted company under the laws of the Cayman Islands, and it was renamed as RISE Education Cayman Ltd in June 2017.
In July 2013, Rise IP (Cayman) Limited, or Rise IP, was incorporated as an exempted company under the laws of the Cayman Islands. Subsequently, a number of RISE’s wholly owned subsidiaries were established to acquire Rise IP and certain operating assets and entered into a series of contractual arrangements with Beijing Step Ahead Education Technology Development Co., Ltd., or the Rise VIE, its schools and its shareholders. As a result, the RISE VIE and its subsidiaries and schools became RISE’s consolidated entities.
RISE listed the ADSs on the Nasdaq under the symbol “REDU” on October 20, 2017.
The Assets Sale
Prior to becoming a shell company, RISE Education Cayman Ltd was a holding company without substantive operations. RISE Education Cayman Ltd, primarily through its PRC subsidiary, Rise (Tianjin) Education Information Consulting Co., Ltd., or the Rise WFOE, and the Rise VIE, provided after-school English teaching and tutoring services to students aged three to 18 in China and was a leading service provider in the China market.
On December 1, 2021, Wuhan Xinsili Culture Development Co., Ltd., or the Buyer SPV, Rise WFOE, Rise VIE, RISE Education International Limited, or Rise HK, Rise IP and RISE entered into a purchase agreement, or WFOE Purchase Agreement. Pursuant to the WFOE Purchase Agreement, RISE agreed to, through Rise HK, sell all of the equity interests in Rise WFOE to the Buyer SPV, or the WFOE Sale, in consideration of the Buyer SPV (i) paying to Rise HK a consideration of RMB1, and (ii) assuming all liabilities of Rise WFOE and its subsidiaries. The Buyer SPV is a limited liability company controlled by a buyer consortium consisting of certain of RISE’s franchisees and an affiliate of RISE’s senior management, who are PRC nationals.
Also on December 1, 2021, Rise Education Cayman I Ltd, RISE’s wholly-owned indirect subsidiary, or the IP Seller, Bain Capital Rise Education IV Cayman Limited, a major shareholder of RISE, or the Major Shareholder, and RISE entered into a share purchase agreement, or the IP Holdco Purchase Agreement and collectively with the WFOE Purchase Agreement, the Purchase Agreements. The IP Seller is also the borrower under the Facilities Agreement (defined below). Pursuant to the IP Holdco Purchase Agreement, the IP Seller and RISE agreed to sell all of the equity interests in Rise HK and Rise IP to the Major Shareholder in consideration of the Major Shareholder (i) paying US$2,500,000 to RISE, for the purposes of paying the Lenders in settlement of the Facilities Agreement, and (ii) causing Rise HK and Rise IP to grant Rise WFOE or entities designated by the Buyer SPV a royalty-free, perpetual, irrevocable and exclusive license over all intellectual property rights owned by or licensed to Rise HK and/or Rise IP or the IP Sale and together with the WFOE Sale, the Sale.
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In connection with the Sale, the IP Seller (being the borrower under the Facilities Agreement), WFOE, VIE and the Major Shareholder and certain other parties entered into a settlement agreement, or the Settlement Agreement, with the Lenders on December 1, 2021. Under the Settlement Agreement, the Lenders agreed to (i) acknowledge and consent to the Sale, (ii) discharge and release all our liabilities and obligations and our subsidiaries under the Facilities Agreement in the amount of US$55,746,367.04; (iii) terminate, release and discharge all security interest, guarantee and indemnity created in connection with the Facilities Agreement; and (iv) waive, release and discharge all claims arising from or in connection with the Facilities Agreement, in exchange for (a) an aggregate amount of US$10,377,972.06, and (b) the transfer of all interest in certain business to a person nominated by the Lenders, amongst others, which are collectively referred to as the “Settlement”.
In order for us to make the settlement payment under the Settlement Agreement, make an additional capital contribution to WFOE pursuant to the WFOE Purchase Agreement and pay for certain operating expenses, we entered into a convertible loan deed with the Major Shareholder on December 1, 2021, or the Convertible Loan Deed, pursuant to which the Major Shareholder agreed to provide an interest-free convertible loan of US$17 million to us. The loan was converted into 48,571,428 ordinary shares prior to the consummation of the Mergers.
The Sale was approved by a special resolution of shareholders of RISE at an extraordinary general meeting of shareholders held in Beijing on December 23, 2021. The Sale was consummated and the Settlement was entered into on December 30, 2021.
Corporate History of NaaS
NaaS launched its EV charging services in 2019 through Chezhubang (Beijing) Technology Co., Ltd., or Chezhubang Technology, and its subsidiaries Beijing Chezhubang New Energy Technology Co., Ltd., or Beijing Chezhubang, and Kuaidian Power (Beijing) New Energy Technology Co., Ltd., or Kuaidian Power Beijing, which were established by Chezhubang Technology in July 2018 and August 2019, respectively.
In July 2019, Dada Auto was incorporated in the Cayman Islands. Dada Auto later became the holding company of NaaS to facilitate NaaS’s offshore financing.
In September 2021, Beijing Chezhubang acquired 100% of the equity interests in Shaanxi Kuaidian Mobility Technology Co., Ltd., or Shaanxi Kuaidian. In September 2020, Kuaidian Power Beijing incorporated a wholly-owned subsidiary, Zhidian Youtong Technology Co., Ltd., or Zhidian Youtong.
In February 2021, Cosmo Light (Beijing) New Energy Technology Co., Ltd., or Cosmo Light, was incorporated. In April 2021, Qingdao Hill Matrix New Energy Technology Co., Ltd., QHM New Energy, was incorporated. Ownership interests in each of Cosmo Light and QHM New Energy were held by NaaS through certain nominee arrangements. In September 2021, Beijing Chezhubang acquired 100% of the ownership interest in Shaanxi Kuaidian. In December 2021, Dada Auto incorporated Cosmo Light HK Limited and Hill Matrix HK Limited.
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In early 2022, NaaS completed the Restructuring, as part of which:
• | Dada Auto, through Zhejiang Anji Intelligent Electronics Holding Co., Ltd., or Anji Zhidian, a subsidiary in China, entered into a series of contractual arrangements, or VIE Agreements, with Kuaidian Power Beijing and shareholders of Kuaidian Power Beijing, as a result of which Kuaidian Power Beijing was treated as a VIE of NaaS; |
• | Anji Zhidian acquired 100% of the ownership interest in Beijing Chezhubang from Chezhubang Technology, and Beijing Chezhubang in turn acquired 100% of the ownership interest in Zhidian Youtong, in conjunction with which (a) Anji Zhidian further acquired 100% of the equity interests in Cosmo Light in March 2022, and (b) Anji Zhidian acquired 100% of the equity interests in QHM New Energy in March 2022; and |
• | In April 2022, all the VIE Agreements were terminated and Anji Zhidian acquired 100% of the equity interests in Kuaidian Power Beijing. |
As a result of the Restructuring, NaaS ceased to have any VIE and has since conducted its operations in China through its subsidiaries through the date of this annual report.
In April 2022, Cosmo Light HK Limited and Hill Matrix HK Limited incorporated Shandong Cosmo Light Co., Ltd and Zhejiang Huzhou Hill Matrix Limited in China, respectively. In May 2022, Shandong Cosmo Light Co., Ltd and Zhejiang Huzhou Hill Matrix Limited acquired 100% of the equity interests in Cosmo Light and in QHM New Energy from Anji Zhidian, respectively.
The Mergers
On February 8, 2022, RISE entered into an Agreement and Plan of Merger, or the Merger Agreement, with Dada Merger Sub Limited, an exempted company incorporated with limited liability under the laws of the Cayman Islands and a wholly-owned subsidiary of RISE, or Merger Sub, Dada Merger Sub II Limited, an exempted company incorporated with limited liability under the laws of the Cayman Islands and a wholly-owned subsidiary of RISE, or Merger Sub II, and Dada Auto, pursuant to the terms of which (i) Merger Sub merged with and into Dada Auto, or the “Merger,” with Dada Auto being the surviving entity, or the Surviving Entity, following the Merger, the separate corporate existence of Merger Sub ceasing, and Dada Auto continuing as a direct, wholly-owned subsidiary of RISE, and (ii) immediately after the Effective Time (as defined in the Merger Agreement), the Surviving Entity merged with and into Merger Sub II, or the Second Merger and together with the Merger, the Mergers, with Merger Sub II being the surviving entity, or the Surviving Company following the Second Merger, the separate corporate existence of the Surviving Entity ceasing, and the Surviving Company continuing as a direct, wholly-owned subsidiary of RISE.
The Mergers were consummated on June 10, 2022 upon which RISE changed its name from “RISE Education Cayman Ltd” to “NaaS Technology Inc.” and its ticker from “REDU” to “NAAS” and assumed and began conducting the principal businesses of NaaS. The number of shares represented by each ADS was also changed from two Class A ordinary shares per ADS to ten Class A ordinary shares per ADS.
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Upon the consummation of the Mergers:
• | ordinary shares of NaaS that were issued and outstanding immediately prior to the Effective Time (as defined in the Merger Agreement) (other than any Excluded Shares (as defined below) or ordinary shares of NaaS held by NewLink) were cancelled in exchange for fully paid and non-assessable Class A ordinary shares; |
• | ordinary shares of NaaS that were issued and outstanding immediately prior to the Effective Time (other than any Excluded Shares) and held by NewLink were cancelled in exchange for a total of 248,888,073 Class B ordinary shares and 1,398,659,699 Class C ordinary shares; |
• | Series A preferred shares of NaaS that were issued and outstanding immediately prior to the Effective Time were cancelled in exchange for fully paid and non-assessable Class A ordinary shares; |
• | shares of NaaS that were held in treasury or owned by RISE, Merger Sub or Merger Sub II or any other wholly-owned subsidiary of RISE, Merger Sub or Merger Sub H immediately prior to the Effective Time, each of such shares being referred to as the “Excluded Share”, were cancelled and extinguished without any conversion thereof or payment therefor; |
• | each of RISE ordinary share that was issued and outstanding immediately prior to the Effective Time was converted into and became one fully paid and non-assessable Class A ordinary share; |
• | each ordinary share, par value $0.01 per share, of Merger Sub that was issued and outstanding immediately prior to the Effective Time was converted into and became one fully paid and non-assessable ordinary share, par value $0.01 per share, of the Surviving Entity; and |
• | each ordinary share, par value $0.01 per share, of the Surviving Entity that was issued and outstanding immediately prior to the Second Effective Time (as defined in the Merger Agreement) was converted into and became one fully paid and non-assessable ordinary share, par value $0.01 per share, of the Surviving Company. |
Post-Mergers Development
We issued and sold a total of 57,570,524 newly issued Class A ordinary shares of the Company to a certain institutional investor on December 12, 2022, at a price of US$0.5211 per ordinary share, based on the volume-weighted average traded price of our ADSs on Nasdaq for the 30 consecutive trading days immediately preceding the date of the subscription agreement (adjusted to account for the 1:10 ADS-to-share ratio), for a total purchase price of US$30 million.
In May 2023, we completed a registered direct offering of US$21 million to certain investors whereby the investors subscribed for and purchased from us a total of 3,500,000 ADSs.
In June 2023, we completed the acquisition of 89.999% of the issued and outstanding shares of Sinopower Holdings International Co. Limited, one of the largest rooftop solar energy developers in Hong Kong, from an existing shareholder of Sinopower, for an aggregate purchase price of approximately US$6.1 million in cash.
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In August 2023, we entered into a definitive agreement to acquire 100% of the issued and outstanding shares of Charge Amps AB, or Charge Amps, for a total consideration of US$66.4 million. The agreement was terminated on November 22, 2023 and the acquisition was not closed. See “Risk Factors—Risks Related to Our Business and Industry—Acquisitions or strategic investments could be difficult to identify and integrate, divert the attention of key management personnel, disrupt our business, dilute shareholder value and adversely affect our results of operations and financial condition.”
In August 2023, we signed strategic collaboration agreements with Hyundai Motor Group (China), PICC Real Estate Investment and CR Capital MGMT, expanding our partnership roster. With Hyundai, we aim to enhance charging infrastructure and mobility connectivity tailored for Hyundai’s PEV models. With PICC, we will work towards building a top-notch new energy charging service system, incorporating integrated infrastructure, co-branded stations, online connectivity, and comprehensive insurance services. With CR Capital MGMT, we will construct integrated energy ports, orchestrate new energy infrastructure projects, and innovatively securitize new energy assets, aiming to incubate, invest in and operationalize digital and intelligent applications within the realm of new energy.
In September 2023, we won a RMB67.18 million contract for the initial phase of the Anji Green and Low-carbon Supply Chain Construction Project located at Anshan Station. We are expected to provide one-stop PV-storage-charging-swapping solutions, including supply, procurement, installation, and grid connection of charging systems, battery swapping systems, PV systems, and energy storage systems. The project entails the installation of 458 DCFC chargers, a 4,205.4 kW distributed photovoltaic system, 36 energy storage and charging cabinets, and two leading domestic heavy-duty truck battery swapping stations. We will leverage our “Comprehensive Energy Management Platform” and “battery detection technology” to achieve seamless energy operations. Upon completion, the project is expected to provide charging services for 1,800 heavy-duty trucks and small EVs in the Anji County. The project is 90% complete and is expected to undergo final acceptance in the second quarter of 2024.
In September 2023, we entered into several diverse strategic collaborations. In partnership with ZSY Financial Services and China Construction Bank, we will help advance the integration of financial services with the domestic and global new energy sectors. With Hubei Provincial Communications Investment Industrial Development, we will contribute to the construction of expressway service areas and energy supply infrastructure, accelerating the establishment of a comprehensive energy supply network for expressways. With the People’s Government of Tengzhou City in Shangdong Province, we will drive innovation and promote digitalized energy management to support the transportation energy transformation in Tengzhou City.
In October 2023, we formed a partnership with the Hong Kong S.A.R. Office for Attracting Strategic Enterprises, known as OASES, becoming one of its inaugural strategic enterprises. OASES will assist us in setting up, developing and operating in Hong Kong, where we will focus on energy data analytics R&D. We expect to establish a research center in the Hong Kong Science Park by the end of 2023 and to provide algorithm support for our global energy assets’ operations, leveraging local R&D and academic resources in Hong Kong.
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In November 2023, we issued a total of 6,600,000 ADSs in a registered direct offering to certain investors at a total consideration of approximately US$16 million.
In March 2024, we completed a registered direct offering to certain institutional investors of 4,761,905 ADSs together with the Investor Warrants to purchase up to 4,761,905 ADSs at a combined purchase price of US$1.26 per ADS and accompanying Investor Warrant for total gross proceeds of approximately US$6 million, before deducting commissions and other estimated offering expenses. We also issued the FA Warrants to initially purchase up to 238,095 ADSs to a financial advisor in connection with this registered direct offering. The Investor Warrants and FA Warrants are all outstanding as of the date of this annual report.
We issued a US$30 million convertible note to LMR Multi-Strategy Master Fund Limited, an affiliate of LMR Partners Limited, in July 2023, or the July 2023 LMR Convertible Note, and then another US$40 million convertible note to the same entity in September 2023, or the September 2023 LMR Convertible Note and together with the July 2023 LMR Convertible Note and any additional note described below, the LMR Convertible Notes. As of the date of this annual report, an aggregate principal amount of US$39 million under the LMR Convertible Notes has been converted into our ADSs, and the remaining principal amount of the outstanding notes totals US$31 million (including US$11 million principal amount of the outstanding July 2023 Convertible Note). In the event that the entire principal amount of the July 2023 LMR Convertible Note is fully converted prior to its maturity date, we agree to further issue and sell, and LMR Multi-Strategy Master Fund Limited agrees to purchase, an additional note in the principal amount of US$25,000,000 at the issue price of US$25,000,000 with substantially similar terms as the July 2023 LMR Convertible Note.
See “Item 4.C. Information on the Company—Organizational Structure” for a diagram illustrating our corporate structure upon the consummation of the Mergers.
Our principal executive offices are located at Newlink Center, Area G, Building 7, Huitong Times Square, No.1 Yaojiayuan South Road, Chaoyang District, Beijing, China. Our telephone number at this address is +86 (10) 8551-1066. Our registered office in the Cayman Islands is PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands. Our website is htqls://www.enaas.com/en/. The information on our websites should not be deemed to be part of this annual report. The SEC also maintains a website at https://www.sec.gov that contains reports, proxy, and information statements, and other information regarding registrants that make electronic filings with the SEC using its EDGAR system.
B. | Business Overview |
Overview
We offer one-stop solutions to owners of a broad range of energy assets, including charging stations and photovoltaic or PV assets. We support energy asset owners throughout the lifecycle of their energy assets. Our solutions also benefit other stakeholders along the industry value chain such as manufacturers, EV OEMs, and end-users in the following ways:
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• | Charging Services. We provide an integrated set of charging services to charging stations that mainly includes mobility connectivity services. We offer effective mobility connectivity services through Kuaidian, our partnered platform operated by a third-party service provider. Kuaidian boosts the visibility of charging stations and charging piles and connects end-users with suitable charging infrastructure. We offer full station operation services and deliver charging services at charging stations that are operated under this model. We also provide other online solutions, including software as a service or SaaS products that digitalize and upgrade key aspects of the operations and the management of charging stations. |
• | Energy Solutions. We offer integrated charging facilities and energy storage solutions covering the planning, deployment, production and optimization of EV charging, renewable energy and energy storage systems for energy asset owners. Our solutions include site selection, hardware procurement, EPC (engineering, procurement, and construction), station maintenance and upgrade, energy storage, customer support and more. |
• | New Initiatives. We deliver electricity procurement, non-charging and other services that aim to enhance the efficiency and profitability of energy assets. We have launched a virtual power plant platform to facilitate the construction of a modern energy system. We have also released a prototype of our autonomous charging robot for future unmanned driving scenarios and to realize an autonomous charging network. |
Charging Services
We offer a comprehensive set of charging services. Our mobility connectivity services provide integrated online EV charging solutions for charging stations and enable a frictionless and hassle-free charging experience for end-users through Kuaidian. We are also pioneering digitalized operation and we provide SaaS products to support the management of key aspects of charging stations’ daily task.
Mobility Connectivity Services
Our mobility connectivity services increase the visibility of charging stations and chargers and provide channels for them to gain access to end-users through Kuaidian which is operated by a third-party service provider. We provide a centralized and single reliable source of charging station information, where numerous charging stations and chargers are networked and presented at the fingertip of end-users through Kuaidian.
Full Station Operation
In addition to providing mobility connectivity services, we also independently and fully operate stations for station owners. Under this model, we obtain the operational rights to a charging station and take full responsibility for running the entire operation of that station, including the delivery of charging services. We retain all of the revenue after paying a fee fixed to the total transaction volume to the station owner.
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Other Online Solutions
We also provide other online solutions, including SaaS products, that extend to traffic support and management, marketing, payment, chargers management, order management, load management, and membership management. We also provide phone support to both energy asset owners and end-users. We also work with certain EV OEMs to provide functions and applications within the pre-installed software of their EVs.
Energy Solutions
Our energy solutions cover the planning, deployment, production and optimization of EV charging, renewable energy and energy storage systems for energy asset owners. We provide site selection and EPC services of charging stations, support hardware procurement and maintain a comprehensive suite of offline solutions that facilitate the daily operation of energy assets including the maintenance and upkeep of charging infrastructure.
EPC Services
Our established EV charging network and extensive industrial experience equip us with valuable insights into market demands and business conditions, which allow us to provide tailored one-stop construction services covering the identification of station location, station design and EPC services. We engage third-party contractors to complete the construction work.
Procurement
We procure suitable chargers at bulk purchase prices from our partner charger manufacturers and re-sell these chargers to charging stations.
In relation to our hardware procurement, NaaS had historically limited its participation to the facilitation of sales transactions, generating revenues by charging a take rate on the procurement value. We have been directly undertaking procurement and sales activities since 2022.
Station Upgrade and Other Offline Services
We offer solutions to upgrade existing charging stations, including the integration of smart photovoltaics energy storage and power charging. To complement our EV charging services, we also provide 24/7 offline operational and management services. Depending on their varying needs, charging stations can opt for professional operational services from us, including outsourcing to us their daily operations, such as the regular maintenance and upkeep of their chargers and charging stations. They can also order onsite maintenance and repair services provided by specialized technicians in the event of any equipment failure or hardware downtime. We collect operation and maintenance fees that are based on the operating parameters of the charging station, such as its size and the number of chargers.
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Energy Storage Solutions
Charging stations are subject to time-of-use electricity pricing, with varying rates during peak and off-peak hours. We construct predictive and optimization models, leveraging our strong digital analytics capabilities, to evaluate the optimal storage capacity for a given charging station. We develop and execute installation and on-site commissioning plans for energy storage facility at charging stations. We also provide an energy management system and devise optimized operation strategies for peak-shaving, load-shifting, and demand response participation utilizing our digital analytics capabilities, thereby enhancing the performance of energy storage and the overall charging station operation.
New Initiatives
Electricity Procurement
We provide electricity procurement services to charging stations. Leveraging the vast number of charging stations on our network, we are able to aggregate procurement requirements for electricity and negotiate for and secure electricity at favorable prices.
We additionally provide a cloud-based virtual power plant platform to facilitate the establishment of a modern energy system for charging stations. This is a platform to maintain the stability of a power supply that integrates distributed power sources including conventional energy and renewable energy, including solar power, wind power and hydro power, and connects them with EVs and charging stations. It allows scattered energy sources to function as if they were one power plant. Our virtual power plant platform offers two types of services to charging stations: it effects trading transactions in the electricity market with the electricity it collects and stores to earn price differences; it also responds to government peak shaving and load-filling demands.
Autonomous Charging Robot
We recently unveiled our first self-developed autonomous charging robot with features including active vehicle locating, smart charging and automatic payment settlement to meet the rising demand for mobile charging of EVs. Empowered by deep learning, 5G, V2X, SLAM and other underlying technologies, our waterproof and shock-proof autonomous charging robot brings science fiction to life with one-click ordering, active vehicle locating, precise self-parking, automatic docking, charging and undocking via mechanical arms and automatic return and recharging functions.
We have developed autonomous charging robot to provide charging services for parking slots without charging facilities or to provide additional charging capacity. It is also designed for future unmanned driving scenarios and to realize an autonomous charging network through the technical empowerment of data interconnectivity between vehicle and robot, as well as the automatic operation of the mechanical arm.
Our autonomous charging robot is available in various charging power and battery capacity configurations and can connect with major EV OEMs seamlessly through an open API.
Non-charging Services
We are able to boost charging station revenues by enabling the provision additional retail services as well as other amenities and ancillary services.
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We are a pioneer in packaging non-charging retail and ancillary services into charging stations and have retail resources that are ready for deployment. We help charging stations adopt scenario-specific furniture and fixture or infrastructure designs with a variety of amenities and non-charging services, such as vending machines, massage chairs and car wash tunnels. We are also assisting in station design and decoration, furniture and fixture procurement with discounted prices for non-charging businesses. We charge commission fees to suppliers based on the value of the facility and the merchandise supplied to charging stations. By enabling charging stations to provide non-charging services, we are able to label charging stations on our network based on the amenities and ancillary services they offer. We work with our business partners to realize the full potential of this information by efficiently matching end-users through Kuaidian with the right charging stations that offer the right non-charging services. We are committed to decarbonization and the building of a green and sustainable future. We believe in clean energy and we are facilitating the adoption of EVs through the deployment and operation of EV charging infrastructure, allowing for the reduction of greenhouse gas emissions caused by traditional vehicles. As certified by SGS, an independent Swiss testing agency, we helped reduce carbon emissions by approximately 3,293,100 tons in 2023, representing a 78.2% increase from 2022.
Sales and Marketing
We grow our customer base through marketing activities, branding campaigns, as well as the efforts of our in-house business development teams. We also capitalize on the operating experience, resources and insights of NewLink to acquire new customers.
We adopt different expansion strategies for different energy asset owners. Leveraging the market leadership, industry experience and resources of NewLink and of ourselves, our business development team has often been able to identify new charging stations and chargers at the earliest possible times, which then gives us an advantage in initiating the first contact with the energy asset owners for a potential partnership. Our business development team also constantly monitors and scouts for new charging infrastructure that can potentially partner with our business model, using methods including online searches and offline site visits. After the initial engagement with energy asset owners, the team then continues to maintain regular contact and will continually explore potential short-term and long-term opportunities with energy asset owners through constant relationship building activities, lead generation and market conditioning work and regular marketing. In addition, we also enter into strategic cooperation with non-private entities in China, who are often large-scale energy asset owners. Once a charging station joins our network, our business development team will assign designated personnel to maintain liaison with the station and provide it with comprehensive support.
We also seek to expand our mobility connectivity services through a variety of online and offline activities, including marketing and branding activities and promotions targeting end-users and other users of our EV charging network. As an example, we offer a VIP membership program to registered users on Kuaidian. Memberships are offered on a one-month, three-month or twelve-month basis for a fixed non-refundable upfront membership fee payable. During the validity of the membership, members are able to enjoy benefits including exclusive discount on charging service fees and exclusive membership coupon which are issued on a monthly basis and expire after a 30-day period. As our mobility connectivity services gain greater traction among end-users, these initiatives would also result in more charging stations joining our network.
Competition
Competition in this industry is based primarily on the extensiveness of the charging network as determined by the number of charging stations and chargers, the variety and quality of EV charging services and products offered, the effectiveness of the offline service network, industry supply and value chain integration capabilities, and technology capabilities.
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It is expected that the EV charging market in China will see an increasing penetration of DCFCs. This is because of the strong need to reduce charging time at public charging facilities, which will become the dominant form of charging in China. DCFC is able to boost charging efficiency and optimize user experiences in significant measure, which corresponds closely with the needs of end-users in China.
The success of our mobility connectivity services is largely dependent on the extensiveness of our charging network but also demands effective end-user acquisition and retention. Ongoing engagement with charging stations and the effectiveness of our marketing efforts are critically important to our efforts to gain market share in the China market. We also compete on the comprehensiveness of the range of products and services offered to charging stations, the quality, performance, features, and prices of the products and services, as well as the effectiveness of our offline service network. Our industry is generally in an early stage of development and is constantly evolving. New demands and preferences continue to emerge from various industry participants, and in particular from end-users and energy asset owners. We will be tested on our ability to forecast and meet shifts in the market and our ability to adapt our product and service offerings in a timely manner.
We believe that we can compete effectively with its competitors on the basis of the following factors:
• | the comprehensiveness of our products and services and strategic focus on DCFC infrastructure, and our ability to continually upgrade and develop products and services to meet the changing needs, preferences and demands of our customers and end-users; |
• | the first-mover advantage we have gained and the market leadership that we have fostered in terms of market share and coverage of charging stations and facilities; |
• | our innovations, technologies and industry insights |
• | the adoption of an asset-light business model that allows for accelerated expansion and growth; |
• | the vision and proven execution capability of our management team; |
• | the synergy within the NewLink ecosystem; and |
• | the effectiveness of our sales and marketing strategies and of our offline service network. |
Regulations
This section summarizes certain laws and regulations that materially affect our business and operations and the key provisions of such laws and regulations.
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Regulations Related to Foreign Investment
Investment activities in China by foreign investors are principally governed by the Catalog of Industries for Encouraging Foreign Investment, or the Encouraged Industries Catalog, and the Special Management Measures (Negative List) for the Access of Foreign Investment, which were promulgated and are amended from time to time by the Ministry of Commerce and NDRC, and together with the PRC Foreign Investment Law, and their respective implementation rules and ancillary regulations. The Encouraged Industries Catalog and the negative list lay out the basic framework for foreign investment in China, classifying businesses into three categories in terms of the level of participation permitted to foreign investment: “encouraged,” “restricted” and “prohibited.” Industries not listed in the Encouraged Industries Catalog are generally deemed as falling into a fourth category of “permitted” industries unless specifically restricted by other PRC laws.
On October 26, 2022, the Ministry of Commerce and the NDRC released the Encouraged Industries Catalogue (2022 Version), which became effective on January 1, 2023, to replace the then existing Encouraged Industries Catalog. On December 27, 2021, the Ministry of Commerce and the NDRC released the 2021 Negative List, which became effective on January 1, 2022, to replace the then existing negative list. The 2021 Negative List sets forth the industries in which foreign investments are restricted or prohibited. Industries that are not listed in the 2021 Negative List are generally permitted to foreign investment unless otherwise specifically restricted by other PRC rules and regulations.
On March 15, 2019, the National People’s Congress promulgated the Foreign Investment Law, which became effective on January 1, 2020 and replaced the main body of laws and regulations then governing foreign investment in China. Pursuant to the FM, “foreign investments” refer to investment activities conducted by foreign investors directly or indirectly in China, which include any of the following circumstances: (1) foreign investors setting up foreign-invested enterprises in China solely or jointly with other investors, (2) foreign investors obtaining shares, equity interests, interests in property or other similar rights and interests of enterprises within China, (3) foreign investors investing in new projects in China solely or jointly with other investors, and (4) investment by other means as specified in laws, administrative regulations, or as stipulated by the State Council.
According to the Foreign Investment Law, foreign investment shall enjoy pre-entry national treatment, except for those foreign invested entities that operate in industries deemed to be either “restricted” or “prohibited” in the negative list. The Foreign Investment Law provides that foreign invested entities operating in “restricted” or “prohibited” industries will require entry clearance and other approvals.
On December 26, 2019, the State Council promulgated the Implementing Rules of Foreign Investment Law, which became effective on January 1, 2020. The implementation rules further clarified that the state encourages and promotes foreign investment, protects the lawful rights and interests of foreign investors, regulates foreign investment administration, continues to optimize foreign investment environment, and advances a higher-level of openness.
On December 30, 2019, the Ministry of Commerce and the State Administration for Market Regulation jointly promulgated the Measures for Information Reporting on Foreign Investment, which became effective on January 1, 2020. Pursuant to the Measures for Information Reporting on Foreign Investment, where a foreign investor carries out investment activities in China directly or indirectly, the foreign investor or the foreign-invested enterprise shall submit information relating to the investment to the competent commerce department.
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Regulations Related to Value-Added Telecommunications Services
The PRC Telecommunications Regulations, which was promulgated by the State Council on September 25, 2000 and most recently amended on February 6, 2016, provides the regulatory framework for telecommunications service providers in China. The Telecommunications Regulations classifies telecommunications services into basic telecommunications services and value-added telecommunications services. Providers of value-added telecommunications services are required to obtain a license for value-added telecommunications services. According to the Catalog of Telecommunications Services, attached to the Telecommunications Regulations and most recently amended by the Ministry of Industry and Information Technology on June 6, 2019, information services provided via public communication network or the internet are value-added telecommunications services.
The value-added telecommunications services are regulated by the Administrative Measures on Internet Information Services, which were promulgated by the State Council on September 25, 2000 and most recently amended on January 8, 2011. “Internet information services” is defined as “services that provide information to online users through the internet.” The Measures on Internet Information Services classify internet information services into non-commercial internet information services and commercial internet information services. Commercial internet information service providers shall obtain a value-added telecommunications business operating license for internet information service from appropriate telecommunications authorities. This license has a term of five years and can be renewed 90 days prior to its expiration, according to the Administrative Measures for Telecommunications Businesses Operating Licensing, which was promulgated by the Ministry of Industry and Information Technology on July 3, 2017 and became effective on September 1, 2017.
The Regulations for the Administration of Foreign-Invested Telecommunications Enterprises, promulgated by the State Council on December 11, 2001 and most recently amended on March 29, 2022, requires foreign-invested value-added telecommunications enterprises in China to be established as Sino-foreign joint ventures, and foreign investors shall not acquire more than 50% of the equity interest of such enterprises, unless the state stipulates otherwise.
According to the 2021 Negative List, the ratio of foreign investments in an entity that is engaged in value-added telecommunications business (except for e-commerce, domestic multi-party communications, storage-forwarding and call centers) shall not exceed 50%. NaaS historically conducted certain value-added telecommunications services through Kuaidian Power Beijing, which services had, as part of the Restructuring, been transferred and are currently carried out by a third-party service provider.
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Regulations Related to Online Payment
On June 14, 2010, the People’s Bank of China issued the Administrative Measures on Non-Financial Institution Payment Service and its implementing rules, which was amended on April 29, 2020 and set forth the basic regulatory requirements for the provision of payment services by non-financial institutions. According to the Administrative Measures on Non-Financial Institution Payment Service, “non-financial institution payment service” means any of the following monetary asset transfer services provided by non-financial institutions as an intermediary between the payor and the payee: (i) online payment; (ii) pre-payment card issuance and receipt; (iii) bank card acceptance; and (iv) other payment services as specified by the People’s Bank of China. Pursuant to the Administrative Measures on Non-Financial Institution Payment Service, a non-financial institution that provides payment services shall obtain a payment business license to become a payment institution. No non-financial institution or individual shall engage in payment services, either directly or indirectly, without the approval of the People’s Bank of China.
In November 2017, the People’s Bank of China published the People’s Bank of China Notice, on the investigation and administration of illegal offering of settlement services by financial institutions and third-party payment service providers to unlicensed entities. The People’s Bank of China Notice is intended to prevent unlicensed entities from using licensed payment service providers as a conduit for conducting unlicensed payment settlement services, so as to safeguard fund security and information security.
As part of NaaS’s business operation prior to the Restructuring, end-users were required to make prepayments through Kuaidian under certain circumstances, including to initiate certain services through Kuaidian. This could potentially have constituted issuance of prepaid cards by NaaS under then prevailing PRC laws and regulations and required a payment business license. In line of market practice, NaaS had previously engaged licensed entities such as third-party payment institutions and commercial bank to provide payment settlement services. However, because there were and remain to be uncertainties with respect to the implementation and interpretation of the applicable laws and as the these laws continue to evolve, the People’s Bank of China and other governmental authorities may find NaaS’s settlement mechanisms to be in violation of the Administrative Measures on Non-Financial Institution Payment Service, the People’s Bank of China Notice or other related regulations.
Regulations Related to Mobile Internet Applications Information Services
In addition to the Telecommunications Regulations and other regulations discussed above, mobile internet applications, or Apps, are specially regulated by the Administrative Provisions on Mobile Internet Applications Information Services, or the App Provisions, which was promulgated by the CAC on June 28, 2016 and amended on 2022 (with such amendment coming into effect on August 1, 2022). The App Provisions sets forth the applicable requirements applicable to App information service providers and App Store service providers. CAC and its local branches shall be responsible for the supervision and administration of nationwide and local App information respectively.
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App providers shall strictly discharge their responsibilities relating to information security management, and perform the following duties: (1) in accordance with the principles of “real name at background, any name at foreground,” verify identities of registered users through mobile numbers etc.; (2) establish and improve the mechanism for user information security protection, adhere to the principles of “legality, appropriateness and necessity” in the collection and use of personal information, expressly state the purposes and methods of information collection as well as the scope of information collected, and obtain users’ consent; (3) establish and improve the mechanism for the verification and management of information, adopt appropriate sanctions and measures such as warning, restricting functionality, suspending updates, and closing accounts, following any release of illegal information, and maintain records and reports for the submission to or inspection by the competent department; (4) protect and safeguard users’ “rights to know and rights to choose” during the installation or use of Apps in accordance with the law, refrain from collecting geographic locations, reading address books, or using cameras or recordings, without the express notifications to and consent of the users, refrain from turning on functions irrelevant to the services provided and refrain from bundling and installing irrelevant Apps; (5) respect and protect intellectual property rights and refrain from producing or releasing Apps that infringes upon intellectual property rights; and (6) maintain records of user log information for 60 days.
Historically, Kuaidian Power Beijing operated Kuaidian. As part of the Restructuring, the ownership of Kuaidian as well as the rights to access and use certain data generated by or in the possession of Kuaidian have been transferred to a third-party service provider as of the date of this annual report. NaaS entered into a business cooperation agreement with the third-party service provider pursuant to which NaaS will receive certain services from such operator in relation to the delivery of EV charging solutions.
Regulations Related to Consumer Protection
According to Law of the PRC on the Protection of Consumer Rights and Interests, which was promulgated by the Standing Committee of the National People’s Congress on October 31, 1993 and most recently amended on October 25, 2013, in providing goods or services to consumers, business operators shall fulfill their obligations in accordance with this law and other applicable laws and regulations. Business operators shall fulfill their obligations as agreed with consumers, provided that the agreements with consumers are not in violation of any laws or regulations. In providing goods or services to consumers, business operators shall adhere to social morality, operate business in good faith, and protect the lawful rights and interests of consumers, and shall neither set unfair or unreasonable trading conditions nor force consumers into any transactions. Business operators shall provide consumers with true and complete information regarding the quality, performance, use, and service life or expiration date, among others, of goods and services provided, and shall not conduct any false or misleading promotion. Business operators shall provide true and definitive answers to questions from consumers regarding the quality and use instructions of the goods and services they provide. Business operators shall clearly indicate the price of the goods and services they provide.
Regulations Related to Advertising
On April 24, 2015, the Standing Committee of the National People’s Congress enacted the Advertising Law of the People’s Republic of China, which became effective on September 1, 2015 and most recently amended on April 29, 2021. The advertising law requires that advertisers, advertising operators and advertisement publishers shall abide by the laws and administrative regulations, and the principles of fairness and good faith while engaging in advertising activities.
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The Measures for the Administration of Internet Advertising, regulating the internet-based advertising activities, were adopted by the State Administration for Market Regulation on February 25, 2023 and became effective on May 1, 2023. According to these measures, internet advertisers are responsible for the authenticity of the advertisements content and all online advertisements must be marked “Advertisement” so that viewers can easily identify them as such. Publishing and circulating advertisements through the internet shall not affect the normal use of the internet by users. It is not allowed to induce users to click on the content of advertisements by any fraudulent means, or to attach advertisements or advertising links in emails without permission. In addition, the following internet advertising activities are prohibited: (i) providing or using any applications or hardware to intercept, filter, cover, fast forward or otherwise restrict any authorized advertisement of other persons, (ii) using network pathways, network equipment or applications to disrupt the normal data transmission of advertisements, alter or block authorized advertisements of other persons or load advertisements without authorization, or (iii) using fraudulent statistical data, transmission effect or matrices relating to online marketing performance to induce incorrect quotations, seek undue interests or harm the interests of others. NaaS is subject to the foregoing regulations on advertising to the extent it helps charging stations attract traffic including as part of its mobility connectivity services.
Regulations Related to Internet Information Security and Privacy And Protection
PRC government authorities have enacted laws and regulations with respect to internet information security and protection of personal information from any abuse or unauthorized disclosure. Internet information in China is regulated and restricted from a national security standpoint. The Standing Committee of the National People’s Congress enacted the Decisions on Maintaining Internet Security on December 28, 2000 as amended on August 27, 2009, which imposes criminal liabilities for any act taken to: (i) gain improper entry into a computer or system of strategic importance; (ii) disseminate politically disruptive information; (iii) leak state secrets; (iv) disseminate false commercial information; or (v) infringe on intellectual property rights. The Ministry of Public Security has promulgated measures that prohibit the use of internet in ways which, among other things, result in a leakage of state secrets or a dissemination of socially destabilizing content. If an internet information service provider violates these measures, the Ministry of Public Security and its local branches may shut down its websites and suggest to the competent authority to revoke its operating license if necessary.
Under the Several Provisions on Regulating the Market Order of Internet Information Services, issued by the MIT on December 29, 2011 and taking effect on March 15, 2012, an internet information service provider must not collect any personal information from any of its users or provide any such information to third parties without the consent of such user, unless otherwise provided by laws or regulations. Internet information service providers must expressly inform the users of the method for and purpose of the collection and processing of such user’s personal information and the content of the personal information so collected and processed, and should only collect or use such information to the extent necessary for the provision of its services. An internet information service provider is also required to properly maintain users’ personal information, and in case of any leak or possible leak of such personal information, the Internet information service provider must take immediate remedial measures and, in severe circumstances, make an immediate report to the telecommunications regulatory authority.
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In addition, pursuant to the Decision on Strengthening the Protection of Online Information issued by the Standing Committee of the National People’s Congress on December 28, 2012 and the Order for the Protection of Telecommunication and Internet User Personal Information issued by the Ministry of Industry and Information Technology on July 16, 2013, any collection and use of a user’s personal information must be subject to the consent of the user, adhere to the principles of legality, rationality and necessity and be within the specified purposes, methods and scopes. An internet information service provider must also keep such information strictly confidential, and is further prohibited from divulging, tampering with or destroying any such information, or selling or providing such information to other parties. An internet information service provider is required to take technical and other measures to prevent the unauthorized disclosure, damage or loss of any personal information collected.
On November 7, 2016, the Standing Committee of the National People’s Congress issued the PRC Cyber Security Law, which took effect on June 1, 2017. The Cybersecurity Law is formulated to maintain the network security, safeguard the cyberspace sovereignty, national security and public interests, and protect the lawful rights and interests of citizens, legal persons and other organizations. Pursuant to the Cybersecurity Law, a network operator, which includes, among others, internet information services providers, must take technical measures and other necessary measures in accordance with applicable laws and regulations as well as mandatory requirements of national and industrial standards to safeguard the safe and stable operation of networks, effectively respond to network security incidents, prevent illegal and criminal activities, and maintain the integrity, confidentiality and availability of network data. The Cybersecurity Law reaffirms the basic principles and requirements as specified in then existing laws and regulations related to personal information protections, such as the requirements on the collection, use, processing, storage and disclosure of personal information, and the requirements that internet service providers should take technical and other necessary measures to ensure the security the personal information they have collected and prevent such personal information from being divulged, damaged or lost. Any violation of the Cybersecurity Law could subject the internet service provider to warnings, fines, confiscation of illegal gains, revocation of licenses, shutdown of websites as well as criminal liabilities.
On January 23, 2019, the Office of the Central Cyberspace Affairs Commission, the Ministry of Industry and Information Technology, the Ministry of Public Security, and the State Administration for Market Regulation jointly issued the Notice on Special Governance of Illegal Collection and Use of Personal Information via Apps, which restates the requirement of legal collection and use of personal information, encourages App operators to conduct security certifications, and encourages search engines and App stores to clearly mark and recommend those certified apps.
On November 28, 2019, CAC, Ministry of Industry and Information Technology, the Ministry of Public Security and the State Administration for Market Regulation jointly issued the Measures to Identify Illegal Collection and Usage of Personal Information by Apps, which describes six types of illegal collection and usage of personal information, including “the failure to publish rules relating to the collection and usage of personal information”, “the failure to provide privacy rules”, and “the collection or use of personal information without consent”.
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On May 28, 2020, the National People’s Congress adopted the PRC Civil Code which became effective on January 1, 2021. According to the Civil Code, individuals have the right of privacy. No organization or individual shall process any individual’s private information or infringe on an individual’s right of privacy, unless otherwise prescribed by law or with the consent of such individual or such individual’s guardian. The Civil Code also offers protection to personal information and provides that the processing of personal information shall be subject to the principles of legitimacy, legality and necessity. An information processor must not divulge or falsify the personal information collected and stored by it, or provide the personal information of an individual to others without the consent of such individual. On March 12, 2021, CAC, the Ministry of Industry and Information Technology, the Ministry of Public Security and the State Administration for Market Regulation jointly issued the Rules on the Scope of Necessary Personal Information for Common Types of Mobile Internet Applications, which came into effect on May 1, 2021. According to these rules, mobile App operators shall not deny a user’ access to the basic functions and services of an App on the basis that such user refuses to provide his or her personal information which is not necessary for such use. These rules further stipulates the scopes of necessary personal information for different types of mobile Apps.
On June 10, 2021, the Standing Committee of the National People’s Congress promulgated the Data Security Law, which took effect on September 1, 2021. The Data Security Law sets out a national data security review system, under which data processing activities that affect or may affect national security are subject to review. In addition, it clarifies the obligations to protect data security applicable to organizations and individuals who carry out data activities and discharges data security protection responsibilities. Data processors shall establish and improve a whole-process data security management system in accordance with the provisions of laws and regulations, organize and implement data security trainings as well as take appropriate technical measures and other necessary measures to protect data security. If the processing of any organization or personal data violate the Data Security Law, the responsible party shall bear the corresponding civil, administrative or criminal liabilities.
On July 30, 2021, the State Council promulgated the Regulation on Protecting the Security of Critical Information Infrastructure, effective on September 1, 2021. According to these regulations, “critical information infrastructure” has the meaning of an important network facility and information system in important industries such as, among others, public communications and information services, energy, transport, water conservation, finance, public services, e-government affairs and national defense science, as well as other important network facilities and information systems that may seriously endanger national security, the national economy, the people’s livelihood, or the public interests in the event of damage, loss of function, or data leakage. The competent governmental authorities as well as the supervisory and administrative authorities of the aforementioned important industries and sectors will be responsible for (i) organizing for the identification of critical information infrastructures in their respective industries in accordance with certain identification rules, and (ii) promptly notifying the operators so identified and the public security department of the State Council of the results of identification. As of the date of this annual report, NaaS has not received any notification from any PRC governmental authority that it is operating any “critical information infrastructure.”
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On August 20, 2021, the Standing Committee of the National People’s Congress promulgated the Personal Information Protection Law, effective on November 1, 2021. The Personal Information Protection Law requires, among others, that (i) the processing of personal information should have a clear and reasonable purpose which should be directly related to the purpose of the processing activity, in a method that has the least impact on personal rights and interests, and (ii) the collection of personal information should be limited to the minimum scope necessary to achieve the purpose of the processing activity to avoid the excessive collection of personal information. Different types of personal information and personal information processing will be subject to different rules on consent requirement, transfer, and security. Entities that process personal information shall bear responsibilities for the activities they conduct relating to such personal information, and shall adopt necessary measures to safeguard the security of the personal information that they process. Otherwise, such entities could be ordered to correct, suspend or terminate the provision of their services, and face confiscation of illegal income, fines or other penalties.
On November 14, 2021, CAC published a discussion draft of the Data Security Regulations, which provides that the undertaking of the following activities shall be subject to a cybersecurity review: (i) the merger, reorganization or separation of network platform operators that have gathered and mastered a large number of data resources related to national security, economic development or public interests affects, which may affect national security; (ii) overseas listing of data processors processing the personal information of over one million users; (iii) the listing in Hong Kong of data processors processing conducting data processing activities which affect or may affect national security; (iv) other data processing activities that affect or may affect national security. The Draft Data Security Regulations also provides that operators of large internet platforms that set up headquarters, operation centers or research and development centers overseas shall report to the national cyberspace administration and other competent authorities. The Draft Data Security Regulations also states that data processors processing important data or listing overseas shall conduct an annual data security assessment by themselves or by engaging a data security service institution, and shall submit the assessment report of a given year to the CAC municipal office before January 31, of the following year. In addition, the Draft Data Security Regulations also requires network platform operators to enact platform rules, privacy policies and algorithm strategies related to data, and to solicit public comments on their official websites for no less than 30 working days when they formulate such platform rules or privacy policies or makes any amendments that may have a significant impact on users’ rights and interests. Further, platform rules and privacy policies formulated by operators of large internet platforms with more than 100 million daily active users, or amendments thereto that may have significant impacts on users’ rights and interests shall be evaluated by a third-party organization designated by CAC and submitted to the CAC provincial office for approval. As of the date of this annual report, the draft Administrative Regulation on Network Data Security has not come into effect.
On December 31, 2021, CAC together with other regulatory authorities published the Administrative Provisions on Algorithm Recommendation for Internet Information Services, which took effect on March 1, 2022. The Administrative Provisions on Algorithm Recommendation for Internet Information Services provides, among others, that algorithm recommendation service providers shall (i) establish and improve the management systems and technical measures for algorithm mechanism and principle review, scientific and technological ethics review, user registration, information release review, data security and personal information protection, anti-telecommunications and internet fraud, security assessment and monitoring, and security incident emergency response, formulate and disclose rules for algorithm recommendation services, and employ appropriate professional staff and technical support considering the scale of the algorithm recommendation service provided; (ii) regularly review, evaluate and verify the principle, models, data and application results of algorithm mechanisms, (iii) strengthen information security management, establish and improve a feature database for the identification of illegal inappropriate information, and improve entry standards, rules and procedures; (iv) strengthen the management of user models and user labels, and improve the rules on points of interest recorded into user models and user label management, and refrain from recording illegal or harmful keywords information into the points of interest of users or use them as user labels to push information.
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On December 28, 2021, twelve regulatory authorities jointly released the Cybersecurity Review Measures. The Cybersecurity Review Measures provides that: (i) network platform operators that are engaged in data processing activities which have or may have an implication on national security shall undergo a cybersecurity review; (ii) CSRC is one of the regulatory authorities for purposes of jointly establishing the state cybersecurity review mechanism; (iii) network platform operators that possess personal information of more than one million users and seeking to be listed overseas shall file for a cybersecurity review with the Cybersecurity Review Office; and (iv) the risks of core data, material data or large amounts of personal information being stolen, leaked, destroyed, damaged, illegally used or transmitted to overseas parties, and the risks of critical information infrastructure, core data, material data or large amounts of personal information being influenced, controlled or used maliciously shall be collectively taken into consideration during the cybersecurity review process. The distinction made under the discussion draft of the Draft Data Security Regulations between “listing overseas” and “listing abroad” further clarifies that the obligations to proactively apply for cybersecurity review by an entity seeking listing in a foreign country.
Regulations Related to Dividend Distributions
The principal laws and regulations regulating the dividend distribution of dividends by foreign-invested enterprises in China include the PRC Company Law most recently amended in 2018 and the Foreign Investment Law. Under the current regulatory regime in China, foreign-invested enterprises in China may pay dividends only out of their accumulated profit, if any, determined in accordance with PRC accounting standards and regulations. A PRC company, including foreign-invested enterprise, is required to set aside as general reserves at least 10% of its after-tax profit, until the cumulative amount of such reserves reaches 50% of its registered capital unless the provisions of laws regarding foreign investment otherwise provided, and shall not distribute any profits until any losses from prior fiscal years have been offset. Profits retained from prior fiscal years may be distributed together with distributable profits from the current fiscal year.
Regulations Related to Intellectual Property
Patent
Patents in China are principally protected under the PRC Patent Law which was most recently amended on October 17, 2020 (which amendment came into effect on June 1, 2021). The duration of the invention patent right shall be 20 years, and the term shall be 10 years for utility models patent right and 15 years for designs patent right, all commencing from the application date thereof.
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Copyright
Copyright in China, including copyrighted software, is principally protected under the PRC Copyright Law, which was most recently amended on November 11, 2020 and with such amendment coming into effect on June 1, 2021, and related rules and regulations. Under the Copyright Law, the term of protection for copyrighted software is 50 years. The Regulation on the Protection of the Right to Communicate Works to the Public over Information Networks, which was most recently amended on January 30, 2013, provides specific rules on fair use, statutory license, and a safe harbor for use of copyrights and copyright management technology and specifies the liabilities of various entities for violations, including copyright holders, libraries and Internet service providers.
Trademark
Registered trademarks are protected under the PRC Trademark Law promulgated on August 23, 1982 and amended on April 23, 2019 and related rules and regulations. Trademarks are registered with the State Intellectual Property Office, formerly the Trademark Office of the State Administration for Industry and Commerce. Where registration is sought for a trademark that is identical or similar to another trademark which has already been registered or given preliminary examination and approval for use in the same or similar category of commodities or services, the application for registration of this trademark may be rejected. Trademark registrations are effective for 10 years, unless otherwise revoked.
Domain Name
Domain names are protected under the Measures for the Administration of Internet Domain Names which was promulgated by the Ministry of Industry and Information Technology on August 24, 2017 and took effect on November 1, 2017. Domain name registrations are handled through domain name service agencies established under applicable regulations, and applicants become domain name holders upon successful registration.
Regulations Related to Foreign Exchange
General Administration of Foreign Exchange
Under the PRC Foreign Currency Administration Rules promulgated by the State Council on January 29, 1996 and most recently amended on August 5, 2008 and various regulations issued by the State Administration for Foreign Exchange of China, or SAFE, and other PRC government authorities, Renminbi is convertible into other currencies for the purpose of current account items, such as trade related receipts and payments, payment of interest and dividends. The conversion of Renminbi into other currencies and remittance of the converted foreign currency outside China for the purpose of capital account items, such as direct equity investments, loans and repatriation of investment, require the prior approval from SAFE or its local branches. Payments for transactions that take place within China must be made in Renminbi. Unless otherwise provided by laws and regulations, PRC companies may repatriate foreign currency payments received from overseas or retain the same overseas. Foreign exchange proceeds under the current accounts may be either retained or sold to a financial institution engaging in the settlement and sale of foreign exchange pursuant to applicable rules and regulations in China.
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In 2012, SAFE promulgated the Circular of Further Improving and Adjusting Foreign Exchange Administration Policies on Foreign Direct Investment, or Circular 59, on May 4, 2015 which substantially amends and simplifies the previous foreign exchange procedure. Pursuant to Circular 59, the opening and deposit of various special purpose foreign exchange accounts, such as pre-establishment expenses accounts, foreign exchange capital accounts and guarantee accounts, the reinvestment of RMB proceeds derived by foreign investors in China, and remittance of foreign exchange profits and dividends by a foreign-invested enterprise to its foreign shareholders no longer require the approval or verification of SAFE, and multiple capital accounts for the same entity may be opened in different provinces, which was not permitted previously.
On May 10, 2013, SAFE promulgated the Notice of State Administration of Foreign Exchange on Promulgation of the Provisions on Foreign Exchange Control on Direct Investments in China by Foreign Investors and Supporting Documents, which specified that the administration by SAFE or its local branches over direct investment by foreign investors in China must be conducted by way of registration and banks must process foreign exchange business relating to the direct investment in China based on the registration information provided by SAFE and its branches.
In February 13, 2015, SAFE promulgated the Notice on Further Simplifying and Improving the Administration of the Foreign Exchange Concerning Direct Investment, or SAFE Notice 13. Instead of applying for approvals regarding foreign exchange registrations of foreign direct investment and overseas direct investment from SAFE, entities and individuals may apply for such foreign exchange registrations from qualified banks. Qualified banks, under the supervision of SAFE, may directly review the applications, conduct the registration and perform statistical monitoring and reporting responsibilities.
In March 30, 2015, SAFE promulgated the Circular of SAFE on Reforming the Management Approach regarding the Settlement of Foreign Capital of Foreign-invested Enterprise, or Circular 19, which expands a pilot reform of the administration of the settlement of the foreign exchange capitals of foreign-invested enterprises nationwide. Circular 19 allows all foreign-invested enterprises established in China to settle their foreign exchange capital on a discretionary basis according to the actual needs of their business operation, provides the procedures for foreign invested companies to use RMB converted from foreign currency-denominated capital for equity investments and removes certain other restrictions under previous rules and regulations. However, Circular 19 continues to prohibit foreign invested enterprises from, among other things, using RMB funds converted from their foreign exchange capital for expenditure beyond their business scope and providing entrusted loans or repaying loans between non-financial enterprises.
SAFE promulgated the Notice of the State Administration of Foreign Exchange on Reforming and Standardizing the Foreign Exchange Settlement Management Policy of Capital Account, or Circular 16, which took effect on June 9, 2016 and reiterates some of the rules set forth in Circular 19. Circular 16 provides that discretionary foreign exchange settlement applies to foreign exchange capital, foreign debt offering proceeds and remitted foreign listing proceeds, and the corresponding RMB capital converted from foreign exchange may be used to extend loans to related parties or repay inter-company loans (including advances by third parties). However, there are substantial uncertainties with respect to Circular 16’s interpretation and implementation in practice.
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In January 26, 2017, SAFE promulgated the Circular on Further Improving Reform of Foreign Exchange Administration and Optimizing Genuineness and Compliance Verification, or Circular 3, which stipulates several capital control measures with respect to the outbound remittance of profits from domestic entities to offshore entities, including (i) where a bank handles outward remittance of profits for a domestic institution equivalent to more than US$50,000, the bank shall check whether the transaction is genuine by reviewing board resolutions regarding profit distribution, original copies of tax filing records, audited financial statements and stamp with the outward remittance sum and date on the original copies of tax filing records and (ii) domestic entities must retain income to account for previous years’ losses before remitting any profits. Moreover, pursuant to Circular 3, domestic entities must explain in detail the sources of capital and how the capital will be used, and provide board resolutions, contracts and other proof as a part of the registration procedure for outbound investment. Circular 3 also relaxes the policy restriction on foreign exchange inflow to further enhance trade and investment facilitation, including (i) expanding the scope of foreign exchange settlement for domestic foreign exchange loans; (ii) allowing the capital repatriation for offshore financing against domestic guarantee; (iii) facilitating the centralized management of foreign exchange funds of multinational companies; and (iv) allowing offshore institutions within pilot free trade zones to settle foreign exchange in domestic foreign exchange accounts.
Foreign Exchange Registration of Overseas Investment by PRC Residents
Pursuant to SAFE’s Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents to Engage in Financing and Inbound Investment via Overseas Special Purpose Vehicles, or SAFE Circular 75, which became effective on November 1, 2005, domestic residents, including domestic individuals and domestic companies, must register with local branches of SAFE in connection with their direct or indirect offshore investment in an overseas special purpose vehicle, or Overseas SPV, for the purposes of overseas equity financing activities, and to update such registration in the event of any significant changes with respect to that offshore company.
On July 4, 2014, SAFE promulgated the Notice of the State Administration of Foreign Exchange on Issues Relating to Foreign Exchange Control for Overseas Investment and Financing and Round-tripping by Chinese Residents through Special Purpose Vehicles, or SAFE Circular 37, which replaced SAFE Circular 75, for the purpose of simplifying the approval process and promoting cross-border investments. SAFE Circular 37 supersedes SAFE Circular 75 and revises and regulates matters involving foreign exchange registration for round-trip investment. Under SAFE Circular 37, a domestic resident must register with the local SAFE branch before he or she contributes assets or equity interests in an Overseas SPV that is directly established or indirectly controlled by the domestic resident for the purpose of conducting investment or financing. In addition, in the event of any change of basic information of the Overseas SPV such as the individual shareholder, name, operation term, etc., or if there is any capital increase, decrease, equity transfer or swap, merge, spin-off or other amendment of the material items, the domestic resident shall complete the change of foreign exchange registration procedures for offshore investment. According to the procedural guideline as attached to SAFE Circular 37, the principle of review has been changed to “the domestic individual resident shall only register the Overseas SPV directly established or controlled (first level).”
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At the same time, SAFE has issued the Operation Guidance for the Issues Concerning Foreign Exchange Administration Over Round-trip Investment with respect to the procedures for SAFE registration under SAFE Circular 37, which became effective on July 4, 2014 as an attachment to SAFE Circular 37. Under applicable rules, failure to comply with the registration procedures set out in SAFE Circular 37 may result in restrictions being imposed on the foreign exchange activities of the onshore company, including the payment of dividends and other distributions to its offshore parent or affiliate, and may also subject PRC residents to penalties under PRC foreign exchange administration regulations. PRC residents who hold any shares in the company from time to time are required to register with SAFE in connection with their investments in the company.
On February 13, 2015, SAFE promulgated the Notice on Further Simplifying and Improving Policies for the Foreign Exchange Administration of Direct Investment, effective from June 1, 2015, which further amended SAFE Circular 37 by requiring domestic residents to register with qualified banks rather than SAFE or its local branches in connection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing.
Regulations Related to Tax
Enterprise Income Tax
The PRC Law on Enterprise Income Tax and The Regulations for the Implementation of the Law on Enterprise Income Tax, collectively, the EIT Laws, were promulgated on March 16, 2007 and December 6, 2007, respectively, and were most recently amended on December 29, 2018 and April 23, 2019, respectively. According to the EIT Laws, taxpayers consist of resident enterprises and non-resident enterprises. Resident enterprises are defined as enterprises that are established in China in accordance with PRC laws, or that are established in accordance with the laws of foreign countries but whose actual or de facto control is administered from within China. Non-resident enterprises are defined as enterprises that are set up in accordance with the laws of foreign countries and whose actual administration is conducted outside China, but have established institutions or premises in China, or have no such established institutions or premises but have income generated from inside China. Under the EIT Laws and implementing regulations, a uniform enterprise income tax, or EIT, rate of 25% is applicable. However, if non-resident enterprises have not formed permanent establishments or premises in China, or if they have formed permanent establishment institutions or premises in China but there is no actual relationship between the income derived in China and the established institutions or premises set up by them, the enterprise income tax is, in that case, set at the rate of 10% for their income sourced from inside China.
Notice Regarding the Determination of Chinese-Controlled Offshore Incorporated Enterprises as the PRC Tax Resident Enterprises on the Basis of De Facto Management Bodies, or Circular 82, which was promulgated by the State Taxation Administration on April 22, 2009 and amended on January 29, 2014 and December 29, 2017, sets out the standards and procedures for determining whether the “de facto management body” of an enterprise registered outside of the PRC and controlled by PRC enterprises or PRC enterprise groups is located within China.
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According to Circular 82, a Chinese-controlled offshore incorporated enterprise will be regarded as a PRC tax resident by virtue of having a “de facto management body” in China and will be subject to PRC EIT on its worldwide income only if all of the following criteria are met: (1) the primary location of the day-to-day operational management is in China; (2) decisions relating to the enterprise’s financial and human resource matters are made or are subject to approval by organizations or personnel in China; (3) the enterprise’s primary assets, accounting books and records, company seals, and board and shareholders meeting minutes are located or maintained in China; and (4) 50% or more of voting board members or senior executives habitually reside in China.
The EIT Laws permit certain High and New Technologies Enterprises to enjoy a reduced 15% EIT rate subject to these High and New Technologies Enterprises meeting certain qualification criteria. In addition, EIT laws and regulations also provide that entities recognized as Software Enterprises are able to enjoy a tax holiday consisting of a two-year-exemption commencing from their first profitable calendar year and a 50% reduction in ordinary tax rate for the following three calendar years, while entities qualifying as key software enterprises can enjoy a preferential EIT rate of 10%.
The Bulletin on Issues of Enterprise Income Tax on Indirect Transfers of Assets by Non-PRC Resident Enterprises, or Bulletin 7, was issued by the State Taxation Administration on February 3, 2015 and most recently amended pursuant to the Announcement on Issues Concerning the Withholding of Enterprise Income Tax at Source on Non-PRC Resident Enterprises, which was issued by the State Taxation Administration on October 17, 2017 (which amendment became effective on December 1, 2017). Pursuant to Bulletin 7, an “indirect transfer” of assets, including equity interests in a PRC resident enterprise, by non-PRC resident enterprises may be re-characterized and treated as a direct transfer of PRC taxable assets, if the arrangement does not have a reasonable commercial purpose and was established for the purpose of avoiding payment of EIT in China. As a result, gains derived from an indirect transfer may be subject to EIT in China. According to Bulletin 7, “PRC taxable assets” include assets attributed to an establishment or a place of business in China, immovable properties in China, and equity investments in PRC resident enterprises. In respect of an indirect offshore transfer of assets of a PRC establishment or place of business, the gain is to be regarded as effectively connected with the PRC establishment or a place of business and therefore included in its EIT filing, and would consequently be subject to EIT in China at a rate of 25%. Where the underlying transfer relates to the immovable properties in China or to equity investments in a PRC resident enterprise, which is not effectively connected to a PRC establishment or a place of business of a non-resident enterprise, an BIT rate at 10% would apply, subject to available preferential tax treatment under applicable tax treaties or similar arrangements, and the party who is obligated to make the transfer payments has the withholding obligation. There is uncertainty as to the implementation of Bulletin 7.
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VAT and Business Tax
Before August 2013 and pursuant to applicable PRC tax regulations, any entity or individual conducting business in the service industry is generally required to pay a business tax at the rate of 5% on the revenue generated from providing services. However, if the services provided are related to technology development and transfer, the business tax may be exempted subject to approval by tax authorities.
In November 2011, the Ministry of Finance and SAT promulgated the Pilot Plan for Imposition of Value-Added Tax to Replace Business Tax. In May and December 2013, April 2014, March 2016 and July 2017, the Ministry of Finance and SAT promulgated five circulars to further expand the scope of services that are to be subject to value-added tax, or VAT, instead of business tax. Pursuant to these tax rules, from August 1, 2013, VAT was imposed to replace the business tax in certain service industries, including technology services and advertising services, and from May 1, 2016, VAT replaced business tax in all industries, on a nationwide basis. On November 19, 2017, the State Council further amended the Interim Regulation of PRC on Value Added Tax to reflect the normalization of the pilot program. The VAT rates generally applicable are simplified as 17%, 11%, 6% and 0%, and the VAT rate applicable to the small-scale taxpayers is 3%. Unlike business tax, a taxpayer is allowed to offset the qualified input VAT paid on taxable purchases against the output VAT chargeable on the revenue from services provided.
On April 4, 2018, the Ministry of Finance and SAT issued the Notice on Adjustment of VAT Rates, which came into effect on May 1, 2018. According to the notice, starting from May 1, 2018, the taxable goods previously subject to VAT rates of 17% and 11%, respectively, become subject to lower VAT rates of 16% and 10%, respectively.
On March 20, 2019, the Ministry of Finance, SAT and the General Administration of Customs issued the Announcement on Policies for Deepening the VAT Reform, which came into effect in April 2019, to further reduce VAT rates. According to the announcement, (1) for general VAT payers’ sales activities or imports previously subject to VAT at an existing applicable rate of 16% or 10%, the applicable VAT rate is adjusted to 13% or 9% respectively; (2) for agricultural products purchased by taxpayers to which an existing 10% deduction rate is applicable, the deduction rate is adjusted to 9%; (3) for agricultural products purchased by taxpayers for production or commissioned processing, which are subject to VAT at 13%, the input VAT will be calculated at a 10% deduction rate; (4) for the exportation of goods or labor services that are subject to VAT at 16%, with the applicable export refund at the same rate, the export refund rate is adjusted to 13%; and (5) for the exportation of goods or cross-border taxable activities that are subject to VAT at 10%, with the export refund at the same rate, the export refund rate is adjusted to 9%.
Regulations Related to Employment and Social Welfare
The Labor Contract Law
According to the Labor Law of China promulgated on July 5, 1994 and most recently amended on December 29, 2018, enterprises and institutions shall establish and improve their system of workplace safety and sanitation, strictly abide by state rules and standards on workplace safety, educate laborers in labor safety and sanitation in China. Labor safety and sanitation facilities shall comply with state-fixed standards. Enterprises and institutions shall provide laborers with a safe workplace and sanitation conditions which are in compliance with state stipulations and articles of labor protection. The PRC Labor Contract Law, which took effect on January 1, 2008 and amended on December 28, 2012, is primarily aimed at regulating employee/employer rights and obligations, including matters with respect to the establishment, performance and termination of labor contracts. Pursuant to the PRC Labor Contract Law, labor contracts shall be concluded in writing if labor relationships are to be or have been established between enterprises or institutions and laborers. Enterprises and institutions are prohibited from compelling laborers to work beyond specified time limit and employers shall pay laborers for overtime work in accordance with laws and regulations. In addition, labor wages shall not be lower than the local minimum wages and shall be paid to laborers in a timely manner.
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Social Insurance and Housing Fund
As required under the Regulation of Insurance for Labor Injury implemented on January 1, 2004 and amended on December 20, 2010, Provisional Measures for Maternity Insurance of Employees of Corporations implemented on January 1, 1995, Decisions on the Establishment of a Unified Program for Basic Old-Aged Pension Insurance for Employees of Corporations of the State Council issued on July 16, 1997, Decisions on the Establishment of the Medical Insurance Program for Urban Workers of the State Council promulgated on December 14, 1998, Unemployment Insurance Measures promulgated on January 22, 1999 and Social Insurance Law of PRC implemented on July 1, 2011 and amended on December 29, 2018, enterprises are obliged to provide their employees in China with welfare schemes covering pension insurance, unemployment insurance, maternity insurance, labor injury insurance and medical insurance. These payments are made to local administrative authorities and any employer that fails to make the required contribution may be fined and ordered to make up for such contribution within a prescribed period of time.
In accordance with the Regulations on the Management of Housing Funds which were promulgated by the State Council on April 3, 1999 and most recently amended on March 24, 2019, enterprises must register at the competent managing center for housing funds and upon the examination by such managing center of housing funds, such enterprises shall complete procedures for the opening of an account at the bank for the deposit of employees’ housing funds. Enterprises are also required to pay and deposit housing funds on behalf of their employees in full and in a timely manner.
Regulations Related to M&A and Overseas Listing
On 8 August 2006, six PRC governmental and regulatory agencies, including the Ministry of Commerce and CSRC, promulgated the Rules on Acquisition of Domestic Enterprises by Foreign Investors, or the M&A Rules, governing the mergers and acquisitions of domestic enterprises by foreign investors that became effective on 8 September 2006 and was revised on 22 June 2009. The M&A Rules, among other things, requires that if an overseas company established or controlled by PRC companies or individuals intends to acquire equity interests or assets of any other PRC domestic company affiliated with such PRC companies or individuals, such acquisition must be submitted to the Ministry of Commerce for approval. The M&A Rules also requires that an offshore special vehicle, or a special purpose vehicle formed for overseas listing purposes and controlled directly or indirectly by the PRC companies or individuals, shall obtain the approval of CSRC prior to overseas listing and trading of such special purpose vehicle’s securities on an overseas stock exchange. The M&A Rules also establish procedures and requirements that could make some acquisitions of PRC companies by foreign investors more time-consuming and complex, including requirements in some instances that the Ministry of Commerce be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise. In addition, the Rules on Implementation of Security Review System for the Merger and Acquisition of Domestic Enterprises by Foreign Investors issued by the Ministry of Commerce in 2011 specify that mergers and acquisitions by foreign investors that raise “national defense and security” concerns and mergers and acquisitions through which foreign investors may acquire de facto control over domestic enterprises that raise “national security” concerns are subject to strict review by the Ministry of Commerce, and prohibit any activities attempting to bypass such security review, including by structuring the transaction through a proxy or contractual control arrangement.
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Regulations Related to Strictly Combating Illegal Securities Activities
On July 6, 2021, the General Office of the State Council and General Office of the Central Committee of the Communist Party of China issued Opinions on Strictly Cracking Down Illegal Securities Activities in Accordance with the Law. It emphasizes the need to strengthen the administration over illegal securities activities and the supervision on overseas listings by China-based companies and proposed to take effective measures, such as promoting the establishment of regulatory systems to deal with the risks and incidents faced by China-based overseas-listed companies.
Regulations Related to Securities Offering and Listing Overseas
On February 17, 2023, CSRC published the Overseas Listing Measures which took effect on March 31, 2023. Under the Overseas Listing Measures, a filing-based regulatory system applies to “indirect overseas offerings and listings” of companies in mainland China, which refers to securities offerings and listings in an overseas market made under the name of an offshore entity but based on the underlying equity, assets, earnings or other similar rights of a company in mainland China that operates its main business in mainland China. The Overseas Listing Measures states that, any post-listing follow-on offering by an issuer in an overseas market, including issuance of shares, convertible notes and other similar securities, shall be subject to filing requirement within three business days after the completion of the offering. Therefore, any of our future offering and listing of our securities in an overseas market may be subject to the filing requirements under the Overseas Listing Measures. In connection with the Overseas Listing Measures, on February 17, 2023 CSRC also published the Notice on Overseas Listing Measures. According to the Notice on Overseas Listing Measures, issuers that have already been listed in an overseas market by March 31, 2023, the date the Overseas Listing Measures became effective, are not required to make any immediate filing and are only required to comply with the filing requirements under the Overseas Listing Measures when it subsequently seeks to conduct a follow-on offering.
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C. Organizational Structure
The following diagram illustrates our corporate structure, including our principal subsidiaries, as of the date of this annual report:
D. Property, Plants and Equipment
We leased all of our properties as of December 31, 2023. The table below contains a summary of our properties as of December 31, 2023:
Location |
Space (square meters) |
Use |
Lease Term | |||
Room 332, 3rd Floor, Building A, Jindi Cultural and Creative Center, No. 18 Beihuayuan Village, Gaobeidian Township, Chaoyang District, Beijing | 186m2 | Office | 1 year from April 10, 2022 | |||
708, 7th Floor, Block B, Xinhua World Communication Center, Zhoujiajing, Guanzhuang, Chaoyang District, Beijing | 312m2 | Office | 2 year from March 20, 2023 | |||
2&3/F, Newlink Center, Area G, Building 7, Huitong Times Square, No.1 Yaojiayuan South Road, Chaoyang District, Beijing | 2,400m2 | Office | 5 years from November 9, 2020 | |||
Room 1704-1703, No. 55-56, Lane 21, Pusan Road, Pudong New Area, Shanghai | 450m2 | Office | 16 months from March 10,2023 |
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We believe that our existing facilities are generally adequate to meet our current needs, but expect to seek additional space as needed to accommodate future growth.
Item 4A. | Unresolved Staff Comments |
None.
Item 5. | Operating and Financial Review and Prospects |
The following discussion of our financial condition and results of operations is based upon and should be read in conjunction with our consolidated financial statements and the related notes included in this annual report.
The discussion below contains forward looking statements that involve certain risks and uncertainties. See “Forward-Looking Information.” In evaluating our business, you should carefully consider the information provided under the caption “Item 3. Key Information—D. Risk Factors” in this annual report. We caution you that our businesses and financial performance are subject to substantial risks and uncertainties.
The Transactions, including the Mergers, contemplated by the Merger Agreement were consummated on June 10, 2022 and NaaS became our wholly-owned subsidiary thereupon. The Transactions were accounted for as a reverse acquisition of RISE by NaaS. For accounting purposes, NaaS was considered the acquirer, and RISE, the acquiree. Immediately prior to the Transactions, we were a shell company as defined in Rule 12b-2 under the Exchange Act. Prior to becoming a shell company, we were a junior English Language Training provider in China. As a result of the Transactions, we ceased to be a shell company and we changed our name from “RISE Education Cayman Ltd” to “NaaS Technology Inc.” and our ticker from “REDU” to “NAAS” and assumed and began conducting the principal business of NaaS. Accordingly (i) the historical results of operations and financial information presented in this annual report for periods prior to June 10, 2022 are those of NaaS unless otherwise stated, and (ii) our consolidated financial statements from June 10, 2022 are a continuation of the financial statements of NaaS and include the results of operations of RISE and its consolidated subsidiaries.
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We implemented certain changes to align income statement presentation more closely with the manner in which our management currently receives and uses financial information to evaluate business performance following the expansion of our business lines, extension of our services to a broader range of energy asset owners, including EV charging stations, PV and energy asset owners, and recent acquisitions. We retrospectively reclassified the presentation of the income statement information for prior periods to conform to the current period presentation. The change in presentation involved the recategorization of revenues from mobility connectivity services and from full station operation model to charging services revenue; the inclusion of revenues from EPC services, hardware procurement, station upgrade and maintenance services to energy solutions revenue; and the reclassification of income from electricity procurement, non-charging services such as food and beverage and online advertising, virtual power plant and charging robots to new initiatives revenue. These changes have no material impact on our previously reported consolidated net revenues, net income or net income per share.
A. Operating Results
Key Factors Affecting Our Results of Operations
Our business and operating results are affected by the general factors that impact our total addressable market, including, among others, the overall economic growth in China and globally, regulatory, tax and geopolitical environments, and the competitive landscape for EV charging services and energy solutions. Unfavorable changes in any of these general factors could materially and adversely affect the demand for our products and services and our results of operations.
While our business is influenced by these general factors, we believe our results of operations are more directly affected by specific factors that include the following.
Growth in EV Adoption
Our revenue growth is directly tied to the charging volume completed through its network and heavily dependent on the number of passenger and commercial EVs sold, which we believe drives the demand for charging infrastructure. The market for EVs is rapidly evolving in China. Although China is currently one of the world’s major automotive markets, there is no guarantee of such future demand and there have been fluctuations in terms of year-over-year growth in sales volume for passenger vehicles in general as well as for EVs. Factors impacting the adoption of EVs include but are not limited to: perceptions about EV features, quality, safety, performance and cost; perceptions about the limited range over which EVs may be driven on a single battery charge; competition, including from other types of alternative fuel vehicles, plug-in hybrid electric vehicles and high fuel-economy internal combustion engine vehicles such as in terms of their features and prices; volatility in the cost of oil and gasoline; concerns regarding the stability of the electrical grid; the decline of EV battery’s ability to hold a charge over time; availability of services for EVs and particularly of EV charging infrastructure; consumers’ perception about the convenience and cost of charging EVs; increases in fuel efficiency; and willingness and ability of end-users to spend on new EVs. In addition, macroeconomic factors, including broader economic condition and governmental mandates and incentives, could impact demand for EVs, particularly since they can be more expensive than traditional gasoline-powered vehicles, when the automotive industry globally has been experiencing a recent decline in sales. Further, geopolitical factors such as the conflict between Ukraine and Russia have impacted and may continue to impact the global automotive supply chain and reduce the manufacturing of automobiles, including EVs. If the market for EVs does not develop as expected or if there is any slow-down or delay in overall EV adoption or manufacturing rates, our financial condition and results of operations would be negatively impacted and such impact may be material.
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Competition
The EV charging service and energy solution industries are highly competitive, and these markets are expected to become increasingly competitive. We compete on the comprehensiveness of the range of services and solutions offered to charging stations, energy asset owners and end-users as well as on the quality, performance, features, and prices of the products and services. New demands and preferences continue to emerge from industry participants, and in particular from charging stations, energy asset owners and end-users. Existing competitors may expand their product offerings and sales strategies, and new competitors may enter the market. We will be tested on our ability to forecast and meet shifts in the market and our ability to adapt product and service offerings in a timely manner. If our market share decreases due to increased competition, our financial condition and results of operations in the future may be negatively impacted.
End Users’ Usage Pattern
Our revenues are driven by end-users’ driving and charging behaviors. The EV market is still developing and current behavioral patterns may not be representative of future behaviors. Key behavioral shifts may include but are not limited to: annual vehicle miles traveled, preferences for urban, suburban or exurban locations, preferences for public or private fast charging, preference for home or workplace charging, demand from rideshare or urban delivery services, and the emergence of autonomous vehicles, micro-mobility and mobility as-a-service platforms requiring EV charging services. All these shifts could change end-users’ driving and charging behaviors, which in turn could affect the demand for our services and our results of operations.
Impact of New Solution Releases and Investments in Growth
As we introduce new services and solutions, our cash flow and margin may be initially negatively impacted by launch costs and lower volumes and due to additional cash support required. In addition, we may accelerate our expenditures where we see growth opportunities, which may impact our cash flow and margin until initial cash support and upfront costs and inefficiencies are absorbed and normalized operations are achieved. We also continually evaluate and may adjust our expenditures and cash requirements based on our launch plans for new services and solutions, as well as other factors including the pace and prioritization of current projects under development and the addition of new projects.
Technology
We rely on numerous internally developed and externally sourced hardware and software technologies to operate our network and generate earnings. We engage third-party vendors for non-proprietary hardware and software components. Our ability to continue to integrate our technology stack with technological advances in the wider EV ecosystem including EV model characteristics, charging standards, charging hardware, software and battery chemistries will affect our sustained competitiveness in offering charging services. With our continued investment in research and development as well as collaboration with third-party vendors, we believe that we are well-positioned to keep abreast of technological advances and allow our business to remain competitive regardless of long-term technological shifts in EVs, batteries or modes of charging.
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Key Components of Results of Operations
Revenues
Our revenues are generated across various revenue streams. The following table sets forth the components of our revenues, both in absolute amount and as a percentage of total revenues, for the periods presented:
For the year ended December 31, | ||||||||||||||||||||||||||||
2021 | 2022 | 2023 | ||||||||||||||||||||||||||
RMB’000 | % | RMB’000 | % | RMB’000 | US$’000 | % | ||||||||||||||||||||||
Charging services revenues |
29,607 | 88.5 | 82,590 | 89.0 | 129,107 | 18,184 | 40.3 | |||||||||||||||||||||
Energy solutions revenues |
2,989 | 8.9 | 8,115 | 8.7 | 187,260 | 26,375 | 58.5 | |||||||||||||||||||||
New initiatives revenues |
857 | 2.6 | 2,109 | 2.3 | 3,711 | 523 | 1.2 | |||||||||||||||||||||
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Revenues |
33,453 | 100.0 | 92,814 | 100.0 | 320,078 | 45,082 | 100.0 | |||||||||||||||||||||
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Charging Services Revenues. We primarily generate revenues from the provision of mobility connectivity solutions to EV charging stations and the provision of charging services at charging stations that we operate under our full station operation model. Our mobility connectivity solutions include mobility services delivered in conjunction with Kuaidian, our partnered platform that is operated by a third-party service provider, and SaaS products that optimize the marketing, operations and energy efficiency of charging stations connected to NaaS’s network.
Energy Solutions Revenues. We generate revenues from the provision of integrated charging facilities and energy storage solutions that cover the planning, deployment, production and optimization of EV charging, renewable energy and energy storage systems for energy asset owners.
New Initiatives Revenues. We generate revenues from electricity procurement services and other services that aim to enhance the efficiency and profitability of energy assets including charging stations, PV and energy storage assets.
Cost of Revenues
The following table sets forth the principal components of cost of revenues by absolute amount and as a percentage of total revenues for the periods presented.
For the year ended December 31, | ||||||||||||||||||||||||||||
2021 | 2022 | 2023 | ||||||||||||||||||||||||||
RMB’000 | % | RMB’000 | % | RMB’000 | US$’000 | % | ||||||||||||||||||||||
Cost of revenues: |
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Cost of charging services |
29,160 | 87.1 | 86,428 | 93.2 | 84,223 | 11,863 | 26.4 | |||||||||||||||||||||
Cost of energy solutions |
— | — | — | — | 146,401 | 20,620 | 45.7 | |||||||||||||||||||||
Cost of new initiatives |
427 | 1.3 | 219 | 0.2 | 695 | 98 | 0.2 | |||||||||||||||||||||
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Total cost of revenues |
29,587 | 88.4 | 86,647 | 93.4 | 231,319 | 32,581 | 72.3 | |||||||||||||||||||||
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Cost of Charging Services. Cost of charging services primarily consists of operating costs of charging stations, technical service fees and electricity costs.
Cost of Energy Solutions. Cost of energy solutions primarily consists of direct labour costs, hardware procurement costs, and daily operation costs.
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Cost of New Initiatives. Cost of new initiatives mainly represents costs of materials and services incurred for the delivery of services to enhance the efficiency and profitability of energy assets including charging stations, PV and energy storage assets.
Operating Expenses
The following table sets forth the components of operating expenses, both in absolute amount and as a percentage of total revenues, for the periods presented.
For the year ended December 31, | ||||||||||||||||||||||||||||
2021 | 2022 | 2023 | ||||||||||||||||||||||||||
RMB’000 | % | RMB’000 | % | RMB’000 | US$’000 | % | ||||||||||||||||||||||
Operating expenses: |
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Selling and marketing expenses |
193,340 | 578.0 | 241,430 | 206.1 | 446,708 | 62,918 | 139.6 | |||||||||||||||||||||
Administrative expenses |
34,458 | 103.0 | 2,195,981 | 2,366.0 | 669,837 | 94,345 | 209.3 | |||||||||||||||||||||
Research and development expenses |
30,253 | 90.4 | 36,557 | 39.4 | 63,050 | 8,880 | 19.7 | |||||||||||||||||||||
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Total operating expenses |
258,051 | 771.4 | 2,473,968 | 2,665.5 | 1,179,595 | 166,143 | 368.6 | |||||||||||||||||||||
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Selling and marketing expenses. Selling and marketing expenses primarily consist of market incentives for charging service, costs of related personnel and advertising expenses. Market incentives for charging service represent incentives through platform (in the form of discounts and promotions) granted to end-users. The incentives granted to end-users include base incentives and excess incentives, with base incentives being the amount of incentives paid to end-users up to the amount of commission fees we earned from charging stations on a transaction basis, and excess incentives being the amount of payments made to end-users that exceed the amount of commission fees we earned from charging stations on a transaction basis. The excess incentives are included in selling and marketing expenses.
Administrative expenses. Administrative expenses mainly comprise staff costs for employees involved in general corporate functions, impairment loss, professional service fees, as well as other general and administrative expenses.
Research and development expenses. Research and development expenses primarily consist of salaries and benefits for technology and product development personnel.
Taxation
Cayman Islands
We are incorporated in the Cayman Islands. The Cayman Islands currently levies no taxes on corporations based upon profits, income, gains or appreciation. There are no other taxes likely to be material to us levied by the government of the Cayman Islands except for stamp duties, which may be applicable on instruments executed in, or brought within the jurisdiction of, the Cayman Islands.
Hong Kong
Our subsidiary in Hong Kong is subject to an income tax rate of 16.5% on any part of assessable profits over HKD2,000,000 and 8.25% for assessable profits below HKD2,000,000. Foreign-derived income is exempted from income tax. Additionally, payments of dividends by our subsidiary in Hong Kong to our company are not subject to any Hong Kong withholding tax.
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Mainland China
Under the PRC Enterprise Income Tax Law effective from January 1, 2008, which was most recently amended on December 29, 2018, a statutory enterprise income tax rate of 25% is applicable to foreign investment enterprises and domestic companies, subject to preferential tax treatments available to qualified enterprises in certain encouraged sectors of the economy. Our principal operating subsidiaries in mainland China were subject to enterprise income tax at a rate of 25% in 2023.
We are subject to VAT, at rates from 3% to 13% on the services we provide, less any deductible VAT we have already paid or borne. We are also subject to surcharges on VAT payments in accordance with PRC law.
Pursuant to the PRC Enterprise Income Tax Law, a 10% withholding tax is levied on dividends declared to foreign investors from mainland China effective from January 1, 2008, unless any such foreign investor’s jurisdiction of incorporation has a tax treaty or similar agreement with mainland China that provides for a different withholding arrangement. Dividends paid by our wholly foreign-owned subsidiary in mainland China to our intermediary holding company in Hong Kong will be subject to a withholding tax rate of 10%.
Notwithstanding the foregoing, if our holding company in the Cayman Islands or any of our subsidiaries outside of mainland China were deemed to be a “resident enterprise” under the PRC Enterprise Income Tax Law and its implementation rules, it would be subject to enterprise income tax on its worldwide income at a rate of 25%. See “Risk Factors — Risks Related to Doing Business in China — It is unclear whether we will be considered a PRC “resident enterprise” under the PRC Enterprise Income Tax Law and, depending on the determination of our PRC “resident enterprise” status, our global income may be subject to the 25% PRC enterprise income tax, which could materially and adversely affect our results of operations.”
Results of Operations
The following table sets forth the results of operations with line items in absolute amount and as a percentage of revenues for the periods indicated. The results of operations in any period are not necessarily indicative of our future trends.
For the year ended December 31, | ||||||||||||||||||||||||||||
2021 | 2022 | 2023 | ||||||||||||||||||||||||||
RMB’000 | % | RMB’000 | % | RMB’000 | US$’000 | % | ||||||||||||||||||||||
Charging services revenues |
29,607 | 88.5 | 82,590 | 89.0 | 129,107 | 18,184 | 40.3 | |||||||||||||||||||||
Energy solutions revenues |
2,989 | 8.9 | 8,115 | 8.7 | 187,260 | 26,375 | 58.5 | |||||||||||||||||||||
New initiatives revenues |
857 | 2.6 | 2,109 | 2.3 | 3,711 | 523 | 1.2 | |||||||||||||||||||||
Total revenues |
33,453 | 100.0 | 92,814 | 100.0 | 320,078 | 45,082 | 100.0 | |||||||||||||||||||||
Cost of revenues |
(29,587 | ) | (88.4 | ) | (86,647 | ) | (93.4 | ) | (231,319 | ) | (32,581 | ) | (72.3 | ) | ||||||||||||||
Gross profit |
3,866 | 11.6 | 6,167 | 6.6 | 88,759 | 12,501 | 27.7 | |||||||||||||||||||||
Operating expenses |
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Selling and marketing expenses |
(193,340 | ) | (578.0 | ) | (241,430 | ) | (260.1 | ) | (446,708 | ) | (62,918 | ) | (139.6 | ) | ||||||||||||||
Administrative expenses |
(34,458 | ) | (103.0 | ) | (2,195,981 | ) | (2,366.0 | ) | (669,837 | ) | (94,345 | ) | (209.3 | ) | ||||||||||||||
Research and development expenses |
(30,253 | ) | (90.4 | ) | (36,557 | ) | (39.4 | ) | (63,050 | ) | (8,880 | ) | (19.7 | ) | ||||||||||||||
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Total operating expenses |
(258,051 | ) | (771.4 | ) | (2,473,968 | ) | (2,665.5 | ) | (1,179,595 | ) | (166,143 | ) | (368.6 | ) | ||||||||||||||
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Other gains/(losses), net |
138 | 0.4 | 7,317 | 7.9 | 24,471 | 3,447 | 7.6 | |||||||||||||||||||||
Operating loss |
(254,047 | ) | (759.4 | ) | (2,460,484 | ) | (2,651.0 | ) | (1,066,365 | ) | (150,195 | ) | (333.2 | ) | ||||||||||||||
Fair value changes of convertible instruments |
— | — | (3,158,498 | ) | (3,403.0 | ) | (116,520 | ) | (16,411 | ) | (36.4 | ) | ||||||||||||||||
Fair value changes of financial instruments at fair value through profit or loss |
— | — | 1,753 | 1.9 | (87,519 | ) | (12,327 | ) | (27.3 | ) | ||||||||||||||||||
Finance costs |
(1,097 | ) | (3.3 | ) | (10,275 | ) | (11.1 | ) | (32,960 | ) | (4,642 | ) | (10.3 | ) | ||||||||||||||
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Loss before income tax |
(255,144 | ) | (762.7 | ) | (5,627,504 | ) | (6,063.2 | ) | (1,303,364 | ) | (183,575 | ) | (407.2 | ) | ||||||||||||||
Income tax expenses |
(5,318 | ) | (15.9 | ) | (9,861 | ) | (10.6 | ) | (3,786 | ) | (533 | ) | (1.2 | ) | ||||||||||||||
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Net loss for the year |
(260,462 | ) | (778.6 | ) | (5,637,365 | ) | (6,073.8 | ) | (1,307,150 | ) | (184,108 | ) | (408.4 | ) | ||||||||||||||
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Year Ended December 31, 2023 Compared to Year Ended December 31, 2022
Revenues
Total revenues increased from RMB92.8 million in 2022 to RMB320.1 million (US$45.1 million) in 2023.
Charging Services. Charging services revenues increased from RMB82.6 million in 2022 to RMB129.1 million (US$18.2 million) in 2023. The increase was primarily attributable to the expansion of our charging network in 2023. We offered incentives through platform (in the form of discounts and promotions) to end-users to boost the use of our network. The base incentives, being the amount of incentives paid to end-users up to the amount of commission fees we earned from charging stations on a transaction basis, were recorded as reduction to revenue and amounted to RMB323.8 million (US$45.6 million) in 2023.
Energy Solutions. Energy solutions revenues increased from RMB8.1 million in 2022 to RMB187.3 million (US$26.4 million) in 2023. The increase reflects our new strategic focus on the delivery of our energy solutions and was primarily driven by the initial phase of the Anji Green and Low-carbon Supply Chain Construction Project in Anji County, Zhejiang Province, and our acquisition of a majority stake in Sinopower Holdings International Co. Limited in June 2023. We may not be able to maintain a similar rate of growth, which is a risk often shared by companies with limited operating histories participating in rapidly evolving industries with intense competition. See “Risk Factors—Risks Related to Our Business and Industry—We face intense competition, including from a number of companies in China, and expect to face significant competition in the future.”
New Initiatives. Revenues derived from new initiatives increased from RMB2.1 million in 2022 to RMB3.7 million (US$0.5 million) in 2023, as we continued to launch new initiatives to expand its market offerings.
Cost of revenues
Cost of Charging Services. Cost of charging services remained relatively unchanged at RMB84.2 million (US$11.9 million) in 2023 compared to RMB86.4 million in 2022.
Cost of Energy Solutions. Cost of energy solutions increased from nil in 2022 to RMB146.4 million in 2023, primarily driven by costs incurred for the delivery of on-going energy solution projects, especially photovoltaic projects and engineering procurement construction projects, that provide renewable energy generation, energy management and energy storage solutions.
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Cost of New Initiatives. Cost of new initiatives increased from RMB0.2 million in 2022 to RMB0.7 million (US$98 thousand) in 2023, primarily due to an increase in operating cost of our non-charging services as a result of business expansion.
Operating expenses
Operating expenses decreased from RMB2,474.0 million in 2022 to RMB1,179.6 million (US$166.1 million) in 2023. The difference was mainly due to the incurrence of RMB1,912.7 million of equity-settled listing costs in connection with the Mergers in 2022, and the increase in labor costs in the amount of RMB313.0 million in 2023.
Selling and marketing expenses. Selling and marketing expenses increased from RMB241.4 million in 2022 to RMB446.7 million (US$62.9 million) in 2023, primarily due to (i) an increase of RMB110.7 million in the amount of incentives granted to users, and (ii) an increase of RMB73.9 million in salaries, bonuses and share-based compensation given to our key employees as a result of our business expansion. The excess incentives, being the amount of payments made to end-users that exceed the amount of commission fees we earned from charging stations on a transaction basis, were included in selling and marketing expenses and amounted to RMB224.5 million (US$31.6 million) in 2023.
Administrative expenses. Administrative expenses decreased from RMB2,196.0 million in 2022 to RMB669.8 million (US$94.3 million) in 2023. The difference is primarily attributable to (i) the incurrence of RMB1,912.7 million of equity-settled listing costs in connection with the Mergers in 2022, (ii) an increase of RMB217.3 million in salaries, bonuses and share-based compensation given to our key employees as a result of our business expansion, and (iii) an increase in professional service fees in the amount of RMB69.5 million as we completed a number of investment and financing projects.
Research and development expenses. Research and development expenses increased from RMB36.6 million in 2022 to RMB63.1 million (US$8.9 million) in 2023, primarily due to an expansion in our research and development efforts.
Fair value changes of convertible instruments
We recorded a loss of RMB3,158.5 million as fair value changes of convertible instruments in 2022 compared to a loss of RMB116.5 million (US$16.4 million) in 2023. The loss in 2022 related to convertible preferred shares that were converted to ordinary shares in 2022 and the loss in 2023 related to convertible notes issued in 2023.
Fair value changes of financial instruments at fair value through profit or loss
Our fair value changes of financial instruments at fair value through profit or loss were RMB1.8 million in the positive in 2022 compared to RMB87.5 million (US$12.3 million) in the negative in 2023. The change was primarily attributable to the unrealized fair value remeasurement of certain financial assets at fair value through profit or loss which we issued in 2023.
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Finance costs
Finance costs were RMB33.0 million (US$4.6 million) in 2023 as compared with finance costs of RMB10.3 million in 2022. The increase was primarily attributable to an increase in interest expense as a result of increasing borrowings and lease liabilities.
Income tax expenses
Income tax expenses were RMB3.8 million (US$0.5 million) for 2023, compared with income tax expenses of RMB9.9 million for 2022.
Net loss for the year
As a result of the foregoing, loss for the year of RMB1,307.2 million (US$184.1 million) was recorded in 2023, compared to loss of RMB5,637.4 million in 2022.
Year Ended December 31, 2022 Compared to Year Ended December 31, 2021
Revenues
Total revenues increased from RMB33.5 million in 2021 to RMB92.8 million in 2022.
Charging Services. Charging service revenues increased from RMB29.6 million in 2021 to RMB82.6 million in 2022. The increase was primarily attributable to an overall increase of charging volume completed through our network which was in turn driven by the expansion of our charging network. We offered incentives through platform (in the form of discounts and promotions) to end-users to boost the use of our network. The base incentives, being the amount of incentives paid to end-users up to the amount of commission fees we earned from charging stations on a transaction basis, were recorded as reduction to revenue and amounted to RMB139.6 million and RMB206.6 million for the years ended December 31, 2021 and 2022, respectively.
Energy Solutions. Energy solutions revenues increased from RMB3.0 million in 2021 to RMB8.1 million in 2022. The increase was primarily driven by the expansion of hardware procurement business in 2022.
New Initiatives. Revenues derived from new initiatives increased from RMB0.9 million in 2021 to RMB2.1 million in 2022, primarily due to the growth of non-charging services and online advertisement business.
Cost of revenues
Cost of Charging Services. Cost of charging services increased from RMB29.2 million in 2021 to RMB86.4 million in 2022, primarily due to the increase in the operating costs of charging stations and technical service fees.
Cost of Energy Solutions. Cost of energy solutions was nil in 2021 and 2022.
Cost of New initiatives. Cost of new initiatives decreased from RMB0.4 million in 2021 to RMB0.2 million in 2022.
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Operating expenses
Operating expenses increased significantly from RMB258.1 million in 2021 to RMB2,474.0 million in 2022. The significant increase was mainly due to the recording of RMB1,912.7 million of equity-settled listing costs in connection with the Mergers and RMB213.8 million of share-based compensation expenses in 2022.
Selling and marketing expenses. Selling and marketing expenses increased from RMB193.3 million in 2021 to RMB241.4 million in 2022, primarily due to (i) an increase in user acquisition costs through short video platforms by RMB14.7 million, and (ii) an increase in share-based personnel costs of RMB23.9 million. The excess incentives, being the amount of payments made to end-users that exceed the amount of commission fees we earned from charging stations on a transaction basis, were included in selling and marketing expenses and amounted to RMB120.5 million in 2022.
Administrative expenses. Administrative expenses increased from RMB34.5 million in 2021 to RMB2,196.0 million in 2022. The significant increase was mainly due to the recording of RMB1,912.7 million of equity-settled listing costs which in connection with the Mergers, and a total of RMB170.1 million of share-based compensation expenses. Besides, professional service fee also increased by RMB29.0 million in connection with the Mergers.
Research and development expenses. Research and development expenses increased from RMB30.3 million in 2021 to RMB36.6 million in 2022.
Finance costs
Finance costs were RMB10.3 million in 2022 as compared with finance costs of RMB1.1 million in 2021. The increase of finance costs was primarily attributable to our spending on financing activities.
Income tax expenses
Income tax expenses increased from RMB5.3 million in 2021 to RMB9.9 million in 2022, which was primarily due to the increase of income tax surcharges.
Net loss for the year
As a result of the foregoing, loss for the year of RMB5,637.4 million was recorded in 2022, compared to loss of RMB260.5 million in 2021.
Off Balance Sheet Arrangements
We have not entered into any off-balance sheet financial guarantees or other off-balance sheet commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an uncombined entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any uncombined entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or product development services with us.
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B. Liquidity and Capital Resources
Cash Flows and Working Capital
The following table sets forth a summary of cash flows for the periods presented:
For the year ended December 31, | ||||||||||||||||
2021 | 2022 | 2023 | ||||||||||||||
RMB’000 | RMB’000 | RMB’000 | US$’000 | |||||||||||||
Summary Consolidated Cash Flow Data: |
||||||||||||||||
Net cash used in operating activities |
(219,114 | ) | (580,696 | ) | (565,243 | ) | (79,613 | ) | ||||||||
Net cash used in investing activities |
(5,606 | ) | (161,335 | ) | (339,610 | ) | (47,835 | ) | ||||||||
Net cash generated from financing activities |
229,544 | 1,246,893 | 827,744 | 116,587 | ||||||||||||
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Net increase in cash, cash equivalents, and restricted cash |
4,824 | 504,862 | (77,109 | ) | (10,861 | ) | ||||||||||
Cash, cash equivalents, and restricted cash at beginning of the year |
3,665 | 8,489 | 513,351 | 72,304 | ||||||||||||
Cash, cash equivalents, and restricted cash at the end of the year |
8,489 | 513,351 | 436,242 | 61,443 | ||||||||||||
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To date, we have financed our operating and investing activities mainly through cash generated from operating activities, and debt and equity financing activities. As of December 31, 2023, we had RMB436.2 million (US$61.4 million) in cash and cash equivalents, of which 47.7% were held in RMB.
We issued and sold a total of 57,570,524 newly issued Class A ordinary shares of the Company to a certain institutional investor on December 12, 2022, at a price of US$0.5211 per ordinary share, based on the volume-weighted average traded price of our ADSs on Nasdaq for the 30 consecutive trading days immediately preceding the date of the subscription agreement (adjusted to account for the 1:10 ADS-to-share ratio), for a total purchase price of US$30 million. In May 2023, we completed a registered direct offering of US$21 million to certain investors whereby the investors subscribed for and purchased from us a total of 3,500,000 ADSs. In November 2023, we issued a total of 6,600,000 ADSs in a registered direct offering to certain investors at a total consideration of approximately US$16 million. We issued a US$30 million convertible bond to LMR Multi-Strategy Master Fund Limited, an affiliate of LMR Partners Limited, in July 2023, and then another US$40 million convertible bond to the same entity in September 2023. In the event that the entire principal amount of the July 2023 LMR Convertible Note is fully converted prior to its maturity date, we agree to further issue and sell, and LMR Multi-Strategy Master Fund Limited agrees to purchase, an additional note in the principal amount of US$25,000,000 at the issue price of US$25,000,000 with substantially similar terms as the July 2023 LMR Convertible Note. During the year ended December 31, 2023, we utilized bank borrowings in the amount of 380.3 million, and we had unutilized borrowing facilities totalling RMB12.5 million as of December 31, 2023. In March 2024, we completed the registered direct offering to certain institutional investors of 4,761,905 ADSs together with the Investor Warrants to purchase up to 4,761,905 ADSs at a combined purchase price of US$1.26 per ADS and accompanying Investor Warrant for total gross proceeds of approximately US$6 million, before deducting commissions and other estimated offering expenses. We also issued the FA Warrants to initially purchase up to 238,095 ADSs to a financial advisor in connection with this registered direct offering. The Investor Warrants and FA Warrants are all outstanding as of the date of this annual report.
We believe our cash on hand will be sufficient to meet our current and anticipated needs for general corporate purposes for at least the next 12 months.
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Operating activities
Net cash used in operating activities was RMB565.2 million (US$79.6 million) in 2023, which was primarily attributable to a loss before income tax of RMB1,303.4 million (US$183.6 million), adjusted for certain non-cash items consisting primarily of (i) share based payment for employee benefit of RMB399.1 million (US$56.2 million), (ii) fair value change through profit or loss of RMB204.0 million (US$28.7 million), (iii) impairment loss on financial assets and other items under expected credit loss model of RMB74.7 million (US$10.5 million), provision for inventories loss of RMB14.4 million (US$2.0 million) and interest expense of RMB33.0 million (US$4.6 million). The adjustment for changes in operating assets and liabilities primarily reflected (i) an increase in prepayments, other receivables and other assets of RMB168.4 million (US$23.7 million), (ii) an increase in trade receivables and contract assets of RMB66.5 million (US$9.4 million) and (iii) an increase in inventories of RMB36.8 million (US$5.2 million), partially offset by an increase in trade and other payables of RMB220.9 million (US$31.1 million) and an increase in contract liabilities of RMB56.1 million (US$7.9 million).
Net cash used in operating activities was RMB580.7 million in 2022, which was primarily attributable to a loss before income tax of RMB5,627.5 million, adjusted for certain non-cash items consisting primarily of (i) fair value change through profit or loss of RMB3,156.7 million, (ii) equity-settled listing cost of RMB1,912.7 million, (iii) share based payment for employee benefit of RMB213.8 million, (iv) interest expense of RMB10.2 million, and (v) depreciation of right of use asset of RMB9.2 million. The adjustment for changes in operating assets and liabilities primarily reflected an (i) increase in other receivables, prepayments and other assets of RMB182.4 million, (ii) increase in trade receivables of RMB111.3 million, and (iii) decrease in trade and other payables of RMB7.2 million.
Net cash used in operating activities was RMB219.1 million in 2021, which was primarily attributable to a loss before income tax of RMB255.1 million, adjusted for certain non-cash items consisting primarily of (i) the depreciation of right-of-use assets of RMB6.5 million, (ii) credit loss allowances on financial asset of RMB3.2 million, and (iii) non-cash employee benefit expense of share based payment scheme of RMB10.8 million. The adjustment for changes in operating assets and liabilities primarily reflected (i) an increase in other receivables, prepayments and other assets of RMB59.2 million, mainly due to the increase of balance of value-added-tax input receipts to be collected from charging stations and prepayments to charging stations etc., (ii) an increase in trade receivables of RMB33.6 million, mainly due to the increase in receivables for sales of chargers, partially offset by an increase in trade and other payables of RMB101.1 million.
To supplement the discussion of operating cashflows above which is based on an indirect method, net cash used in operating activities was RMB565.2 million (US$79.6 million) for the year ended December 31, 2023, representing a decrease of RMB15.5 million (US$2.2 million) from RMB580.7 million for the year ended December 31, 2022. The decrease was mainly attributable to (i) an increase of cash received in advance from energy storage business; (ii) a strategic decrease of cash prepayment to energy asset owners. Net cash used in operating activities was RMB580.7 million for the year ended December 31, 2022, representing an increase of RMB361.6 million from RMB219.1 million for the year ended December 31, 2021. The increase was mainly attributable to (i) an increase of cash payment in advance to energy asset owners, resulted from an overall increase of charging volume completed through NaaS’s network, (ii) an increase in net cash used in the hardware procurement business, and (iii) an increase in payment for professional service fee during the Restructuring.
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Investing activities
Net cash used in investing activities was RMB339.6 million (US$47.8 million) in 2023, consisting primarily of RMB298.8 million (US$42.1 million) of net outflow from the purchase and sale of financial instruments and RMB34.0 million (US$4.8 million) of net cash paid for acquisition of a subsidiary, and RMB6.3 million (US$0.9 million) for the purchase of property, plant and equipment and other non-current assets.
Net cash used in investing activities was RMB161.3 million in 2022, consisting primarily of RMB144.2 million for the purchase of financial asset and RMB17.1 million for the purchase of property, plant and equipment.
Net cash used in investing activities was RMB5.6 million in 2021, consisting of RMB5.0 million for the purchase of financial asset at fair value through profit or loss and RMB0.6 million for the purchase of property, plant and equipment.
Financing activities
Net cash generated from financing activities in 2023 was RMB827.7 million (US$116.6 million), consisting primarily of RMB604.8 million (US$85.2 million) of net proceeds received from the issuance of ordinary shares and convertible notes and RMB380.3 million (US$53.6 million) of borrowings from banks, and partially offset by the repayment of borrowings in the amount of RMB143.9 million (US$20.3 million) and payment of interest in the amount of RMB32.2 million (US$4.5 million), RMB7.2 million (US$1.0 million) of payment of lease liabilities and RMB 4.3 million (US$0.6 million) of capital injection from non-controlling interests.
Net cash generated from financing activities in 2022 was RMB1,246.9 million, consisting primarily of RMB556.4 million of issuance of convertible redeemable preferred shares, and RMB212.4 million of issuance of ordinary shares, and RMB503.2 million of borrowing from banks, and partially offset by the payment of interest in the amount of RMB9.5 million and payment of lease liabilities in the amount of RMB6.8 million, and expense for issuance of preferred shares in the amount of RMB8.6 million.
Net cash generated from financing activities in 2021 was RMB229.5 million, consisting primarily of RMB231.6 million of contribution from a shareholder, partially offset by RMB1.9 million of payments of lease liabilities and RMB0.2 million of interests paid.
Capital expenditures
Our capital expenditures are primarily incurred for EPC turnkey projects, energy storage equipment and charging hardware, decoration of new workplace and software for research and development purpose. Our total capital expenditures were RMB17.5 million and RMB26.3 million (US$3.7 million) for the years ended December 31, 2022 and 2023, respectively. We will continue to make capital expenditures in the foreseeable future as we expand our business and continue to invest in technological development.
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Material Cash Requirements
Other than the ordinary cash requirements for our operations, our material cash requirements as of December 31, 2023 and any subsequent interim period primarily include our operating lease obligations and commitments relating to office buildings and charging stations. We intend to fund our existing and future material cash requirements with our existing cash balance and other financing alternatives. We will continue to make cash commitments to support the growth of its business.
The following table sets forth our contractual obligations as of December 31, 2023.
Payment Due by Period | ||||||||||||||||||||||||
Total | Less Than 1 year |
1-2 Years |
2-3 Years |
3-5 Years |
Over 5 Years |
|||||||||||||||||||
(RMB in thousands) | ||||||||||||||||||||||||
Lease commitments |
19,679 | 12,327 | 5,081 | 2,271 | — | — |
Other than as shown above, we did not have any significant capital and other commitments, long-term obligations, or guarantees as of December 31, 2023.
Holding Company Structure
NaaS Technology Inc. is a holding company with no operations of its own. We conduct our operations in China primarily through our PRC subsidiaries. As a result, although other means are available for us to obtain financing at the holding company level, NaaS Technology Inc.’s ability to pay dividends to the shareholders and to service any debt it may incur may depend upon dividends paid by our PRC subsidiaries. If any of our subsidiaries incurs debt on its own behalf in the future, the instruments governing such debt may restrict its ability to pay dividends to NaaS Technology Inc. Under PRC laws and regulations, our PRC subsidiaries are subject to certain restrictions with respect to payment of dividends or other transfers of any of their net assets to us. Our PRC subsidiaries are permitted to pay dividends only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. PRC laws also require foreign-invested enterprises to set aside at least 10% of its after-tax profits as the statutory common reserve fund until the cumulative amount of the statutory common reserve fund reaches 50% or more of such enterprises’ registered capital, if any, to fund its statutory common reserves, which are not available for distribution as cash dividends. Remittance of dividends by a wholly foreign-owned enterprise out of mainland China is also subject to examination by the banks designated by SAFE. These restrictions are benchmarked against the paid-up capital and the statutory reserve funds of our PRC subsidiaries. To the extent cash in our business is in China or in an entity in mainland China, the funds may not be available to fund operations or for other use outside of mainland China due to interventions in or the imposition of restrictions and limitations by the PRC government on our ability to transfer cash. As a result, our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business may be materially and adversely affected.
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For risks relating to the fund flows of our operations in China, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—We may rely on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiaries to make payments to us could have a material and adverse effect on our ability to conduct our business.”
C. Research and Development, Patents and Licenses, etc.
We continue to invest in the research and development of our products and services. We have a research and development team consisting of specialized technicians and professionals primarily covering areas of charging software, mobile charging devices, integrated photovoltaics-storage charging station solutions, intelligent order management, real-time information management, and related technologies.
In the years ended December 31, 2021, 2022 and 2023, research and development expenses were RMB30.3 million, RMB36.6 million and RMB63.1 million (US$8.9 million). We intend to invest considerable time and expense in the future as part of our efforts to design, develop and market new products and services and enhance existing products and services with continued research and development activities.
We rely on a combination of intellectual property rights, such as patents, trademarks, copyrights and trade secrets (including know-how), in addition to employee and third-party nondisclosure agreements, intellectual property licenses and other contractual rights, to establish, maintain, protect and enforce our rights in our technology, proprietary information and processes.
We regard our trademarks, copyrights, know-how, technologies, domain names, and other intellectual property as critical to our success. As of December 31, 2023, we had 44 issued patents and 206 pending patent applications globally. Our issued patents and patent applications primarily cover charging services, mobile charging devices, and integrated photovoltaics-storage charging station solutions. As of December 31, 2023, we owned 12 copyrights (including copyrights to software products), and 33 registered domain names that are material to our business.
D. Trend Information
Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events since 2023 that are reasonably likely to have a material adverse effect on our total revenues, income, profitability, liquidity or capital resources, or that caused the disclosed financial information to be not necessarily indicative of future operating results or financial conditions.
E. Critical Accounting Estimates
The preparation of financial statements requires the use of accounting estimates. We need to exercise judgement in applying our accounting policies. We continue to evaluate these estimates and assumptions based on historical experience and other factors, including expectations of future events that may have a financial impact on us and that are believed to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from our expectations as a result of changes in our estimates.
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Measurement of expected credit losses (ECL)
A number of significant judgements are required in applying the accounting requirements for measuring ECL, such as:
• | Determining the segmentation of debtor groups, |
• | Selecting appropriate models and assumptions for the measurement of ECL, and |
• | Establishing the relative probability weightings of forward-looking factors. |
Impairment assessment under ECL for trade receivables and other receivables
We use a provision matrix to calculate ECL for trade receivables and other receivables. The provision rates are based on aging for groupings of various customer segments with similar loss patterns. The calculation reflects the probability-weighted outcome and reasonable and supportable information that is available at the financial position date about past events, current conditions and forecasts of future economic conditions.
At every financial position date, the historical observed default rates are reassessed and changes in the forward-looking information are considered. In addition, trade receivable with significant balances and credit impairment are assessed for ECL individually.
The provision of ECL is sensitive to changes in estimates. The information about the ECL is disclosed in Note 7 of our audited consolidated financial statements included elsewhere herein.
Forward-looking information
In measuring ECL in accordance with IFRS 9, it should consider forward-looking information. The calculation of ECL incorporates forward-looking information through the use of publicly available economic data and forecasts based on assumptions and management judgement to reflect the forward-looking factors and through the use of probability weighted outcomes.
Item 6. Directors, Senior Management and Employees
A. Directors and Senior Management
The following table sets forth information regarding our executive officers and directors as of the date of this annual report on Form 20-F.
Directors and Executive Officers |
Age |
Position/Title | ||
Zhen Dai | 45 | Chairman of the Board of Directors and Director | ||
Yang Wang | 35 | Chief Executive Officer and Director | ||
Alex Wu | 44 | Chief Financial Officer, President and Director | ||
Weilin Sun | 48 | Director | ||
Guangming Ren | 51 | Independent Director | ||
Xiaoli Liu | 46 | Independent Director | ||
Ye Wu | 41 | Chief Strategy Officer |
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Zhen Dai has served as our chairman of the board and director since June 2022. He is one of the founders of NaaS and served as its director since January 2022. Mr. Zhen Dai is one of NewLink’s co-founders and has served as NewLink’s chief executive officer and chairman since its founding in 2016. Prior to NewLink, Mr. Zhen Dai founded Maoo Coffee, pioneering a delivery service model for coffee in China. Mr. Zhen Dai also served in various management positions in Red Star Macalline Group Corporation Ltd. from December 2011 to October 2014 and most recently as the president of its north China operations and was a member of the leadership that led its expansion into e-commerce. Mr. Zhen Dai also worked at Zhengyuan Real Estate Development Company Limited from June 2001 to November 2011 and was most recently the deputy manager of its brand management center. Mr. Zhen Dai received a bachelor degree in chemical engineering from Yanbian University. He is also a candidate for an Executive MBA degree from the Tsinghua Wudaokou School of Finance.
Yang Wang has served as our chief executive officer and director since June 2022. She is one of the founders of NaaS and served as its chief executive officer and director since its inception. Ms. Wang is one of NewLink’s co-founders and has served as NewLink’s president since its founding in 2016. In addition, Ms. Wang has also served as chief executive of Kuaidian Power Beijing, a subsidiary of NewLink focused on electric vehicle charging, since 2018. Prior to co-founding NewLink, Ms. Wang worked at the Shenzhen Stock Exchange, where she headed the “New Fortune Magazine” division and other new media initiatives, enabling the initiative to become a top 3 financial media account on Tencent’s WeChat system. Ms. Yang graduated from Renmin University with a bachelor degree in Broadcasting Journalism. She is a candidate for an Executive MBA degree from the Tsinghua Wudaokou School of Finance.
Alex Wu has served as our Chief Financial Officer since September 2022 and also as our President and director since January 2023. Mr. Wu served as interim chief financial officer of RISE from September of 2021 to June of 2022. Mr. Wu has extensive experience in corporate finance, technology and management matters and lately serves as managing director and a member of the Asian Pacific Portfolio Group of Bain Capital Private Equity. Before joining Bain Capital Private Equity in 2017, Mr. Wu worked at PricewaterhouseCoopers Consulting with a focus on the technology, media and telecommunications (TMT) sectors and digital solutions across cloud, e-commerce and analytics. Prior to that, Mr. Wu worked with airline and telecommunications companies to plan and deliver transformation programs. Mr. Wu received his bachelor’s degree in computer science from Peking University and his MBA degree from the Australian Graduate School of Management at the University of New South Wales.
Weilin Sun has served as our director since June 2022. He is one of NewLink’s co-founders. Mr. Sun has served as NewLink’s director since October 2017. Previously, Mr. Sun worked with Komatsu (China) Machinery Co., Ltd. from June 2007 to December 2016 and was the head of its strategic products department. Mr. Sun also worked with the construction project department of Hunter Douglas Group from January 2002 to April 2007 and was most recently its project manager. Mr. Sun holds a bachelor degree in clinic medicine from Jilin Medical University.
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Guangming Ren has served as our independent director since June 2022. Since 2015, Mr. Ren has also served as a director of Joincap Holding Group and the general manager of Beijing Joincap Asset Management Co., Ltd. since 2015. Mr. Ren joined Shenzhen Securities Information Co., Ltd. in 2004, and from 2004 to 2015, he led the chief editor’s office for the Trading Day program and served as the Director of Marketing Operations of the New Fortune magazine. Mr. Ren also served at various leadership positions at the Securities Times and Changchun Television from 1994 to 2004. Mr. Ren holds an undergraduate degree in Chinese literature from Jilin University.
Xiaoli Liu has served as our independent director since June 2022. Mr. Liu is the founder of Beijing Xinyuan Technology Co. Ltd. He served several senior management roles in SF Express Group from 2004 to 2022, including as president of the Group Customer Headquarters, president of North China Region, president of the Pharmaceutical Enterprise Division, and as the general manager for the Group Corporate Development Office and for SF Express Group’s regional operations including for the Nanjing, Hangzhou, Shenzhen and Beijing regions. Prior to joining SF Express Group, Mr. Liu worked at the Asset Operation Department of the China Aerospace Science and Industry Group. Mr. Liu obtained a bachelor’s degree in international economics and trade from Yanbian University and is an EMBA candidate at Tsinghua University.
Ye Wu has served as our chief strategy officer since March 2024. Prior to joining NaaS, Ms. Wu served as management partner, head of financial business and integrated solution business at NewLink. Before joining NewLink in April 2020, Ms. Wu worked at Baiqian Financial Leasing Co., Ltd as a senior vice president. She has held multiple senior positions across various leading financial business companies including HuaXia Financial Leasing, Kaixin Auto Holdings, FuHua Group and Toyota Group. Ms. Wu holds a bachelor’s degree in finance from ISG Business School and a master’s degree in financial economics from Oxford University.
B. Compensation
For the year ended December 31, 2023, we paid an aggregate of approximately RMB7.5 million (US$1.1 million) in cash to our directors and executive officers. We have not set aside or accrued any amount to provide pension, retirement or other similar benefits to its directors and executive officers. Our PRC subsidiaries are required by law to make contributions equal to certain percentages of each employee’s salary for his or her pension insurance, medical insurance, unemployment insurance and other statutory benefits and a housing provident fund.
Employment Agreements and Indemnification Agreements
We have adopted a form employment agreement for our executive officers. The terms of this form employment agreement provide that each of our executive officers is employed for a specified time period. We may terminate employment for cause, at any time, without advance notice or remuneration, for certain acts of the executive officer, such as conviction or plea of guilty to a felony or any crime involving moral turpitude, negligent or dishonest acts to our detriment, or misconduct or a failure to perform agreed duties. We may also terminate an executive officer’s employment without cause upon three-month or mutually agreed advance written notice. In such case of termination by us, we will provide severance payments to the executive officer as expressly required by applicable law of the jurisdiction where the executive officer is based. The executive officer may resign at any time with a three-month or mutually agreed advance written notice.
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The terms of the form employment agreement also provide that each executive officer should hold, both during and after the termination or expiry of his or her employment agreement, in strict confidence and not to use, except as required in the performance of his or her duties in connection with the employment or pursuant to applicable law, any of our confidential information or trade secrets, any confidential information or trade secrets of our clients or prospective clients, or the confidential or proprietary information of any third party received by us and for which we have confidential obligations. The executive officers should disclose in confidence to us all inventions, designs and trade secrets which they conceive, develop or reduce to practice during the executive officer’s employment with us and to assign all right, title and interest in them to us, and assist us in obtaining and enforcing patents, copyrights and other legal rights for these inventions, designs and trade secrets.
In addition, each executive officer agrees to be bound by non-competition and non-solicitation restrictions during the term of his or her employment and typically for one year following the last date of employment. Specifically, the terms of the form employment agreement provide that each executive officer should not (i) approach our suppliers, clients, customers or contacts or other persons or entities introduced to the executive officer in his or her capacity as a representative of us for the purpose of doing business with such persons or entities that will harm our business relationships with these persons or entities; (ii) assume employment with or provide services to any of our competitors, or engage, whether as principal, partner, licensor or otherwise, any of our competitors, without our express consent; or (iii) seek directly or indirectly, to solicit the services of, or hire or engage any of our employees who is employed by us on or after the date of the executive officer’s termination, or in the year preceding such termination, without our express consent.
We have entered into indemnification agreements with each of our directors and executive officers. Under these agreements, we may agree to indemnify our directors and executive officers against certain liabilities and expenses incurred by such persons in connection with claims made by reason of their being a director or officer of our company.
Share Incentive Plan
Upon the consummation of the Mergers, we assumed the then-effective 2022 Share Incentive Plan of NaaS, or the 2022 Share Incentive Plan. Each option to purchase ordinary shares of NaaS that was outstanding immediately prior to the Effective Time, whether vested or unvested, was converted into an option to purchase a number of Class A ordinary shares at a conversion ratio of 32.951 in accordance with the Merger Agreement. All awards under our equity incentive plans that were outstanding immediately prior to the Effective Time were automatically cancelled and extinguished, except that each vested option to purchase ordinary shares that was outstanding immediately prior to the Effective Time was converted into an option to purchase Class A ordinary shares in accordance with the Merger Agreement and is governed by the 2022 Share Incentive Plan (other than the vesting and exercisability terms).
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We adopted the New 2022 Share Incentive Plan, or the New 2022 Share Incentive Plan, in September 2022 to replace the 2022 Share Incentive Plan. Outstanding awards under the 2022 Share Incentive Plan remain valid and are governed by, and counted towards the total number of shares available under, the New 2022 Share Incentive Plan.
The Third A&R New 2022 Share Incentive Plan
The New 2022 Share Incentive Plan was adopted to attract and retain the best available personnel, provide additional incentives to directors, employees and consultants, and promote the success of our business.
The New 2022 Share Incentive Plan was amended and restated in June 2023, December 2023, and most recently in May 2024, to increase the number of Class A ordinary shares available for grant of awards under such plan. We refer to the New 2022 Share Incentive Plan as amended and restated as the “Third A&R New 2022 Share Incentive Plan.” The maximum number of Class A ordinary shares available to be issued under the Third A&R New 2022 Share Incentive Plan is initially 644,746,682 and is subject to increase on the first day of each fiscal year from January 1, 2025 by an amount equal to 1% of the total number of shares issued and outstanding on the last day of the immediately preceding fiscal year, unless otherwise decided by our board of directors.
The following paragraphs describe the principal terms of the Third A&R New 2022 Share Incentive Plan.
Types of Awards. The Third A&R New 2022 Share Incentive Plan permits the awards of options, restricted shares, restricted share units or other equity incentive awards pursuant to the authorizations of the administrator under the Third A&R New 2022 Share Incentive Plan.
Plan Administration. Our board of directors or one or more committees consisting of directors appointed by the board of directors or another committee (within its delegated authority) administers the Third A&R New 2022 Share Incentive Plan. The administrator of the Third A&R New 2022 Share Incentive Plan determines, among other things, the eligibility of individuals to receive awards, the type and number of awards to be granted to each eligible individual, and the terms and conditions of each award.
Award Agreement. Each award granted under the Third A&R New 2022 Share Incentive Plan is evidenced by an award agreement that contains such terms and conditions as may be necessary to meet the applicable provisions of Section 422 of the United States Internal Revenue Code of 1986, as amended from time to time, or the Code.
Eligibility. We may grant awards to employees, consultants and directors of our company. The general scope of eligible individuals shall be determined by the administrator.
Vesting Schedule. In general, the administrator determines the vesting schedule, if any, which is specified in the award agreement.
Exercise of Options. The exercise price per share subject to an option shall be determined by the administrator and set forth in the award agreement which may be a fixed price or a variable price related to the fair market value of the shares; provided, however, that no option may be granted to an individual subject to taxation in the United States at less than the fair market value on the date of grant, without compliance with Section 409A of the Code, or the holder’s consent.
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Transfer Restrictions. Awards may not be transferred in any manner by the holder other than in accordance with the exceptions provided in the Third A&R New 2022 Share Incentive Plan, such as transfers to members of the holder’s family, charitable institutions, or trusts or other entities whose beneficiaries or beneficial owners are members of the holder’s family and/or charitable institutions, pursuant to such conditions and procedures as the administrator may establish.
Termination and Amendment of the Third A&R New 2022 Share Incentive Plan. Unless terminated earlier, the Third A&R New 2022 Share Incentive Plan has a term of 10 years. The administrator has the authority to terminate, amend or modify the plan.
Share Incentive Grants
The following table summarizes, as of March 31, 2024, the number of ordinary shares underlying outstanding options that we had granted to our directors and executive officers and to other employees and consultants as a group.
Name |
Number of Ordinary Shares Underlying Options |
Exercise Price (US$/ Share) |
Date of Grant | Date of Expiration | ||||||||||||
Zhen Dai |
112,334,243 | 0.000003 | March 18, 2022 | March 18, 2032 | ||||||||||||
891,050 | 0.01 | October 1, 2023 | October 1, 2033 | |||||||||||||
Yang Wang |
37,443,045 | 0.000003 | March 18, 2022 | March 18, 2032 | ||||||||||||
712,840 | 0.01 | October 1, 2023 | October 1, 2033 | |||||||||||||
Alex Wu |
8,796,665 | 0.01 | January 13, 2023 | January 15, 2033 | ||||||||||||
10,084,780 | 0.01 | October 1, 2023 | October 1, 2033 | |||||||||||||
Weilin Sun |
8,903,550 | 0.000003 | February 1, 2022 | February 1, 2032 | ||||||||||||
712,840 | 0.01 | Ocbober 1,2023 | October 1,2033 | |||||||||||||
10,000,000 | 0.01 | January 1,2024 | January 1,2034 | |||||||||||||
Guangming Ren |
* | * | June 10, 2022 | June 10, 2032 | ||||||||||||
Xiaoli Liu |
* | * | June 10, 2022 | June 10, 2032 | ||||||||||||
Ye Wu |
* | 0.000003-0.3 | |
Various dates from February 1, 2022 to October 1, 2023 |
|
|
Various dates from February 1, 2032 to October 1, 2023 |
|
* | Aggregate number of shares beneficially owned by the person account for less than 1% of our total outstanding ordinary shares. |
As of March 31, 2024, other employees and consultants as a group hold options to purchase a total of 60,727,500 ordinary shares.
C. Board Practices
Board of Directors
Our board of directors consists of six directors. A director is not required to hold any shares in our company by way of qualification. A director who is in any way, whether directly or indirectly, interested in a contract or transaction or proposed contract or transaction with our company is required to declare the nature of his or her interest at a meeting of our directors. Subject to the Nasdaq rules and disqualification by the chairman of the board meeting, a director may vote in respect of any contract or transaction or proposed contract or transaction notwithstanding that he or she may be interested therein, and if he or she does so his or her vote shall be counted and he shall be counted in the quorum at any meeting of our directors at which any such contract or transaction or proposed contract or transaction is considered. Our directors may exercise all the powers of our company to raise or borrow money and to mortgage or charge its undertaking, property and assets (present and future) and uncalled capital or any part thereof, to issue debentures, debenture stock, bonds and other securities, whether outright or as collateral security for any debt, liability or obligation of our company or of any third party.
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None of our directors has a service contract with us that provides for benefits upon termination of service.
Committees of the Board of Directors
We have established three committees under the board of directors: an audit committee, a compensation committee, and a corporate governance and nominating committee. We have adopted a charter for each of the three committees. Each committee’s members and functions are described below.
Audit Committee. Our audit committee consists of Mr. Guangming Ren and Mr. Xiaoli Liu. Mr. Guangming Ren is the chairperson of our audit committee. We have determined that Mr. Guangming Ren and Mr. Xiaoli Liu satisfy the “independence” requirements of Rule 5605(a)(2) of the Nasdaq Stock Market Rules and Rule 10A-3 under the Exchange Act. We have determined that Mr. Guangming Ren qualifies as an “audit committee financial expert.” The audit committee oversees our accounting and financial reporting processes and the audits of the financial statements of our company. The audit committee is responsible for, among other things:
• | appointing the independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by the independent auditors; |
• | reviewing with the independent auditors any audit problems or difficulties and management’s response; |
• | discussing the annual audited financial statements with management and the independent auditors; |
• | reviewing the adequacy and effectiveness of our accounting and internal control policies and procedures and any steps taken to monitor and control major financial risk exposures; |
• | reviewing and approving all proposed related party transactions; |
• | meeting separately and periodically with management and the independent auditors; and |
• | monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance. |
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Compensation Committee. Our compensation committee consists of Mr. Guangming Ren and Mr. Xiaoli Liu. Mr. Xiaoli Liu is the chairperson of our compensation committee. We have determined that Mr. Guangming Ren and Mr. Xiaoli Liu satisfy the “independence” requirements of Rule 5605(a)(2) of the Nasdaq Stock Market Rules. The compensation committee assists the board in reviewing and approving the compensation structure, including all forms of compensation, relating to our directors and executive officers. Our chief executive officer may not be present at any committee meeting during which his compensation is deliberated. The compensation committee is responsible for, among other things:
• | reviewing and approving, or recommending to the board for its approval, the compensation for our chief executive officer and other executive officers; |
• | reviewing and recommending to the board for determination with respect to the compensation of our non-employee directors; |
• | reviewing periodically and approving any incentive compensation or equity plans, programs or similar arrangements; and |
• | selecting compensation consultant, legal counsel or other adviser only after taking into consideration all factors relevant to that person’s independence from management. |
Corporate Governance and Nominating Committee. Our corporate governance and nominating committee consists of Mr. Zhen Dai, Mr. Guangming Ren and Mr. Xiaoli Liu. Mr. Zhen Dai is the chairperson of our corporate governance and nominating committee. We have determined that Mr. Guangming Ren and Mr. Xiaoli Liu satisfy the “independence” requirements of Rule 5605(a)(2) of the Nasdaq Stock Market Rules. The corporate governance and nominating committee assists the board of directors in selecting individuals qualified to become our directors and in determining the composition of the board and its committees. The corporate governance and nominating committee is responsible for, among other things:
• | selecting and recommending to the board nominees for election by the shareholders or appointment by the board; |
• | reviewing annually with the board the current composition of the board with regards to characteristics such as independence, knowledge, skills, experience and diversity; |
• | making recommendations on the frequency and structure of board meetings and monitoring the functioning of the committees of the board; and |
• | advising the board periodically with regards to significant developments in the law and practice of corporate governance as well as our compliance with applicable laws and regulations, and making recommendations to the board on all matters of corporate governance and on any remedial action to be taken. |
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Duties of Directors
Under Cayman Islands law, our directors owe fiduciary duties to our company, including a duty of loyalty, a duty to act honestly and a duty to act in what they consider in good faith to be in our best interests. Our directors must also exercise their powers only for a proper purpose. Our directors also owe to our company a duty to exercise the skill they actually possess and such care and diligence that a reasonably prudent person would exercise in comparable circumstances. It was previously considered that a director need not exhibit in the performance of his duties a greater degree of skill than may reasonably be expected from a person of his knowledge and experience. However, English and Commonwealth Courts have moved toward an objective standard with regard to the required skill and care and these authorities are likely to be followed in the Cayman Islands. In fulfilling their duty of care to us, our directors must ensure compliance with our memorandum and articles of association, as amended and restated from time to time, and the class rights vested thereunder in the holders of the shares. In certain limited exceptional circumstances, a shareholder may have the right to seek damages in our name if a duty owed by our directors is breached.
Our board of directors has all the powers necessary for managing, and for directing and supervising, our business affairs. The functions and powers of our board of directors include, among others:
• | convening shareholders’ annual and extraordinary general meetings and reporting its work to shareholders at such meetings; |
• | declaring dividends and distributions; |
• | appointing officers and determining the term of office of the officers; |
• | exercising the borrowing powers of our company and mortgaging the property of our company; and |
• | approving the transfer of shares in our company, including the registration of such shares in our share register. |
Terms of Directors and Officers
Our directors may be elected by an ordinary resolution of our shareholders. Alternatively, our board of directors may, by the affirmative vote of a simple majority of the directors present and voting at a board meeting appoint any person as a director to fill a casual vacancy on our board or as an addition to the existing board. Our directors are not automatically subject to a term of office and hold office until such time as they are removed from office by an ordinary resolution of our shareholders. In addition, a director will cease to be a director if he (i) becomes bankrupt or makes any arrangement or composition with his creditors; (ii) dies or is found to be or becomes of unsound mind; (iii) resigns his office by notice in writing; (iv) without leave of absence from our board, is absent from meetings of our board for three consecutive meetings and our board resolves that his office be vacated; or (v) is removed from office pursuant to any other provision of our articles of association.
Our officers are appointed by and serve at the discretion of the board of directors, and may be removed by our board of directors.
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Board Diversity Matrix
Board Diversity Matrix (As of March 31, 2024) | ||
Country of Principal Executive Offices: | People’s Republic of China | |
Foreign Private Issuer | Yes | |
Disclosure Prohibited Under Home Country Law | No | |
Total Number of Directors | 6 |
Female | Male | Non-Binary | Did Not Disclose Gender | |||||||
Part I: Gender Identity Directors | 1 | 5 | — | — | ||||||
Part H: Demographic Background | ||||||||||
Underrepresented Individual in Home Country Jurisdiction | — | |||||||||
LGBTQ+ | — | |||||||||
Did Not Disclose Demographic Background |
1 |
D. Employees
As of December 31, 2023, we had 611 full-time employees and over 116 outsourced personnel recruited through third-party agencies. Details of our full-time employees are set out in the table below:
Function | Number of Employees |
Percentage | ||||||
Business Development | 25 | 4% | ||||||
Administration | 207 | 34% | ||||||
Research and development | 91 | 15% | ||||||
Operating & Marketing | 288 | 47% | ||||||
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|
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|
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Total | 611 | 100% | ||||||
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Our success depends on our ability to attract, motivate, train and retain qualified employees. We believe we offer our employees competitive compensation packages and an environment that encourages self-development and creativity. As a result, we have generally been successful in attracting and retaining qualified employees. We believe that we maintain a good working relationship with our employees, and we have not experienced any material labor disputes in the past. None of our employees are represented by labor unions.
As required by regulations in China, we participate in various employee social security plans that are organized by municipal and provincial governments for our PRC-based employees, including pension insurance, unemployment insurance, maternity insurance, work-related injury insurance, medical insurance and housing provident fund. We are required under PRC law to make contributions to employee benefit plans occasionally for our PRC-based employees at specified percentages of their salaries, bonuses and certain allowances of such employees, up to a maximum amount specified by local governments in China.
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We enter into standard employment agreements with our employees. We also enter into standard confidentiality and non-compete agreements with our employees in accordance with common market practice.
E. Share Ownership
The following table sets forth information with respect to the beneficial ownership of our ordinary shares as of March 31, 2024 by:
• | each of our directors and executive officers; and |
• | each person known to us to own beneficially more than 5% of our ordinary shares. |
The calculations in the shareholder table below are based on 2,578,845,893 ordinary shares issued and outstanding as of March 31, 2024, comprising (i) 971,298,121 Class A ordinary shares, excluding Class A ordinary shares issued to JPMorgan Chase Bank, N.A., the depositary of our ADS program, for bulk issuance of ADSs reserved for future issuances upon the exercise or vesting of awards granted under our stock incentive plans, (ii) 242,662,399 Class B ordinary shares, and (iii) 1,364,885,373 Class C ordinary shares.
Beneficial ownership is determined generally in accordance with the rules of the SEC and generally requires that such person have voting or investment power with respect to securities. In computing the number of shares beneficially owned by any person listed below and the percentage ownership of such person, all ordinary shares of ours underlying options, warrants or convertible securities held by each such person that are exercisable or convertible within 60 days of March 31, 2024 are deemed outstanding.
Amount of Beneficial Ownership | ||||||||||||||||||||||||
Name and Address of Beneficial Owner | Class A Ordinary Shares+ |
Class B Ordinary Shares+ |
Class C Ordinary Shares+ |
Percent Ownership++ |
Percent Voting Power+++ |
Percent Voting Power (Upon Full Distribution by NewLink)++++ |
||||||||||||||||||
Directors and Executive Officers:** |
||||||||||||||||||||||||
Zhen Dai(1) |
33,225,290 | 242,662,399 | — | 10.6 | % | 39.9 | % | 52.9 | % | |||||||||||||||
Yang Wang(2) |
33,155,870 | 37,418,239 | 2.7 | % | 1.8 | % | 1.5 | % | ||||||||||||||||
Alex Wu |
* | — | * | * | * | * | ||||||||||||||||||
Weilin Sun(3) |
19,616,390 | 29,569,443 | 1.9 | % | 1.3 | % | 1.1 | % | ||||||||||||||||
Guangming Ren |
* | — | — | * | * | * | ||||||||||||||||||
Xiaoli Liu |
* | — | — | * | * | * | ||||||||||||||||||
Ye Wu |
* | — | — | * | * | * | ||||||||||||||||||
All directors and executive officers as a group |
106,297,050 | 242,662,399 | 66,987,682 | 15.89 | % | 42.96 | % | 55.5 | % | |||||||||||||||
Principal Shareholders: |
||||||||||||||||||||||||
Entities affiliated with Bain(4) |
128,304,160 | — | — | 5.0 | % | 2.1 | % | 2.8 | % | |||||||||||||||
Newlinks Technology Limited(5) |
— | 242,662,399 | 1,364,885,373 | 62.3 | % | 84.2 | % | 82.2 | % | |||||||||||||||
Beijing Zhenwei Qingfeng Economic Management Consulting Partnership (L.P.)(6) |
253,891,329 | — | — | 9.9 | % | 4.1 | % | 5.5 | % |
* | Less than 1% |
** | The business address of Mr. Guangming Ren is 12-2 Lang Yueyuan, Yayun Xinxin Jiayuan, Chaoyang, District, Beijing, People’s Republic of China. The business address of Mr. Xiaoli Liu is Room 1902, Unit 1, Building 11, No. 8, Huamao City, Chaoyang District, Beijing, People’s Republic of China. The business address of our other directors and executive officers is c/o Newlink Center, Area G, Building 7, Huitong Times Square, No.1 Yaojiayuan South Road, Chaoyang District, Beijing, People’s Republic of China. |
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+ | Each Class B ordinary share and each Class C ordinary share is convertible into one Class A ordinary share at any time by the holder thereof, subject to certain conditions. Class A ordinary shares are not convertible into Class B ordinary shares or Class C ordinary shares under any circumstances. |
++ | A total of 2,578,845,893 ordinary shares are outstanding as of March 31, 2024. |
+++ | Holders of Class A ordinary shares are entitled to one vote per share. Holders of Class B ordinary shares and Class C ordinary shares are entitled to ten votes per share and two votes per share, respectively. NewLink and Newlinks Envision Limited, a wholly-owned subsidiary of NewLink, directly hold Class B ordinary shares and Class C ordinary shares, with the voting power of all Class B ordinary shares controlled by Mr. Dai and the voting power of Class C ordinary shares controlled by shareholders of NewLink other than Mr. Dai on a look-through basis proportional to those shareholders’ relative shareholding percentage in NewLink. This column sets out the voting power percentages on the foregoing basis, prior to NewLink’s distribution of any Class B ordinary shares or Class C ordinary shares to its own shareholders. |
++++ | Class B ordinary shares and Class C ordinary shares will be automatically and immediately converted into an equal number of Class A ordinary shares upon the occurrence of any direct or indirect sale, transfer, assignment or disposition of such number of Class B ordinary shares or Class C ordinary shares by the holder thereof or the direct or indirect transfer or assignment of the voting power attached to such number of Class B ordinary shares or Class C ordinary shares through voting proxy or otherwise to any person that is not Mr. Dai or his affiliates (Newlinks Technology Limited being deemed not to be his affiliate for this purpose only). Therefore, all Class B ordinary shares distributed by NewLink to Mr. Dai or his affiliates will remain Class B ordinary shares, and all Class C ordinary shares distributed by NewLink to its own shareholders (other than Mr. Dai and his affiliates) will be automatically converted into Class A ordinary shares. This column sets out the voting power percentages assuming full distribution by NewLink of Class B ordinary shares to Mr. Dai or his affiliates and of Class C ordinary shares to its own shareholders (other than Mr. Dai and his affiliates). Whether and to what extent to conduct such distribution would be a corporate decision by NewLink that requires approval by the board of directors and/or shareholders of NewLink, as applicable. |
(1) | Represents (i) the 33,225,290 Class A ordinary shares underlying certain options issued to Mr. Dai which have become vested, and (ii) the 248,888,073 Class B ordinary shares directly or indirectly held by Newlinks Technology Limited based on Zenki Luck Limited’s ownership interest in Newlinks Technology Limited by way of holding 67,126,520 ordinary shares of Newlinks Technology Limited. Zenki Luck Limited is 100% beneficially owned by Mr. Dai. The registered address of Zenki Luck Limited is Craigmuir Chambers, Road Town, Tortola, VG 1110 British Virgin Islands. |
(2) | Represents (i) the 33,155,870 Class A ordinary shares underlying certain options issued to Ms. Wang which have become vested, and (ii) a portion of the 1,398,659,699 Class C ordinary shares directly or indirectly held by Newlinks Technology Limited (which Class C ordinary shares are subject to automatic conversion into Class A ordinary shares in certain events as described in the footnote above), based on Young King Luck Holding Limited’s ownership interest in Newlinks Technology Limited by way of holding 9,665,588 ordinary shares of Newlinks Technology Limited. Young King Luck Holding Limited is 100% beneficially owned by Ms. Wang. The registered address of Young King Luck Holding Limited is Craigmuir Chambers, Road Town, Tortola, VG 1110 British Virgin Islands. |
(3) | Represents (i) the 19,616,390 Class A ordinary shares underlying certain options issued to Mr. Sun which have become vested, and (ii) a portion of the 1,398,659,699 Class C ordinary shares directly or indirectly held by Newlinks Technology Limited (which Class C ordinary shares are subject to automatic conversion into Class A ordinary shares in certain events as described in the footnote above), based on Phoenix Sun Luck Tech Limited’s ownership interest in Newlinks Technology Limited by way of holding 7,638,148 ordinary shares of Newlinks Technology Limited. Phoenix Sun Luck Tech Limited is 100% beneficially owned by Mr. Sun. The registered address of Phoenix Sun Luck Tech Limited is Craigmuir Chambers, Road Town, Tortola, VG 1110 British Virgin Islands. |
(4) | Represents (i) 109,582,020 Class A ordinary shares held by Bain Capital Rise Education IV Cayman Limited, and (ii) 18,722,140 Class A ordinary shares held by BCPE Nutcracker Cayman, L.P. Bain Capital Rise Education IV Cayman Limited is owned by Bain Capital Asia Integral Investors, L.P., a Cayman Islands limited partnership, or Asia Integral. Bain Capital Investors, LLC, or BCI, a Delaware limited liability company, is the general partner of Asia Integral. BCI is the manager of Bain Capital Investors Asia IV, LLC, a Cayman Islands limited liability company, or Asia IV GP, which is the general partner of Bain Capital Asia Fund IV, L.P., a Cayman Islands exempted limited partnership, or Asia Fund IV, which is the manager of BCPE Nutcracker GP, LLC, a Cayman Islands limited liability company, which is the general partner of BCPE Nutcracker Cayman, L.P. As a result, BCI may be deemed to share voting and dispositive power with respect to the securities held by Bain Capital Rise Education IV Cayman Limited and BCPE Nutcracker Cayman, L.P. Voting and investment decisions with respect to securities held by Bain Capital Rise Education IV Cayman Limited and BCPE Nutcracker Cayman, L.P. are made by the partners of BCI. The principal business address for each of the foregoing entities is 200 Clarendon Street, Boston, Massachusetts 02116. The above information is based on the Amendment No. 3 to the Schedule 13G jointly filed by Bain Capital Rise Education IV Cayman Limited and BCPE Nutcracker Cayman, L.P. on February 14, 2024. The percentage of total ordinary shares and the percentage of aggregate voting power for Beijing Zhenwei are calculated based on the assumption that its shareholding has not changed since February 14, 2024. |
(5) | Represents 37,848,450 Class B ordinary shares and 212,694,390 Class C ordinary shares directly held by NewLink and 204,813,949 Class B ordinary shares and 1,152,190,983 Class C ordinary shares directly held by Newlinks Envision Limited, a wholly-owned subsidiary of NewLink. Directors and executive officers of Newlink beneficially owning more than 1% of its outstanding shares include Zhen Dai, Yang Wang and Weilin Sun. Principal beneficial owners of the shares of Newlink, meaning shareholders beneficially owning more than 5% of its outstanding shares, include Zhen Dai, entities affiliated with Joy Capital (namely Joy Vigorous Management Limited, Joy Capital III L.P. and Joy Capital Opportunity, L.P.) and BCPE Nutcracker Cayman, L.P. The registered address of Newlink is at 4th Floor, Harbour Place, 103 South Church Street, P.O. Box 10240, Grand Cayman KY1-1002, Cayman Islands. |
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(6) | Represents 253,891,329 Class A ordinary shares directly held by Beijing Zhenwei Qingfeng Economic Management Consulting Partnership (L.P.), or Beijing Zhenwei. Beijing Zhenwei is a limited liability partnership organized under the laws of the People’s Republic of China and its principal place of business is located at 8/F, 60 Xizhimen North Avenue, Haidian District, Beijing, China. Zhenwei Management is the general partner of Beijing Zhenwei, and has its registered address at 8/F, 60 Xizhimen North Avenue, Haidian District, Beijing, China. The above information is based on Amendment No. 1 to Schedule 13D jointly filed by Beijing Zhenwei and Zhenwei Investment Fund Management Co., Ltd. on March 19, 2024. The percentage of total ordinary shares and the percentage of aggregate voting power for Beijing Zhenwei are calculated based on the assumption that its shareholding has not changed since March 19, 2024. |
To our knowledge, as of the date of this annual report, a total of 547,024,459 Class A ordinary shares are held by record holders in the United States, including 547,024,458 Class A ordinary shares held by JPMorgan Chase Bank, N.A., the depositary of our ADS program, and 1 Class A ordinary share held by an individual. None of our outstanding Class B ordinary shares or Class C ordinary shares are held by record holders in the United States. The number of beneficial owners of our ADSs in the United States is likely to be much larger than the number of record holders of our ordinary shares in the United States.
For options granted to our officers, directors and employees, see “—B. Compensation of Directors and Executive Officers—Share Incentive Plan.”
Item 7. Major Shareholders and Related Party Transactions
A. Major Shareholders
Please refer to “Item 6. Directors, Senior Management and Employees—E. Share Ownership.”
B. Related Party Transactions
Employment Agreements and Indemnification Agreements
See “Item 6. Directors, Senior Management and Employees—B. Compensation.”
Share Incentives
See “Item 6. Directors, Senior Management and Employees—B. Compensation.”
Registration Rights Agreement with the Major Shareholder
RISE entered into a Registration Rights Agreement with the Major Shareholder in June 2022 prior to the consummation of the Mergers to provide certain registration rights with respect to 119,372,236 ordinary shares (and any equity securities issued or issuable with respect to such shares) held by the Major Shareholder as of the date of the agreement, or Registrable Securities. This agreement remains effective and binding on us.
Demand Registration Rights. Holders holding at least 20% of the Registrable Securities then outstanding have the right to request that we register all or any portion of their Registrable Securities under the Securities Act. Such holders will be entitled to request an unlimited number of demand registrations for which we will pay all registration expenses, whether or not any such registration is consummated. We have the right to defer filing of a registration statement for a period of not more than 45 days after the receipt of the request of the initiating holders under certain conditions, but we cannot exercise the deferral right more than once in any 12-month period.
Piggyback Registration Rights. If we propose to register any of our equity securities under the Securities Act (except for certain excluded registrations) and the registration form to be used may be used for the registration of Registrable Securities, we include in such piggyback registration all Registrable Securities with respect to which we has received written requests for inclusion therein. If the managing underwriters of any underwritten offering advise us in writing that in their opinion the number of securities requested to be included in such registration exceeds the number which can be sold in such offering without adversely affecting the marketability, proposed offering price, timing or method of distribution of the offering, then we will include in such registration, (i) in the event of primary registration, first the securities we propose to sell, second to Registrable Securities requested to be included in such registration pro rata among the requesting holders of such Registrable Securities on the basis of the number of Registrable Securities owned by each such holder, and third other securities requested to be included in such registration, or (ii) in the event of secondary registration, first, securities requested to be included therein by the holders initially requesting such registration, second, Registrable Securities requested to be included in such registration pro rata among the holders of such Registrable Securities on the basis of the number of Registrable Securities owned by each such holder, and (iii) third, other securities requested to be included in such registration, in each case to extent that in the opinion of the underwriters, such securities can be sold without any such adverse effect.
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Expenses of Registration. We will bear all registration expenses, other than underwriting discounts, commissions and transfer taxes (if any) attributable to the sale of Registrable Securities, incurred in connection with any demand registration, piggyback registration, shelf offering or underwritten block trade, except in the case of a piggyback registration in which we are selling on our own account.
Termination of Obligations. The rights of any particular holder to require us to register securities pursuant to a Demand Registration shall terminate with respect to such holder when such holder no longer holds any Registrable Securities.
Related Party Transactions
Immediately prior to the Reorganization, the EV charging service business of NaaS in China was primarily carried out through NewLink and its consolidated entities. NewLink and its consolidated entities provided financial support and services for such business. Pursuant to the Reorganization, NaaS is regarded as continuing operator of such business. NewLink provided financial support and waived RMB27.2 million due from the Company in 2022. The amounts waived were recorded as contribution from shareholder in the respective year.
NewLink granted options to certain of its employees associated with the EV charging service business prior to the Restructuring, which employees were subsequently transferred to NaaS as part of the Restructuring. The share based compensation in 2021, 2022 and 2023 was RMB10.7, RMB18.2 million and RMB5.3 million, respectively, and credited to additional paid in capital accordingly.
NaaS entered into transactions with its directors and executive officers with respect to certain short-term employee benefits. For the years ended December 31, 2021, 2022 and 2023, such short-term employee benefits amounted to RMB1.1 million, RMB2.7 million and RMB7.5 million, respectively.
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In 2022, NewLink paid the following amounts on behalf of NaaS: (i) RMB31.1 million as payroll and non-payroll labor expenses; (ii) RMB4.1 million as rental fees; and (iii) RMB18.7 million as other expenses. NaaS paid NewLink a total of RMB26.7 million from January to December 2022. As of December 31, 2022, a total amount of RMB27.2 million was due from NaaS to NewLink and the amount was waived by NewLink by the end of 2022. In addition, expenses of shared service departments, such as the administrative department, before the completion of the Restructuring were borne by NewLink and were not charged to NaaS. In 2023, NewLink paid the following amounts on behalf of the Company (i) RMB42.6 million as payroll and non-payroll labor expenses; (ii) RMB3.2 million as rental fees; and (iii) RMB19.4 million as other expenses. The total amount of RMB65.2 million (2022: RMB53.9 million) was reflected through consolidated statements of profit or loss and other comprehensive loss in 2023.
In 2023, we entered into transactions with certain related parties in the ordinary course of business in connection with our energy solution services. The total value of these transactions was RMB75.2 million (2022: nil).
C. Interests of Experts and Counsel.
Not applicable.
Item 8. Financial Information
A. Consolidated Statements and Other Financial Information
We have appended consolidated financial statements filed as part of this annual report.
Legal Proceedings
We are currently not a party to any material legal or administrative proceedings. From time to time, we may be subject to legal, regulatory and/or administrative proceedings relating to third-party and principal intellectual property infringement claims, contract disputes involving suppliers and customers, consumer protection claims, claims relating to data and privacy protection, employment related disputes, unfair competition and other matters in the ordinary course of our business.
Dividend Distributions
We have not paid in the past and do not have any present plan to pay any cash dividends on our ordinary shares in the foreseeable future. We currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business.
Our board of directors has complete discretion on whether to distribute dividends, subject to our current memorandum and articles of association and applicable laws. In addition, our shareholders may by ordinary resolution declare dividends, but no dividend may exceed the amount recommended by our directors. Under Cayman Islands law, a Cayman Islands company may pay a dividend out of either profit or share premium account, provided that in no circumstances may a dividend be paid if this would result in the company being unable to pay its debts as they fall due in the ordinary course of business. Even if our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant.
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Holders of our ADSs will be entitled to receive dividends, if any, subject to the terms of the deposit agreement, to the same extent as the holders of our ordinary shares. Cash dividends will be paid to the depositary of our ADSs in U.S. dollars, which will distribute them to the holders of ADSs according to the terms of the deposit agreement, including the fees and expenses payable thereunder. Other distributions, if any, will be paid by the depositary to the holders of ADSs in any means it deems legal, fair and practical.
We are a holding company incorporated in the Cayman Islands. We principally rely on dividends from our subsidiaries in China for our cash needs. To pay dividends to us, our subsidiaries in China need to comply with the applicable regulations. See “Item 3. Key Information— D. Risk Factors —Risks Related to Doing Business in China—We may rely on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiaries to make payments to us could have a material and adverse effect on our ability to conduct our business.”
B. Significant Changes
Except as disclosed elsewhere in this annual report, we have not experienced any significant changes since December 31, 2023.
Item 9. The Offer and Listing
A. Offer and Listing Details
Our ADSs have been listed on Nasdaq since October 20, 2017. Our ADSs were traded under the symbol “REDU” prior to the consummation of the Mergers on June 10, 2022 and have been traded under the symbol “NAAS” since then.
B. Plan of Distribution
Not applicable.
C. Markets
Our ADSs have been listed on Nasdaq since October 20, 2017. Our ADSs were traded under the symbol “REDU” prior to the consummation of the Mergers on June 10, 2022 and have been traded under the symbol “NAAS” since then.
D. Selling Shareholders
Not applicable.
E. Dilution
Not Applicable.
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F. Expense of the Issue
Not Applicable.
Item 10. Additional Information
A. Share Capital
Not Applicable.
B. Memorandum and Articles of Association
We are a Cayman Islands exempted company with limited liability and our affairs are governed by our memorandum and articles of association, as amended and restated from time to time, and the Companies Act (As Revised) of the Cayman Islands, which is referred to as the Companies Act below, and the common law of the Cayman Islands.
The following are summaries of material provisions of our current memorandum and articles of association insofar as they relate to the material terms of our ordinary shares.
A summary description of the Investor Warrants and FA Warrants is also set forth below.
Objects of Our Company
The objects of our company are unrestricted and we have the full power and authority to carry out any object not prohibited by the laws of the Cayman Islands.
Ordinary Shares
Our ordinary shares are divided into Class A ordinary shares, Class B ordinary shares and Class C ordinary shares. Holders of our Class A ordinary shares, Class B ordinary shares and Class C ordinary shares have the same rights except for voting and conversion rights. Our ordinary shares are issued in registered form and are issued when registered in our register of members. We may not issue shares to bearer. Our shareholders who are non-residents of the Cayman Islands may freely hold and vote their shares.
Conversion
Each Class B ordinary share or Class C ordinary share is convertible into one Class A ordinary share, whereas Class A ordinary shares are not convertible into Class B ordinary shares or Class C ordinary shares under any circumstances. Class B ordinary shares are not convertible into Class C ordinary shares, and vice versa. Any number of Class B ordinary shares or Class C ordinary shares, as the case may be, held by a holder thereof will be automatically and immediately converted into an equal number of Class A ordinary shares upon the occurrence of any direct or indirect sale, transfer, assignment or disposition of such number of Class B ordinary shares and/or Class C ordinary shares by the holder thereof or the direct or indirect transfer or assignment of the voting power attached to such number of Class B ordinary shares and/or Class C ordinary shares through voting proxy or otherwise to any person that is not Mr. Zhen Dai or his affiliates (excluding NewLink).
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In addition, any number of Class B ordinary shares held by Mr. Zhen Dai or his affiliates (excluding NewLink) shall be automatically and immediately converted into an equal number of Class A ordinary shares on the earlier to occur of (i) the total number of Class B ordinary shares directly and indirectly owned by Mr. Zhen Dai and his affiliates (excluding NewLink), which shall equal the sum of (A) the total number of Class B ordinary shares directly held by Mr. Zhen Dai and his affiliates (excluding NewLink), plus (B) the total number of Class B ordinary shares indirectly held by Mr. Zhen Dai and his affiliates (excluding NewLink) through NewLink, is smaller than 50% of the total number of the issued and outstanding Class B ordinary shares as of immediately after the consummation of the Mergers, and (ii) Mr. Zhen Dai having been convicted in a final and non-appealable judgment of, or having entered a plea of guilty to, a felony or criminal act resulting in his inability to perform his official duties at NaaS Technology Inc. for a period of more than 90 days.
Dividends
Our directors may from time to time declare dividends (including interim dividends) and other distributions on our shares in issue and authorize payment of the same out of the funds of our company lawfully available therefor. In addition, our shareholders may declare dividends by ordinary resolution, but no dividend shall exceed the amount recommended by our directors. Our currently effective memorandum and articles of association provide that dividends may be declared and paid out of the funds of our Company lawfully available therefor. Under the laws of the Cayman Islands, our company may pay a dividend out of either profit or share premium account; provided that in no circumstances may a dividend be paid if this would result in our company being unable to pay its debts as they fall due in the ordinary course of business.
Voting Rights
In respect of all matters subject to a shareholders’ vote, each holder of Class A ordinary shares is entitled to one vote per share, each holder of Class B ordinary shares is entitled to 10 votes per share and each holder of Class C ordinary shares is entitled to two votes per share subject to vote at our general meetings. Our Class A ordinary shares, Class B ordinary shares and Class C ordinary shares vote together as a single class on all matters submitted to a vote of our shareholders, except as may otherwise be required by law. Voting at any meeting of shareholders is by show of hands unless a poll is demanded. A poll may be demanded by the chairman of such meeting or any one shareholder holding not less than 10% of the votes attaching to the shares present in person or by proxy.
An ordinary resolution to be passed at a meeting by the shareholders requires the affirmative vote of a simple majority of the votes attaching to the ordinary shares cast at a meeting, while a special resolution requires the affirmative vote of no less than two-thirds of the votes attaching to the issued and outstanding ordinary shares cast at a meeting. A special resolution will be required for important matters such as a change of name or making changes to our currently effective memorandum and articles of association. Our shareholders may, among other things, divide or combine their shares by ordinary resolution.
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General Meetings of Shareholders
As a Cayman Islands exempted company, we are not obliged by the Companies Act to call shareholders’ annual general meetings. Our currently effective memorandum and articles of association provide that we may (but are not obliged to) in each year hold a general meeting as our annual general meeting in which case we shall specify the meeting as such in the notices calling it, and the annual general meeting shall be held at such time and place as may be determined by our directors.
Shareholders’ general meetings may be convened by the chairman of our board of directors or by our directors (acting by a resolution of our board). Advance notice of at least seven days is required for the convening of our annual general shareholders’ meeting (if any) and any other general meeting of our shareholders. A quorum required for any general meeting of shareholders consists of, at the time when the meeting proceeds to business, one or more of our shareholders holding shares which carry in aggregate (or representing by proxy) not less than one-third of all votes attaching to all of our shares in issue and entitled to vote at such general meeting.
The Companies Act provides shareholders with only limited rights to requisition a general meeting, and does not provide shareholders with any right to put any proposal before a general meeting. However, these rights may be provided in a company’s articles of association. Our currently effective memorandum and articles of association provide that upon the requisition of any one or more of our shareholders holding shares which carry in aggregate not less than one-third of all votes attaching to all issued and outstanding shares of our company entitled to vote at general meetings, our board will convene an extraordinary general meeting and put the resolutions so requisitioned to a vote at such meeting. However, our currently effective memorandum and articles of association do not provide our shareholders with any right to put any proposals before annual general meetings or extraordinary general meetings not called by such shareholders.
Transfer of Ordinary Shares
Subject to the restrictions set out below, any of our shareholders may transfer all or any of his or her ordinary shares by an instrument of transfer in the usual or common form or any other form approved by our board of directors.
Our board of directors may, in its absolute discretion, decline to register any transfer of any ordinary share which is not fully paid up or on which we have a lien. Our board of directors may also decline to register any transfer of any ordinary share unless:
• | the instrument of transfer is lodged with us, accompanied by the certificate for the ordinary shares to which it relates and such other evidence as our board of directors may reasonably require to show the right of the transferor to make the transfer; |
• | the instrument of transfer is in respect of only one class of ordinary shares; |
• | the instrument of transfer is properly stamped, if required; |
• | in the case of a transfer to joint holders, the number of joint holders to whom the ordinary share is to be transferred does not exceed four; and |
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• | a fee of such maximum sum as Nasdaq may determine to be payable or such lesser sum as our directors may from time to time require is paid to us in respect thereof. |
If our directors refuse to register a transfer they shall, within three calendar months after the date on which the instrument of transfer was lodged, send to each of the transferor and the transferee notice of such refusal.
The registration of transfers may, on ten calendar days’ notice being given by advertisement in such one or more newspapers, by electronic means or by any other means in accordance with Nasdaq rules be suspended and the register closed at such times and for such periods as our board of directors may from time to time determine; provided, however, that the registration of transfers shall not be suspended nor the register closed for more than 30 days in any year as our board may determine.
Liquidation
On the winding up of our company, if the assets available for distribution amongst our shareholders shall be more than sufficient to repay the whole of the share capital at the commencement of the winding up, the surplus shall be distributed amongst our shareholders in proportion to the par value of the shares held by them at the commencement of the winding up, subject to a deduction from those shares in respect of which there are monies due, of all monies payable to our company for unpaid calls or otherwise. If our assets available for distribution are insufficient to repay all of the paid-up capital, such the assets will be distributed so that, as nearly as may be, the losses are borne by our shareholders in proportion to the par value of the shares held by them.
Calls on Shares and Forfeiture of Shares
Our board of directors may from time to time make calls upon shareholders for any amounts unpaid on their shares in a notice served to such shareholders at least 14 days prior to the specified time and place of payment. The shares that have been called upon and remain unpaid are subject to forfeiture.
Redemption, Repurchase and Surrender of Shares
We may issue shares on terms that such shares are subject to redemption, at our option or at the option of the holders of these shares, on such terms and in such manner as may be determined, before the issue of such shares, by our board of directors or by our shareholders by special resolution. Our company may also repurchase any of our shares on such terms and in such manner as have been approved by our board of directors or by an ordinary resolution of our shareholders. Under the Companies Act, the redemption or repurchase of any share may be paid out of our Company’s profits or out of the proceeds of a new issue of shares made for the purpose of such redemption or repurchase, or out of capital (including share premium account and capital redemption reserve) if our company can, immediately following such payment, pay its debts as they fall due in the ordinary course of business. In addition, under the Companies Act no such share may be redeemed or repurchased (i) unless it is fully paid up, (ii) if such redemption or repurchase would result in there being no shares outstanding or (iii) if the company has commenced liquidation. In addition, our company may accept the surrender of any fully paid share for no consideration.
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Variations of Rights of Shares
Whenever the capital of our company is divided into different classes the rights attached to any such class may, subject to any rights or restrictions for the time being attached to any class, only be materially and adversely varied with the consent in writing of the holders of at least two-thirds of the issued shares of that class or with the sanction of a special resolution passed at a separate meeting of the holders of the shares of that class. The rights conferred upon the holders of the shares of any class issued with preferred or other rights shall not, subject to any rights or restrictions for the time being attached to the shares of that class, be deemed to be materially and adversely varied by the creation, allotment or issue of further shares ranking pari passu with or subsequent to them or the redemption or purchase of any shares of any class by our company. The rights of the holders of shares shall not be deemed to be materially and adversely varied by the creation or issue of shares with preferred or other rights including, without limitation, the creation of shares with enhanced or weighted voting rights.
Issuance of Additional Shares
Our currently effective memorandum and articles of association authorizes our board of directors to issue additional ordinary shares from time to time as our board of directors shall determine, to the extent of available authorized but unissued shares, without the need for any approval or consent from our shareholders.
Our currently effective memorandum and articles of association also authorizes our board of directors, without the need for any approval or consent from our shareholders, to establish from time to time one or more series of preferred shares and to determine, with respect to any series of preferred shares, the terms and rights of that series, including:
• | the designation of the series; |
• | the number of shares of the series; |
• | the dividend rights, dividend rates, conversion rights, voting rights; and |
• | the rights and terms of redemption and liquidation preferences. |
Our board of directors may issue preferred shares, without the need for any approval or consent from, or other action by, our shareholders to the extent authorized but unissued. Issuance of these shares may dilute the voting power of holders of ordinary shares.
Inspection of Books and Records
Holders of our ordinary shares will have no general right under Cayman Islands law to inspect or obtain copies of our list of shareholders or our corporate records (other than copies of our memorandum and articles of association, our register of mortgages and charges and any special resolutions passed by our shareholders). However, we intend to provide our shareholders with annual audited financial statements.
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Anti-Takeover Provisions
Some provisions of our currently effective memorandum and articles of association may discourage, delay or prevent a change of control of our company or management that shareholders may consider favorable, including provisions that:
• | authorize our board of directors to issue preferred shares in one or more series and to designate the price, rights, preferences, privileges and restrictions of such preferred shares without any further vote or action by our shareholders; and |
• | limit the ability of shareholders to requisition and convene general meetings of shareholders. |
However, under Cayman Islands law, our directors may only exercise the rights and powers granted to them under our currently effective memorandum and articles of association for a proper purpose and for what they believe in good faith to be in the best interests of our company.
Exempted Company
We are an exempted company incorporated with limited liability under the Companies Act. The Companies Act distinguishes between ordinary resident companies and exempted companies. Any company that is registered in the Cayman Islands but conducts business mainly outside of the Cayman Islands may apply to be registered as an exempted company. The requirements for an exempted company are essentially the same as for an ordinary company except that an exempted company:
• | does not have to file an annual return of its shareholders with the Registrar of Companies; |
• | is not required to open its register of members for inspection; |
• | does not have to hold an annual general meeting; |
• | may issue negotiable or bearer shares or shares with no par value; |
• | may obtain an undertaking against the imposition of any future taxation (such undertakings are usually given for 20 years in the first instance); |
• | may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands; |
• | may register as a limited duration company; and |
• | may register as a segregated portfolio company. |
“Limited liability” means that the liability of each shareholder is limited to the amount unpaid by the shareholder on the shares of the company (except in exceptional circumstances, such as involving fraud, the establishment of an agency relationship or an illegal or improper purpose or other circumstances in which a court may be prepared to pierce or lift the corporate veil).
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Exclusive Forum
Without limiting the jurisdiction of the Cayman courts to hear, settle and/or determine disputes related to our company, the courts of the Cayman Islands shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of our company, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer, or other employee of our company to our company or the members, (iii) any action asserting a claim arising pursuant to any provision of the Companies Act or our articles of association including but not limited to any purchase or acquisition of shares, security, or guarantee provided in consideration thereof, or (iv) any action asserting a claim against our company which if brought in the United States of America would be a claim arising under the internal affairs doctrine (as such concept is recognized under the laws of the United States from time to time).
Unless we consent in writing to the selection of an alternative forum, the United States District Court for the Southern District of New York (or, if the United States District Court for the Southern District of New York lacks subject matter jurisdiction over a particular dispute, the state courts in New York County, New York) shall be the exclusive forum within the United States for the resolution of any complaint asserting a cause of action arising out of or relating in any way to the federal securities laws of the United States, including those arising from the Securities Act and the Exchange Act, regardless of whether such legal suit, action, or proceeding also involves parties other than our company. Any person or entity purchasing or otherwise acquiring any share or other securities in our company, or purchasing or otherwise acquiring American depositary shares issued pursuant to deposit agreements, shall be deemed to have notice of and consented to the provisions of our articles of association.
Investor Warrants
Duration and Exercise Price
Each Investor Warrant is a warrant to purchase one ADS, is exercisable from the six-month anniversary of issuance and expires five and one half years from the date of issuance. The Investor Warrants have an initial exercise price equal to US$1.49 per ADS. The exercise price and number of ADSs issuable upon exercise is subject to appropriate proportional adjustment in the event of share dividends, share splits, reorganizations or similar events affecting our ADSs and the exercise price. The Investor Warrants are also subject to anti-dilution adjustments in the event of certain equity sales by us.
Exercisability
The Investor Warrants are exercisable from the six-month anniversary of issuance, at the option of each holder, in whole or in part, by delivering to us a duly executed exercise notice and, within two trading days, payment in full for the number of ADSs purchased upon such exercise (except in the case of a cashless exercise as discussed below). A holder may not exercise any portion of the Investor Warrants to the extent that the holder, together with its affiliates and any other persons acting as a group together with any such persons, would own more than 9.99% of the number of ordinary shares outstanding immediately after exercise, such limitation being hereinafter referred to as the “Beneficial Ownership Limitation”; provided that a holder with a Beneficial Ownership Limitation of 9.99%, upon notice to us and effective 61 days after the date such notice is delivered to us, may increase the Beneficial Ownership Limitation so long as it in no event exceeds 9.99% of the number of ordinary shares outstanding immediately after exercise.
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Cashless Exercise
If, at the time a holder exercises its Investor Warrants, a registration statement registering the issuance of the ADSs underlying the Investor Warrants under the Securities Act is not then effective or available for the issuance of such ADSs, then in lieu of making the cash payment otherwise contemplated to be made to us upon such exercise in payment of the aggregate exercise price, the holder may elect instead to receive upon such exercise (either in whole or in part) the net number of ADSs determined according to a formula set forth in the Investor Warrants, which generally provides for a number of ADSs equal to (A) (1) the volume weighted average price on (x) the trading day preceding the notice of exercise, if the notice of exercise is executed and delivered on a day that is not a trading day or prior to the opening of “regular trading hours” on a trading day or (y) the trading day of the notice of exercise, if the notice of exercise is executed and delivered after the close of “regular trading hours” on such trading day, or (2) the bid price on the day of the notice of exercise, if the notice of exercise is executed during “regular trading hours” on a trading day and is delivered within two hours thereafter, less (B) the exercise price, multiplied by (C) the number of ADSs the Investor Warrants was exercisable into, with such product then divided by the number determined under clause (A) in this sentence.
Fractional ADSs
No fractional ADSs will be issued upon the exercise of the Investor Warrants. Rather, we will, at our election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the exercise price or round down to the next whole ADS.
Transferability
Subject to applicable laws, an Investor Warrant may be transferred at the option of the holder upon surrender of the Investor Warrants to us together with the appropriate instruments of transfer and funds sufficient to pay any transfer taxes payable upon such transfer.
Trading Market
There is no trading market available for the Investor Warrants on any securities exchange or nationally recognized trading system. We do not intend to list the Investor Warrants on any securities exchange or nationally recognized trading system. The ADSs issuable upon exercise of the Investor Warrants are currently listed on Nasdaq under the symbol “NAAS.”
Rights as a Shareholder
Except as otherwise provided in the Investor Warrants or by virtue of such holder’s ownership of the underlying ordinary shares represented by ADSs, the holders of the Investor Warrants do not have the rights or privileges of holders of our ordinary shares represented by ADSs, including any voting rights, until they exercise their Investor Warrants.
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Fundamental Transaction
In the event of a fundamental transaction, as described in the Investor Warrants and generally including any reorganization, recapitalization or reclassification of our ordinary shares, the sale, transfer or other disposition of all or substantially all of our properties or assets, our consolidation or merger with or into another person, the acquisition of more than 50% of our outstanding ordinary shares, the holders of the Investor Warrants will be entitled to receive upon exercise of the warrants the kind and amount of securities, cash or other property that the holders would have received had they exercised the Investor Warrants immediately prior to such fundamental transaction. Additionally, in the event of a fundamental transaction, except where such transaction does not result in a change of control, we or any successor entity will, at the option of the holder of an Investor Warrant exercisable at any time concurrently with or within 30 days after the consummation of the fundamental transaction (or, if later, the date of the public announcement thereof), purchase the Investor Warrants from the holder by paying to the holder an amount of consideration equal to the value of the remaining unexercised portion of such Investor Warrants on the date of consummation of the fundamental transaction based on the Black-Scholes option pricing model, determined pursuant to a formula set forth in the Investor Warrants. The consideration paid to the holder will be the same type or form of consideration that was offered and paid to the holders of ordinary shares in connection with the fundamental transaction; provided that if no such consideration was offered or paid, the holders of ordinary shares will be deemed to have received ordinary shares of the successor entity in such fundamental transaction for purposes of this provision of the Investor Warrants.
FA Warrants
The FA Warrants contain substantially the same terms as the Investor Warrants, except that the FA Warrants (i) expire on March 12, 2029 and (ii) are not subject to anti-dilution adjustments in relation to subsequent equity sales by us.
C. Material Contracts
We have not entered into any material contracts other than in the ordinary course of business and other than those described under this item or “Item 4. Information on the Company,” “Item 7. Major Shareholders and Related Party Transactions” or elsewhere in this annual report.
D. Exchange Controls
See “Item 4. Information on the Company— B. Business Overview—Regulations— Regulations Related to Foreign Exchange.”
E. Taxation
Cayman Islands Taxation
According to Harney Westwood & Riegels, our Cayman Islands counsel, the Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to holders of our ADSs or ordinary shares levied by the government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or brought within the jurisdiction of the Cayman Islands. In addition, the Cayman Islands does not impose withholding tax on dividend payments. The Cayman Islands is not party to any double tax treaties that are applicable to any payments made to or by us. There are no exchange control regulations or currency restrictions in the Cayman Islands.
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People’s Republic of China Taxation
PRC Enterprise Income Tax Law
Under the PRC Enterprise Income Tax Law, an enterprise established outside of China with “de facto management bodies” within China may be considered a PRC “resident enterprise,” meaning it can be treated in a manner similar to a PRC enterprise for enterprise income tax purposes, although the dividends paid to a PRC resident enterprise from another may qualify as “tax-exempt income.” The implementation rules of the PRC Enterprise Income Tax Law define a “de facto management body” as a body that has substantial and overall management and control over the manufacturing and business operations, personnel and human resources, finances and properties of an enterprise. STA Circular 82 issued by the State Taxation Administration on April 22, 2009 specifies that certain offshore enterprises controlled by a PRC company or a PRC company group will be classified as PRC “resident enterprises” if the following requirements are satisfied: (i) the senior management and core management departments in charge of its daily operations function are mainly in China; (ii) its financial and human resources decisions are subject to determination or approval by persons or bodies in China; (iii) its major assets, accounting books, company seals, and minutes and files of its board and shareholders’ meetings are located or kept in China; and (iv) at least half of the enterprise’s directors with voting rights or senior management reside in China. Although STA Circular 82 only applies to offshore enterprises controlled by PRC enterprises and not those controlled by PRC individuals, the determination criteria set forth in STA Circular 82 may reflect STA’s general position on how the “de facto management body” test should be applied in determining tax resident status of offshore enterprises, regardless of whether they are controlled by PRC enterprises or PRC individuals.
We believe that we are not a PRC resident enterprise and therefore we are not subject to PRC enterprise income tax reporting obligations and the dividends paid by us to holders of our ADSs or ordinary shares will not be subject to PRC withholding tax. However, if the PRC tax authorities determine that we are a PRC resident enterprise for enterprise income tax purposes, we may be required to withhold a 10% withholding tax from dividends we pay to our non-PRC enterprise shareholders and a 20% withholding tax from dividends we pay to our non-PRC individual shareholders, including the holders of our ADSs. In addition, non-PRC shareholders may be subject to PRC tax on gains realized on the sale or other disposition of ADSs or ordinary shares if such income is treated as China-sourced income. It is unclear whether our non-PRC shareholders would be able to claim the benefits of any tax treaties between their tax residence and China in the event we are treated as a PRC resident enterprise. See “Item 3 Key Information —Risk Factors—D. Risks Related to Doing Business in China—It is unclear whether we will be considered a PRC ‘resident enterprise’ under the PRC Enterprise Income Tax Law and, depending on the determination of our PRC ‘resident enterprise’ status, our global income may be subject to the 25% PRC enterprise income tax, which could materially and adversely affect our results of operations.”
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Enterprise Income Tax for Share Transfer by Non-PRC Resident Enterprises
On February 3, 2015, the State Taxation Administration issued STA Public Notice 7. In December 2017, Article 13 and Paragraph 2 of Article 8 of STA Public Notice 7 were abolished Pursuant to STA Public Notice 7, as amended, where a non-PRC resident enterprise indirectly transfers equities and other properties of a PRC resident enterprise to evade its obligation of paying enterprise income tax by implementing arrangements that are not for reasonable commercial purpose, such indirect transfer shall be re-identified and recognized as a direct transfer of equities and other properties of the PRC resident enterprise. STA Public Notice 7, as amended, provides clear criteria for assessment of reasonable commercial purposes and has introduced safe harbors for internal group restructurings and the purchase and sale of equity interests through a public securities market. STA Public Notice 7, as amended, also brings challenges to both offshore transferor and transferee (or other person who is obligated to pay for the transfer) of taxable assets. Where a non-PRC resident enterprise transfers taxable assets indirectly by disposing of the equity interests of an offshore holding company, which is an Indirect Transfer, the non-PRC resident enterprise as either transferor or transferee, or the PRC entity that directly owns the taxable assets, may report such Indirect Transfer to the PRC tax authority. Using a “substance over form” principle, the PRC tax authority may disregard the existence of the offshore holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding or deferring PRC tax. As a result, gains derived from such Indirect Transfer may be subject to enterprise income tax, and the transferee or other person who is obligated to pay for the transfer is obligated to withhold the applicable taxes, currently at a rate of 10% for the transfer of equity interests in a PRC resident enterprise. Both the transferor and the transferee may be subject to penalties under PRC tax laws if the transferee fails to withhold the taxes and the transferor fails to pay the taxes.
PRC Value-Added Tax (VAT) and Business Tax
Before August 2013 and pursuant to applicable PRC tax regulations, any entity or individual conducting business in the service industry is generally required to pay a business tax at the rate of 5% on the revenue generated from providing services. However, if the services provided are related to technology development and transfer, the business tax may be exempted subject to approval by the tax authorities.
In November 2011, the Ministry of Finance and SAT promulgated the Pilot Plan for Imposition of Value-Added Tax to Replace Business Tax. In May and December 2013, April 2014, March 2016 and July 2017, the Ministry of Finance and SAT promulgated five circulars to further expand the scope of services that are to be subject to VAT instead of business tax. Pursuant to these tax rules, from August 1, 2013, VAT was imposed to replace the business tax in certain service industries, including technology services and advertising services, and from May 1, 2016, VAT replaced business tax in all industries, on a nationwide basis. On November 19, 2017, the State Council further amended the Interim Regulation of PRC on Value Added Tax to reflect the normalization of the pilot program. The VAT rates generally applicable are simplified as 17%, 11%, 6% and 0%, and the VAT rate applicable to the small-scale taxpayers is 3%. Unlike business tax, a taxpayer is allowed to offset the qualified input VAT paid on taxable purchases against the output VAT chargeable on the revenue from services provided.
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On April 4, 2018, the Ministry of Finance and SAT issued the Notice on Adjustment of VAT Rates, which came into effect on May 1, 2018. According to the notice, starting from May 1, 2018, the taxable goods previously subject to VAT rates of 17% and 11%, respectively, become subject to lower VAT rates of 16% and 10%, respectively.
On March 20, 2019, the Ministry of Finance, SAT and the General Administration of Customs issued the Announcement on Policies for Deepening the VAT Reform, which came into effect in April 2019, to further reduce VAT rates. According to the announcement, (1) for general VAT payers’ sales activities or imports previously subject to VAT at an existing applicable rate of 16% or 10%, the applicable VAT rate is adjusted to 13% or 9% respectively; (2) for agricultural products purchased by taxpayers to which an existing 10% deduction rate is applicable, the deduction rate is adjusted to 9%; (3) for agricultural products purchased by taxpayers for production or commissioned processing, which are subject to VAT at 13%, the input VAT will be calculated at a 10% deduction rate; (4) for the exportation of goods or labor services that are subject to VAT at 16%, with the applicable export refund at the same rate, the export refund rate is adjusted to 13%; and (5) for the exportation of goods or cross-border taxable activities that are subject to VAT at 10%, with the export refund at the same rate, the export refund rate is adjusted to 9%.
United States Federal Income Tax Considerations
The following discussion is a summary of U.S. federal income tax considerations generally applicable to the ownership and disposition of our ADSs or Class A ordinary shares by a U.S. Holder (as defined below) that holds our ADSs or Class A ordinary shares as “capital assets” (generally, property held for investment) under the Code. This discussion is based upon existing U.S. federal tax law, which is subject to differing interpretations or change, possibly with retroactive effect. There can be no assurance that the IRS or a court will not take a contrary position. This discussion, moreover, does not address the U.S. federal estate, gift, minimum tax, and other non-income tax considerations, the Medicare tax on certain net investment income, or any state, local or non-U.S. tax considerations, relating to the ownership or disposition of our ADSs or Class A ordinary shares. The following summary does not address all aspects of U.S. federal income taxation that may be important to particular investors in light of their individual circumstances or to persons in special tax situations such as:
• | banks and other financial institutions; |
• | insurance companies; |
• | pension plans; |
• | cooperatives; |
• | regulated investment companies; |
• | real estate investment trusts; |
• | broker-dealers; |
• | traders that elect to use a mark-to-market method of accounting; |
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• | certain former U.S. citizens or long-term residents; |
• | tax-exempt entities (including private foundations); |
• | holders who acquire their ADSs or Class A ordinary shares pursuant to any employee share option or otherwise as compensation; investors that will hold their ADSs or Class A ordinary shares as part of a straddle, hedge, conversion, constructive sale or other integrated transaction for U.S. federal income tax purposes; |
• | investors that have a functional currency other than the U.S. dollar; |
• | persons that actually or constructively own ADSs or ordinary shares representing 10% or more of our stock (by vote or value); or |
• | partnerships or other entities taxable as partnerships for U.S. federal income tax purposes, or persons holding ADSs or Class A ordinary shares through such entities. |
all of whom may be subject to tax rules that differ significantly from those discussed below.
Each U.S. Holder is urged to consult its tax advisor regarding the application of U.S. federal taxation to its particular circumstances, and the state, local, non-U.S. and other tax considerations of the ownership and disposition of our ADSs or Class A ordinary shares.
General
For purposes of this discussion, a “U.S. Holder” is a beneficial owner of our ADSs or Class A ordinary shares that is, for U.S. federal income tax purposes:
• | an individual who is a citizen or resident of the United States; |
• | a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created in, or organized under the law of the United States or any state thereof or the District of Columbia; |
• | an estate the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source; or |
• | a trust (A) the administration of which is subject to the primary supervision of a U.S. court and which has one or more U.S. persons who have the authority to control all substantial decisions of the trust or (B) that has otherwise validly elected to be treated as a U.S. person under the Code. |
If a partnership (or other entity treated as a partnership for U.S. federal income tax purposes) is a beneficial owner of our ADSs or Class A ordinary shares, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. Partnerships holding our ADSs or Class A ordinary shares and their partners are urged to consult their tax advisors regarding an investment in our ADSs or Class A ordinary shares.
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For U.S. federal income tax purposes, it is generally expected that a U.S. Holder of ADSs will be treated as the beneficial owner of the underlying shares represented by the ADSs. The remainder of this discussion assumes that a U.S. Holder of our ADSs will be treated in this manner. Accordingly, deposits or withdrawals of Class A ordinary shares for ADSs will generally not be subject to U.S. federal income tax.
Dividends
Subject to the discussion below entitled “Passive Foreign Investment Company Rules,” any cash distributions (including the amount of any PRC tax withheld) paid on our ADSs or Class A ordinary shares out of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles, will generally be includible in the gross income of a U.S. Holder as dividend income on the day actually or constructively received by the U.S. Holder, in the case of Class A ordinary shares, or by the depositary, in the case of ADSs. Because we do not intend to determine our earnings and profits on the basis of U.S. federal income tax principles, any distribution we pay will generally be treated as a “dividend” for U.S. federal income tax purposes. Dividends received on our ADSs or Class A ordinary shares will not be eligible for the dividends received deduction generally allowed to corporations. A non-corporate U.S. Holder will be subject to tax at the lower capital gain tax rate applicable to “qualified dividend income,” provided that certain conditions are satisfied, including that (1) our ADSs or Class A ordinary shares on which the dividends are paid are readily tradeable on an established securities market in the United States, or, in the event that we are deemed to be a PRC resident enterprise under the PRC tax law, we are eligible for the benefits of the United States-PRC income tax treaty, or the Treaty, (2) we are neither a PFIC nor treated as such with respect to such a U.S. Holder for the taxable year in which the dividend was paid and the preceding taxable year, and (3) certain holding period requirements are met. Our ADSs (but not our Class A ordinary shares), which are listed on Nasdaq, are considered readily tradeable on an established securities market in the United States. There can be no assurance, however, that our ADSs will be considered readily tradeable on an established securities market in later years.
In the event that we are deemed to be a PRC resident enterprise under the PRC Enterprise Income Tax Law (see “—PRC Taxation”), we may be eligible for the benefits of the Treaty. If we are eligible for such benefits, dividends we pay on our Class A ordinary shares, regardless of whether such shares are represented by the ADSs, would be eligible for the reduced rates of taxation described in the preceding paragraph.
Dividends paid on our ADSs or Class A ordinary shares, if any, will generally be treated as income from foreign sources and will generally constitute passive category income for U.S. foreign tax credit purposes. Depending on the U.S. Holder’s individual facts and circumstances, a U.S. Holder may be eligible, subject to a number of complex limitations, to claim a foreign tax credit in respect of any nonrefundable foreign withholding taxes imposed on dividends received on our ADSs or Class A ordinary shares. A U.S. Holder who does not elect to claim a foreign tax credit for foreign taxes withheld may instead claim a deduction, for U.S. federal income tax purposes, in respect of such withholding, but only for a year in which such holder elects to do so for all creditable foreign income taxes. The rules governing the foreign tax credit are complex and their outcome depends in large part on the U.S. Holder’s individual facts and circumstances. Accordingly, U.S. Holders are urged to consult their tax advisors regarding the availability of the foreign tax credit under their particular circumstances.
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Sale or Other Disposition
Subject to the discussion below entitled “Passive Foreign Investment Company Rules,” a U.S. Holder will generally recognize capital gain or loss upon the sale or other disposition of ADSs or Class A ordinary shares in an amount equal to the difference between the amount realized upon the disposition and the holder’s adjusted tax basis in such ADSs or Class A ordinary shares. Any capital gain or loss will be long-term if the ADSs or Class A ordinary shares have been held for more than one year and will generally be U.S.-source gain or loss for U.S. foreign tax credit purposes. Long-term capital gain of non-corporate U.S. Holders will generally be eligible for a reduced rate of taxation. In the event that gain from the disposition of the ADSs or Class A ordinary shares is subject to tax in China, a U.S. Holder may elect to treat such gain as PRC-source gain under the Treaty. Pursuant to Treasury Regulations, however, if a U.S. Holder is not eligible for the benefits of the Treaty or does not elect to apply the Treaty, then such holder may not be able to claim a foreign tax credit arising from any PRC tax imposed on the disposition of the ADSs or Class A ordinary shares. The deductibility of a capital loss may be subject to limitations. U.S. Holders are urged to consult their tax advisors regarding the tax consequences if a foreign tax is imposed on a disposition of our ADSs or Class A ordinary shares, including the availability of the foreign tax credit or deduction under their particular circumstances, their eligibility for benefits under the Treaty and the potential impact of the Treasury Regulations.
Passive Foreign Investment Company Rules
A non-U.S. corporation, such as our company, will be classified as a PFIC for U.S. federal income tax purposes for any taxable year, if either (i) 75% or more of its gross income for such year consists of certain types of “passive” income or (ii) 50% or more of the value of its assets (generally determined on the basis of a quarterly average) during such year is attributable to assets that produce or are held for the production of passive income, or the asset test. For this purpose, cash and assets readily convertible into cash are categorized as passive assets and the company’s goodwill and other unbooked intangibles are taken into account. Passive income generally includes, among other things, dividends, interest, rents, royalties, and gains from the disposition of passive assets. We will be treated as owning a proportionate share of the assets and earning a proportionate share of the income of any other corporation in which we own, directly or indirectly, at least 25% (by value) of the stock.
Based upon our current and projected income and assets, we do not expect to be a PFIC for the taxable year ended December 31, 2023 or the foreseeable future. While we do not expect to be or become a PFIC, no assurance can be given in this regard because the determination of whether we will be or become a PFIC for any taxable year is a fact intensive determination made annually that depends, in part, upon the composition of our income and assets. In particular, increased volatility in the market price of our ADSs may significantly increase our risk of becoming a PFIC. The market price of our ADSs may continue to fluctuate widely, and consequently, we cannot assure you of our PFIC status for any taxable year. Fluctuations in the market prices of our ADSs and Class A ordinary shares may cause us to be or become classified as a PFIC for the current or future taxable years because the value of our assets for purposes of the asset test, including the value of our goodwill and unbooked intangibles, may be determined by reference to the market prices of our ADSs and Class A ordinary shares from time to time (which may be volatile). If our market capitalization subsequently declines, we may be or become classified as a PFIC for the current taxable year or future taxable years. Furthermore, the composition of our income and assets may also be affected by how, and how quickly, we use our liquid assets. Under circumstances where revenues from activities that produce passive income significantly increase relative to our revenues from activities that produce non-passive income, our risk of being or becoming classified as a PFIC may substantially increase. Because PFIC status is a factual determination made annually after the close of each taxable year, there can be no assurance that we will not be a PFIC for the taxable year ended December 31, 2023 or any future taxable year.
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If we are classified as a PFIC for any taxable year during which a U.S. Holder holds our ADSs or Class A ordinary shares, and unless the U.S. Holder makes a mark-to-market election (as described below), the U.S. Holder will generally be subject to special tax rules on (i) any excess distribution that we make to the U.S. Holder (which generally means any distribution paid during a taxable year to a U.S. Holder, other than the taxable year in which the U.S. Holder’s holding period ADSs or Class A ordinary shares begins, that is greater than 125 percent of the average annual distributions paid in the three preceding taxable years or, if shorter, the portion of the U.S. Holder’s holding period for the ADSs or Class A ordinary shares that preceded the taxable year in which the U.S. Holder receives the distribution), and (ii) any gain realized on the sale or other disposition of ADSs or Class A ordinary shares. Under the PFIC rules:
• | the excess distribution or gain will be allocated ratably over the U.S. Holder’s holding period for the ADSs or Class A ordinary shares; |
• | the amount allocated to the current taxable year and any taxable years in the U.S. Holder’s holding period prior to the first taxable year in which we are classified as a PFIC, or a pre-PFIC year, will be taxable as ordinary income; |
• | the amount allocated to each prior taxable year, other than a pre-PFIC year, will be subject to tax at the highest tax rate in effect for individuals or corporations, as appropriate, for that year; and |
• | an additional tax equal to the interest charge generally applicable to underpayments of tax will be imposed on the tax attributable to each prior taxable year, other than a pre-PFIC year. |
As an alternative to the foregoing rules, a U.S. Holder of “marketable stock” in a PFIC may make a mark-to-market election with respect to such stock, provided that such stock is regularly traded on a qualified exchange or other market, as defined in applicable Treasury Regulations. Our ADSs are listed on the Nasdaq Capital Market, which is a qualified exchange for these purposes. We anticipate that our ADSs should qualify as being regularly traded, but no assurances may be given in this regard. If a U.S. Holder makes this election, the holder will generally (i) include as ordinary income for each taxable year that we are a PFIC the excess, if any, of the fair market value of ADSs held at the end of the taxable year over the adjusted tax basis of such ADSs and (ii) deduct as an ordinary loss the excess, if any, of the adjusted tax basis of the ADSs over the fair market value of such ADSs held at the end of the taxable year, but such deduction will only be allowed to the extent of the amount previously included in income as a result of the mark-to-market election. The U.S. Holder’s adjusted tax basis in the ADSs would be adjusted to reflect any income or loss resulting from the mark-to-market election. If a U.S. Holder makes a mark-to-market election in respect of a corporation classified as a PFIC and such corporation ceases to be classified as a PFIC, the holder will not be required to take into account the gain or loss described above during any period that such corporation is not classified as a PFIC. If a U.S. Holder makes a mark-to-market election, any gain such U.S. Holder recognizes upon the sale or other disposition of our ADSs or Class A ordinary shares in a year when we are a PFIC will be treated as ordinary income and any loss will be treated as ordinary loss, but such loss will only be treated as ordinary loss to the extent of the net amount previously included in income as a result of the mark-to-market election.
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We do not intend to provide information necessary for U.S. Holders to make qualified electing fund elections which, if available, would result in tax treatment different from (and generally less adverse than) the general tax treatment for PFICs described above.
If a U.S. Holder owns our ADSs or Class A ordinary shares during any taxable year that we are a PFIC, the holder must generally file an annual IRS Form 8621. You should consult your tax advisors regarding the U.S. federal income tax consequences of owning and disposing of our ADSs or Class A ordinary shares if we are or become a PFIC.
F. Dividends and Paying Agents
Not applicable.
G. Statements by Experts
Not applicable.
H. Documents on Display
We are subject to the periodic reporting and other informational requirements of the Exchange Act as applicable to foreign private issuers. Under the Exchange Act, we are required to file reports and other information with the SEC. Specifically, we are required to file annually a Form 20-F within four months after the end of each fiscal year. All information filed with the SEC can be obtained over the internet at the SEC’s website at www.sec.gov. As a foreign private issuer, we are exempt from the rules of the Exchange Act prescribing the furnishing and content of quarterly reports and proxy statements, and our executive officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act.
In accordance with Nasdaq Stock Market Rule 5250(d), we will post this annual report on our website at https://www.enaas.com/en/. In addition, we will provide hardcopies of our annual report free of charge to shareholders upon request.
I. Subsidiary Information
Not applicable.
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J. Annual Report to Security Holders
Not applicable.
Item 11. Quantitative and Qualitative Disclosures about Market Risk
Foreign Exchange Risk
Foreign currency risk arises from future commercial transactions and recognized assets and liabilities. We operate mainly in China with most of our transactions settled in RMB. We consider our business not exposed to significant foreign exchange risk as we have no significant assets or liabilities denominated in currencies other than the respective functional currencies of our relevant entities.
RMB is not freely convertible into foreign currencies. Remittances of foreign currencies into mainland China or remittances of RMB out of mainland China as well as exchange between Renminbi and foreign currencies require approval by foreign exchange administrative authorities with certain supporting documentation. The State Administration for Foreign Exchange, under the authority of the People’s Bank of China, controls the conversion of RMB into other currencies. The conversion of RMB into foreign currencies, including U.S. dollars, is based on rates set by the People’s Bank of China. RMB has fluctuated against the U.S. dollar, at times significantly and unpredictably. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between RMB and the U.S. dollar in the future.
To the extent that we need to convert U.S. Dollars into RMB for our operations, appreciation of RMB against the U.S. Dollar would reduce the RMB amount we receive from the conversion. Conversely, if we decide to convert RMB into U.S. Dollars for the purpose of making payments for dividends on our ordinary shares or ADSs, servicing our outstanding debt, or for other business purposes, appreciation of the U.S. Dollar against the RMB would reduce the U.S. Dollar amounts available to us.
Credit Risk
We are exposed to credit risk arising from cash and cash equivalents, trade receivables, other receivables, contract assets and other financial assets. Our objective is to seek continual revenue growth while minimizing losses incurred due to increased credit risk exposure. Financial instruments that potentially subject us to significant concentrations of credit risk consist primarily of cash and cash equivalents, trade receivables and other receivables.
Our cash and cash equivalents are mainly placed with state-owned financial institutions in China, which we believe are of high credit quality and continually monitoring the credit worthiness of these financial institutions.
Interest Rate Risk
Our exposure to the risk of changes in market interest rates relates primarily to our long -term debt obligations with floating interest rate. As at December 31, 2023, our bank borrowings amounting to RMB754.8 million (US$106.3 million) were at variable interest rates. As at December 1, 2023, if the interest rates on our borrowings had been 100 basis points higher or lower with all other variables held constant, loss before income tax would have been RMB6.6 million (US$0.9 million) higher or lower, as a result of higher/lower interest expense.
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We have not used any derivative financial instruments to manage our interest risk exposure. We closely monitor the effects of changes in the interest rates on our interest rate risk exposures, but we currently do not take any measures to hedge interest rate risks.
Item 12. Description of Securities Other Than Equity Securities
A. Debt Securities
Not applicable.
B. Warrants and Rights
Not applicable.
C. Other Securities
Not applicable.
D. American Depositary Shares
Fees and Charges Our ADS Holders May Have to Pay
The depositary may charge each person to whom ADSs are issued, including, without limitation, issuances against deposits of shares, issuances in respect of share distributions, rights and other distributions, issuances pursuant to a stock dividend or stock split declared by us or issuances pursuant to a merger, exchange of securities or any other transaction or event affecting the ADSs or deposited securities, and each person surrendering ADSs for withdrawal of deposited securities or whose ADRs are cancelled or reduced for any other reason, $5.00 for each 100 ADSs (or any portion thereof) issued, delivered, reduced, cancelled or surrendered, as the case may be. The depositary may sell (by public or private sale) sufficient securities and property received in respect of a share distribution, rights and/or other distribution prior to such deposit to pay such charge.
The following additional charges shall be incurred by the ADR holders, by any party depositing or withdrawing shares or by any party surrendering ADSs and/or to whom ADSs are issued (including, without limitation, issuance pursuant to a stock dividend or stock split declared by us or an exchange of stock regarding the ADSs or the deposited securities or a distribution of ADSs), whichever is applicable:
• | a fee of U.S.$1.50 per ADR or ADRs for transfers of certificated or direct registration ADRs; |
• | a fee of up to U.S.$0.05 per ADS for any cash distribution made pursuant to the deposit agreement; |
• | an aggregate fee of up to U.S.$0.05 per ADS per calendar year (or portion thereof) for services performed by the depositary in administering the ADRs (which fee may be charged on a periodic basis during each calendar year and shall be assessed against holders of ADRs as of the record date or record dates set by the depositary during each calendar year and shall be payable in the manner described in the next succeeding provision); |
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• | a fee for the reimbursement of such fees, charges and expenses as are incurred by the depositary and/or any of its agents (including, without limitation, the custodian and expenses incurred on behalf of holders in connection with compliance with foreign exchange control regulations or any law or regulation relating to foreign investment) in connection with the servicing of the shares or other deposited securities, the sale of securities (including, without limitation, deposited securities), the delivery of deposited securities or otherwise in connection with the depositary’s or its custodian’s compliance with applicable law, rule or regulation (which fees and charges shall be assessed on a proportionate basis against holders as of the record date or dates set by the depositary and shall be payable at the sole discretion of the depositary by billing such holders or by deducting such charge from one or more cash dividends or other cash distributions); |
• | a fee for the distribution of securities (or the sale of securities in connection with a distribution), such fee being in an amount equal to the $0.05 per ADS issuance fee for the execution and delivery of ADSs which would have been charged as a result of the deposit of such securities (treating all such securities as if they were shares) but which securities or the net cash proceeds from the sale thereof are instead distributed by the depositary to those holders entitled thereto; |
• | stock transfer or other taxes and other governmental charges; |
• | cable, telex and facsimile transmission and delivery charges incurred at your request in connection with the deposit or delivery of shares, ADRs or deposited securities; |
• | transfer or registration fees for the registration of transfer of deposited securities on any applicable register in connection with the deposit or withdrawal of deposited securities; |
• | in connection with the conversion of foreign currency into U.S. dollars, JPMorgan shall deduct out of such foreign currency the fees, expenses and other charges charged by it and/or its agent (which may be a division, branch or affiliate) so appointed in connection with such conversion; and |
• | fees of any division, branch or affiliate of the depositary utilized by the depositary to direct, manage and/or execute any public and/or private sale of securities under the deposit agreement. |
JPMorgan and/or its agent may act as principal for such conversion of foreign currency. For further details see https://www.adr.com.
We will pay all other charges and expenses of the depositary and any agent of the depositary (except the custodian) pursuant to agreements from time to time between us and the depositary. The charges described above may be amended from time to time by agreement between us and the depositary.
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The depositary may make available to us a set amount or a portion of the depositary fees charged in respect of the ADR program or otherwise upon such terms and conditions as we and the depositary may agree from time to time. The depositary collects its fees for issuance and cancellation of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cash distributions, or by directly billing investors, or by charging the book-entry system accounts of participants acting for them. The depositary will generally set off the amounts owing from distributions made to holders of ADSs. If, however, no distribution exists and payment owing is not timely received by the depositary, the depositary may refuse to provide any further services to holders that have not paid those fees and expenses owing until such fees and expenses have been paid. At the discretion of the depositary, all fees and charges owing under the deposit agreement are due in advance and/or when declared owing by the depositary. We did not receive any reimbursement form the depositary in 2023.
The fees and charges you may be required to pay may vary over time and may be changed by us and by the depositary. You will receive prior notice of the increase in any such fees and charges.
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies
None.
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
None.
Item 15. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer and chief financial officer, has performed an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this annual report, as required by Rule 13a-15(b) under the Exchange Act.
Based upon that evaluation, our management, with the participation of our chief executive officer and chief financial officer, has concluded that, as of December 31, 2023, our disclosure controls and procedures were effective in ensuring that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
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Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements in accordance with IFRS and includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of a company’s assets, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with IFRS, and that a company’s receipts and expenditures are being made only in accordance with authorizations of a company’s management and directors, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of a company’s assets that could have a material effect on the consolidated financial statements.
Pursuant to requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and related rules promulgated by the SEC, our management, with the participation of our chief executive officer and chief financial officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2023. This assessment was made using the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO 2013 Framework). Based on this assessment management has concluded that our internal control over financial reporting as of December 31, 2023, was effective.
Remediation of previously disclosed material weaknesses
In connection with the preparation of our consolidated financial statements as of and for the year ended December 31, 2022, our management has identified two material weaknesses in our internal control over financial reporting, as defined in the standards established by the PCAOB: (i) lack of sufficient financial reporting and accounting personnel with appropriate knowledge of IFRS and the SEC reporting requirements to properly address complex IFRS accounting issues and related disclosures in accordance with IFRS and financial reporting requirements set forth by the SEC, and (ii) ineffective information technology general controls in the areas of policies and procedures, program change and user access management over certain information technology systems that support financial reporting processes.
To remediate the reported material weaknesses subsequent to December 31, 2022, our management implemented a number of measures to enhance the effectiveness of our internal controls over financial reporting.
For the purpose of remediating the material weakness regarding the lack of sufficient financial reporting and accounting personnel with appropriate knowledge of IFRS and the SEC reporting requirements to properly address complex IFRS accounting issues and related disclosures in accordance with IFRS and financial reporting requirements set forth by the SEC, we have implemented measures, including, (i) enhancing the effectiveness of our financial reporting process by hiring more qualified IFRS and SEC financial reporting and accounting personnel, conducting training and providing management oversight on the timeliness and quality of our detailed account analyses; and (ii) strengthening the level of our financial reporting disclosure controls by enhancing the execution of their formal process to ensure that all significant transactions will be thoroughly evaluated for disclosure during the financial reporting process, to ensure the accuracy and completeness of our consolidated financial statements and related disclosures.
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For the purpose of remediating the material weakness regarding the ineffective information technology general controls in the areas of policies and procedures, program change and user access management over certain information technology systems that support financial reporting processes, we have implemented measures, including, (i) updating IT policies and procedures to address critical areas of IT management, (ii) performing periodic testing to identify, assess and address change and access management risks, (iii) providing sufficient training of IT personnel on the importance of information technology general controls and (iv) engaging external consultants to advise on the improvements of information technology general controls to remediate the material weakness in the foreseeable future, to ensure our information technology systems are effective to support our financial reporting processes.
During the year ended December 31, 2023, our management completed the design, implementation and testing of the newly designed and enhanced controls and determined that, as of December 31 2023, these controls were appropriately designed and operating effectively to conclude that the two material weaknesses identified in connection with the preparation of our consolidated financial statements as of and for the year ended December 31, 2022 have been remediated.
Attestation Report of the Registered Public Accounting Firm
Our independent registered public accounting firm, Centurion ZD CPA & Co., has audited the effectiveness of our internal control over financial reporting as of December 31, 2023, as stated in its report, which appears on page F-2 of this annual report on Form 20-F.
Changes in Internal Control over Financial Reporting
Other than as described above, there were no changes in our internal controls over financial reporting that occurred during the period covered by this annual report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 16A. Audit Committee Financial Experts
Our board of directors has determined that Mr. Guangming Ren, an independent director (under the standards set forth in Nasdaq Stock Market Rule 5605(a)(2) and Rule 10A-3 under the Exchange Act) and chairman of our audit committee, is an audit committee financial expert.
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Item 16B. Code of Ethics
Our board of directors adopted a code of business conduct and ethics that applies to our directors, officers, employees and advisors. We have posted a copy of our code of business conduct and ethics on our website at https://www.enaas.com/en/.
Item 16C. Principal Accountant Fees and Services
The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered by Ernst & Young Hua Ming and Centurion ZD CPA & Co., our former and current principal external auditors, for the periods indicated. We did not pay any other fees to these independent registered public accounting firms during the periods indicated below.
2022 | 2023 | |||||||||||
RMB | RMB | US$ | ||||||||||
(in thousands) | ||||||||||||
Audit Fees(1) |
8,820 | 16,460 | 2,318 | |||||||||
Audit Related Fees(2) |
550 | 2,518 | 355 |
(1) | “Audit Fees” represent the aggregate fees billed for each of the fiscal years listed for professional services rendered by our principal accountant for the audit of our annual consolidated financial statements. |
(2) | “Audit Related Fees” represent the aggregate fees billed for each of the fiscal years listed for professional services rendered by our principal accountant for other services except for the audit of our annual consolidated financial statements. |
All audit and permitted non-audit services provided by our principal accountant, including audit services, audit-related services, tax services, and other services as described above, must be and have been approved in advance by our audit committee.
Item 16D. Exemptions from the Listing Standards for Audit Committees
Not applicable.
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
Item 16F. | Change in Registrant’s Certifying Accountant |
Engagement of BDO China Shu Lun Pan Certified Public Accountants LLP
On November 22, 2021, RISE announced that Ernst & Young Hua Ming LLP, or EY, had resigned as its independent registered public accounting firm, effective November 19, 2021.
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EY’s audit report on RISE’s consolidated financial statements as of and for the years ended December 31, 2020 and 2019 did not contain an adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles.
During the fiscal years ended December 31, 2020 and 2019, and the interim period through November 19, 2021, there has been no (i) “disagreements” as defined in Item 16F (a)(1)(iv) of Form 20-F and the related instructions, between RISE and EY on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement, if not resolved to the satisfaction of EY, would have caused EY to make reference to the subject matter of the disagreement thereto in its reports on the consolidated financial statements for such periods; or (ii) “reportable events” as that term is described in accordance with Item 16F(a)(1)(v) of Form 20-F, except as previously disclosed, there were outstanding matters that require further assessment with respect to regulatory requirements that severely impacted RISE’s operations and its ability to continue as a going concern: “Opinions on Further Alleviating the Burden of Homework and After-School Tutoring for Students in Compulsory Education Stage,” and the circular published by the Chinese Ministry of Education and two other government authorities on its website to implement these opinions, which requires all academic after-school tutoring institutions to complete registration as a not-for-profit organization by the end of December 31, 2021. As of the date of EY’s resignation, RISE has not been able to provide information to EY to resolve the above-mentioned matters to their satisfaction. Accordingly, EY was unable to progress their audit or render its audit report on RISE’s consolidated financial statements for the year ended December 31, 2021. EY is authorized to discuss these matters with RISE’s new auditor without limitation.
RISE provided a copy of the foregoing disclosure in Item 16F to EY and requested that EY furnish a letter addressed to the SEC stating whether it agrees with the above statements, and if not, stating the respects in which it does not agree. A copy of the letter from EY addressed to the SEC, dated May 13, 2022, is incorporated by reference as Exhibit 16.1 to this annual report.
On January 7, 2022, RISE announced that its board of directors has appointed BDO China Shu Lun Pan Certified Public Accountants LLP, or BDO, as RISE’s new auditor, effective as of January 7, 2022. The appointment of BDO was considered and approved by the audit committee of the board of directors of RISE.
During the fiscal year ended December 31, 2021 and the subsequent period prior to RISE’s engagement of BDO, neither RISE nor anyone on its behalf consulted BDO with respect to (a) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on RISE’s consolidated financial statements, and neither a written report nor oral advice was provided to RISE that BDO concluded was an important factor considered by RISE in reaching a decision as to any accounting, auditing or financial reporting issue; (b) any matter that was either the subject of a disagreement, as defined in Item 16F (a)(1)(iv) of the instructions to Form 20-F, or (c) any reportable event, as defined in Item 16F (a)(1)(v) of the instructions to Form 20-F.
Change in Connection with the Mergers
On June 10, 2022, the Mergers between RISE, our predecessor, and Dada was consummated. Upon the consummation of the Mergers, Dada became the wholly-owned subsidiary of RISE, and we assumed and began conducting the principal business of Dada. Rise is identified as the legal acquirer but accounting acquiree from accounting purpose and Dada is identified as legal acquiree but accounting acquirer for accounting purposes. As a result, our auditor was changed from BDO, RISE’s auditor prior to the completion of the transaction, to Centurion ZD CPA & Co., or Centurion, Dada’s auditor at the time.
150
The reports of BDO on RISE’s consolidated financial statements for the fiscal year ended December 31, 2021 did not contain any adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principle. During the fiscal year ended December 31, 2021 and the subsequent interim period through June 10, 2022, there were no disagreements between RISE and BDO on any matter of accounting principles or practices, financial statement disclosure, or audit scope or procedure.
During the fiscal year ended December 31, 2021 and the subsequent interim period through June 10, 2022, there were no reportable events (as defined in Item 16F(a)(1)(v) of the instructions to Form 20-F), other than that a material weakness was identified in RISE’s internal control over financial reporting in the fiscal year ended December 31, 2021. The material weaknesses so identified related to RISE’s lack of sufficient competent financial reporting and accounting personnel with appropriate understanding of U.S. GAAP to design and implement formal period-end financial reporting controls and procedures to address U.S. GAAP technical accounting issues, and to prepare and review the consolidated financial statements and related disclosures in accordance with U.S. GAAP and financial reporting requirements set forth by the SEC.
We have provided BDO with a copy of this disclosure in Item 16F and requested from BDO a letter addressed to the SEC indicating whether it agrees with the above statements. A copy of the letter from BDO addressed to the SEC, dated May 1, 2023, is filed herein as Exhibit 16.2.
Prior to the date of this change from BDO to Centurion as a result of the Mergers, neither RISE nor anyone on its behalf consulted with Centurion regarding either (a) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on RISE’s consolidated financial statements, and neither a written report nor oral advice was provided to RISE that Centurion concluded was an important factor considered by RISE in reaching a decision as to any accounting, auditing, or financial reporting issue, or (b) any matter that was the subject of a disagreement (as defined in Item 16F(a)(1)(iv) of the instructions to Form 20-F and the related instructions therein) or a reportable event (as defined in Item 16F(a)(1)(v) of the instructions to Form 20-F).
Engagement of Ernst & Young Hua Ming LLP
On October 28, 2022, we engaged EY as our independent registered public accounting firm and dismissed Centurion. This change in independent registered public accounting firm was recommended by our audit committee of the board of directors and approved by our board of directors.
The reports of Centurion on Dada’s combined financial statements for the fiscal years ended December 31, 2020 and 2021 did not contain any adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principle. However, in December 2022, we concluded that Dada’s combined financial statements for the fiscal years ended December 31, 2020 and 2021 that were included in our shell company report on Form 20-F that was initially filed on June 16, 2022, or the Shell Company Report, could not be relied upon, due to the correction of the presentation of revenues to be consistent with the recognition and measurement policy for each class of revenues and reflects other adjustments that we found necessary or appropriate. Such financial statements were therefore restated and the restated financial statements were filed with the SEC on March 27, 2023 and on April 18, 2023 in Amendment No. 1 and Amendment No. 2 to the Shell Company Report, respectively. In addition, “reportable events” as defined in Form 20-F Item 16F(a)(1)(v) include the material weakness reported filed with the SEC on March 27, 2023 and on April 18, 2023 in Amendment No. 1 and Amendment No. 2 to the Shell Company Report, respectively.
151
Except as disclosed in this Item 16F, during the fiscal years ended December 31, 2020 and 2021 and the subsequent interim period through October 28, 2022, there were no (i) disagreements between us and Centurion on any matter of accounting principles or practices, financial statement disclosure, or audit scope or procedure, or (ii) reportable events (as defined in Item 16F(a)(1)(v) of the instructions to Form 20-F).
We have provided Centurion with a copy of this disclosure in Item 16F and requested from Centurion a letter addressed to the SEC indicating whether it agrees with the above statements. A copy of the letter from Centurion addressed to the SEC, dated May 1, 2023, is filed herein as Exhibit 16.3.
During the fiscal years ended December 31, 2020 and 2021, and the subsequent interim period prior to our engagement of EY on October 28, 2022, neither Dada nor NaaS consulted with EY regarding either (a) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our consolidated financial statements, and neither a written report nor oral advice was provided to us that EY concluded was an important factor considered by us in reaching a decision as to any accounting, auditing, or financial reporting issue, or (b) any matter that was the subject of a disagreement (as defined in Item 16F(a)(1)(iv) of the instructions to Form 20-F and the related instructions therein) or a reportable event (as defined in Item 16F(a)(1)(v) of the instructions to Form 20-F).
Engagement of Centurion ZD CPA & Co.
On April 5, 2024, we engaged Centurion as our independent registered public accounting firm and dismissed EY. This change in independent registered public accounting firm was approved by our audit committee of the board of directors and our board of directors.
EY’s audit report on our consolidated financial statements as of and for the year ended December 31, 2022 did not contain any adverse opinion or disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope, or accounting principles. During the audit for the fiscal year ended December 31, 2022 and the subsequent period through the dismissal date of April 2, 2024, there were no (i) disagreements, as defined in Item 16F(a)(1)(iv) of Form 20-F and the related instructions, between us and EY on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of EY, would have caused EY to make reference to the subject matter of the disagreements in connection with its report on the consolidated financial statements, or (ii) reportable events as defined in Item 16F(a)(1)(v) of Form 20-F except that EY had discussed with our audit committee, in connection with the audit for the year ended and as of December 31, 2022, two material weaknesses in our internal control over financial reporting related to (a) lack of sufficient financial reporting and accounting personnel with appropriate knowledge of IFRS and the SEC reporting requirements to properly address complex IFRS accounting issues and related disclosures in accordance with IFRS and financial reporting requirements set forth by the SEC, and (b) ineffective information technology general controls in the areas of policies and procedures, program change and user access management over certain information technology systems that support financial reporting processes as reported in our annual report for the year ended December 31, 2022. EY is authorized to fully respond to the inquiries of Centurion on the reportable events mentioned above without limitation.
152
We have provided EY with a copy of this disclosure in Item 16F and requested from EY a letter addressed to the SEC indicating whether it agrees with the above statements, and if not, stating the respects in which it does not agree. A copy of the letter from EY addressed to the SEC, dated May 9, 2024, is filed herein as Exhibit 16.4.
During the fiscal years ended December 31, 2022 and 2023, and the subsequent interim period prior to our engagement of Centurion on April 5, 2024, neither we nor anyone on behalf of us consulted with Centurion regarding either (a) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our consolidated financial statements, and neither a written report nor oral advice was provided to us by Centurion that Centurion concluded was an important factor considered by us in reaching a decision as to any accounting, auditing, or financial reporting issue, or (b) any matter that was the subject of a disagreement (as defined in Item 16F(a)(1)(iv) of the instructions to Form 20-F and the related instructions therein) or a reportable event (as defined in Item 16F(a)(1)(v) of the instructions to Form 20-F).
Item 16G. Corporate Governance
As a Cayman Islands exempted company listed on Nasdaq Stock Market, we are subject to the Nasdaq corporate governance listing standards. However, Nasdaq rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in the Cayman Islands, which is our home country, may differ significantly from the Nasdaq corporate governance listing standards. As a result, our shareholders may be afforded less protection than they would otherwise enjoy under the Nasdaq Stock Market corporate governance listing standards applicable to U.S. domestic issuers. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our ADSs and Trading Market—We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to U.S. domestic public companies.” We followed home country practice with respect to the requirements (i) that a majority of our board of directors consist of independent directors, (ii) that we have a compensation committee that is composed entirely of independent director, and (iii) for maintaining an audit committee of at least three members. In addition, we did not hold an annual general meeting of shareholders in 2023 and we adopted a new equity incentive award plan without shareholders’ approval.
153
In addition, as a “controlled company” as defined under the Nasdaq Stock Market Rules, we are permitted to elect to rely on certain exemptions from corporate governance rules. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our ADSs and Trading Market—We are a “controlled company” within the meaning of the Nasdaq Stock Market Rules, and as a result, may rely on exemptions from certain corporate governance requirements that provide protection to shareholders of other companies.” As a result, you do not have the same protection afforded to shareholders of companies that are subject to these corporate governance requirements.
Item 16H. Mine Safety Disclosure
Not applicable.
Item 16I. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
Item 16J. Insider Trading Policies
Not applicable.
Item 16K. Cybersecurity
Risk Management and Strategy
We have implemented comprehensive cybersecurity risk assessment procedures to ensure effectiveness in cybersecurity management, strategy and governance and reporting cybersecurity risks. We have also integrated cybersecurity risk management into our overall enterprise risk management system.
We have developed a comprehensive cybersecurity threat defense system to address both internal and external cyber threats. This comprehensive system spans multiple security domains, including network, host and layers. It integrates a range of security capabilities, such as threat defense, continuous monitoring, in-depth analysis, rapid response, as well as strategic deception and countermeasures. Our approach to managing cybersecurity risks and safeguarding sensitive data is multi-faceted, involving technological safeguards, procedural protocols, a rigorous program of surveillance on our corporate network, continuous testing of aspects of our security posture internally and with third-party consultants or collaborators, a solid incident response framework and regular cybersecurity training sessions for our employees. Our IT and legal department is actively engaged in continuous monitoring of the performance of our infrastructure to ensure prompt identification and response to potential issues, including potential cybersecurity threats.
As of the date of this annual report, we have not experienced any material cybersecurity incidents or identified any material cybersecurity threats that have affected or are reasonably likely to materially affect us, our business strategy, results of operations or financial condition.
154
Governance
Our board of directors is responsible for overseeing our company’s cybersecurity risk management and be informed on risks from cybersecurity threats. Our board of directors will review, approve, and maintain oversight of the disclosure (i) on Form 6-K for material cybersecurity incidents (if any) and (ii) relating to cybersecurity matters in the periodic reports (including annual report on Form 20-F) of our company. In addition, on the management level, we have established a cybersecurity disclosure committee and designated specific personnel to oversee and manage cybersecurity related matters and formulate policies as necessary. Pursuant to the internal controls and procedures in connection with cybersecurity, our cybersecurity disclosure committee reports to our board of directors from time to time regarding its assessment, identification, and management on material risks from cybersecurity threats happened in the ordinary course of our business operations. If a cybersecurity incident occurs, our cybersecurity disclosure committee will promptly organize relevant personnel for internal assessment and, depending on the situation, seek the opinions of external experts and legal advisors. If it is determined that the incident could potentially be a material cybersecurity event, our cybersecurity disclosure committee will promptly report the investigation and assessment results to our board of directors and our board of directors will decide on the response measures and whether any disclosure is necessary. If such disclosure is determined to be necessary, our cybersecurity disclosure committee will promptly prepare disclosure material for review and approval by our board of directors before it is disseminated to the public.
155
PART III
Item 17. Financial Statements
In lieu of responding to this item, we have responded to Item 18 of this annual report.
Item 18. Financial Statements
The consolidated financial statements of NaaS Technology Inc. and its subsidiaries are included at the end of this annual report.
Item 19. Exhibits
156
157
* | Filed herewith. |
** | Furnished herewith. |
+ | Portions of this exhibit have been omitted or redacted |
158
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 annual report on its behalf.
NaaS Technology Inc. | ||
By: | /s/ Alex Wu | |
Name: Alex Wu | ||
Title: Chief Financial Officer |
Date: May 9, 2024
159
F-2 |
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F-5 |
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F-6 |
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F-8 |
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F-9 |
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F-10 |
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F-12 |
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F-13 |
• |
We have evaluated the appropriateness of the revenue recognition policies as adopted by management; |
• |
We have obtained an understanding of and assessing the design, implementation and operating effectiveness of key internal control including the information technology general control (“ITGC”) and the information technology activity control (“ITAC”) which govern such revenue recognition to ensure input and output information were properly recorded; |
• |
We have performed ITGC audit procedures on the Company’s IT system and the partnered platform to ensure that the information is reliable; |
• |
We have engaged IT specialists to assist us in testing the information flow accuracy and the calculation logic relevant to the recognition of revenue; |
• |
We have performed audit procedures that included, among others, testing the clerical accuracy and consistency with IFRS of the accounting model developed by the Company to recognize revenue; |
• |
We have tested the payment receipts against third-party payments platforms and instruments widely used in the PRC. |
• |
We have evaluated the appropriateness of the revenue recognition policies as adopted by the management; |
• |
We have obtained an understanding of and assessing the design, implementation and operating effectiveness of key internal control including the information technology general control (“ITGC”) and the information technology activity control (“ITAC”) which govern such revenue recognition to ensure input and output information were properly recorded; |
• |
We have performed ITGC audit procedures on the Company’s IT system and the online platform to ensure that the database is reliable; |
• |
We have engaged IT specialists to assist us in testing the data flow accuracy and the calculation logic relevant to the recognition of revenue; |
• |
We have performed audit procedures that included, among others, testing the clerical accuracy and consistency with IFRS of the accounting model developed by the Company to recognize revenue; |
• |
We have tested the payment receipts against third-party payments platforms and instruments such as Alipay and WeChat. |
As of December 31, |
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Note s |
2022 |
2023 |
2023 |
|||||||||||||
RMB’000 |
RMB’000 |
USD’000 |
||||||||||||||
ASSETS |
||||||||||||||||
CURRENT ASSETS |
||||||||||||||||
Cash and cash equivalents |
6 | |||||||||||||||
Trade receivables |
7 | |||||||||||||||
Contract assets |
8 | — | ||||||||||||||
Financial assets at fair value through profit or loss |
1 4 |
— | ||||||||||||||
Inventories |
9 | — | ||||||||||||||
Prepayments, other receivables and other assets |
10 | |||||||||||||||
Other financial assets |
— | |||||||||||||||
Total current assets |
||||||||||||||||
Non-current assets |
||||||||||||||||
Right-of-use |
13 | |||||||||||||||
Financial assets at fair value through profit or loss |
1 4 |
|||||||||||||||
Financial assets at fair value through other comprehensive income |
1 5 |
|||||||||||||||
Other financial assets |
— | |||||||||||||||
Investments accounted for using equity method |
— | |||||||||||||||
Property, plant and equipment |
16 | |||||||||||||||
Intangible assets |
12 | |||||||||||||||
Goodwill |
5 |
|||||||||||||||
Other non-current assets |
||||||||||||||||
Total non-current assets |
||||||||||||||||
Total assets |
||||||||||||||||
LIABILITIES AND EQUITY |
||||||||||||||||
Current liabilities |
||||||||||||||||
Interest-bearing bank borrowings |
17 | |||||||||||||||
Current lease liabilities |
13 | |||||||||||||||
Trade payables |
18 |
|||||||||||||||
Income tax payables |
||||||||||||||||
Convertible bonds |
20 |
— | ||||||||||||||
Other payables and accruals |
1 9 |
|||||||||||||||
Total current liabilities |
||||||||||||||||
Non-current liabilities |
||||||||||||||||
Interest-bearing bank borrowings |
17 | |||||||||||||||
Non-current lease liabilities |
13 | |||||||||||||||
Deferred tax liabilities |
||||||||||||||||
Total non-current liabilities |
||||||||||||||||
Total liabilities |
||||||||||||||||
EQUITY |
||||||||||||||||
Share capital |
2 1 |
|||||||||||||||
Subscription receivable |
21 |
— |
( |
) |
( |
) | ||||||||||
Additional paid in capital |
2 1 |
|||||||||||||||
Other reserves |
( |
) | ( |
) | ( |
) | ||||||||||
Accumulated losses |
( |
) | ( |
) | ( |
) | ||||||||||
Non-controlling interests |
— | |||||||||||||||
Total equity |
( |
) |
( |
) | ||||||||||||
Total equity and liabilities |
||||||||||||||||
Year ended December 31, |
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Note s |
2021 |
2022 |
2023 |
2023 |
||||||||||||||||
RMB’000 |
RMB’000 |
RMB’000 |
USD’000 |
|||||||||||||||||
Revenues |
||||||||||||||||||||
Charging services revenues |
||||||||||||||||||||
Energy solutions revenues |
||||||||||||||||||||
New initiatives revenues |
||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total revenues |
2 2 |
|||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Cost of revenues |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Gross profit |
||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Operating expenses |
||||||||||||||||||||
Selling and marketing expenses |
2 4 |
( |
) | ( |
) | ( |
) | ( |
) | |||||||||||
Administrative expenses |
2 4 |
( |
) | ( |
) | ( |
) | ( |
) | |||||||||||
Research and development expenses |
2 4 |
( |
) | ( |
) | ( |
) | ( |
) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total operating expenses |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Other gains, net |
2 3 |
|||||||||||||||||||
Operating loss |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||
Fair value changes of convertible instruments |
2 5 |
— | ( |
) | ( |
) | ( |
) | ||||||||||||
Fair value changes of financial instruments at fair value through profit or loss |
2 5 |
— | ( |
) | ( |
) | ||||||||||||||
Finance costs |
2 6 |
( |
) | ( |
) | ( |
) | ( |
) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Loss before income tax |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||
Income tax expenses |
2 7 |
( |
) | ( |
) | ( |
) | ( |
) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Net loss for the year |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Net loss attributable to: |
||||||||||||||||||||
Equity holders of the Company |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||
Non-controlling interests |
— | — | ( |
) | ( |
) | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
( |
) |
( |
) |
( |
) |
( |
) | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Basic and diluted loss per share for loss attributable to the ordinary shareholders of the Company (Expressed in RMB per share) |
||||||||||||||||||||
Basic loss per share |
2 8 |
( |
) | ( |
) | ( |
) | ( |
) | |||||||||||
Diluted loss per share |
2 8 |
( |
) | ( |
) | ( |
) | ( |
) | |||||||||||
Net loss for the year |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Other comprehensive loss that will not be reclassified to profit or loss in subsequent periods: |
||||||||||||||||||||
– Fair value change s on equity investment designated at fair value through other comprehensive loss, net of tax |
— | ( |
) | ( |
) | ( |
) | |||||||||||||
– Currency translation differences |
— | ( |
) | ( |
) | ( |
) | |||||||||||||
Other comprehensive loss for the year, net of tax |
— |
( |
) |
( |
) |
( |
) | |||||||||||||
Total comprehensive loss for the year |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total comprehensive loss attributable to: |
||||||||||||||||||||
Equity holders of the Company |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||
Non-controlling interests |
— | — | ( |
) | ( |
) | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
( |
) |
( |
) |
( |
) |
( |
) | |||||||||||||
|
|
|
|
|
|
|
|
Notes |
Share capital |
Additional paid- in capital |
Other reserves |
Accumulated losses |
Total |
Non-controlling interests |
Total Equity |
|||||||||||||||||||||||||
RMB’000 |
RMB’000 |
RMB’000 |
RMB’000 |
RMB’000 |
RMB’000 |
RMB’000 |
||||||||||||||||||||||||||
Balance at December 31, 2020 and January 1, 2021 |
— |
— |
( |
) |
— |
|||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Comprehensive loss |
||||||||||||||||||||||||||||||||
Net loss for the year |
— | — | — | ( |
) | ( |
) | — | ( |
) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total comprehensive loss for the year |
— |
— |
— |
( |
) |
( |
) |
— |
( |
) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Transactions with equity holders: |
||||||||||||||||||||||||||||||||
Contribution from a controlling shareholder |
2 1 |
— | — | — | — | |||||||||||||||||||||||||||
Share-based compensation from ESOP |
— | * | — | — | — | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Balance at December 31, 2021 and January 1, 2022 |
— |
* |
— |
( |
) |
— |
||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Comprehensive loss |
||||||||||||||||||||||||||||||||
Net loss for the year |
— | — | — | ( |
) | ( |
) | — | ( |
) | ||||||||||||||||||||||
Other comprehensive loss |
— | — | ( |
) | — | ( |
) | — | ( |
) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total comprehensive loss for the year |
— |
— |
( |
) |
( |
) |
( |
) |
— |
( |
) | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Transactions with equity holders: |
||||||||||||||||||||||||||||||||
Subdivision of shares |
2 1 |
( |
) | — | — | — | — | — | ||||||||||||||||||||||||
Issuance of shares |
2 1 |
— | — | — | ||||||||||||||||||||||||||||
Deemed issuance of shares upon the Merger transaction |
1.3 | — | — | — | ||||||||||||||||||||||||||||
Exercise of option |
— | — | — | |||||||||||||||||||||||||||||
Contribution from a controlling shareholder |
2 1 |
— | — | — | — | |||||||||||||||||||||||||||
Share-based compensation from ESOP |
2 9 |
— | — | — | — | |||||||||||||||||||||||||||
Share-based compensation from controlling shareholder ESOP |
— | — | — | — | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Balance at December 31, 2022 |
( |
) |
( |
) |
— |
|||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* | Representing amount less than RMB |
Notes |
Share capital |
Subscription receivable |
Additional paid- in capital |
Other reserves |
Accumulated losses |
Total |
Non-controlling interests |
Total Equity |
||||||||||||||||||||||||||||
RMB’000 |
RMB’000 |
RMB’000 |
RMB’000 |
RMB’000 |
RMB’000 |
RMB’000 |
RMB’000 |
|||||||||||||||||||||||||||||
Balance at January 1, 2023 |
|
|
|
— |
( |
) |
( |
) |
— |
|||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Comprehensive loss |
|
|
|
|
||||||||||||||||||||||||||||||||
Net loss for the year |
— | |
|
|
— |
— | — | ( |
) | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||
Other comprehensive loss |
— | |
|
|
— |
— | ( |
) | — | ( |
) | — | ( |
) | ||||||||||||||||||||||
Total comprehensive loss for the year |
|
|
|
— |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Transactions with equity holders: |
|
|
|
|
||||||||||||||||||||||||||||||||
Issuance of shares |
|
|
|
( |
) |
— | — | — | ||||||||||||||||||||||||||||
Transaction cost related to issuance of shares |
— | |
|
|
— |
( |
) | — | — | ( |
) | — | ( |
) | ||||||||||||||||||||||
Share-based payments from the ESOP |
2 9 |
— | |
|
|
— |
— | — | — | |||||||||||||||||||||||||||
Share-based payments from the controlling shareholder ESOP |
2 9 |
— | |
|
|
— |
— | — | — | |||||||||||||||||||||||||||
Conversion of convertible bond s to shares |
2 1 |
|
|
|
— |
— | — | — | ||||||||||||||||||||||||||||
Exercise of option |
|
|
|
— |
( |
) | — | — | — | |||||||||||||||||||||||||||
Capital contributions from non-controlling shareholders |
— | |
|
|
— |
— | — | — | — | |||||||||||||||||||||||||||
Non-controlling interests arising from business combination |
5 | — | |
|
|
— |
— | — | — | — | ( |
) | ( |
) | ||||||||||||||||||||||
Balance at December 31, 2023 |
|
|
|
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | |||||||||||||||||||||||
Balance at December 31, 2023, in USD’000 |
|
|
|
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
||||||||||||||||||||
Notes |
2021 |
2022 |
2023 |
2023 |
||||||||||||||||
RMB’000 |
RMB’000 |
RMB’000 |
USD’000 |
|||||||||||||||||
Cash flows from operating activities |
||||||||||||||||||||
Cash used in operations | 30 (a) |
( |
) |
( |
) |
( |
) |
( |
) | |||||||||||
Interest received | — | |||||||||||||||||||
Net cash used in operating activities |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Cash flows from investing activities |
||||||||||||||||||||
Purchase of property, plant and equipment and other non-current assets |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||
Purchase of financial instruments |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||
Proceeds from sale of financial instruments |
— | — | ||||||||||||||||||
Investment in equity method investees |
— | — | ( |
) | ( |
) | ||||||||||||||
Loan advanced to a related party |
— |
— |
( |
) |
( |
) | ||||||||||||||
Repayment of loan by a related party |
— | — | ||||||||||||||||||
Net cash paid for acquisition of a subsidiary |
— | — | ( |
) | ( |
) | ||||||||||||||
Net cash flows used in investing activities |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Cash flows from financing activities |
||||||||||||||||||||
Borrowings from banks |
17 | — | ||||||||||||||||||
Interests paid |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||
Repayment of borrowings from bank |
— | — | ( |
) | ( |
) | ||||||||||||||
Payments of principal portion of lease liabilities |
13 | ( |
) | ( |
) | ( |
) | ( |
) | |||||||||||
Proceeds from issuance of ordinary shares |
— | |||||||||||||||||||
Proceeds from issuance of convertible redeemable preferred shares |
— | — | — | |||||||||||||||||
Proceeds from issuance of convertible bonds |
— | — | ||||||||||||||||||
Proceeds from revenue-based financing |
— | — | ||||||||||||||||||
Repayments for revenue-based financing |
— | — | ( |
) | ( |
) | ||||||||||||||
Expense s for issuance of preferred shares, convertible bonds and ordinary shares |
— | ( |
) | ( |
) | ( |
) | |||||||||||||
Contribution from a shareholder |
2 1 |
— | — | — | ||||||||||||||||
Capital injection from non-controlling interests |
— | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Net cash flows generated from financing activities |
||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Net increase/(decrease) in cash and cash equivalents |
( |
) |
( |
) | ||||||||||||||||
Cash and cash equivalents at the beginning of the year |
||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Cash and cash equivalents at the end of the year |
6 | |||||||||||||||||||
|
|
|
|
|
|
|
|
1. |
Corporate information |
1.1. |
General information |
1.2. |
History and reorganization of the Group |
1.3. |
Reverse merger |
1.4. |
Subsidiaries |
Name of entity |
Place of incorporated |
Date of incorporation/ establishment |
Effective interest held upon completion of reorganization |
Principal activities | ||||||
2022 |
2023 | |||||||||
Subsidiaries |
||||||||||
Ltd. |
2021 |
|||||||||
Nil |
1.5. |
Basis of preparation |
2. |
Material accounting policies |
2.1. |
New and amended standards adopted by the Group |
(a) | Amendments to the accounting standards adopted |
IFRS 17 (including the amendments to IFRS 17 issued in June 2020 and December 2021) | Insurance Contracts | |
Amendments to IAS 1 and IFRS Practice Statement 2 | Disclosure of Accounting Policies | |
Amendments to IAS 8 | Definition of Accounting Estimates | |
Amendments to IAS 12 | Deferred Tax related to Assets and Liabilities arising from a Single Transaction | |
Amendments to IAS 12 | International Tax Reform-Pillar Two model Rules |
(b) | New standards and interpretations not yet adopted |
Amendments |
Effective for accounting periods beginning on or after | |
Amendments to IFRS 1, Presentation of financial statements: Classification of liabilities as current or non-current (“2020 amendments”) |
||
Amendments to IFRS 1, Presentation of financial statements: Non-current liabilities with covenants (“2022 amendments”) |
||
Amendments to IFRS 16, Leases: Lease liability in a sale and leaseback |
||
Amendments to IFRS 7, Statement of cash flows and IFRS 7, Financial Instruments: Disclosures: Supplier finance arrangements |
||
Amendments to IFRS 21, The effects of changes in foreign exchange rates: Lack of exchangeability |
2.2. |
Subsidiaries and non-controlling interests |
2.3. |
Associates |
2.4. |
Segment reporting |
2.5. |
Foreign currency translation |
(a) | Functional and presentation currency |
(b) | Transactions and balances |
(c) | Group companies |
(i) |
assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of the end of the reporting period; |
(ii) |
income and expenses for each statement of profit or loss and other comprehensive income are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions); and |
(iii) |
all resulting currency translation differences are recognized in other comprehensive loss. |
2.6. |
Goodwill |
2.7. |
Property, plant and equipment |
– | Electronic equipment | |||
– | Furniture and office equipment |
2.8. |
Intangible assets (other than goodwill) |
– | Computer software |
2.9. |
Investments and other financial assets |
(a) | Classification |
• | those to be measured subsequently at fair value (either through other comprehensive income or through profit or loss), and |
• | those to be measured at amortized cost. |
(b) | Recognition and derecognition |
(c) | Measurement |
(d) | Impairment |
2.10. |
Inventories |
2.11. |
Trade receivables and other receivables |
2.12. |
Cash and cash equivalents |
2.13. |
Share capital |
2.14. |
Trade and other payables |
2.15. |
Borrowings |
2.16. |
Borrowing costs |
2.17. |
Convertible bonds |
2.18. |
Current and deferred income tax |
(a) | Current income tax |
(b) | Deferred income tax |
(c) | Offsetting |
(d) | Uncertain tax positions |
2.19. |
Employee benefits |
(a) | Short-term obligations |
(b) | Post-employment obligations |
(c) | Housing funds, medical insurances and other social insurances |
(d) | Bonus plan |
2.20. |
Revenue recognition and other income |
a. | provides all of the benefits received and consumed simultaneously by the customer; |
b. | creates and enhances an asset that the customer controls as the Group performs; or |
c. | does not create an asset with an alternative use to the Group and the Group has an enforceable right to payment for performance completed to date. |
2.20.1. |
The accounting policy for the Group’s principal revenue sources |
2.20.2. |
Contract balances |
2.20.3. |
Incentives |
2.20.4. |
Government grant |
2.21. |
Cost of revenues |
2.22. |
Selling and marketing expenses |
2.23. |
Administrative expenses |
2.24. |
Research and development expenses |
(a) | Basic loss per share |
• | net loss attributable to equity holders of the Company, excluding any costs of servicing equity other than ordinary shares |
• | by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year and excluding treasury shares. |
(b) | Diluted loss per share |
• | the after-income tax effect of interest and other financing costs associated with dilutive potential ordinary shares; and |
• | the weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares. |
2.26. |
Leases |
• |
fixed payments (including in-substance fixed payments), less any lease incentives receivable; |
• |
variable lease payments that are based on a rate, initially measured using the rate as at the commencement date; |
• |
amounts expected to be payable by the Group under residual value guarantees; |
• |
the exercise price of a purchase option if the Group is reasonably certain to exercise that option; and |
• |
payments of penalties for terminating the lease, if the lease term reflects the Group exercising that option. |
• |
the amount of the initial measurement of lease liabilities; |
• |
any lease payments made at or before the commencement date less any lease incentives received; |
• |
any initial direct costs; and |
• | restoration costs. |
2.27. |
Impairment of long-lived assets |
• |
Property, plant and equipment; |
• |
Right-of-use assets; |
• |
Interests in associates; |
• |
Intangible assets; and |
• |
Goodwill. |
2.28. |
Finance costs |
2.29. |
Share-based payments |
2.30. |
Convenience translation |
3. |
Financial risk management and concentration risk |
3.1. |
Financial risk factors |
(a) | Market risk |
(i) | Foreign exchange risk |
(ii) | Interest rate risk |
(iii) | Equity price risk |
(b) | Liquidity risk |
Less than 1 year |
Between 1 and 2 years |
Between 2 and 5 years |
Total |
Carrying amount |
||||||||||||||||
RMB’000 |
RMB’000 |
RMB’000 |
RMB’000 |
RMB’000 |
||||||||||||||||
At December 31, 2022 |
||||||||||||||||||||
Trade payables |
— | — | ||||||||||||||||||
Financial liabilities including in other payables and accruals |
— | — | ||||||||||||||||||
Bank borrowings |
||||||||||||||||||||
Lease liabilities |
||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
At December 31, 2023 |
||||||||||||||||||||
Trade payables |
— | — | ||||||||||||||||||
Financial liabilities including in other payables and accruals |
— | — | ||||||||||||||||||
Revenue-based financing |
— | — | ||||||||||||||||||
Bank borrowings |
||||||||||||||||||||
Lease liabilities |
||||||||||||||||||||
Convertible bonds |
— | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
|
|
|
|
|
|
|
|
|
(c) | Credit risk |
(d) | Supplier concentration risk |
(e) | Customer concentration risk |
3.2. |
Capital management |
As of December 31, |
||||||||
2022 |
2023 |
|||||||
RMB’000 |
RMB’000 |
|||||||
Total interest-bearing bank borrowings |
||||||||
Less: Cash and cash equivalents |
||||||||
Non-IFRS net debt |
( |
) |
||||||
Total equity |
( |
) | ||||||
Add: Convertible bonds mandatorily convertible to the Company’s equity |
||||||||
Non-IFRS adjusted total equity |
||||||||
Total liabilities |
||||||||
Less: Convertible bonds mandatorily convertible to the Company’s equity |
||||||||
Non-IFRS adjusted total liabilities |
||||||||
Total assets |
||||||||
|
|
|
|
|||||
Non-IFRS total liabilities to total assets ratio |
3.3. |
Fair value estimation |
(1) | Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1) |
(2) | Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2), and |
(3) | Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3) |
Level 1 |
Level 2 |
Level 3 |
Total |
|||||||||||||
RMB’000 |
RMB’000 |
RMB’000 |
RMB’000 |
|||||||||||||
At December 31, 2022 |
||||||||||||||||
Assets: |
||||||||||||||||
Financial assets at fair value through profit or loss |
— | — | ||||||||||||||
Financial assets at fair value through other comprehensive income |
— | — | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
At December 31, 2023 |
||||||||||||||||
Assets: |
||||||||||||||||
Financial assets at fair value through profit or loss |
— | — | ||||||||||||||
Financial assets at fair value through other comprehensive income |
— | — | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Liabilities: |
||||||||||||||||
Convertible bonds |
— | — | ||||||||||||||
|
|
|
|
|
|
|
|
(a) | Financial instruments in Level 3 |
• | The use of quoted market prices or investor quotes for similar instruments; |
• | The discounted cash flow model and unobservable inputs mainly including assumptions of expected future cash flows and discount rate; |
• | The latest round of financing, i.e. the prior transaction price or the third-party pricing information, and; |
• | A combination of observable and unobservable inputs, including risk-free rate, expected volatility, discount rate for lack of marketability, market multiples, etc. |
Fair values as of December 31, |
Change of inputs at December 31, |
|||||||||||||||||||
2022 |
2023 |
|||||||||||||||||||
Description |
RMB’000 |
RMB’000 |
Unobservable inputs |
2022 |
2023 |
Relationship of unobservable inputs to fair value | ||||||||||||||
|
% |
% |
volatility, the lower the fair value | |||||||||||||||||
of marketability (“DLOM”) |
% |
% |
the lower the fair value | |||||||||||||||||
|
% |
% |
volatility, the lower the fair value | |||||||||||||||||
of marketability (“DLOM”) |
% |
% |
the lower the fair value | |||||||||||||||||
|
— |
NA |
Note 20 |
volatility, the lower the fair value | ||||||||||||||||
|
— |
|
NA |
Note 14 |
The higher the expected volatility, the lower the fair value |
4. |
Significant accounting judgments, estimates and assumptions |
(a) |
Revenue recognition |
(b) |
Share-based payments |
(c) |
Estimation of recoverability of uncollected input VAT receipts |
(d) |
Estimation of IFRIC 23 provisions |
(e) |
Business contracts with Anji Datacom |
(f) |
Measurement of ECL for trade receivables and other receivables |
• | Determining the segmentation of debtor groups, |
• | Selecting appropriate models and assumptions for the measurement of ECL, and |
• | Establishing the relative probability weightings of forward-looking factors. |
(i) | Forward-looking information |
(g) |
Measurement of fair value of convertible bonds |
5. |
Business combination |
Fair value recognized on acquisition RMB’000 |
||||
Total cash consideration |
||||
|
|
|||
Recognized amounts of identifiable assets acquired and liabilities assumed |
||||
Cash and cash equivalents |
||||
Inventories, trade receivables and other current assets |
||||
Intangible assets |
||||
Other non-current assets |
||||
|
|
|||
Total assets acquired |
||||
|
|
|||
Interest-bearing bank borrowings |
( |
) | ||
Trade payables, lease liabilities and other payables |
( |
) | ||
Deferred tax liabilities |
( |
) | ||
|
|
|||
Total liabilities assumed |
( |
) | ||
|
|
|||
Net assets acquired |
||||
|
|
|||
Non-controlling interests |
||||
|
|
|||
Goodwill on acquisition |
||||
|
|
RMB’000 |
||||
Total cash consideration |
( |
) | ||
Cash and cash equivalents |
||||
|
|
|||
Net cash paid for acquisition of a subsidiary included in cash flows from investing activities |
( |
) | ||
|
|
6. |
Cash and cash equivalents |
As of December 31, |
||||||||
2022 |
2023 |
|||||||
RMB’000 |
RMB’000 |
|||||||
Cash at bank |
||||||||
Deposits held at licensed payment platforms |
||||||||
|
|
|
|
|||||
Total |
||||||||
|
|
|
|
7. |
Trade receivables |
As of December 31, |
||||||||
2022 |
2023 |
|||||||
RMB’000 |
RMB’000 |
|||||||
Trade receivables |
||||||||
Provision on impairment |
( |
) | ( |
) | ||||
|
|
|
|
|||||
Total |
||||||||
|
|
|
|
As of December 31, |
||||||||
2022 |
2023 |
|||||||
RMB’000 |
RMB’000 |
|||||||
0 – 90 days |
||||||||
91 – 180 days |
||||||||
181 – 365 days |
||||||||
1 – 2 years |
||||||||
2 – 3 years |
||||||||
Over 3 years |
||||||||
|
|
|
|
|||||
Total |
||||||||
|
|
|
|
As of December 31, |
||||||||
2022 |
2023 |
|||||||
RMB’000 |
RMB’000 |
|||||||
Beginning of the year |
||||||||
Arising from business combination |
||||||||
Provision for expected credit loss, net |
||||||||
|
|
|
|
|||||
End of the year |
||||||||
|
|
|
|
Within 1 year |
1-2 years |
2-3 years |
Over 3 years |
|||||||||||||
As of December 31, 2022: |
||||||||||||||||
Expected credit loss rate |
% | % | % | — | ||||||||||||
Gross carrying amount (RMB’000) |
— | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Allowance of expected credit loss (RMB’000) |
— | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
As of December 31, 2023: |
||||||||||||||||
Expected credit loss rate |
% | % | % | — | ||||||||||||
Gross carrying amount (RMB’000) |
— | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Allowance of expected credit loss (RMB’000) |
— | |||||||||||||||
|
|
|
|
|
|
|
|
8. |
Contract assets |
As of December 31, |
||||||||
2022 |
2023 |
|||||||
RMB’000 |
RMB’000 |
|||||||
Arising from performance under construction contracts |
||||||||
Provision on impairment |
( |
) | ||||||
Total |
||||||||
Within 1 year |
1-2 years |
2-3 years |
Over 3 years |
|||||||||||||
As of December 31, 2023: |
||||||||||||||||
Expected credit loss rate |
% | |||||||||||||||
Gross carrying amount (RMB’000) |
||||||||||||||||
Allowance of expected credit loss (RMB’000) |
||||||||||||||||
9. |
Inventories |
As of December 31, |
||||||||
2022 |
2023 |
|||||||
RMB’000 |
RMB’000 |
|||||||
Work in progress |
||||||||
Finished goods |
||||||||
Total |
||||||||
10. |
Prepayments, other receivables and other assets |
As of December 31, |
||||||||
2022 |
2023 |
|||||||
RMB’000 |
RMB’000 |
|||||||
Prepayments to charging stations |
||||||||
Prepayments for chargers procurement |
||||||||
Prepayment for rental, facility and utilities |
||||||||
Miscellaneous prepayments |
||||||||
Value-added tax deductible |
||||||||
Amount due from related parties (Note 33) |
||||||||
Others |
||||||||
Total |
||||||||
11. |
Financial instruments by category |
As of December 31, |
||||||||
2022 |
2023 |
|||||||
RMB’000 |
RMB’000 |
|||||||
Assets as per statement of financial position |
||||||||
Financial assets measured at fair value: |
||||||||
—Financial assets at fair value through profit or loss |
||||||||
—Financial assets at fair value through other comprehensive income |
||||||||
Financial assets measured at amortized costs: |
||||||||
—Trade receivables |
||||||||
—Financial assets including in other receivables and deposits |
||||||||
—Other financial assets |
||||||||
—Cash and cash equivalents |
||||||||
Total |
||||||||
As of December 31, |
||||||||
2022 |
2023 |
|||||||
RMB’000 |
RMB’000 |
|||||||
Liabilities as per statement of financial position |
||||||||
Financial liabilities measured at fair value: |
||||||||
— Convertible bonds |
||||||||
Financial liabilities measured at amortized cost: |
||||||||
— Interest-bearing bank borrowings |
||||||||
— Trade payables |
||||||||
— Financial liabilities including in other payables and accruals |
||||||||
— Revenue-based financing |
||||||||
— Lease liabilities |
||||||||
Total |
||||||||
12. |
Intangible assets, net |
As of December 31, |
||||||||
2022 |
2023 |
|||||||
RMB’000 |
RMB’000 |
|||||||
Software |
||||||||
Customer contracts |
||||||||
Total cost |
||||||||
Less: Accumulated amortization |
( |
) | ( |
) | ||||
Intangible assets, net |
||||||||
13. |
Leases |
Office buildings |
Charging stations |
Total |
||||||||||
RMB’000 |
RMB’000 |
RMB’000 |
||||||||||
Year ended December 31, 2022 |
||||||||||||
Opening net book amount |
||||||||||||
Additions |
||||||||||||
Depreciation charge |
( |
) | ( |
) | ( |
) | ||||||
Revision of a lease term arising from a change in the non-cancellable period of a lease |
( |
) | ( |
) | ||||||||
Closing net book amount |
||||||||||||
As of December 31, 2022 |
||||||||||||
Cost |
||||||||||||
Accumulated depreciation |
( |
) | ( |
) | ( |
) | ||||||
Net book value |
||||||||||||
Year ended December 31, 2023 |
||||||||||||
Opening net book amount |
||||||||||||
Arising from business combination |
||||||||||||
Additions |
||||||||||||
Depreciation charge |
( |
) | ( |
) | ( |
) | ||||||
Disposals |
( |
) | ( |
) | ( |
) | ||||||
Revision of a lease term arising from a change in the non-cancellable period of a lease |
||||||||||||
Closing net book amount |
||||||||||||
As of December 31, 2023 |
||||||||||||
Cost |
||||||||||||
Accumulated depreciation |
( |
) | ( |
) | ( |
) | ||||||
Net book value |
||||||||||||
(a) |
Items recognized in the consolidated statements of financial position |
As of December 31, |
||||||||
2022 |
2023 |
|||||||
RMB’000 |
RMB’000 |
|||||||
Right-of-use |
||||||||
Office buildings |
||||||||
Charging stations |
||||||||
Total |
||||||||
As of December 31, |
||||||||
2022 |
2023 |
|||||||
RMB’000 |
RMB’000 |
|||||||
Lease liabilities |
||||||||
Current |
||||||||
Non-current |
||||||||
Total |
||||||||
(b) |
Items recognized in the consolidated statements of profit or loss and other comprehensive loss |
As of December 31, |
||||||||||||
2021 |
2022 |
2023 |
||||||||||
RMB’000 |
RMB’000 |
RMB’000 |
||||||||||
Depreciation charge of right-of-use |
||||||||||||
Office buildings |
||||||||||||
Charging stations |
||||||||||||
Interest expense (included in finance costs) |
||||||||||||
Expense relating to short-term leases not included in lease liabilities (included in cost of revenues, selling and marketing expenses, administrative expenses and research and development expenses) |
||||||||||||
Total |
||||||||||||
As of December 31, |
||||||||||||
2021 |
2022 |
2023 |
||||||||||
RMB’000 |
RMB’000 |
RMB’000 |
||||||||||
Principal elements of lease payments |
||||||||||||
Related interest paid |
||||||||||||
Total |
||||||||||||
(c) |
Set out below are the carrying amounts of lease liabilities and the movements during the period: |
Office buildings |
Charging stations |
Total |
||||||||||
RMB’000 |
RMB’000 |
RMB’000 |
||||||||||
Beginning at January 1, 2022 |
||||||||||||
New leases |
||||||||||||
Accretion of interest recognized during the year |
||||||||||||
Payments |
( |
) | ( |
) | ( |
) | ||||||
Revision of a lease term arising from a change in the non-cancellable period of a lease |
( |
) | ( |
) | ||||||||
Year ended December 31, 2022 |
||||||||||||
Arising from business combination |
||||||||||||
New leases |
||||||||||||
Accretion of interest recognized during the year |
||||||||||||
Payments |
( |
) | ( |
) | ( |
) | ||||||
Disposals |
( |
) | ( |
) | ( |
) | ||||||
Year ended December 31, 2023 |
||||||||||||
14. |
Financial assets at fair value through profit or loss |
As of December 31, |
||||||||
2022 |
2023 |
|||||||
RMB’000 |
RMB’000 |
|||||||
Current assets |
||||||||
Investment |
||||||||
Prepaid shares repurchase instrument (note ii) |
||||||||
Total |
||||||||
Non-current assets |
||||||||
Insurance and Financial management |
||||||||
Investment (note i) |
||||||||
Total |
||||||||
(i) | Investment |
(ii) | Prepaid shares repurchase instrument |
As of December 31, |
||||||||
2022 |
2023 |
|||||||
RMB’000 |
RMB’000 |
|||||||
At the beginning of the year |
||||||||
Additions |
||||||||
Fair value change |
( |
) | ||||||
Arising from business combination |
||||||||
Disposal |
( |
) | ||||||
At the end of the year |
||||||||
Model used |
Binomial |
|||
Expected volatility (%) |
||||
Risk–free interest rate (%) |
||||
Bond Maturity |
||||
Weighted average share price |
US$ |
15. |
Financial assets at fair value through other comprehensive income |
As of December 31, |
||||||||
2022 |
2023 |
|||||||
RMB’000 |
RMB’000 |
|||||||
Investment (note i) |
||||||||
(i) | Investment |
As of December 31, |
||||||||
2022 |
2023 |
|||||||
RMB’000 |
RMB’000 |
|||||||
At the beginning of the year |
||||||||
Additions |
||||||||
Fair value change |
( |
) | ( |
) | ||||
At the end of the year |
||||||||
16. |
Property, plant and equipment |
Electronic and office equipment |
||||
RMB’000 |
||||
At January 1, 2023 |
||||
Cost |
||||
Accumulated depreciation |
( |
) | ||
Net carrying amount |
||||
At January 1, 2023, net of accumulated depreciation |
||||
Additions |
||||
Arising from business combination |
||||
Depreciation provided during the year |
( |
) | ||
At December 31, 2023, net of accumulated depreciation |
||||
At December 31, 2023 |
||||
Cost |
||||
Accumulated depreciation |
( |
) | ||
Net carrying amount |
||||
17. |
Interest-bearing bank borrowings |
As of December 31, |
||||||||
2022 |
2023 |
|||||||
RMB’000 |
RMB’000 |
|||||||
Current interest-bearing bank borrowings |
||||||||
Non-current interest-bearing bank borrowings |
||||||||
Total interest-bearing bank borrowings (Note 30(b)) |
||||||||
(i) | Current interest-bearing bank borrowings |
(ii) | Non-current interest-bearing bank borrowings |
18. |
Trade payables |
As of December 31, |
||||||||
2022 |
2023 |
|||||||
RMB’000 |
RMB’000 |
|||||||
Payables for charging services |
||||||||
Payables for energy solutions |
||||||||
Total |
||||||||
19. |
Other payables and accruals |
As of December 31, |
||||||||
2022 |
2023 |
|||||||
RMB’000 |
RMB’000 |
|||||||
Contract liabilities (Note i) |
||||||||
Employee benefit payables |
||||||||
Accrued expenses |
||||||||
Other taxes payable |
||||||||
Revenue-based financing |
||||||||
Others |
||||||||
Total |
||||||||
(i) | Details of contract liabilities are as follows: |
As of December 31, |
||||||||
2022 |
2023 |
|||||||
RMB’000 |
RMB’000 |
|||||||
Advances received from customer to purchase energy solutions |
||||||||
Advances received from customers for c harging services discount packages |
||||||||
Advances from platform users |
||||||||
Deferred income |
||||||||
Others |
||||||||
Total |
||||||||
As of December 31, |
||||||||
2022 |
2023 |
|||||||
RMB’000 |
RMB’000 |
|||||||
Amount included in contract liabilities at the beginning of the year |
||||||||
20. |
Convertible bonds |
As of December 31, |
||||||||
2022 |
2023 |
|||||||
RMB’000 |
RMB’000 |
|||||||
At the beginning of the year |
||||||||
New issuance |
||||||||
Fair value change |
||||||||
Conversion to shares (Note 21) |
( |
) | ||||||
Foreign exchange movement |
— | |||||||
At the end of the year |
||||||||
Model used |
Binomial |
|||
Expected volatility (%) |
||||
Risk–free interest rate (%) |
||||
Bond Maturity |
||||
Weighted average share price |
US$ - US$ |
21. |
Share capital and additional paid in capital |
Number of ordinary shares |
Nominal value of ordinary shares |
Combined capital |
Subscription receivable |
Additional paid-in capital |
Total |
|||||||||||||||||||
USD |
RMB’000 |
RMB’000 |
RMB’000 |
RMB’000 |
||||||||||||||||||||
At January 1, 2022 (note i) |
— |
|||||||||||||||||||||||
Subdivision of shares (note ii) |
— | — | — |
— | — |
|||||||||||||||||||
Stock dividend to the controlling shareholder (note ii) |
— |
( |
) | — |
||||||||||||||||||||
Conversion of preferred shares to shares (note iii) |
— |
|||||||||||||||||||||||
Recapitalization upon the Merger (note ii) |
— |
( |
) | — |
||||||||||||||||||||
Deemed issuance of shares upon the Merger transaction |
— |
|||||||||||||||||||||||
Issuance of shares (note iv) |
— |
|||||||||||||||||||||||
Exercise of option |
— |
|||||||||||||||||||||||
Contribution from the controlling shareholder (Note 33) |
— | — | — | — |
||||||||||||||||||||
Share-based payments from the Company (Note 29) |
— | — | — | — |
||||||||||||||||||||
Share-based payments from the controlling shareholder (Note 29) |
— | — | — | — |
||||||||||||||||||||
At December 31, 2022 |
— |
|||||||||||||||||||||||
At January 1, 2023 |
— |
|||||||||||||||||||||||
Issuance of shares (note iv) |
( |
) |
||||||||||||||||||||||
Transaction cost related to issuance of shares |
— | — | — | — |
( |
) | ( |
) | ||||||||||||||||
Share-based payments from the Company (Note 29) |
— | — | — | — |
||||||||||||||||||||
Share-based payments from the controlling shareholder (Note 29) |
— | — | — | — |
||||||||||||||||||||
Conversion of convertible bonds to shares (note v) |
— |
|||||||||||||||||||||||
Exercise of option |
— |
( |
) | |||||||||||||||||||||
At December 31, 2023 |
( |
) |
(i) | In July 2019, |
In November 2020, 1-to-5 |
(ii) | In January 2022, each existing issued and unissued share of par value US$ |
In January 2022, |
Upon the Merger, each existing issued and unissued share of par value US$ l led in exchange for the right to receive |
The above events mentioned in note (ii) are collectively referred as the “Share Subdivision”. 2 1. |
(iii) | In January and March 2022, the Group issued convertible redeemable preferred shares of Dada for a total cash consideration of RMB |
(iv) | In December 2022, an institution al investor purchased a total of |
In May 2023, the Company issued each in a private placement. These new shares were issued under the general mandate granted to the directors of the Company at the annual general meeting of the Company held on May 19, 2023 and rank pari passu with other shares in issue in all respects. |
In November 2023, the Company issued Class A ordinary shares, equivalent to share capital of US$million, for which subscription receivable was approximately MB R million as at December 31, 2023. |
(v) | In August 2023, September 2023, October 2023 and November 2023, the Company issued Class A ordinary shares upon the conversion of certain convertible bonds issued to LMR in aggregate (Note 20). |
(vi) | The Company’s ordinary shares are divided into Class A ordinary shares, Class B ordinary shares and Class C ordinary shares. Holders of our Class A ordinary shares, Class B ordinary shares and Class C ordinary shares have the same rights, preferences and restrictions except for voting and conversion rights. |
22. |
Revenues |
Year ended December 31, |
||||||||||||
2021 |
2022 |
2023 |
||||||||||
RMB’000 |
RMB’000 |
RMB’000 |
||||||||||
Charging services revenues |
||||||||||||
Energy solutions revenues |
||||||||||||
New initiatives revenues |
||||||||||||
Total revenues |
||||||||||||
Year ended December 31, |
||||||||||||
2021 |
2022 |
2023 |
||||||||||
RMB’000 |
RMB’000 |
RMB’000 |
||||||||||
Timing of revenue recognition |
||||||||||||
Goods and services transferred at a point in time |
||||||||||||
Goods and services transferred over time |
||||||||||||
Total revenues |
||||||||||||
23. |
Other gains, net |
Year ended December 31, |
||||||||||||
2021 |
2022 |
2023 |
||||||||||
RMB’000 |
RMB’000 |
RMB’000 |
||||||||||
Non-operating income |
||||||||||||
Non-operating expenses |
( |
) |
( |
) | ||||||||
Total |
||||||||||||
24. |
Operating costs and expenses by nature |
Year ended December 31, |
||||||||||||
2021 |
2022 |
2023 |
||||||||||
RMB’000 |
RMB’000 |
RMB’000 |
||||||||||
Equity-settled listing costs |
||||||||||||
Employee benefit expenses |
||||||||||||
Professional service fee |
||||||||||||
Market incentives for charging service |
||||||||||||
Promotion and advertising |
||||||||||||
Costs of energy solutions revenues |
||||||||||||
Costs of charging services revenues |
||||||||||||
Traveling, entertainment and general office expenses |
||||||||||||
Rental, facility and utilities |
||||||||||||
Depreciation of right-of-use |
||||||||||||
Depreciation of property, plant and equipment |
||||||||||||
Amortization of intangible assets |
||||||||||||
Bandwidth expenses and server custody costs |
||||||||||||
Payment processing cost |
||||||||||||
Impairment loss on financial assets and other items under expected credit loss model |
||||||||||||
Provision for inventories loss |
||||||||||||
Others |
||||||||||||
Total operating costs and expenses |
||||||||||||
25. |
Fair value changes |
26. |
Finance costs |
Year ended December 31, |
||||||||||||
2021 |
2022 |
2023 |
||||||||||
RMB’000 |
RMB’000 |
RMB’000 |
||||||||||
Interest expense from bank borrowings |
— |
|||||||||||
Interest expense from lease liabilities |
||||||||||||
Others |
— |
|||||||||||
Finance costs |
||||||||||||
27. |
Taxation |
(a) |
Income tax expenses |
(i) |
Cayman Islands |
(ii) |
Hong Kong Income Tax |
(iii) | PRC Enterprise Income Tax (“EIT”) |
(iv) | Withholding tax in mainland China (“WHT”) |
Year ended December 31, |
||||||||||||
2021 |
2022 |
2023 |
||||||||||
RMB’000 |
RMB’000 |
RMB’000 |
||||||||||
Current income tax |
||||||||||||
Deferred income tax |
||||||||||||
Total income tax expense |
||||||||||||
Year ended December 31, |
||||||||||||
2021 |
2022 |
2023 |
||||||||||
RMB’000 |
RMB’000 |
RMB’000 |
||||||||||
Loss before income tax |
( |
) | ( |
) | ( |
) | ||||||
Tax calculated at statutory income tax rate of 25% in mainland China |
( |
) | ( |
) | ( |
) | ||||||
Tax effects of: |
||||||||||||
Effect of differing tax rates in different jurisdictions |
||||||||||||
Expenses not deductible for income tax purposes |
||||||||||||
Effect of deductible temporary differences not recognized |
||||||||||||
Effect of tax loss not recognized |
||||||||||||
Effect of tax exemptions |
— |
— |
( |
) | ||||||||
Utilization of tax loss previously not recognized |
( |
) | ( |
) | ||||||||
Utilization of deductible temporary differences previously not recognized |
( |
) | ||||||||||
Others |
( |
) | ||||||||||
(b) |
Deferred income tax |
28. |
Loss per share |
(a) | Basic loss per share |
Year ended December 31, |
||||||||||||
2021 |
2022 |
2023 |
||||||||||
Net loss attributable to equity holders of the Company (RMB’000) |
||||||||||||
Weighted average number of ordinary shares in issue |
||||||||||||
Basic loss per share (RMB per share) |
||||||||||||
(b) | Diluted loss per share |
29. |
Share-based payments |
Number of options |
Weighted average exercise prices |
|||||||
US$ |
||||||||
Awarded and unvested as of December 31, 2021 |
N/A | |||||||
Granted |
* | |||||||
Forfeited |
( |
) | * | |||||
Exercised |
N/A | |||||||
Carried over to New 2022 Share Incentive Plans |
* | |||||||
Outstanding as of December 31,2022 |
N/A | |||||||
* |
Representing amount less than US$ |
Model used |
Binomial |
Monte Carlo |
||||||
Weighted average fair values at the measurement date |
$ | $ | ||||||
Expected volatility (%) |
||||||||
Risk–free interest rate (%) |
||||||||
Expected life of share options (years) |
||||||||
Weighted average share price |
$ | $ |
Number of options |
Weighted average exercise prices |
|||||||
US$ |
||||||||
Awarded and unvested as of December 31, 2021 |
N/A | |||||||
Assumed from 2022 Share Incentive Plan |
* | |||||||
Granted |
||||||||
Forfeited |
( |
) | ||||||
Exercised |
— | N/A | ||||||
Outstanding as of December 31,2022 |
* | |||||||
Exercisable as of 31 December 2022 |
* | |||||||
Number of options |
Weighted average exercise prices |
|||||||
US$ |
||||||||
Outstanding as of December 31, 2022 |
* | |||||||
Granted |
||||||||
Forfeited |
( |
) | ||||||
Exercised |
( |
) | ||||||
Outstanding as of December 31,2023 |
||||||||
Exercisable as of 31 December 2023 |
* | |||||||
* |
Representing amount less than US$ |
Binomial |
Monte Carlo |
|||||||
Weighted average fair values at the measurement date |
$ | $ | ||||||
Expected volatility (%) |
||||||||
Risk–free interest rate (%) |
||||||||
Expected life of share options (years) |
||||||||
Weighted average share price |
$ | $ |
2022 |
2022 |
2023 |
2023 |
|||||||||||||
Number of options |
Weighted average exercise prices |
Number of options |
Weighted average exercise prices |
|||||||||||||
US$ |
US$ |
|||||||||||||||
Outstanding as of January 1 |
* | |||||||||||||||
Granted |
||||||||||||||||
Forfeited |
( |
) | * | ( |
) | |||||||||||
Exercised |
N/A | N/A | ||||||||||||||
Outstanding as of December 31 |
||||||||||||||||
Exercisable as of December 31 |
* |
* | Representing amount less than US$ |
2021 |
2022 |
2023 |
||||||||||
RMB’000 |
RMB’000 |
RMB’000 |
||||||||||
Cost of revenues |
||||||||||||
Selling and marketing expenses |
||||||||||||
Administrative expenses |
||||||||||||
Research and development expenses |
||||||||||||
Total |
30. |
Cash flow information |
(a) |
Cash used in operation |
Year ended December 31, |
||||||||||||
2021 |
2022 |
2023 |
||||||||||
RMB’000 |
RMB’000 |
RMB’000 |
||||||||||
Loss before income tax |
( |
) | ( |
) | ( |
) | ||||||
Adjustments for: |
||||||||||||
Depreciation of property, plant and equipment (Note 16) |
||||||||||||
Amortization of intangible assets and other non-current assets |
||||||||||||
Depreciation of right-of-use |
||||||||||||
- financial assets and other items under expected credit loss model |
||||||||||||
- other financial assets |
||||||||||||
Provision for inventories loss |
||||||||||||
Equity-settled listing cost |
||||||||||||
Fair value change loss, net |
||||||||||||
Non-cash—share based payments |
||||||||||||
Interest income |
( |
) | ( |
) | ||||||||
Interest expense (Note 2 6 ) |
||||||||||||
Investment income |
( |
) | ||||||||||
Increase in trade receivables and contract assets |
( |
) | ( |
) | ( |
) | ||||||
Increase in prepayments, other receivables and other assets |
( |
) | ( |
) | ( |
) | ||||||
Increase/(decrease) in trade and other payables |
( |
) | ||||||||||
Increase in contract liabilities |
||||||||||||
Increase in inventories |
( |
) | ||||||||||
Cash used in operations |
( |
) |
( |
) |
( |
) | ||||||
Interest received |
||||||||||||
Net cash used in operating activities |
( |
) |
( |
) |
( |
) | ||||||
(b) |
Reconciliation of liabilities arising from financing activities |
Interest- bearing bank borrowings |
Interest payable |
Lease liabilities |
Total |
|||||||||||||||||||||
RMB’000 |
RMB’000 |
RMB’000 |
RMB’000 |
|||||||||||||||||||||
(note 1 7 ) |
(note 1 3 ) |
|||||||||||||||||||||||
At January 1, 2022 |
||||||||||||||||||||||||
Changes from financing cash flows |
( |
) | ( |
) | ||||||||||||||||||||
New leases |
||||||||||||||||||||||||
Revision of a lease term arising from a change in the non-cancellable period of a lease |
( |
) | ( |
) | ||||||||||||||||||||
Interest expenses |
||||||||||||||||||||||||
At December 31, 2022 |
||||||||||||||||||||||||
Interest- bearing bank borrowings |
Interest payable |
Lease liabilities |
Convertible bonds |
Revenue-Based Financing |
Total |
|||||||||||||||||||
RMB’000 |
RMB’000 |
RMB’000 |
RMB’000 |
RMB’000 |
RMB’000 |
|||||||||||||||||||
(note 1 7 ) |
(note 1 3 ) |
(note 20) |
(note 19) |
|||||||||||||||||||||
At January 1, 2023 |
||||||||||||||||||||||||
Changes from financing cash flows |
( |
) | ( |
) | ||||||||||||||||||||
New leases |
||||||||||||||||||||||||
Interest expenses |
||||||||||||||||||||||||
Increase arising from business combination |
||||||||||||||||||||||||
Changes in fair values |
||||||||||||||||||||||||
Conversion of convertible bonds to share capital |
( |
) | ( |
) | ||||||||||||||||||||
Disposal |
( |
) | ( |
) | ||||||||||||||||||||
Foreign exchange movement |
— |
|||||||||||||||||||||||
At December 31, 2023 |
||||||||||||||||||||||||
31. |
Commitments |
(a) |
Short-term lease commitments |
Year ended December 31, |
||||||||||||
2021 |
2022 |
2023 |
||||||||||
RMB’000 |
RMB’000 |
RMB’000 |
||||||||||
Within one year |
||||||||||||
Total |
||||||||||||
32. |
Contingencies |
33. |
Related party transactions |
(a) |
Name and relationship with related parties |
Name of related parties |
Relationship with the Group | |
(b) |
Contribution from shareholder |
(c) |
Options from shareholder |
(d) |
Other transactions with related parties |
For the year ended December 31, 2023 |
||||
Sales to related parties |
||||
RMB’000 |
||||
Energy solution services |
||||
Shenzhen Yuanwanghechu Technology Co., Ltd |
||||
Huzhou Zhidianlaile New Energy Technology Co., Ltd |
||||
Total |
||||
(e) |
Balances with related parties |
As of December 31, 2023 |
||||
RMB’000 |
||||
Included in trade receivables |
||||
Shenzhen Yuanwanghechu Technology Co., Ltd |
||||
Huzhou Zhidianlaile New Energy Technology Co., Ltd |
||||
Allowance for expected credit loss |
( |
) | ||
Included in amount due from related parties (Note 10) |
||||
New L ink |
||||
Shenzhen Yuanwanghechu Technology Co., Ltd |
||||
Included in c ontract assets |
||||
Shenzhen Yuanwanghechu Technology Co., Ltd |
||||
(f) |
Key management personal compensation |
Year ended December 31, |
||||||||||||
2021 |
2022 |
2023 |
||||||||||
RMB’000 |
RMB’000 |
RMB’000 |
||||||||||
Short-term employee benefits |
||||||||||||
Share-based compensation |
||||||||||||
34. |
Event occurring after the reporting period |