UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the fiscal year ended
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
| SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Date of event requiring this shell company report
For the transition period from_________to__________.
Commission
file number:
| (Exact name of Registrant as specified in its charter) |
N/A |
| (Translation of Registrant’s name into English) |
| (Jurisdiction of incorporation or organization) |
People’s
Republic of |
| (Address of principal executive offices) |
Telephone:
+ Email:
People’s
Republic of |
| (Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person) |
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol |
Name of each exchange on which registered | ||
share representing 300 Class A ordinary shares, par value US$0.0001 per share) |
(The Nasdaq Global Select Market) | |||
US$0.0001 per share* |
(The Nasdaq Global Select Market) |
| * | Not for trading, but only in connection with the listing on The Nasdaq Global Select Market of American depositary shares. |
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None |
| (Title of Class) |
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None |
| (Title of Class) |
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
Class A ordinary shares (excluding the Class A ordinary shares issued to the depositary bank for bulk issuance of ADSs reserved for future issuances upon the exercise or vesting of awards granted under the Amended and Restated Plan), and Class B ordinary shares, par value US$0.0001 per share, as of March 31, 2024.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
☐
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes
☐
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | Emerging
growth company |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate
by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report.
If
securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
| International Financial Reporting Standards as issued by the International Accounting Standards Board ☐ | Other ☐ |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
| ☐ Item 17 | ☐ Item 18 |
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
☐ No
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Yes ☐ No ☐
TABLE OF CONTENTS
| i |
INTRODUCTION
Unless otherwise indicated or the context otherwise requires:
| ● | we changed our fiscal year end from December 31 to March 31 in April 2020 and filed a transition report on Form 20-F covering the three-month period from January 1, 2020 through March 31, 2020, or the Transition Period. Prior to such transition report on Form 20-F, we filed an annual report on Form 20-F covering the fiscal year ended December 31, 2019. Unless otherwise noted, all references to years are to the calendar year from January 1 to December 31 and references to our fiscal year or years are to the fiscal year or years which, prior to the Transition Period, ended December 31, and from and after the Transition Period, ended March 31. For the avoidance of doubt, “fiscal year of 2022” refer to the year ended March 31, 2022, “fiscal year of 2023” refer to the year ended March 31, 2023, and “fiscal year of 2024” refer to the year ended March 31, 2024; | |
| ● | “ADSs” refer to the American depositary shares, each of which represents 300 Class A ordinary shares, par value US$0.0001 each; | |
| ● | “former VIEs” refer to the former variable interest entities that have become our wholly owned subsidiaries after the Restructuring, which are Youxin Internet (Beijing) Information Technology Co., Ltd., and Youxin Yishouche (Beijing) Information Technology Co., Ltd.; | |
| ● | “GMV” refer to gross merchandise value of used cars as measured by gross selling price of used cars, excluding service fees and interests (if any) charged; | |
| ● | “Jiancebao (检测宝)” refer to our proprietary car inspection system; | |
| ● | “NPS” refer to net percentages of promoters for our products and services (those who are willing to keep buying and refer us to others) against detractors (those who are not satisfied with and complain about our offerings); | |
| ● | “ordinary shares” refer to our Class A and Class B ordinary shares, par value US$0.0001 per share; | |
| ● | “senior convertible preferred shares” refer to our senior convertible preferred shares, which can be convertible into our Class A ordinary shares at the currently applicable conversion price, par value US$0.0001; on March 27, 2024, all of the Company’s then issued and outstanding senior convertible preferred shares were converted into Class A ordinary shares; | |
| ● | “RMB” and “Renminbi” refer to the legal currency of China, which is our reporting currency; | |
| ● | “shares” refer to our ordinary shares and, where applicable, our senior convertible preferred shares, par value US$0.0001 per share; | |
| ● | “US$,” “U.S. dollars,” “$,” and “dollars” refer to the legal currency of the United States; | |
| ● | “Uxin” or “our platform” refer to our platform primarily for buying and selling used cars, which primarily consists of vehicle sales businesses under our inventory-owning model for the fiscal year of 2021 and afterwards; | |
| ● | “our WFOEs” refer to our wholly-owned subsidiaries in China; | |
| ● | “Restructuring” refers to a series of restructuring transactions in March 2022 to terminate the historical contractual arrangements with the former VIEs, which have become our wholly-owned subsidiaries; and | |
| ● | “we,” “us,” “our company,” the “Company” and “our” refer to Uxin Limited, our Cayman Islands holding company, and its subsidiaries. |
Unless otherwise noted, all translations from Renminbi to U.S. dollars and from U.S. dollars to Renminbi in this annual report were made at a rate of RMB7.2203 to US$1.00, the exchange rate on as of March 28, 2024 set forth in the H.10 statistical release of the Board of Governors of the Federal Reserve System. We make no representation that any Renminbi or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or Renminbi, as the case may be, at any particular rate, or at all.
| 1 |
FORWARD-LOOKING INFORMATION
This annual report on Form 20-F 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. You can identify these forward-looking statements by terminology such as “may,” “will,” “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 include statements relating to, among other things:
| ● | our goals and strategies; | |
| ● | our ability to provide customers with high-quality used cars and other related products; | |
| ● | our ability to provide quality services and compete effectively; | |
| ● | our ability to effectively manage risks, including credit risks and fraud risks; | |
| ● | our future business development, financial condition and results of operations; | |
| ● | expected changes in our revenues, costs, expenses or expenditures; | |
| ● | the expected growth of, and trends in, the market for our services; | |
| ● | our expectations regarding demand for and market acceptance of our services; | |
| ● | competition in our industry; | |
| ● | relevant government policies and regulations relating to our industry; | |
| ● | public health crisis, such as the COVID-19 pandemic, MERS, SARS, H1N1 flu, H7N9 flu, and avian flu; and | |
| ● | general economic and business conditions in China and globally. |
We would like to caution you not to place undue reliance on these forward-looking statements and you should read these statements in conjunction with the risk factors disclosed in “Item 3. Key Information—D. Risk Factors.” Those risks are not exhaustive. We operate in an evolving environment. New risks emerge from time to time and it is impossible for our management to predict all risk factors, 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 from those contained in any forward-looking statement. We do not undertake any obligation to update or revise the forward-looking statements except as required under applicable law. You should read this annual report and the documents that we reference in this annual report completely and with the understanding that our actual future results may be materially different from what we expect.
| 2 |
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 and Historical Contractual Arrangements with the Former VIEs
Uxin Limited is not a Chinese operating company but a Cayman Islands holding company with operations primarily conducted by its PRC subsidiaries and, historically, through contractual arrangements with the former VIEs in China. PRC laws and regulations restrict and impose conditions on foreign investment in value-added telecommunication services. In order to comply with PRC regulatory requirements, in the past we primarily operated these businesses in China through Youxin Internet (Beijing) Information Technology Co., Ltd. or Youxin Hulian, and Youxin Yishouche (Beijing) Information Technology Co., Ltd., or Yishouche, which we refer to as the former VIEs in this annual report. There were historical contractual arrangements among our PRC subsidiaries, the former VIEs and their shareholders, which were effectively terminated on March 31, 2022. As a result of the contractual arrangements, we were able to direct the activities of and derive economic benefits from the former VIEs and were considered the primary beneficiary of the former VIEs for accounting purposes in accordance with Accounting Standards Condition topic 810 under Financial Accounting Standards Board (“FASB ASC 810”). Accordingly, we have consolidated the financial results of the former VIEs in our consolidated financial statements in accordance with U.S. GAAP. Neither Uxin Limited nor its investors has had an equity ownership in, direct foreign investment in, or control, other than as defined under U.S. GAAP, through contractual arrangements with, the former VIEs. The contractual arrangements were not equivalent to an equity ownership in the business of the former VIEs and their subsidiaries in China. As used in this annual report, “we,” “us,” “our company,” or “our” refers to Uxin Limited and its subsidiaries. Investors in our ADSs are not purchasing equity interest in our subsidiaries or the former VIEs in China but instead are purchasing equity interest in a holding company incorporated in the Cayman Islands, Uxin Limited.
| 3 |
The following diagram illustrates our corporate structure, including our principal subsidiaries as of the date of this annual report on Form 20-F:
Historically, we, through Yougu and Youxinpai, were subject to a series of contractual arrangements with former VIEs and the shareholders of the former VIEs until March 31, 2022.
These historical contractual agreements included equity interest pledge agreements, powers of attorney, exclusive business cooperation agreements, exclusive option agreements. We had evaluated the guidance in FASB ASC 810 and concluded that we were the primary beneficiary of the former VIEs because of these historical contractual arrangements. Accordingly, under U.S. GAAP, the financial statements of the former VIEs were consolidated as part of our financial statements for the fiscal year ended March 31, 2022 in this annual report. However, we consider revenues contributed by the former VIEs to be immaterial to our financial performance during the historical periods. Revenues contributed by the former VIEs accounted for 0.1% of our total revenues for the fiscal year ended March 31, 2022. We recorded net loss contributed by the former VIEs of 2.9% for the fiscal year ended March 31, 2022. Our business is primarily conducted through our subsidiaries.
In order to streamline our corporate structure and considering the changing regulatory environment, we have completed the Restructuring to terminate the contractual arrangements with both of the former VIEs which have become wholly owned subsidiaries of our Company. Pursuant to the Restructuring, our wholly owned subsidiaries that have contractual arrangements with the former VIEs and their respective shareholders have purchased all equity interests held by such shareholders in the former VIEs. Accordingly, all contractual arrangements that enabled such shareholders to direct the activities of and derive economic benefits from the former VIEs, were effectively terminated. As a result of the Restructuring, the former VIEs have become our wholly owned subsidiaries and we currently operate our business in China directly through our subsidiaries, rather than through any variable interest entity. See “Item 4. Information on the Company—C. Organizational Structure—Historical Contractual Agreements with the Former VIEs and Their Respective Shareholders and the Related Termination Agreements.” However, prior to the Restructuring, our historical contractual arrangements may not be as effective as direct ownership in providing us with control over the former VIEs and the termination of these agreements may incur additional costs. There were and may also be substantial uncertainties regarding the interpretation and application of current and future PRC laws, regulations and rules regarding the status of the rights of our Cayman Islands holding company with respect to our historical contractual arrangements with the former VIEs and their shareholders. It is uncertain whether any new PRC laws or regulations relating to VIE structures will be adopted or if adopted, what they would provide. If we or any of the former VIEs is found to be or had been in violation of any existing or future PRC laws or regulations, or fail or had failed to obtain or maintain any of the required permits or approvals, the relevant PRC regulatory authorities would have broad discretion to take action in dealing with such violations or failures. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—If the PRC government determines that the historical contractual arrangements with the former VIEs did not, or that our holding company structure do not, comply with PRC laws and regulations, or if these regulations change or are interpreted differently in the future, our shares and/or ADSs may decline in value or become worthless.”
| 4 |
Our corporate structure has been subject to unique risks associated with our holding company structure, including the historical contractual arrangements with the former VIEs. If the PRC government deems that our historical contractual arrangements with the former VIEs did not comply with PRC regulatory restrictions on foreign investment in the relevant industries, or that our holding company structure do not, comply with PRC laws and regulations, or if these regulations or the interpretation of existing regulations change or are interpreted differently in the future, we could be subject to severe penalties. The PRC regulatory authorities could disallow our holding company structure which could lead to a material change in our operations and/or a material change in the value of our ADSs, and could cause the value of our ADSs to significantly decline or become worthless. Our holding company, our PRC subsidiaries, and investors of our Company face uncertainty about potential future actions by the PRC government that could affect the enforceability of the historical contractual arrangements with the former VIEs and, consequently, may affect the historical financial performance of the former VIEs and our Company as a whole. For a detailed description of the risks associated with our corporate structure, please refer to risks disclosed under “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—If the PRC government determines that the historical contractual arrangements with the former VIEs did not, or that our holding company structure do not, comply with PRC laws and regulations, or if these regulations change or are interpreted differently in the future, our shares and/or ADSs may decline in value or become worthless.”
We face various legal and operational risks and uncertainties related to doing business in China. Our business operations are primarily conducted in China, and we are subject to complex and evolving PRC laws and regulations. The PRC government has, in recent years, issued statements and regulatory actions relating to areas such as approvals on offshore offerings, anti-monopoly regulatory actions, and oversight on cybersecurity and data privacy. For example, On February 17, 2023, the CSRC promulgated Trial Administrative Measures of the Overseas Securities Offering and Listing by Domestic Companies, or the Overseas Listing Trial Measures, and relevant five supporting guidelines, together as the New Overseas Listing Rules, which became effective on March 31, 2023. According to the New Overseas Listing Rules, PRC domestic companies that seek to offer and list securities in overseas markets, either in direct or indirect means, are required to complete the filing procedure with the CSRC and report relevant information. In addition, an overseas-listed company must also submit the filing with respect to its follow-on offerings, issuance of convertible corporate bonds and exchangeable bonds, and other equivalent offering activities, within the time frame specified by the Overseas Listing Trial Measures. We have been closely monitoring regulatory developments in China regarding any necessary approvals, filings or reports from the CSRC, and we will take any and all actions necessary to complete the filing with the CSRC if required. Please refer to “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—The approval and/or other requirements of the CSRC, the CAC, or other PRC governmental authorities may be required in connection with an offering under PRC rules, regulations or policies, and, if required, we cannot predict whether or how soon we will be able to obtain such approval, and, even if we obtain such approval, the approval could be rescinded. Any failure to obtain or delay in obtaining such approval for any future offshore securities offering, or a rescission of obtained approval, would subject us to sanctions imposed by the CSRC or other PRC government authorities.” In addition, if future regulatory updates mandate clearance of cybersecurity review or other specific actions to be completed by China-based companies listed on foreign stock exchanges, such as us, we face uncertainties as to whether such clearance can be timely obtained, or at all. Please refer to risks disclosed under “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—Our business generates and processes a large amount of data, and we are required to comply with PRC and other applicable laws relating to privacy and cybersecurity. The improper use or disclosure of data could have a material and adverse effect on our business and prospects.” Furthermore, the PRC anti-monopoly and competition laws and regulations are evolving, and there remains uncertainties as to how the anti-monopoly laws, regulations and guidelines will impact our business and results of operations. Please refer to “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—Our business generates and processes a large amount of data, and we are required to comply with PRC and other applicable laws relating to privacy and cybersecurity” and “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—Risks Related to Doing Business in China—PRC rules on mergers and acquisitions may make it more difficult for us to pursue growth through acquisitions.” PRC laws and regulations impose certain restrictions or prohibitions on foreign ownership of companies that engage in certain value-added telecommunication services, such as internet content provision services and online data processing and transaction processing businesses (operating e-commerce business). In order to comply with PRC regulatory requirements, in the past we primarily operated these businesses in China through the former VIEs. We currently operate such businesses through our PRC subsidiaries, Yougu and Youhan, established in the Shanghai Pilot Free Trade Zone, which are not subject to restrictions on foreign investors maximum shareholding percentage, according to the Notice of the Ministry of Industry and Information Technology on Removing the Restrictions on Foreign-owned Shareholding Percentage in Online Data Processing and Transaction Processing (operating commerce) Business in China (Shanghai) Pilot Free Trade Zone. Please refer to “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—If the PRC government determines that the historical contractual arrangements with the former VIEs did not, or that our holding company structure do not, comply with PRC laws and regulations, or if these regulations change or are interpreted differently in the future, our shares and/or ADSs may decline in value or become worthless.” These statements and regulatory actions may impact our ability to conduct certain businesses, accept foreign investments, or list on a United States or other foreign exchange. 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 related to doing business in China, please refer to risks disclosed under “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China.”
| 5 |
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, including data security or anti-monopoly related regulations, in this nature may cause the value of such securities to significantly decline or be of little or no value. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—The PRC government’s oversight over our business operation could result in a material adverse change in our operations and the value of our ADSs.”
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 in the interpretation and enforcement of Chinese laws and regulations could limit the legal protections available to us.”
As of the date of this annual report, laws and regulations in Hong Kong, including regulatory actions related to data security or anti-monopoly concerns in Hong Kong, do not have a material impact on our ability to conduct business, accept foreign investment, or continue to list on a United States stock exchange.
Permissions Required from the PRC Authorities
We conduct our business in China primarily through our subsidiaries and historically, through former VIEs in China with which we had maintained contractual arrangements. Our operations in China are governed by PRC laws and regulations. In the opinion of Beijing DOCVIT Law Firm, our counsel as to certain PRC legal matters, our PRC subsidiaries have obtained all requisite permissions and approvals from the PRC government authorities that are required for the business operations of our PRC subsidiaries, namely (i) the Electronic Data Interchange license, or the EDI license, (ii) Registrations for Used Car Dealers, and (iii) Registrations for Vehicle Maintenance and Repairs, with the details of all these licenses and permissions held by our PRC subsidiaries set forth below:
| License/Permission | Holding Entity | Issuing Authority | ||
| Electronic Data Interchange license (EDI license) | Youxin (Shaanxi) Information Technology Group Co., Ltd. | Ministry of Industry and Information Technology of the People’s Republic of China | ||
| Registrations for Used Car Dealers | Hefei Youquan Information Technology Co., Ltd. | The Administrative Department of Commerce of Anhui Province of the People’s Republic of China | ||
| Registrations for Used Car Dealers | Hefei Youxi Used Car Market Management Co., Ltd. | The Administrative Department of Commerce of Anhui Province of the People’s Republic of China | ||
| Registrations for Used Car Dealers | Youxin (Ningbo) Information Technology Co., Ltd. | The Administrative Department of Commerce of Anhui Province of the People’s Republic of China | ||
| Registrations for Used Car Dealers | Youxin (Hefei) Automobile Intelligent Remanufacturing Co., Ltd. | The Administrative Department of Commerce of Anhui Province of the People’s Republic of China | ||
| Registrations for Used Car Dealers | Hefei Youxin Automobile Maintenance Co., Ltd. | The Administrative Department of Commerce of Anhui Province of the People’s Republic of China | ||
| Registrations for Used Car Dealers | Youche (Hainan) Information Technology Co., Ltd. | The Administrative Department of Commerce of Hainan Province of the People’s Republic of China | ||
| Registrations for Used Car Dealers | Youtang (Shaanxi) Information Technology Co., Ltd. | The Administrative Department of Commerce of Shaanxi Province of the People’s Republic of China | ||
| Registrations for Used Car Dealers | Xi’an Yousheng Automobile Sales Service Co., Ltd. | The Administrative Department of Commerce of Shaanxi Province of the People’s Republic of China | ||
| Registrations for Used Car Dealers | Youxin (Shaanxi) Information Technology Group Co., Ltd. | The Administrative Department of Commerce of Shaanxi Province of the People’s Republic of China | ||
| Registrations for Vehicle Maintenance and Repair | Xi’an Youcheng Vehicle Maintenance Co., Ltd. | Bureau of City Manage and Road Transport of Fengdongxincheng of the People’s Republic of China | ||
| Registrations for Vehicle Maintenance and Repair | Hefei Youzhi Automobile Maintenance Co., Ltd. | Bureau of Road Transport of Hefei of the People’s Republic of China |
Except for the permissions or approvals listed above that we have obtained, we, our PRC subsidiaries and the former VIEs, have not been required to apply for or obtain any other permission or approval from any PRC government authority with respect to the operation of our business, nor have we been denied for or dismissed by any government authority of any application of permissions or approvals that are necessary to the operations of our business. Given the uncertainties of interpretation and implementation of relevant laws and regulations and the enforcement practice by relevant government authorities, we may be required to obtain additional licenses, permits, filings or approvals for the functions and services of our platform in the future. If we and our PRC subsidiaries (i) do not receive or maintain any necessary permissions or approvals from PRC authorities to operate business or offer securities, (ii) inadvertently conclude that such permissions or approvals are not required, or (iii) if applicable laws, regulations, or interpretations change and we are required to obtain such permissions or approvals in the future, we cannot assure you that we will be able to obtain the necessary permissions or approvals in a timely manner, or at all, and such approvals may be rescinded even if obtained. Any such circumstance could subject us to penalties, including fines, suspension of business and revocation of the required licenses, significantly limit or completely hinder our ability to continue to offer securities to investors, and cause the value of such securities to significantly decline or be worthless. For more detailed information, see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—Failure to obtain certain filings, approvals, licenses, permits and certificates required for our business operations may materially and adversely affect our business, financial condition and results of operations.”
| 6 |
The PRC government has recently indicated an intent to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers. On February 17, 2023, the CSRC promulgated Trial Administrative Measures of the Overseas Securities Offering and Listing by Domestic Companies, or the Overseas Listing Trial Measures, and relevant five supporting guidelines, together as the New Overseas Listing Rules, which became effective on March 31, 2023. According to the New Overseas Listing Rules, PRC domestic companies that seek to offer and list securities in overseas markets, either in direct or indirect means, are required to complete the filing procedure with the CSRC and report relevant information. In addition, an overseas-listed company must also submit the filing with respect to its follow-on offerings, issuance of convertible corporate bonds and exchangeable bonds, and other equivalent offering activities, within the time frame specified by the Overseas Listing Trial Measures. The New Overseas Listing Rules laid out the regulatory filing requirements for both direct and indirect overseas listings and clarify the determination criteria for indirect overseas listing in overseas markets. For more detailed information, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—The approval and/or other requirements of the CSRC, the CAC, or other PRC governmental authorities may be required in connection with an offering under PRC rules, regulations or policies, and, if required, we cannot predict whether or how soon we will be able to obtain such approval, and, even if we obtain such approval, the approval could be rescinded. Any failure to obtain or delay in obtaining such approval for any future offshore securities offering, or a rescission of obtained approval, would subject us to sanctions imposed by the CSRC or other PRC government authorities.” In the opinion of Beijing DOCVIT Law Firm, our counsel as to certain PRC legal matters, pursuant to the New Overseas Listing Rules which became effective on March 31, 2023: (i) in connection with our historical issuance of securities to foreign investors, neither we nor our PRC subsidiaries or the former VIEs are required to obtain any prior permissions or approvals from the CSRC, and (ii) should we decide to issue additional equity or equity-linked securities for listing overseas in the future, we are not required to obtain any permissions or approvals from any PRC government authorities, except for the requisite filing with the CSRC in connection with such issuance. In the opinion of Beijing DOCVIT Law Firm, our counsel as to certain PRC legal matters, if we issue long-term debt securities in the future, we are not required to obtain any permissions or approvals from the PRC government authorities, except that such issuance is subject to the quota requirement of the National Development and Reform Commission, or the NDRC. In addition, on March 26, 2024, we and Xin Gao Group Limited (“Xin Gao”) entered into a share subscription agreement, pursuant to which we issued 1,440,922,190 senior convertible preferred shares to Xin Gao for a total consideration of US$7.0 million. As of the date of this annual report, we have submitted the necessary filings to the CSRC for the issuance of senior convertible preferred shares to Xin Gao. For more information about the issuance of senior convertible preferred shares to Xin Gao, see “Item 4. Information on the Company—A. History and Development of the Company.”
Additionally, in the opinion of Beijing DOCVIT Law Firm, our counsel as to certain PRC legal matters, we are not required to file any application for the cybersecurity review by CAC for our historical issuance of securities to foreign investors on the grounds that: (i) the relevant regulations do not require network platform operators holding personal information of over one million users to file a supplementary application of cybersecurity review for their historical issuance of securities to foreign investors that occurred before such regulations became effective; and (ii) our securities have already been listed on the Nasdaq Global Select Market before such regulations became effective. Thus, Beijing DOCVIT Law Firm does not expect that, as of the date of this annual report, we are required to file an application for the cybersecurity review by CAC for our historical issuance of securities to foreign investors. Furthermore, in the opinion of Beijing DOCVIT Law Firm, neither we nor our subsidiaries or the former VIEs are required to obtain prior permissions or approvals from the PRC government authorities. Lastly, as of the date of this annual report, neither we nor our PRC subsidiaries or the former VIEs have received or were denied any permissions or approvals by the CSRC, the CAC or any other PRC government authorities relating to our historical issuance of securities to foreign investors.
The Holding Foreign Companies Accountable Act
Pursuant to the Holding Foreign Companies Accountable Act, which was enacted on December 18, 2020 and further amended by the Consolidated Appropriations Act, 2023 signed into law on December 29, 2022, 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 Public Company Accounting Oversight Board, or the PCAOB, for two consecutive years, the SEC shall prohibit our shares or ADSs from being traded on a national securities exchange or in the over-the-counter trading market in the United States. Trading in our securities on U.S. markets, including Nasdaq Global Select Market, will be prohibited under the HFCAA if the PCAOB determines that it is unable to inspect or investigate completely our auditor for two consecutive years. On December 16, 2021, the PCAOB issued the HFCAA Determination Report to notify the SEC of its determinations that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong (the “2021 Determinations”), including our auditor. On August 29, 2022, the SEC conclusively listed Uxin Limited as a Commission-Identified Issuer under the HFCAA following the filing of our annual report on Form 20-F for the fiscal year ended March 31, 2022. On December 15, 2022, the PCAOB announced that it was able to conduct inspections and investigations completely of PCAOB-registered public accounting firms headquartered in mainland China and Hong Kong in 2022. Accordingly, the PCAOB vacated its previous 2021 Determinations. As a result, we were not at risk of having our securities subject to a trading prohibition under the HFCAA unless a new determination is made by the PCAOB. However, whether the PCAOB will continue to conduct inspections and investigations completely to its satisfaction of PCAOB-registered public accounting firms headquartered in mainland China and Hong Kong is subject to uncertainty and depends on a number of factors out of our, and our auditor’s, control, including positions taken by authorities of the PRC. The PCAOB is expected to continue to demand complete access to inspections and investigations regarding registered accounting firms headquartered in mainland China and Hong Kong in the future and states that it has already made plans to resume regular inspections going forward. The PCAOB is required under the HFCAA to make its determination on an annual basis with regards to its ability to inspect and investigate completely registered accounting firms based in the mainland China and Hong Kong. The possibility of being a Commission-Identified Issuer and risk of delisting could continue to adversely affect the trading price of our securities. If the PCAOB determines in the future that it no longer has full access to completely inspect and investigate registered accounting firms headquartered in mainland China and Hong Kong and we continue to use such accounting firm to conduct audit work, we would be identified as a “Commission-Identified Issuer” under the HFCAA following the filing of the annual report for the relevant fiscal year, and if we were so identified for two consecutive years, trading in our securities on U.S. markets would be prohibited. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—The PCAOB, in prior years, was unable to completely inspect and investigate registered independent accounting firms in mainland China and Hong Kong, which includes our auditor. The inability of the PCAOB to conduct inspections over our auditor has deprived our investors of the benefits of such inspections in prior years and may continue to deprive investors of such benefits in the future should the PCAOB not continue to have the ability to completely inspect and investigate registered accounting firms in China” and “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Our ADSs will be prohibited from trading in the United States under the HFCAA if the PCAOB is unable to inspect or investigate completely auditors located in China for two consecutive years. The delisting of our ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment.”
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Cash and Asset Flows through Our Organization
Uxin Limited is a holding company with no operations of its own. We conduct our operations in China primarily through our PRC subsidiaries and, historically, through contractual arrangements with the former VIEs in China. Under the current laws of the Cayman Islands, we are not subject to tax on income or capital gains. In addition, upon payments of dividends to our shareholders, no Cayman Islands withholding tax will be imposed.
Under PRC law, Uxin Limited may provide funding to our PRC subsidiaries only through capital contributions or loans, and to the former VIEs only through loans, subject to the satisfaction of applicable government registration and approval requirements. Loans by Uxin Limited to our PRC subsidiaries to finance their activities cannot exceed statutory limits and must be registered with the local counterpart of SAFE and capital contributions to our PRC subsidiaries are subject to approval by the Ministry of Commerce or its local counterparts. For more details, please refer to “Item 4. Information on the Company—B. Business Overview—Regulation—PRC regulations on loans and direct investments by offshore holding companies to PRC entities may delay or prevent us from making loans or additional capital contributions to our PRC entities.” For the fiscal years ended March 31, 2022, 2023 and 2024, Uxin Limited and its subsidiaries incorporated in the Cayman Islands, British Virgin Islands and Hong Kong did not make any capital contribution or loans to our PRC subsidiaries or the former VIEs, except that Xin HK Limited made capital contributions of RMB127.3 million, RMB116.4 million and RMB131.9 million (US$18.3 million), respectively, to Youxin (Hefei) Automobile Intelligent Remanufacturing Co., Ltd., or Uxin Hefei, in the fiscal years ended March 31, 2022, 2023 and 2024, and capital contributions of RMB34.5 million and RMB65.7 million (US$9.1million), respectively, to Youtang (Shaanxi) Information Technology Co., Ltd. in the fiscal years ended March 31, 2023 and 2024. UcarShow HK Limited made capital contributions of RMB3.5 million (US$0.5 million) to Youfang (Beijing) Information Technology Co., Ltd. in the fiscal year ended March 31, 2024. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—PRC regulations on loans and direct investments by offshore holding companies to PRC entities may delay or prevent us from making loans or additional capital contributions to our PRC entities” for details.
Our PRC subsidiaries received RMB50.2 million from the former VIEs for the fiscal year ended March 31, 2022, which include cash advances made by the former VIEs to our PRC subsidiaries for the purchase of cars and/or services from third parties for daily operations. The former VIEs received RMB66.8 million from our PRC subsidiaries for the fiscal year ended March 31, 2022, which include the repayment of aforementioned cash advances for daily operations. See “Item 4.A. History and Development of the Company—Divestitures of Our Loan Facilitation, Salvage Car and 2B Businesses.” We believe the amount of the cash flows between the former VIEs and our PRC subsidiaries were immaterial to our company for the fiscal year ended March 31, 2022. For risks relating to our corporate structure, see “Item 3. Key Information—D. Risk Factors—Summary of Risk Factors—Risks Related to Our Corporate Structure—If the PRC government determines that the historical contractual arrangements with the former VIEs did not, or that our holding company structure do not, comply with PRC laws and regulations, or if these regulations change or are interpreted differently in the future, our shares and/or ADSs may decline in value or become worthless.”
There were no other transfer of assets, dividends or distributions made between Uxin Limited, the former VIEs and our PRC subsidiaries and no transfer of cash or other assets, dividends or distributions made to U.S. investors for the fiscal years ended March 31, 2022, 2023 and 2024. See “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Dividend Policy.”
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Furthermore, cash transfers from our PRC subsidiaries to entities outside of mainland China are subject to PRC government controls on currency conversion. As a result, cash in mainland China may not be available to fund operations or for other use outside of the PRC due to interventions in or the imposition of restrictions and limitations on the ability of us, our subsidiaries and the former VIEs to transfer cash or assets. Shortages in the availability of foreign currency may temporarily delay the ability of our PRC subsidiaries to remit sufficient foreign currency to pay dividends or other payments to us, or otherwise satisfy their foreign currency denominated obligations. There is no assurance the PRC government will not intervene in or impose restrictions on us, our subsidiaries and the former VIEs to transfer cash or assets. In view of the foregoing, to the extent cash in our business is held in mainland China or by a mainland China entity, such cash may not be available to fund operations or for other use outside of mainland China. As of the date of this annual report, we are not aware of equivalent or similar restrictions or limitations in Hong Kong on cash transfers in, or out of, our Hong Kong entities. However, if certain restrictions or limitations were to become applicable to cash transfers in and out of Hong Kong entities in the future, the funds in our Hong Kong entities may not be available to fund operations or for other use outside of Hong Kong. For risks relating to the fund flows of our operations in China, see “Item 3. Key Information—D. Risk Factors—Summary of Risk Factors—Risks Related to Doing Business in China—Cash transfers from our PRC subsidiaries to entities outside of mainland China are subject to PRC government controls on currency conversion. As a result, cash in mainland China 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 the ability of us, our PRC subsidiaries and the former VIEs to transfer cash or assets. There is no assurance the PRC government will not intervene in or impose restrictions on us and our subsidiaries to transfer cash or assets. Although currently we are not aware of equivalent or similar restrictions or limitations in Hong Kong on cash transfers in, or out of, our Hong Kong entities, if certain restrictions or limitations in mainland China were to become applicable to cash transfers in and out of Hong Kong entities in the future, the funds in our Hong Kong entities, likewise, may not be available to fund operations or for other use outside of Hong Kong” and “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Governmental control of currency conversion may affect the value of your investment” for details.
Our Mainland China and Hong Kong subsidiaries and the former VIEs have incurred cumulative losses since inception. We have no current intention to pay dividends to shareholders. Additionally, we have no intention to distribute earnings and our PRC subsidiaries have settled amounts with the former VIEs under the historical VIE agreements.
Our company has established a centralized cash management policy to direct how funds are transferred between Uxin Limited and our subsidiaries to improve the efficiency and ensure the security of cash management. Such cash management policies are our management policy and adhere to the applicable laws and regulations. Our company’s cash management program is centralized within our funds and payment center. Funds are deployed to each operating entity based on the budget and operating conditions of each operating entity. The funds and payment center is responsible for the centralized management of cash inflows and outflows of our operating entities. Each cash requirement, after raised by an operating entity, is required to go through a review process by our funds and payment center. We will allocate the cash to the operating entity after the application for cash requirement is approved by the funds and payment center.
For purposes of illustration, the following discussion reflects the hypothetical taxes that might be required to be paid in Mainland China and Hong Kong, assuming that: (i) we have taxable earnings, and (ii) we determine to pay a dividend in the future:
| Tax calculation(1) | ||||
| Hypothetical pre-tax earnings(2) | 100.0 | % | ||
| Tax on earnings at statutory rate of 25%(3) | (25.0 | )% | ||
| Net earnings available for distribution | 75.0 | % | ||
| Withholding tax at standard rate of 10%(4) | (7.5 | )% | ||
| Net distribution to Parent/Shareholders | 67.5 | % | ||
Notes:
| (1) | For purposes of this example, the tax calculation has been simplified. | |
| (2) | The hypothetical pre-tax earnings are assumed to equal taxable income in China, without considering timing differences. | |
| (3) | One of our subsidiaries in Mainland China qualifies for a 15% preferential income tax rate from 2020 to 2025. However, such rate is subject to qualification, is temporary in nature, and may not be available in a future period when distributions are paid. For purposes of this hypothetical example, the table above reflects a maximum tax scenario under which the full statutory rate would be effective. | |
| (4) | The PRC Enterprise Income Tax Law imposes a withholding income tax of 10% on dividends distributed by a foreign invested enterprise to its immediate holding company outside of China. A lower withholding income tax rate of 5% is applied if the foreign-invested enterprise’s immediate holding company is registered in Hong Kong or other jurisdictions that have a tax treaty arrangement with China, subject to a qualification review at the time of the distribution. For purposes of this hypothetical example, the table above assumes a maximum tax scenario under which the full withholding tax would be applied. |
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If our existing PRC subsidiaries or any newly formed ones incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us. In addition, our WFOEs are permitted to pay dividends to us only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Under PRC law, each of our subsidiaries and the former VIEs in China is required to set aside at least 10% of its after-tax profits each year, if any, to fund certain statutory reserve funds until such reserve funds reach 50% of its registered capital. In addition, our subsidiaries and the former VIEs may allocate a portion of their after-tax profits based on PRC accounting standards to discretionary surplus funds at their discretion. The statutory reserve funds and the discretionary funds are not distributable as cash dividends. Remittance of dividends by a wholly foreign-owned company out of China is subject to examination by the banks designated by SAFE. Some of our PRC subsidiaries will not be able to pay dividends until they generate accumulated profits and meet the requirements for statutory reserve funds. For restrictions and limitations on our ability to distribute earnings from our businesses, including subsidiaries and the former VIEs, to our Company and investors as well as the ability to settle amounts owed under historical VIE agreements, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—PRC regulations on loans and direct investments by offshore holding companies to PRC entities may delay or prevent us from making loans or additional capital contributions to our PRC entities.”
| 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
Investing in the ADSs involves significant risks. You should carefully consider all of the information in this annual report before making an investment in the ADSs. Below please find a summary of the principal risks we face, organized under relevant headings.
Risks Related to Our Business and Industry
Risks and uncertainties related to our business and industry include, but are not limited to, the following:
| ● | If we fail to provide a differentiated and superior customer experience, the size of our customer base and the number of transactions on our platform could decline, and our business would be materially and adversely affected; | |
| ● | Failure to maintain or enhance customer trust in us could damage our reputation, reduce or slowdown the growth of our customer base, which could harm our business, financial condition and results of operations; | |
| ● | We face intense competition, which may lead to loss of market share, reduced service fees and revenue, increased expenses, departures of qualified employees, and disputes with competitors; | |
| ● | We are not profitable and have negative cash flows from operations, which may continue in the future; |
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| ● | Failure to acquire attractive inventory, whether due to supply, competition, or other factors, may have a material adverse effect on our business, sales, and results of operations; | |
| ● | Failure to expeditiously sell our inventory could have a material adverse effect on our business, sales, and results of operations; | |
| ● | If we are unable to effectively manage our growth or implement our business strategies, our business, results of operations and financial condition may be materially and adversely affected; | |
| ● | We rely, in part, on our marketing efforts for customer acquisition and achieving higher level of brand recognition. If we fail to conduct our marketing activities effectively and efficiently, our business could be harmed; | |
| ● | Our business generates and processes a large amount of data, and we are required to comply with PRC and other applicable laws relating to privacy and cybersecurity. The improper use or disclosure of data could have a material and adverse effect on our business and prospects; and | |
| ● | We work with third-party service providers and business partners. Actions of third parties are outside of our control and could materially and adversely affect our reputation, business, financial condition and results of operations. |
Risks Related to Our Corporate Structure
Risks and uncertainties related to our corporate structure include, but are not limited to, the following:
| ● | If the PRC government determines that the historical contractual arrangements with the former VIEs did not, or that our holding company structure do not, comply with PRC laws and regulations, or if these regulations change or are interpreted differently in the future, our shares and/or ADSs may decline in value or become worthless. |
Risks Related to Doing Business in China
Risks and uncertainties related to doing business in China include, but are not limited to, the following:
| ● | Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our business and operations; | |
| ● | The approval and/or other requirements of the CSRC, the CAC, or other PRC governmental authorities may be required in connection with an offering under PRC rules, regulations or policies, and, if required, we cannot predict whether or how soon we will be able to obtain such approval, and, even if we obtain such approval, the approval could be rescinded. Any failure to obtain or delay in obtaining such approval for any future offshore securities offering, or a rescission of obtained approval, would subject us to sanctions imposed by the CSRC or other PRC government authorities. As of the date of this annual report, we have not received any inquiry or notice or any objection in connection with our historical issuance of securities to foreign investors from the CSRC, the CAC or any other PRC governmental authorities that have jurisdiction over our operations. However, given the current regulatory environment in the PRC, there remains uncertainty regarding the interpretation and enforcement of PRC laws, which can change quickly and subject to any future actions within the discretion of PRC authorities; | |
| ● | The PRC government has significant oversight over our business operations in China, and may intervene in or influence our operations at any time, or may exert more control over offerings conducted overseas and/or foreign investment in China-based issuers, which could result in a material change in our operations and/or the value of our securities. Any actions by the Chinese government to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers 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 become worthless. See “Item 3. Key Information—Risk Factors—Risks Related to Doing Business in China—The PRC government’s oversight over our business operation could result in a material adverse change in our operations and the value of our ADSs” for details; |
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| ● | We face risks arising from the uncertainties with respect to the PRC legal system. Certain rules and regulations can change quickly, and there may be risks and uncertainties regarding the interpretation and enforcement of PRC laws and regulations. These risks and uncertainties may make it difficult for us to meet or comply with requirements under the applicable laws and regulations. See “Item 3. Key Information—Risk Factors—Risks Related to Doing Business in China—Uncertainties in the interpretation and enforcement of Chinese laws and regulations could limit the legal protections available to us” for details; | |
| ● | Our business is susceptible to changes in government policies, including policies on automobile purchases, ownership, taxation, vehicle title transfers, and used car transactions across regions and provinces. Failure to adequately respond to such changes could adversely affect our business; | |
| ● | You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing actions against us or our directors and management named in the annual report based on foreign laws; | |
| ● | Cash transfers from our PRC subsidiaries to entities outside of mainland China are subject to PRC government controls on currency conversion. As a result, cash in mainland China 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 the ability of us, our PRC subsidiaries and the former VIEs to transfer cash or assets. There is no assurance the PRC government will not intervene in or impose restrictions on us and our subsidiaries to transfer cash or assets. Although currently we are not aware of equivalent or similar restrictions or limitations in Hong Kong on cash transfers in, or out of, our Hong Kong entities, if certain restrictions or limitations in mainland China were to become applicable to cash transfers in and out of Hong Kong entities in the future, the funds in our Hong Kong entities, likewise, may not be available to fund operations or for other use outside of Hong Kong. See “Item 3. Key Information—Cash and Asset Flows through Our Organization” and “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Governmental control of currency conversion may affect the value of your investment” for details; | |
| ● | The PCAOB, in prior years, was unable to completely inspect and investigate registered independent accounting firms in mainland China and Hong Kong, which includes our auditor. The inability of the PCAOB to conduct inspections over our auditor has deprived our investors of the benefits of such inspections in prior years and may continue to deprive investors of such benefits in the future should the PCAOB not continue to have the ability to completely inspect and investigate registered accounting firms in China; and | |
| ● | Our ADSs will be prohibited from trading in the United States under the Holding Foreign Companies Accountable Act, or the HFCAA, if the PCAOB is unable to inspect or investigate completely auditors located in China for two consecutive years. The delisting of our ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment. |
Risks Related to Our ADSs
Risks and uncertainties related to our ADSs include, but are not limited to, the following:
| ● | The trading price of the ADSs is likely to be volatile, which could result in substantial losses to investors; | |
| ● | Our dual-class share structure with different voting rights will limit your ability to influence corporate matters and could discourage others from pursuing any change of control transactions that holders of our Class A ordinary shares and ADSs may view as beneficial; | |
| ● | The dual-class structure of our ordinary shares may adversely affect the trading market for our ADSs; | |
| ● | If securities or industry analysts do not publish research or reports about our business, or if they adversely change their recommendations regarding the ADSs, the market price for the ADSs and trading volume could decline; and | |
| ● | The sale or availability for sale of substantial amounts of the ADSs could adversely affect their market price. |
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Risks Related to Our Business and Industry
If we fail to provide a differentiated and superior customer experience, the size of our customer base and the number of transactions on our platform could decline, and our business would be materially and adversely affected.
Providing a differentiated and superior online used car transaction experience for our customers, including both consumers and businesses, is critical to our business. Our ability to provide a high-quality customer experience depends on a number of factors, including:
| ● | our ability to provide customers with high-quality used cars and other related products; | |
| ● | our ability to improve our existing service offerings and upgrade our platform; | |
| ● | our ability to meet the diverse needs of our customers with ongoing innovation and new service offerings; | |
| ● | our ability to maintain and improve operating efficiency, customer experience of online transactions and service quality of our offline networks and personnel; | |
| ● | our ability to leverage technology and data to improve our services; | |
| ● | our ability to adequately train and manage our employees; and | |
| ● | our ability to effectively ensure the quality of services provided by our third-party service providers on our platform. |
We cannot guarantee that we can provide a differentiated and superior experience to our customers as our business continues to evolve. Our failure to do so would materially and adversely affect our business, financial condition and results of operations.
Failure to maintain or enhance customer trust in us could damage our reputation, reduce or slowdown the growth of our customer base, which could harm our business, financial condition and results of operations.
Our reputation as a trusted leading e-commerce platform for buying and selling used cars in China is critical to our success. If we fail to maintain a high level of customer trust in our goods and services, our business, financial condition and results of operations could be materially and adversely affected.
We work with third-party service providers to serve customers and fulfill the transactions made on our platform, such as car delivery, title transfer and warranty services, which are the key to earn customer trust. If we fail to maintain a high level of customer satisfaction or fail to properly manage these services, our business, financial condition and results of the operations would be adversely affected. We provide trainings to our third-party service providers and require them to act in line with our operating and customer servicing standards. However, if these third-party service providers fail to maintain a high level of performance consistent with our requirements, the level of customer satisfaction and trust we enjoy may be harmed, and our business, financial condition and results of the operations may be adversely affected.
We have received in the past, and we may continue to receive in the future, communications or complaints alleging that cars listed on our platform or sold by us are defective or inconsistent with the information provided on our platform, or the services provided by our third-party service providers are unsatisfactory to our customers. The information we include in our car listings is collected and maintained by us, which may not be accurate or complete due to human error, technological issues or misconduct.
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We face intense competition, which may lead to loss of market share, reduced service fees and revenue, increased expenses, departures of qualified employees, and disputes with competitors.
We face intense competition in the used car industry both online and offline. Our competitors may have significantly more resources than we do, including financial, technological, marketing and others and may be able to devote greater resources to the development and promotion of their platforms and services. As a result, they may have deeper relationships with auto financing partners and other third-party service providers than we do. This could allow them to develop new services, adapt more quickly to changes in technology and to undertake more extensive marketing campaigns, which may render our platform less attractive to customers and businesses and cause us to lose market share. Moreover, intense competition in the markets we operate in may reduce our gross profit margin for vehicle sales, lower our service fees, increase our operating expenses and capital expenditures, and lead to departures of our qualified employees. We may also be harmed by negative publicity instigated by our competitors, regardless of its validity. We encountered and may in the future continue to encounter various disputes with our competitors, including lawsuits involving claims asserted under intellectual property laws, unfair competition laws and defamation which may adversely affect our business and reputation. Failure to compete with current and potential competitors could materially harm our business, financial condition and our results of operations.
There is substantial doubt as to our ability to continue as a going concern.
The following factors raise substantial doubt as to our ability to continue as a going concern:
| ● | We have incurred net losses since inception, and as of March 31, 2024, we had an accumulated deficit in the amount of approximately RMB19,378.7 million (US$2,683.9 million); | |
| ● | Our current liabilities exceeded our current assets by approximately RMB658.8 million (US$91.2 million) as of March 31, 2024; | |
| ● | Our cash balance as of March 31,2024 was approximately RMB23.3 million (US$3.2 million); and | |
| ● | Our net cash used in operating activities was RMB262.4 million (US$36.3 million) in the fiscal year ended March 31, 2024. |
Our ability to continue as a going concern is dependent on our management’s ability to increase sales, achieve higher gross profit margin and control operating costs and expenses to reduce operating cash outflows, as well as our financing arrangements, including but not limited to the renewal of existing borrowings and obtaining new debt and equity financings, which in turn, subjects us to various risks, including, among others, risks relating to our ability to maintain and improve our liquidity and financial position.
The audited consolidated financial statements included in this annual report on Form 20-F were prepared on the basis that we will continue as a going concern. Facts and circumstances including continuous losses, accumulated losses from operations, net cash used in operating activities and negative working capital raise substantial doubt as to our ability to continue as a going concern. Likewise, the report of our independent registered public accounting firm includes a going concern paragraph that there is substantial doubt as to our ability to continue as a going concern. The audited financial statements do not include any adjustments that might result from the outcome of these uncertainties. If we become unable to continue as a going concern, we may have to liquidate our assets, and the value we receive for our assets in liquidation or dissolution could be significantly lower than the values reflected in our audited consolidated financial statements. Our lack of cash resources and our potential inability to continue as a going concern may materially and adversely affect the price of our ADSs and our ability to continue our operations.
We are not profitable and have negative cash flows from operations, which may continue in the future.
We have not been profitable since our inception in 2011. We incurred net losses of RMB143.2 million, RMB137.2 million and RMB369.5 million (US$51.2 million) in the fiscal years ended March 31, 2022, 2023 and 2024, respectively. In addition, we had negative cash flow from operating activities of RMB845.0 million, RMB251.1 million and RMB262.4 million (US$36.3 million) in the fiscal years ended March 31, 2022, 2023 and 2024, respectively.
We have taken several steps to improve our liquidity and cash position. For more information, see “B. Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Cash flows and working capital.” However, However, we cannot guarantee the effectiveness of these measures. Additionally, we may need to continue to invest heavily in various aspects of our operations, such as labor, infrastructure, sales and marketing, to facilitate the expansion of the offline regional markets in the future. These investments may not lead to revenue increase or generate positive cash flow, potentially straining our financial resources.
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We may incur additional losses and negative cash flow in the future for a number of reasons, including decreasing demand or slower than expected increase in demand for used cars and our services, increasing competition, weakness in the automotive retail industry in general, as well as other risks discussed herein, and we may incur unforeseen expenses, or encounter difficulties, complications and delays in generating revenue or achieving profitability. If our revenues decrease, we may not be able to reduce our costs and expenses proportionally in a timely manner because many of our costs and expenses are fixed. In addition, if we reduce our costs and expenses, we may limit our ability to acquire customers and grow our revenues. Accordingly, we may not be able to achieve profitability and we may continue to incur additional losses in the future.
If we are unable to effectively manage our growth or implement our business strategies, our business, results of operations and financial condition may be materially and adversely affected.
Our business and prospects depend in part on our ability to effectively manage our growth or implement our growth strategies. As part of our business strategies, we intend to increase our penetration in existing markets and expand into new geographic markets. Our experience in the markets in which we currently operate may not be applicable to other parts of China. We may not be able to leverage our experience to expand into new geographic markets in China. As a result, our expansion and monetization strategies, including sales and marketing efforts designed to attract more consumers and businesses, may not be successful. Furthermore, expanding into new geographical markets will require us to hire additional employees to cover these markets. We will incur additional compensation and benefit costs, office rental expenses and other costs, as well as experience additional strain on our managerial resources. If we are unable to successfully expand and generate sufficient revenues to cover our increased costs and expenses, our business, financial condition and results of operations may be materially and adversely affected.
Moreover, our business upgrade and expansion may lead to new challenges and risks. As a result, we need to continuously expand and enhance our infrastructure and technology, and improve our operational and financial systems, procedures and internal controls. We also need to train, manage and motivate our employees. In addition, we need to maintain and expand our relationships with our customers, third-party service providers and other third parties. We cannot assure you that our personnel, infrastructure, systems, procedures and controls will be adequate to support our operations. Effectively managing our growth is dependent on a number of other factors, including our ability to:
| ● | providing high-quality and value-for-money used vehicles; | |
| ● | continue to improve our existing full-range car purchasing service and customer’s satisfaction; | |
| ● | launch new services and develop cross-selling opportunities; | |
| ● | stabilize our costs and expenses and enhance our efficiency; | |
| ● | achieve success with our used car superstores in Xi’an and Hefei, respectively, or Xi’an Superstore and Hefei Superstore; | |
| ● | recruit and retain skilled and experienced employees; | |
| ● | strengthen relationships with our business partners; | |
| ● | enhance our risk management and internal control; | |
| ● | upgrade our technology and continue to innovate; and | |
| ● | maintain and enhance the network effects of our platform. |
If we fail to effectively manage our growth or implement our business strategies, our business, results of operations and financial condition may be materially and adversely affected.
Failure to acquire attractive inventory, whether due to supply, competition, or other factors, may have a material adverse effect on our business, sales, and results of operations.
Since September 2020, we have shifted to an inventory-owning model where we build-up and sell our own inventory of used cars. By switching to and adopting the inventory-owning model, our vehicle supply channels are expanded to include consumers who intend to sell their existing cars, 4S shops, corporate clients and auction platforms. The transformation of our business model has enabled us to obtain better control over order flow and supply chain management, which further strengthens our ability to maximize customer value through our dedicated approach: offering high-quality and value-for-money used cars alongside best-in-class purchasing services. However, there can be no assurance that the supply of high-quality and value-for-money used vehicles will be sufficient to meet our needs. A reduction in the availability of or access to sources of desirable inventory could have a material adverse effect on our business, sales and results of operations.
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Additionally, we evaluate and predict mechanical soundness, consumer desirability and relative value as prospective inventory. If we fail to properly assess vehicle condition before we purchase them, it could adversely affect our ability to acquire desirable inventory. Our ability to source vehicles could also be affected by fierce competition in our industry, both from e-commerce platform for used-car trading directly and through other used vehicle dealers directly. In addition, we remain dependent on others to sell us used vehicles, and there can be no assurance of an adequate supply of such vehicles on terms that are attractive to us.
Failure to expeditiously sell our inventory could have a material adverse effect on our business, sales, and results of operations.
Our purchases of used vehicles for building our own inventory are largely based on projected demand, which was primarily determined based on the then existing market condition. If our projections turn out to be inaccurate or actual sales are materially less than our forecasts, we may experience an over-supply of used vehicle inventory, which will generally cause downward pressure on our sales prices and margins and increase our average days to sale. If we have excess inventory or our average days to sale increases, we may be unable to liquidate such inventory at prices that allow us to meet margin targets or to recover our costs, which could have a material adverse effect on our results of operations.
We work with third-party service providers and business partners. Actions of third parties are outside of our control and could materially and adversely affect our reputation, business, financial condition and results of operations.
We work with third-party service providers to serve customers and fulfill the transactions made on our platform, such as auto financing, car delivery, title transfers, and other after-sales services. We carefully select our third-party service providers and business partners, but we are not able to control their actions. If these third parties fail to perform as we expect, experience difficulty meeting our requirements or standards, fail to conduct their business ethically, fail to provide satisfactory services to our customers, receive negative press coverage, violate applicable laws or regulations, breach the agreements with us, or if the agreements we have entered into with the third parties are terminated or not renewed, our business and reputation could be damaged. In addition, if such third-party service providers cease operations, temporarily or permanently, face financial distress or other business disruptions, increase their fees, or if our relationships with them deteriorate, we could suffer from increased costs, be involved in legal or administrative proceedings with or against our third-party service providers and experience delays in providing customers with similar services until we find or develop a suitable alternative. In addition, if we are not successful in identifying high-quality partners, or establishing cost-effective relationships with them, or effectively managing these relationships, our business and results of operations would be materially and adversely affected.
We rely, in part, on our marketing efforts for customer acquisition and achieving higher level of brand recognition. If we fail to conduct our marketing activities effectively and efficiently, our business could be harmed.
We may continue to invest substantial financial and other resources in marketing initiatives to grow our customer base. We currently carry out our marketing activities mainly by acquiring traffic through new media platforms with the goal of attracting more visitors to our platform. We face intense competition from our competitors who may have greater marketing resources than we do. If we fail to conduct our marketing activities effectively and efficiently, or if our traffic acquisition efforts and marketing campaigns are not successful, our growth, results of operations and financial condition could be materially and adversely affected.
Our business generates and processes a large amount of data, and we are required to comply with PRC and other applicable laws relating to privacy and cybersecurity. The improper use or disclosure of data could have a material and adverse effect on our business and prospects.
Our business generates and processes a large quantity of data. We face risks inherent in handling and protecting large volume of data. In particular, we face a number of challenges relating to data from transactions and other activities on our platforms, including:
| ● | protecting the data in and hosted on our system, including against attacks on our system by outside parties or fraudulent behavior or improper use by our employees; |
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| ● | addressing concerns related to privacy and sharing, safety, security and other factors; and | |
| ● | complying with applicable laws, rules and regulations relating to the collection, use, storage, transfer, disclosure and security of personal information, including any requests from regulatory and government authorities relating to these data. |
In general, we expect that data security and data protection compliance will receive greater attention and focus from regulators, both domestically and globally, as well as attract continued or greater public scrutiny and attention going forward, which could increase our compliance costs and subject us to heightened risks and challenges associated with data security and protection. If we are unable to manage these risks, we could become subject to penalties, including fines, suspension of business and revocation of required licenses, and our reputation and results of operations could be materially and adversely affected.
The PRC regulatory and enforcement regime with regard to data security and data protection is evolving and may be subject to different interpretations or significant changes. Moreover, different PRC regulatory bodies, including the Standing Committee of the NPC, the MIIT, the CAC, the Ministry of Public Security and the SAMR, have enforced data privacy and protections laws and regulations with varying standards and applications. See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations on Information Security and Privacy Protection.” The following are examples of certain recent PRC regulatory activities in this area:
Data Security
| ● | In June 2021, the Standing Committee of the NPC promulgated the Data Security Law, which took effect in September 2021. The Data Security Law, among other things, provides for security review procedure for data-related activities that may affect national security. In July 2021, the state council promulgated the Regulations on Protection of Critical Information Infrastructure, which became effective on September 1, 2021. Pursuant to this regulation, critical information infrastructure means key network facilities or information systems of critical industries or sectors, such as public communication and information service, energy, transportation, water conservation, finance, public services, e-government affairs and national defense science, the damage, malfunction or data leakage of which may endanger national security, people’s livelihoods and the public interest. In December 2021, the CAC, together with other authorities, jointly promulgated the Cybersecurity Review Measures, which became effective on February 15, 2022 and replaces its predecessor regulation. Pursuant to the Cybersecurity Review Measures, critical information infrastructure operators that procure internet products and services must be subject to the cybersecurity review if their activities affect or may affect national security. The Cybersecurity Review Measures further stipulates that critical information infrastructure operators or network platform operators that hold personal information of over one million users shall apply with the Cybersecurity Review Office for a cybersecurity review before any public offering at a foreign stock exchange. The competent regulatory authorities for each of the critical industries and sectors shall be responsible for formulating eligibility criteria and determining the identity of critical information infrastructure operator in such industry or sector. As of the date of this annual report, no detailed rules or implementation rules have been issued by any authority and we have not been informed that we are a critical information infrastructure operator by any government authorities. Furthermore, the exact scope of “critical information infrastructure operators” under the current regulatory regime remains unclear, and the PRC government authorities may have wide discretion in the interpretation and enforcement of the applicable laws. Therefore, it is uncertain whether we would be deemed to be a critical information infrastructure operator under PRC law. If we are deemed to be a critical information infrastructure operator under the PRC cybersecurity laws and regulations, we may be subject to obligations in addition to what we have fulfilled under the PRC cybersecurity laws and regulations. |
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| ● | In November 2021, the CAC released the Regulations on the Network Data Security (Draft for Comments), or the Draft Regulations. The Draft Regulations provide that data processors refer to individuals or organizations that, during their data processing activities such as data collection, storage, utilization, transmission, publication and deletion, have autonomy over the purpose and the manner of data processing. In accordance with the Draft Regulations, data processors shall apply for a cybersecurity review for certain activities, including, among other things, (i) the listing abroad of data processors that process the personal information of more than one million users and (ii) any data processing activity that affects or may affect national security. However, there have been no clarifications from the relevant authorities as of the date of this annual report as to the standards for determining whether an activity is one that “affects or may affect national security.” In addition, the Draft Regulations requires that data processors that process “important data” or are listed overseas must conduct an annual data security assessment by itself or commission a data security service provider to do so, and submit the assessment report of the preceding year to the municipal cybersecurity department by the end of January each year. If we are not able to comply with the cybersecurity and network data security requirements in a timely manner, or at all, we may be subject to government enforcement actions and investigations, fines, penalties, suspension of our non-compliant operations, or removal of our app from the relevant application stores, among other sanctions, which could materially and adversely affect our business and results of operations. As of the date of this annual report, the Draft Regulations was released for public comment only, and their respective provisions and anticipated adoption or effective date may be subject to change with substantial uncertainty. The Draft Regulation remains unclear on whether the relevant requirements will be applicable to companies that have been listed in the United States, including our company. |
Personal Information and Privacy
| ● | The Anti-monopoly Guidelines for the Platform Economy Sector published by the Anti-monopoly Committee of the State Council, effective on February 7, 2021, prohibits collection of user information through coercive means by online platforms operators. | |
| ● | In August 2021, the Standing Committee of the NPC promulgated the Personal Information Protection Law, which integrates the scattered rules with respect to personal information rights and privacy protection and took effect on November 1, 2021. We update our privacy policies from time to time to meet the latest regulatory requirements of PRC government authorities and adopt technical measures to protect data and ensure cybersecurity in a systematic way. Nonetheless, the Personal Information Protection Law elevates the protection requirements for personal information processing, and many specific requirements of this law remain to be clarified by the CAC, other regulatory authorities, and courts in practice. We may be required to make further adjustments to our business practices to comply with the personal information protection laws and regulations. |
Many of the data-related legislations are relatively new and certain concepts thereunder remain subject to interpretation by the regulators. If any data that we possess belongs to data categories that are subject to heightened scrutiny, we may be required to adopt stricter measures for protection and management of such data. The Cybersecurity Review Measures and the Draft Regulations remain unclear on whether the relevant requirements will be applicable to companies that are already listed in the United States, such as us. We cannot predict the impact of the Cybersecurity Review Measures and the Draft Regulations, if any, at this stage, and we will closely monitor and assess any development in the rule-making process. If the Cybersecurity Review Measures and the enacted version of the Draft Regulations mandate clearance of cybersecurity review and other specific actions to be taken by issuers like us, we face uncertainties as to whether these additional procedures can be completed by us timely, or at all, which may subject us to government enforcement actions and investigations, fines, penalties, suspension of our non-compliant operations, or removal of our app from the relevant application stores, and materially and adversely affect our business and results of operations. As of the date of this annual report, we have not been involved in any formal investigations on cybersecurity review made by the CAC on such basis.
In general, compliance with the existing PRC laws and regulations, as well as additional laws and regulations that PRC regulatory bodies may enact in the future, related to data security and personal information protection, may be costly and result in additional expenses to us, and subject us to negative publicity, which could harm our reputation and business operations. There are also uncertainties with respect to how such laws and regulations will be implemented and interpreted in practice.
In addition, regulatory authorities around the world have adopted or are considering a number of legislative and regulatory proposals concerning data protection. These legislative and regulatory proposals, if adopted, and the uncertain interpretations and application thereof could, in addition to the possibility of fines, result in an order requiring that we change our data practices and policies, which could have an adverse effect on our business and results of operations. The European Union General Data Protection Regulation, or the GDPR, which came into effect on May 25, 2018, includes operational requirements for companies that receive or process personal data of residents of the European Economic Area. The GDPR establishes new requirements applicable to the processing of personal data, affords new data protection rights to individuals and imposes penalties for serious data breaches. Individuals also have a right to compensation under the GDPR for financial or non-financial losses. Although we do not conduct any business in the European Economic Area, in the event that residents of the European Economic Area access our website or our mobile platform and input protected information, we may become subject to provisions of the GDPR.
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Negative media coverage related to our business, regardless of its validity, could adversely affect our business, financial position and results of operations.
Negative news or media coverage of our business, our employees, our third-party service providers and business partners, our directors and management or our shareholders, including, without limitation, alleged failure to comply with applicable laws and regulations, alleged fraudulent car listings, alleged misrepresentation by our sales consultants or third-party service providers, breach of data security, failure to protect user privacy, inappropriate business practices, disclosure of inaccurate operating data, negative information on blogs and social media websites, regardless of their validity, could damage our reputation. If we fail to correct or mitigate misinformation or negative information about us, including information spread through social media or traditional media channels, customer trust in us may be undermined, which would have a material adverse effect on our business, results of operations and financial condition.
Our limited operating history in certain of our services and the rapid evolution of our business model make it difficult for investors to evaluate our business and prospects.
Our limited operating history in certain of our services and the rapid evolution of our business model mean that our historical growth is not necessarily indicative of our future performance. We cannot assure you that our new product and service offerings will achieve the expected results or we will be able to achieve similar results or grow at the same rate as we did in the past. As our business and China’s used car industry continue to develop, we may adjust our product and service offerings or modify our business model. For example, we have shifted to an inventory-owning model since September 2020, when we build-up and sell our own inventory. In addition, our first used car superstore in Xi’an has been in operation in March 2021 and our second used car superstore in Hefei has been in operation since November 2021. In December 2022, we had completed the relocation and upgrade of our Xi’an Superstore. The upgraded Xi’an Superstore reopened for business as the largest fully self-owned used car marketplace in Northwest China with a showroom capacity of up to 3,000 vehicles to meet the used car consumption demand in the city of Xi’an and its surrounding areas.
Starting from early 2018, we have started to fulfill online used car transactions for consumers, which we previously referred to as “2C cross-regional business”. With our online used-car-buying product and service offerings, we enable consumers to buy used cars online without the need to go to offline dealerships or see the actual car when making the purchase. In addition, we entered into a binding term sheet, definitive agreements and supplemental agreements, in July 2019, September 2019 and April 2020, respectively, with Golden Pacer to divest our loan facilitation related business. Pursuant to the series of agreements, we divested our entire 2C intra-regional business in which we facilitated offline used car transactions between consumers and dealers in local used car marketplaces, and ceased to provide loan facilitation related guarantee services in connection with our 2C online transaction business since November 2019. We also divested our salvage car related business to Boche in January 2020 as well as our 2B business to 58.com pursuant to definitive agreements we entered into in March 2020. The transaction with Golden Pacer closed upon the signing of the supplemental agreements in April 2020, and the transactions with Boche and 58.com closed in January 2020 and April 2020, respectively. Such developments or adjustments may not achieve expected results and may have a material and adverse impact on our financial condition and results of operations.
The price of used cars sold on our platform and the fees we charge may fluctuate or decline in the future, and any material decrease in such price and fees would harm our business, financial condition and results of operations.
Since the built up of our own inventory since September 2020, most of our revenues are derived from vehicle sales. Before we built our own inventory, most of our revenues were derived from the fees we charged from transactions on our platform, such as commission fee and value-added service fee from our 2C business. Prior to the divestiture of our 2B business, we also generated transaction facilitation service fee from the 2B business. Maintaining and growing our revenues depends on a number of factors, including:
| ● | our ability to offer high-quality and value-for-money used cars to our customers; | |
| ● | our ability to deliver satisfactory online used car transaction experience to our customers; | |
| ● | our ability to attract consumers to our platform; |
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| ● | the average unit price of used cars sold on our platform, which may decrease if we adjust down the price range of used cars available on our platform or enter into lower-tier city markets, or as a result of declining selling prices of new cars; | |
| ● | our ability to foster relationships with third-party service providers to provide services through our platform at attractive terms and prices to us and our customers; and | |
| ● | fluctuation in other macro-economic changes. |
Any failure to adequately and promptly address any of these risks and uncertainties would materially and adversely affect our business and results of operations.
Failure to obtain certain filings, approvals, licenses, permits and certificates required for our business operations may materially and adversely affect our business, financial condition and results of operations.
Certain of our PRC subsidiaries used to engage in business activities that are not within their registered business scope. As of the date of this annual report, we are not aware of any action, claim, or investigation being conducted or threatened by the State Administration for Market Regulation (formerly known as the State Administration for Industry and Commerce), or the SAMR, or its local branches with respect to such business activities. While we have ceased conducting such business activities, we cannot rule out the possibility that our past practice could be interpreted by the SAMR as “doing business beyond the business scope” and subject us to enforcement actions such as confiscation of any illegal gains, or imposition of fines.
In addition, pursuant to relevant laws and regulations, as some of our PRC subsidiaries are regarded as operators of used car marketplaces and used car related business, these entities are required to complete filings with the Ministry of Commerce of the PRC, or the MOFCOM, at provincial level. These PRC subsidiaries have completed such required filings with the relevant authorities and we will strive to complete relevant filings if certain of our subsidiaries commence used car related business. However, there is no assurance we will be able to complete the filing in a timely manner, or at all. Failure to comply with the filing requirements may subject our business to restriction, which would have an adverse impact on our business and results of operations.
In addition, it is required by PRC laws and regulations for companies responsible for the construction projects to prepare environmental impact report, environmental impact statement, or environmental impact registration form based on the different level of potential environmental impact of the projects. The environmental impact reports (required if potentially serious environmental impact) and the environmental impact statements (required if potentially mild environmental impact) are subject to review and approval by the governmental authority and failure to satisfy such requirements may subject one to discontinuation of the construction projects, fines of 1% to 5% of the total investment in the projects or an order of restoration. The environmental impact registration forms (required if very little environmental impact where environmental impact assessment is not necessary) are required to be filed with competent authority and failure to satisfy such requirement may subject one to fines up to RMB50,000. We do not regularly conduct construction projects in the ordinary course of our business. However, some of our projects, including the building and overall decoration of our transaction centers from time to time, could be recognized as construction projects where a timely filing or submission for approval is required and failure to do so may subject us to fines and other enforcement actions as mentioned above.
In addition, certain of our PRC subsidiaries used to engage in Internet freight business temporarily, for which we might be required to obtain the Road Transportation Operation Permit and Value-added Telecommunications Business License that certain entities did not have. As of the date of this annual report, we are not aware of any action, claim, or investigation being conducted or threatened by the relevant authority. While we have ceased conducting such business activities, we cannot rule out the possibility that our past practice could be interpreted as “operating without a license” and subject us to enforcement actions such as confiscation of any illegal gains, or imposition of fines.
Considerable uncertainty exists regarding the interpretation and implementation of existing and future laws and regulations governing our business activities. Historically, some of our PRC subsidiaries have been fined due to late tax filings, although the amount of the fine was not significant. If we fail to complete, obtain, maintain or renew any of the required licenses or approvals or make the necessary filings, we may be subject to various penalties, such as confiscation of the illegal gains, imposition of fines and discontinuation or restriction of our operations. Any such penalties may disrupt our business operations and materially and adversely affect our business, financial condition and results of operations.
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We may be held liable for information or content displayed on or linked to our platform, which may materially and adversely affect our business and operating results.
We may be held liable for inaccurate or incomplete information, including car listings, that is available through or linked to our platform. The data we collect and use for the car listings may be inaccurate or incomplete due to errors or on the part of our employees or third-party information providers, or frauds. Our failure to ensure the accuracy and integrity of our data, regardless of its source, could undermine customer trust, result in further administrative penalties and adversely affect our business, financial position and results of operations.
We depend on our proprietary technology for critical functions of our business. Failure to properly maintain or promptly upgrade our technology may result in disruptions to or lower quality of our services, and our business, results of operations and financial condition may be materially and adversely affected.
We rely on our proprietary technology, including websites and mobile apps, car inspection system and AI algorithms for critical functions of our businesses. See “Item 4. Information on the Company—B. Business Overview—Technology.” Maintaining and upgrading our technology carry certain risks, including the risk of disruptions caused by significant design or deployment errors, delays or deficiencies, which has made and may continue to make our platform and services unavailable. We may also implement additional or enhanced technology in the future to accommodate our growth and to provide additional capabilities and functionalities. The implementation of new or enhanced technologies may be disruptive to our business and can be time-consuming and expensive, and may increase management responsibilities and divert management attention. Additionally, our proprietary AI algorithms are based on data-driven analytics. If we do not have a large amount of data or the quality of data available to us for analysis is unsatisfactory, or if our algorithms have deficiencies, our proprietary AI algorithms may fail to perform effectively. If we fail to properly maintain or promptly upgrade our technology, our services may be disrupted or become of lower quality or unprofitable, and our results of operations and financial condition may be materially and adversely affected.
Our historical loan facilitation services may subject us to regulatory risks, which may have a material adverse effect on our business, results of operations and financial condition.
Prior to the divestiture of our loan facilitation related business to Golden Pacer, or the Loan Facilitation Divestiture, we historically provided loan facilitation services in partnership with financial institutions who finance our customers’ car purchases. As a result of the divestiture, we have ceased to provide loan facilitation services since November 2019.
According to the Financing Guarantee Circular 37 which was issued and became effective on October 9, 2019, entities shall be prohibited from providing financing guarantee services unless obtaining the approval from the relevant regulatory authorities and establishing financing guarantee companies. Those who have been engaged in financing guarantee services shall properly settle its existing business. The authorities shall intensify the crackdowns on the financing guarantee companies with illegal operation or those who committed serious infringement of consumer’s (and guaranteed person’s) rights and shall timely report such cases to the banks so as to work together to protect the legitimate rights and interests of the consumers. The Financing Guarantee Circular 37 also stipulates that, without prior approval, any institution which provides customer promotion, credit evaluation and other services for any lending institution shall be prohibited from providing financing guarantee services or doing so in a disguised form. Any entity operating the financing guarantee business without a financing guarantee business license shall be banned by the regulatory authorities. As we (i) no longer provide any additional loan facilitation related guarantee services since November 2019 and have divested the guarantee liabilities in relation to our historically-facilitated loans for XW Bank, which accounted for more than half of the total loans we historically facilitated, to Golden Pacer as a result of the Loan Facilitation Divestiture and (ii) have entered into a supplemental agreement with one of our major financing partners with regards to our historically-facilitated loans in July 2020, where we agreed to entirely settle all of our remaining guarantee liabilities associated with the historically-facilitated loans for this financing partner under the condition that we would pay the settlement amount in instalments from 2020 to 2025 based on an agreed schedule, we are no longer subject to any guarantee liabilities for the consumer auto loans we historically facilitated through our 2C business. It is required by the Financing Guarantee Circular 37 for us to properly settle our existing business and we plan to settle and gradually relieve our guarantee obligations from these historically facilitated loans along with the maturity of those remaining outstanding loans. However, we cannot assure you that our guarantee services in connection with such historical auto loans will be regarded as our “proper settlement” of our existing auto loan guarantee business by the relevant authority, or that our past practices in connection with our loan facilitation services would not be regarded as historical noncompliance. The imposition of any enforcement action would adversely affect our reputation and business, financial condition and results of operations.
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Furthermore, PRC laws and regulations concerning financial services, including internet financial services, are evolving and the PRC government authorities may promulgate further laws and regulations in the future. We cannot assure you that our past or current practices would not be regarded as non-compliance, and imposition of any enforcement action would adversely affect our reputation and business, financial condition and results of operations. For example, under current regulations, the risk assets of a PRC entity that conducts finance leasing business must not exceed 10 times its total net assets. In addition, PRC regulations stipulate that the amount of auto loans should be capped at 80% of the purchase price for a self-use conventionally-powered new car, 85% for a self-use new energy vehicle, and 70% for a used car. Our financing partners were responsible for designing the financing products that we offered through our historical loan facilitation services and are responsible for the financing products we currently refer to consumers on our platform. The financing products provided by our financing partners on our platform may be deemed to exceed the stipulated cap on the loan amount relative to the car purchase price, in which case we may be required to make adjustments to our cooperation arrangements or cease to cooperate with these financing partners.
We may be deemed to have operated financing guarantee business by the PRC regulatory authorities.
In August 2017, the State Council promulgated the Regulations on the Administration of Financing Guarantee Companies, or the Financing Guarantee Rules, which became effective on October 1, 2017. Pursuant to the Financing Guarantee Rules, “financing guarantee” refers to the activities in which guarantors provide guarantee to the guaranteed parties as to loans, bonds or other types of debt financing, and “financing guarantee companies” refer to companies legally established and operating financing guarantee business. According to the Financing Guarantee Rules, the establishment of financing guarantee companies are subject to the approval by the relevant governmental authority, and unless otherwise stipulated, no entity may operate financing guarantee business without such approval. If any entity violates these regulations and operates financing guarantee business without approval, the entity may be subject to penalties including ban or suspension of business, fines of RMB500,000 to RMB1,000,000, confiscation of illegal gains if any, and criminal liability if the violation constitutes a criminal offense.
Prior to divesting our loan facilitation business to Golden Pacer announced in July 2019, we provided guarantees to our financing partners for historical consumer auto loans. Since November 2019, following the divestiture, we have ceased to provide loan facilitation related guarantee services and have divested the guarantee liabilities in relation to our historically-facilitated loans for XW Bank. Additionally, we settled the remaining guarantee liabilities for historically-facilitated loans with WeBank in July 2020. As of March 31, 2024, we have no outstanding guarantee obligations in relation to our historically facilitated loans. We do not believe that the Financing Guarantee Rules apply to such guarantee obligations as they were not independent from our principal business. However, due to the lack of further interpretations, the exact definition and scope of “operating financing guarantee business” under the Financing Guarantee Rules is unclear. It is uncertain whether our historical arrangements with certain financial institutions would be deemed as operating financing guarantee business in violation of PRC laws or regulations. If regulatory authorities determine that we were or are operating financing guarantee business, we may need to obtain approval or a license for such business, which could adversely affect our business, results of operations and financial conditions.
Our business is subject to risks related to China’s online used car transaction industry, including industry-wide and macroeconomic risks.
We operate as a leading used car retailer for buying and selling used cars in China. We cannot assure you that this market will continue to grow rapidly in the future. Furthermore, the growth of China’s used car industry could be affected by many factors, including:
| ● | general economic conditions in China and around the world; | |
| ● | the growth of disposable household income and the availability and cost of credit available to finance used car purchases; | |
| ● | the growth of China’s automobile industry; | |
| ● | the growth of China’s auto financing industry; |
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| ● | consumer acceptance of used cars and willingness to purchase used cars online; | |
| ● | consumer acceptance of financing car purchases; | |
| ● | taxes and other incentives or disincentives related to used car purchases and ownership; | |
| ● | environmental concerns and measures taken to address these concerns; | |
| ● | the cost of energy, including gasoline prices, and the cost of car license plates in various cities with license plate lottery or auction systems; | |
| ● | the improvement of highway system and availability of parking facilities; | |
| ● | other government policies relating to used cars and auto financing in China; | |
| ● | fluctuations in the sales and price of new and used cars; | |
| ● | ride sharing, transportation networks, and other fundamental changes in transportation pattern; and | |
| ● | other industry-wide issues, including supply and demand for used cars, age distribution of cars, and supply chain challenges. |
Any adverse change to these factors could reduce demand for used cars and hence demand for our services, and our results of operations and financial condition could be materially and adversely affected.
Any breaches to our security measures, including unauthorized access, computer viruses and “hacking” may adversely affect our database and reduce use of our services and damage our reputation and brand names.
The massive data that we have processed and stored makes us or third-party service providers who host our servers an easy target and potentially vulnerable to cyber-attacks, computer viruses, physical or electronic break-ins, or similar disruptions. Breaches to our security measures, including computer viruses and hacking, may result in significant damage to our hardware and software systems and database, disruptions to our business activities, inadvertent disclosure of confidential or sensitive information, interruptions in access to our platform, and other material adverse effects on our operations, during transfer of data or at any time, and result in persons obtaining unauthorized access to our systems and data. Our systems may be subject to infiltration as a result of any third-party action, employee error, malfeasance or otherwise. While we have taken reasonable steps to protect the confidential information that we have access to, techniques used to sabotage or obtain unauthorized access to systems change frequently and generally are not recognized until they are launched against a target. As a result, we may be unable to anticipate these techniques or to implement adequate preventative measures. Any accidental or willful security breaches or other unauthorized access to our platform could cause confidential customer and investor information to be stolen and used for criminal purposes. Security breaches or unauthorized access to confidential information could also expose us to liability related to the loss of the information, time-consuming and expensive litigation and negative publicity. If security measures are breached because of any third-party action, employee error, malfeasance or otherwise, or if design flaws in our technology infrastructure are exposed and exploited, our relationships with customers and investors could be severely damaged, we could incur significant liability and our business and operations could be adversely affected.
We depend heavily on our management team and other key personnel to manage our business. If we fail to retain their employment or services or fail to attract talents, our ability to run and grow our business could be severely impaired.
Our future success is highly dependent on the ongoing efforts of our senior management and key personnel. We rely on our management team for their extensive knowledge of and experience in China’s automobile and internet industries as well as their deep understanding of the automobile market, business environment and regulatory regime in China. The loss of the services of one or more of our senior executives or key personnel may have a material adverse effect on our business, financial condition and results of operations. Competition for senior management and key personnel is intense and the pool of suitable candidates is very limited. Hence, we may not be able to retain the employment or services of our senior executives or key personnel, or attract and retain senior executives or key personnel in the future. If we fail to retain our senior management, our business and results of operations could be materially and adversely affected. In addition, if any members of our senior management or any of our key personnel join a competitor or form a competing company, we may not be able to replace them easily and we may lose customers, business partners and key staff members.
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Our business is susceptible to employee misconduct, improper business practices and other fraudulent conduct by or between our employees and third parties.
We rely on our employees to carry out our operating objectives and are exposed to many types of operational risks, including the risk of misconduct and errors by our employees. Our business depends on our employees to interact with potential customers, conduct car inspection, process large numbers of transactions and provide support for other key aspects of our business, all of which involve the use and disclosure of personal information and are susceptible to human errors on the part of our employees.
We could be materially and adversely affected if transactions were redirected, misappropriated or otherwise improperly executed, if personal information was disclosed to unintended recipients or if an operational breakdown or failure occurred when processing transactions, whether as a result of human error, purposeful sabotage or fraudulent manipulation of our operations or systems.
Although we provide periodic and solid trainings to all our employees, it is not always possible to identify, deter or prevent misconduct or errors by employees, and the precautions we take to detect and prevent potential misconducts and human errors may not be completely effective in controlling risks or losses. If any of our employees takes, converts or misuses funds, documents or data or fails to follow protocols when interacting with customers or among themselves, we could be liable for damages and subject to regulatory actions and penalties. We could also be perceived to have facilitated or participated in the illegal misappropriation of funds, documents or data, or failed to follow applicable protocols, and therefore be subject to civil or criminal liability. Our employees may also engage in improper business practices and other fraudulent conduct with third parties. As a result of these potentially damaging activities, we could incur significant losses, which could have a material adverse effect on our results of operations and financial condition.
Failure to adequately protect our intellectual property and proprietary information could materially harm our business and operating results.
We believe our patents, trademarks, software copyrights, trade secrets, our brand and other intellectual property rights and proprietary information are critical to our success. Any unauthorized use of intellectual property rights and proprietary information could harm our business, reputation and competitive advantages. We rely on a combination of patent, trademark, trade secret and copyright law, our internal control mechanism, and contractual arrangements to protect our intellectual property.
Legal protection may not always be effective. Infringement of intellectual property rights continues to pose a serious risk in doing business in China. Monitoring and preventing unauthorized use is difficult. Furthermore, the application of laws governing intellectual property rights in China is uncertain and evolving, and could involve substantial risks to us. The practice of intellectual property rights enforcement action by Chinese regulatory authorities is in its early stage of development. In the event that we have to resort to litigation and other legal proceedings to enforce our intellectual property rights, such action, litigation or other legal proceedings could result in substantial costs and diversion of our management’s attention and resources and could disrupt our business. There is no assurance that we will be able to enforce our intellectual property rights effectively or otherwise prevent others from the unauthorized use of our intellectual property.
We try, to the extent possible, to protect our intellectual property, technology, and confidential information by requiring our employees, third-party service providers, and consultants to enter into confidentiality and assignment of inventions agreements. Due to potential willful or unintentional conduct of personnel who have access to our confidential and proprietary information, these agreements and control measures may not effectively prevent unauthorized disclosure or use of our confidential information, unauthorized use of our intellectual property or technology and may not provide an adequate remedy in the event of such unauthorized disclosure or use. The enforceability of confidentiality agreements may vary from jurisdiction to jurisdiction. Failure to obtain or maintain trade secrets and/or confidential know-how protection could adversely affect our competitive position.
Competitors may adopt service names or trademarks similar to ours, thereby harming our ability to build brand identity and possibly leading to user confusion. Our competitors may independently develop substantially equivalent proprietary information and may even apply for patent protection. If successful in obtaining such patent protection, our competitors could limit our use of our trade secrets and confidential know-how, and our financial position and operating results would be adversely affected.
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We have been and may continue to be subject to intellectual property infringement claims or other allegations by third parties, which may materially and adversely affect our business, results of operations and prospects.
We depend to a large extent on our ability to develop and maintain the intellectual property rights relating to our technology and online businesses. We have devoted considerable resources to the development and improvement of our car inspection technology, big data and AI capabilities, mobile applications, mobile sites and websites and information technology systems. We cannot be certain that third parties will not claim that our business infringes upon or otherwise violates patents, trademarks, copyrights or other intellectual property rights that they hold. Companies operating online businesses and provide technology-based services are frequently involved in litigation related to allegations of infringement of intellectual property rights. The validity, enforceability and scope of protection of intellectual property rights, particularly in China, are still evolving. We were subject to several trademark claims in the past and may in the future be subject to intellectual property infringement claims from time to time. As we face increasing competition and as litigation becomes a more common method for resolving commercial disputes in China, we face a higher risk of being the subject of intellectual property infringement claims.
Defending against intellectual property claims is costly and can impose a significant burden on our management attention and resources, and favorable final outcomes may not be obtained in all cases. Such claims, even if they do not result in liability, may harm our reputation. Any resulting liability or expenses, or changes required to our services to reduce the risk of future liability, may have a material adverse effect on our business, results of operations and prospects.
We were named as a defendant in two putative shareholder class action lawsuits in the past that could have a material adverse impact on our business, financial condition, results of operation, cash flows and reputation.
We were named as a defendant in the two putative shareholder class action lawsuits described in “Item 8, Financial Information—A. Consolidated Statements and Other Financial Information—Legal Proceedings.” In May 2021, we have settled the two putative shareholder class action lawsuits for a total of US$9.5 million approved by court, out of which US$6.5 million were covered by our insurance policy and we made a contribution of US$3.0 million. Although the lawsuits were settled, the process lasted for over a year and utilized a significant portion of our resources and diverted management’s attention from the day-to-day operations of our company, all of which could harm our business. We cannot assure you that similar class action claims will not occur in the future. We also may be subject to claims for indemnification related to these matters, and we cannot predict the impact that indemnification claims may have on our business or financial results.
We may be subject to legal proceedings in the ordinary course of our business. If the outcomes of these proceedings are adverse to us, our business, results of operations and financial condition could be materially and adversely affected.
We may be subject to disputes with various counterparties with which we transact from time to time in the ordinary course of our business, such as service providers, customers, competitors and investors, which may lead to legal proceedings. These proceedings, if and when materialize, could have a material adverse effect on our business, results of operations and financial condition. Claims arising out of actual or alleged violations of law could also be asserted against us by consumers and businesses that utilize our services, by competitors, or by governmental entities in civil or criminal investigations and proceedings or by other entities. These claims could be asserted under a variety of laws, including but not limited to consumer finance laws, product liability laws, consumer protection laws, intellectual property laws, unfair competition laws, privacy laws, labor and employment laws, securities laws, real estate laws, tort laws, contract laws, property laws and employee benefit laws. We may also be subject to lawsuits due to actions by our third-party financing partners, or third-party providers of various services, including logistics and delivery service, title transfer service, car repair, car inspection equipment, loan servicing, car collateral repossession, and certain data services.
For example, we are subject to ongoing contractual disputes and other proceedings in the PRC. These cases are still ongoing, but we believe the claims are without merit and we will defend ourselves accordingly. As of March 31, 2024, we have not recorded any accrual for expected loss payments related to these cases and do not believe any of these claims is material to our overall business operations. However, we cannot predict the outcome of these cases or reasonably estimate any potential loss due to the current status of the proceedings. There is no guarantee that we will be successful in defending ourselves in legal and administrative actions or in asserting our rights under various laws. Even if we are successful in our attempt to defend ourselves in legal and administrative actions or to assert our rights under various laws, enforcing our rights against the various parties involved may be expensive, time-consuming and ultimately futile. These actions could expose us to negative publicity and to substantial monetary damages and legal defense costs, injunctive relief and criminal and civil fines and penalties, including but not limited to suspension or revocation of licenses to conduct business. See “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Legal Proceedings.”
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Acquisitions, strategic alliances and investments could be costly, difficult to integrate, disrupt our business and adversely affect our results of operations and the value of your investment.
As we continue to expand our operations, we have and may in the future enter into strategic alliances or to acquire substantial asset or equities from a pool of candidates that fit our criteria. We are not certain that we will be able to consummate any such transactions in the future or identify those candidates that would result in the most successful combinations, or that future acquisitions will be able to be consummated at reasonable prices and terms. In addition, increased competition for acquisition candidates could result in fewer acquisition opportunities for us and higher acquisition prices. Strategic investments or acquisitions will involve risks commonly encountered in business relationships, including:
| ● | lack of suitable acquisition candidates; | |
| ● | intense competition with other auction groups or new industry consolidators for suitable acquisitions; | |
| ● | deterioration of our financial capabilities; | |
| ● | difficulties in assimilating and integrating the operations, personnel, systems, data, technologies, products and services of the acquired business; | |
| ● | inability of the acquired technologies, products or businesses to achieve expected levels of revenue, profitability, productivity or other benefits; | |
| ● | difficulties in retaining, training, motivating and integrating key personnel; | |
| ● | diversion of management’s time and resources from our normal daily operations; | |
| ● | difficulties in successfully incorporating licensed or acquired technology and rights into our platform and service offerings; | |
| ● | difficulties in maintaining uniform standards, controls, procedures and policies within the combined organizations; | |
| ● | difficulties in retaining relationships with customers, employees and third-party service providers of the acquired business; | |
| ● | risks of entering markets in which we have limited or no prior experience; | |
| ● | regulatory risks, including remaining in good standing with existing regulatory bodies or receiving any necessary pre-closing or post-closing approvals, as well as being subject to new regulators with oversight over an acquired business; | |
| ● | assumption of contractual obligations that contain terms that are not beneficial to us, require us to license or waive intellectual property rights or increase our risk for liability; | |
| ● | failure to successfully further develop the acquired technology or maintain acquired facilities; | |
| ● | liability for activities of the acquired business before the acquisition, including intellectual property infringement claims, violations of laws, commercial disputes, tax liabilities and other known and unknown liabilities; | |
| ● | potential disruptions to our ongoing businesses; and | |
| ● | unexpected costs and unknown risks and liabilities associated with strategic investments or acquisitions. |
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We may not make any investments or acquisitions, or any future investments or acquisitions may not be successful, may not benefit our business strategy, may not generate sufficient revenues to offset the associated acquisition costs or may not otherwise result in the intended benefits. In addition, we cannot assure you that any future investment in or acquisition of new businesses or technology will lead to the successful development of new or enhanced service offerings and that any new or enhanced technology or services, if developed or offered, will achieve market acceptance or prove to be profitable.
We may need additional capital to achieve our business targets and respond to market opportunities. If we could not obtain sufficient capital through either debt or equity financing, our business, operating results and financial condition could be materially harmed, and your ownership may be diluted.
Since our inception, we have raised substantial financing to support the growth of our business. We may require additional capital to pursue our business objectives and respond to business opportunities, challenges or unforeseen circumstances, including to improve our brand awareness, build and maintain our offline network, develop new products or services or further improve existing products and services, and acquire complementary businesses and technologies. We issued convertible notes in the total principal amount of US$280 million in 2019, of which US$50 million and US$69 million in principal amount were converted into Class A ordinary shares on July 23, 2020 and July 12, 2021, respectively. In October 2020, we completed private placements with GIC and Wells Fargo for subscription of our Class A ordinary shares for an aggregate amount of US$25 million. In addition, we entered into definitive agreements with NIO Capital and Joy Capital in June 2021 for the subscription of senior convertible preferred shares, or the 2021 Subscription Agreement, to raise an aggregate amount of up to US$315 million. The first closing for US$100 million was completed on July 12, 2021 and the second closing for the amounts of US$27.5 million, US$10 million and US$7.5 million were completed in November 2021, March 2022 and June 2022, respectively. In July 2022, NIO Capital assigned its rights and obligations to subscribe for 14,564,520 senior convertible preferred shares under the second closing for the total price of US$5 million to an independent third party. On the same day, we issued 14,564,520 senior convertible preferred shares to the third party and the second closing of the transaction was completed. The two investors have also purchased warrants to purchase 480,629,186 senior convertible preferred shares for an aggregate amount of US$165 million. In January 2022, we entered into a definitive agreement with NIO Capital and Joy Capital to extend the expiration date of aforementioned warrants from January 12, 2023 to January 12, 2024. In addition, we entered into definitive agreements with NIO Capital in June 2022 for the subscription of 714,285,714 senior convertible preferred shares for an aggregate amount of US$100 million, which are payable in multiple installments. In April 2023, we and NIO Capital entered into additional agreements regarding the settlement of then outstanding amount of US$81.6 million of the foregoing purchase price. Pursuant to these agreements: (i) the payment method of such outstanding purchase price was modified to permit a combination of cash payment and cancellation of indebtedness of us to NIO Capital; and (ii) such outstanding purchase price of US$81.6 million was partially offset by the cancellation and discharge by NIO Capital of our obligations under the 2024 Notes totaling US$61.6 million that NIO Capital assigned from Redrock Holding Investments Limited, TPG Growth III SF Pte. Ltd. and Magic Carpet International Limited in April 2023. For a detailed description of the terms of the 2024 Notes, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Cash flows and working capital.” As a result of and immediately following the foregoing transactions, NIO Capital had fulfilled its obligation in an aggregate amount of US$80 million of the outstanding purchase price for its subscription of our senior convertible preferred shares. Meanwhile, we also fulfilled all of our obligations under the 2024 Notes of US$61.6 million. As of the date of this annual report, NIO Capital has fulfilled its obligation in an aggregate amount of US$90.6 million of the outstanding purchase price, and we and NIO Capital have mutually agreed that NIO Capital will fulfil its payment obligations by December 31, 2024 regarding the outstanding purchase price of US$9.4 million pursuant to the definitive agreements we entered into with NIO Capital in June 2022. In June 2023, we have entered into a definitive agreement with Alpha Wealth Global Limited (“Alpha”) and Joy Capital, regarding the warrants issued by the Company to NIO Capital and Joy Capital in 2021. Pursuant to the foregoing definitive agreement and certain assignments of warrants among Alpha, NIO Capital and Joy Capital, Alpha acquired from NIO Capital and Joy Capital warrants which provide the right to purchase up to 261,810,806 senior convertible preferred shares at a modified exercise price of US$0.0457 per share. Joy Capital only assigned a portion of its warrants under this amended agreement. Alpha and Joy Capital (either together or separately) are entitled to, at their discretion, exercise their respective warrants in full to subscribe for a total of 480,629,186 senior convertible preferred shares of the Company in an aggregate amount of US$21,964,754 no later than September 30, 2023. On August 17, 2023, Joy Capital has exercised its warrants to purchase 218,818,380 senior convertible preferred shares of our company for a total consideration of US$10.0 million. The warrants to purchase 261,810,806 senior convertible preferred shares held by Alpha were subsequently terminated. In September 2023, we entered into an equity investment agreement with Hefei Construction Investment North City Industrial Investment Co., Ltd. (the “Hefei Construction Investment”). Pursuant to the agreement, Hefei Construction Investment will invest by multiple instalments in Uxin Hefei, and each instalment will be made after the lease payment is made by the Hefei subsidiary, over a 10-year period. The first-year rental of approximately RMB147.09 million was converted into the investment for the subscription of approximately 12.02% of the equity interests in Uxin Hefei in October 2023. For more information about the issuance of senior convertible preferred shares to Xin Gao, see “Item 4. Information on the Company—A. History and Development of the Company.” On March 26, 2024, we and Xin Gao entered into a share subscription agreement for, and completed on the same day, the issuance of 1,440,922,190 senior convertible preferred shares to Xin Gao for a total consideration of US$7.0 million. See “B. Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Cash flows and working capital.” For the accounting impact resulted from the issuance price lower than market price, please refer to “Item 7. Major Shareholders and Related Party Transactions.” On June 21, 2024, we entered into another supplemental agreement with WeBank which revised and extended the repayment schedule of RMB30.0 million each due on June 30, 2024 and December 31, 2024, respectively, to monthly repayments of RMB2.5 million each month from December 2024 to November 2026. Despite these and any future further financing activities, we cannot guarantee that additional funds to support our business will be available on reasonable terms, or at all when we need them.
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If we raise additional funds through further issuances of equity or convertible debt securities, our existing shareholders could suffer significant dilution. Specifically, pursuant to the currently effective certificate of designation and preferred shares, if, at any time while any senior convertible preferred shares are outstanding, we or any of our subsidiaries, as applicable, sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any (a) ordinary shares, or (b) any rights, options or warrants to acquire ordinary shares and any depositary shares (including, without limitation, the ADSs), notes, debentures, preference shares or other equity securities or rights, which are ultimately convertible or exercisable into, or exchangeable for, ordinary shares entitling any person to acquire ordinary shares or ADSs at an effective price per share that is lower than the then applicable Conversion Price (such lower price, the “Base Conversion Price” and such issuances, collectively, a “Dilutive Issuance”) of such senior convertible preferred share, then simultaneously with the consummation (or, if earlier, the announcement) of each Dilutive Issuance, the applicable Conversion Price for such senior convertible preferred shares shall be reduced to equal the Base Conversion Price, subject to certain exceptions, in which case the number of ordinary shares convertible from the foregoing such senior convertible preferred share will correspondingly increase.
Additionally, any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our ordinary shares. Our ability to retain our existing financial resources and obtain additional financing on acceptable terms is subject to a variety of uncertainties, including but not limited to:
| ● | economic, political and other conditions in China; | |
| ● | PRC governmental policies relating to bank loans and other credit facilities; | |
| ● | PRC governmental regulations of foreign investment and the automobile industry in China; | |
| ● | conditions of capital markets in which we may seek to raise funds; and | |
| ● | our future results of operations, financial condition and cash flows. |
If we are unable to obtain adequate financing or financing on satisfactory terms, our ability to continue to pursue our business objectives and to respond to business opportunities, challenges or unforeseen circumstances could be significantly limited, and our business, results of operations, financial condition and prospects could be adversely affected.
We are subject to the risks and uncertainties associated with certain investor’s repurchase rights.
Under the terms of an equity investment agreement with Hefei Construction Investment, signed on September 20, 2023, the investor will invest by multiple instalments in Uxin Hefei, and each instalment will be made after the lease payment is made by the Hefei subsidiary, over a 10-year period. The first-year rental of approximately RMB147.09 million was converted into the investment for the subscription of approximately 12.02% of the equity interests in Uxin Hefei in October 2023. Details of each investment will be subject to future negotiation. Hefei Construction Investment’s equity interests in Uxin Hefei will be capped at 50%. For more information about this transaction, see “Item 4. Information on the Company—A. History and Development of the Company.” Both parties hold significant repurchase rights under this agreement. Specifically, while we retain the right to buy back the equity interests from Hefei Construction Investment at any time, the investor similarly possesses the right to request that we repurchase their equity interests at potentially any point during the agreement’s tenure when Uxin Hefei meets the performance condition or fails to meet certain conditions as stipulated in the equity investment agreement.
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Furthermore, on July 8, 2024, we, through our wholly-owned subsidiary Uxin (Anhui) Industrial Investment Co., Ltd., or Uxin Anhui, entered into an equity investment agreement with Zhengzhou Airport Automobile Industry Co., Ltd., or Zhengzhou Airport Industry, to establish Youxin (Zhengzhou) Automobile Intelligent Remanufacturing Co., Ltd., or Uxin Zhengzhou, as our subsidiary in Zhengzhou. For more information about this transaction, see “Item 4. Information on the Company—A. History and Development of the Company.” Both parties hold significant repurchase rights under this equity investment agreement. Specifically, while Uxin Anhui retains the right to buy back the equity interest from Zhengzhou Airport Industry at any time, subject to necessary regulatory approvals, Zhengzhou Airport Industry has the right to request Uxin Anhui to acquire its equity interests if certain performance-based conditions are met (the “Repurchase Obligations”). We undertake to provide an irrevocable joint and several liability guarantee for the performance by Uxin Anhui of Repurchase Obligations.
If Hefei Construction Investment or Zhengzhou Airport Industry opts to exercise their respective repurchase rights, we may be required to secure substantial funds to buy back the equity interests. This demand for liquidity could coincide with other financial obligations or during a period of tightened cash flows, thereby straining our financial resources. The request for a repurchase could come at a time when market conditions are unfavorable, which may necessitate fundraising under less favorable terms or divesting assets at suboptimal prices to fulfill the repurchase obligation, in which case our business, results of operations, financial condition and prospects could be adversely affected.
If we fail to develop and maintain an effective system of internal control over financial reporting, we may be unable to accurately report our financial results or prevent fraud.
Prior to our initial public offering in June 2018, we were a private company with limited accounting personnel and other resources with which to address our internal control over financial reporting. In connection with the audits of our consolidated financial statements as of and for the fiscal year ended March 31, 2024, we and our independent registered public accounting firm identified a material weakness in our internal control over financial reporting. As defined in the standards established by the U.S. Public Company Accounting Oversight Board, a “material weakness” is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
The material weakness identified related to our lack of sufficient accounting staff and management resources with appropriate knowledge of U.S. GAAP and SEC reporting and compliance requirements. We are in the process of implementing a number of measures to remedy these control deficiencies. See “Item 15. Controls and Procedures—Internal Control Over Financial Reporting.” However, the implementation of these measures may not fully address these deficiencies in our internal control over financial reporting, and we cannot conclude that they have been fully remedied. Our failure to correct these control deficiencies or our failure to discover and address any other control deficiencies could result in inaccuracies in our financial statements and impair our ability to comply with applicable financial reporting requirements and related regulatory filings on a timely basis. Moreover, ineffective internal control over financial reporting could significantly hinder our ability to prevent fraud.
We are a public company in the United States subject to the Sarbanes-Oxley Act of 2002. Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, requires that we include a report of management on our internal control over financial reporting in our annual report on Form 20-F. Our management has concluded that our internal control over financial reporting was ineffective as of March 31, 2024. In addition, since we ceased to be an “emerging growth company” as such term is defined in the JOBS Act, we will also be subject to the requirement that an independent registered public accounting firm must issue an attestation report on the effectiveness of our internal control over financial reporting, if we become a large accelerated filer or an accelerated filer. Our management may continue to conclude that our internal control over financial reporting is not effective. Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm, after conducting its own independent testing, may issue a report concluding that our internal control over financial reporting is ineffective if it is not satisfied with our internal controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. In addition, as we are a public company, our reporting obligations may place a significant strain on our management, operational and financial resources and systems for the foreseeable future. We may be unable to timely complete our evaluation testing and any required remediation.
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During the course of documenting and testing our internal control procedures, in order to satisfy the requirements of Section 404, we may identify other material weaknesses and deficiencies in our internal control over financial reporting. In addition, if we fail to implement adequate measures to remediate our existing material weakness, we may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404. If we fail to achieve and maintain an effective internal control environment, we could suffer material misstatements in our financial statements and fail to meet our reporting obligations, which would likely cause investors to lose confidence in our reported financial information. This could in turn limit our access to capital markets, harm our results of operations, and lead to a decline in the trading price of the ADSs. Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the stock exchange on which we list, regulatory investigations and civil or criminal sanctions. We may also be required to restate our financial statements for prior periods.
A severe or prolonged downturn in the Chinese or global economy could materially and adversely affect our business and financial condition.
The global macroeconomic environment is facing numerous challenges. The growth rate of the Chinese economy had already been slowing since 2010. There is considerable uncertainty over the long-term effects of the expansionary monetary and fiscal policies which had been adopted by the central banks and financial authorities of some of the world’s leading economies, including the United States and China, even before 2020. The war in Ukraine and the imposition of broad economic sanctions on Russia could raise energy prices and disrupt global markets. Unrest, terrorist threats and the potential for war in the Middle East and elsewhere may increase market volatility across the globe. There have also been concerns about the relationship between China and other countries, including the surrounding Asian countries, which may potentially have economic effects. In particular, there is significant uncertainty about the future relationship between the United States and China with respect to trade policies, treaties, government regulations and tariffs. Economic conditions in China are sensitive to global economic conditions, as well as changes in domestic economic and political policies and the expected or perceived overall economic growth rate in China. Any severe or prolonged slowdown in the global or Chinese economy may materially and adversely affect our business, results of operations and financial condition. See “—We may need additional capital to achieve our business targets and respond to market opportunities. If we could not obtain sufficient capital through either debt or equity, our business, operating results and financial condition could be materially harmed.”
The trade war between the U.S. and China may dampen economic growth in China and adversely affect our business, financial condition and results of operations.
In 2018 and 2019, the U.S. government imposed additional tariffs on specified products imported from China. In response, China has also imposed additional tariffs on specified products imported from the U.S. The U.S. and the Chinese governments are continuing to conduct negotiations on trade matters. We cannot assure you that the negotiations will result in an agreement between the two countries, or that the proposed tariffs will not be imposed even if an agreement will be reached.
Although we are not currently subject to any of these tariff measures, the proposed tariffs may adversely affect the economic growth in China and the financial condition of our customers. With the potential decrease in the spending powers of our target customers, we cannot guarantee that there will be no negative impact on our operations. In addition, the current and future actions or escalations by either the U.S. or China that affect trade relations may result in global economic turmoil, which may adversely affect our business, financial condition and results of operations.
Allegations or lawsuits against us or our management and related negative publicity may harm our reputation and have a material and adverse impact on our business operations and the trading price of our ADSs.
We have been, and may become, subject to allegations or lawsuits brought by our competitors, customers, business partners, short sellers, investment research firms or other individuals or entities. For example, a report was published on April 16, 2019 making various allegations about us, and we responded publicly stating the allegations are unfounded. Any such allegation or lawsuit, with or without merit, or any perceived unfair, unethical, fraudulent or inappropriate business practice by us or perceived malfeasance by our management, or failure or perceived failure to comply with legal and regulatory requirements, alleged accounting or financial reporting irregularities, could harm our reputation and distract our management from our daily operations. Allegations or lawsuits against us or our management may also generate negative publicity that significantly harms our reputation, which may materially and adversely affect our ability to attract customers, third-party service providers and business partners and hence our business operations, and cause the trading price of our ADSs to decline and fluctuate significantly.
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We may continue to be the target of adverse publicity and detrimental conduct against us, including complaints, anonymous or otherwise, to regulatory agencies regarding our operations, accounting, and regulatory compliance. We may be subject to government or regulatory investigation or inquiries, or shareholder lawsuits, as a result of such third-party conduct and may be required to incur significant time and substantial costs to defend ourselves, and there is no assurance that we will be able to conclusively refute each of the allegations within a reasonable period of time or at all. Our reputation may also be negatively affected as a result of the public dissemination of allegations or malicious statements about us, which in turn may materially and adversely affect the trading price of our ADSs.
Any failure by us or our third-party service providers to comply with applicable anti-money laundering laws and regulations could damage our reputation.
Our financing partners and payment companies are subject to anti-money laundering obligations under applicable anti-money laundering laws and regulations and are regulated in that respect by the People’s Bank of China, or the PBOC. If any of our third-party service provides fail to comply with applicable anti-money laundering laws and regulations, our reputation could suffer and we could become subject to regulatory intervention, which could have a material adverse effect on our business, financial condition and results of operations. Any negative perception of the industry, such as that arises from any failure of other loan facilitation service providers, consumer finance marketplaces or e-commerce platform for buying and selling used cars to detect or prevent money laundering activities, even if factually incorrect or based on isolated incidents, could compromise our image or undermine the trust and credibility we have established.
We are subject to changing laws and regulations regarding regulatory matters, corporate governance and public disclosure that have increased both our costs and the risk of non-compliance.
We are subject to rules and regulations promulgated by various governing bodies, including, for example, the Securities and Exchange Commission, which is charged with the protection of investors and the oversight of companies whose securities are publicly traded, and the various regulatory authorities in China and the Cayman Islands, and to new and evolving regulatory measures under applicable laws. Our efforts to comply with new and changing laws and regulations have resulted in and are likely to continue to result in, increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.
Moreover, because these laws, regulations and standards are subject to varying interpretations, their application in practice may evolve over time as new guidance becomes available. This evolution may result in continuing uncertainty regarding compliance matters and additional costs necessitated by ongoing revisions to our disclosure and governance practices.
If we fail to address and comply with these regulations and any subsequent changes, we may be subject to penalty and our business may be harmed.
We have limited business, disruption or litigation insurance coverage.
The insurance industry in China is still at an early stage of development. Insurance companies in China offer limited business insurance products and are, to our knowledge, not well-developed in the field of business liability insurance. While business disruption insurance is available to a limited extent in China, we have determined that the risks of disruption, cost of such insurance and the difficulties associated with acquiring such insurance on commercially reasonable terms make it impractical for us to have such insurance. As a result, except for limited property insurance coverage, we do not maintain general business liability, disruption or litigation insurance coverage for our operations in China. We consider our insurance coverage to be reasonable in light of the nature of our business, but we cannot assure you that our insurance coverage is sufficient to prevent us from any loss or that we will be able to successfully claim our losses under our current insurance policies on a timely basis, or at all.
We have granted, and may continue to grant, options and other types of awards under our share incentive plan, which may result in increased share-based compensation expenses.
We adopted an amended and restated share incentive plan in February 2018, which was further amended in August 2018, November 2018 and April 2024, referred to as the Amended and Restated Plan, for the purpose of granting share-based compensation awards to employees, directors and consultants to incentivize their performance and align their interests with ours. We recognize expenses in our consolidated statement of comprehensive loss in accordance with U.S. GAAP. The maximum aggregate number of ordinary shares which may be issued pursuant to all awards under the Amended and Restated Plan is 622,873,386 ordinary shares.
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For the fiscal years ended March 31, 2022, 2023 and 2024, we recorded an aggregate of negative RMB26.5 million, RMB47.3 million and RMB47.1 million (US$6.5 million), respectively, in share-based compensation expenses related to the equity awards granted under the Amended and Restated Plan. As of March 31, 2024, our unrecognized share-based compensation expenses related to the share options and restricted share units amounted to RMB86.2 million (US$11.9 million). We believe the granting of share-based compensation is of significant importance to our ability to attract and retain key personnel and employees, and we will continue to grant share-based compensation to employees in the future. As a result, our expenses associated with share-based compensation may increase, which may have an adverse effect on our results of operations. In addition, the issuance of additional equity upon the exercise of options or other types of awards would result in further dilution to our shareholders.
Our business is dependent on the performance of the internet and mobile internet infrastructure and telecommunications networks in China, which may not be able to support the demands associated with our growth.
Our internet businesses are heavily dependent on the performance and reliability of China’s internet infrastructure, the continual accessibility of bandwidth and servers to our service providers’ networks, and the continuing performance, reliability and availability of our technology platform. We use the internet to deliver services to our customers, who access our websites and mobile apps on the internet.
We rely on major Chinese telecommunication companies to provide us with bandwidth for our services, and we may not have any access to comparable alternative networks or services in the event of disruptions, failures or other problems.
Internet access may not be available in certain areas due to national disasters, such as earthquakes, or local government decisions. Surges in internet traffic on our platform, regardless of the cause, may seriously disrupt services we provide through our platform and in-store or cause our technology systems and our platform to shut down. If we experience technical problems in delivering our services over the internet either at national or regional level or system shutdowns, we could experience reduced demand for our services, lower revenues and increased costs. Consequently, our business, results of operations and financial condition would be adversely affected.
We face risks related to natural disasters, health epidemics and other outbreaks, which could significantly disrupt our operations and adversely affect our business, financial condition or results of operation.
Our business could be adversely affected by the effects of other epidemics such as COVID-19, Ebola virus disease, H1N1 flu, H7N9 flu, avian flu, or Severe Acute Respiratory Syndrome, or SARS. Our business operations could be disrupted if any of our employees is suspected of having Ebola virus disease, H1N1 flu, H7N9 flu, avian flu, SARS, or other epidemics, since it could require our employees to be quarantined and/or our offices to be disinfected. In addition, our results of operations could be adversely affected to the extent that any of these epidemics harms the Chinese and global economy in general.
We are also vulnerable to natural disasters and other calamities. Fire, floods, typhoons, earthquakes, power loss, telecommunications failures, break-ins, war, riots, terrorist attacks or similar events may give rise to server interruptions, breakdowns, system failures, technology platform failures or internet failures, which could cause the loss or corruption of data or malfunctions of software or hardware as well as adversely affect our ability to provide products and services on our platform.
In addition, our results of operations could be adversely affected to the extent that any health epidemic, natural disaster or other calamities harms the Chinese and global economies in general. Our headquarters are located in Beijing, where most of our management and employees currently reside. Most of our system hardware and back-up systems are hosted in facilities located in Beijing. Consequently, if any natural disasters, health epidemics or other public safety concerns were to affect Beijing, our operation may experience material disruptions, which may materially and adversely affect our business, financial condition and results of operations.
Our business is subject to quarterly fluctuations and unexpected interruptions.
We have experienced, and expect to continue to experience, quarterly fluctuations in our revenues and results of operations. Our revenue trends are a reflection of consumers’ car purchase patterns. The holiday period following the Chinese New Year is usually in the first quarter of each year, which may contribute to lower activity levels in that quarter of each year. As a result, our revenues may vary from quarter to quarter and our quarterly results may not be comparable to the corresponding periods of prior years. Our actual results may differ significantly from our targets or estimated quarterly results. The quarterly fluctuations in our revenues and results of operations could result in volatility and cause the price of our shares to fall.
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Risks Related to Our Corporate Structure
If the PRC government determines that the historical contractual arrangements with the former VIEs structure did not, or that our holding company structure do not, comply with PRC laws and regulations, or if these regulations change or are interpreted differently in the future, our shares and/or ADSs may decline in value or become worthless.
Uxin Limited is not a Chinese operating company but a Cayman Islands holding company with operations primarily conducted by its subsidiaries and, historically, through contractual arrangements with the former VIEs based in China. As a result, investors face unique risks associated with our holding company structure. The PRC regulatory authorities could disallow our holding company structure which could lead to a material change in our operations and/or a material change in the value of our ADSs, and could cause the value of our ADSs to significantly decline or become worthless. PRC laws and regulations restrict and impose conditions on foreign investment in value-added telecommunications services businesses, such as internet content provision services and online data processing and transaction processing businesses (operating e-commerce business). In order to comply with PRC regulatory requirements, in the past we primarily operate these businesses in China through the former VIEs.
In January 2015, Ministry of Industry & Information Technology announced the Notice of the Ministry of Industry and Information Technology on Removing the Restrictions on Foreign-owned Shareholding Percentage in Online Data Processing and Transaction Processing (operating commerce) Business in China (Shanghai) Pilot Free Trade Zone, or SHFTZ Notice. Pursuant to SHFTZ Notice, there are no restrictions on foreign investors maximum shareholding percentage in an enterprise established in Shanghai Pilot Free Trade Zone that conducts value-added telecommunications services in the scope of online data processing and transaction processing (Operating E-commerce). Therefore, our eligible PRC subsidiaries, Yougu and Youhan, have applied for and obtained approval from Shanghai Communications Administration to conduct e-commerce, and since then they have been operating our main online businesses instead of the former VIEs, Youxin Hulian and Yishouche.
In order to streamline our corporate structure and considering the changing regulatory environment, we have completed the Restructuring to terminate the contractual arrangements with both of the former VIEs which have become wholly owned subsidiaries of the Company. Pursuant to the Restructuring, our wholly owned subsidiaries that have contractual arrangements with the VIEs and their respective shareholders have purchased all equity interests held by such shareholders in the VIEs. Accordingly, all contractual arrangements that enabled such shareholders to direct the activities of and derive economic benefits from the VIEs, were effectively terminated. As a result of the Restructuring, the VIEs have become our wholly owned subsidiaries and we currently operates our business in China directly through our subsidiaries, rather than through any variable interest entity.
We, through the former VIEs, had been historically subject to a series of contractual arrangements with the former VIEs and the shareholders of the former VIEs until March 31, 2022. Because of these contractual arrangements, we were considered as the primary beneficiary of the former VIEs in China and accordingly, under U.S. GAAP, the financial statements of the former VIEs are consolidated as part of our financial statements for the fiscal years ended March 31, 2022 in this annual report.
Although we have completed the Restructuring in March 2022, there are substantial uncertainties regarding the interpretation and application of current and future PRC laws, regulations, and rules relating to the agreements that established the former VIE structure for our operations in China, including potential future actions by the PRC government, which may retroactively affect the enforceability and legality of our historical contractual arrangements with the former VIEs and, consequently, affect the historical financial condition and results of operations of the former VIEs, and our ability to consolidate the results of the former VIEs into our consolidated financial statements for the periods prior to the completion of the Restructuring. No service fee was accrued or paid by the former VIEs according to the contractual agreements as the services provided were immaterial during the historical periods. The consideration for termination of the historical contractual arrangements with the former VIEs was the same as the loan amount under the contractual agreements, therefore, there was no cash transfer for the termination of the contractual arrangements. If the PRC government finds such agreements non-compliant with relevant PRC laws, regulations, and rules, or if these laws, regulations, and rules or the interpretation thereof change in the future, and such changes may be retroactively applied to our historical contractual arrangements, we could be subject to severe penalties and our contractual arrangements with the former VIEs may be rendered ineffective, which could result in potential restatement of our financial statements included elsewhere in this annual report. As a result, our shares and/or ADSs may decline in value or become worthless.
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Risks Related to Doing Business in China
Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our business and operations.
Substantially all of our operations are located in China. Accordingly, our business prospects, financial condition and results of operations may be influenced to a significant degree by political, economic and social conditions in China generally and by continued economic growth in China as a whole.
The Chinese economy differs from the economies of most developed countries in many respects, including the amount of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. Although the Chinese 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 are still owned by the government. In addition, the Chinese government continues to play a significant role in regulating industry development by imposing industrial policies. The Chinese government also exercises significant control over China’s economic growth through allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies.
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. The Chinese 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. The growth rate of the Chinese economy has gradually slowed since 2010, and the COVID-19 also had some impact on the Chinese economy in the past two years. Any prolonged slowdown in the Chinese economy may reduce the demand for our products and services and materially and adversely affect our business and results of operations.
The approval and/or other requirements of the CSRC, the CAC, or other PRC governmental authorities may be required in connection with an offering under PRC rules, regulations or policies, and, if required, we cannot predict whether or how soon we will be able to obtain such approval, and, even if we obtain such approval, the approval could be rescinded. Any failure to obtain or delay in obtaining such approval for any future offshore securities offering, or a rescission of obtained approval, would subject us to sanctions imposed by the CSRC or other PRC government authorities.
The Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, purport to require offshore special purpose vehicles that are controlled by PRC companies or individuals and that have been formed for the purpose of seeking a public listing on an overseas stock exchange through acquisitions of PRC domestic companies or assets to obtain CSRC approval prior to any public securities offerings on an overseas stock exchange. The interpretation and application of the regulations remain unclear. If a governmental approval is required, it is uncertain how long it will take for us to obtain such approval, and, even if we obtain such approval, the approval could be rescinded. Any failure to obtain or a delay in obtaining the requisite governmental approval for an offering, or a rescission of such CSRC approval if obtained by us, may subject us to sanctions imposed by the relevant PRC regulatory authority, which could include fines and penalties on our and the former VIEs’ operations in China, restrictions or limitations on our ability to pay dividends outside of China, and other forms of sanctions that may materially and adversely affect our business, financial condition, and results of operations. In the opinion of Beijing DOCVIT Law Firm, our counsel regarding certain PRC legal matters, based on its understanding of the current PRC laws and regulations, we will not be required to submit an application to the CSRC for the approval under the M&A Rules for an offering because (i) the CSRC currently has not issued any definitive rule or interpretation concerning whether our offerings are subject to this regulation; and (ii) our PRC subsidiaries were incorporated as wholly foreign-owned enterprises by means of direct investment and we did not acquire any equity interests or assets of a “PRC domestic company” as such terms are defined under the M&A Rules.
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However, in the opinion of Beijing DOCVIT Law Firm, our counsel regarding certain PRC legal matters, there remains some uncertainty as to how the M&A Rules will be interpreted or implemented in the context of an overseas offering, and its opinions summarized above are subject to any new laws, rules and regulations or detailed implementations and interpretations in any form relating to the M&A Rules. We cannot assure you that relevant PRC governmental authorities, including the CSRC, would reach the same conclusion as our PRC legal counsel, and hence, we may face regulatory actions or other sanctions from them. Furthermore, relevant PRC governmental authorities promulgated the Opinions on Strictly Cracking Down Illegal Securities Activities on July 6, 2021, which provided that the administration and supervision of overseas-listed China-based companies will be strengthened, and the special provisions of the State Council on overseas issuance and listing of shares by such companies will be revised, clarifying the responsibilities of domestic industry competent authorities and regulatory authorities. However, the Opinions on Strictly Cracking Down Illegal Securities Activities were still leaving uncertainties regarding the interpretation and implementation of these opinions. It is possible that any new rules or regulations may impose additional requirements on us. Furthermore, the Review Measures required that, in addition to network products and services acquired by critical information infrastructure operators, online platform operators are also subject to cybersecurity review if they carry out data processing activities that affect or may affect national security, and online platform operators listing in a foreign country with more than one million users’ personal information data must apply for a cybersecurity review with the Cybersecurity Review Office. It is uncertain whether we would be deemed as a CIIO or an online platform operator which is under the censorship of the Review Measure in the future. In the event that we become under investigation or review by the CAC, we may have to substantially change our current business and our operations may be materially and adversely affected. If it is determined in the future that CSRC approval or other procedural requirements are required to be met for and prior to an offering, it is uncertain whether we can or how long it will take us to obtain such approval or complete such procedures and any such approval could be rescinded. Any failure to obtain or delay in obtaining such approval or completing such procedures for an offering, or a rescission of any such approval, could subject us to sanctions by the relevant PRC governmental authorities. The PRC governmental authorities may impose restrictions and penalties on our operations in China, such as the suspension of our apps and services, revocation of our licenses, or shutting down part or all of our operations, limit our ability to pay dividends outside of China, delay or restrict the repatriation of the proceeds from an offering into China or take other actions that could have a material adverse effect on our business, financial condition, results of operations and prospects, as well as the trading price of our ADSs. The PRC governmental authorities may also take actions requiring us, or making it advisable for us, to halt an offering before settlement and delivery of the ADSs being offered. Consequently, if investors engage in market trading or other activities in anticipation of and prior to settlement and delivery, they do so at the risk that settlement and delivery may not occur. In addition, if the PRC governmental authorities later promulgate new rules or explanations requiring that we obtain their approvals for filings, registrations or other kinds of authorizations for an offering, we cannot assure you that we can obtain the approval, authorizations, or complete required procedures or other requirements in a timely manner, or at all, or obtain a waiver of the requisite requirements if and when procedures are established to obtain such a waiver.
On February 17, 2023, the CSRC, as approved by the State Council, released the Overseas Listing Trial Measures. According to the Overseas Listing Trial Measures, domestic companies in the Chinese mainland that directly or indirectly offer or list their securities in an overseas market, are required to file with the CSRC. Specifically, the securities under the Trial Measures refer to stocks, depositary receipts, convertible corporate bonds, exchangeable bonds and other equity-linked securities to be issued and offered in overseas markets by domestic companies directly or indirectly, while a direct offering and listing refers to the overseas offering and listing of a joint-stock company incorporated in the Chinese mainland, and an indirect offering and listing refers to the overseas offering and listing of a domestic company which conducts its business operations primarily in the Chinese mainland, in the name of an offshore company and based on the underlying equities, assets, earnings or similar interests of the domestic company. In particular, the determination of an indirect offering and listing will be conducted on a “substance over form” basis, and an offering and listing should be considered as an indirect overseas offering and listing by a domestic company if the issuer meets both of the following conditions: (i) 50% or more of the issuer’s revenue, profit, total assets or net assets as documented in the issuer’s audited consolidated financial statements in the most recent financial year is accounted by domestic companies; and (ii) the majority of its business operations are conducted in the Chinese mainland or its principal place of business is located in the Chinese mainland, or the majority of senior management in charge of business operations are Chinese citizens or have domicile in the Chinese mainland. According to the Overseas Listing Trial Measures, an overseas offering and listing is prohibited under any of the following circumstances: (i) if the intended securities offering and listing is specifically prohibited by the laws, administrative regulations and relevant national provisions; (ii) if the intended securities offering and listing may constitute a threat to or endanger national security as reviewed and determined by competent authorities under the State Council in accordance with law; (iii) the domestic companies or their controlling shareholders or actual controllers have committed corruption, bribery, embezzlement, misappropriation of property, or other criminal offenses disruptive to the order of the socialist market economy in the past three years; (iv) the domestic companies are currently under investigations in connection with suspicion of having committed criminal offenses or material violations of applicable laws and regulations, and there is still no explicit conclusion; or (v) there are material ownership disputes over the shareholdings held by the controlling shareholder or the shareholder under the control of the controlling shareholder or the actual controllers. According to the Overseas Listing Trial Measures, the issuer or its affiliated domestic company, as the case may be, is required to file with the CSRC (i) with respect to its initial public offering and listing and its subsequent securities offering in an overseas market different from the market where it has listed, within three business days after its submission of listing application documents to the relevant regulator in the place of intended listing, (ii) with respect to its follow-on offering in the same overseas market where it has listed (including issuance of any corporate convertible bonds, exchangeable bonds and other equity-linked securities, but excluding the offering for employees incentive, dividend distribution by shares and share split), within three business days after completion of such follow-on offering, (iii) with respect to listing by means of single or multiple acquisitions, share swap, transfers of shares and similar transactions, within three business days after its initial filing of the listing application or the first public announcement of the transaction, as case may be. Failure to comply with the filing requirements may result in an order of rectification, a warning and fines ranging from RMB1 million to RMB10 million to the non-compliant domestic companies, and the directly responsible persons of the companies will be warned and fined between RMB500,000 and RMB5 million. Furthermore, if the controlling shareholder and the actual controller of the non-compliant companies organizes or instigates the breach, they will be fined between RMB1 million and RMB10 million. In addition to above filing requirements, the Filings Rules also requires an issuer to report to the CSRC within three business days after occurrence of any the following events: (i) its change of control; (ii) its being subject to investigation or sanctions by any overseas securities regulators or overseas authorities; (iii) its change of listing status or listing segment; (iv) voluntary or mandatory delisting; and (v) material change of its principal business operations to the extent that it ceases to be subject to the filing requirements of the Overseas Listing Trial Measures.
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On February 24, 2023, the CSRC released the Provisions on Strengthening the Confidentiality and Archives Administration Related to the Overseas Securities Offering and Listing by Domestic Enterprises, or, the Confidentiality Provisions, which came into effect on March 31, 2023. Pursuant to the Confidentiality Provisions, any future inspection or investigation conducted by overseas securities regulator or the relevant competent authorities on our PRC domestic companies with respect to our overseas issuance and listing shall be carried out in the manner in compliance with PRC laws and regulations.
As of the date of this annual report, we have not received any inquiry or notice or any objection in connection with our historical issuance of securities to foreign investors from the CSRC, the CAC or any other PRC governmental authorities that have jurisdiction over our operations. In the opinion of Beijing DOCVIT Law Firm, our counsel as to certain PRC legal matters, we are not required to file an application for the cybersecurity review by CAC for our historical issuance of securities to foreign investors as of the date of this annual report on the grounds that: (i) the relevant regulations do not require network platform operators holding personal information of over one million users to file a supplementary application of cybersecurity review for their historical issuance of securities to foreign investors that occurred before such regulations became effective; and (ii) our securities have already been listed on the Nasdaq Global Select Market before such regulations became effective. Thus, Beijing DOCVIT Law Firm does not expect that, as of the date of this annual report, we are required to file an application for the cybersecurity review by CAC for our historical issuance of securities to foreign investors.
Furthermore, in the opinion of Beijing DOCVIT Law Firm, our counsel as to certain PRC legal matters, based on the facts that, (i) the Cybersecurity Review Measures were newly adopted and the Draft Regulations have not been formally adopted, and the implementation and interpretation of both are subject to uncertainties, (ii) as of the date of this annual report, we have not been involved in any investigations on cybersecurity review made by the CAC on such basis, and (iii) we have not received any inquiries, notices, warnings, or sanctions from any competent PRC regulatory authorities related to cybersecurity, data security and personal data protection that could have a material and adverse effect on our business, we believe we are in compliance with the existing PRC laws and regulations on cybersecurity, data security and personal data protection in all material respects. However, given the current regulatory environment in the PRC, there remains uncertainty regarding the interpretation and enforcement of PRC laws, which can change quickly with little notice in advance and subject to any future actions within the discretion of PRC authorities.
According to the New Overseas Listing Rules, PRC domestic companies that seek to offer and list securities in overseas markets, either in direct or indirect means, are required to complete the filing procedure with the CSRC and report relevant information. In addition, an overseas-listed company must also submit the filing with respect to its follow-on offerings, issuance of convertible corporate bonds and exchangeable bonds, and other equivalent offering activities, within the time frame specified the Overseas Listing Trial Measures. We have been closely monitoring regulatory developments in China regarding any necessary approvals, filings or reports from the CSRC, and we will take any and all actions necessary to complete the filing with the CSRC if required.
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The PRC government’s oversight over our business operation could result in a material adverse change in our operations and the value of our ADSs.
We historically conducted our business in China primarily through the former VIEs and their subsidiaries. Our operations in China are governed by PRC laws and regulations. The PRC government has oversight over the conduct of our business, and may intervene or influence our operations as the government deems appropriate to advance regulatory and social goals and policy positions. The PRC government deems appropriate to advance regulatory and social goals and policy positions. The PRC government has recently published new policies that significantly affected certain industries and we cannot rule out the possibility that it will in the future release regulations or policies that directly or indirectly affect our industry or require us to seek additional permission to continue our operations, which could result in a material adverse change in our operation and/or the value of our ADSs. In addition, any actions by the Chinese government to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers could significantly limit or completely hinder our ability to offer or continue to offer ADSs to investors and cause the value of our ADSs to significantly decline or become worthless. Therefore, investors of our company and our business face potential uncertainty from actions taken by the PRC government affecting our business.
Uncertainties in the interpretation and enforcement of Chinese laws and regulations could limit the legal protections available to us.
The PRC legal system is based on written statutes and prior court decisions have limited value as precedents. Since these laws and regulations are relatively new and the PRC legal system continues to rapidly evolve, the interpretations of many laws, regulations and rules are not always consistent and enforcement of these laws, regulations and rules involves uncertainties.
In particular, PRC laws and regulations concerning the used car e-commerce industry are developing and evolving. Although we have taken measures to comply with the laws and regulations that are applicable to our business operations and avoid conducting any activities that may be deemed as illegal under the current applicable laws and regulations, the PRC government authority may promulgate new laws and regulations regulating our industry and amend the existing laws and regulations in the future. See “—Risks Related to Our Business and Industry—Failure to obtain certain filings, approvals, licenses, permits and certificates for our business operations may materially and adversely affect our business, financial condition and results of operations.” We cannot assure you that our practices would not be deemed to violate any PRC laws or regulations. Moreover, developments in the used car service industry and online used car transaction industry may lead to changes in PRC laws, regulations and policies or in the interpretation and application of existing laws, regulations and policies that may limit or restrict e-commerce platform for used cars like us, which could materially and adversely affect our business and results of operations.
In addition, we are required to satisfy various requirements by relevant authorities from time to time and we cannot assure you that we will comply with all those requirements within prescribed time. For example, some of our PRC subsidiaries have been included in the list of abnormal business operation by the local branch of the SAMR for reasons including delay in information disclosure and failure to be reached by the authority. Failure to do so may subject us to administrative penalties.
From time to time, we may have to resort to administrative and court proceedings to enforce our legal rights. However, since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems. Furthermore, the PRC legal system is based in part on government policies and internal rules (some of which are not published in a timely manner or at all) that may have retroactive effect. As a result, we may not be aware of our violation of these policies and rules until sometime after the violation. Such uncertainties, including uncertainty over the scope and effect of our contractual, property (including intellectual property) and procedural rights, could materially and adversely affect our business and impede our ability to continue our operations.
Furthermore, recently, certain PRC regulatory authorities issued Opinions on Strictly Cracking Down on Illegal Securities Activities, which were available to the public on July 6, 2021 and further emphasized to strengthen the cross-board regulatory collaboration, to improve relevant laws and regulations on data security, cross-border data transmission, and confidential information management, and provided that efforts will be made to revise the regulations on strengthening the confidentiality and file management relating to the offering and listing of securities overseas, to implement the responsibility on information security of overseas listed companies, and to strengthen the standardized management of cross-border information provision mechanisms and procedures. However, these opinions were newly issued, and there were no further explanations or detailed rules or regulations with respect to such opinions, and there are still uncertainties regarding the interpretation and implementation of these opinions.
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These and other similar legal and regulatory developments could lead to legal and economic uncertainty, affect how we design, market and sell solutions, how we operate our business, how our customers process and share data, how we process and use data, and how we transfer personal data from one jurisdiction to another, which could negatively impact demand for our solutions. We may incur substantial costs to comply with such laws and regulations, to meet the demands of our customers relating to their own compliance with applicable laws and regulations, and to establish and maintain internal compliance policies.
Our business is susceptible to changes in government policies, including policies on automobile purchases, ownership, taxation, vehicle title transfers, and used car transactions across regions and provinces. Failure to adequately respond to such changes could adversely affect our business.
Government policies on automobile purchases and ownership may have a material impact on our business due to their influence on consumer behaviors. Since 2009, the PRC government has changed the vehicle purchase tax on automobiles with 1.6 liter or smaller engines several times. In addition, in August 2014, several PRC governmental authorities jointly announced that from September 2014 to December 2017, purchases of new energy automobiles designated on certain catalogs will be exempted from vehicle purchase taxes. In April 2015, several PRC governmental authorities also jointly announced that from 2016 to 2020, purchasers of new energy automobiles designated on certain catalogs will enjoy subsidies. In December 2016, relevant PRC governmental authorities further adjusted the subsidy policy for new energy automobiles. We cannot predict whether government subsidies will remain in the future or whether similar incentives will be introduced, and if they are, their impact on automobile retail transactions in China. It is possible that automobile retail transactions may decline significantly upon expiration of the existing government subsidies if consumers have become used to such incentives and postpone purchase decisions in the absence of new incentives. If automobile retail transactions indeed decline, our revenues and results of operations may be materially and adversely affected.
Atmospheric Pollution Prevention and Control Law of the People’s Republic of China, as amended on August 29, 2015 and on October 26, 2018, advocate reasonable control over the number of fuel vehicles in accordance with urban planning. Some local governmental authorities issued regulations and implementation rules in order to control urban traffic and the number of automobiles within particular urban areas. Municipal authorities of Beijing, Guangzhou, Shanghai, Tianjin, Hangzhou, Guiyang and Shenzhen adopted regulations and implemented rules to limit the total number of license plates issued to new automobile purchases. In addition to the quantity control of automobiles, some local governmental authorities have also adopted environmental protection policies and regulations in recent years, pursuant to which an automobile, failing to meet certain environmental protection requirements or standards, will not be able to obtain the license plate issued by relevant local governmental authorities.
As some used cars cannot meet the environmental protection standards required in some regions, the above policies and regulations may restrict or adversely impact the transactions of such used cars. Such regulatory developments, as well as other uncertainties, may adversely affect the growth prospects of China’s automobile industry, which in turn may have a material adverse impact on our business.
You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing actions against us or our directors and management named in the annual report based on foreign laws.
We are an exempted company incorporated under the laws of the Cayman Islands. We conduct substantially all of our operations in China and substantially all of our assets are located in China. In addition, to our best knowledge, as of the date of this annual report, other than two independent directors that reside in the United States, all of the remaining directors and senior executive officers, namely, Kun Dai, Bin Li, Erhai Liu, Rong Lu, Feng Lin, Zhitian Zhang and Wenbing Jing, reside within mainland China and Hong Kong for a significant portion of the time and are residents of mainland China or Hong Kong. As a result, it may be difficult for you to effect service of process upon us or those persons inside mainland China and Hong Kong. It may also be difficult for you to enforce in U.S. courts judgments obtained in U.S. courts based on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors who reside in mainland China and Hong Kong and whose assets are located outside the United States. In addition, there is uncertainty as to whether the courts of the Cayman Islands or mainland China or Hong Kong would recognize or enforce judgments of U.S. courts against us or such persons predicated upon the civil liability provisions of the securities laws of the United States or any state.
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The recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based either on treaties between China and the country where the judgment is made or on principles of reciprocity between jurisdictions. China does not have any treaties or other forms of reciprocity with the United States that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, the PRC courts will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates the basic principles of PRC laws or national sovereignty, security or public interest. As a result, it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the United States. Furthermore, judgment of United States courts will not be directly enforced in Hong Kong. There are currently no treaties or other arrangements providing for reciprocal enforcement of foreign judgments between Hong Kong and the United States.
Shareholder claims that are common in the United States, including securities law class actions and fraud claims, 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 shareholder investigations or litigation initiated outside China. Although the authorities in China may establish a regulatory cooperation mechanism with the securities regulatory authorities of another country or region to implement cross-border supervision and administration, such cooperation with the securities regulatory authorities in the Unities States may not be efficient in the absence of mutual and practical cooperation mechanism. According to Article 177 of the PRC Securities Law 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 and no entities or individuals may provide documents or materials in connection with its securities activities to the overseas without proper authorization. While detailed interpretation of or implementation rules under Article 177 of the PRC Securities Law have yet to be available, the inability for an overseas securities regulator to directly conduct investigation or evidence collection activities within China may further increase difficulties faced by investors in protecting your interests. See also “—Risks Related to our ADSs—You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because we are incorporated under Cayman Islands law” for risks associated with investing in us as a Cayman Islands company.
Changes in international trade policies and rising political tensions, particularly between the U.S. and China, may adversely impact our business and operating results.
Recently there have been changes in international trade policies and rising political tensions, particularly between the U.S. and China, but also as a result of the war in Ukraine and sanctions on Russia. The U.S. government has made statements and taken certain actions that may lead to potential changes to U.S. and international trade policies towards China. The progress of trade talks between U.S. and China is subject to uncertainties, and there can be no assurance as to whether the United States will maintain or reduce tariffs, or impose additional tariffs on Chinese products in the near future. The United States may take further actions to eliminate perceived unfair competitive advantages created by alleged manipulating actions. Changes to national trade or investment policies, treaties and tariffs, fluctuations in exchange rates or the perception that these changes could occur, and could adversely affect our results of operations and financial condition.
While cross-border business currently may not be an area of our focus, if we plan to expand our business internationally in the future or list imported vehicles and other products on our platforms, any unfavorable government policies on international trade, such as capital controls or tariffs, may affect the consumer demands, our ability to provide certain products on our platforms or our ability to provide services in certain countries. In particular, if any new tariffs, legislation and/or regulations are implemented, or if existing trade agreements are renegotiated or, especially, if the U.S. government takes retaliatory trade actions due to the recent U.S.-China trade and political tension, such changes could have an adverse effect on our business, financial condition and results of operations. In addition, our results of operations could be adversely affected if any such tensions or unfavorable government trade policies harm the Chinese economy or the global economy in general.
Regulation and censorship of information disseminated over the internet in China may adversely affect our business, and we may be liable for information displayed on, retrieved from or linked to our websites and mobile apps.
China has enacted laws and regulations governing internet access and the distribution of information through the internet. The PRC government prohibits information that, among other things, violates PRC laws and regulations, impairs the national dignity of China or the public interest, contains terrorism or extremism content, or is reactionary, obscene, superstitious, fraudulent or defamatory, from being distributed through the internet. PRC laws also prohibit the use of the internet in ways which, among other things, result in a leakage of state secrets or the distribution of socially destabilizing content. Failure to comply with these laws and regulations may result in sanctions or penalties such as revocation of licenses to provide internet content and other licenses, the shut-down of the concerned websites or mobile apps, and reputational harm. A website or mobile apps operator may also be held liable for censored information displayed on or linked to its website or mobile apps. We may be subject to potential liability for certain unlawful actions of users of our platform or for content we distribute that is deemed inappropriate. We may be required to delete content that violates PRC laws and report content that we suspect may violate PRC laws, which may reduce our consumer base. It may be difficult to determine the type of content that may result in liability for us, and if we are found to be liable, we may be prevented from operating our business or offering other services in China.
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PRC regulations relating to offshore investment activities by PRC residents and enterprises may increase our administrative burden and restrict our overseas and cross-border investment activities. If our PRC resident and enterprise shareholders fail to make any applications and filings required under these regulations, we may be unable to distribute profits to such shareholders and may become subject to liability under PRC law.
In July 2014, SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and Financing and Roundtrip Investment Through Special Purpose Vehicles, or SAFE Circular 37, to replace the previous SAFE Circular 75, which ceased to be effective upon the promulgation of SAFE Circular 37. SAFE Circular 37 requires PRC residents (including PRC individuals and PRC corporate entities) to register with SAFE or its local branches in connection with their direct or indirect offshore investment activities. SAFE Circular 37 is applicable to our shareholders who are PRC residents and may be applicable to any offshore acquisitions that we may make in the future.
Under SAFE Circular 37, PRC residents who make, or have prior to the implementation of SAFE Circular 37 made, direct or indirect investments in offshore special purpose vehicles, or SPVs, are required to register such investments with SAFE or its local branches. In addition, any PRC resident who is a direct or indirect shareholder of an SPV, is required to update its registration with the local branch of SAFE with respect to that SPV, to reflect any material change. Moreover, any subsidiary of such SPV in China is required to urge the PRC resident shareholders to update their registration with the local branch of SAFE to reflect any material change. If any PRC resident shareholder of such SPV fails to make the required registration or update the registration, the subsidiary of such SPV in China may be prohibited from distributing its profits or the proceeds from any capital reduction, share transfer or liquidation to the SPV, and the SPV may also be prohibited from making additional capital contributions into its subsidiaries in China. In February 2015, SAFE promulgated a Notice on Further Simplifying and Improving Foreign Exchange Administration Policy on Direct Investment, or SAFE Notice 13. Under SAFE Notice 13, applications for foreign exchange registration of inbound foreign direct investments and outbound direct investments, including those required under SAFE Circular 37, must be filed with qualified banks instead of SAFE. Qualified banks should examine the applications and accept registrations under the supervision of SAFE.
In April 2014, the National Development Reform Committee, or the NDRC, promulgated the Administrative Measures for the Approval and Filing of Overseas Investment Projects and MOFCOM promulgated the Measures for the Administration of Overseas Investment in September 2014. In December 2017, the NDRC further promulgated the Administrative Measures of Overseas Investment of Enterprises, which became effective in March 2018 and abolished the Administrative Measures for the Approval and Filing of Overseas Investment Projects. Pursuant to these regulations, any outbound investment of PRC enterprises in the area and industry that is not sensitive is required to be filed with MOFCOM and the NDRC or their local branch.
Mr. Kun Dai, who indirectly holds our shares through SPVs and who is known to us as a PRC resident, has completed the applicable foreign exchange registrations to the extent acceptable by SAFE in accordance with SAFE Circular 75 and SAFE Circular 37. We cannot assure you, however, that Mr. Kun Dai will continue to make required filings or updates in a timely manner, or at all. Moreover, we can provide no assurance that we are or will in the future continue to be informed of the identities of all PRC residents and PRC enterprises holding direct or indirect interest in our company, and even if we are aware of such shareholders or beneficial owners who are PRC residents or PRC enterprises, we may not be able to compel them to comply with SAFE Circular 37 and outbound investment related regulations, and we may not even have any means to know whether they comply with these requirements. Any failure or inability by such individuals or enterprises to comply with SAFE and outbound investment related regulations may subject such individuals or the responsible officers of such enterprises to fines or legal sanctions, and may result in adverse impact on us, such as restrictions on our ability to distribute or pay dividends.
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Furthermore, as these foreign exchange and outbound investment related regulations are relatively new and their interpretation and implementation have been constantly evolving, it is uncertain how these regulations, and any future regulations concerning offshore or cross-border investments and transactions, will be interpreted, amended and implemented by the relevant government authorities. For example, we may be subject to a more stringent review and approval process with respect to our foreign exchange activities, such as remittance of dividends and foreign-currency-denominated borrowings, which may adversely affect our financial condition and results of operations. Due to the complexity and constantly changing nature of the foreign exchange and outbound investment related regulations as well as the uncertainties involved, we cannot assure you that we have complied or will be able to comply with all applicable foreign exchange and outbound investment related regulations. In addition, if we decide to acquire a PRC domestic company, we cannot assure you that we or the owners of such company, as the case may be, will be able to obtain the necessary approvals or complete the necessary filings and registrations required by the foreign exchange regulations. This may restrict our ability to implement our acquisition strategy and could adversely affect our business and prospects.
Governmental control of currency conversion may affect the value of your investment.
The PRC government imposes controls on the convertibility of the Renminbi into foreign currencies and, in certain cases, the remittance of currency out of China. We receive substantially all of our revenues in Renminbi. Under our current corporate structure, our Cayman Islands holding company primarily relies on dividend payments from our PRC subsidiaries to fund any cash and financing requirements we may have. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval of SAFE by complying with certain procedural requirements. Specifically, under the existing exchange restrictions, without prior approval of SAFE, cash generated from the operations of our PRC subsidiaries in China may be used to pay dividends to our company. However, approval from or registration with appropriate government authorities is required where Renminbi is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. As a result, we need to obtain SAFE approval to use cash generated from the operations of our PRC subsidiaries to pay off their respective debt in a currency other than Renminbi owed to entities outside China, or to make other capital expenditure payments outside China in a currency other than Renminbi. The PRC government may at its discretion restrict access to foreign currencies for current account transactions in the future. If the foreign exchange control system prevents us from obtaining sufficient foreign currencies to satisfy our foreign currency demands, we may not be able to utilize cash held in mainland China or generated by a PRC entity to fund our operations outside of mainland China or pay dividends in foreign currencies to our shareholders, including holders of our ADSs. There is no assurance the PRC government will not intervene in or impose restrictions on us and our subsidiaries to transfer cash or assets. Although currently we are not aware of equivalent or similar restrictions or limitations in Hong Kong on cash transfers in, or out of, our Hong Kong entities (including currency conversion), if certain restrictions or limitations in mainland China were to become applicable to cash transfers in and out of Hong Kong entities (including currency conversion) in the future, the funds in our Hong Kong entities, likewise, may not be available to meet our currency demand. See “Item 3. Key Information—Cash and Asset Flows through Our Organization.”
Fluctuations in exchange rates of the Renminbi could materially affect our reported results of operations.
The conversion of Renminbi into foreign currencies, including U.S. dollars, is based on rates set by the PBOC. The Renminbi has fluctuated against the U.S. dollar, at times significantly and unpredictably. The value of Renminbi against the U.S. dollar and other currencies is affected by changes in China’s political and economic conditions and by China’s foreign exchange policies, among other things. We cannot assure you that Renminbi will not appreciate or depreciate significantly in value against the U.S. dollar in the future. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between Renminbi and the U.S. dollar in the future.
Any significant appreciation or depreciation of Renminbi may materially and adversely affect our revenues, earnings and financial position, and the value of, and any dividends payable on, our ADSs in U.S. dollars. To the extent that we need to convert U.S. dollars into Renminbi for our operations, appreciation of the Renminbi against the U.S. dollar would have an adverse effect on the Renminbi amount we would receive from the conversion. Conversely, if we decide to convert our Renminbi into U.S. dollars for the purpose of making payments for dividends on our Class A ordinary shares or ADSs or for other business purposes, appreciation of the U.S. dollar against the Renminbi would have a negative effect on the U.S. dollar amount available to us.
Very limited hedging options are available in China to reduce our exposure to exchange rate fluctuations. As of the date of this annual report, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedges may be limited and we may not be able to adequately hedge our exposure or at all. In addition, our currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert Renminbi into foreign currency or to convert foreign currency into Renminbi.
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PRC rules on mergers and acquisitions may make it more difficult for us to pursue growth through acquisitions.
The Anti-Monopoly Law, or the AML, promulgated by the Standing Committee of the National People’s Congress, which became effective in 2008 and last amended on June 24, 2022, requires that when a concentration of undertakings occurs and reaches statutory thresholds, the undertakings concerned shall file a prior notification with MOFCOM. Without the clearance from MOFCOM, no concentration of undertakings shall be implemented and effected. Mergers, acquisitions or contractual arrangements that allow one market player to take control of or to exert decisive impact on another market player must also be notified in advance to MOFCOM when the threshold under the Provisions on Thresholds for Prior Notification of Concentrations of Undertakings, revised in 2018, is triggered. If such prior notification is not obtained, MOFCOM may order the concentration to cease its operations, dispose of shares or assets, transfer the business of the concentration within a time limit, take any other necessary measures to restore the situation as it was before the concentration, and may impose administrative fines. The AML specifies that a fine of not more than 10% of its sales amount in the previous year shall be imposed if the concentration has or may have the effect of eliminating or restricting competition and a fine of not more than RMB5 million shall be imposed if the concentration has no effect of eliminating or restricting competition. The AML further specifies that the relevant authority may investigate a transaction where there is evidence that the concentration has or may have the effect of eliminating or restricting competition, even if such concentration does not reach the filing threshold. On February 7, 2021, the Anti-Monopoly Committee of the State Council promulgated the Anti-Monopoly Guidelines for the Internet Platform Economy Sector which stipulates that any concentration of undertakings involving variable interest entities (VIE) shall fall within the scope of anti-monopoly review. Furthermore, the Anti-Monopoly Guidelines for Internet Platforms prohibits certain monopolistic acts of internet platforms so as to protect market competition and safeguard interests of users and undertakings participating in internet platform economy, including without limitation, prohibiting platforms with dominant position from abusing their market dominance (such as discriminating customers in terms of pricing and other transactional conditions using big data and analytics, coercing counterparties into exclusivity arrangements, using technology means to block competitors’ interface, favorable positioning in search results of goods displays, using bundle services to sell services or products, compulsory collection of unnecessary user data). On August 17, 2021, the SAMR issued the Provisions on Prohibition of Unfair Competition on the Internet (Draft for Comments), which prohibits business operators from using data, algorithms and other technical means to commit traffic hijacking, interference, malicious incompatibility and other improprieties to influence user choices or hinder or damage the normal operation of network products or services offered by other business operators.
Also, 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, established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time-consuming and complex. Such regulation requires, among other things, that MOFCOM be notified in advance of any change-of-control transaction in which a foreign investor acquires control of a PRC domestic enterprise, if (i) it is concerned with certain industries, (ii) such transaction involves factors that have an impact on the national economic security, or (iii) such transaction may lead to a change in control of a domestic enterprise that holds a famous trademark or PRC time-honored brand. The approval from MOFCOM shall be obtained in circumstances where overseas companies established or controlled by PRC enterprises or residents acquire affiliated domestic companies.
In addition, PRC national security review rules, i.e. Provisions of Ministry of Commerce on Implementation of Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, which became effective in September 2011 and Notice of the General Office of State Council on Establishment of Security Review System Pertaining to Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, which became effective in March 2011, require acquisitions by foreign investors of PRC companies engaged in military related or certain other industries that are crucial to national security be subject to security review before consummation of any such acquisition. We believe that our business is not in an industry related to national security. However, we cannot preclude the possibility that MOFCOM or other government agencies may publish interpretations contrary to our understanding or broaden the scope of the security review in the future.
Moreover, the Administrative Measures for Enterprises’ Overseas Investment, or the Overseas Investment Rules, adopted by the NDRC on December 26, 2017 and will become effective on March 1, 2018, stipulates that for local enterprises (enterprises that are not managed by the state government), if the amount of investment made by the Chinese investors is less than US$300 million and the target project is non-sensitive, then the overseas investment project will require filing, instead of approval, with the local branch of the CSRC where the enterprise itself is registered. Although the NDRC has deregulated on overseas investment to certain extent, we are still subject to the procedures required by the NDRC before any of our PRC subsidiaries can conduct any overseas investment activities. See “Item 4. Information on the Company—B. Business Overview—Regulation—M&A Rules and Overseas Listings.”
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On December 19, 2020, the Measures for the Security Review for Foreign Investment was jointly issued by NDRC and MOFCOM and took effect from January 18, 2021. The Measures for the Security Review for Foreign Investment specified provisions concerning the security review mechanism on foreign investment, including the types of investments subject to review, review scopes and procedures, among others. As these measures are recently promulgated, designated office in charge of such security review has not yet issued official guidance. At this stage, the interpretation of those measures remains unclear in many aspects such as what would constitute “important information technology and internet services and products” and whether these measures may apply to foreign investment that is implemented or completed before the enactment of these new measures. In the future, we may grow our business by acquiring complementary businesses. Complying with the requirements of the above-mentioned regulations and other relevant rules to complete such transactions could be time consuming, and any required approval processes may delay or inhibit our ability to complete such transactions. It is unclear whether our business would be deemed to be in an industry that raises “national defense and security” or “national security” concerns. However, MOFCOM, NDRC and other government agencies may publish explanations in the future determining that our business is in an industry subject to the security review, in which case our future acquisitions in the PRC, including those by way of entering into contractual control arrangements with target entities, may be closely scrutinized or prohibited. Our ability to expand our business or maintain or expand our market share through future acquisitions would as such be materially and adversely affected.
PRC regulations on loans and direct investments by offshore holding companies to PRC entities may delay or prevent us from making loans or additional capital contributions to our PRC entities.
As an offshore holding company of our PRC subsidiaries, we may make loans to our PRC subsidiaries, or we may make additional capital contributions to our PRC subsidiaries. Such loans to our PRC subsidiaries in China and capital contributions are subject to PRC regulations and approvals or filing. For example, loans by us to our PRC subsidiaries cannot exceed statutory limits and must be registered with SAFE or its local branch. Information about capital contributions to our PRC subsidiaries must be filed with the PRC Ministry of Commerce or its local counterpart. In addition, the PRC government also restricts the convertibility of foreign currencies into Renminbi and use of the proceeds. On March 30, 2015, SAFE promulgated Circular 19, which took effect and replaced certain previous SAFE regulations from June 1, 2015. SAFE further promulgated Circular 16, effective on June 9, 2016, which, among other things, amend certain provisions of Circular 19. According to SAFE Circular 19 and SAFE Circular 16, the flow and use of the Renminbi capital converted from foreign currency denominated registered capital of a foreign-invested company is regulated such that Renminbi capital may not be used for business beyond its business scope or to provide loans to persons other than affiliates unless otherwise permitted under its business scope. On October 23, 2019, SAFE promulgated Circular 28, which stipulates that non-investment foreign-funded enterprises are allowed to make domestic equity investment with their capital funds on the premise that the Negative List is not violated and the projects invested thereby in China are true and compliant. Violations of the applicable circulars and rules may result in severe penalties, including substantial fines as set forth in the Foreign Exchange Administration Regulations. If our variable interest entity requires financial support from us or our wholly owned subsidiaries in the future and we find it necessary to use foreign currency-denominated capital to provide such financial support, our ability to fund our variable interest entity’s operations will be subject to statutory limits and restrictions, including those described above. The Circular Regarding Further Optimizing the Cross-border RMB Policy to Support the Stabilization of Foreign Trade and Foreign Investment jointly promulgated by the PBOC, 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.
The applicable foreign exchange circulars and rules may significantly limit our ability to convert, transfer and use the net proceeds from our initial public offering and the concurrent private placement of convertible notes or any offering of additional equity securities in China, which may adversely affect our business, financial condition and results of operations. As the foreign exchange related regulatory regime and practice are complex and still evolving and involve many uncertainties, we cannot assure you that we have complied or will be able to comply with all applicable foreign exchange circulars and rules, or that we will be able to complete the necessary government registrations or filings on a timely basis, if at all, with respect to future loans by us to our PRC subsidiaries or with respect to future capital contributions by us to our PRC subsidiaries. If we fail to complete such registrations or filings, our ability to contribute additional capital to fund our PRC operations may be negatively affected, which could adversely and materially affect our liquidity and our ability to fund and expand our business.
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Increases in labor costs and enforcement of stricter labor laws and regulations in the PRC may adversely affect our business and our profitability.
China’s overall economy and the average wage in China have increased in recent years and are expected to continue to grow. The average wage level for our employees has also increased in recent years. We expect that our labor costs, including wages and employee benefits, will continue to increase. Unless we are able to pass on these increased labor costs to those who pay for our services, our profitability and results of operations may be materially and adversely affected.
In addition, we have been subject to stricter regulatory requirements in terms of entering into labor contracts with our employees and paying various statutory employee benefits, including pensions, housing fund, medical insurance, work-related injury insurance, unemployment insurance and maternity insurance to designated government agencies for the benefit of our employees. Pursuant to the PRC Labor Contract Law and its implementation rules, employers are subject to stricter requirements in terms of signing labor contracts, minimum wages, paying remuneration, determining the term of employees’ probation and unilaterally terminating labor contracts. In the event that we decide to terminate some of our employees or otherwise change our employment or labor practices, the PRC Labor Contract Law and its implementation rules may limit our ability to effect those changes in a desirable or cost-effective manner, which could adversely affect our business and results of operations.
In October 2010, the Standing Committee of the National People’s Congress promulgated the PRC Social Insurance Law, effective on July 1, 2011 and amended on December 29, 2018. On April 3, 1999, the State Council promulgated the Regulations on the Administration of Housing Funds, which was amended on March 24, 2019. Companies registered and operating in China are required under the Social Insurance Law and the Regulations on the Administration of Housing Funds to, apply for social insurance registration and housing fund deposit registration within 30 days of their establishment and, to pay for their employees different social insurance including pension insurance, medical insurance, work-related injury insurance, unemployment insurance and maternity insurance to the extent required by law. As of the date of this annual report, except for the PRC subsidiaries with no employees, all of our PRC subsidiaries have obtained and applied for social insurance registration. However, given the evolving changes of the laws on social insurance, we cannot guarantee that we are able to make adequate contribution for each employee in a timely and appropriate manner at all times. We could be subject to orders by the competent labor authorities for rectification and failure to comply with the orders may further subject us to administrative fines.
As the interpretation and implementation of labor-related laws and regulations are still evolving, we cannot assure you that our employment practices do not and will not violate labor-related laws and regulations in China, which may subject us to labor disputes or government investigations. We cannot assure you that we have complied or will be able to comply with all labor-related law and regulations regarding including those relating to obligations to make social insurance payments and contribute to the housing provident funds. If we are deemed to have violated relevant labor laws and regulations, we could be required to provide additional compensation to our employees and our business, financial condition and results of operations will be adversely affected.
Failure to comply with PRC regulations regarding the registration requirements for employee share ownership plans or share option plans may subject the PRC plan participants or us to fines and other legal or administrative sanctions.
In February 2012, SAFE promulgated the Notices on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Publicly-Listed Company, replacing earlier rules promulgated in 2007. Pursuant to these rules, PRC citizens and non-PRC citizens who reside in China for a continuous period of not less than one year who participate in any stock incentive plan of an overseas publicly listed company, subject to a few exceptions, are required to register with SAFE through a qualified PRC agent, which could be the PRC subsidiaries of such overseas-listed company, and complete certain other procedures. The PRC agent shall amend the SAFE registration within three months in the event that there are any material changes to the stock incentive plan, the PRC agent or the overseas entrusted institution or other material changes.
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In addition, an overseas-entrusted institution must be retained to handle matters in connection with the exercise or sale of stock options and the purchase or sale of shares and interests. We and our executive officers and other employees who are PRC citizens or who reside in the PRC for a continuous period of not less than one year and who have been granted options are subject to these regulations. However, we cannot assure you that the SAFE registrations for the grantees of our stock options could be completed and updated in a timely manner. Failure to complete SAFE registrations or to amend such registrations in time may subject us to fines of up to RMB300,000 for entities and up to RMB50,000 for individuals, and legal sanctions and may also limit our ability to contribute additional capital into our PRC subsidiaries and limit our PRC subsidiaries’ ability to distribute dividends to us. We also face regulatory uncertainties that could restrict our ability to adopt additional incentive plans for our directors, executive officers and employees under PRC law. See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations on Stock Incentive Plans.”
Dividends we may receive from our subsidiaries located in the PRC may be subject to PRC withholding tax, which could materially and adversely affect the amount of dividends, if any, we may pay our shareholders.
The PRC Enterprise Income Tax Law, or the EIT Law, classifies enterprises as resident enterprises and non-resident enterprises. The EIT Law provides that an income tax rate of 20% may be applicable to dividends payable to non-resident investors, which (i) do not have an establishment or place of business in the PRC or (ii) have an establishment or place of business in the PRC but the relevant income is not effectively connected with the establishment or place of business, to the extent such dividends are derived from sources within the PRC. The State Council of the PRC reduced such rate to 10% through the implementation regulations of the EIT Law. Further, pursuant to the Double Tax Avoidance Arrangement between Hong Kong and Mainland China and the Notice on Certain Issues with Respect to the Enforcement of Dividend Provisions in Tax Treaties issued in February 2009 by the State Administration of Taxation (“SAT”), if a Hong Kong resident enterprise owns more than 25% of the equity interest in a company in China at all times during the 12-month period immediately prior to obtaining a dividend from such company, the 10% withholding tax on dividends is reduced to 5% provided certain other conditions and requirements under the Double Tax Avoidance Arrangement between Hong Kong and Mainland China and other applicable PRC laws are satisfied at the discretion of relevant PRC tax authority.
We are a Cayman Islands holding company and we have three Cayman Islands subsidiaries, five British Virgin Islands subsidiaries, and ten Hong Kong subsidiaries which in turn hold controlling equity interests in 54 PRC subsidiaries as of the date of this annual report. If we and our Cayman Islands and Hong Kong subsidiaries are considered as non-resident enterprises and each of our Hong Kong subsidiaries is considered as a Hong Kong resident enterprise under the Double Tax Avoidance Arrangement and is determined by the competent PRC tax authority to have satisfied relevant conditions and requirements, then the dividends paid to our Hong Kong subsidiaries by its PRC subsidiaries may be subject to the reduced income tax rate of 5% under the Double Tax Avoidance Arrangement. However, based on the Notice on Certain Issues with Respect to the Enforcement of Dividend Provisions in Tax Treaties, if the relevant PRC tax authorities determine, in their discretion, that a company benefits from such reduced income tax rate due to a structure or arrangement that is primarily tax-driven, such PRC tax authorities may adjust the preferential tax treatment; and based on the Notice on the Comprehension and Recognition of Beneficial Owner in Tax Treaties issued in October 2009 by the SAT, conduit companies, which are established for the purpose of evading or reducing tax, transferring or accumulating profits, shall not be recognized as beneficial owner and thus are not entitled to the abovementioned reduced income tax rate of 5% under the Double Tax Avoidance Arrangement. If we are required under the EIT Law to pay income tax for any dividends we receive from our subsidiaries in China, or if any of our Hong Kong subsidiaries is determined by PRC government authority as receiving benefits from reduced income tax rate due to a structure or arrangement that is primarily tax-driven, it would materially and adversely affect the amount of dividends, if any, we may pay to our shareholders.
Under the EIT Law, we may be classified as a “resident enterprise” of China; such classification could result in unfavorable tax consequences to us and our non-PRC shareholders and materially and adversely affect our results of operations and financial condition.
Under the PRC Enterprise Income Tax Law and its implementation rules, an enterprise established outside of the PRC with “de facto management body” within the PRC is considered a “resident enterprise” and will be subject to the enterprise income tax on its global income at the rate of 25%. The implementation rules define the term “de facto management body” as the body that exercises full and substantial control and overall management over the business, productions, personnel, accounts and properties of an enterprise. In 2009, the State Administration of Taxation, or SAT, issued a circular, known as SAT Circular 82, which provides certain specific criteria for determining whether the “de facto management body” of a PRC-controlled enterprise that is incorporated offshore is located in China. Although this circular only applies to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreigners, the criteria set forth in the circular may reflect the SAT’s general position on how the “de facto management body” text should be applied in determining the tax resident status of all offshore enterprises. According to SAT Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be regarded as a PRC tax resident by virtue of having its “de facto management body” in China and will be subject to PRC enterprise income tax on its global income only if all of the following conditions are met: (i) the primary location of the day-to-day operational management is in the PRC; (ii) decisions relating to the enterprise’s financial and human resource matters are made or are subject to approval by organizations or personnel in the PRC; (iii) the enterprise’s primary assets, accounting books and records, company seals, and board and shareholder resolutions, are located or maintained in the PRC; and (iv) at least 50% of voting board members or senior executives habitually reside in the PRC.
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We believe that Uxin Limited is not a PRC resident enterprise for PRC tax purposes. See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations Relating to Tax—Enterprise Income Tax.” However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body.” If the PRC tax authorities determine that Uxin Limited is a PRC resident enterprise for enterprise income tax purposes, we may be required to withhold a 10% tax from dividends we pay to our shareholders that are nonresident enterprises, including the holders of the ADSs. In addition, non-resident enterprise shareholders (including our ADS holders) may be subject to PRC tax at a rate of 10% on gains realized on the sale or other disposition of ADSs or ordinary shares, if such income is treated as sourced from within the PRC. Furthermore, if we are deemed a PRC resident enterprise, dividends paid to our non-PRC individual shareholders (including our ADS holders) and any gain realized on the transfer of ADSs or ordinary shares by such shareholders may be subject to PRC tax at a rate of 20% which in the case of dividends may be withheld at source. Any PRC tax liability may be reduced by an applicable tax treaty. However, it is unclear whether non-PRC shareholders of our company would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC in the event that we are treated as a PRC resident enterprise. Any such tax may reduce the returns on your investment in the ADSs or ordinary shares.
In addition to the uncertainty as to the application of the “resident enterprise” classification, we cannot assure you that the PRC Government will not amend or revise the taxation laws, rules, and regulations to impose stricter tax requirements, higher tax rates, or retroactively apply the EIT Law. If such changes occur or if such changes are applied retroactively, such changes could materially and adversely affect our results of operations and financial conditions.
We face uncertainty with respect to indirect transfers of equity interests in PRC resident enterprises by their non-PRC shareholders.
In February 2015, the SAT issued a Public Notice Regarding Certain Corporate Income Tax Matters on Indirect Transfer of Properties by Non-Tax Resident Enterprises, or SAT Public Notice 7. SAT Public Notice 7 extends its tax jurisdiction to transactions involving transfer of other taxable assets through offshore transfer of a foreign intermediate holding company. In addition, SAT Public Notice 7 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 through a public securities market. SAT Public Notice 7 also brings challenges to both foreign transferor and transferee (or other person who is obligated to pay for the transfer) of taxable assets. In October 2017, the SAT issued the Announcement of the State Administration of Taxation on Issues Concerning the Withholding of Non-resident Enterprise Income Tax at Source, or SAT Bulletin 37, which came into effect on December 1, 2017 and was amended on June 15, 2018. The Bulletin 37 further clarifies the practice and procedure of the withholding of nonresident enterprise income tax. Where a non-resident enterprise transfers taxable assets indirectly by disposing of the equity interests of an overseas holding company, which is 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 relevant 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 such indirect transfer other than transfer of Shares of ADSs acquired and sold on public markets may be subject to PRC enterprise income tax, and the transferee or other person who is obligated to pay for the transfer is obligated to withhold the applicable taxes, currently at a rate of 10% for the transfer of equity interests in a PRC resident enterprise. 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.
We face uncertainties as to the reporting and other implications of certain past and future transactions that involve PRC taxable assets, such as offshore restructuring, sale of the shares in our offshore subsidiaries and investments. Our company may be subject to filing obligations or taxed if our company is transferor in such transactions, and may be subject to withholding obligations if our company is transferee in such transactions, under SAT Public Notice 7 or Bulletin 37, or both. We have not filed certain filings under SAT Notice 7 filings for some of our historical share transfers and restructurings. For transfer of shares in our company by investors who are non-PRC resident enterprises, our PRC subsidiaries may be requested to assist in the filing under SAT Public Notice 7 and Bulletin 37. As a result, we may be required to expend valuable resources to comply with SAT Public Notice 7 and Bulletin 37, or to request the relevant transferors from whom we purchase taxable assets to comply with these circulars, or to establish that our company 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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In October 2017, the SAT released the Public Notice Regarding Issues Concerning the Withholding of Non-resident Enterprise Income Tax at Source, or SAT Public Notice 37, effective from December 2017. STA Public Notice 37 replaced a series of important circulars, including but not limited to SAT Circular 698, and revised the rules governing the administration of withholding tax on China-source income derived by a nonresident enterprise. SAT Public Notice 37 provides for certain key changes to the previous withholding regime. For example, the withholding obligation for a non-resident enterprise deriving dividend arises on the date on which the payment is actually made rather than on the date of the resolution that declared the dividends.
Under SAT Public Notice 7 and SAT Public Notice 37, the entities or individuals obligated to pay the transfer price to the transferor are the withholding agents and must withhold the PRC income tax from the transfer price if the indirect transfer is subject to the PRC enterprise income tax. If the withholding agent fails to do so, the transferor should report to and pay the tax to the PRC tax authorities. In the event that neither the withholding agent nor the transferor fulfills their obligations under SAT Public Notice 7 and SAT Public Notice 37, according to the applicable law, apart from imposing penalties such as late payment interest on the transferor, the tax authority may also hold the withholding agent liable and impose a penalty of 50% to 300% of the unpaid tax on the withholding agent. The penalty imposed on the withholding agent may be reduced or waived if the withholding agent has submitted the relevant materials in connection with the indirect transfer to the PRC tax authorities in accordance with SAT Public Notice 7.
However, as there is a lack of clear statutory interpretation, we face uncertainties on the reporting and consequences on future private equity financing transactions, share exchange or other transactions involving the transfer of shares in our company by investors that are non-PRC resident enterprises, or sale or purchase of shares in other non-PRC resident companies or other taxable assets by us. Our company and other non-resident enterprises in our group may be subject to filing obligations or being taxed if our company and other non-resident enterprises in our group are transferors in such transactions, and may be subject to withholding obligations if our company and other non-resident enterprises in our group are transferees in such transactions. For the transfer of shares in our company by investors that are non-PRC resident enterprises, our PRC subsidiaries may be requested to assist in the filing under the rules and notices. As a result, we may be required to expend valuable resources to comply with these rules and notices or to request the relevant transferors from whom we purchase taxable assets to comply, or to establish that our company and other non-resident enterprises in our group should not be taxed under these rules and notices, which may have a material adverse effect on our financial condition and results of operations. There is no assurance that the tax authorities will not apply the rules and notices to our offshore restructuring transactions where non-PRC residents were involved if any of such transactions were determined by the tax authorities to lack reasonable commercial purpose. As a result, we and our non-PRC resident investors may be at risk of being taxed under these rules and notices and may be required to comply with or to establish that we should not be taxed under such rules and notices, which may have a material adverse effect on our financial condition and results of operations or such non-PRC resident investors’ investments in us. We have conducted acquisition transactions in the past and may conduct additional acquisition transactions in the future. We cannot assure you that the PRC tax authorities will not, at their discretion, adjust any capital gains and impose tax return filing obligations on us or require us to provide assistance for the investigation of PRC tax authorities with respect thereto. Heightened scrutiny over acquisition transactions by the PRC tax authorities may have a negative impact on potential acquisitions we may pursue in the future.
The PCAOB, in prior years, was unable to completely inspect and investigate registered independent accounting firms in mainland China and Hong Kong, which includes our auditor. The inability of the PCAOB to conduct inspections over our auditor has deprived our investors of the benefits of such inspections in prior years and may continue to deprive investors of such benefits in the future should the PCAOB not continue to have the ability to completely inspect and investigate registered accounting firms in China.
Our auditor, the independent registered public accounting firm that issues the audit report included elsewhere in this annual report, as an auditor of companies that are traded publicly in the United States and a firm registered with the Public Company Accounting Oversight Board (United States), or the PCAOB, is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. Since our auditor is located in mainland China, a jurisdiction where the PCAOB has been unable to conduct inspections without the approval of the Chinese authorities until 2022, our auditor was historically uninspected by PCAOB. However, on August 26, 2022, the PCAOB signed a Statement of Protocol with the China Securities Regulatory Commission and the Ministry of Finance of the People’s Republic of China governing inspections and investigations of audit firms based in China, which marks the first step toward providing access for the PCAOB to inspect and investigate registered public accounting firms headquartered in Mainland China and Hong Kong. On December 15, 2022, the PCAOB announced that it was able to conduct inspections and investigations completely of PCAOB-registered public accounting firms headquartered in mainland China and Hong Kong in 2022, and vacated its previous 2021 Determinations accordingly. This marks the first time that Chinese authorities allowed access for complete inspections and investigations meeting U.S. standards, as required under the Sarbanes-Oxley Act.
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However, whether the PCAOB will continue to conduct inspections and investigations completely to its satisfaction of PCAOB-registered public accounting firms headquartered in mainland China and Hong Kong is subject to uncertainty and depends on a number of factors out of our, and our auditor’s, control, including positions taken by authorities of the PRC. The PCAOB is expected to continue to demand complete inspections and investigations against registered accounting firms headquartered in mainland China and Hong Kong in the future and states that it has already made plans to resume regular inspections going forward. The PCAOB is required under the HFCAA to make its determination on an annual basis with regards to its ability to inspect and investigate completely registered accounting firms based in the mainland China and Hong Kong. The possibility of being a “Commission-Identified Issuer” and risk of delisting in the future could continue to adversely affect the trading price of our securities. If the PCAOB determines in the future that it no longer has full access to inspect and investigate completely registered accounting firms headquartered in mainland China and Hong Kong and we continue to use such accounting firm to conduct audit work, we would be identified as a “Commission-Identified Issuer” under the HFCAA following the filing of the annual report for the relevant fiscal year, and if we were so identified for two consecutive years, trading in our securities on U.S. markets would be prohibited.
Our ADSs will be prohibited from trading in the United States under the Holding Foreign Companies Accountable Act, or the HFCAA, if the PCAOB is unable to inspect or investigate completely auditors located in China for two consecutive years. 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 Holding Foreign Companies Accountable Act, which was enacted on December 18, 2020 and further amended by the Consolidated Appropriations Act, 2023 signed into law on December 29, 2022, 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 Public Company Accounting Oversight Board, or the PCAOB, for two consecutive years, the SEC shall prohibit our shares or ADSs from being traded on a national securities exchange or in the over-the-counter trading market in the United States. On December 2, 2021, the SEC adopted final amendments implementing the disclosure and submission requirements of the HFCAA, pursuant to which the SEC will identify an issuer as a “Commission Identified Issuer” if the issuer has filed an annual report containing an audit report issued by a registered public accounting firm that the PCAOB has determined it is unable to inspect or investigate completely, and will then impose a trading prohibition on an issuer after it is identified as a Commission-Identified Issuer for two consecutive years. On August 29, 2022, the SEC conclusively listed Uxin Limited as a Commission-Identified Issuer under the HFCAA following the filing of our annual report on Form 20-F for the fiscal year ended March 31, 2022. In accordance with the HFCAA, our securities will be prohibited from being traded on a national securities exchange or in the over-the-counter trading market in the United States if the PCAOB, for two consecutive years, is unable to inspect or completely investigate PCAOB-registered public accounting firms headquartered in mainland China. As a result, the Nasdaq may determine to delist our securities.
Based on the above, trading in our securities on U.S. markets, including Nasdaq Global Select Market, would be prohibited under the HFCAA if the PCAOB determines that it is unable to inspect or investigate completely our auditor for two consecutive years. On December 16, 2021, the PCAOB issued the HFCAA Determination Report, or the 2021 Determinations, to notify the SEC of its determinations that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong, including our auditor. On December 15, 2022, the PCAOB announced that it was able to conduct inspections and investigations completely of PCAOB-registered public accounting firms headquartered in mainland China and Hong Kong in 2022. Accordingly, the PCAOB vacated its previous 2021 Determinations. As a result, we were not at risk of having out securities subject to a trading prohibition under the HFCAA unless a new determination is made by the PCAOB. However, whether the PCAOB will continue to conduct inspections and investigations completely to its satisfaction of PCAOB-registered public accounting firms headquartered in mainland China and Hong Kong is subject to uncertainty and depends on a number of factors out of our, and our auditor’s, control, including positions taken by authorities of the PRC. The PCAOB is expected to continue to demand complete access to inspections and investigations regarding registered accounting firms headquartered in mainland China and Hong Kong in the future and states that it has already made plans to resume regular inspections. The PCAOB is required under the HFCAA to make its determination on an annual basis with regards to its ability to inspect and investigate completely registered accounting firms based in the mainland China and Hong Kong. The possibility of being a Commission-Identified Issuer and risk of delisting in the future could continue to adversely affect the trading price of our securities. If the PCAOB determines in the future that it no longer has full access to inspect and investigate completely registered accounting firms headquartered in mainland China and Hong Kong and we continue to use such accounting firm to conduct audit work, we would be identified as a “Commission-Identified Issuer” under the HFCAA following the filing of the annual report for the relevant fiscal year, and if we were so identified for two consecutive years, trading in our securities on U.S. markets would be prohibited.
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If our shares and ADSs are prohibited from trading in the United States, there is no certainty that we will be able to list on a non-U.S. exchange or that a market for our shares will develop outside of the United States. Such a prohibition would substantially impair your ability to sell or purchase our ADSs when you wish to do so, and the risk and uncertainty associated with delisting would have a negative impact on the price of our ADSs. Also, such a prohibition would significantly affect our ability to raise capital on terms acceptable to us, or at all, which would have a material adverse impact on our business, financial condition, and prospects.
The enforcement of stricter advertisement laws and regulations in the PRC may adversely affect our business and our profitability.
In April 2015, the Standing Committee of the National People’s Congress promulgated the PRC Advertising Law, effective on September 1, 2015 and amended on October 26, 2018 and April 29, 2021. According to the Advertising Law, advertisements shall not have any false or misleading content, or defraud or mislead consumers. Furthermore, an advertisement will be deemed as a “false advertisement” if any of the following situations exist: (i) the advertised product or service does not exist; (ii) there is any inconsistency that has a material impact on the decision to purchase in what is included in the advertisement with the actual circumstances with respect to the product’s performance, functions, place of production, uses, quality, specification, ingredient, price, producer, term of validity, sales condition, and honors received, among others, or the service’s contents, provider, form, quality, price, sales condition, and honors received, among others, or any commitments, among others, made on the product or service; (iii) fabricated, forged or unverifiable scientific research results, statistical data, investigation results, excerpts, quotations, or other information have been used as supporting material; (iv) effect or results of using the good or receiving the service are fabricated; or (v) other circumstances where consumers are defrauded or misled by any false or misleading content. See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations on Advertisement” for further details.
Our current marketing relies on advertising, via both online and offline channels. The laws and regulations of advertising are relatively new and evolving and there is substantial uncertainty as to the interpretation of “false advertisement” by the SAMR. If any of the advertisements that we publish is deemed to be a “false advertisement” by the SAMR or its local branch, we could be subject to various penalties, such as discontinuation of publishing the target advertisement, imposition of fines and obligations to eliminate any adverse effects incurred by such false advertisement. Some of our outdoor advertisements has historically been deemed as giving misstatement, resulting in fines by the local SAMR. The amount of the fine was not significant. We cannot assure you that the advertisement we publish in the future will not be subject to further penalties. And any such penalties may disrupt our business and our competition with competitors, which could affect our results of operations and financial conditions.
Certain of our leased property interests may be defective and we may be forced to relocate operations affected by such defects, which could cause a significant disruption to our business.
As to most of our leased properties, we are not provided with sufficient property title certificates or other supporting documents to prove the legitimate possession of the leased properties by the lessors. Our lease agreements therefore may not be enforceable, our rights as the lessee could be challenged by third parties and we may be forced to relocate if the lessors do not have legitimate rights upon the properties. We cannot assure you that such defects could be cured in time, or at all, and our business may be significantly disrupted with additional costs and expenses if we have to relocate.
Some of our leases have expired or will expire soon. We may not be able to successfully extend or renew such leases upon expiration of the current term on commercially reasonable terms or at all, and may therefore be forced to relocate our affected operations. This could disrupt our operations and result in significant relocation expenses, which could adversely affect our business, financial condition and results of operations. Moreover, we compete with other businesses for premises at certain locations or of desirable sizes. As a result, even though we could extend or renew our leases, rental payments may significantly increase as a result of the high demand for the leased properties. In addition, we may not be able to locate desirable alternative sites for our facilities as our business continues to grow and failure in relocating our affected operations could adversely affect our business and operations.
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We may in the future be involved in legal and administration proceedings initiated by government authorities, property owners or any other third parties regarding our leasehold interests in or use of such properties. We cannot assure you that we can successfully defend ourselves against those claims or that our use of such leased properties will not be challenged in the future. In the event that our use of properties is successfully challenged, we may be subject to fines and forced to relocate the affected operations. In addition, we may become involved in disputes with the property owners or third parties who otherwise have rights to or interests in our leased properties. We can provide no assurance that we will be able to find suitable replacement sites on terms acceptable to us on a timely basis, or at all, or that we will not be subject to material liability resulting from third parties’ challenges on our use of such properties. As a result, our business, financial condition and results of operations may be materially and adversely affected.
We may be required to register our business premises outside of our registered residence addresses as branch offices under PRC law.
Under PRC law, a company doing business at a fixed venue outside its registered residence address is required to register with the local branch of the SAMR where the business premise is located to set it up as branch office and obtain business license. We have successfully registered and set up branch offices nationwide for all of our newly opened business premise. If the PRC regulatory authorities determine that we are in violation of the relevant laws and regulations, we may be subject to penalties, including fines, confiscation of income and suspension of operation and our business, results of operations and financial condition could thus be adversely affected.
Risks Related to Our ADSs
The trading price of the ADSs is likely to be volatile, which could result in substantial losses to investors.
The trading price of our ADSs has been volatile since our ADSs became listed on Nasdaq on June 27, 2018. The trading price of the ADSs could fluctuate widely due to factors beyond our control. This may happen because of broad market and industry factors, including the performance and fluctuation of the market prices of other companies with business operations located mainly in China that have listed their securities in the United States. In addition to market and industry factors, the price and trading volume for the ADSs may be highly volatile for factors specific to our own operations, including the following:
| ● | variations in our revenues, earnings and cash flow; |
| ● | actual or anticipated fluctuations in our quarterly results of operations; |
| ● | announcements of new investments, acquisitions, strategic partnerships or joint ventures by us or our competitors; |
| ● | announcements of new service offerings, solutions and expansions by us or our competitors; |
| ● | changes in financial estimates by securities analysts; |
| ● | conditions in China’s used car market and used car consumer financing market; |
| ● | changes in the operating performance or market evaluations of other e-commerce platform for buying and selling used cars; |
| ● | detrimental adverse publicity about us, our services or our industry; |
| ● | additions or departures of key personnel; |
| ● | release of lock-up or other transfer restrictions on our outstanding equity securities or sales of additional equity securities; |
| ● | short seller reports that make allegations against us or our affiliates, even if unfounded; |
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| ● | potential litigation or regulatory investigations; and |
| ● | general economic or political conditions in China or elsewhere in the world. |
Any of these factors may result in large and sudden changes in the volume and price at which the ADSs will trade.
In addition, the stock market in general, and the market prices for internet-related companies and companies with operations in China in particular, have experienced volatility that often has been unrelated to the operating performance of such companies. The securities of some China-based companies that have listed their securities in the United States have experienced significant volatility since their initial public offerings in recent years, including, in some cases, substantial declines in the trading prices of their securities. The trading performances of these companies’ securities after their offerings may affect the attitudes of investors towards Chinese companies listed in the United States in general, which consequently may impact the trading performance of our ADSs, regardless of our actual operating performance. In addition, any negative news or perceptions about inadequate corporate governance practices or fraudulent accounting, corporate structure or other matters of other Chinese companies may also negatively affect the attitudes of investors towards Chinese companies in general, including us, regardless of whether we have engaged in any inappropriate activities. In particular, the global financial crisis, the ensuing economic recessions and deterioration in the credit market in many countries have contributed and may continue to contribute to extreme volatility in the global stock markets. These broad market and industry fluctuations may adversely affect the market price of our ADSs. Volatility or a lack of positive performance in our ADS price may also adversely affect our ability to retain key employees, most of whom have been granted options or other equity incentives.
Our dual-class share structure with different voting rights will limit your ability to influence corporate matters and could discourage others from pursuing any change of control transactions that holders of our Class A ordinary shares and ADSs may view as beneficial.
We have a dual-class share structure such that our ordinary shares consist of Class A ordinary shares and Class B ordinary shares with disparate voting powers. We have also issued senior convertible preferred shares, which have the rights, preferences, privileges and restrictions set out in our memorandum and articles of association. On March 27, 2024, all of our then issued and outstanding senior convertible preferred shares were converted into Class A ordinary shares. In respect of matters requiring the votes of shareholders, holders of Class A ordinary shares will be entitled to one vote per share, while holders of Class B ordinary shares will be entitled to ten votes per share based on our dual-class share structure, and each senior convertible preferred share is entitled to that number of votes equal to the largest number of whole Class A ordinary shares into which each such senior convertible preferred share could be converted. Each Class B ordinary share is convertible into one Class A ordinary share at any time by the holder thereof, while Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances. Upon (i) any direct or indirect sale, transfer, assignment or disposition of Class B ordinary shares by a holder thereof or direct or indirect transfer or assignment of the voting power attached to such number of Class B ordinary shares through voting proxy or otherwise to any person or any entity which is not an affiliate of such holder, or (ii) the direct or indirect sale, transfer, assignment or disposition of a majority of the issued and outstanding voting securities of, or the direct or indirect transfer or assignment of the voting power attached to such voting securities through voting proxy or otherwise, or the direct or indirect sale, transfer, assignment or disposition of all or substantially all of the assets of, a holder of Class B ordinary shares to any person that is not an affiliate of such holder, such Class B ordinary shares shall be automatically and immediately converted into the same number of Class A ordinary shares, or (iii) of Mr. Kun Dai ceases to be the ultimate beneficial owner of any outstanding Class B ordinary shares.
As of July 23, 2024, Mr. Kun Dai, the beneficial owner of all our issued Class B ordinary shares, beneficially owned 3.3% of the aggregate voting power of our company. See “Item 6. Directors, Senior Management and Employees—E. Share Ownership” for details on ordinary shares beneficially owned by Kun Dai. As a result of the dual-class share structure, holders of Class B ordinary shares may have considerable influence over matters such as decisions regarding mergers and consolidations, election of directors and other significant corporate actions. Such holders may take actions that are not in the best interest of us or our other shareholders. The dual-class share structure may discourage, delay or prevent a change in control of our company, which could have the effect of depriving our other shareholders of the opportunity to receive a premium for their shares as part of a sale of our company and may reduce the price of our ADSs. The dual-class share structure may limit your ability to influence corporate matters and could discourage others from pursuing any potential merger, takeover or other change of control transactions that holders of Class A ordinary shares and ADSs may view as beneficial.
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The dual-class structure of our ordinary shares may adversely affect the trading market for our ADSs.
S&P Dow Jones and FTSE Russell have announced changes to 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. In addition, several shareholder advisory firms have announced their opposition to the use of multiple class structures. As a result, the dual class structure of our ordinary shares may prevent the inclusion of our ADSs representing Class A ordinary shares in such indices and may cause shareholder advisory firms to publish negative commentary about our corporate governance practices or otherwise seek to cause us to change our capital structure. Any such exclusion from indices could result in a less active trading market for our ADSs. Any actions or publications by shareholder advisory firms critical of our corporate governance practices or capital structure could also adversely affect the value of our ADSs.
If securities or industry analysts do not publish research or reports about our business, or if they adversely change their recommendations regarding the ADSs, the market price for the ADSs and trading volume could decline.
The trading market for the ADSs will be influenced by research or reports that industry or securities analysts publish about our business. If one or more analysts who cover us downgrade our ADSs, the market price for the ADSs would likely decline. If one or more of these analysts cease to cover us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause the market price or trading volume for the ADSs to decline.
The sale or availability for sale of substantial amounts of the ADSs could adversely affect their market price.
Sales of substantial amounts of the ADSs in the public market, or the perception that these sales could occur, could adversely affect the market price of the ADSs and materially impair our ability to raise capital through offerings of equity or equity linked securities in the future. To our knowledge, certain of our shareholders, including those affiliated with Mr. Kun Dai, our chairman and chief executive officer, had pledged a total of 14,764,090 Class A ordinary shares held by record of BOCOM International Supreme Investment Limited, that represent approximately 0.03% of our outstanding share capital as of July 23, 2024 in favor of third-party note subscribers in connection with certain notes. Most of the proceeds from such notes were used to fund the purchase of shares in our company in the latest rounds of pre-IPO equity financings. The notes became due in December 2019. See “Item 6. Directors, Senior Management and Employees—E. Share Ownership.” If any note subscriber enforces its security interests in such pledged shares upon an event of default or any borrower needs to use the pledged shares to repay the note, the pledged shares may be sold on the public market. On September 2, 2020, one of the third-party note subscribers issued a notice to BOCOM International Supreme Investment Limited declaring that an event of default had occurred and such note subscriber exercised its call option accordingly. As of the date of this annual report, BOCOM International Supreme Investment Limited was in discussion with such note subscriber on the details and mechanisms of the potential share transfer. Furthermore, in connection with a loan in the principal amount of US$150.0 million under a facility agreement entered into between Kingkey New Era Auto Industry Limited as borrower and China Minsheng Banking Corp. Ltd. Hong Kong Branch and Huangpu Investment Holding Limited as lenders, Huangpu Investment Holding Limited enforced its security interests in shares pledged by Kingkey New Era Auto Industry Limited and as a result, 61,129,800 Class A ordinary shares were transferred to Huangpu Investment Holding Limited on May 17, 2021. Huangpu Investment Holding Limited disposed of these securities in December 2021. We cannot predict what effect, if any, market sales of securities held by our significant shareholders or any other shareholder or the availability of these securities for future sale will have on the market price of the ADSs.
Because we do not expect to pay dividends in the foreseeable future, you must rely on a price appreciation of the ADSs for return on your investment.
We currently intend to retain most, if not all, of our available funds and any future earnings to fund the development and growth of our business. As a result, we do not expect to pay any cash dividends in the foreseeable future. Therefore, you should not rely on an investment in the ADSs as a source for any future dividend income.
Our board of directors has complete discretion as to whether to distribute dividends, subject to certain requirements of Cayman Islands law. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our directors. Under Cayman Islands law, a Cayman Islands 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. Even if our board of directors decides to declare and pay dividends, the timing, amount and form of future dividends, if any, will depend on our future results of operations and cash flow, our capital requirements and surplus, the amount of distributions, if any, received by us from our subsidiaries, our financial condition, contractual restrictions and other factors deemed relevant by our board of directors. Accordingly, the return on your investment in the ADSs will likely depend entirely upon any future price appreciation of the ADSs. There is no guarantee that the ADSs will appreciate in value or even maintain the price at which you purchased the ADSs. You may not realize a return on your investment in the ADSs and you may even lose your entire investment in the ADSs.
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Our memorandum and articles of association contain anti-takeover provisions that could have a material adverse effect on the rights of holders of our Class A ordinary shares and the ADSs.
Our 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, including a dual-class voting structure that gives disproportionate voting power to the Class B ordinary shares held by Xin Gao Group Limited, of which our founder, chairman and chief executive officer, Mr. Kun Dai, is the sole shareholder and sole director. Through Xin Gao Group Limited and BOCOM International Supreme Investment Limited, Mr. Dai beneficially owned an aggregate of 3.3% of the total voting power of our company as of July 23, 2024. These provisions could have the effect of depriving our shareholders of an opportunity to sell their shares at a premium over prevailing market prices by discouraging third parties from seeking to obtain control of our company in a tender offer or similar transaction. Our board of directors has the authority, without further action by our shareholders, to issue preferred shares in one or more series and to fix their designations, powers, preferences, privileges, and relative participating, optional or special rights and the qualifications, limitations or restrictions, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights associated with our Class A ordinary shares, in the form of the ADS or otherwise. Preferred shares could be issued quickly with terms calculated to delay or prevent a change in control of our company or make removal of management more difficult. If our board of directors decides to issue preferred shares, the price of the ADSs may fall and the voting and other rights of the holders of our Class A ordinary shares and the ADSs may be materially and adversely affected.
You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because we are incorporated under Cayman Islands law.
We are an exempted company incorporated under the laws of the Cayman Islands. Our corporate affairs are governed by our memorandum and articles of association, the Companies Act (As Revised) of the Cayman Islands and the common law of the Cayman Islands. The rights of shareholders to take action against our directors, actions by our minority shareholders and the fiduciary duties of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from the common law of England, the decisions of whose courts are of persuasive authority, but are not binding, on a court in the Cayman Islands. The rights of our shareholders and the fiduciary duties of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a less developed body of securities laws than the United States. Some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands. In addition, Cayman Islands companies may not have standing to initiate a shareholder derivative action in a federal court of the United States.
Shareholders of Cayman Islands exempted companies like us have no general rights under Cayman Islands law to inspect corporate records or to obtain copies of lists of shareholders of these companies.
Our directors have discretion under our articles of association to determine whether or not, and under what conditions, our corporate records may be inspected by our shareholders, but are not obliged to make them available to our shareholders. This may make it more difficult for you to obtain the information needed to establish any facts necessary for a shareholder motion or to solicit proxies from other shareholders in connection with a proxy contest.
As a result of all of the above, our public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as public shareholders of a company incorporated in the United States. See “Item 16G. Corporate Governance” for a discussion of significant differences between the provisions of the Companies Act of the Cayman Islands and the laws applicable to companies incorporated in the United States and their shareholders.
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Certain judgments obtained against us by our shareholders may not be enforceable.
We are a Cayman Islands exempted company and substantially all of our assets are located outside of the United States. In addition, to our best knowledge, as of the date of this annual report, other than two independent directors that reside in the United States, all of the remaining directors and senior executive officers, namely, Kun Dai, Bin Li, Erhai Liu, Rong Lu, Feng Lin, Zhitian Zhang and Wenbing Jing, reside within mainland China and Hong Kong for a significant portion of the time and are residents of mainland China or Hong Kong. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States in the event that you believe that your rights have been infringed under the U.S. federal securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of China may render you unable to enforce a judgment against our assets or the assets of our directors and officers.
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 Class A ordinary shares represented by your ADS.
Holders of ADSs do not have the same rights as our registered shareholders. As a holder of the ADSs, you will not have any direct right to attend general meetings of our shareholders or to cast any votes at such meetings. You will only be able to exercise the voting rights which are attached to the underlying Class A ordinary shares represented by your ADSs indirectly by giving voting instructions to the depositary in accordance with the provisions of the deposit agreement. Under the deposit agreement, you may vote only by giving voting instructions to the depositary, as the holder of the underlying Class A ordinary shares represented by your ADSs. Upon receipt of your voting instructions, the depositary will try, as far as is practicable, to vote the underlying Class A ordinary shares represented by your ADSs in accordance with your instructions. Where any matter is to be put to a vote at a general meeting, then upon receipt of your voting instructions, the depositary will try to vote the underlying Class A ordinary shares in accordance with these instructions. You will not be able to directly exercise your right to vote with respect to the underlying Class A ordinary 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 of the meeting to withdraw the underlying shares represented by your ADSs and become the registered holder of such shares to allow you to attend the general meeting and to vote directly with respect to any specific matter or resolution to be considered and voted upon at the general meeting. In addition, under our memorandum and articles of association, for the purposes of determining those shareholders who are entitled to attend and vote at any general meeting, our directors may close our register of members and/or fix in advance a record date for such meeting, and such closure of our register of members or the setting of such a record date may prevent you from withdrawing the underlying Class A ordinary shares represented by your ADSs and becoming the registered holder of such shares prior to the record date, so that you would not be able to attend the general meeting or to vote directly. Where any matter is to be put to a vote at a general meeting, the depositary will notify you of the upcoming vote and will arrange to deliver our voting materials to you. Under our memorandum and articles of association, the minimum notice period required to be given by our company to our registered shareholders for convening a general meeting is seven days. Nevertheless, we cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote the underlying Class A ordinary shares represented by your ADSs. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for their manner of carrying out your voting instructions. This means that you may not be able to exercise your right to direct how the underlying shares represented by your ADSs are voted and you may have no legal remedy if the underlying shares represented by your ADSs are not voted as you requested.
You may experience dilution of your holdings due to the inability to participate in rights offerings.
We may, from time to time, distribute rights to our shareholders, including rights to acquire securities. Under the deposit agreement, the depositary will not distribute rights to holders of ADSs unless the distribution and sale of rights and the securities to which these rights relate are either exempt from registration under the Securities Act with respect to all holders of ADSs, or are registered under the provisions of the Securities Act. The depositary may, but is not required to, attempt to sell these undistributed rights to third parties, and may allow the rights to lapse. We may be unable to establish an exemption from registration under the Securities Act, and we are under no obligation to file a registration statement with respect to these rights or underlying securities or to endeavor to have a registration statement declared effective. Accordingly, holders of ADSs may be unable to participate in our rights offerings and may experience dilution of their holdings as a result.
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You may be subject to limitations on the transfer of your ADSs.
Your ADSs are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when it deems expedient in connection with the performance of its duties. The depositary may close its books from time to time for a number of reasons, including in connection with corporate events such as a rights offering, during which time the depositary needs to maintain an exact number of ADS holders on its books for a specified period. The depositary may also close its books in emergencies, and on weekends and public holidays. The depositary may refuse to deliver, transfer or register transfers of the ADSs generally when our share register or the books of the depositary are closed, or at any time if we or the depositary thinks it is advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason.
We will incur increased costs as a result of being a public company, particularly since we have ceased to qualify as an “emerging growth company.”
As a public company, we incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the SEC and Nasdaq Global Select Market, impose various requirements on the corporate governance practices of public companies. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, in the assessment of the emerging growth company’s internal control over financial reporting. The JOBS Act also permits an emerging growth company to delay adopting new or revised accounting standards until such time as those standards apply to private companies.
Since we have ceased to be an “emerging growth company,” we have incurred and expect to continue to incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and the other rules and regulations of the SEC. For example, as a result of becoming a public company, we will need to increase the number of independent directors and adopt policies regarding internal controls and disclosure controls and procedures. Operating as a public company also makes it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. In addition, we incur additional costs associated with our public company reporting requirements. It may also be more difficult for us to find qualified persons to serve on our board of directors or as executive officers.
We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to U.S. domestic public companies.
Because we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the securities rules and regulations in the United States that are applicable to U.S. domestic issuers, including:
| ● | the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q or current reports on Form 8-K; |
| ● | the sections of the Exchange Act regulating the solicitation of proxies, consents, or authorizations in respect of a security registered under the Exchange Act; |
| ● | the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and |
| ● | the selective disclosure rules by issuers of material nonpublic information under Regulation FD. |
We are required to file an annual report on Form 20-F within four months of the end of each fiscal year. In addition, we intend to publish our results on a quarterly basis as press releases, distributed pursuant to the rules and regulations of Nasdaq. Press releases relating to financial results and material events will also be furnished to the SEC on Form 6-K. However, the information we are required to file with or furnish to the SEC will be less extensive and less timely compared to that required to be filed with the SEC by U.S. domestic issuers. As a result, you may not be afforded the same protections or information that would be made available to you were you investing in a U.S. domestic issuer.
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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 corporate governance listing standards; these practices may afford less protection to shareholders than they would enjoy if we complied fully with the Nasdaq corporate governance listing standards.
As a Cayman Islands exempted company listed on the Nasdaq, 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. Currently, we rely on home country exemption for the requirement under Nasdaq Rule 5605(b)(1) that majority of the board of directors must be comprised of independent directors as defined under Nasdaq Rule 5605(a)(2). We also relied on home country practice in our transaction with NIO Capital and Joy Capital in June 2021 in which the issue price is less than the minimum price requirements stipulated by the Nasdaq Rule 5635(d) without seeking shareholder approval, in adopting our 2018 Second Amended and Restated Share Incentive Plan in November 2018 without seeking shareholder approval and did not hold an annual shareholders meeting for the fiscal year of 2024. In addition, in connection with the transaction with Alpha and Joy Capital in June 2023 regarding certain warrants initially issued by us to NIO Capital and Joy Capital in 2021, we have relied on home country practices in lieu of (i) Nasdaq’s requirement that voting rights of existing shareholders of publicly traded common stock registered under Section 12 of the Securities Exchange Act of 1934 of the United States cannot be disparately reduced or restricted through any corporate action or issuance; (ii) Nasdaq’s requirement that shareholder approval is required prior to the issuance of securities when the issuance or potential issuance will result in a change of control of the company and (iii) Nasdaq’s requirement that shareholder approval is required prior to issuance at a price that is less than the minimum price requirements stipulated by the Nasdaq Rule 5635(d). Lastly, we have relied on home country practice and our board of directors does not consist of a majority of independent directors. If we continue to rely on these and other exemptions available to foreign private issuers in the future, our shareholders may be afforded less protection than they would otherwise enjoy under the Nasdaq governance listing standards applicable to U.S. domestic issuers.
There can be no assurance that we will not be a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for any taxable year, which could result in adverse U.S. federal income tax consequences to U.S. holders of our ADSs or ordinary shares.
A non-U.S. corporation, such as our company, will be a passive foreign investment company (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 passive income, or (ii) 50% or more of the value of its assets (generally based on an average of the quarterly values of the assets) during such year is attributable to assets that produce passive income or are held for the production of passive income (the “asset test”). Passive income generally includes dividends, interest, royalties, rents, and capital gains. Goodwill and other intangible assets are generally treated as active assets to the extent associated with business activities that generate active income. For purposes of these calculations, a non-U.S. corporation 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 it owns, directly or indirectly, 25% or more (by value) of the stock.
We do not believe that we were a PFIC for our taxable year ended March 31, 2024. However, because the determination of whether we have been or will become a PFIC is a fact-intensive inquiry made on an annual basis that depends, in part, upon the composition of our income and assets and the value of our assets from time to time, there can be no assurance that we have not been or will not be a PFIC in any taxable year. In prior Annual Reports on Form 20-F, we stated that we believed that we were a PFIC for U.S. federal income tax purposes for our taxable year ended December 31, 2019, and that it is possible that one or more of our subsidiaries were also PFICs for such year for U.S. federal income tax purposes.
Our PFIC status may depend, in part, on the average value of our goodwill and other intangible assets. If the value of our assets (including our goodwill and other intangible assets) is determined by reference to our market capitalization, fluctuations in the market price of our ADSs may result in us becoming a PFIC for the current or future taxable years. The market price of our ADSs may continue to fluctuate considerably and, consequently, we cannot assure you of our PFIC status for any taxable year. The composition of our income and assets may also be affected by how, and how quickly, we use our liquid assets. In addition, if our revenue from activities that produce passive income increases relative to our revenue from activities that produce non-passive income, our risk of becoming a PFIC may substantially increase, including as a result of our potential future inability to operate as a going concern. If we cease to operate as a going concern, our PFIC status may be adversely affected as a result See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—There is substantial doubt as to our ability to continue as a going concern.”
If we are a PFIC for any taxable year during which a U.S. Holder (defined below) owns an ADS or an ordinary share, certain adverse U.S. federal income tax consequences could apply to the U.S. Holder. If we are a PFIC for any year during which a U.S. Holder holds our ADSs or Class A ordinary shares, we generally would continue to be treated as a PFIC for all succeeding years during which such U.S. Holder holds our ADSs or Class A ordinary shares even if we cease to meet the threshold requirements for PFIC status. As noted above, we believed we were a PFIC for our taxable year ended December 31, 2019. If we were a PFIC for 2019, we will generally continue to be treated as a PFIC with respect to a U.S. Holder that owns ADSs or Class A ordinary shares that such Holder owned during any portion of 2019, even if we are not a PFIC for any other taxable year, unless the U.S. Holder made or makes a “deemed sale” election with respect to our ADSs or Class A ordinary shares. U.S. Holders are urged to consult their tax advisors regarding the potential application of the PFIC rules to their particular circumstances. See “Item 10. Additional Information—E. Taxation—United States Federal Income Taxation—Passive Foreign Investment Company Considerations.”
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| Item 4. | Information on the Company |
| A. | History and Development of the Company |
We commenced operations in August 2011 through Youxin Internet (Beijing) Information Technology Co., Ltd., or Youxin Hulian, to conduct used car auctions and other transaction related services.
In December 2011, we incorporated Uxin Limited in the Cayman Islands as our offshore holding company to facilitate financing and offshore listing. Shortly following its incorporation, Uxin Limited established a wholly-owned subsidiary in Hong Kong, Uxin Hong Kong Limited. In June 2012, in connection with our Series A financing, Uxin Hong Kong Limited established a wholly-owned subsidiary in China, Youxinpai (Beijing) Information Technology Co., Ltd., referred to as Youxinpai or one of our WFOEs. Youxinpai subsequently established and acquired several wholly-owned subsidiaries, among which are Youhan (Shanghai) Information Technology Co., Ltd., or Youhan, and Baogu Automobile Technology Services (Beijing) Co., Ltd.
In November 2014, we established UcarShow Holding Limited, a wholly-owned subsidiary of Uxin Limited. UcarShow Holding Limited established UcarShow HK Limited in Hong Kong. In January 2015, we established Uxin Used Car Limited, and in February 2015, UcarShow Holding Limited transferred all its interests in UcarShow HK Limited to Uxin Used Car Limited. In March 2015, UcarShow HK Limited established a wholly-owned subsidiary, Yougu (Shanghai) Information Technology Co., Ltd, or Yougu. Yougu acquired Youzhen (Beijing) Business Consulting Co., Ltd. from Youxinpai in September 2016.
In November 2014, we established UcarEase Holding Limited, a wholly-owned subsidiary of Uxin Limited. UcarEase Holding Limited acquired GloryFin International Group Holding Company Limited, or GloryFin, which was incorporated in Hong Kong, and its three wholly-owned subsidiaries, Kai Feng Finance Lease (Hangzhou) Co., Ltd., or Kaifeng, Youqin (Shaanxi) Automobile Manufacture Co., Ltd. (formerly known as Youqin (Shaanxi) Finance Lease Co., Ltd.), and Boyu Finance Lease (Tianjin) Co., Ltd.
In November 2014, we established UcarBuy Holding Limited, a wholly-owned subsidiary of Uxin Limited. UcarBuy Holding Limited established UcarBuy HK Limited, which established a wholly-owned subsidiary, Youxin (Shanghai) Used Car Business Co., Ltd., which we refer to as Youxin Shanghai. In July 2019, Youxin Shanghai became a wholly-owned subsidiary of GloryFin.
Youxinpai and Yougu entered into a series of contractual arrangements with Youxin Hulian and Youxin Yishouche (Beijing) Information Technology Co., Ltd., or Yishouche, respectively, and their respective shareholders. Youxin Hulian and Yishouche are collectively referred to as the former VIEs.
We have been conducting our 2C business through Yougu and Yishouche. Yougu operates the website www.xin.com and mobile apps for our 2C business and has obtained approval from Shanghai Communications Administration to conduct value-added telecommunications services in the scope of online data processing and transaction processing (operating e-commerce).
On June 27, 2018, our ADSs commenced trading on Nasdaq under the symbol “UXIN.” We raised from our initial public offering US$204.8 million in net proceeds after deducting underwriting commissions and the offering expenses payable by us. Concurrently with our initial public offering, we sold convertible notes to CNCB and Golden Fortune, resulting in net proceeds to us of US$100 million and US$75 million, respectively. The notes each bears an interest rate of 6% and 6.5% per annum. They became due and were paid in June 2019.
In June 2019, we sold convertible notes in an aggregate principal amount of US$230 million to Redrock, TPG, 58.com, among others, which will become due and payable on June 11 and June 12, 2024 unless converted earlier (the “2024 Notes”). The note holders have the right to convert the convertible notes into our Class A ordinary shares during the period from and including the 181st day after the issuance date to and including the maturity date. The conversion price per Class A ordinary share of the notes equals US$1.03 and may be adjusted and each note bears an interest rate of 3.75% per annum. On July 12, 2021, the note holders have converted a principal amount of US$69 million convertible notes to 66,990,291 Class A ordinary shares. The remaining principal amount of US$161 million is subject to customary payment schedules. The note holders have also irrevocably waived the conversion rights with respect to their respective remaining portions. In July 2022, we issued 183,495,146 Class A ordinary shares to 58.com in exchange for the full release of our obligations to 58.com under the convertible promissory note and certain other historical transactions.
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Between July and November 2019, we sold convertible notes in an aggregate principal amount of US$50 million to affiliates of PacificBridge. Among the notes, notes of US$20.05 million in principal amount bears an interest rate of 10% per annum, which will become due and payable 12 months after the issuance date, and notes of US$29.95 million in principal amount bears an interest rate of 11% per annum, which will become due and payable 15 months after the issuance date, unless converted earlier. The noteholders have the right to convert the convertible notes into our Class A ordinary shares during the period from and including the 181st day after the issuance date to and including the maturity date, which right may be exercised twice only. The conversion prices of the notes are US$1.663, US$1.683 and US$1.7, as applicable, and may be adjusted. On July 23, 2020, we entered into agreements with PacificBridge to amend the terms of the notes to adjust the conversion price. On the same day, PacificBridge converted its convertible notes into 136,279,973 Class A ordinary shares at the adjusted conversion price.
On April 26, 2020, our board of directors approved the change in our fiscal year end from December 31 to March 31. We filed a transition report on Form 20-F covering the transition period from January 1, 2020 to March 31, 2020 with the SEC on July 24, 2020.
Since September 2020, we have shifted to an inventory-owning model where we build-up and sell our own inventory of used cars. Youxin (Ningbo) Information Technology Co., Ltd., established in July 2020, is the operating entity under the new business model.
In October 2020, we completed private placements with GIC and Wells Fargo for subscription of a total of 84,692,839 Class A ordinary shares for an aggregate amount of US$25 million.
In March 2021 and June 2021, we entered into a term sheet and definitive agreements, respectively, with NIO Capital and Joy Capital to raise an aggregate amount of up to US$315 million for the subscription of a total of 917,564,810 senior convertible preferred shares. See “Item 10. Additional Information—B. Memorandum and Articles of Association” for a more detailed description of our senior convertible preferred shares. The first closing in the amount of US$100 million was completed for our issuance of 291,290,416 senior convertible preferred shares on July 12, 2021. The second closing in the amount of US$27.5 million was completed for the issuance of 80,104,865 senior convertible preferred shares in November 2021. Another US$10 million and US$7.5 million of the second closing was completed in March 2022 and June 2022, respectively. In July 2022, NIO Capital assigned its rights and obligations to subscribe for 14,564,520 senior convertible preferred shares under the second closing for the total price of US$5 million to an independent third party. On the same day, we issued 14,564,520 senior convertible preferred shares to the third party and the second closing of the transaction was completed. The two investors have also purchased warrants to purchase 480,629,186 senior convertible preferred shares for an aggregate amount of US$165 million. In January 2023, we entered into a definitive agreement with NIO Capital and Joy Capital to extend the expiration date of the aforesaid warrants from January 12, 2023 to January 12, 2024.
As of March 31, 2022, we had completed the Restructuring of the VIE structure to terminate the contractual arrangements with both of the former VIEs which have become wholly owned subsidiaries of the company.
On June 30, 2022, we entered into a share subscription agreement, or the 2022 Subscription Agreement, with NIO Capital for the subscription of 714,285,714 senior convertible preferred shares of the Company for an aggregate amount of US$100 million, which will be paid in multiple installments. The 714,285,714 senior convertible preferred shares were issued on July 27, 2022 in connection with the closing and we have received the first installment. Pursuant to the then-effective certificate of designation of senior convertible preferred shares of our company, the issuance of the senior convertible preferred shares on July 27, 2022 in connection with the closing of the foregoing transaction has led to an reduction in the conversion price, from US$0.3433 per Class A ordinary share to US$0.14 per Class A ordinary share, of the senior convertible preferred shares issued pursuant to the 2021 Subscription Agreement we entered into with certain investors in June 2021 and then outstanding. The fair value impact of the triggered down round feature amounted to RMB755.6 million and was recorded as a charge to accumulated deficit and a credit to additional-paid in capital.
On July 19, 2022, we issued 183,495,146 Class A ordinary shares to 58.com in exchange for the full release of our obligations to 58.com under the 2024 Notes held by 58.com (such notes, as amended, the “58.com Notes”) and certain other historical transactions. These shares were issued at a price equivalent to US$10.3 per ADS (or US$1.03 per ADS prior to the ADS Ratio Change (as defined below)). The 58.com Notes were extinguished upon such issuance of shares.
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On August 29, 2022, we issued 36,699,029 Class A ordinary shares to ClearVue Uxin Holdings, Ltd., or ClearVue, in exchange for the full release of our obligations under the 2024 Notes held by ClearVue (such notes, as amended, the “ClearVue Notes”). These shares were issued at a price equivalent to US$10.3 per ADS (or US$1.03 per ADS prior to the ADS Ratio Change (as defined below)). The ClearVue Notes were extinguished upon such issuance of shares.
On October 12, 2022, Uxin Limited announced a change in ADS to Class A ordinary share ratio from each ADS representing three Class A ordinary shares to each ADS representing 30 Class A ordinary shares (the “ADS Ratio Change”). The ADS Ratio Change became effective on October 28, 2022.
On April 4, 2023, we and NIO Capital entered into additional supplemental agreements to amend the 2022 Subscription Agreement, pursuant to which the payment method of purchase price payable under the 2022 Subscription Agreement is revised to permit a combination of cash payment and cancellation of indebtedness of us to NIO Capital. As of the date of this annual report, NIO Capital has fulfilled its obligation in an aggregate amount of US$90.6 million of the outstanding purchase price and have also fully performed our outstanding payment obligations under certain promissory notes originally issued in June 2019 and amended in June 2021, totaling an aggregate of US$61.6 million, held by NIO Capital.
On June 30, 2023, we have entered into a definitive agreement with Alpha and Joy Capital, or 2023 Warrant Amendment, regarding the warrants issued by the Company to NIO Capital and Joy Capital in 2021. Pursuant to the foregoing definitive agreement and certain assignments of warrants among Alpha, NIO Capital and Joy Capital, Alpha acquired from NIO Capital and Joy Capital warrants that provide the right to purchase up to 261,810,806 senior convertible preferred shares of the Company at a modified exercise price of US$0.0457 per share. Joy Capital only assigned a portion of its warrants under this amended agreement. Alpha and Joy Capital (either together or separately) are entitled to, at their discretion, exercise their respective warrants in full to subscribe for a total of 480,629,186 senior convertible preferred shares of the Company in an aggregate amount of US$21,964,754 no later than September 30, 2023.
On August 17, 2023, Joy Capital has exercised its warrants to purchase 218,818,380 senior convertible preferred shares of our company at an exercise price of US$0.0457 per share for a total consideration of US$10.0 million. The closing of the foregoing transaction has led to a reduction in the conversion price, from US$0.14 per Class A ordinary share to US$0.0457 per Class A ordinary share, of the senior convertible preferred shares issued pursuant to the 2021 Subscription Agreement we entered into with certain investors in June 2021 and then outstanding. The fair value impact of the triggered down round feature amounted to RMB278.8 million and was recorded as a charge to accumulated deficit and a credit to additional-paid in capital.
On September 20, 2023, we entered into an equity investment agreement with Hefei Construction Investment. Pursuant to the agreement, Hefei Construction Investment will invest by multiple instalments in Uxin Hefei, and each instalment will be made after the lease payment is made by the Hefei subsidiary, over a 10-year period. The first-year rental of approximately RMB147.09 million was converted into the investment for the subscription of approximately 12.02% equity interests in Uxin Hefei in October 2023. Details of each investment will be subject to future negotiation. Hefei Construction Investment’s equity interests in Uxin Hefei will not exceed 50% after these contributions are completed. We retain the right to repurchase the equity interests in Uxin Hefei from Hefei Construction Investment at any time, and Hefei Construction Investment has the right to request us to do the same when Uxin Hefei meets the performance condition or fails to meet certain conditions as stipulated in the equity investment agreement. This investment is intended to support the operation and development of our used car superstore in Changfeng County, Hefei City.
On December 29, 2023, Uxin Limited announced a change in ADS to Class A ordinary share ratio from each ADS representing 30 Class A ordinary shares to each ADS representing 300 Class A ordinary shares (the “Second ADS Ratio Change”). The Second ADS Ratio Change became effective on January 16, 2024.
On March 1, 2024, we held an extraordinary general meeting of our shareholders and the shareholders passed an ordinary resolution that the authorized share capital of our company be increased by the creation of an additional 190,000,000,000 new Class A ordinary shares of a par value of US$0.0001 each (the “Share Capital Increase”), such that, following the Share Capital Increase, our authorized share capital became US$20,000,000 divided into 200,000,000,000 shares comprising of (i) 198,180,000,000 Class A ordinary shares of a par value of US$0.0001 each, (ii) 100,000,000 Class B ordinary shares of a par value of US$0.0001 each and (iii) 1,720,000,000 senior preferred shares of a par value of US$0.0001.
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On March 18, 2024, our Board of Directors authorized by written resolutions the re-designation of 8,180,000,000 authorized but unissued Class A ordinary shares as 8,180,000,000 senior preferred shares (the “Re-designation”), such that, following the Re-designation, our authorized share capital is US$20,000,000 divided into 200,000,000,000 shares comprising of (i) 190,000,000,000 Class A ordinary shares of a par value of US$0.0001 each, (ii) 100,000,000 Class B ordinary shares of a par value of US$0.0001 each and (iii) 9,900,000,000 senior preferred shares of a par value of US$0.0001.
On March 18, 2024, we entered into a term sheet with Xin Gao and an investment fund specializing in automatable industry (the “NC Fund”) to enter into definitive agreements for the financing in an aggregate amount of approximately US$34.8 million at a subscription price of US$0.004858 per share. On March 26, 2024, we and Xin Gao entered into a share subscription agreement for, and completed on the same day, the issuance of 1,440,922,190 senior convertible preferred shares to Xin Gao for a total consideration of US$7.0 million. For the accounting impact resulted from the issuance price lower than market price, please refer to “Item 7. Major Shareholders and Related Party Transactions.” The closing of the foregoing transaction has led to an reduction in the conversion price, from US$0.0457 per Class A ordinary share to US$0.004858 per Class A ordinary share, of the senior convertible preferred shares issued pursuant to the 2021 Subscription Agreement we entered into with certain investors in June 2021 and then outstanding. The fair value impact of the triggered down round feature amounted to RMB1,781.5 million and was recorded as a charge to accumulated deficit and a credit to additional-paid in capital.
On March 27, 2024, by virtue of the consents of the requisite holders of senior convertible preferred shares, the 1,440,922,190 senior convertible preferred shares issued to Xin Gao on March 26, 2024 were converted into 1,440,922,190 Class A ordinary shares, and all the other senior convertible preferred shares then issued and outstanding were also converted into Class A ordinary shares at the applicable conversion prices.
On July 8, 2024, we entered into a strategic partnership with Zhengzhou Airport Industry to establish Uxin Zhengzhou to support our plan to establish a new used car super store in Zhengzhou. Pursuant to the equity investment agreement, Uxin Anhui will contribute RMB120.0 million and Zhengzhou Airport Industry will contribute RMB50.0 million, representing approximately 70% and 30% of Uxin Zhengzhou’s total registered capital, respectively. Uxin Anhui has the right to acquire Zhengzhou Airport Industry’s equity interests in Uxin Zhengzhou, subject to necessary regulatory approvals, and Zhengzhou Airport Industry has the right to request Uxin Anhui to acquire its equity interests if certain performance-based conditions are met (the “Repurchase Obligations”). We undertake to provide an irrevocable joint and several liability guarantee for the performance by Uxin Anhui of the Repurchase Obligations.
Divestitures of Our Loan Facilitation, Salvage Car and 2B Businesses
Since early 2018, when we began to fulfill online used car transactions for consumers, we have gradually shifted our strategic focus to our 2C online transaction business, which was previously referred to as “2C cross-regional business.” Through our 2C online transaction business, we help consumers buy the car of their choice online by providing them with a nationwide selection of used cars, a wide range of car-related value-added products and services as well as a full suite of supporting services to fulfill these online used car transactions. With our innovative online used car product and service offerings, we have created an innovative and unique used car buying experience for consumers centered around four key values — more selection, better prices, premium service and convenience. As a result, in order to better devote our attention and resources towards developing and scaling up our 2C online transaction business, we have divested our loan facilitation, salvage car and 2B related businesses, which are collectively referred to as the Divested Businesses.
| B. | Business Overview |
We are a leading used car retailer, pioneering industry transformation with advanced production, new retail experiences, and digital empowerment in China. With our inventory-owning model, we provide our customers a comprehensive transaction solution that encompasses the entire value chain, ranging from used-car acquisition, inspection and reconditioning, warehousing, as well as pre-sales and after-sales services. We offer high-quality and value-for-money used cars as well as superior full suites of services to customers through a reliable, one-stop and hassle-free transaction experience. Empowered by our omni-channel sales approach, we are able to establish market leadership by serving customers both nationwide through our online platform and in selected regions through our offline used car superstores.
Since early 2018, we have been offering online used-car-buying products and services (2C online transactions) to customers nationwide through our online platform. By removing the geographic boundaries of used car transactions, our online platform facilitates each step of the transaction process and establishes a seamless self-service purchasing experience. With the abundant used-car listings and transparent price estimates displayed on our platform, our customers can easily place an order online, free from paying any hidden extra fees, and also enjoy our carefree after-sales support. Leveraging our vast nationwide logistics and delivery network, we are able to provide door-to-door delivery to our customers nationwide. In addition, we also collaborate with various third-party partners to provide a wide range of value-added products and services, such as auto financing options and insurance products, as well as other after-sales services.
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In September 2020, we started to shift to an inventory-owning model from a third-party inventory commissioned-based model, aiming to better control our supply chain and deliver higher-quality used cars and higher transaction certainty to our customers.
Meanwhile, to further strengthen our ability to provide high-quality and value-for-money used cars, we have been building our own used car superstores where we can recondition all retail inventory to a “like new” condition. Our first used car superstore in Xi’an has been in operation in March 2021. Furthermore, we completed the relocation and upgrade of our Xi’an Superstore in December 2022. The upgraded facility has an annual production capacity of 40,000 vehicles and an extended showroom capacity of up to 3,000 vehicles, making it the largest fully self-owned used car marketplace in northwest China. In September 2021, we entered into a strategic partnership with Changfeng County Government of Hefei City to jointly invest in and build the industry-leading Hefei Superstore in Changfeng, Hefei. With a total investment of up to RMB2.5 billion, the Hefei Superstore is expected to have an annual production capacity of 60,000 to 100,000 vehicles once it is in operation in the next few years. This production capacity is expected to provide us with a stable and large supply of high-quality used vehicles in the coming years. The phase one of Hefei Superstore has been in operation since its launch in November 2021. The Hefei Superstore has a total construction area of 450,000 square meters, comprising of used car reconditioning factories and used car warehouse-style showrooms capable of showcasing up to 10,000 vehicles. It serves as a central hub for our expansion plans in the used car industry, anchoring in Hefei City and extending its reach across the Anhui Province and facilitating sales nationwide. On September 20, 2023, we entered into an equity investment agreement with Hefei Construction Investment. Pursuant to the agreement, Hefei Construction Investment will invest by multiple instalments in Uxin Hefei, and each instalment will be made after the lease payment is made by the Hefei subsidiary, over a 10-year period. The first-year rental of approximately RMB147.09 million was converted into the investment for the subscription of approximately 12.02% of the equity interests in Uxin Hefei in October 2023. Details of each investment will be subject to future negotiation. Hefei Construction Investment’s equity interests in Uxin Hefei will not exceed 50% after these contributions are completed. We retain the right to repurchase the equity interests in Uxin Hefei from Hefei Construction Investment at any time, and Hefei Construction Investment has the right to request us to do the same when Uxin Hefei meets the performance condition or fails to meet certain conditions as stipulated in the equity investment agreement. This investment is intended to support the operation and development of our used car superstore in Changfeng County, Hefei City. In July 2024, we entered into a strategic partnership with Zhengzhou Airport Industry to establish Uxin Zhengzhou. Pursuant to the equity investment agreement, Uxin Anhui will contribute RMB120.0 million and Zhengzhou Airport Industry will contribute RMB50.0 million, representing approximately 70% and 30% of Uxin Zhengzhou’s total registered capital, respectively. Uxin Zhengzhou aims to support our plan to establish a new used car super store in Zhengzhou.
In addition to reconditioning retail used cars, our used car superstores, as a type of warehouse stores, offer local customers and customers within Shaanxi and Anhui provinces with in-store visit and purchase options. Accordingly, we have shifted from an online-only sales approach to an omni-channel sales approach, which integrates online sales into its warehouse-style operation.
Consumers in China have been facing significant challenges when buying used cars via traditional supply chains, such as limited access to a wide selection of used cars, inconvenience in terms of buying used cars from other cities and regions, lack of transparent and reliable information on car condition and complex transaction processes. Operated under the brand Uxin Used Car (优信二手车), our platform is able to address these pain points by providing customers with a reliable and one-stop car buying experience and enabling customers to select from our own inventory of selected used cars nationwide and access various car-related value-added products and services throughout China. We now have much stronger control and management over the entire value chain and improved ability to provide high-quality used car products and premium services. We have started to track customer satisfaction via monitoring NPS (net promoter score) since the second quarter of 2020 and have made remarkable progress over the past years. We have significantly improved our average NPS per year from 31 for the fiscal year 2021 to 61 for the fiscal year 2024.
Deeply rooted in the used-car market for over a decade, we are transforming the used car buying experience in China through our innovative inventory-owning model, integrated omni-channel sales approach, high-quality vehicle products and premium services, which perfectly echo the meaning of our brand name as Uxin (优信) translates to quality and trust in Chinese.
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Our Platform and Business
Retail vehicle sales and wholesale vehicle sales
Our vehicle sales business consists of retail vehicle sales business and wholesale vehicle sales business.
Our acquired vehicles that meet our retail standards will be delivered to our Xi’an Superstore or Hefei Superstore for further inspection and reconditioning, and then sold to customers, which we refer to as our retail vehicle sales business. We acquire vehicles for sale through numerous sources, including directly from consumers, auction platforms and car dealerships. As we have such rich sources for vehicle acquisition, we are able to have greater access to used cars at more favorable prices and enjoy greater flexibility in offering more competitive prices to customers. The vehicles that we acquire from customers, either as trade-ins or independent of a retail sale, and that do not meet our retail standards to list and sell will be wholesaled via offline channels, which we refer to as our wholesale vehicle sales business. In addition, in order to boost cash turnover, we may increase the proportion of wholesale vehicle sales by wholesaling certain vehicles that meet our retail standards but nevertheless do not suit our design of retail inventory composition.
For the fiscal year of 2024, our vehicle sales volume was 15,550, among which retail vehicle sales volume was 10,179 and wholesale vehicle sales volume was 5,371, respectively.
Others
We also generate other revenues from commissions earned from our financing and insurance partners and from provisions of warranty and repair services.
Customer journey in our vehicle sales business
For a typical Uxin Used Car customer, there are two ways to buy used cars from Uxin: online purchase for nationwide customers or in-store purchase at our used car superstores for regional customers.
Online purchase journey for nationwide customers
A customer’s online purchase journey is as follows:
| ● | Online vehicle search: We provide an intuitive user interface to help the customer navigate through a vast selection of used cars. The customer can search by brand, price and other features. Built upon our technology capabilities in user categorizing and deep learning, our platform also personalizes and prioritizes the display of high-quality listings according to the customer’s specific needs and requirements, which can make the decision-making process much more efficient. As we improve the quality and price competitiveness of the used-car inventories under our inventory-owning model, we provide customers with wider choice of high-quality value-for-money used cars. |
| ● | Vehicle selection: Transaction process on our online platform is highly transparent. Customers are able to easily acquire basic information of each car listing on our platform, such as photos of the interior and exterior of a car. Furthermore, an in-depth car condition report generated by our Jiancebao (检测宝) system, is available to assist our customers’ vehicle selection. The car condition report provides an evaluation of the vehicle’s condition in accordance with the national standard–GB/T 30323 “Technical Specifications for Appraisal and Evaluation of Used Vehicles.” It includes a clear definition and standard for vehicle mileage adjustment, assessment of structural damage, water damage, and fire damage. Additionally, it includes a maintenance list of the vehicle, information about any historical accidents, and details about the vehicle’s maintenance history. This comprehensive report ensures that our customers are fully informed about the condition of the vehicles listed. Based on our comprehensive inventory database, our system also accommodates easy comparison of different cars across a multitude of features, including price, car condition and residual value, all of which would enable the customer to make a more informed buying decision. |
| ● | Products and services: When searching for used cars, the customer can also view and choose from various value-added products and services, such as used car financing options and auto insurance products, offered by third-party providers on our platform. Once the customer buys a car, we provide a full suite of supporting services to fulfill the online car purchase, such as nationwide logistics and delivery service, nationwide title transfer service, and assistance with vehicle registration for license plate. All of these products and services significantly lower the barrier to buy used cars online from our platform. |
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| ● | Customer support: In a similar way to click-and-buy shopping, our online platform allows used car buyers to virtually navigate the listing information, make informed decisions, lock in their favorite cars, place order and complete the transaction online without the assistance of a sales consultant. At any step of the transaction process, the customer can also contact our pre-sales and after-sales customer service personnel through online chat or hotlines. Our online customer service center primarily handles pre-sales car-buying enquiries, such as preliminary questions on car price, car condition, car selection, title transfer, vehicle registration and used car financing options. Our AI-enabled sales consultant assistance system, which integrates Lingxi (灵犀) intelligent recommendation system, Edison intelligent user profiling system and communication records generated from our online customer service center, empowers our sales consultants to provide more personalized and professional services by enabling them to understand the customer’s specific needs and requirements in greater detail and automatically generating car comparison and recommendations accordingly. Our fulfillment management center primarily handles after-sales enquiries and answers all sorts of questions that may arise in connection with the car purchased by the customer, such as questions on auto loan repayment, insurance claim and car repair covered by our warranty programs, as well as resolves customer complaints. |
| ● | Signing and delivery: Customers can either purchase the car with full payment or in installments utilizing different financing options. After the customer enters into contracts with us and makes the down payment, our nationwide logistics and delivery service ships the car in a timely manner to the customer’s nearest fulfillment center. When the car arrives, our fulfillment service consultant will carry out a pre-fulfillment check on the car’s condition and carry out thorough cleaning and disinfection process. Once confirmed that the car is in good condition, we will invite the customer to our fulfillment center to inspect and pick up the car. The customer will make the rest of the payment at the fulfillment center. Once all procedures are completed, we will help our customer to register the car at local vehicle bureau and complete title transfers. If a customer is unable to pick up the car in person, we provide door-to-door car shipping services. |
| ● | After-sale warranty: Every certified used car currently carries a 7-day unconditional return policy and lifetime refund policy covering certain major damages caused by severe accidents that occurred prior to the sale but were not originally identified through Uxin’s certificate program. We provide these warranty programs to the customer for no extra charge. |
In-store purchase journey at our used car superstores for regional customers
Our used car superstores are able to directly serve regional customers in Xi’an and Hefei and also cover customers in Shaanxi and Anhui provinces. All of the products, transaction processes and services are the same as that of online purchase journey, with the only difference being that customers can visit our used car superstores to have a clearer picture of the cars being offered and can pick up the car of their choice on the same day. Our in-store sales personnel are able to provide services and support to these customers from every aspect of their buying journey. In-store purchase is more convenient for regional customers and also caters to the buying habits of most customers.
We believe the combination of online and in-store purchase best tailors to the purchasing demands of our Chinese customers. As we further expand our customer base and increase word-of-mouth marketing through regional superstores, we will further improve our brand image and build trust among our customers, which will allow us to further boost our online sales.
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Our Services
Our full suites of services provide customers with one-stop buying experience, for instance, we assist customers in dealing with a wide range of post-sale matters leveraging our expertise in the industry. Our omni-channel used car transaction business provides the following crucial service components:
| ● | Sales services. We have upgraded and transformed the entire online used car buying process and our online consulting team is able to deliver timely vehicle consulting services and facilitate a seamless self-service purchasing experience. In addition, we also enhanced the responsiveness and quality of our after-sales services delivered through online chat and hotlines to ensure high customer satisfaction. Since our Xi’an Superstore and Hefei Superstore have been in operation in 2021, we have expanded our offline service teams in both superstores to offer all-around and seamless services to our offline customers. Under our omni-channel sales approach, we provide the same reliable, one-stop and hassle-free transaction services to customers no matter they purchase through our online platform or from our superstores. |
| ● | Value-added products and services. In addition to vehicle sales services, we also have a wide range of car-related value-added products and services. We cooperate with used car financing solution providers and recommend personalized used car financing options to our customers according to their needs and profiles. We also cooperate with insurance solution providers and refer their auto insurance products to our customers. As of March 31, 2024, we partnered with five financing solution providers and six insurance companies. |
| ● | Warranty and repair services. As part of our after-sale warranty, every used car bought from us currently carries a 10-year refund policy covering certain major damages caused by severe accidents that existed prior to the sale. In addition, our extended warranty services provide customers with different extended warranty solutions. Our maintenance service network covers nearly 300 prefecture-level cities across China. Our maintenance review team reviews the maintenance plan and ensures our maintenance quality. Our service consultants provide one-on-one exclusive after-sales services to improve our customers’ purchasing experience. |
| ● | Nationwide door-to-door delivery services. A used car can be delivered to our fulfillment center and picked up by our customer in person. For cities with no fulfillment center, we provide door-to-door car shipping services leveraging our nationwide logistics network. Our logistic and delivery network covers more than 300 cities in China. With our industry-leading logistic routing system, a used car sold through our platform can be delivered to our customers typically within four days. |
| ● | Nationwide title transfers and vehicle registration. For the retail vehicle sales under our inventory-owning model, Uxin owns the titles of the cars before they are sold to our customers. Following the completion of a transaction, the title will be transferred to our customer. We also offer flexible and comprehensive vehicle registration solutions to assist our customers from different cities in obtaining local license plates, which greatly reduces their waiting time. As of March 31, 2024, we partnered with title transfer service providers in nearly 250 cities nationwide to handle the entire title transfer process for our customers. |
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Our Capabilities
Our comprehensive products and services are supported by a number of critical foundations, including proprietary technology and data analytics capabilities, reconditioning capabilities, one-stop services capabilities and unique omni-channel used car transaction fulfillment capabilities.
| ● | Data Analytics and Technology Capabilities: With a significant amount of data accumulated on our platform for more than 10 years since our inception in 2011, including user behavioral data, and data on used cars and used car transactions, we are able to continue to innovate our proprietary technologies. Our patented and industry-leading car inspection system, Jiancebao(检测宝), provides a comprehensive overview of a used car’s condition. Our AI- and big data-driven Manhattan pricing engine provides pricing for the sale of each used car based on the car’s specific condition. In addition, based on a wealth of data we have on user behavior, our AI-enabled Lingxi (灵犀) intelligent recommendation system provides personalized car recommendations to customers by analyzing their preferences, which make it easier for them to find the car of their choice; and our AI-powered Edison intelligent user profiling system helps our customer service personnel and sales consultants better understand customer profiles by analyzing their preferences in real time and predicting which used cars they are likely to buy, enabling us to create more effective sales strategies. |
| ● | Reconditioning Capabilities: Equipped with our inspection and reconditioning experts and professional equipment, our used car superstores are able to recondition all retail vehicles to a “like new” condition, and streamline and standardize the entire reconditioning process, thereby greatly improving both quality and efficiency of our operations. By implementing sustainable supply chain practice and zero-waste policy, we optimize the reconditioning costs and offer our customers high-quality vehicles at attractive prices. We have accumulated and set up an integrated database of reconditioning standards and processes. In addition, we have adopted an advanced and intelligent reconditioning technology, which is more efficient, cost-effective, and environmentally friendly. After our Hefei Superstore in Changfeng, Hefei is fully completed and put into operation in the next few years, we expect the plant to have an annual production capacity of 60,000 to 100,000 vehicles, which is expected to provide Uxin with a stable and large supply of high-quality used vehicles in the coming years. Furthermore, we completed the relocation and update of our Xi’an Superstore in December 2022. The reconditioning factory in Xi’an has an annual capacity of 40,000 units to ensure that we have a large-scale supply of high-quality used cars. |
| ● | Nationwide Logistic and Delivery Capabilities: We believe we are the first company in China that has built a nationwide logistics and delivery network for used cars. All the logistics planning and delivery solutions are automated and output from our integrated intelligent logistics and routing system, which ensures a timely delivery and standard delivery fee. Through our order management system (OMS) and transportation management system (TMS), we operate and manage our logistics and delivery network in a centralized and transparent fashion, which allows us to take a systematic approach to assigning shipment orders to logistics providers as well as monitoring and managing delivery progress. In addition, our historically accumulated transaction volume brings better economy of scale to our platform, which in turn enables us to increase overall resource utilization and delivery efficiency by optimizing route planning. As a result, we have significantly improved our capabilities in operating used car logistics and delivery across China. For the purpose of monitoring each shipment, we temporarily install GPS device to track the car’s location in real time. A used car sold through our platform can be delivered to our customers typically within five calendar days via our logistics and delivery network. |
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Technology
We leverage sophisticated technology to provide a differentiated customer experience and improve our operations.
Jiancebao (检测宝) inspection system
Our proprietary Jiancebao (检测宝) system is an integrated and interactive vehicle inspection system. A significant portion of the inspection process is automatically conducted by our proprietary and state-of-the-art technology. The automatic inspection is enabled through wearable digital glasses to record the inspection process, automatic diagnostics of car condition from image recognition technology that can automatically identify certain car condition. A mobile device serves as the hardware management and data collection terminal during each car inspection. Equipped with touch screen and voice command features, the mobile device is a highly interactive platform powered by our inspection software. The mobile device is also connected to multiple inspection hardware devices, including wearable digital glasses, endoscopy, a vehicle on-board diagnostics system and a coating thickness gauge. Our inspection professionals follow the instructions prompted by the mobile device and interact with the software system through the touch screen and voice commands during the inspection process. After each inspection, our system automatically generates a comprehensive standardized inspection report. Each condition report includes extensive information on, among many other data points, the exterior and interior of the car, structure and engine condition. Our upgraded inspection system involves a standard procedure that covers more than 750 documented check points. As a result, our inspection system improves both inspection accuracy and efficiency. As of March 31, 2024, we had 12 patents in relation to vehicle inspection.
Manhattan pricing engine
Our AI- and data-driven Manhattan pricing engine provides assessments on sale prices based on each car’s specific condition. We also use the Manhattan pricing engine to assess the residual value of retail vehicles, and continue to optimize the accuracy of residual value estimates based on the latest used car information on the market and external data such as the latest selling prices for comparable new vehicles. In addition, the Manhattan pricing engine provides us with price assessment that guides us in acquiring vehicles.
Our Manhattan pricing engine maintains high accuracy by updating its algorithms on a real-time basis with the transaction data collected in the latest week. Since 2018, our platform has completed over 177,379 online used cars transactions through our 2C business, which has contributed valuable transaction-related data to our database.
Lingxi(灵犀) intelligent recommendation system
Based on a wealth of data on retail transaction history and used car information accumulated on our platform, our AI-enabled Lingxi (灵犀) intelligent recommendation system makes personalized car recommendations to customers on our platform by analyzing their preferences, making it easier for them to find the car of their choice. In addition, Lingxi (灵犀) is also embedded with user categorization module which reveals user preference on different feature for a car. Our Lingxi (灵犀) intelligent recommendation system serves as an important foundation for our business operations.
Edison intelligent user profiling system
Our AI-powered Edison intelligent system helps our sales consultants and customer service personnel to better understand potential buyers and provide effective services to them. Edison effectively studies and predicts user preferences for specific car features, such as certain make and model, car color, engine and gearbox, and constantly adjusts its prediction by monitoring user behavior data on a real-time basis. In addition, Edison can provide our sales consultants with insights on which used car the customer is likely to buy through a process of matching car features with the customer’s profile.
Marketing and Brand Promotion
In terms of online marketing strategies, we obtained sustainable customer traffic by displaying our vehicles on e-commerce platforms for used cars. We also sell our vehicles through live steaming which enhanced our brand recognition and attracted more targeted customers. We also collaborated with internet celebrities to raise the awareness of our superstores. In terms of offline marketing strategies, we have implemented cost-effective marketing strategies, such as hosting events at our superstores. By continuously improving our marketing efficiency, we have reduced the cost of customer acquisition while significantly increasing our customer traffic and enhancing our brand recognition.
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As an established used car brand in China, Uxin has enjoyed high brand awareness among Chinese consumers. In May 2019, we were named as the only used car e-commerce brand in BrandZ’s 2019 Top 100 Most Valuable Chinese Brands and the 71st most valuable Chinese brand on the list. In 2020, we were named as the No. 1 Brand for Mind Share in the Used Car Transactions Market as well as the Premier Used Car Brand in the 9th Hubei Auto Jinlun Prize. In 2021, we were awarded the Outstanding Member of China Automobile Dealers Association and won the General Business Award issued by China Automobile Dealers Association. In 2022, we were awarded the 2021-2022 Industry Quality Breakthrough Award by China Business Herald, Most Valuable Social Service Company by Zhitongcaijing as well as the 10th Hubei Auto Jinlun Prize–the Premier Used Car Brand by Hubei Daily. In 2023, we were awarded the Outstanding Used Car Dealer of the Year for the Anhui Automobile Industry, the Best User Experience Award in the used car circulation sector at the China Internet Economy Forum, and the Innovative Enterprise of the Year for Industry Quality at the Seventh Annual Northwest Automobile Market Awards. As we continue to optimize our traffic acquisition channels, starting from 2020, we have also been working on enhancing NPS among our customers by continuously improving our service quality and customer satisfaction to further increase our brand awareness as well as the likelihood of existing customers to recommend or refer our products and services to other potential customers.
Our Former Businesses Before September 2020
Online used car business (formerly known as “2C cross-regional business”) after the divestiture of intra-regional business and loan facilitation business
Starting from early 2018 until September 2020 when we shifted to an inventory-owning model, our former business focused primarily on online used car transaction services under a platform model, which services we previously referred to as our “2C cross-regional business.”
Pursuant to the Loan Facilitation Divestiture, we had closed our divestiture of entire “2C intra-regional business” and loan facilitation business to Golden Pacer by April 2020. Therefore, “2C cross-regional business” is renamed as “online used car business”. Accordingly, the revenues generated from the online used car business are renamed as commission revenue, and value-added service revenue starting in the three months ended September 30, 2019. We no longer provide any loan facilitation services since November 2019 as a result of the Loan Facilitation Divestiture.
Commission. We provided used car purchase assistance, used car inspection services, title transfer and title registration service, as well as logistics service during the purchase process. We charged consumers the commission fees based on agreed percentage of final sales price.
Value-added services. For consumers with financing needs, we provided additional services to them based on agreed amount or agreed percentages, including but not limited to the following:
| ● | Channel services: We provided advice on financial solutions to our consumers and referred them to financing platforms. We also assisted consumers in preparing paperwork in relation to their applications to financial products. |
| ● | Safety-guaranteed services: We provided consumers with full range of safety-guaranteed services such as GPS purchase and installation services as well as other necessary assistance, for instance, sharing the GPS trajectory in the event of a car theft. |
| ● | Mortgage service: We assisted consumers in their mortgage registration process when needed and also assisted them in the purchase of insurance policies. |
Others.
We generated other revenues mainly from salvage car business and other miscellaneous revenue streams.
Intra-regional and loan facilitation business (formerly part of “2C business”) and 2B business prior to their respective divestiture
Our 2C business
2C cross-regional. Cross-regional transactions meant transactions completed on our platform where the buyer completed the purchase of a car without the need to physically inspect the car on-site. These transactions primarily took place if the buyer was located in a different city from where the car was purchased.
2C intra-regional. 2C intra-regional transactions mainly included similar transactions when the consumers were located in the same city as where the cars were located. In intra-regional business model, consumers needed to go to offline dealerships or inspect the car physically when making the purchase.
By April 2020, we had closed our divestiture of entire 2C intra-regional business and loan facilitation business to Golden Pacer. See “Item 4. Information on the Company—A. History and Development of the Company—Divestitures of Our Loan Facilitation, Salvage Car and 2B Businesses.” Prior to such divestiture revenues generated from the 2C businesses were presented as revenue streams as transaction facilitation revenue to consumers and loan facilitation revenue to consumers if loan facilitation business was provided.
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Our 2B business
Launched in 2011, our 2B business, Uxin Auction (优信拍) catered to business buyers and sellers with a comprehensive suite of transaction solutions through our auction service, connecting businesses with one another across China, helping them source used cars and optimize their turnover as well as facilitating transactions among our business customers of different sizes across China. Business sellers included used car dealers, 4S dealerships which are authorized to sell the products of a single brand of automobiles and provide key automobile-related services, car rental companies, auto manufacturers and large corporations that may need to dispose of large fleets of used cars. Used cars were sold on Uxin Auction through online auction. In 2019, approximately 370,000 used cars were listed on our platform for auction. In 2018 and 2019, our 2B business achieved GMV of RMB15.3 billion and RMB6.8 billion, respectively. Our 2B business mainly generated revenues from the fees we charge for transaction facilitation services.
See “Item 4. Information on the Company—A. History and Development of the Company—Divestitures of Our Loan Facilitation, Salvage Car and 2B Businesses.”
Others
We also generated revenues from other businesses, including commission for sales of salvage cars and interest income of financing lease.
Competition
We operate in a highly competitive and highly fragmented used car market in China. Players in this market mostly consist of numerous small and medium-sized car dealers. We face competition mainly from a large number of small-sized car dealers, a small number of large-scale dealer groups, other e-commerce platforms and online used car listing service platforms. Competition with other players in this market is primarily centered on brand recognition, inventory acquisition, market share, used car products, services and reputation.
Seasonality
Seasonal fluctuations have affected, and are likely to continue to affect, our business. We generally generate less revenue during Lunar New Year holidays in the first quarter of each year which typically last for one month. In addition, public holidays such as Labor Day and National Day will also have temporary impact on our business. We expect that the seasonal fluctuations will cause our quarterly and annual operating results to fluctuate.
Intellectual Properties
Our intellectual property contributes to our competitive advantages among e-commerce platforms for used cars in China. To protect our brand and other intellectual property, we rely on a combination of patent, trademark, trade secret and copyright laws in China as well as imposing procedural and contractual confidentiality and invention assignment obligations on our employees, contractors and others. As of March 31, 2024, we had obtained 131 patents (of which 27 patents have been non-exclusively licensed to an affiliate of 58.com in 2020 as part of the divestiture of 2B businesses to 58.com or the 2B Divestiture), 1,222 trademarks (of which 12 trademarks have been non-exclusively licensed and 90 trademarks have been exclusively licensed to an affiliate of 58.com in 2020 as part of the 2B Divestiture), 275 software copyrights (of which 18 software copyrights have been non-exclusively licensed to an affiliate of 58.com in 2020 as part of the 2B Divestiture), and 13 works copyrights (of which one has been transferred in part, and one has been non-exclusively licensed to an affiliate of 58.com in 2020 as part of the 2B Divestiture), 40 domain names and have entered into confidentiality and proprietary rights agreement with employees, consultants, contractors, and other business partners.
Our Environmental, Social and Governance (ESG) Initiatives
As a platform for the buying and selling of used cars, we believe that our business inherently helps prevent waste and reduce carbon emissions following the ESG principles. We published our ESG report in July 2022. We are committed to integrating the concept of sustainable development into every aspect of our business operations to foster high-quality and eco-friendly growth of the used car industry. We have continuously improved our corporate social responsibility initiatives under the guidance of our ESG framework. We believe our continued growth depends on our integration of ESG values into our corporate strategies and operations.
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Environmental protection
We believe it’s important to manage our carbon emissions and improve our ability to cope with the challenges brought by climate changes. We identified climate-related risks and opportunities and have implemented a series of measures to use cleaner energy, reduce energy consumption, enhance the efficiency of our day-to-day business operation, and limit our carbon footprint. For example, we have implemented “5S” management (Seiri, Seiton, Seiso, Seiketsu and Shitsuke) to eliminate waste in reconditioning, and used environmentally friendly water-based paint and smart refurbishment process during reconditioning and repair process to save energy. Leveraging our self-developed logistics and delivery network, we have helped reduce the empty-runs rate, energy consumption and air pollution. We also actively advocate the concept of “5R” environmental protection (Reduce, Reuse, Repair, Recycle and Reject) and paperless office.
Business ethics and labor management
We believe business ethics can help regulate employees’ behavior, guarantee honest management and enhance the credibility of our Company. We continuously improved and adjusted our organizational structure, delineated the rights and responsibilities of the management and executives, and implemented internal rules to set values and norms to guide the actions of our management and employees. For example, we have implemented the Code of Business Conduct and Ethics, Uxin Limited Red Line Management System, Uxin Limited Red and Yellow Card Management System, and Uxin Limited Management System for Employees Violations.
We believe our employees are our most important asset. We are on a continuous journey to improve the wellbeing of everyone working with and for us. We have set up an open and transparent staff promotion and appraisal system to help our employees achieve their career goals. We also provide employees with diverse training programs, including, among others, new-comer training, professional training, and safety training. Through these trainings, we help our employees improve their skill sets and enhance safety awareness.
Regulation
This section sets forth a summary of the most significant rules and regulations that affect our business activities in China.
Amended Company Law
The establishment, operation and management of corporate entities in the PRC are governed by the Company Law of the PRC. On December 29, 2023, the Standing Committee of the National People’s Congress promulgated the amended Company Law of the PRC, which will come into effect on July 1, 2024, to supersede the existing PRC Company Law which was amended in October 2018. The major revisions made by the amended PRC Company Law included improving the system for the establishment and liquidation of companies, optimizing organizational structures of companies, improving the capital system of companies, strengthening the responsibilities of the controlling shareholder and management staff, and enhancing the social responsibilities of companies, etc. With respect to the period for payment of the registered capital, pursuant to the amended PRC Company Law, all shareholders of a PRC limited liability company shall fully pay up the registered capital subscribed for by such shareholders within five years since the date of establishment of the PRC limited liability company, unless otherwise provided by laws and regulations. According to the Provisions of the State Council on Implementing the Registered Capital Registration and Management System under the PRC Company Law issued on July 1, 2024, for companies registered and established before June 30, 2024, if the remaining subscription period of a limited liability company exceeds 5 years from July 1, 2027, it shall adjust its remaining subscription period to within 5 years before June 30, 2027 and record such adjustment in the company’s articles of association. Shareholders shall pay the registered capital in full within the adjusted period. If a company fails to adjust the capital subscription period and registered capital in accordance with these regulations, the company registration authority shall order such company to make corrections; if such company fails to make corrections within the prescribed time limit, the company registration authority shall make public announcement to the society. According to the Company Law of the PRC, where any shareholder fails to make capital contributions on the date of capital contribution as provided for in the articles of association, the equities of such shareholder for which the capital contribution has not been paid shall be forfeited.
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Foreign Investment Law
On March 15, 2019, the National People’s Congress approved the Foreign Investment Law and on December 26, 2019, the State Council published the Implementation Rules of the Foreign Investment Law, both of which went into effect on January 1, 2020 and replaced three existing laws on foreign investments in China, namely, the PRC Equity Joint Venture Law, the PRC Cooperative Joint Venture Law and the Wholly Foreign-owned Enterprise Law, together with their implementation rules and ancillary regulations. The Foreign Investment Law embodies an expected PRC regulatory trend to rationalize its foreign investment regulatory regime in line with prevailing international practice and the legislative efforts to unify the corporate legal requirements for both foreign and domestic invested enterprises in China. The Foreign Investment Law establishes the basic framework for the access to, and the promotion, protection and administration of foreign investments in view of investment protection and fair competition.
According to the Foreign Investment Law, “foreign investment” refers to investment activities directly or indirectly conducted by one or more natural persons, business entities, or otherwise organizations of a foreign country (collectively referred to as “foreign investor”) within China, and the “investment activities” include the following situations: (i) a foreign investor, individually or collectively with other investors, establishes a foreign-invested enterprise within China; (ii) a foreign investor acquires stock shares, equity shares, shares in assets, or other like rights and interests of an enterprise within China; (iii) a foreign investor, individually or collectively with other investors, invests in a new project within China; and (iv) investments in other means as provided by laws, administrative regulations, or the State Council.
According to the Foreign Investment Law, the State Council shall publish or approve to publish a negative list stipulating the special management measures for the access of foreign investment in certain industries, or the “negative list.” The Foreign Investment Law grants national treatment to foreign-invested entities, except for those foreign-invested entities that operate in industries deemed to be either “restricted” or “prohibited” in the “negative list.” The Foreign Investment Law provides that foreign investors shall not invest in the “prohibited” industries, and shall meet certain conditions stipulated under the “negative list” for making investment in “restricted” industries. The currently effective “negative list” is the Special Management Measures (Negative List) for the Access of Foreign Investment (2021 version), or the 2021 Negative List, jointly published by NDRC and the Ministry of Commerce on December 27, 2021 and went into effect on January 1, 2022.
On December 26, 2019, the Supreme People’s Court published the Interpretation of the Supreme People’s Court on Several Issues concerning the Application of the Foreign Investment Law of the People’s Republic of China, which went into effect on January, 1, 2020, pursuant to which the court shall rule in favor of the party claim the invalidity of the investment agreement with respect to foreign investment in the “restricted” industry under the “negative list” or foreign investment in the “restricted” industry under the “negative list” that fails to comply with the requirements unless necessary mitigating measures are taken before the ruling.
Furthermore, the Foreign Investment Law provides that foreign-invested enterprises established according to the Sino-Foreign Equity Joint Venture Enterprise Law of the PRC, the Wholly Foreign-Owned Enterprise Law of the PRC or the Sino-Foreign Cooperative Joint Venture Enterprise Law of the PRC may maintain their current structure and corporate governance within five years after the implementing of the Foreign Investment Law.
In addition, the Foreign Investment Law also provides several protective rules and principles for foreign investors and their investments in the PRC, including, among others, that local governments shall abide by their commitments to the foreign investors; foreign-invested enterprises are allowed to issue stocks and corporate bonds; except for special circumstances, in which case statutory procedures shall be followed and fair and reasonable compensation shall be made in a timely manner, expropriation or requisition of the investment of foreign investors is prohibited; mandatory technology transfer is prohibited; and the capital contributions, profits, capital gains, proceeds out of asset disposal, licensing fees of intellectual property rights, indemnity or compensation legally obtained, or proceeds received upon settlement by foreign investors within China, may be freely remitted inward and outward in RMB or a foreign currency. Also, foreign investors or the foreign investment enterprise should be imposed legal liabilities for failing to report investment information in accordance with the requirements.
On December 30, 2019, the Ministry of Commerce and the SAMR 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 the investment information to the competent commerce department.
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According to the Measures for the Security Review of Foreign Investment promulgated by the National Development and Reform Commission and the Ministry of Commerce on December 19, 2020 and became effective on January 18, 2021, the NDRC and the Ministry of Commerce will establish a working mechanism office in charge of the security review of foreign investment. Such measures define foreign investment as direct or indirect investment by foreign investors in the PRC, which includes (i) investment in new onshore projects or establishment of wholly foreign owned onshore companies or joint ventures with foreign investors; (ii) acquisition of equity or asset of onshore companies by merger and acquisition; and (iii) onshore investment by and through any other means. Investment in certain key areas with bearing on national security, such as important cultural products and services, important information technology and internet services and products, key technologies and other important areas with bearing on national security which results in the acquisition of de facto control of investee companies, shall be filed with a specifically established office before such investment is carried out. What may constitute “onshore investment by and through any other means” or “ASC Topic 326” could be broadly interpreted under such measures. It is likely that control through contractual arrangement be regarded as de facto control based on provisions applied to security review of foreign investment in the free trade zone. Failure to make such filing may subject such foreign investor to rectification within prescribed period, and will be recorded as negative credit information of such foreign investor in the relevant national credit information system, which would then subject such investors to joint punishment as provided by relevant rules. If such investor fails to or refuses to undertake such rectification, it would be ordered to dispose of the equity or asset and to take any other necessary measures so as to return to the status quo and to erase the impact to national security.
Regulations on Value-Added Telecommunications Services
China’s telecommunication related businesses (including internet business) are still at an early stage of development, the laws and regulations of which still remain subject to many uncertainties. On September 25, 2000, the Telecommunications Regulations of the People’s Republic of China, or the Telecom Regulation, was issued by the PRC State Council, which was amended and became effective on February 6, 2016, as the primary governing law on telecommunication services by PRC companies. The Telecom Regulation draws a distinction between “basic telecommunication services” and “value-added telecommunication services.” The Catalog of Telecommunications Business, or the Telecommunication Catalog, was issued as an appendix to the Telecom Regulations to categorize telecommunications services as basic or value-added, and information services via public communication networks such as fixed networks, mobile networks and Internet are classified as value-added telecommunications services. According to the Telecommunication Catalog, value-added telecommunication services include online data processing and transaction processing business (operating e-commerce business), internet information services business and other value-added telecommunication services.
On March 5, 2009, the Ministry of Industry and Information Technology, or the MIIT, issued the Administrative Measures for Telecommunications Business Operating Permit, or the Telecom Permit Measures, which took effect on April 10, 2009. The Telecom Permit Measures were later amended on July 3, 2017 and the amendment took effect on September 1, 2017. The Telecom Permit Measures confirm that there are two types of telecom operating licenses for operators in China, namely, licenses for basic telecommunications services and licenses for value-added telecommunications services, or the VATS License. The license granted will set out the operation scope of the enterprise which details the permitted activities of such enterprise. An approved telecommunication services operator shall conduct its business in accordance with the specifications listed in its VATS License. In addition, a VATS License holder is required to obtain approval from the original permit-issuing authority in respect of any change to its shareholders.
Regulation Relating to Internet Information Services
On September 25, 2000, the State Council promulgated the Administrative Measures on Internet Information Services, or the Internet Measures, which were later amended in January 8, 2011. On January 8, 2021, Administrative Measures on Internet Information Services (Draft Revision for Comment), or the Draft Revision, were promulgated. Under the Internet Measures and Draft Revision, a VATS License shall be obtained before conducting profitable internet information services in the PRC, and a filing requirement shall be satisfied before conducting non-profitable internet information service. The provision of information services through mobile apps is subject to the PRC laws and regulations governing Internet information services.
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In addition, on June 28, 2016, the State Internet Information Office promulgated the Administrative Provisions on Mobile Internet Application Information Services, or the Mobile Application Administrative Provisions, which were later amended on June 14, 2022 and took effect on August 1, 2022, to strengthen the regulation of the mobile apps information services. Pursuant to the Mobile Application Administrative Provisions, an internet application program provider must verify each user’s mobile phone number and other identity information under the principle of mandatory real name registration at the back-office end and voluntary real name display at the front-office end. An internet application program provider must not enable functions that can collect a user’s geographical location information, access user’s contact list, activate the camera or recorder of the user’s mobile smart device or other functions irrelevant to its services, nor is it allowed to conduct bundle installations of irrelevant application programs, unless it has clearly indicated to the user and obtained the user’s consent on such functions and application programs. Furthermore, in December 16, 2016, the MIIT promulgated the Interim Measures on the Administration of Pre-Installation and Distribution of Applications for Mobile Smart Terminals, or the Mobile Application Interim Measures, which took effect on July 1, 2017. The Mobile Application Interim Measures require, among others, that internet information service providers must ensure that a mobile apps, as well as its ancillary resource files, configuration files and user data can be uninstalled by a user easily, unless it is a basic function software, which refers to a software that supports the normal functioning of hardware and operating system of a mobile smart device.
The content of the internet information is highly regulated in China and pursuant to the Internet Measures, the PRC government may shut down the websites of internet information providers and revoke their VATS Licenses (for profitable Internet information services) if they produce, reproduce, disseminate or broadcast internet content that contains content that is prohibited by law or administrative regulations. Internet information services operators are also required to monitor their websites. They may not post or disseminate any content that falls within the prohibited categories, and must remove any such content from their websites, save the relevant records and make a report to the relevant governmental authorities. Additionally, as the internet information service providers, under the According to the PRC Civil Code, which took effect on January 1, 2021, they shall bear tortious liabilities in the event they infringe upon other person’s rights and interests due to providing wrong or inaccurate content through the internet. Where an internet service provider conducts tortious acts through internet services, the infringed person has the right to request the internet service provider take necessary actions such as deleting contents, screening and de-linking. Failing to take necessary actions after being informed, the internet service provider will be subject to its liabilities with regard to the additional damages incurred. Where an internet service provider knows that an internet user is infringing upon other persons’ rights and interests through its internet service but fails to take necessary actions, it is jointly and severally liable with the internet user.
Regulation Relating to E-Commerce
Online data processing and transaction processing business (operating e-commerce business) is a value-added telecommunication service, and e-commerce operation shall be required to obtain VATS License.
On March 15, 2021, the SAMR promulgated the Measures for the Supervision and Administration of Online Trading, or the Online Trading Measures, which aims to regulate business activities involving the sale of commodities or provision of services through the internet and other information networks, to replace the Administrative Measures for Online trading promulgated in January 2014. Pursuant to the Online Trading Measures, online trading operators are classified into four types: online trading platform operators, operators on platform, operators of self-built websites, and operators that carry out online trading activities through other online services. The Online Trading Measures reinforces the operation requirements as provided under the E-Commerce Law and the principles of legality, rationality and necessity in the collection and use of the users’ information and disclosure of the rules, purposes, methods and scopes of collection and use of user information. The Online Trading Measures also provides that the online trading operators (i) shall not use false transactions, fabricated user review etc. to conduct false or misleading business promotion, so as to defraud or mislead consumers and (ii) shall not eliminate or restrict competition, damage or ruin the competitor’s reputation. Furthermore, the Online Trading Measures imposes a series of regulatory requirements on new forms of online trading, such as online social networking e-commerce and online livestreaming e-commerce.
On August 31, 2018, the Standing Committee of the National People’s Congress promulgated the PRC E-Commerce Law, or the E-Commerce Law, which became effective on January 1, 2019. The E-Commerce Law establishes the regulatory framework for the e-commerce sector in the PRC for the first time by laying out certain requirements on e-commerce operators, including e-commerce platform operators like us. Pursuant to the E-Commerce Law, e-commerce platform operators are required to (i) take necessary actions or report to relevant competent government authorities when such operators notice any illegal production or services provided by merchants on the e-commerce platforms; (ii) verify the identity of the business operators on the platforms;(iii) provide identity and tax related information of merchants to local branches of State Administration for Market Regulation and relevant tax authorities; or (iv) record and preserve goods and service information and transaction information on the e-commerce platform. The E-Commerce Law also specifically stipulates that e-commerce platform operators shall not impose unreasonable restrictions or conditions on the transactions of their business operators on the platforms. According to the E-Commerce Law, failures to comply with these requirements may subject the e-commerce platform operators to administrative penalties, fines and/or suspension of business. In addition, for goods and services provided via e-commerce platforms and pertinent to the life and health of consumers, e-commerce platform operators shall bear relevant responsibilities, which may give rise to civil or criminal liabilities if the consumers suffered damages due to the e-commerce platform operators’ failure to duly verify the qualifications or the licenses of the business operators on the platforms or to duly perform their safety protection obligations as required by the E-Commerce Law.
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Regulation Relating to Foreign Investment Restriction on Value-Added Telecommunications Services
Pursuant to the Provisions on Administration of Foreign Invested Telecommunications Enterprises, or the FITE Regulation, promulgated by the State Council on December 11, 2001 and amended on September 10, 2008 and February 6, 2016, except as otherwise provided by MIIT, the ultimate foreign equity ownership in a value-added telecommunications services provider shall not exceed 50%. Pursuant to the Circular of Ministry of Industry and Information Technology concerning Lifting Restrictions on the Proportion of Foreign Equity in Online Data Processing and Transaction Processing Business (Operating E-commerce Business) promulgated by the MIIT on June 19, 2015, the online data processing and transaction processing businesses (operating e-commerce business) could be 100% owned by foreign investors. Moreover, for a foreign investor to acquire any equity interest in a value-added telecommunications business in China, it must satisfy a number of stringent performance and operational experience requirements, including demonstrating good track records and experience in operating value-added telecommunications business overseas. Foreign investors that meet these requirements must obtain approvals from the MIIT and MOFCOM or their authorized local counterparts, which retain considerable discretion in granting approvals. Pursuant to publicly available information, the PRC government has issued telecommunications business operating licenses to Sino-foreign joint ventures in very limited circumstances. However, pursuant to the latest amendment to the Regulations for Administration of Foreign-invested Telecommunications Enterprises issued by the State Council in March 2022, which came into effect on May 1, 2022, several provisions, including the requirement that such major foreign investors described above to have a good and profitable record and operating experience in the industry, had been removed.
The 2021 Negative List also imposes the 50% restrictions on foreign ownership in value-added telecommunications business except for operating e-commerce, domestic multi-party communications services, store and forward services, and call center services business. In addition, the services for releasing information by the public through internet are listed as businesses that are prohibited for foreign investors under 2021 Negative List.
On July 13, 2006, the MIIT issued the Circular on Strengthening the Administration of Foreign Investment in and Operation of Value-added Telecommunications Business, or the MIIT Circular, which requires foreign investors to set up a value-added telecommunications business foreign-invested enterprise and obtain a VATS License to conduct relevant value-added telecommunications business in China. Under the MIIT Circular, a domestic company that holds a VATS License is prohibited from leasing, transferring or selling the license to foreign investors in any form, and from providing any assistance, including providing resources, sites or facilities, to foreign investors that conduct value-added telecommunications business illegally in China. Furthermore, the relevant trademarks and domain names that are used in the value-added telecommunications business must be owned by the local VATS License holder or its shareholder. The MIIT Circular further requires each VATS License holder to have the necessary facilities for its approved business operations and to maintain such facilities in the regions covered by its license and all value-added telecommunications services providers shall improve network and information security, enact relevant information safety administration regulations and set up emergency plans to ensure network and information safety.
Regulations on Information Security and Privacy Protection
Internet content in China is regulated and restricted from a state security standpoint. On December 28, 2000, the Standing Committee of the PRC National People’s Congress enacted the Decisions on Maintaining Internet Security, later amended on August 27, 2009, which subject violators to criminal punishment in China for any effort to: (i) use the internet to market fake and substandard products or carry out false publicity for any commodity or service; (ii) use the internet for the purpose of damaging the commercial goodwill and product reputation of any other person; (iii) use the internet for the purpose of infringing on the intellectual property of any person; (iv) use the internet for the purpose of fabricating and spreading false information that affects the trading of securities and futures or otherwise jeopardizes the financial order; or (v) create any pornographic website or webpage on the internet, provide links to pornographic websites, or disseminate pornographic books and magazines, movies, audiovisual products, or images. The Ministry of Public Security has promulgated measures that prohibit use of the Internet in ways which, among other things, would result in a leakage of state secrets or a spread of socially destabilizing content, and require internet service providers to take proper measures including anti-virus, data back-up and other related measures, to keep records of certain information about its users (including user registration information, log-in and log-out time, IP address, content and time of posts by users) for at least 60 days, and to detect illegal information, stop transmission of such information, and keep relevant records. If an internet information service provider violates these measures, the Ministry of Public Security and the local security bureaus may revoke its operating license and shut down its websites.
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PRC governmental authorities have enacted laws and regulations on internet use to protect personal information from any unauthorized disclosure. In December 28, 2012, the Standing Committee of the PRC National People’s Congress promulgated the Decision on Strengthening Network Information Protection to enhance the legal protection of information security and privacy on the internet. In July 2013, the MIIT promulgated the Provisions on Protection of Personal Information of Telecommunication and Internet Users to regulate the collection and use of users’ personal information in the provision of telecommunication services and internet information services in China. Telecommunication business operators and internet service providers are required to establish its own rules for collecting and use of users’ information and cannot collect or use users’ information without users’ consent. Telecommunication business operators and internet service providers are prohibited from disclosing, tampering with, damaging, selling or illegally providing others with, collected personal information. In August 2015, the Standing Committee of the NPC promulgated the Ninth Amendment to the Criminal Law, which became effective in November 2015 and amended the standards of crime of infringing citizens’ personal information and reinforced the criminal culpability of unlawful collection, transaction, and provision of personal information. It further provides that any ICP provider that fails to fulfill the obligations related to internet information security administration as required by applicable laws and refuses to rectify upon orders will be subject to criminal liability. The Civil Code promulgated in 2020 also provides specific provisions regarding the protection of personal information.
On November 7, 2016, Standing Committee of the PRC National People’s Congress published the Cyber Security Law of the PRC, which took effect on June 1, 2017 and requires network operators to perform certain functions related to cyber security protection and the strengthening of network information management. For instance, under the Cyber Security Law, network operators of key information infrastructure shall store within the territory of the PRC all the personal information and important data collected and produced within the territory of PRC and their purchase of network products and services that may affect national securities shall be subject to national cybersecurity review. On April 29, 2021, the Standing Committee of the National Peoples’ Congress issued a Second Draft for review of the Personal Information Protection Law, or the Draft Personal Information Protection Law, which integrates the scattered rules with respect to personal information rights and privacy protection.
For the further purposes of regulating data processing activities, safeguarding data security, promoting data development and utilization, protecting the lawful rights and interests of individuals and organizations, and maintaining national sovereignty, security, and development interests, on June 10, 2021, Standing Committee of the PRC National People’s Congress published the Data Security Law of the People’s Republic of China, which will take effect on September 1, 2021. The Data Security Law requires data processing, which includes the collection, storage, use, processing, transmission, provision, publication of data, to be conducted in a legitimate and proper manner. The Data Security Law provides for data security and privacy obligations on entities and individuals carrying out data activities. The Data Security Law also 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 may cause to national security, public interests, or legitimate rights and interests of individuals or organizations if such data are tampered with, destroyed, leaked, illegally acquired or illegally used. The appropriate level of protection measures is required to be taken for each respective category of data. For example, a processor of important data is required to designate the personnel and the management body responsible for data security, carry out risk assessments of its data processing activities and file the risk assessment reports with the competent authorities. Moreover, the Data Security Law provides a national security review procedure for those data activities which may affect national security and imposes export restrictions on certain data and information.
On July 6, 2021, certain PRC regulatory authorities issued Opinions on Strictly Cracking Down on Illegal Securities Activities, which were available to the public on July 6, 2021, to improve relevant laws and regulations on data security, cross-border data transmission, and confidential information management. It provided that efforts will be made to revise the regulations on strengthening the confidentiality and file management relating to the offering and listing of securities overseas, to implement the responsibility on information security of overseas listed companies, and to strengthen the standardized management of cross-border information provision mechanisms and procedures.
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On August 20, 2021, the SCNPC promulgated the Personal Information Protection Law, or the PIPL, which integrates the scattered rules with respect to personal information rights and privacy protection and took effect on November 1, 2021. The PIPL aims at protecting the personal information rights and interests, regulating the processing of personal information, ensuring the orderly and free flow of personal information in accordance with the law, and promoting the reasonable use of personal information. Personal information, as defined in the PIPL, refers to information related to identified or identifiable natural persons and recorded by electronic or other means, but excluding the anonymized information. The PIPL provides the circumstances under which a personal information processor could process personal information, which include but not limited to, where the consent of the individual concerned is obtained and where it is necessary for the conclusion or performance of a contract to which the individual is a contractual party. It also stipulates certain specific rules with respect to the obligations of a personal information processor, such as to inform the purpose and method of processing to the individuals, and the obligation of the third party who has access to the personal information by way of co-processing or delegation.
On December 28, 2021, the CAC, together with another twelve regulatory authorities jointly issued the Measures for Cybersecurity Review, or the Review Measures, which became effective on February 15, 2022. The Review Measures establishes the basic framework and principle for national cybersecurity reviews of network products and services, and provides that a critical information infrastructure operator purchasing network products and services, and platform operators carrying out data processing activities which affect or may affect national security must apply for cybersecurity review. The Review Measures also provides that a platform operator with more than one million users’ personal information aiming to list abroad must apply for cybersecurity review. However, the Review Measures has not provided further explanation or interpretation for “listed abroad” and the scope of “listed abroad”.
On July 7, 2022, the CAC promulgated the Security Assessment Measures for Outbound Data Transfer, or the Security Assessment Measures, which became effective on September 1, 2022. The Security Assessment Measures provide for the circumstances under which a data processor shall be subject to security assessment, including (i) where a data processor provides important data abroad; (ii) where a critical information infrastructure operator or a data processor that processes personal information of more than one million individuals provides personal information abroad; (iii) where a data processor that has exported personal information of over 100,000 individuals or sensitive personal information of over 10,000 individuals in total since January 1 of the previous year provides personal information abroad; and (iv) other circumstances prescribed by the CAC.
Regulations on Auction Business
On April 24, 2015, Auction Law of the People’s Republic of China was promulgated by the Standing Committee of the National People’s Congress for the purpose of regulating and administrating the business operation of auction. Pursuant to the Auction Law, “auction” refers to a way of selling particular goods or property rights to the bidder who offers the highest price in the form of public bidding. Measures for the Supervision and Administration of Auctions, as amended in March 2013, November, 2017 and on October 23, 2020, stipulates that an applicant for the formation of an auction enterprise in accordance with the Auction Law and Company Law shall be approved by the autonomous region of the local province government. According to the Measures for the Administration of the Circulation of Used Cars promulgated by the Ministry of Commerce and three other ministries on August 29, 2005 and amended on September 14, 2017, “used car auction” refers to the business activities whereby a used car auction enterprise transfers a used car to a bidder that offers the highest price through public bidding. According to The Specifications for Used Cars Transaction promulgated by the Ministry of Commerce on March 24, 2006, where an auction is conducted through the internet, the color photo of the car and information of auctioned car shall be published on internet. The publication period shall not be less than seven days. An enterprise engaging in activities of auction should undergo the review and approval procedure with relevant government authority and obtain the license for auction business. Any entity engaging in the auction business without the license may be subject to enforcement action, including orders issued by the relevant regulatory authorities to cease the auction business, confiscation of any illegal gains, or imposition of fines.
Regulations on the Circulation of Used Cars
On August 29, 2005, the Measures for the Administration of the Circulation of Used Cars, or the Used Cars Measures, which was amended on September 14, 2017, were promulgated by the Ministry of Commerce, or the MOFCOM, the Ministry of Public Security, the SAMR, and the State Administration of Tax, or the SAT, for the purpose of intensifying the administration of the circulation of used cars, regulating the business operations of used cars, guaranteeing the legitimate interests and rights of both parties to transactions of used cars and promoting the sound development of the circulation of used cars. The Used Cars Measures stipulate that an archival filing system for the operators of used car markets and operators of used cars shall be established. The operators of used car markets and operators of used cars that have handled the registration in the administrative department of industry and commerce according to law and obtained the business license shall go to the administrative department of commerce at the provincial level for archival filing within 2 months as of obtaining their business license. The administrative department of commerce at the provincial level shall report the information on the archival filing of the operators of used car markets as well as operational subjects of used cars to the administrative department of commerce of the State Council on a periodic base. The Used Cars Measures further stipulate that (i) a business operator of a used car market, a retail enterprise and brokerage entity of used cars shall possess the qualification of an enterprise legal-person and shall complete the registration procedures with the administrative department of industry and commerce, and (ii) the establishment of an auction enterprise of used cars (including a foreign-funded auction enterprise of used cars) shall comply with the relevant provisions of the Auction Law of the People’s Republic of China and the Measures for the Administration of Auction, and shall be handled according to the procedures as prescribed by the Measures for the Administration of Auction, which means that an auction enterprise of used cars shall obtain an Approval License for Operation of Auction before it engages in auction of used cars. On March 24, 2006, the MOFCOM promulgated the Specifications for Used Car Trade, or the Specifications, which set forth detailed criteria and requirements for the purchase, sale, dealing, auction, evaluation, trading and post-sale services in respect of used car.
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Regulations on Financing Lease
In September 18, 2013, MOFCOM issued the Administration Measures of Supervision on Financing Lease Enterprises, or the Leasing Measures, to regulate and administer the business operations of financing lease enterprises. According to the Leasing Measures, financing lease enterprises are allowed to carry out financing lease business in such forms as direct lease, sublease, sale-and-lease-back, leveraged lease, entrusted lease and joint lease in accordance with the provisions of relevant laws, regulations and rules. However, the Leasing Measures prohibit financing lease enterprises from engaging in financial business such as accepting deposits, providing loans or entrusted loans. Without the approval from relevant authorities, financing lease enterprises shall not engage in interbank borrowing and other businesses. In addition, financing lease enterprises are prohibited from carrying out illegal fund-raising activities in the name of financing lease. The Leasing Measures require financing lease enterprises to establish and improve their financial and internal risk control systems, and a financing lease enterprise’s risk assets shall not exceed ten times of its total net assets. Risk assets generally refer to the adjusted total assets of a financing lease enterprise excluding cash, bank deposits, sovereign bonds and entrusted leasing assets. On May 26, 2020, the China Banking and Insurance Regulatory Commission issued the Interim Measures for the Supervision and Administration of Finance Leasing Companies, to regulate and administer the business operations of financing lease companies. On May 28, 2020, the PRC National People’s Congress published the Civil Code of the People’s Republic of China, which took effect on January 1, 2021. The Chapter 15 of PRC Civil Code detailed regulations on the financial leasing contract.
The main regulation governing foreign investment in the PRC financing lease industry included the Administrative Measures on Foreign-Invested Lease Industry, as amended on October 28, 2015. However, it has recently been repealed by MOFCOM on February 22, 2018. The above measures require that foreign investors investing directly in the PRC financing lease industry must have total assets of no less than US$5 million. MOFCOM is the competent administrative authority in charge of the foreign-invested lease industry and is also responsible for the examination and approval of such business. A foreign-invested financing lease enterprise may undertake the following business: (i) the financing lease business; (ii) the lease business; (iii) the purchase of leased properties from onshore and offshore; (iv) the disposal of scrap value of and maintenance of leased properties; (v) the consultancy and guaranty business relating to lease transactions; and (vi) other business approved by the examination and approval department. In addition, a foreign-invested financing lease enterprise shall meet the following requirements: (i) have corresponding professionals, with its senior management personnel having relevant professional qualifications and experience of at least three years, (ii) the operating period of a foreign-invested financing lease enterprise established in the form of limited liability company shall not exceed thirty years. The risk assets of a foreign-invested financing lease enterprise shall not exceed ten times of its total net assets.
Regulations on Motor Vehicle Maintenance
On June 24, 2005, the MOT promulgated the Administration of Motor Vehicle Maintenance, which was amended on August 8, 2015, April 19, 2016, June 21, 2019 and August 11, 2021, pursuant to which, a motor vehicle maintenance operator shall file with the local road transport administration for record after completing registration with the local SAMR in accordance with the law and shall operate business in accordance with the registered business scope. “Motor vehicle maintenance” refers to business activities of maintenance, repair and maintenance aids as carried out with maintaining or recovering the technical state and normal functions of motor vehicles, and extending the serving term thereof as operational tasks. The operational business of automobile maintenance is classified into operational business of Grades I, II and III in light of their operational items and serving capabilities. A maintenance operator of automobiles of Grade I and Grade II may undertake entire automobile repair, assembly repair, entire automobile maintenance, minor repair, maintenance aids, specific repair and the examination work after the completion of maintenance of corresponding vehicle types. A maintenance operator of automobiles of Grade III may undertake general minor repair and special repair, such as repair and maintenance of engines, vehicle bodies and electric systems. Anyone failing to carry out the filing for motor vehicle maintenance in accordance with the Motor Vehicles Maintenance or unlawfully engaging in the motor vehicle maintenance business shall be ordered to make rectification, and, in case of refusing to rectify, be subject to a fine of RMB5,000 to RMB20,000.
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Regulations on Advertisement
The PRC government regulates advertising principally through the SAMR. The PRC Advertising Law, or the Advertising Law, as amended in April 2015, on October 26, 2018 and on April 29, 2021, outlines the regulatory framework for the advertising industry. The Advertising Law stipulates that advertisements shall not contain any false or misleading content or defraud or mislead consumers. Any advertisement that defrauds or misleads consumers with any false or misleading content is considered a false advertisement. An advertiser shall be responsible for the veracity of contents of advertisement. Violation of these regulations may result in penalties calculated on the basis of advertising expenses.
Regulations on Online Consumer Finance and Debt Collection
The regulation on online consumer finance industry in China is still under development. In December 2017, the Internet Financial Risks Rectification Office and the P2P Online Lending Risks Rectification Office jointly issued the Circular 141, outlining general requirements on the “cash loan” business conducted by network microcredit companies, banking financial institutions and online lending information intermediaries. The Circular 141 specifies the features of “cash loans” as not relying on consumption scenarios, with no specified use of loan proceeds, no qualification requirement on customers and unsecured etc. The Circular 141 further requires that financial institutions that participate in the “cash loan” business not to accept any credit enhancement services or other similar services from third parties without qualification to provide guarantee, and third party cash loan facilitators are prohibited from directly charging fees from borrowers. However, there is no clear definition of “cash loan” set forth in the Circular 141.
In addition, according to the Circular 141, institutions or the engaged third party institutions shall not collect loan debts by methods of violence, intimidation, insult, defamation, or harassment. In case of violation, the regulatory authorities may, depending on the seriousness of the case, urge such institution to rectify by taking measures such as suspending its business, ordering it to make correction, circulating a notice of criticism, rejecting its filing or revoking its business qualification. In case where malicious fraud or violent debt collection or other serious illegal conducts were suspected, such cases shall be promptly transferred to the Ministry of Public Security and may subject to criminal liability.
Regulations on Intellectual Property
Copyright and Software Products
The National People’s Congress adopted the Copyright Law on September 7, 1990 and amended it on October 27, 2001, February 26, 2010 and June 1, 2021, respectively. The amended Copyright Law extends copyright protection to internet activities, products disseminated over the internet and software products. In addition, there is a voluntary registration system administered by the China Copyright Protection Center.
In order to further implement the Computer Software Protection Regulations promulgated by the State Council on December 20, 2001 and amended on January 30, 2013, the State Copyright Bureau issued the Computer Software Copyright Registration Procedures on February 20, 2002, which apply to software copyright registration, license contract registration and transfer contract registration.
According to the Copyright Law, an infringer will be subject to various civil liabilities, which include cessation of the infringement and apologizing to and compensating the actual loss suffered by the copyright owner. If the actual loss of the copyright owner is difficult to calculate, the income received by the infringer as a result of the infringement will be deemed as the actual loss or if such illegal income is also difficult to calculate, the court can decide the amount of the actual loss up to RMB5,000,000.
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Trademarks
Trademarks are protected by the PRC Trademark Law adopted in August 23, 1982 and subsequently amended in February 22, 1993, October 27, 2001, August 30, 2013 and November 1, 2019 as well as the Implementation Regulation of the PRC Trademark Law adopted by the State Council in August 3, 2002 and amended on April 29, 2014. The Trademark Office under the SAMR handles trademark registrations and grants a term of ten years to registered trademarks and another ten years if requested upon expiry of the first or any renewed ten-year term. Trademark license agreements must be filed with the Trademark Office for record. The PRC Trademark Law has adopted a “first-to-file” principle with respect to trademark registration. Where a trademark for which a registration has been made is identical or similar to another trademark which has already been registered or been subject to a preliminary examination and approval for use on the same kind of or similar commodities or services, the application for registration of such trademark may be rejected. Any person applying for the registration of a trademark may not prejudice the existing right first obtained by others, nor may any person register in advance a trademark that has already been used by another party and has already gained a “sufficient degree of reputation” through such party’s use. After receiving an application, the PRC Trademark Office will make a public announcement if the relevant trademark passes the preliminary examination. During the three months after this public announcement, any person entitled to prior rights and any interested party may file an objection against the trademark. The PRC Trademark Office’s decisions on rejection, objection or cancellation of an application may be appealed to the PRC Trademark Review and Adjudication Board, whose decision may be further appealed through judicial proceedings. If no objection is filed within three months after the public announcement or if the objection has been overruled, the PRC Trademark Office will approve the registration and issue a registration certificate, at which point the trademark is deemed to be registered and will be effective for a renewable ten-year period, unless otherwise revoked. Trademark license agreements should be filed with the Trademark Office or its regional offices.
Domain Names
Internet domain name registration and related matters are primarily regulated by the Measures on Administration of Domain Names for the Chinese Internet, issued by MIIT on November 5, 2004 and effective as of December 20, 2004 which was replaced by the Measures on Administration of Internet Domain Names issued by MIIT as of November 1, 2017, and the Implementing Rules on Registration of Domain Names issued by China Internet Network Information Center on May 28, 2012, which became effective on May 29, 2012. Domain name registrations are handled through domain name service agencies established under the relevant regulations, and the applicants become domain name holders upon successful registration.
Patent
On March 12, 1984, the Standing Committee of the National People’s Congress promulgated the Patent Law, which was amended in September 4, 1992, August 25, 2000, December 27, 2008 and October 17, 2020. On June 15, 2001, the State Council promulgated the Implementation Regulation for the Patent Law, which was amended on January 9, 2010. According to these laws and regulations, the State Intellectual Property Office is responsible for administering patents in the PRC. The Chinese patent system adopts a “first to file” principle, which means that where more than one person files a patent application for the same invention, a patent will be granted to the person who filed the application first. To be patentable, invention or utility models must meet three conditions: novelty, inventiveness and practical applicability. Invention patent is valid for 20 years, design patent is valid for 15 years, and utility model patent is valid for 10 years. A third-party user must obtain consent or a proper license from the patent owner to use the patent. Otherwise, third-party use constitutes an infringement of patent rights. As of December 31, 2019, we had been issued 84 patents in the PRC.
Regulations Relating to Foreign Exchange
Regulations on Foreign Currency Exchange
Pursuant to the Foreign Exchange Administration Regulations, as amended on August 5, 2008, Renminbi is freely convertible for current account items, including the distribution of dividends, interest payments, trade and service-related foreign exchange transactions, but not for capital account items, such as direct investments, loans, repatriation of investments and investments in securities outside of China, unless prior approval is obtained from State Administration of Foreign Exchange, or the SAFE, and prior registration with SAFE is made.
On March 30, 2015, SAFE promulgated the Notice of the State Administration of Foreign Exchange on Reforming the Administration of Foreign Exchange Settlement of Capital of Foreign invested Enterprises, or the SAFE Circular 19, in replacement of the Circular on the Relevant Operating Issues Concerning the Improvement of the Administration of the Payment and Settlement of Foreign Currency Capital of Foreign-Invested Enterprises, or SAFE Circular 142. SAFE further promulgated the Notice of the State Administration of Foreign Exchange on Reforming and Standardizing the Foreign Exchange Settlement Management Policy of Capital Account, or the SAFE Circular 16, effective on June 9, 2016 and was amended on December 4, 2023, which, among other things, amend certain provisions of Circular 19. According to SAFE Circular 19 and SAFE Circular 16, the flow and use of the Renminbi capital converted from foreign currency denominated registered capital of a foreign-invested company is regulated such that Renminbi capital may not be used for purposes beyond its business scope or to provide loans to persons other than affiliates unless otherwise permitted under its business scope. Violations of SAFE Circular 19 or SAFE Circular 16 could result in administrative penalties.
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From 2012, SAFE has promulgated several circulars to substantially amend and simplify the current foreign exchange procedure. Pursuant to these circulars, the opening of various special purpose foreign exchange accounts, the reinvestment of RMB proceeds by foreign investors in the PRC 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. In addition, domestic companies are allowed to provide cross-border loans not only to their offshore subsidiaries, but also to their offshore parents and affiliates. SAFE also promulgated the Circular on Printing and Distributing the Provisions on Foreign Exchange Administration over Domestic Direct Investment by Foreign Investors and the Supporting Documents in May 2013, as amended on October 10, 2018 and December 30, 2019, which specifies that the administration by SAFE or its local branches over direct investment by foreign investors in the PRC shall be conducted by way of registration and banks shall process foreign exchange business relating to the direct investment in the PRC based on the registration information provided by SAFE and its branches. In February 2015, SAFE promulgated the Notice on Further Simplifying and Improving the Foreign Exchange Management Policies for Direct Investment, or the SAFE Circular 13, which took effect on June 1, 2015 and amended on December 30, 2019. SAFE Circular 13 delegates the power to enforce the foreign exchange registration in connection with inbound and outbound direct investments under relevant SAFE rules from local branches of SAFE to banks, thereby further simplifying the foreign exchange registration procedures for inbound and outbound direct investments.
On January 26, 2017, SAFE issued the Notice on Improving the Check of Authenticity and Compliance to Further Promote Foreign Exchange Control, or the SAFE Circular 3, which stipulates several capital control measures with respect to the outbound remittance of profit from domestic entities to offshore entities, including (i) under the principle of genuine transaction, banks shall check board resolutions regarding profit distribution, the original version of tax filing records and audited financial statements; and (ii) domestic entities shall hold income to account for previous years’ losses before remitting the profits. Moreover, pursuant to SAFE Circular 3, domestic entities shall make detailed explanations of the sources of capital and utilization arrangements, and provide board resolutions, contracts and other proof when completing the registration procedures in connection with an outbound investment.
In October 2019, the SAFE promulgated the Notice for Further Advancing the Facilitation of Cross-border Trade and Investment, or the SAFE Circular 28, and was amended on December 4, 2023, which, among other things, allows all Foreign-Invested Enterprises to use Renminbi converted from foreign currency denominated capital for equity investments in China, as long as the equity investment is genuine, does not violate applicable laws, and complies with the negative list on foreign investment. The Circular Regarding Further Optimizing the Cross-border RMB Policy to Support the Stabilization of Foreign Trade and Foreign Investment jointly promulgated by the PBOC, the 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.
According to the Circular of the State Administration for Foreign Exchange on Optimizing Foreign Exchange Administration to Support the Development of Foreign-related Business, or the SAFE Circular 8, promulgated and effective on April 10, 2020 by the SAFE, the reform of facilitating the payments of incomes under the capital accounts shall be promoted nationwide. Under the prerequisite of ensuring true and compliant use of funds and compliance and complying with the prevailing administrative provisions on use of income from capital projects, enterprises which satisfy the criteria are allowed to use income under the capital account, such as capital funds, foreign debt and overseas listing, etc., for domestic payment, without the need to provide proof materials for veracity to the bank beforehand for each transaction.
Regulations on Dividend Distribution
The principal regulations governing distribution of dividends of foreign-invested enterprises include the PRC Company Law and the Foreign Investment Law. Under these laws and regulations, wholly foreign-owned enterprises in China may pay dividends only out of their accumulated after-tax profits, if any, determined in accordance with China accounting standards and regulations. In addition, wholly foreign-owned enterprises in China are required to allocate at least 10% of their respective accumulated profits each year, if any, to fund certain reserve funds until these reserves have reached 50% of the registered capital of the enterprises. Wholly foreign-owned companies may, at their discretion, allocate a portion of their after-tax profits based on China accounting standards to staff welfare and bonus funds. These reserves are not distributable as cash dividends.
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Regulations on Foreign Exchange Registration of Overseas Investment by PRC Residents
SAFE promulgated the Circular on Relevant Issues Relating to Domestic Resident’s Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or the SAFE Circular 37, in July 2014 that requires PRC residents or entities to register with SAFE or its local branch in connection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing. In addition, such PRC residents or entities must update their SAFE registrations when the offshore special purpose vehicle undergoes material events relating to any change of basic information (including change of such PRC citizens or residents, name and operation term), increases or decreases in investment amount, transfers or exchanges of shares, or mergers or divisions.
SAFE Circular 37 was issued to replace the Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents Engaging in Financing and Roundtrip Investments via Overseas Special Purpose Vehicles issued by SAFE in October 2005. SAFE further enacted SAFE Circular 13, which allows PRC residents or entities to register with qualified banks in connection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing. However, remedial registration applications made by PRC residents that previously failed to comply with the SAFE Circular 37 continue to fall under the jurisdiction of the relevant local branch of SAFE. In the event that a PRC shareholder holding interests in a special purpose vehicle fails to fulfill the required SAFE registration, the PRC subsidiaries of that special purpose vehicle may be prohibited from distributing profits to the offshore parent and from carrying out subsequent cross-border foreign exchange activities, and the special purpose vehicle may be restricted in its ability to contribute additional capital into its PRC subsidiary. Moreover, failure to comply with the various SAFE registration requirements described above could result in liability under PRC law for evasion of foreign exchange controls.
Regulations on Stock Incentive Plans
In February 2012, SAFE promulgated the Notice on Foreign Exchange Administration of PRC Residents Participating in Share Incentive Plans of Offshore Listed Companies, or the Stock Option Rules, replacing the previous rules issued by SAFE in March 2007. Under the Stock Option Rules and other relevant rules and regulations, domestic individuals, which means the PRC residents and non-PRC citizens residing in China for a continuous period of not less than one year, subject to a few exceptions, who participate in a stock incentive plan in an overseas publicly-listed company are required to register with SAFE or its local branches and complete certain other procedures. Participants of a stock incentive plan who are PRC residents must retain a qualified PRC agent, which could be a PRC subsidiary of the overseas publicly-listed company or another qualified institution selected by the PRC subsidiary, to conduct the SAFE registration and other procedures with respect to the stock incentive plan on behalf of its participants. The participants must also retain an overseas entrusted institution to handle matters in connection with their exercise of stock options, the purchase and sale of corresponding stocks or interests and fund transfers. In addition, the PRC agent is required to amend the SAFE registration with respect to the stock incentive plan if there is any material change to the stock incentive plan, the PRC agent or the overseas entrusted institution or other material changes. The PRC agents must, on behalf of the PRC residents who have the right to exercise the employee share options, apply to SAFE or its local branches for an annual quota for the payment of foreign currencies in connection with the PRC residents’ exercise of the employee share options. The foreign exchange proceeds received by the PRC residents from the sale of shares under the stock incentive plans granted and dividends distributed by the overseas listed companies must be remitted into the bank accounts in the PRC opened by the PRC agents before distribution to such PRC residents. In addition, SAFE Circular 37 provides that PRC residents who participate in a share incentive plan of an overseas unlisted special purpose company may register with SAFE or its local branches before exercising rights.
Regulations Relating to Tax
Enterprise Income Tax
Under the Enterprise Income Tax Law of the PRC, or the EIT Law, which became effective on January 1, 2008 and was subsequently amended on February 24, 2017 and December 29, 2018, and its implementing rules, enterprises are classified as resident enterprises and non-resident enterprises. PRC resident enterprises typically pay an enterprise income tax at the rate of 25% while non-PRC resident enterprises without any branches in the PRC should pay an enterprise income tax in connection with their income from the PRC at the tax rate of 10%. An enterprise established outside of the PRC with its “de facto management bodies” located within the PRC is considered a “resident enterprise,” meaning that it can be treated in a manner similar to a PRC domestic enterprise for enterprise income tax purposes. The implementing rules of the EIT Law define a de facto management body as a managing body that in practice exercises “substantial and overall management and control over the production and operations, personnel, accounting, and properties” of the enterprise. Enterprises qualified as “High and New Technology Enterprises” are entitled to a 15% enterprise income tax rate rather than the 25% uniform statutory tax rate. The preferential tax treatment continues as long as an enterprise can retain its “High and New Technology Enterprise” status.
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The EIT Law and the implementation rules provide that an income tax rate of 10% should normally be applicable to dividends payable to investors that are “non-resident enterprises,” and gains derived by such investors, which (a) do not have an establishment or place of business in the PRC or (b) have an establishment or place of business in the PRC, but the relevant income is not effectively connected with the establishment or place of business to the extent such dividends and gains are derived from sources within the PRC. Such income tax on the dividends may be reduced pursuant to a tax treaty between China and other jurisdictions. Pursuant to the Arrangement Between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation on Income, or the Double Tax Avoidance Arrangement, and other applicable PRC laws, if a Hong Kong resident enterprise is determined by the competent PRC tax authority to have satisfied the relevant conditions and requirements under such Double Tax Avoidance Arrangement and other applicable laws, the 10% withholding tax on the dividends the Hong Kong resident enterprise receives from a PRC resident enterprise may be reduced to 5% upon receiving approval from in-charge tax authority. However, based on the Notice on Certain Issues with Respect to the Enforcement of Dividend Provisions in Tax Treaties issued on February 20, 2009 by the SAT, if the relevant PRC tax authorities determine, in their discretion, that a company benefits from such reduced income tax rate due to a structure or arrangement that is primarily tax-driven, such PRC tax authorities may adjust the preferential tax treatment; and based on the Announcement on Relevant Issues Concerning the “Beneficial Owners” in Tax Treaties issued on February 3, 2018 by the SAT and effective from April 1, 2018, which replaces the Notice on the Interpretation and Recognition of Beneficial Owners in Tax Treaties and the Announcement on the Recognition of Beneficial Owners in Tax Treaties by the SAT, comprehensive analysis based on the stipulated factor therein and actual circumstances shall be adopted when recognizing the “beneficial owner” and agents and designated wire beneficiaries are specifically excluded from being recognized as “beneficial owners.”
Value-added Tax
Pursuant to applicable PRC regulations promulgated by the Ministry of Finance and the SAT, any entity or individual conducting business in the service industry is required to pay a valued-added tax, or VAT, with respect to revenues derived from the provision of services. 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.
M&A Rules and Overseas Listings
On August 8, 2006, six PRC regulatory agencies, including the China Securities Regulatory Commission, or the CSRC, adopted the Regulations on Mergers of Domestic Enterprises by Foreign Investors, or the M&A Rules, which became effective on September 8, 2006 and was amended on June 22, 2009. Foreign investors shall comply with the M&A Rules when they purchase equity interests of a domestic company or subscribe the increased capital of a domestic company, and thus changing the nature of the domestic company into a foreign-invested enterprise; or when the foreign investors establish a foreign-invested enterprise in the PRC, purchase the assets of a domestic company and operate the assets; or when the foreign investors purchase the asset of a domestic company, establish a foreign-invested enterprise by injecting such assets and operate the assets. The M&A Rules purport, among other things, to require offshore special purpose vehicles formed for overseas listing purposes through acquisitions of PRC domestic companies and controlled by PRC companies or individuals, to obtain the approval of the CSRC prior to publicly listing their securities on an overseas stock exchange.
On December 26, 2017, the NDRC adopted the Administrative Measures for Enterprises’ Overseas Investment, or the Overseas Investment Rules, which will become effective on March 1, 2018. The New M&A Rules provides that, for local enterprises (enterprises that are not managed by the state government), if the amount of investment made by the Chinese investors is less than US$300 million, and the target project is non-sensitive, then the overseas investment project will require online filing with the local branch of the NDRC where the enterprise itself is registered. And “overseas investment” shall mean activities where an PRC enterprise, directly or through an overseas enterprise controlled by it, acquires overseas any ownership, right of control, right of business management, or other relevant rights and interests, by contributing assets or rights and interests, providing financing and/or guarantee, or any other means.
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On July 6, 2021, the relevant PRC governmental authorities promulgated the Opinions on Strictly Cracking Down Illegal Securities Activities, which provided that the administration and supervision of overseas-listed China-based companies will be strengthened, and the special provisions of the State Council on overseas issuance and listing of shares by such companies will be revised, clarifying the responsibilities of domestic industry competent authorities and regulatory authorities. However, the Opinions on Strictly Cracking Down Illegal Securities Activities were still leaving uncertainties regarding the interpretation and implementation of these opinions. It is possible that any new rules or regulations may impose additional requirements on us. Furthermore, the Review Measures required that, in addition to network products and services acquired by critical information infrastructure operators, online platform operators are also subject to cybersecurity review if they carry out data processing activities that affect or may affect national security, and online platform operators listing in a foreign country with more than one million users’ personal information data must apply for a cybersecurity review with the Cybersecurity Review Office. It is uncertain whether we would be deemed as a CIIO or an online platform operator which is under the censorship of the Review Measure in the future. In the event that we become under investigation or review by the CAC, we may have to substantially change our current business and our operations may be materially and adversely affected. If it is determined in the future that CSRC approval or other procedural requirements are required to be met for and prior to an offering, it is uncertain whether we can or how long it will take us to obtain such approval or complete such procedures and any such approval could be rescinded. Any failure to obtain or delay in obtaining such approval or completing such procedures for an offering, or a rescission of any such approval, could subject us to sanctions by the relevant PRC governmental authorities. The PRC governmental authorities may impose restrictions and penalties on our operations in China, such as the suspension of our apps and services, revocation of our licenses, or shutting down part or all of our operations, limit our ability to pay dividends outside of China, delay or restrict the repatriation of the proceeds from an offering into China or take other actions that could have a material adverse effect on our business, financial condition, results of operations and prospects, as well as the trading price of our ADSs. The PRC governmental authorities may also take actions requiring us, or making it advisable for us, to halt an offering before settlement and delivery of the ADSs being offered. Consequently, if investors engage in market trading or other activities in anticipation of and prior to settlement and delivery, they do so at the risk that settlement and delivery may not occur. In addition, if the PRC governmental authorities later promulgate new rules or explanations requiring that we obtain their approvals for filings, registrations or other kinds of authorizations for an offering, we cannot assure you that we can obtain the approval, authorizations, or complete required procedures or other requirements in a timely manner, or at all, or obtain a waiver of the requisite requirements if and when procedures are established to obtain such a waiver.
On December 27, 2021, the National Development and Reform Commission 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 will become effective on January 1, 2022. Pursuant to such Special Administrative Measures, if a domestic company engaging in the prohibited business stipulated in the 2021 Negative List seeks an overseas offering and listing, it shall obtain the approval from the competent governmental authorities. Besides, the foreign investors of the company shall not be involved in the company’s operation and management, and their shareholding percentage shall be subject, mutatis mutandis, to the relevant regulations on the domestic securities investments by foreign investors.
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On February 17, 2023, the CSRC, as approved by the State Council, released the Overseas Listing Trial Measures. According to the Overseas Listing Trial Measures, domestic companies in the Chinese mainland that directly or indirectly offer or list their securities in an overseas market, are required to file with the CSRC. Specifically, the securities under the Trial Measures refer to stocks, depositary receipts, convertible corporate bonds, exchangeable bonds and other equity-linked securities to be issued and offered in overseas markets by domestic companies directly or indirectly, while a direct offering and listing refers to the overseas offering and listing of a joint-stock company incorporated in the Chinese mainland, and an indirect offering and listing refers to the overseas offering and listing of a domestic company which conducts its business operations primarily in the Chinese mainland, in the name of an offshore company and based on the underlying equities, assets, earnings or similar interests of the domestic company. In particular, the determination of an indirect offering and listing will be conducted on a “substance over form” basis, and an offering and listing should be considered as an indirect overseas offering and listing by a domestic company if the issuer meets both of the following conditions: (i) 50% or more of the issuer’s revenue, profit, total assets or net assets as documented in the issuer’s audited consolidated financial statements in the most recent financial year is accounted by domestic companies; and (ii) the majority of its business operations are conducted in the Chinese mainland or its principal place of business is located in the Chinese mainland, or the majority of senior management in charge of business operations are Chinese citizens or have domicile in the Chinese mainland. According to the Overseas Listing Trial Measures, an overseas offering and listing is prohibited under any of the following circumstances: (i) if the intended securities offering and listing is specifically prohibited by the laws, administrative regulations and relevant national provisions; (ii) if the intended securities offering and listing may constitute a threat to or endangers national security as reviewed and determined by competent authorities under the State Council in accordance with law; (iii) the domestic companies or their controlling shareholders or actual controllers have committed corruption, bribery, embezzlement, misappropriation of property, or other criminal offenses disruptive to the order of the socialist market economy in the past three years; (iv) the domestic companies are currently under investigations in connection with suspicion of having committed criminal offenses or material violations of applicable laws and regulations, and there is still no explicit conclusion; or (v) there are material ownership disputes over the shareholdings held by the controlling shareholder or the shareholder under the control of the controlling shareholder or the actual controllers. According to the Overseas Listing Trial Measures, the issuer or its affiliated domestic company, as the case may be, is required to file with the CSRC (i) with respect to its initial public offering and listing and its subsequent securities offering in an overseas market different from the market where it has listed, within three business days after its submission of listing application documents to the relevant regulator in the place of intended listing, (ii) with respect to its follow-on offering in the same overseas market where it has listed (including issuance of any corporate convertible bonds, exchangeable bonds and other equity-linked securities, but excluding the offering for employees incentive, dividend distribution by shares and share split), within three business days after completion of such follow-on offering, (iii) with respect to listing by means of single or multiple acquisitions, share swap, transfers of shares and similar transactions, within three business days after its initial filing of the listing application or the first public announcement of the transaction, as case may be. Failure to comply with the filing requirements may result in an order of rectification, a warning and fines ranging from RMB1 million to RMB10 million to the non-compliant domestic companies, and the directly responsible persons of the companies will be warned and fined between RMB500,000 and RMB5 million. Furthermore, if the controlling shareholder and the actual controller of the non-compliant companies organizes or instigates the breach, they will be fined between RMB1 million and RMB10 million. In addition to above filing requirements, the Filings Rules also requires an issuer to report to the CSRC within three business days after occurrence of any the following events: (i) its change of control; (ii) its being subject to investigation or sanctions by any overseas securities regulators or overseas authorities; (iii) its change of listing status or listing segment; (iv) voluntary or mandatory delisting; and (v) material change of its principal business operations to the extent that it ceases to be subject to the filing requirements of the Overseas Listing Trial Measures.
On February 24, 2023, the CSRC released the Provisions on Strengthening the Confidentiality and Archives Administration Related to the Overseas Securities Offering and Listing by Domestic Enterprises, or, the Confidentiality Provisions, which came into effect on March 31, 2023. Pursuant to the Confidentiality Provisions, any future inspection or investigation conducted by overseas securities regulator or the relevant competent authorities on our PRC domestic companies with respect to our overseas issuance and listing shall be carried out in the manner in compliance with PRC laws and regulations.
Employment Laws
Pursuant to the PRC Labor Law, the PRC Labor Contract Law and the Implementing Regulations of the Employment Contracts Law, labor relationships between employers and employees must be executed in written form. Wages may not be lower than the local minimum wage. Employers must establish a system for labor safety and sanitation, strictly abide by state standards and provide relevant education to its employees. Employees are also required to work in safe and sanitary conditions.
Under PRC laws, rules and regulations, including the Social Insurance Law, the Interim Regulations on the Collection and Payment of Social Security Funds and the Regulations on the Administration of Housing Accumulation Funds, employers are required to contribute, on behalf of their employees, to a number of social security funds, including funds for basic pension insurance, unemployment insurance, basic medical insurance, occupational injury insurance, maternity leave insurance and housing accumulation funds. These payments are made to local administrative authorities and any employer who fails to contribute may be fined and ordered to pay the deficit amount.
Regulations on Leasing
Pursuant to the Law on Administration of Urban Real Estate which took effect in January 1995 with the latest amendment in August 2019, lessors and lessees are required to enter into a written lease contract, containing such provisions as the term of the lease, the use of the premises, liability for rent and repair, and other rights and obligations of both parties. Both lessor and lessee are also required to register the lease with the real estate administration authorities. Pursuant to implementing rules stipulated by certain provinces or cities, such as Tianjin, if the lessor and lessee fail to go through the registration procedures, both lessor and lessee may be subject to fines.
According to the PRC Civil Code which took effect on January 1, 2021, the lessee may sublease the leased premises to a third party, subject to the consent of the lessor. Where the lessee subleases the premises, the lease contract between the lessee and the lessor remains valid. The lessor is entitled to terminate the lease contract if the lessee subleases the premises without the consent of the lessor. In addition, if the ownership of the leased premises changes during the lessee’s possession in accordance with the terms of the lease contract, the validity of the lease contract shall not be affected.
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Pursuant to the PRC Civil Code, if the mortgaged property has been leased and transferred for occupation prior to the establishment of the mortgage right, the original tenancy shall not be affected by such mortgage right. According to the Interpretation of the Supreme People’s Court on Several Issues concerning the Application of Law in the Trial of Cases about Disputes Over Lease Contracts on Urban Buildings (2020 version), which took effect on January 1, 2021, if the ownership of the leased premises changes during lessee’s possession in accordance with the terms of the lease contract, and the lease requests the assignee to continue to perform the original lease contract, the PRC court shall support it, except that the mortgage right has been established before the lease of the leased premises and the ownership changes due to the mortgagee’s realization of the mortgage right.
In addition, the Supreme People’s Court issued the Interpretation on Several Issues with respect to the Specific Application of Law in the Trial of Disputes over Partitioned Ownership of Buildings, pursuant to which, if the landlord uses his property, which is designated for residential use, for business purposes without prior consents of other owners whose interests are involved, the other owners may request for removing impairment, eliminating danger, reinstatement or compensation for losses.
Regulations on Unfair Competition
On April 23, 2019, the Standing Committee of the National People’s Congress promulgated the amended Anti-Unfair Competition Law of the People’s Republic of China, or the Anti-Unfair Competition Law, which became effective on April 23, 2019.
Pursuant to the Anti-Unfair Competition Law, a business operator shall not conduct any false or misleading commercial publicity in respect of the performance, functions, quality, sales, user reviews, and honors received of its commodities, in order to defraud or mislead consumers. A business operator publishing any false advertisements in violation of this provision shall be punished in accordance with the Advertising Law of the People’s Republic of China.
The Anti-Unfair Competition Law also stipulated that a business operator engaging in production or distribution activities online shall abide by the provisions of the Anti-Unfair Competition Law. No business operator may, by technical means to affect users’ options, among others, commit the acts of interfering with or sabotaging the normal operation of online products or services legally provided by another business operator.
In addition, according to the Anti-Unfair Competition Law, a business operator is prohibited from any of the following unfair activities: (i) committing act of confusion to mislead a person into believing that a commodity is one of another person or has a particular connection with another person; (ii) seeking transaction opportunities or competitive edges by bribing relevant entities or individuals with property or by any other means; (iii) infringing trade secrets; (iv) premium campaign violating the provision of the Anti-Unfair Competition Law; and (v) fabricating or disseminating false or misleading information to damage the goodwill or product reputation of a competitor.
Regulations Relating to Anti-Monopoly
The currently effective Anti-Monopoly Law of PRC, or the Anti-Monopoly Law, was promulgated by Standing Committee of the National People’s Congress in 2007 and most recently amended on June 24, 2022. Pursuant to the Anti-Monopoly Law, the relevant operators of a concentration of undertakings which reaches the standard for declaration shall make an advance declaration to the anti-monopoly law enforcement authority under the State Council. The fines for illegal concentration of business operators shall be “no more than ten percent of its preceding year’s sales revenue if the concentration of business operator has or may have an effect of excluding or limiting competition; or a fine of up to RMB5 million if the concentration of business operator does not have an effect of excluding or limiting competition.” Pursuant to the Anti-Monopoly Law, the relevant authority to investigate transaction where there is evidence that the concentration has or may have the effect of eliminating or restricting competition, even if such concentration does not reach the filing threshold.
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On February 7, 2021, the Anti-Monopoly Committee of the State Council promulgated the Anti-Monopoly Guidelines for the Internet Platform Economy Sector which stipulates that any concentration of undertakings involving variable interest entities (VIE) shall fall within the scope of anti- monopoly review. Furthermore, the Anti-Monopoly Guidelines for Internet Platforms prohibits certain monopolistic acts of internet platforms so as to protect market competition and safeguard interests of users and undertakings participating in internet platform economy, including without limitation, prohibiting platforms with dominant position from abusing their market dominance (such as discriminating customers in terms of pricing and other transactional conditions using big data and analytics, coercing counterparties into exclusivity arrangements, using technology means to block competitors’ interface, favorable positioning in search results of goods displays, using bundle services to sell services or products, compulsory collection of unnecessary user data). On August 17, 2021, the SAMR issued the Provisions on Prohibition of Unfair Competition on the Internet (Draft for Comments), which prohibits business operators from using data, algorithms and other technical means to commit traffic hijacking, interference, malicious incompatibility and other improprieties to influence user choices or hinder or damage the normal operation of network products or services offered by other business operators.
| C. | Organizational Structure |
The following diagram illustrates our corporate structure, including our principal subsidiaries as of the date of this annual report on Form 20-F:
Historical Contractual Agreements with the Former VIEs and Their Respective Shareholders and the Related Termination Agreements
Historically, in order to comply with PRC regulatory requirements restricting foreign ownership of Internet information services, value-added telecommunications and certain other businesses in China, we primarily conducted those businesses through one of the former VIEs, Youxin Hulian. In January 2015, Ministry of Industry & Information Technology announced the Notice of the Ministry of Industry and Information Technology on Removing the Restrictions on Foreign-owned Shareholding Percentage in Online Data Processing and Transaction Processing (operating commerce) Business in China (Shanghai) Pilot Free Trade Zone, or SHFTZ Notice. Pursuant to SHFTZ Notice, there are no restrictions on foreign investors maximum shareholding percentage in an enterprise established in Shanghai Pilot Free Trade Zone that conducts value-added telecommunications services in the scope of online data processing and transaction processing (Operating E-commerce). Therefore, our eligible PRC subsidiaries Yougu and Youhan, have applied for and obtained approval from Shanghai Communications Administration to conduct e-commerce, and since then they have been operating our main online businesses instead of the former VIEs, Youxin Hulian and Yishouche.
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Our historical contractual arrangements with the former VIEs and their respective shareholders include exclusive option agreements, equity pledge agreements and exclusive business cooperation agreements. As a result of the contractual arrangements, we were able to derive economic benefits from the former VIEs and were considered the primary beneficiary of the former VIEs for accounting purposes. Accordingly, we were historically regarded as the primary beneficiary of the former VIEs, and we treated them and their subsidiaries as the consolidated affiliated entities under U.S. GAAP. We had consolidated the financial results of the former VIEs and their respective subsidiaries in our consolidated financial statements in accordance with U.S. GAAP.
In order to streamline our corporate structure and considering the changing regulatory environment, we have completed the Restructuring to terminate the contractual arrangements with both of the former VIEs, which as a result have become wholly owned subsidiaries of the company. Pursuant to the Restructuring, our wholly owned subsidiaries that have contractual arrangements with the former VIEs and their respective shareholders have purchased all equity interests held by such shareholders in the former VIEs. Accordingly, all contractual arrangements that enabled such shareholders to direct the activities of and derive economic benefits from the former VIEs, were effectively terminated.
The following is a summary of the historical contractual arrangements, which are effectively terminated in March 2022, (i) by and among Youxinpai (one of our WFOEs), Youxin Hulian (one of the former VIEs) and Youxin Hulian’s shareholders and (ii) by and among Yougu (one of our WFOEs), Yishouche (one of the former VIEs) and Yishouche’s shareholders.
Historical contractual Arrangements relating to Youxin Hulian
The following is a summary of the historical contractual arrangements by and among Youxinpai, Youxin Hulian and the shareholders of Youxin Hulian.
Agreements that Provided Us with Effective Control over Youxin Hulian
Equity Interest Pledge Agreements. Pursuant to the equity interest pledge agreements, each shareholder of Youxin Hulian pledged all of his or her equity interests in Youxin Hulian to guarantee the shareholder’s and Youxin Hulian’s performance of their obligations under the amended and restated exclusive business cooperation agreement, loan agreement entered into between Mr. Kun Dai and Youxinpai, exclusive option agreement and power of attorney. If Youxin Hulian or its shareholders breach their contractual obligations under these agreements, Youxinpai, as pledgee, will be entitled to certain rights regarding the pledged equity interests, including receiving proceeds from the auction or sale of all or part of the pledged equity interests of Youxin Hulian in accordance with the law. Each shareholder of Youxin Hulian agreed that, during the term of the equity interest pledge agreements, he or she would not dispose of the pledged equity interests or create or allow any encumbrance on the pledged equity interests without the prior written consent of Youxinpai. We have registered the equity pledge with the local branches of the Administration for Industry and Commerce in accordance with the PRC Property Rights Law.
Powers of Attorney. Pursuant to the powers of attorney, each shareholder of Youxin Hulian irrevocably appointed Youxinpai to act as such shareholder’s exclusive attorney-in-fact to exercise all shareholder rights, including, but not limited to, voting on all matters of Youxin Hulian requiring shareholder approval, disposing of all or part of the shareholder’s equity interests in Youxin Hulian, and appointing directors and executive officers. Youxinpai was entitled to designate any person to act as such shareholder’s exclusive attorney-in-fact without notifying or the approval of such shareholder, and if required by PRC law, Youxinpai shall designate a PRC citizen to exercise such right. Each shareholder of Youxin Hulian, waived all the rights which have been authorized to Youxinpai and will not exercise such rights.
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Agreement that Allowed us to Receive Economic Benefits from Youxin Hulian
Exclusive Business Cooperation Agreement. Under the amended and restated exclusive business cooperation agreement between Youxinpai and Youxin Hulian, Youxinpai had the exclusive right to provide Youxin Hulian with technical support, consulting services and other services. Without Youxinpai’s prior written consent, Youxin Hulian agreed not to accept the same or any similar services provided by any third party. Youxinpai may designate other parties to provide services to Youxin Hulian. Youxin Hulian agreed to pay service fees on a quarterly basis and at an amount determined by Youxinpai after taking into account multiple factors, such as the complexity and difficulty of the services provided, the time consumed, the content and commercial value of services provided, the market price of comparable services and the operation conditions. Youxinpai owned the intellectual property rights arising out of the performance of this agreement. In addition, Youxin Hulian granted Youxinpai an irrevocable and exclusive option to purchase any or all of the assets and businesses of Youxin Hulian at the lowest price permitted under PRC law.
Agreements that Provided Us with the Option to Purchase the Equity Interest in Youxin Hulian
Exclusive Option Agreement. Pursuant to the exclusive option agreements, each shareholder of Youxin Hulian irrevocably granted Youxinpai an exclusive option to purchase, or have its designated person or persons to purchase, at its discretion, to the extent permitted under PRC law, all or part of the shareholder’s equity interests in Youxin Hulian. The purchase price shall be RMB10 (US$1.4) or the minimum price required by PRC law. If Youxinpai exercises the option to purchase part of the equity interest held by a shareholder, the purchase price shall be calculated proportionally. Without Youxinpai’s prior written consent, Youxin Hulian shall not amend its articles of association, increase or decrease the registered capital, sell or otherwise dispose of its assets or beneficial interest, create or allow any encumbrance on its assets or other beneficial interests, provide any loans to any third parties, enter into any material contract with a value of more than RMB500,000 (US$71,821) (except those contracts entered into in the ordinary course of business), merge with or acquire any other persons or make any investments, or distribute dividends to the shareholders. Each shareholder of Youxin Hulian agreed that, without Youxinpai’s prior written consent, he or she would not dispose of his or her equity interests in Youxin Hulian or create or allow any encumbrance on their equity interests. Moreover, without Youxinpai’s prior written consent, no dividend will be distributed to Youxin Hulian’s shareholders, and if any of the shareholders receives any profit, interest, dividend or proceeds of share transfer or liquidation, the shareholder must give such profit, interest, dividend and proceeds to Youxinpai or its designated person(s).
Loan Agreement. Pursuant to the loan agreement between Youxinpai and Mr. Kun Dai shareholder of Youxin Hulian, dated November 23, 2016, Youxinpai made loans in an aggregate amount of RMB96.0 million (US$13.8 million) to Mr. Kun Dai solely for the capitalization of Youxin Hulian. Pursuant to the loan agreement, Youxinpai may at its sole discretion request the borrower to repay the loan by the sale of all his equity interest in Youxin Hulian to Youxinpai or its designated person(s) pursuant to the exclusive option agreement. Mr. Kun Dai must pay all of the proceeds from sale of such equity interests to Youxinpai. In the event the borrower sells his equity interests to Youxinpai or its designated person(s) with a price equivalent to or less than the amount of the principal, the loans will be interest free. If the price is higher than the amount of the principal, the excess amount will be paid to Youxinpai as the loan interest. The loan must be repaid immediately under certain circumstances, including, among others, if a foreign investor is permitted to hold majority or 100% equity interest in Youxin Hulian and Youxinpai elects to exercise its exclusive equity purchase option.
Historical Contractual Arrangements relating to Yishouche
The following is a summary of the historical contractual arrangements by and among Yougu, Yishouche and the shareholders of Yishouche.
Agreements that Provided Us with Effective Control over Yishouche
Equity Interest Pledge Agreements. Pursuant to the equity interest pledge agreements, each shareholder of Yishouche pledged all of his or her equity interests in Yishouche to guarantee the shareholder’s and Yishouche’s performance of their obligations under the exclusive business cooperation agreement, exclusive option agreement and power of attorney. If Yishouche or any of its shareholders breaches their contractual obligations under these agreements, Yougu, as pledgee, will be entitled to certain rights regarding the pledged equity interests, including receiving proceeds from the auction or sale of all or part of the pledged equity interests of Yishouche in accordance with the law. Each of the shareholders of Yishouche agreed that, during the term of the equity interest pledge agreements, he or she would not dispose of the pledged equity interests or create or allow any encumbrance on the pledged equity interests without the prior written consent of Yougu. We have registered the equity pledge with the local branches of the Administration for Industry and Commerce in accordance with the PRC Property Rights Law.
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Powers of Attorney. Pursuant to the powers of attorney, each shareholder of Yishouche irrevocably appointed Yougu to act as such shareholder’s exclusive attorney-in-fact to exercise all shareholder rights, including, but not limited to, voting on all matters of Yishouche requiring shareholder approval, disposing of all or part of the shareholder’s equity interests in Yishouche, and appointing directors and executive officers. Yougu was entitled to designate any person to act as such shareholder’s exclusive attorney-in-fact without notifying or the approval of such shareholder, and if required by PRC law, Yougu shall designate a PRC citizen to exercise such right. Each shareholder waived all the rights which have been authorized to Yougu and will not exercise such rights.
Agreement that Allowed us to Receive Economic Benefits from Yishouche
Exclusive Business Cooperation Agreement. Under the exclusive business cooperation agreement between Yougu and Yishouche, Yougu had the exclusive right to provide Yishouche with technical support, consulting services and other services. Without Yougu’s prior written consent, Yishouche agreed not to accept the same or any similar services provided by any third party. Yougu may designate other parties to provide services to Yishouche. Yishouche agreed to pay service fees on a monthly basis and at an amount determined by Yougu and Yishouche after taking into account multiple factors, such as the complexity and difficulty of the services provided, the time consumed, the content and commercial value of services provided and the market price of comparable services and the operation conditions. Yougu owned the intellectual property rights arising out of the performance of this agreement. In addition, Yishouche granted Yougu an irrevocable and exclusive option to purchase any or all of the assets and businesses of Yishouche at the lowest price permitted under PRC law.
Agreements that Provided Us with the Option to Purchase the Equity Interest in Yishouche
Exclusive Option Agreements. Pursuant to the exclusive option agreements, each shareholder of Yishouche irrevocably granted Yougu an exclusive option to purchase, or have its designated person or persons to purchase, at its discretion, to the extent permitted under PRC law, all or part of the shareholder’s equity interests in Yishouche. The purchase price shall be RMB10 (US$1.4) or the minimum price required by PRC law. Without Yougu’s prior written consent, Yishouche shall not amend its articles of association, increase or decrease the registered capital, sell or otherwise dispose of, or create or allow any encumbrance on its assets or beneficial interest with a value of more than RMB500,000 (US$71,821), provide any loans to any third parties, enter into any material contract with a value of more than RMB500,000 (US$71,821) (except those contracts entered into in the ordinary course of business), merge with or acquire any other persons or make any investments, or distribute dividends to the shareholders. The shareholders of Yishouche agreed that, without Yougu’s prior written consent, they would not dispose of their equity interests in Yishouche or create or allow any encumbrance on their equity interests. Moreover, without Yougu’s prior written consent, no dividend will be distributed to Yishouche’s shareholders, and if any of the shareholders receives any profit, interest, dividend or proceeds of share transfer or liquidation, the shareholder must give such profit, interest, dividend and proceeds to Yougu or its designated person(s).
In the opinion of Beijing DOCVIT Law Firm, our counsel regarding certain PRC legal matters:
| ● | the historical ownership structures of the former VIEs in China and our WFOEs that had entered into contractual arrangements with the former VIEs will not result in any violation of PRC laws or regulations currently in effect; and | |
| ● | the historical contractual arrangements among Youxinpai, Youxin Hulian and the shareholders of Youxin Hulian and the historical contractual arrangements among Yougu, Yishouche and the shareholders of Yishouche governed by PRC law were valid, binding and enforceable, and do not and will not result in any violation of PRC laws or regulations currently in effect. |
However, there are substantial uncertainties regarding the interpretation and application of current and future PRC laws, regulations and rules. The PRC regulatory authorities may in the future take a view that is contrary to the above opinion of our PRC counsel. If the PRC government finds that the agreements that establish the structure for operating our online businesses did not comply with PRC government restrictions on foreign investment in value-added telecommunications services businesses, such as internet content provision services and online data processing and transaction processing businesses (operating e-commerce business), we could be subject to penalties, including being prohibited from continuing operations. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—If the PRC government determines that the historical contractual arrangements with the former VIEs structure did not, or that our holding company structure do not, comply with PRC laws and regulations, or if these regulations change or are interpreted differently in the future, our shares and/or ADSs may decline in value or become worthless,” “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Failure to obtain certain filings, approvals, licenses, permits and certificates required for our business operations may materially and adversely affect our business, financial condition and results of operations”, and “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Uncertainties in the interpretation and enforcement of Chinese laws and regulations could limit the legal protections available to us.”
| D. | Property, Plants and Equipment |
Our Beijing office, Xi’an Superstore and Hefei Superstore covered an aggregate of more than 500,000 square meters. These facilities currently accommodate our management headquarters, used car superstores, as well as most of our sales and marketing, R&D, general and administrative activities.
In December 2022, we completed the relocation and upgrade of our Xi’an Superstore as well as its used car super stores. The upgraded Xi’an Superstore is comprised of (i) a reconditioning factory with an annual capacity of 40,000 units and (ii) a warehouse-style superstore with a showroom capacity of 3,000 vehicles.
In July 2023, we moved our principle executive offices to 21/F, Donghuang Building, No. 16 Guangshun South Avenue Chaoyang District, Beijing 100102, People’s Republic of China.
| Item 4A. | Unresolved Staff Comments |
None.
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| 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 audited consolidated financial statements and the related notes included in this annual report on Form 20-F. This report contains forward-looking statements. 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 on Form 20-F. We caution you that our businesses and financial performance are subject to substantial risks and uncertainties.
| A. | Operating Results |
Overview
We are a leading used car retailer, pioneering industry transformation with advanced production, new retail experiences, and digital empowerment in China. We operate vehicle sales business, where we provide consumers with a reliable, one-stop and hassle-free used-car-buying experience, including access to our best selection of high-quality and value-for-money used cars and various car-related value-added products and services.
From September 2020, our vehicle sales business generates revenues from vehicle sales under the new inventory-owning model, which covers retail vehicle sales business and wholesale vehicle sales business. We select vehicle inventory from consumers who intend to sell their existing cars, auction platforms, 4S stores and offline dealers. Our first used car superstore in Xi’an and second used car superstore in Hefei have been in operation since March 2021 and November 2021, respectively, where we can recondition all retail inventory to a “like new” condition. Meanwhile, our Xi’an Superstore and Hefei Superstore may also serve regional customers who pay in-store visit to our superstores. For retail vehicle sales business, the vehicles that meet our retail standards will be delivered to our Xi’an Superstore or Hefei Superstore for further preparation, and then sell to consumers under our omni-channel sales approach, either from our online platform or from offline superstores. Wholesale vehicle sales refer to vehicles purchased by us from individuals that do not meet our retail standards and are subsequently sold through online and offline channels.
Prior to the inventory-owing model, our 2C business generated revenues from (i) commission fee in relation to assisting consumers buying our inspected and certified used cars directly online and providing relevant fulfillment services, such as logistics and delivery, title transfers and vehicle registration, which equals to a certain percentage of final car sales price and (ii) value-added service fee in relation to the additional services provided to consumers, for example, we help consumers select and apply for customized auto financing options that are provided by our financing partners, assist them purchasing suitable insurance policies that are provided by insurance companies, and provide well-rounded warranty programs.
By April 2020, we had closed our divestiture of entire 2C intra-regional business and loan facilitation business to Golden Pacer. Prior to the divestiture, our 2C business generated revenues from the transaction facilitation and loan facilitation services we provided to car buyers. See “Item 4. Information on the Company—A. History and Development of the Company—Divestitures of Our Loan Facilitation, Salvage Car and 2B Businesses.”
Historically, we also operated 2B business — Uxin Auction, where we primarily facilitated used car transactions between business customers via online auction. By April 2020, we had closed our divestiture of the entire 2B business to 58.com and both parties released the other party from claims arising out of this transaction in July 2022. See “Item 4. Information on the Company—A. History and Development of the Company—Divestitures of Our Loan Facilitation, Salvage Car and 2B Businesses.” Prior to the divestiture of our 2B business, we generated revenues from transaction facilitation service fee charged in relation to connecting business buyers with used car sellers and facilitating car sales through our auction service, as well as the title transfer service we provide.
Major Factors Affecting Our Results of Operations
General Factors Affecting Our Results of Operations
Our business and operating results are affected by general factors affecting China’s online used car transaction industry, which include:
| ● | China’s overall economic growth and level of per capita disposable income; |
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| ● | changes in the supply and demand for used cars, and changes in geographic distribution of cars; and | |
| ● | regulations and policies affecting the used car industry and consumer auto finance industry. |
Unfavorable changes in any of these general industry conditions could negatively affect demand for our services and materially and adversely affect our results of operations.
Specific Factors Affecting Our Results of Operations
While our business is influenced by general factors affecting China’s online used car transaction industry, we believe our results of operations are more directly affected by company specific factors, including the following:
Ability to increase transaction volume
Our ability to continue to increase our transaction volume affects the growth of our business and our revenues. From 2018 when we started to provide 2C online used car transaction services, we have witnessed significant growth in our business. However, as a result of our business transformation to an inventory-owning model since September 2020, the total number of used car transactions for fiscal year of 2021 and fiscal year of 2022 are not comparable. During the fiscal year ended March 31, 2024, our vehicle sales volume was 15,550, among which retail vehicle sales volume was 10,179 and wholesale vehicle sales volume was 5,371. We anticipate that our future revenue growth will continue to depend largely on the increase of transaction volume on our platform, especially the increase of retail vehicle transaction volume. Our ability to increase transaction volume depends on, among other things, our ability to continuously maintain a broad inventory and improve the service and user experience that we offer, our ability to maintain capital sufficiency, increase brand awareness, expand our service network and enhance our online used car transaction fulfillment and technology capabilities.
Ability to acquire high-quality value-for-money used cars for our customers
Different from offline dealers’ traditional way of acquiring inventory based only on individual experience, we will procure our used cars by analyzing the extensive user behavioral, used car and transactional data gathered on our platform over the years. Therefore, we can identify used cars that meet our criteria and procure those used cars our customers prefer, value-for-money and in line with the market trends and dynamics. Our data-driven and quality-focused inventory strategy enhances customer satisfaction, and also enables us to achieve a fast inventory turnover.
Ability to enhance operational efficiency
Our results of operations are directly affected by our scale and operational efficiency. We have been relentlessly pursuing ways to optimizing our operating costs and expenses. To that end, our organizational structure has been upgraded according to the adjustment of our business model and all aspects of our business operations are undergoing refined management. “Spend where it matters most” has become our management philosophy. We have been improving our operational efficiency and targeting profitability in the mid to long term.
Selected Statements of Operations Items
Revenues
We derive our revenues from our retail vehicle sales, wholesale vehicle sales and other businesses. The following table presents our revenues by category, in terms of absolute amounts and as percentages of our total revenues for the periods presented.
| For the Fiscal Years Ended March 31, | ||||||||||||||||||||||||||||
| 2022 | 2023 | 2024 | ||||||||||||||||||||||||||
| RMB | % | RMB | % | RMB | US$ | % | ||||||||||||||||||||||
| (in thousands, except for percentages) | ||||||||||||||||||||||||||||
| Revenues | ||||||||||||||||||||||||||||
| Retail vehicle sales | 780,371 | 47.7 | 1,312,857 | 63.8 | 1,024,401 | 141,878 | 74.5 | |||||||||||||||||||||
| Wholesale vehicle sales | 823,466 | 50.3 | 707,385 | 34.3 | 315,909 | 43,753 | 23.0 | |||||||||||||||||||||
| Others | 32,279 | 2.0 | 38,999 | 1.9 | 34,419 | 4,767 | 2.5 | |||||||||||||||||||||
| Total revenues | 1,636,116 | 100.0 | 2,059,241 | 100.0 | 1,374,729 | 190,398 | 100.0 | |||||||||||||||||||||
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Retail vehicle sales
From September 2020, we have started to build-up our own used car inventory. We have also started to select “value-for-money” used cars in the market, procure these cars and arrange for reconditioning to upgrade them to a like-new condition before selling them to customers. Vehicle sales revenue is recognized on a gross basis as we sell our own inventory.
Wholesale vehicle sales
Wholesale vehicle sales refer to vehicles purchased by us from individuals that do not meet our retail standards and are subsequently sold through online and offline channels.
Others
Our other revenues mainly consist of rebates collected from our financing and insurance partners.
Cost of Revenues
The cost of revenues primarily consists of the cost to acquire used vehicles as well as direct and indirect vehicle reconditioning costs associated with preparing the vehicles for resale. Cost of revenues also includes any necessary adjustments to reflect vehicle inventory at the lower of cost or net realizable value. We expect that our cost of revenues will increase in absolute dollar amounts in the foreseeable future resulting from continuous business expansion.
Operating Expenses
Our operating expenses primarily consist of (i) sales and marketing expenses, (ii) general and administrative expenses, (iii) research and development expenses, and (iv) provision for credit losses. We improved our overall operational efficiency through strict cost management and aimed at growing the business at the most cost-efficient level. Our cost management efforts will continue and we expect to continue to optimize our operating expense structure.
Sales and marketing expenses
Sales and marketing expenses primarily consist of salaries and benefits for our sales and marketing personnel, traffic acquisition costs, brand advertising costs, outbound logistic expenses and depreciation expenses of our superstore right-of-use assets. We expect that our sales and marketing expenses will increase in absolute dollar amounts in the foreseeable future resulting from continuous business expansion and increases in transaction volumes.
General and administrative expenses
General and administrative expenses primarily consist of salaries and benefits as well as share-based compensation for our management and administration employees performing general corporate functions, office rental expenses, and professional service fees. We expect that our general and administrative expenses will remain relatively stable in the foreseeable future primarily due to our continuous efforts in controlling such costs.
Research and development expenses
Research and development expenses primarily consist of salaries and benefits for our research and development personnel and IT infrastructure services-related expenses. We expect our research and development expenses will remain relatively stable in the foreseeable future as our proprietary technology, including websites, mobile apps and various information technology systems to support our business, matures.
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Reversal of/(provision for) credit losses
Our provision for credit loss for the fiscal year ended March 31, 2023 mainly related to impairment due to the credit loss incurred from outstanding receivables, taking into account the risk characteristics, supportable forecasts of future economic conditions and any recoveries. Our reversal of credit loss for the fiscal year ended March 31, 2024 was mainly due to the loans recognized as a result of payment under the guarantee associated with our historically-facilitated loans.
Fair value impact of the issuance of senior convertible preferred shares
The fair value impact of the issuance of senior convertible preferred shares is primarily related to the issuance of senior convertible preferred shares, specifically the second tranche of the transaction and the warrants offered to Joy Capital and NIO Capital in connection with the first tranche. The warrants and the second tranche of the transaction were recorded as liabilities at fair value, respectively, with subsequent fair value changes to be charged to the profit and loss.
Taxation
British Virgin Islands
Some of our subsidiaries are companies incorporated in the British Virgin Islands. Under the current law of the British Virgin Islands, we are not subject to income, corporation or capital gains tax in the British Virgin Islands. In addition, payment of dividends by the British Virgin Islands subsidiaries to their respective shareholders who are not resident in the British Virgin Islands, if any, is not subject to withholding tax in the British Virgin Islands.
Hong Kong
Our subsidiaries in Hong Kong are subject to the uniform tax rate of 16.5%. Under Hong Kong tax law, our subsidiaries in Hong Kong are exempted from income tax on their foreign-derived income and there is no withholding tax in Hong Kong on remittance of dividends. No provision for Hong Kong profits tax was made as we had no estimated assessable profit that was subject to Hong Kong profits tax in the fiscal years ended March 31, 2022, 2023 and 2024.
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Results of Operations
The following table summarizes our consolidated results of operations, both in absolute amounts and as percentages of our total revenues, for the periods presented.
| For the Fiscal Year Ended March 31, | ||||||||||||||||||||||||||||
| 2022 | 2023 | 2024 | ||||||||||||||||||||||||||
| RMB | % | RMB | % | RMB | US$ | % | ||||||||||||||||||||||
| (in thousands, except for percentages) | ||||||||||||||||||||||||||||
| Revenues | ||||||||||||||||||||||||||||
| Retail vehicle sales | 780,371 | 47.7 | 1,312,857 | 63.8 | 1,024,401 | 141,878 | 74.5 | |||||||||||||||||||||
| Wholesale vehicle sales | 823,466 | 50.3 | 707,385 | 34.3 | 315,909 | 43,753 | 23.0 | |||||||||||||||||||||
| Others | 32,279 | 2.0 | 38,999 | 1.9 | 34,419 | 4,767 | 2.5 | |||||||||||||||||||||
| Total revenues | 1,636,116 | 100.0 | 2,059,241 | 100.0 | 1,374,729 | 190,398 | 100.0 | |||||||||||||||||||||
| Cost of revenues (1) | (1,588,398 | ) | (97.1 | ) | (2,033,797 | ) | (98.8 | ) | (1,294,161 | ) | (179,239 | ) | (94.1 | ) | ||||||||||||||
| Gross profit | 47,718 | 2.9 | 25,444 | 1.2 | 80,568 | 11,159 | 5.9 | |||||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||||||
| Sales and marketing (1) | (222,139 | ) | (13.6 | ) | (236,307 | ) | (11.5 | ) | (202,493 | ) | (28,045 | ) | (14.7 | ) | ||||||||||||||
| Research and development (1) | (36,200 | (2.2 | ) | (37,704 | ) | (1.8 | ) | (33,820 | ) | (4,684 | ) | (2.5 | ) | |||||||||||||||
| General and administrative (1) | (151,024 | ) | (9.2 | ) | (164,505 | ) | (8.0 | ) | (177,386 | ) | (24,568 | ) | (12.9 | ) | ||||||||||||||
| Reversal of/(provision for) credit losses, net | 687 | 0.0 | (13,844 | ) | (0.7 | ) | 2,631 | 364 | 0.2 | |||||||||||||||||||
| Total operating expenses | (408,676 | ) | (25.0 | ) | (452,360 | ) | (22.0 | ) | (411,068 | ) | (56,933 | ) | (29.9 | ) | ||||||||||||||
| Other operating income, net | 82,017 | 5.0 | 69,990 | 3.4 | 18,001 | 2,493 | 1.3 | |||||||||||||||||||||
| Loss from operations | (278,941 | ) | (17.0 | ) | (356,926 | ) | (17.3 | ) | (312,499 | ) | (43,281 | ) | (22.7 | ) | ||||||||||||||
| Interest income | 3,660 | 0.2 | 603 | 0.0 | 169 | 23 | 0.0 | |||||||||||||||||||||
| Interest expense | (41,222 | ) | (2.5 | ) | (21,243 | ) | (1.0 | ) | (62,598 | ) | (8,670 | ) | (4.6 | ) | ||||||||||||||
| Other income | 5,227 | 0.3 | 17,088 | 0.8 | 15,870 | 2,198 | 1.2 | |||||||||||||||||||||
| Other expenses | (8,925 | ) | (0.5 | ) | (24,153 | ) | (1.2 | ) | (5,941 | ) | (823 | ) | (0.4 | ) | ||||||||||||||
| Foreign exchange (losses)/gain | (9,336 | ) | (0.6 | ) | (2,457 | ) | (0.1 | ) | 1,525 | 211 | 0.1 | |||||||||||||||||
| Fair value impact of the issuance of senior convertible preferred shares | 186,231 | 11.4 | 242,733 | 11.8 | (11,776 | ) | (1,631 | ) | (0.9 | ) | ||||||||||||||||||
| Losses from extinguishment of debt | — | — | (2,778 | ) | (0.1 | ) | — | — | — | |||||||||||||||||||
| Loss before income tax expense | (143,306 | ) | (8.8 | ) | (147,133 | ) | (7.1 | ) | (375,250 | ) | (51,973 | ) | (27.3 | ) | ||||||||||||||
| Income tax expense | (245 | ) | 0.0 | (366 | ) | 0.0 | (311 | ) | (43 | ) | (0.0 | ) | ||||||||||||||||
| Dividend from long-term investment | — | — | 10,374 | 0.5 | 11,970 | 1,658 | 0.9 | |||||||||||||||||||||
| Equity in income/(loss) of affiliates, net of tax | 328 | 0.0 | (44 | ) | 0.0 | (5,951 | ) | (824 | ) | (0.4 | ) | |||||||||||||||||
| Net loss | (143,223 | ) | (8.8 | ) | (137,169 | ) | (6.7 | ) | (369,542 | ) | (51,182 | ) | (26.9 | ) | ||||||||||||||
| Add: accretion on redeemable non-controlling interests | — | — | — | — | (2,901 | ) | (402 | ) | (0.2 | ) | ||||||||||||||||||
| Less: net loss attributable to non-controlling interests shareholders | — | — | (12 | ) | 0.0 | (56 | ) | (8 | ) | (0.0 | ) | |||||||||||||||||
| Deemed dividend to preferred shareholders due to triggering of a down round feature | — | — | (755,635 | ) | (36.7 | ) | (2,060,254 | ) | (285,342 | ) | (149.9 | ) | ||||||||||||||||
| Net loss attributable to ordinary shareholders | (143,223 | ) | (8.8 | ) | (892,792 | ) | (43.4 | ) | (2,432,641 | ) | (336,918 | ) | (177.0 | ) | ||||||||||||||
| Net loss per share for ordinary shareholders, basic | (0.12 | ) | — | (0.66 | ) | — | (1.11 | ) | (0.15 | ) | — | |||||||||||||||||
| (1) | Share-based compensation in the amount of negative RMB26.5 million, RMB47.3 million and RMB75.8 million (US$10.5 million) in the fiscal years ended March 31, 2022, 2023 and 2024, respectively, was charged to cost of revenues, sales and marketing expenses, research and development expenses, and general and administrative expenses. |
Fiscal Year Ended March 31, 2024 Compared to Fiscal Year Ended March 31, 2023
Revenues
Total revenue. Our total revenues decreased by 33.2% from RMB2,059.2 million in the fiscal year of 2023 to RMB1,374.7 million (US$190.4 million) in the fiscal year of 2024, driven by the decrease of wholesale vehicle sales revenue, mainly due to a decline in wholesale transaction volume, and the decrease of retail vehicle sales revenue, mainly due to a decline in retail average selling price.
Retail vehicle sales revenue. Retail vehicle sales revenue was RMB1,024.4 million (US$141.9 million) in the fiscal year of 2024, compared to RMB1,312.9 million in the fiscal year of 2023. The decrease in retail vehicle sales revenue was mainly due to a decline in retail average selling price by 18.0% year-over-year. Besides, the decrease in retail vehicle sales revenue was also drive by a decline in retail transaction volume. Retail transaction volume in the fiscal year of 2024 was 10,179 units, compared to 10,703 units in the fiscal year of 2023. The decrease in retail transaction volume was mainly related to the lower inventory level. We have maintained a prudent inventory procurement strategy and keeps a low inventory level as compared with the same period last year, which constrained retail sales growth.
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Wholesale vehicle sales revenue. Wholesale vehicle sales revenue was RMB315.9 million (US$43.8 million) in the fiscal year of 2024, compared to RMB707.4 million in the fiscal year of 2023. Wholesale vehicle sales refer to vehicles purchased by us from individuals that do not meet our retail standards and are subsequently sold through online and offline channels. As we are focusing on creating value for our customers through retail transactions and continuing to improve our inventory capacity and reconditioning capabilities, the wholesale transaction volume decreased accordingly. We expect that our wholesale transaction volume will gradually represent a lower portion of our total transaction volume.
Others. Our other revenues were RMB34.4 million (US$4.7 million) in the fiscal year of 2024, compared to RMB38.9 million in the fiscal year of 2023. The decrease was mainly due to a decrease in our value-added services such as rebate received from certain financing partners for referring them to our retail customers with financing needs, a decrease in revenue from sales of vehicle accessories and a decrease in revenue from vehicle repair services.
Cost of revenues
Cost of revenues were RMB1,294.2 million (US$179.2 million) in the fiscal year of 2024, representing a decrease of 36.4% from RMB2,033.8 million in the fiscal year of 2023, mainly due to a decrease in cost for acquiring used vehicles as a result of our prudent inventory procurement strategy implemented.
Gross profit
Our total gross profit was RMB80.6 million (US$11.2 million) in the fiscal year of 2024, compared to RMB25.4 million in the fiscal year of 2023. Our gross profit margin increased from 1.2% in the fiscal year of 2023 to 5.9% in the fiscal year of 2024. The increases in gross profit and gross profit margin were mainly due to the acceleration of the inventory turnover rate, the improvement of pricing and sales capabilities, the increase of our value added services penetration rate and the decrease of our per-vehicle reconditioning costs.
Sales and marketing expenses
Our sales and marketing expenses decreased by 14.3% from RMB236.3 million in the fiscal year of 2023 to RMB202.5 million (US$28.0 million) in the fiscal year of 2024. The decrease was mainly due to the decline in marketing expenses driven by the adoption of more cost-effective promotion measures and the decline of outbound logistic expenses, partially offset by the increase in right-of-use assets depreciation expenses as a result of relocation to our Hefei Superstore.
Research and development expenses
Our research and development expenses decreased by 10.3% from RMB37.7 million in the fiscal year of 2023 to RMB33.8 million (US$4.7 million) in the fiscal year of 2024. The decrease was mainly due to a decrease of the salaries and benefits expenses of employees engaged in research and development.
General and administrative expenses
Our general and administrative expenses increased by 7.8% from RMB164.5 million in the fiscal year of 2023 to RMB177.4 million (US$24.6 million) in the fiscal year of 2024. The increase was mainly due to an increase in shared-based compensation for personnel performing general and administrative functions, including the share-based compensation expense of US$4.0 million (equivalent to RMB28.7 million) resulting from the issuance of the senior convertible preferred shares to Xin Gao, which is controlled by Mr. Kun Dai, the Chairman of the Board of Directors and chief executive officer of Company.
Reversal of/(provision for) credit losses, net
We recorded provision for credit losses, net of RMB13.8 million in the fiscal year of 2023 and reversal for credit losses, net of RMB2.6 million (US$0.4 million) in the fiscal year of 2024. Our provision for credit losses, net primarily consists of impairment due to the credit loss incurred from outstanding deposits, taking into account the risk characteristics, supportable forecasts of future economic conditions and any recoveries as of the dates indicated. Our reversal of credit loss for the fiscal year ended March 31, 2024 was mainly due to the loans recognized as a result of payment under the guarantee associated with our historically-facilitated loans.
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Other operating income, net
Our other operating income, net decreased from RMB70.0 million in the fiscal year of 2023 to RMB18.0 million (US$2.5 million) in the fiscal year of 2024. The decrease was mainly due to the reduction in liability waiver gain, which was recognized as we fulfilled our payment conditions under the operating payable waiver agreements we had entered into with several suppliers.
Interest income
We had interest income of RMB0.6 million in the fiscal year of 2023 and RMB169 thousand (US$23 thousand) in the fiscal year of 2024, respectively.
Interest expenses
We had interest expense of RMB21.2 million in the fiscal year of 2023 and RMB62.6 million (US$8.7 million) in the fiscal year of 2024, respectively. The increase was mainly due to the increase of interest expenses on finance lease liabilities relating to the lease of Hefei Superstore in September 2023.
Other income
Other income decreased from RMB17.1 million in the fiscal year of 2023 to RMB15.9 million (US$2.2 million) in the fiscal year of 2024.
Other expenses
Other expenses decreased from RMB24.2 million in the fiscal year of 2023 to RMB5.9 million (US$0.8 million) in the fiscal year of 2024. Other expenses in the fiscal year of 2023 and 2024 were mainly due to the COVID-related business disruptions and the impairment loss for equity investments accounted for using measurement alternative, respectively.
Foreign exchange (losses)/gain
We had foreign exchange losses of RMB2.5 million in the fiscal year of 2023 and foreign exchange gain of RMB1.5 million (US$0.2 million) in the fiscal year of 2024.
Fair value impact of the issuance of senior convertible preferred shares
Fair value impact of the issuance of senior convertible preferred shares was a fair value gain of RMB11.8 million (US$1.6 million) in the fiscal year of 2024, compared to a fair value loss of RMB242.7 million in the fiscal year of 2023, which was related to the fair value change of the warrants issued in relation to the senior convertible preferred shares. In December 2023, unexercised warrants were subsequently terminated.
Losses from extinguishment of debt
We recorded losses from extinguishment of debt in the amount of RMB2.8 million in the fiscal year of 2023 by issuing 183,495,146 Class A ordinary shares to 58.com in exchange for the full release of our obligations to 58.com under the 58.com Notes and certain other historical transactions. We did not record losses from extinguishment of debt in the fiscal year of 2024.
Income tax expense
We had income tax expense of RMB311 thousand (US$43 thousand) in the fiscal year of 2024, compared to RMB366 thousand in the fiscal year of 2023.
Dividend from long-term investment
We had a dividend from long-term investment in the amount of RMB12.0 million (US$1.7 million) in the fiscal year of 2024 due to dividends from a PRC entity that we invested in.
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Equity in loss of affiliates
Equity in loss of affiliates increased from RMB44 thousand in the fiscal year of 2023 to RMB6.0 million (US$0.8 million) in the fiscal year of 2024, which reflects a decline in investees’ earnings.
Net loss
As a result of the foregoing, our net loss decreased from RMB137.2 million in the fiscal year of 2023 to RMB369.5 million (US$51.2 million) in the fiscal year of 2024.
Fiscal Year Ended March 31, 2023 Compared to Fiscal Year Ended March 31, 2022
For a detailed description of the comparison of our operating results for the fiscal year ended March 31, 2023 to the fiscal year ended March 31, 2022, see “Item 5.A. Operating Results—Results of Operations—Fiscal Year Ended March 31, 2023 Compared to Fiscal Year Ended March 31, 2022” of our annual report on Form 20-F for the fiscal year ended March 31, 2023 filed with the Securities and Exchange Commission on August 14, 2023.
| B. | Liquidity and Capital Resources |
Cash flows and working capital
In addition to experiencing net losses during the periods presented, we had net cash used in operating activities of RMB845.0 million, RMB251.1 million and RMB262.4 million (US$36.3 million) in the fiscal years ended March 31, 2022, 2023 and 2024, respectively. Our principal sources of liquidity have been proceeds from issuances of equity and equity-linked securities.
| ● | In January 2018, we raised an aggregate of US$250.0 million by issuing additional preferred shares to certain investors in a private placement. | |
| ● | In June 2018, we completed our initial public offering in which we issued and sold an aggregate of 25,000,000 ADSs, representing 75,000,000 Class A ordinary shares, resulting in net proceeds to us of US$204.8 million. Concurrently with our initial public offering, we sold convertible notes to CNCB (Hong Kong) Investment Limited (“the CNCB Note”) and Golden Fortune Company Limited (“the GF Note”), resulting in net proceeds to us of US$100 million and US$75 million, respectively. The CNCB Note and the GF Note each bears an interest rate of 6% and 6.5% per annum. The convertible notes became due and were paid in June 2019. | |
| ● | In June 2019, we sold convertible notes in an aggregate principal amount of US$230 million to Redrock Holding Investments Limited, or Redrock, TPG Growth III SF Pte. Ltd., or TPG, 58.com Holdings Inc., or 58.com, Zhuhai Guangkong Zhongying Industrial Investment Fund (Limited Partnership), Magic Carpet International Limited and ClearVue Uxin Holdings, Ltd. (the “2024 Notes”). The 2024 Notes will become due and payable on June 11 and June 12, 2024 unless converted earlier. The purchasers of the convertible notes have the right to convert the convertible notes into Class A ordinary shares of our company during the period from and including the 181st day after the issuance date to and including the maturity date. The conversion price per Class A ordinary share of the 2024 Notes equals US$1.03 and may be adjusted. The 2024 Notes each bears an interest rate of 3.75% per annum, payable until the outstanding principal amount is fully paid; provided that if any portion of the convertible notes are duly converted into Class A ordinary shares pursuant to the terms of the convertible notes, no interest accrued on the principal amount being converted shall be payable. | |
| ● | On July 12, 2021, the 2024 Notes for a principal amount of US$69 million were converted into a total of 66,990,291 Class A ordinary shares. The remaining principal amount of US$161 million is subject to customary payment schedules. The noteholders have also irrevocably waived the conversion rights with respect to their respective remaining amount. In July 2022, we issued 183,495,146 Class A ordinary shares to 58.com in exchange for the full release of our obligations to 58.com under the convertible promissory note and certain other historical transactions. The remaining amount of US$81.9 million has been recognized as debt against other noteholders. |
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| ● | Between July and November 2019, we sold convertible notes in an aggregate principal amount of US$50 million to affiliates of PacificBridge Asset Management, or PacificBridge (the “PB Notes”). Among the PB Notes, notes of US$20.05 million in principal amount bears an interest rate of 10% per annum (the “10% Notes”), and notes of US$29.95 million in principal amount bears an interest rate of 11% per annum (the “11% Notes”). The 10% Notes will become due and payable 12 months after the issuance date, and the 11% Notes will become due and payable 15 months after the issuance date, unless converted earlier. The purchasers of the convertible notes have the right to convert the convertible notes into Class A ordinary shares of our company during the period from and including the 181st day after the issuance date to and including the maturity date, which right may be exercised twice only. The conversion prices per Class A ordinary share of the PB Notes are US$1.663, US$1.683 and US$1.7, as applicable, and may be adjusted. The interests are payable until the outstanding principal amount is fully paid; provided that if any portion of the convertible notes are duly converted into Class A ordinary shares pursuant to the terms of the convertible notes, no interest accrued on the principal amount being converted shall be payable. | |
| ● | On July 23, 2020, we entered into agreements with PacificBridge to amend the terms of the PB Notes. Pursuant to the agreements, the parties have agreed that the conversion prices of the PB Notes will be adjusted to our volume weighted average price for the last 30 trading days prior to the signing of the agreements multiplied by 78%, and PacificBridge will convert all the PB Notes into our Class A ordinary shares upon the signing of the agreements. On the same day, PacificBridge converted all the PB Notes into 136,279,973 Class A ordinary shares of ours at the adjusted conversion price. | |
| ● | In October 2020, we completed private placements with GIC and Wells Fargo for subscription of a total of 84,692,839 Class A ordinary shares for an aggregate amount of US$25 million. | |
| ● | In March 2021 and June 2021, we entered into a term sheet and definitive agreements, respectively, with NIO Capital and Joy Capital to raise an aggregate amount of up to US$315 million for the subscription of a total of 917,564,810 senior convertible preferred shares. The first closing in the amount of US$100 million was completed for the issuance of 291,290,416 senior convertible preferred shares on July 12, 2021. The second closing in the amount of US$27.5 million, US$10 million and US$7.5 million was completed for Uxin Limited’s issuance of 80,104,865 senior convertible preferred shares, 29,129,042 senior convertible preferred shares and 21,846,781 senior convertible preferred shares senior convertible preferred shares in November 2021, March 2022 and June 2022, respectively. In July 2022, NIO Capital assigned its rights and obligations to subscribe for 14,564,520 senior convertible preferred shares under the second closing for the total price of US$5 million to an independent third party. On the same day, we issued 14,564,520 senior convertible preferred shares to the third party and the second closing of the transaction was completed. The two investors have also purchased warrants to purchase 480,629,186 senior convertible preferred shares for an aggregate amount of US$165 million. | |
| ● | In June 2022, we entered into definitive agreements with NIO Capital for the subscription of 714,285,714 senior convertible preferred shares of our Company for an aggregate amount of US$100 million, which will be paid in multiple installments. The 714,285,714 senior convertible preferred shares were issued on July 27, 2022 in connection with the closing and we have received the first installment. | |
| ● | In July 2022, we issued 183,495,146 Class A ordinary shares to 58.com at a price equivalent to US$10.3 per ADS (or US$1.03 per ADS prior to the ADS Ratio Change) in exchange for the full release of our obligations to 58.com under the 58.com Notes and certain other historical transactions. | |
| ● | In August 2022, we issued 36,699,029 Class A ordinary shares to ClearVue at a price equivalent to US$10.3 per ADS (or US$1.03 per ADS prior to the ADS Ratio Change) in exchange for the full release of our obligations to ClearVue under the ClearVue Notes. | |
| ● | In April 2023, we and NIO Capital entered into additional agreements regarding the settlement of then outstanding amount of US$81.6 million of the purchase price under the 2022 Subscription Agreement. Pursuant to these agreements: (i) the payment method of such outstanding purchase price was modified to permit a combination of cash payment and cancellation of indebtedness of us to NIO Capital; and (ii) such outstanding purchase price of US$81.6 million was partially offset by the cancellation and discharge by NIO Capital of our obligations under the 2024 Notes totaling US$61.6 million that NIO Capital assigned from Redrock Holding Investments Limited, TPG Growth III SF Pte. Ltd. and Magic Carpet International Limited in April 2023. For a detailed description of the terms of the 2024 Notes, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Cash flows and working capital.” As a result of and immediately following the foregoing transactions, NIO Capital had fulfilled its obligation in an aggregate amount of US$80 million of the outstanding purchase price for its subscription of our senior convertible preferred shares. As of the date of this annual report, NIO Capital has fulfilled its obligation in an aggregate amount of US$90.6 million of the outstanding purchase price, and we and NIO Capital have mutually agreed that NIO Capital will fulfil its payment obligations by December 31, 2024 regarding the outstanding purchase price of US$9.4 million pursuant to the definitive agreements we entered into with NIO Capital in June 2022. Meanwhile, we also fulfilled all of our obligations under the 2024 Notes of US$61.6 million. |
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| ● | In June 2023, we have entered into a definitive agreement with Alpha and Joy Capital, regarding the warrants issued by the Company to NIO Capital and Joy Capital in 2021. Pursuant to the foregoing definitive agreement and certain assignments of warrants among Alpha, NIO Capital and Joy Capital, Alpha acquired from NIO Capital and Joy Capital the right to purchase up to 261,810,806 senior convertible preferred shares of the Company. Alpha and Joy Capital (either together or separately) are entitled to, at their discretion, exercise their respective warrants in full to subscribe for a total of 480,629,186 senior convertible preferred shares in an aggregate amount of US$21,964,754 no later than September 30, 2023. On August 17, 2023, Joy Capital has exercised its warrants to purchase 218,818,380 senior convertible preferred shares of our company at an exercise price of US$0.0457 per share for a total consideration of US$10.0 million. The warrants to purchase 261,810,806 senior convertible preferred shares held by Alpha were subsequently terminated. | |
| ● | On September 20, 2023, we entered into an equity investment agreement with Hefei Construction Investment. Pursuant to the agreement, Hefei Construction Investment will invest by multiple instalments in Uxin Hefei, and each instalment will be made after the lease payment is made by the Hefei subsidiary, over a 10-year period. The first-year rental of approximately RMB147.09 million was converted into the investment for the subscription of approximately 12.02% of the equity interests in Uxin Hefei in October 2023. Details of each investment will be subject to future negotiation. Hefei Construction Investment’s equity interests in Uxin Hefei will not exceed 50% after these contributions are completed. | |
| ● | On March 18, 2024, we entered into a term sheet with Xin Gao and NC Fund to enter into definitive agreements for the financing in an aggregate amount of approximately US$34.8 million at a subscription price of US$0.004858 per share. On March 26, 2024, we and Xin Gao entered into a share subscription agreement for, and completed on the same day, the issuance of 1,440,922,190 senior convertible preferred shares to Xin Gao for a total consideration of US$7.0 million. For the accounting impact resulted from the issuance price lower than market price, please refer to “Item 7. Major Shareholders and Related Party Transactions.” | |
| ● | On June 21, 2024, we entered into another supplemental agreement with WeBank which revised and extended the repayment schedule of RMB30.0 million each due on June 30, 2024 and December 31, 2024, respectively, to monthly repayments of RMB2.5 million each month from December 2024 to November 2026. |
The following factors raise substantial doubt as to our ability to continue as a going concern:
We have incurred net losses since inception, and as of March 31, 2024, we had an accumulated deficit in the amount of approximately RMB19.4 billion (US$2.7 billion). Our current liabilities exceeded our current assets by approximately RMB658.8 million (US$91.2 million) as of March 31, 2024. Our cash balance as of March 31, 2024 was approximately RMB23.3 million (US$3.2 million), and our operating cash outflow during the fiscal year ended March 31, 2024 was approximately RMB262.4 million (US$36.3 million). These adverse conditions and events raise substantial doubt about our ability to continue as a going concern.
Accordingly, we assessed our ability to meet our maturing obligations and working capital requirements over the next twelve months. This assessment included an evaluation of whether our business and financing plans would be sufficient to conclude we could continue as a going concern.
Our ability to continue as a going concern is dependent on the effective implementation of our plans to mitigate these conditions and events. A summary of our plans includes:
Improvement in cash flows from operations:
| ● | Increase in sales and the gross margin on automobile sales, optimize our cost structure to reduce discretional expenses such as labor costs, advertising expenses and administrative expenses. |
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External equity and debt financing:
| ● | As of the date of this annual report, we were entitled to a consideration receivable of US$9.4 million due from NIO Capital expected to be received no later than December 31, 2024 for the subscription of its senior convertible preferred shares, which had been converted into ordinary shares in March 2024. | |
| ● | On March 18, 2024, we entered into a non-binding term sheet with NC Fund for an aggregate amount of financing of RMB200.0 million at a subscription price of US$0.004858 per share. We are under negotiation with NC fund to complete the investment. | |
| ● | As of March 31, 2024, we obtained aggregated inventory-pledging facilities amount of RMB290.0 million (equivalent to approximately US$40.2 million) from certain reputable banks and financial institution in the PRC. As of March 31, 2024, the Company had the outstanding borrowings of RMB55.0 million under the inventory-pledged financing facilities and the unused facilities amounted to RMB235.0 million. These facilities will mature within one year since the date of the issuance of the consolidated financial statements. We plan to obtain the renewals of the facilities when they become mature. | |
| ● | Pursuant to an equity investment agreement entered into in September 2023 with Hefei Construction Investment, who is also the lessor of the Superstore in Hefei, Hefei Construction Investment will invest by multiple instalments in Uxin Hefei, and each instalment will be made after the lease payment is made by the Hefei subsidiary, over a 10-year period. The first-year rental of approximately RMB147.09 million was converted into the investment of approximately 12.02% equity interests in Uxin Hefei by Hefei Construction Investment in October 2023. We plan to further negotiate with Hefei Construction Investment to seek net cash flow settlement of the future rental instalments to reduce the cash outflows in relation to the Hefei Superstore. | |
| ● | On June 21, 2024, we entered into another supplemental agreement with WeBank which revised and extended the repayment schedule of RMB30.0 million each due on June 30, 2024 and December 31, 2024, respectively, to monthly repayments of RMB2.5 million each month from December 2024 to November 2026. |
Our plans include significant and subjective assumptions that are subject to uncertainty. These assumptions include increasing demand for used cars over the next twelve months, achieving the profit improvement and costs and expenses optimization. In addition, the planned equity and debt financings that are not already contractually committed may not be available at terms that are favorable to us, or in amounts that are not sufficient to meet our needs over the next twelve months.
Based on the evaluation, we have concluded that these uncertainties cast substantial doubt on our ability to meet its maturing obligations and working capital requirements over the next twelve months, which would impact our ability to continue as a going concern.
The following table sets forth a summary of our cash flows for the periods indicated.
| For the Fiscal Years Ended March 31, | ||||||||||||||||
| 2022 | 2023 | 2024 | ||||||||||||||
| RMB | RMB | RMB | US$ | |||||||||||||
| Summary Consolidated Statements of Cash Flow Data: | ||||||||||||||||
| Net cash used in operating activities | (844,962 | ) | (251,140 | ) | (262,446 | ) | (36,348 | ) | ||||||||
| Net cash used in investing activities | (16,769 | ) | (32,032 | ) | (11,339 | ) | (1,570 | ) | ||||||||
| Net cash generated from financing activities | 764,422 | 239,985 | 205,301 | 28,434 | ||||||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | (113 | ) | 221 | (914 | ) | (127 | ) | |||||||||
| Net decrease in cash, cash equivalents and restricted cash | (97,422 | ) | (42,966 | ) | (69,398 | ) | (9,611 | ) | ||||||||
| Cash, cash equivalents and restricted cash at beginning of the period | 233,719 | 136,297 | 93,331 | 12,926 | ||||||||||||
| Cash, cash equivalents and restricted cash at end of the period | 136,297 | 93,331 | 23,933 | 3,315 | ||||||||||||
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Operating Activities
Net cash used in operating activities was RMB262.4 million (US$36.3 million) for the fiscal year ended March 31, 2024. In the fiscal year of 2024, the difference between our net cash used in operating activities and our net loss of RMB369.5 million (US$51.2 million) mainly resulted from certain non-cash expenses and non-operating income, including shared-based compensation of RMB75.8 million (US$10.5 million), and partially offset by fair value impact of the issuance of senior convertible preferred shares of RMB11.8 million (US$1.6 million) and waiver of operating payables of RMB11.6 million (US$1.6 million). Changes in the working capital accounts mainly included an increase of inventory of RMB11.6 million (US$1.6 million), a decrease of payables, accruals and other current liabilities of RMB34.0 million (US$4.7 million), a decrease in consideration payable to WeBank of RMB40.0 million (US$5.5 million). The increase in inventory was primarily attributable to the new car market volatility in March 2023 which influence the used car market. To stimulate new car sales, some motor factories decreased their sales price which caused potential buyers to become more hesitant in purchasing used cars. The decreases in payables, accruals and other current liabilities and consideration payable to WeBank were mainly due to the settlement of our historical payables and instalment payments based on the agreed-upon schedule with certain suppliers and WeBank.
Net cash used in operating activities was RMB251.1 million (US$36.6 million) for the fiscal year ended March 31, 2023. In the fiscal year of 2023, the difference between our net cash used in operating activities and our net loss of RMB137.2 million (US$20.0 million) mainly resulted from certain non-cash expenses and non-operating income, including shared-based compensation of RMB47.3 million (US$6.9 million), and partially offset by fair value impact of the issuance of senior convertible preferred shares of RMB242.7 million (US$35.3 million) and waiver of operating payables of RMB70.5 million (US$10.3 million). Changes in the working capital accounts mainly included a decrease of inventory of RMB327.1 million (US$47.6 million), a decrease of payables, accruals and other current liabilities of RMB204.8 million (US$29.8 million), a decrease in consideration payable to WeBank of RMB53.4 million (US$7.8 million). The decrease in inventory was primarily attributable to the new car market volatility in March 2023 which influence the used car market. To stimulate new car sales, some motor factories decreased their sales price which caused potential buyers to become more hesitant in purchasing used cars. The decrease in payables, accruals and other current liabilities and consideration payable to WeBank was mainly due to the settlement of our historical payables and instalment payments based on the agreed-upon schedule with certain suppliers and WeBank.
Net cash used in operating activities was RMB845.0 million for the fiscal year ended March 31, 2022. In the fiscal year of 2022, the difference between our net cash used in operating activities and our net loss RMB143.2 million mainly resulted from certain non-cash expenses and non-operating income, including shared-based compensation of RMB26.5 million, and partially offset by fair value impact of the issuance of senior convertible preferred shares of RMB186.2 million and waiver of operating payables of RMB73.7 million. Changes in the working capital accounts mainly included an increase of inventory of RMB372.1 million, a decrease of payables, accruals and other current liabilities of RMB266.9 million, a decrease in consideration payable to WeBank of RMB81.6 million, and partially offset by a decrease in loans recognized as a result of payments under guarantees of RMB148.7 million. The increase in inventory was primarily attributable to the expansion of business scale. The decrease in payables, accruals and other current liabilities and consideration payable to WeBank was mainly due to the settlement of our historical payables and instalment payments based on the agreed-upon schedule with certain suppliers and WeBank. The decrease in loans recognized as a result of payments under guarantees was mainly due to our collection of outstanding balance.
Investing Activities
Net cash used in investing activities was RMB11.3 million (US$1.6 million) for the fiscal year ended March 31, 2024, primarily attributable to purchase of property, equipment and software as we expanded our business.
Net cash used in investing activities was RMB32.0 million (US$4.7 million) for the fiscal year ended March 31, 2023, primarily attributable to purchase of property, equipment and software as we expanded our business.
Net cash used in investing activities was RMB16.8 million for the fiscal year ended March 31, 2022, primarily attributable to the purchase of property, equipment and software which was aligned with the expansion of our business scale.
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Financing Activities
Net cash generated from financing activities was RMB205.3 million (US$28.4 million) for the fiscal year ended March 31, 2024, primarily attributable to the proceeds from issuance of senior convertible preferred shares and proceeds from borrowings, partially offset by the repayments of borrowings.
Net cash generated from financing activities was RMB240.0 million (US$34.9 million) for the fiscal year ended March 31, 2023, primarily attributable to the proceeds from issuance of senior convertible preferred shares and proceeds from borrowings, partially offset by the repayments of borrowings and long-term debt.
Net cash generated from financing activities was RMB764.4 million for the fiscal year ended March 31, 2022, primarily attributable to the proceeds from issuance of senior convertible preferred shares and partially offset by the repayments of borrowings and long-term debt.
Off-Balance Sheet Arrangements
In January 2024, Kaifeng Finance Lease (Hangzhou) Co., Ltd. (“Kaifeng”), a wholly-owned subsidiary of the Company, and Chengdu Tianfu Software Park Co., Ltd., entered into an equity transfer agreement for Jincheng Consumer Finance (Sichuan) Co., Ltd. (“Jincheng”) pursuant to which the Kaifeng intends to transfer 19% of equity interest in Jincheng to Chengdu Tianfu Software Park Co., Ltd at a cash consideration of RMB271.0 million. In conjunction with the sale of its equity interests in Jincheng, Kaifeng also entered into a financial advisory agreement pursuant to which we agreed to pay a cash consideration of RMB31.0 million advisory fee upon the successful completion of the sale of Jincheng. The transaction was closed in April 2024.
Following the above transaction, in April 2024, we settled the long-term borrowing amounting to RMB292.0 million and the related interest payable, using RMB240.0 million in cash from the sale of Jincheng, with the rest unpaid amount waived.
We have not entered into any financial guarantees or other 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 unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or product development services with us.
Holding Company Structure
Uxin Limited is a holding company with no material operations of its own. We conduct our operations primarily through our PRC subsidiaries in China. As a result, Uxin Limited’s ability to pay dividends depends upon dividends paid by our PRC subsidiaries. If our existing PRC subsidiaries or any newly formed ones incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us. In addition, our wholly foreign-owned subsidiaries in China are permitted to pay dividends to us only out of their retained earnings, if any, as determined in accordance with China accounting standards and regulations. Under PRC law, each of our subsidiaries in China is required to set aside at least 10% of its after-tax profits each year, if any, to fund certain statutory reserve funds until such reserve funds reach 50% of its registered capital. In addition, each of our WFOEs in China may allocate a portion of its after-tax profits based on China accounting standards to enterprise expansion funds and staff bonus and welfare funds at its discretion. The statutory reserve funds and the discretionary funds are not distributable as cash dividends. Remittance of dividends by a wholly foreign-owned company out of China is subject to examination by the banks designated by SAFE. Our PRC subsidiaries have not paid dividends and will not be able to pay dividends until they generate accumulated profits and meet the requirements for statutory reserve funds.
Material Cash Requirements
We made capital expenditures of RMB18.7 million, RMB33.2 million and RMB12.7 million (US$1.8 million) in the fiscal years ended March 31, 2022, 2023 and 2024, respectively. Our capital expenditures were primarily related to procurement of equipment and expenditure regarding construction of Hefei Superstore in Changfeng, Hefei, purchase of computer equipment and software and leasehold improvements. We will continue to make such capital expenditures to support the expected growth of our business.
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The following table sets forth our contractual obligations as of March 31, 2024.
| Payment Due by Period | ||||||||||||||||||||
| Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | ||||||||||||||||
| Operating lease obligations | 204,370 | 19,330 | 38,473 | 46,967 | 99,600 | |||||||||||||||
| Finance lease obligations | 1,814,628 | 128,692 | 257,384 | 257,384 | 1,171,168 | |||||||||||||||
| Total | 2,018,998 | 148,022 | 295,857 | 304,351 | 1,270,768 | |||||||||||||||
Under the terms of an equity investment agreement with Hefei Construction Investment, both parties hold significant repurchase rights under this agreement. Specifically, while we retain the right to buy back the equity interests from Hefei Construction Investment at any time, the investor similarly possesses the right to request us to repurchase their equity interests at potentially any point during the agreement’s tenure when Uxin Hefei meets the performance condition or fails to meet certain conditions as stipulated in the equity investment agreement. Our redeemable non-controlling interests amounted to RMB150.0 million as of March 31, 2024. See “Item 4. Information on the Company—A. History and Development of the Company.”
Other than the above, we did not have any significant capital and other commitments, long-term obligations, or guarantees as of March 31, 2024.
| C. | Research and Development |
See “Item 4. Information on the Company—B. Business Overview—Technology” and “Item 4. Information on the Company—B. Business Overview—Intellectual Property.”
| D. | Trend Information |
Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the fiscal year ended March 31, 2024 that are reasonably likely to have a material and adverse effect on our net revenues, income, profitability, liquidity or capital resources, or that would cause the disclosed financial information to be not necessarily indicative of future results of operations or financial conditions.
| E. | Critical Accounting Estimates |
Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make judgments and estimates that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We evaluate our judgments and estimates on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates.
We consider an accounting estimate to be critical if: (i) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (ii) changes in the estimate that are reasonably likely to occur from period to period or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations. There are other items within our financial statements that require estimation but are not deemed critical, as defined above. Changes in estimates used in these and other items could have a material impact on our financial statements. For a detailed discussion of our significant accounting policies and related judgments, see Note 2 to our consolidated financial statements included elsewhere in this annual report.
Warrant liabilities
In July 2021, we issued warrants to each of NIO Capital and Joy Capital to purchase up to 240,314,593 senior convertible preferred shares for an aggregate amount of US$165 million. As the senior convertible preferred shares are considered contingently redeemable, the warrants are warrants on redeemable shares and fall within the scope of ASC 480. The warrants are recorded initially at fair value and subsequently remeasured to fair value at each reporting date with the changes in fair value recognized in “Fair value impact of the issuance of senior convertible preferred shares.”
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The Black-Scholes option pricing model is used to measure the fair value of warrant liabilities. The determination of the fair value is affected by the fair value of senior convertible preferred shares as well as assumptions regarding a number of complex and subjective variables, including risk-free interest rate, expected volatility, dividend yield, expected term, etc. The fair value of warrant liabilities was determined by management with the assistance from an independent valuation firm using management’s estimates and assumptions. The assumptions used in the determination of the fair value of warrant liabilities represent management’s best estimates, but these estimates involve inherent uncertainties and application of management judgment. If factors change or different assumptions are used, the fair value of warrant liabilities could be materially different for any period.
For the purpose of determining the estimated fair value of the warrant liabilities, we believe the expected volatility and expected term are the most critical assumptions. Changes in each assumption could significantly affect the fair value of warrant liabilities and hence the amount of fair value impact of the issuance of senior convertible preferred shares we recognize in our consolidated financial statements. The expected volatility of our future share price was estimated based on the price volatility of the shares of comparable public companies that operate in the same or similar business.
Restricted Share Units with Market Condition
We have granted certain management with restricted share units (“RSU”) which vest based upon certain market conditions. The market-based conditions are satisfied upon our achievement of specified fully diluted equity values, as determined based on our stock price.
We account for RSUs with market conditions as equity classified, with the effect of a market condition reflected in the award’s fair value on the grant date, in accordance with applicable accounting standards, and recognize the share-based compensation expense over the derived service period determined based on valuation techniques that are used to estimate fair value.
We modified market condition of the RSU in October 2023. The modification resulted into an increase of fair value of the award. We recognize compensation cost equal to the unrecognized grant-date fair value of the original award plus the incremental fair value arising from the modification over the remaining requisite service period determined based on valuation techniques that are used to estimate incremental fair value.
We determine the grant-date fair value and the incremental fair value utilizing a Monte Carlo valuation model, which incorporates various assumptions including expected share price volatility, risk-free interest rates, and expected timing and proceeds received due to the exercise of warrant and settlement of forward contract, which requires us to use judgement to evaluate. If our stock price and any of the assumptions used in the Monte Carlo model changes significantly, share-based compensation expense for future awards may differ materially compared with the awards granted previously.
For the purpose of determining the grant day fair value of RSU and incremental fair value due to modification of market condition, we believe the expected volatility is the most critical assumption. Changes in it could significantly affect the grant day fair value of RSU and incremental fair value due to modification of market condition and hence the amount of share-based compensation we recognize in our consolidated financial statements. The expected volatility of our future share price was estimated based on the price volatility of the shares of comparable public companies that operate in the same or similar business. Our estimation of the grant day fair value of RSU and incremental fair value due to modification of market condition is highly sensitive to the expected volatility. The higher the expected volatility, the higher the grant day fair value of the RSU and incremental fair value due to modification of market condition.
Allowance for current expected credit losses
Our primary receivables, namely loans recognized as a result of payments under guarantees which was resulted from the historical loan-facilitation service we provided, are within the scope of ASU No. 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASC Topic 326”). We have identified the relevant risk characteristics and grouped our receivables by credit status, product types, aging schedule, collateral types and other risk characteristics as appropriate in the calibration and adjustments of these parameters. Receivables with similar risk characteristics have been grouped into the same pools. We also incorporate the forward-looking impacts based on our best estimates of macroeconomic forecasts. Quantitative adjustments are applied to key parameters such as the probability of default, loss given default, and loss rates on a collective basis. We estimate loss rate considering the historical loss information, the recent performance of this portfolio, categories of credit status (normal, attention and secondary), the collateral, and the forecasts of selected macroeconomic factors. This is assessed at each quarter based on our specific facts and circumstances.
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Provision for loan recognized as result of payment under the guarantee amounted to RMB10.3 million (US$1.5 million) are fully provided.
Accounting of down round features
We assess whether there are circumstances that trigger the a down round feature for convertible preferred shares and warrants. When the down round features are triggered, we consider the provision of ASC 260-10-30-1 and measures the value of the effect of the feature as the difference between (a) the fair value of the issued financial instrument (without the down round feature) with a conversion or exercise price corresponding to the stated conversion or exercise price before the conversion or exercise price reduction and(b) the fair value of the issued financial instrument (without the down round feature) with a conversion or exercise price corresponding to the reduced conversion or exercise price upon the down round feature being triggered. The excess value of the convertible preferred shares or warrant resulting from the triggering of the down round feature as determined on the measurement date shall be a deemed dividend to the preferred shareholders or to the warrant holders, which should be deducted to arrive at net income/(loss) to ordinary shareholders. Therefore, recognition of the fair value of the down round feature results in a charge to returned earnings/(accumulated deficit) and a credit to additional paid-in capital in permanent equity rather in mezzanine equity.
The fair value of down round feature triggered for the senior convertible preferred shares resulted in a deemed dividend of RMB2,060.3 million (US$285.3 million) to the preferred shareholders for the fiscal year ended March 31, 2024. The fair value of down round feature was estimated by management based on a hybrid method comprising the probability-weighted method and the Black-Scholes option pricing model. The use of this model includes significant unobservable inputs to measure the fair value of the down round feature which required management to make judgments and assumptions relating to probability of the scenarios assumed, expected volatility and expected term. In our case, three scenarios were assumed, namely: (i) the liquidation scenario, in which the option pricing method was adopted to allocate the value between convertible preferred shares and ordinary shares, and (ii) the redemption scenario, in which the option pricing method was adopted to allocate the value between convertible preferred shares and ordinary shares, and (iii) the mandatory conversion scenario, in which equity value was allocated to convertible preferred shares and ordinary shares on an as-if converted basis. When there is 10% increase/decrease in the probability of mandatory conversion scenario and 10% decrease/increase in the probability of liquidation and redemption scenarios, deemed dividends would be increased/decreased by approximately RMB294.0/305.0 million for the year ended March 31, 2024. When there is 10% increase or decrease in the volatility, deemed dividends would be increased/decreased, as the case may be, by approximately RMB298.4/338.9 million for the year ended March 31, 2024. When there is an increase/decrease in the expect term by one year, deemed dividends would be increased/decreased, as the case may be, by approximately RMB236.4/399.5 million, as the case may be, for the year ended March 31, 2024.
Recent Accounting Pronouncements
See Item 17 of Part III, “Financial Statements—Note 2—Summary of significant accounting policies—Recent accounting pronouncements.”
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| 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.
Directors and Executive Officers |
Age |
Position/Title | ||
| Kun Dai | 42 | Chairman of the Board of Directors and Chief Executive Officer | ||
| Bin Li | 50 | Director | ||
| Erhai Liu | 56 | Director | ||
| Cheng Lu | 41 | Independent Director | ||
| Rong Lu | 53 | Independent Director | ||
| John Zhuang Yang | 69 | Independent Director | ||
| Feng Lin | 44 | Chief Financial Officer | ||
| Zhitian Zhang | 42 | Chief Operating Officer | ||
| Wenbing Jing | 43 | Chief Strategy Officer |
Mr. Kun Dai is our founder and has served as chairman of our board of directors and chief executive officer since our inception. Mr. Dai has been involved in interact and automobile industries for over ten years. Mr. Dai founded one of China’s first online used car websites, CarResume.com, in 2005. From 2007 to 2011, Mr. Dai worked at an NYSE-listed auto information provider, BitAuto, first as deputy general manager and later as vice president. Mr. Dai received a master’s degree in commerce from Cardiff University.
Mr. Bin Li has been serving as our director since July 2021. Mr. Li is the founder of NIO Inc., a NYSE-listed company with stock code NIO and has served as chairman of the board since the inception of NIO and the chief executive officer of NIO since March 2018. In 2000, Mr. Li co-founded Beijing Bitauto E-Commerce Co., Ltd. and served as its director and president until 2006. From 2010 to 2020, Mr. Li served as chairman of the board of directors at Bitauto Holdings Limited, (previously listed on NYSE with stock code BITA), a former NYSE-listed automobile service company and a leading automobile service provider in China. In 2002, Mr. Li co-founded Beijing Creative & Interactive Digital Technology Co., Ltd. as the chairman of the board of directors and had served as its president and director. Mr. Li received his bachelor’s degree in sociology from Peking University.
Mr. Erhai Liu has been serving as our director since July 2021. Mr. Liu is the founding and managing partner of Joy Capital. He has nearly 20 years of investment experience in high-tech and innovative companies. Previously, Mr. Liu was engaged in engineering, R&D, operation and senior management in telecommunication and Internet companies for more than 10 years. Mr. Liu was named as one of the “Global Top 100 Technology Investors” on Forbes Midas List in 2012, and from 2018 to 2020. Mr. Liu holds a master’s degree in communications and information system from Xidian University, a master’s degree in psychology from Peking University, a master’s degree in global finance and an MBA from Fordham University, an EMBA from Tsinghua University, and a bachelor’s degree in communication engineering from Guilin University of Electronic Technology.
Mr. Cheng Lu has been serving as our director since July 2021. Mr. Lu is the President and Chief Executive Officer of TuSimple (Nasdaq: TSP), a global self-driving technology company based in San Diego, California. He has over 13 years of experience in strategy and corporate finance in the U.S. and Asia. Prior to TuSimple, Mr. Lu co-founded and was a Partner and Chief Operating Officer of KCA Capital Partners, a private equity investment firm. Prior to this, Mr. Lu worked in Beijing with HOPU Investments and CITIC Capital, and Cerberus Capital Management in New York, which focused on private equity and special situation investments. He started his career in the investment banking division of Citigroup in New York. Mr. Lu received his bachelor’s degree in computer science and economics from the University of Virginia and an MBA from the Harvard Business School.
Ms. Rong Lu has been serving as our director since October 2017. Presently, Ms. Lu is an independent venture capitalist investing in technology start-ups in the United States and China. In October 2019, she founded Atypical Ventures, an early-stage technology venture investment firm in China. In 2006, she co-founded DCM China, an early-stage venture capital firm. During her more than 12-year tenure at DCM, Ms. Lu invested in and served as a board member for many companies including Kuaishou, BitAuto Holdings Ltd., E-Commerce China Dangdang Inc., Pactera Technology International Ltd., DXY.cn, and HaoDF.com. She also served as an independent director and on the audit committee of iKang Healthcare Group, Inc. and served as an independent director and chairman of the special committee for iDreamSky Technologies Limited before those two companies were taken private. Ms. Lu is currently an independent director on the board of Yum China Holdings Inc (NYSE; YUMC). Prior to joining DCM in 2003, Ms. Lu was a Vice President in the technology, media and telecommunications investment banking group of Goldman Sachs & Co. in Menlo Park, California. Ms. Lu received her master’s degree in international economics and energy, environment, science and technology from Johns Hopkins University, School of Advanced International Studies and bachelor’s degree in economics from the University of Maryland, Baltimore County.
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Dr. John Zhuang Yang has been serving as our director since July 2021. Dr. Yang has served as an independent director of New Oriental Education & Technology Group Inc. (NYSE: EDU and SEHK: 9901). Dr. Yang is currently a professor of Management at the National School of Development, Peking University. He also holds a tenured professorship at the Graduate School of Business at Fordham University in New York. Dr. Yang’s main research consists of organizational behavior and global leadership, with an extensive focus on China’s strategies for multinational companies and strategies for Chinese companies expanding globally. Dr. Yang earned his bachelor’s degree from the English Language and Literature Department of Peking University, a master’s degree in Sociology from Columbia University, an MPA in International and Public Affairs from the Woodrow Wilson School of Public and International Affairs at Princeton University, and a Ph.D. in Business Administration from Columbia University.
Mr. Feng Lin joined us as vice president of finance in August 2019 and has been serving as our chief financial officer since January 2021. He has over 15 years of experience overseeing finance and operations at multinational corporations across technology, financial, and real estate industries. Prior to joining our company, Mr. Lin was the vice general manager of finance at China Fortune Land Development, where he managed corporate planning and group controlling. Prior to that, he served as finance director at Lenovo, and earlier as financial controller at Microsoft. Mr. Lin had also served at HSBC, Capital One Financial Corporation, and PricewaterhouseCoopers. Mr. Lin holds a double bachelor of science degree in geophysics and economics from Peking University. He received both an MBA degree and an MPP degree from The University of Chicago.
Mr. Zhitian Zhang joined us in April 2012 and has been serving as our chief operating officer since February 2020. Prior to his appointment as the chief operating officer, Mr. Zhang served as president of our online used car transaction business, where he was responsible for operations and sales management, as well as general manager of our sales management center. Prior to joining our company, Mr. Zhang worked for Bitauto Holdings Limited (NYSE: BITA) from 2007 to 2012, first as a director and then as vice general manager of its used car business. Mr. Zhang received his bachelor’s degree in Law from the National Police University for Criminal Justice.
Mr. Wenbing Jing rejoined us in November 2021 as our chief strategy officer and has extensive experience in strategy and operation management. Prior to re-joining Uxin, Mr. Jing served as vice president as well as general manager of the used car department at Autohome Inc. (Nasdaq: ATHM). Prior to that, Mr. Jing had served various roles at Uxin from 2011 to 2019, including general manager of Uxin’s southern division, and executive president and chief strategy officer of Uxin. Mr. Jing received his master of laws from the school of law of Cardiff University in the United Kingdom.
| B. | Compensation |
Compensation of Directors and Executive Officers
For the year ended March 31, 2024, we paid an aggregate of RMB2.5 million (US$0.4 million) in cash to our executive officers, and we did not pay any cash compensation to our non-executive directors. We have not set aside or accrued any amount to provide pension, retirement or other similar benefits to our executive officers and directors. Our PRC subsidiaries and consolidated affiliated entity are required by law to make contributions equal to certain percentages of each employee’s salary for his or her pension insurance, medical insurance, unemployment insurance and other statutory benefits and a housing provident fund.
Employment Agreements and Indemnification Agreements
We have entered into employment agreements with each of our executive officers. Under these agreements, each of our executive officers is employed for a specified time period. We may terminate employment for cause, at any time, 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 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 advance written notice.
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Each executive officer has agreed to hold, both during and after the termination or expiry of his or her employment agreement, in strict confidence and not to use, except as required in the performance of his or her duties in connection with the employment or pursuant to applicable law, any of our confidential information or trade secrets, any confidential information or trade secrets of our clients or prospective clients, or the confidential or proprietary information of any third party received by us and for which we have confidential obligations. The executive officers have also agreed to disclose in confidence to us all inventions, designs and trade secrets which they conceive, develop or reduce to practice during the executive officer’s employment with us and to assign all right, title and interest in them to us, and assist us in obtaining and enforcing patents, copyrights and other legal rights for these inventions, designs and trade secrets.
In addition, each executive officer has agreed to be bound by non-competition and non-solicitation restrictions during the term of his or her employment and typically for one year following the last date of employment. Specifically, each executive officer has agreed not to (i) 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 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 also entered into indemnification agreements with each of our directors and executive officers. Under these agreements, we agree to indemnify our directors and executive officers against certain liabilities and expenses incurred by such persons in connection with claims made by reason of their being a director or officer of our company.
2018 Amended and Restated Share Incentive Plan
We adopted the 2018 Amended and Restated Share Incentive Plan in February 2018, which was further amended in August 2018, November 2018 and April 2024, for the purpose of promoting the success and enhance the value of our company, by linking the personal interests of the members of the board, employees, consultants and other individuals to those of our shareholders and, by providing an incentive for outstanding performance, to generate superior returns for our shareholders. We increased the number of shares reserved for future awards under the plan as we amended such plan in November 2018. We refer to the 2018 Amended and Restated Share Incentive Plan, as amended, as the Amended and Restated Plan in this annual report. Under the Amended and Restated Plan, the maximum aggregate number of shares which may be issued pursuant to all awards is 622,873,386 Class A ordinary shares. As of July 23, 2024, 44,507,700 share options have been issued and outstanding under the Amended and Restated Plan. We also issued 6,888,300 restricted share units as of July 23, 2024.
On September 22, 2019, our board of directors approved a reduction in the exercise price for outstanding options previously granted by our company with an exercise price higher than $1.03 per ordinary share to $1.03 per ordinary share, provided that any participating option holder agrees to amend the number of shares subject to his or her option as determined by the plan administrator.
The following paragraphs summarize the terms of the Amended and Restated Plan.
Types of Awards. The Plan permits the awards of options, stock appreciation right, dividend equivalent right, restricted shares and restricted share units or other right or benefit under the Plan.
Plan Administration. The board or a committee appointed by the board acts as the plan administrator. The plan administrator will determine the participants who are to receive awards, the type or types of awards to be granted, the number of awards to be granted, and the terms and conditions of each award grant. The plan administrator can amend outstanding awards and interpret the terms of the Amended and Restated Plan and any award agreement.
Award Agreement. Awards granted under the Amended and Restated Plan are evidenced by an award agreement that sets forth the terms and conditions for each grant.
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Exercise Price. The excises price of an option will be determined by the plan administrator, but in the case of an award issued in connection with acquisitions, the exercise or purchase price for the award shall be determined in accordance with the provisions of the relevant instrument evidencing the agreement to issue such award.
Eligibility. We may grant awards to our employees, consultants, and all members of the board, and other individuals.
Term of the Awards. The term of each option or share appreciation right granted under the Amended and Restated Plan shall not exceed ten years from date of the grant.
Vesting Schedule. In general, the plan administrator determines the vesting schedule, which is set forth in the relevant award agreement.
Transfer Restrictions. Awards may not be transferred in any manner by the recipient other than by will or the laws of descent and distribution, except as otherwise provided by the plan administrator. The grantee may designate one or more beneficiaries of the grantee’s award in the event of the grantee’s death on a beneficiary designation form provided by the administrator.
Termination. The plan shall terminate in February 2028, provided that our board may terminate the plan at any time and for any reason.
The following table summarizes the outstanding options and restricted share units that we had granted to our directors and executive officers under the Amended and Restated Plan as of July 23, 2024:
Ordinary Shares Underlying Outstanding Options or Restricted Share units |
(US$/Share) Exercise Price |
Grant Date | Expiration Date | |||||
| Rong Lu | * | — | Various dates from November 19, 2018 to June 30, 2023 |
August 20, 2028 | ||||
| Cheng Lu | * | — | Various dates from September 30, 2022 to June 30, 2023 |
August 20, 2028 | ||||
| John Zhuang Yang | * | — | Various dates from September 30, 2022 to June 30, 2023 |
August 20, 2028 | ||||
| Feng Lin | * | 0.00003333 to 0.00333333 | Various dates from August 19, 2019 to November 1, 2021 |
August 20, 2028 | ||||
| Zhitian Zhang | * | 0.033 to 1.09 | Various dates from March 01, 2019 to March 31, 2020 |
August 20, 2028 | ||||
| Wenbing Jing | * | 0.000000003 to 0.0001 |
Various dates from January 1, 2022 and September 28, 2023 |
August 20, 2028 | ||||
| Total | * |
| * | Less than 1% of our total ordinary shares outstanding on as-converted basis. |
As of July 23, 2024, other grantees as a group held options to purchase 36,669,000 Class A ordinary shares of our company, with exercise prices ranging from US$0.00001 to US$3.0 per share.
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| 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 may vote with respect to any contract or transaction or proposed contract or transaction notwithstanding that he may be interested therein, and if he does so his vote shall be counted and he may be counted in the quorum at any meeting of the board of directors at which such contract or transaction or proposed contract or transaction is considered and voted upon. Any director who is in any way, whether directly or indirectly interested in a contract or transaction or proposed contract or transaction with our company is required to declare the nature of his interest at a meeting of the board. The directors may exercise all the powers of the 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, and 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. None of our non-executive 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 nominating and corporate governance committee. We have adopted a charter for each of the three committees. Each committee’s members and functions are described below.
Audit Committee. Our audit committee consists of Rong Lu, Cheng Lu and John Zhuang Yang. Rong Lu is the chairperson of our audit committee. We have determined that each of Rong Lu, Cheng Lu and John Zhuang Yang satisfies the “independence” requirements of Rule 5605 of the Nasdaq Stock Market Rules. We have determined that Rong Lu qualifies as an “audit committee financial expert.” The audit committee oversees our accounting and financial reporting processes and the audits of the financial statements of our company. The audit committee is responsible for, among other things:
| ● | appointing the independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by the independent auditors; | |
| ● | reviewing with the independent auditors any audit problems or difficulties and management’s response; | |
| ● | discussing the annual audited financial statements with management and the independent auditors; | |
| ● | reviewing the adequacy and effectiveness of our accounting and internal control policies and procedures and any steps taken to monitor and control major financial risk exposures; | |
| ● | reviewing and approving all proposed related party transactions; | |
| ● | meeting separately and periodically with management and the independent auditors; and | |
| ● | monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance. |
Compensation Committee. Our compensation committee consists of John Zhuang Yang, Rong Lu and Cheng Lu. John Zhuang Yang is the chairperson of our compensation committee. We have determined that each of John Zhuang Yang, Rong Lu and Cheng Lu. John Zhuang Yang satisfies the “independence” requirements of Rule 5605 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. |
Nominating and Corporate Governance Committee. Our nominating and corporate governance committee consists of Cheng Lu, John Zhuang Yang and Rong Lu. Cheng Lu is the chairperson of our nominating and corporate governance committee. We have determined that each of Cheng Lu, John Zhuang Yang and Rong Lu satisfies the “independence” requirements of Rule 5605 of the Nasdaq Stock Market Rules. The nominating and corporate governance committee assists the board of directors in selecting individuals qualified to become our directors and in determining the composition of the board and its committees. The nominating and corporate governance committee is responsible for, among other things:
| ● | 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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Terms of Directors and Executive Officers
Our officers are elected by and serve at the discretion of the board of directors. Our directors are not subject to a term of office and hold office until such time as they resign by notice in writing to our company, or are removed from office by an ordinary resolution of the shareholders or by the board. In addition, a director will be removed from office automatically if, among other things, the director (i) becomes bankrupt or makes any arrangement or composition with his creditors; or (ii) dies or is found by our company to be or becomes of unsound mind; (iii) without special leave from the Board, is absent from meetings of the Board for three consecutive meetings and the Board resolves that his office be vacated; or (iv) is removed from office pursuant to our current memorandum and articles of association.
Board Diversity
| Board Diversity Matrix (As of July 23, 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 | N/A | N/A | |||
| Part II: Demographic Background | |||||||
| Underrepresented Individual in Home Country Jurisdiction | 0 | ||||||
| LGBTQ+ | 0 | ||||||
| D. | Employees |
As of March 31, 2024, we had a total of 846 employees. We had a total of 814 employees as of March 31, 2022 and 760 employees as of March 31, 2023.
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The following tables give breakdowns of our employees as of March 31, 2024 by function:
| As
of March 31, 2024 | ||||
| Functions: | ||||
| Products and technology | 26 | |||
| Operations | 52 | |||
| Car supply and purchase related personnel | 216 | |||
| Car inspection and inventory related personnel | 180 | |||
| Sales and pre-sales customer service | 139 | |||
| Fulfillment and after-sales customer service | 131 | |||
| Finance and legal | 44 | |||
| Human Resources, Administration & Corporate Procurement | 25 | |||
| Corporate communication and marketing | 20 | |||
| Others | 13 | |||
| Total | 846 | |||
| E. | Share Ownership |
The following table sets forth information with respect to the beneficial ownership of our ordinary shares as of July 23, 2024 by:
| ● | each of our directors and executive officers; and | |
| ● | each of our principal shareholders who beneficially own 5% or more of our ordinary shares on an as-converted basis. |
The calculations in the table below are based on 56,383,673,199 shares outstanding as of July 23, 2024, comprising of (i) 56,342,863,338 Class A ordinary shares, excluding 19,553,692 Class A ordinary shares issued to our depositary bank for bulk issuance of ADSs reserved for future issuances upon the exercise or vesting of awards granted under our Amended and Restated Plan, and (ii) 40,809,861 Class B ordinary shares.
Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, we have included shares that the person has the right to acquire within 60 days, including through the exercise of any option, warrant or other right or the conversion of any other security. These shares, however, are not included in the computation of the percentage ownership of any other person.
| Class
A Ordinary Shares | Class
B Ordinary Shares | Total
Shares (on an as-converted basis) | % † | %
of Aggregate Voting Power†† | ||||||||||||||||
| Directors and Executive Officers**: | ||||||||||||||||||||
| Kun Dai(1) | 1,455,686,280 | 40,809,861 | 1,496,496,141 | 2.7 | 3.3 | |||||||||||||||
| Bin Li(2) | 34,993,824,619 | — | 34,993,824,619 | 62.1 | 61.7 | |||||||||||||||
| Erhai Liu(3) | 17,496,912,310 | — | 17,496,912,310 | 31.0 | 30.8 | |||||||||||||||
| Cheng Lu | * | — | * | * | * | |||||||||||||||
| Rong Lu | * | — | * | * | * | |||||||||||||||
| John Zhuang Yang | * | — | * | * | * | |||||||||||||||
| Feng Lin | * | — | * | * | * | |||||||||||||||
| Zhitian Zhang | * | — | * | * | * | |||||||||||||||
| Wenbing Jing | * | — | * | * | * | |||||||||||||||
| All Directors and Executive Officers in the aggregate | 53,960,656,109 | 40,809,861 | 54,001,465,970 | 95.8 | 95.2 | |||||||||||||||
| Principal Shareholders: | ||||||||||||||||||||
| Xin Gao Group Limited(4) | 1,440,922,190 | 40,809,861 | 1,481,732,051 | 2.6 | 3.2 | |||||||||||||||
| NIO Capital Entities(2) | 34,993,824,619 | — | 34,993,824,619 | 62.1 | 61.7 | |||||||||||||||
| Astral Success Limited(3) | 17,496,912,310 | — | 17,496,912,310 | 31.0 | 30.8 | |||||||||||||||
| * | Less than 1% of our total outstanding shares. |
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| ** | Each of Mr. Kun Dai, Mr. Feng Lin, Mr. Zhitian Zhang, Mr. Cheng Lu, Ms. Rong Lu and Mr. John Zhuang Yang’s business address is 21/F, Donghuang Building, No. 16 Guangshun South Avenue, Chaoyang District, Beijing, People’s Republic of China. Mr. Bin Li’s business address is Unit 2412, 24F HKRI Taikoo Hui Center I, 288 Shimen Yi Road, Jing’an District, Shanghai, China 20041. Mr. Erhai Liu’s business address is 1501, Greenland Center B, Wangjingdongyuan 4, Chaoyang District, Beijing, People’s Republic of China. |
| † | For each person and group included in this column, percentage ownership is calculated by dividing the number of ordinary shares beneficially owned by such person or group by the sum of (i) 56,383,673,199 shares outstanding as of July 23, 2024, and (ii) the number of ordinary shares underlying the share options held by such person or group that are exercisable within 60 days after the date of this annual report. |
| †† | For each person and group included in this column, percentage of voting power is calculated by dividing the voting power beneficially owned by such person or group by the voting power of all of our Class A and Class B ordinary shares as a single class. Each holder of Class A ordinary shares is entitled to one vote per share and each holder of our Class B ordinary shares is entitled to ten votes per share on all matters submitted to them for a vote. Our Class A ordinary shares and Class B 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. Our Class B ordinary shares are convertible at any time by the holder thereof into Class A ordinary shares on a one-for-one basis. |
| (1) | Represents (i) 40,809,861 Class B ordinary shares directly held by Xin Gao, a British Virgin Islands company beneficially owned by Mr. Kun Dai through a trust and of which Mr. Kun Dai is the sole director, (ii) 14,764,090 Class A ordinary shares directly held by BOCOM International Supreme Investment Limited, a British Virgin Islands company, as reported on the Schedule 13G/A filed by Mr. Dai, among others, on May 27, 2021, and (iii) 1,440,922,190 Class A ordinary Shares directly held by Xin Gao, which are convertible from 1,440,922,190 senior convertible preferred shares on March 27, 2024, as reported on the Schedule 13D/A filed by Mr. Dai, among others, on March 28, 2024. Pursuant to the Schedule 13G/A filed by Mr. Dai on July 30, 2020, Gao Li Group Limited, which is wholly owned by Mr. Kun Dai, pledged 17,276,410 Class A ordinary shares pursuant to a share charge in connection with a loan in a maximum principal amount of US$50 million under a facility agreement entered into with a lender in June 2018. On April 6, 2020, the lender issued an instruction letter to enforce its security interests in the 17,276,410 Class A ordinary shares, and Gao Li Group Limited transferred such shares on July 21, 2020 to the lender. Pursuant to the Schedule 13G/A filed by Mr. Dai on May 27, 2021, Kingkey New Era Auto Industry Global Limited pledged 61,129,800 Class A ordinary shares pursuant to a share charge in connection with a loan in a maximum principal amount of US$150 million under a facility agreement entered into with certain lenders in December 2017, as amended from time to time. On March 15, 2021, one of the lenders issued a notice declaring that an event of default as defined under the facility agreement has occurred and an acceleration letter demanding immediate payment of the outstanding sum and declaring its intention to enforce its security interests. As a result, Kingkey New Era Auto Industry Global Limited transferred the 61,129,800 Class A ordinary shares it held to such lender on in May 2021. Mr. Kun Dai, together with Mr. Jiarong Chen and JenCap UX, jointly controls the voting power of all shares of Uxin Limited held by BOCOM International Supreme Investment Limited and is deemed to be the beneficial owner of all shares of Uxin Limited held by BOCOM International Supreme Investment Limited. BOCOM International Supreme Investment Limited pledged 14,764,090 Class A ordinary shares pursuant to a share charge in connection with certain subscription agreement entered into with certain note subscribers in November 2017. On September 2, 2020, one of the note subscribers issued a notice declaring that an event of default as defined under the subscription agreement had occurred and such note subscriber exercised its call option pursuant to the subscription agreement. As of the date of this annual report, BOCOM International Supreme Investment Limited was in discussion with such note subscriber on the details and mechanisms of the potential share transfer. The registered office of Xin Gao is P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands. The registered office of BOCOM International Supreme Investment Limited is Craigmuir Chambers, Road Town, Tortola, VG 1110, British Virgin Islands. See “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Transactions with Redrock, TPG, 58.com and other existing shareholders.” |
| (2) | Represents 34,993,824,619 Class A ordinary shares, comprising of (i) 32,935,364,347 Class A ordinary shares held by Abundant Grace Investment Limited, which are convertible from 889,059,964 senior convertible preferred shares on March 27, 2024 and (ii) 2,058,460,272 Class A ordinary shares held by Abundant Glory Investment L.P., which are convertible from 29,129,042 senior convertible preferred shares on March 27, 2024. NBNW Investment Limited and Eve One Fund II L.P. comprise the owners of the majority of the voting interest of Abundant Grace Investment Limited. NBNW Investment Limited is a holding company indirectly and wholly owned by a family trust set up by Mr. Bin Li. NIO Capital II LLC is the general partner of Eve One Fund II L.P. and Abundant Glory Investment L.P., and Mr. Bin Li is one of the managers of NIO Capital II LLC. The registered offices of Abundant Grace Investment Limited and Abundant Glory Investment L.P. are at Craigmuir Chambers, Road Town, Tortola, VG 1110, British Virgin Islands. The business address of NBNW Investment Limited is P.O. Box 957, Offshore Incorporations Centre Road Town, Tortola, British Virgin Islands. The address of Eve One Fund II L.P. is c/o Harneys Fiduciary (Cayman) Limited, 4th Floor, Harbour Place, 103 South Church Street, Grand Cayman KY1-1002, Cayman Islands. The address of NIO Capital II LLC is Sertus Chambers, Governors Square, Suite #5-204, 23 Lime Tree Bay Avenue, P.O. Box 2547, Grand Cayman, KY1-1104, Cayman Islands. The above is based on the Schedule 13D/A filed by Eve One Fund II L.P. on July 7, 2023. |
| (3) | Represents 17,496,912,310 Class A ordinary shares Astral Success Limited, which are convertible from 437,286,192 senior convertible preferred shares on March 26, 2024. Joy Capital Opportunity, L.P., Joy Capital II, L.P. and Joy Capital III, L.P. comprise the owners of the majority of the voting interest of Astral Success Limited. Joy Capital Opportunity GP, L.P., Joy Capital II GP, L.P. and Joy Capital III GP, L.P. are the respective general partners of Joy Capital Opportunity, L.P., Joy Capital II, L.P. and Joy Capital III, L.P. Joy Capital GP, Ltd. Is the general partner of Joy Capital Opportunity GP, L.P., Joy Capital II GP, L.P. and Joy Capital III GP, L.P. Each of these entities are ultimately controlled by Mr. Erhai Liu. Mr. Erhai Liu disclaims beneficial ownership of the securities in us held by each of the above entities, except to the extent of Mr. Erhai Liu’s pecuniary interest therein, if any. The registered office of Astral Success Limited is at Craigmuir Chambers, Road Town, Tortola, VG 1110, British Virgin Islands. The address of each of Joy Capital Opportunity, L.P., Joy Capital Opportunity GP, L.P., Joy Capital II, L.P., Joy Capital II GP, L.P., Joy Capital III, L.P., Joy Capital III GP, L.P. and Joy Capital GP, Ltd. Is c/o Harneys Fiduciary (Cayman) Limited, 4th Floor, Harbour Place, 103 South Church Street, P.O. Box 10240, Grand Cayman KY1-1002, Cayman Islands. The above is based on the Schedule 13D/A filed by Joy Capital Opportunity, L.P. on July 7, 2023. |
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| (4) | Represents 1,481,732,051 ordinary shares, all of which are directly held by Xin Gao, a British Virgin Islands company wholly owned by Mr. Kun Dai. The registered office of Xin Gao is P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands. |
Our ordinary shares are divided into Class A ordinary shares and Class B ordinary shares. Holders of Class A ordinary shares are entitled to one vote per share, while holders of Class B ordinary shares are entitled to ten votes per share. Holders of Class A and Class B ordinary shares vote together as one class on all matters subject to a shareholders’ vote. Each Class B ordinary share is convertible into one Class A ordinary share at any time by the holder thereof, while Class A ordinary shares are not convertible into Class B ordinary shares under any circumstance. We have also issued senior convertible preferred shares, which are convertible into our Class A ordinary shares. On March 27, 2024, all of our then issued and outstanding senior convertible preferred shares were converted into Class A ordinary shares. See “Item 10. Additional Information—B. Memorandum and Articles of Association” for a more detailed description of our Class A ordinary shares and Class B ordinary shares.
To our knowledge, a total of 4,211,940,768 Class A ordinary shares (including 19,553,692 Class A ordinary shares issued to our depositary bank for bulk issuance of ADSs reserved for future issuances upon the exercise or vesting of awards granted under our share incentive plans) were held by two record holders in the United States, representing approximately 7.5% of our total outstanding ordinary shares on an as-converted basis. One of these holders is The Bank of New York Mellon, the depositary of our ADS program. 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.
We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company.
| F. | Disclosure of a Registrant’s Action to Recover Erroneously Awarded Compensation |
None.
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| 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 |
Historical Contractual Arrangements with Our Variable Interest Entities and Their Shareholders
PRC laws and regulations currently limit foreign ownership of companies that engage in a value-added telecommunications service business or the distribution of media products in China. Due to these restrictions, we operate our relevant business through contractual arrangements between Youxinpai and Yougu, our PRC subsidiaries, Youxin Hulian and Yishouche, the former VIEs, and their respective shareholders. For a description of these contractual arrangements, see “Item 4.C. Information on the Company—Organizational Structure.”
Transactions with Redrock, TPG, 58.com and other existing shareholders
Convertible Note Purchase Agreement
We entered into a convertible note purchase agreement (the “NPA”) with Redrock Holding Investment Limited, TPG Growth III SF Pte. Ltd., 58.com Holdings Inc., ClearVue Uxin Holdings, Ltd., Magic Carpet International Limited and Zhuhai Guangkong Zhongying Industrial Investment Fund (Limited Partnership) (collectively, the “Purchasers”) and Mr. Kun Dai (the “Founder”) on May 29, 2019. Pursuant to the NPA, we issued convertible notes in an aggregate principal amount of US$230 million to the Purchasers through a private placement on June 10, 2019. For a detailed description of the terms of the convertible notes, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Cash flows and working capital.”
Investors’ Rights Agreement
In connection with the NPA, we entered into an investors’ rights agreement (the “IRA”) with Redrock Holding Investments Limited, TPG Growth III SF Pte. Ltd., 58.com Holdings Inc. (each a “Key Investor”). Mr. Kun Dai, Xin Gao Group Limited, Gao Li Group Limited and JenCap UX on June 10, 2019.
Pursuant to the IRA, during the three years following the issuance of the notes pursuant to the NPA, which may be extended by another two years if all Key Investors agree to extend (the “Period”), the Company’s board of directors (the “Board”) shall consist of eight directors, among which, subject to certain limitations set forth in the Investors’ Rights Agreement, each of the Key Investors and Mr. Kun Dai shall be entitled to nominate one director, the Key Investors shall be entitled to collectively nominate two independent directors, Mr. Kun Dai shall be entitled to nominate one independent director, and the Board shall appoint the eighth director. Each party to the IRA has agreed that it or he will exercise its or his respective voting rights to (i) elect the directors nominated by each of the Key Investors and Mr. Kun Dai (each a “Director Nominating Party”) to the Board, (ii) remove such director from the Board if the Director Nominating Party so determines, and (iii) replace such director as nominated by the Director Nominating Party in the event of a vacancy. The IRA also provides for certain corporate governance arrangements during the Period.
During the Period, for so long as the Key Investors hold in aggregate no less than 30% of the aggregate principal amount of the 2024 Notes they hold on June 10, 2019, the Board shall maintain an executive committee (the “Executive Committee”) consisting of directors nominated by each of the Key Investors and the Founder, to oversee certain matters of our company.
In addition, during the Period, without the affirmative prior written consent or approval of the required number of Key Investors as provided for in the IRA, we shall not take any actions with respect to certain prescribed matters.
The Founder, Xin Gao Group Limited and Gao Li Group Limited also agreed that during the Period, (i) they will not transfer any of their shares without the prior written consent of each of the Key Investors, and (ii) the Founder shall not and shall cause Xin Gao not to convert any Class B ordinary share of Company held by Xin Gao into Class A ordinary share.
On July 12, 2021, the IRA was terminated and shall have no further effect by way of a termination agreement.
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Transactions with 58.com
In the fiscal years ended March 31, 2022, 2023 and 2024, inventory leads sold to 58.com amounted to RMB0.2 million, nil and nil, respectively.
On July 19, 2022, we issued 183,495,146 Class A ordinary shares to 58.com in exchange for the full release of our obligations to 58.com under the 58.com Notes and certain other historical transactions. These shares were issued at a price equivalent to US$10.3 per ADS (or US$1.03 per ADS prior to the ADS Ratio Change). The 58.com Notes were extinguished upon such issuance of shares.
Transactions with Weiche
In the fiscal year ended March 31, 2022, Weiche provided advertising services to us at arm’s length in the amount of RMB351 thousand.
Transactions with NIO Capital and Joy Capital
The second closing for the amounts of US$27.5 million, US$10 million and US$7.5 million were completed in November 2021, March 2022 and June 2022, respectively, pursuant to the financing transaction entered into among us, NIO Capital and Joy Capital in June 2021.
On January 12, 2023, we entered into an amendment agreement with NIO Capital and Joy Capital to extend the expiration date of certain warrants from January 12, 2023 to January 12, 2024, which entitled the warrants holders to subscribe to our convertible preferred shares of up to US$165 million.
Transaction with NIO Capital
On June 30, 2022, we entered into a definitive agreement, or the 2022 Subscription Agreement, with affiliates of an existing shareholder, NIO Capital, pursuant to which, NIO Capital has agreed to subscribe 714,285,714 senior convertible preferred shares for an aggregate amount of US$100 million, which will be paid in multiple installments. The 714,285,714 senior convertible preferred shares were issued on July 27, 2022 in connection with the closing. Pursuant to the then-effective certificate of designation of senior convertible preferred shares of our company, the issuance of the senior convertible preferred shares on July 27, 2022 in connection with the closing of the foregoing transaction has led to an reduction in the conversion price, from US$0.3433 per Class A ordinary share to US$0.14 per Class A ordinary share, of the senior convertible preferred shares issued pursuant to the 2021 Subscription Agreement we entered into with certain investors in June 2021 and then outstanding. The fair value impact of the triggered down round feature amounted to RMB755.6 million and was recorded as a charge to accumulated deficit and a credit to additional-paid in capital.
On April 4, 2023, we and NIO Capital entered into certain additional agreements in connection with the 2022 Subscription Agreement. Pursuant to these agreements: (i) the payment method of such outstanding purchase price was modified to permit a combination of cash payment and cancellation of indebtedness of us to NIO Capital; and (ii) the then outstanding purchase price of US$81.6 million under the 2022 Subscription Agreement was partially offset by the cancellation and discharge by NIO Capital of our obligations under the 2024 Notes totaling US$61.6 million that NIO Capital assigned from Redrock Holding Investments Limited, TPG Growth III SF Pte. Ltd. and Magic Carpet International Limited in April 2023. For a detailed description of the terms of the 2024 Notes, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Cash flows and working capital.” As a result of and immediately following the foregoing transactions, NIO Capital had fulfilled its obligation in an aggregate amount of US$80 million of the outstanding purchase price for its subscription of our senior convertible preferred shares. As of the date of this annual report, NIO Capital has fulfilled its obligation in an aggregate amount of US$90.6 million of the outstanding purchase price, and we and NIO Capital have mutually agreed that NIO Capital will fulfil its payment obligations by December 31, 2024 regarding the outstanding purchase price of US$9.4 million pursuant to the definitive agreements we entered into with NIO Capital in June 2022.
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Transaction with Joy Capital and Alpha
In June 2023, we have entered into a definitive agreement with Alpha and Joy Capital, regarding the warrants issued by the Company to NIO Capital and Joy Capital in 2021. Pursuant to the foregoing definitive agreement and certain assignments of warrants among Alpha, NIO Capital and Joy Capital, Alpha acquired from NIO Capital and Joy Capital the right to purchase up to 261,810,806 senior convertible preferred shares of the Company at a modified exercise price of US$0.0457 per share. Joy Capital only assigned a portion of its warrants under this amended agreement. Alpha and Joy Capital (either together or separately) are entitled to, at their discretion, exercise the respective warrants in full to subscribe for a total of 480,629,186 senior convertible preferred shares of the Company in an aggregate amount of US$21,964,754 no later than September 30, 2023. On August 17, 2023, Joy Capital has exercised its warrants to purchase 218,818,380 senior convertible preferred shares of our company at an exercise price of US$0.0457 per share for a total consideration of US$10.0 million. The warrants to purchase 261,810,806 senior convertible preferred shares held by Alpha were subsequently terminated.
Transaction with Xin Gao
On March 18, 2024, we entered into a term sheet with Xin Gao and NC Fund regarding the financing in an aggregate amount of approximately US$34.8 million at a subscription price of US$0.004858 per share. On March 26, 2024, we and Xin Gao entered into a share subscription agreement for, and completed on the same day, the issuance of 1,440,922,190 senior convertible preferred shares to Xin Gao for a total consideration of US$7.0 million. On March 27, 2024, by virtue of the consents of the requisite holders of senior convertible preferred shares, the 1,440,922,190 senior convertible preferred shares issued to Xin Gao on March 26, 2024 were converted into 1,440,922,190 Class A ordinary shares, and all the other senior convertible preferred shares then issued and outstanding were also converted into Class A ordinary shares at the applicable conversion prices. As Xin Gao is controlled by Mr. Kun Dai, the Chairman of the Board of Directors and chief executive officer of Company and the fair value of the senior convertible preferred shares is higher than the consideration received from Xin Gao, a share-based compensation expense of US$4.0 million (equivalent to RMB28.7 million) equal to the difference between the fair value of the preferred shares issued and the consideration received was recorded in general and administrative expenses in March 2024.
Transaction with Mr. Kun Dai
On February 22, 2024, we signed a short-term loan agreement with Mr. Kun Dai for a total principal of RMB7.0 million at an annual interest rate of 6%.
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.”
| C. | Interests of Experts and Counsel |
Not applicable.
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| 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 and certain of our current and former officers and directors were named as defendants in two putative securities class actions. Both cases were purportedly brought on behalf of a class of persons who allegedly suffered damages as a result of alleged misstatements and omissions in certain disclosure documents in connection with our initial public offering in June 2018.
The first case, In re Uxin Limited Securities Litigation, Index No. 650427/2019 (Sup. Ct. N.Y. Cty.), consolidated six complaints filed in the Supreme Court of the State of New York in January 2019. A Consolidated Amended Complaint was filed on August 5, 2019, and on March 9, 2020, the Court granted in part and denied in part our motion to dismiss. The second case, Machniewicz v. Uxin Limited et al, Case No. 1:19-cv-00822 (E.D.N.Y.), was filed in the United States District Court for the Eastern District of New York on February 11, 2019. On April 23, 2021, we settled the two cases for a total sum of US$9.5 million approved by court, out of which US$6.5 million were covered by our insurance policy and we made a contribution for US$3.0 million. For risks and uncertainties relating to the pending cases against us, please see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—We were named as a defendant in two putative shareholder class action lawsuits in the past that could have a material adverse impact on our business, financial condition, results of operation, cash flows and reputation.”
We are also subject to ongoing contractual disputes and other proceedings in the PRC and may be subject to other legal or administrative claims and proceedings arising in the ordinary course of business. Litigations or any other legal or administrative proceedings, regardless of the outcome, is likely to result in substantial cost and diversion of our resources, including our management’s time and attention. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—We may be subject to legal proceedings in the ordinary course of our business. If the outcomes of these proceedings are adverse to us, our business, results of operations and financial condition could be materially and adversely affected.”
Dividend Policy
Our board of directors has discretion on whether to distribute dividends, subject to certain requirements of Cayman Islands law. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our board of directors. In either case, all dividends are subject to certain restrictions under Cayman Islands law, namely that our company may only pay dividends out of profits or share premium, and provided always that in no circumstances may a dividend be paid if this would result in our company being unable to pay its debts as they fall due in the ordinary course of business. Even if we decide to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant.
We have not declared or paid any dividends on our ordinary shares, nor do we have any present plan to pay any cash dividends on our ordinary shares in the foreseeable future. We currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business.
We are a holding company incorporated in the Cayman Islands. We may rely on dividends from our subsidiaries in China for our cash requirements, including any payment of dividends to our shareholders. PRC regulations may restrict the ability of our PRC subsidiaries to pay dividends to us. See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations Relating to Foreign Exchange—Regulations on Dividend Distribution.” If we pay any dividends on our ordinary shares, we will pay those dividends which are payable in respect of the ordinary shares underlying our ADSs to the depositary, as the registered holder of such ordinary shares, and the depositary then will pay such amounts to the ADS holders in proportion to ordinary shares underlying the ADSs held by such ADS holders, subject to the terms of the deposit agreement, including the fees and expenses payable thereunder. See “Item 12. Description of Securities Other than Equity Securities—D. American Depositary Shares.” Cash dividends on our ordinary shares, if any, will be paid in U.S. dollars.
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| B. | Significant Changes |
Except as disclosed elsewhere in this annual report, we have not experienced any significant changes since the date of our audited consolidated financial statements included in this annual report.
| Item 9. | The Offer and Listing |
| A. | Offer and Listing Details |
Our ADSs, each representing three of our Class A ordinary shares, have been listed on Nasdaq since June 27, 2018. Our ADSs trade under the symbol “UXIN.”
| B. | Plan of Distribution |
Not applicable.
| C. | Markets |
Our ADSs have been listed on Nasdaq since June 27, 2018 under the symbol “UXIN.”
| D. | Selling Shareholders |
Not applicable.
| E. | Dilution |
Not applicable.
| F. | Expenses of the Issue |
Not applicable.
| Item 10. | Additional Information |
| A. | Share Capital |
Not applicable.
| B. | Memorandum and Articles of Association |
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.
Memorandum and Articles of Association and Ordinary Shares
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.
Registered Office and Objects
Our registered office in the Cayman Islands is located at the offices of Maples Corporate Services Limited at P.O. Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands, or at such other location within the Cayman Islands as our board of directors may from time to time decide. The objects for which our company is established are unrestricted and we have full power and authority to carry out any object not prohibited by the Companies Act, as amended from time to time, or any other law of the Cayman Islands.
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Board of Directors
See “Item 6. Directors, Senior Management and Employees—C. Board Practices.”
Ordinary Shares
Our ordinary shares are divided into Class A ordinary shares and Class B ordinary shares. Holders of our Class A ordinary shares and Class B ordinary shares will 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 shareholders. 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 is convertible into one Class A ordinary share at any time by the holder thereof. Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances. Upon (i) any direct or indirect sale, transfer, assignment or disposition of Class B ordinary shares by a holder thereof or the direct or indirect transfer or assignment of the voting power attached to such Class B ordinary shares through voting proxy or otherwise to any person or entity that is not an Affiliate (as defined in our memorandum and articles of association) of such holder, or (ii) the direct or indirect sale, transfer, assignment or disposition of a majority of the issued and outstanding voting securities of, or the direct or indirect transfer or assignment of the voting power attached to such voting securities through voting proxy or otherwise, or the direct or indirect sale, transfer, assignment or disposition of all or substantially all of the assets of, a holder of Class B ordinary shares that is an entity to any person that is not an Affiliate of such holder, such Class B ordinary shares will be automatically and immediately converted into an equal number of Class A ordinary shares.
Dividends
The holders of our ordinary shares are entitled to such dividends as may be declared by our board of directors, subject to our memorandum and articles of association. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividend shall exceed the amount recommended by our directors. Under the laws of the Cayman Islands, our company may declare and pay a dividend only out of funds legally available, namely out of either our profit or share premium account, provided that in no circumstances may a dividend be paid if, immediately after this payment, this would result in our company being unable to pay its debts as they fall due in the ordinary course of business. Dividends received by each Class B ordinary share and Class A ordinary share in any dividend distribution shall be the same.
Voting Rights
Our Class A ordinary shares and Class B ordinary shares and our senior convertible preferred 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 or provided for in our memorandum and articles of association. In respect of matters requiring shareholders’ vote, each Class A ordinary share is entitled to one vote, each Class B ordinary share is entitled to ten votes, and each senior convertible preferred share is entitled to that number of votes equal to the largest number of whole Class A ordinary shares into which each such senior convertible preferred share could be converted. There are currently no senior convertible preferred shares issued or outstanding. Voting at any shareholders’ meeting is by show of hands unless a poll is demanded. A poll may be demanded by the chairman of such meeting or any shareholder who holds not less than 10% of the votes attaching to the total shares which are present in person or by proxy at the meeting.
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 shares cast by those shareholders entitled to vote who are present in person or by proxy at a general meeting, while a special resolution requires the affirmative vote of no less than two-thirds of the votes cast attaching to the outstanding shares cast by those shareholders entitled to vote who are present in person or by proxy at a general meeting. Both ordinary resolutions and special resolutions may also be passed by a unanimous written resolution signed by all the shareholders of our company, as permitted by the Companies Act and our memorandum and articles of association. A special resolution will be required for important matters such as a change of name or making changes to our memorandum and articles of association. Holders of our shares may, among other things, divide or combine all or any of our company’s share capital 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 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 a resolution passed by a majority of our board of directors. Advance notice of at least seven (7) calendar days is required for the convening of our annual general shareholders’ meeting (if any) and any other general meeting of our shareholders. A quorum required for any general meeting of shareholders consists of at least one shareholder holding shares which carry in aggregate (or representing by proxy) not less than one-third of all votes attaching to the issued and outstanding shares in our company entitled to vote at general meetings, present in person or by proxy or, if a corporation or other non-natural person, by its duly authorized representative. Holders of our senior convertible preferred shares shall be included for the purposes of determining whether the quorum requirement is satisfied.
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 memorandum and articles of association provide that upon the requisition of shareholders representing in aggregate not less than a majority of all votes attaching to the issued and outstanding shares of our company entitled to vote at general meetings, our board is obliged to call an extraordinary general meeting and put the resolutions so requisitioned to a vote at such meeting. However, our 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 in our memorandum and articles of association as set out below, any of our shareholders may transfer all or any of his or her ordinary shares by an instrument of transfer in the usual or common form or any other form approved by our board of directors.
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; and | |
| ● | 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. | |
| ● | a fee of such maximum sum as the Nasdaq Stock Market LLC may determine to be payable or such lesser sum as our directors may from time to time require is paid to us in respect thereof. |
If our directors refuse to register a transfer they shall, within three months after the date on which the instrument of transfer was lodged, send to each of the transferor and the transferee notice of such refusal.
The registration of transfers may, after compliance with any notice required of the Nasdaq Stock Market LLC, be suspended and our register of members 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 our register of members closed for more than 30 days in any year as our board may determine.
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Liquidation
On a return of capital or the winding up of our company, if the assets available for distribution amongst our shareholders shall be more than sufficient to repay the whole of the share capital at the commencement of the winding up, the surplus shall be distributed amongst our shareholders in proportion to the par value of the shares held by them at the commencement of the winding up, subject to a deduction from those shares in respect of which there are monies due, of all monies payable to our company for unpaid calls or otherwise. If our assets available for distribution are insufficient to repay all of the paid-up capital, the assets will be distributed so that, 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 by our board of directors or by the 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 (a) unless it is fully paid up, (b) if such redemption or repurchase would result in there being no shares outstanding or (c) if our company has commenced liquidation. In addition, our company may accept the surrender of any fully paid share for no consideration.
Variations of Rights of Shares
If at any time, our share capital is divided into different classes or series of shares, the rights attached to any class or series of shares (subject to any rights or restrictions for the time being attached to any class or series), may only be materially adversely varied with the consent in writing of the holders of all of the issued shares of that class or series or with the sanction of an ordinary resolution passed at a separate meeting of the holders of the shares of that class or series. The rights conferred upon the holders of the shares of any class issued with preferred or other rights shall not, subject to any rights or restrictions for the time being attached to the shares of that class, be deemed to be materially adversely varied by the creation, allotment or issue of further shares ranking pari passu with or subsequent to such existing class of shares, or the redemption or purchase of any shares of any class by our company. The rights of the holders of our shares shall not be deemed to be materially adversely varied by the creation or issue of shares with preferred or other rights including, without limitation, the creation of shares with enhanced or weighted voting rights.
Issuance of Additional Shares
Our memorandum and articles of association authorize our board of directors to issue additional Class A ordinary shares from time to time as our board of directors shall determine, to the extent of available authorized but unissued shares.
Our memorandum and articles of association also authorize our board of directors to authorize the division of our shares into any number of classes and the different classes shall be authorized, established and designated (or re-designated as the case may be), and the variations in the relative rights (including, without limitation, voting, dividend and redemption rights), restrictions, preferences, privileges and payment obligations as between the different classes may be fixed and determined by our board of directors. Our directors may issue shares with such preferred or other rights, all or any of which may be greater than the rights of our ordinary shares, at such time and on such terms as they may think appropriate. Our directors may issue from time to time one or more series of preferred shares in their absolute discretion and without approval of our shareholders, and to determine, with respect to any series of preferred shares, the terms and rights of that series, including:
| ● | the designation of the series; |
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| ● | 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. |
Issuance of preferred shares may dilute the voting power of holders of Class A ordinary shares.
Inspection of Books and Records
Holders of our Class A ordinary shares will have no general right under Cayman Islands law to inspect or obtain copies of our list of shareholders or our corporate records (other than our memorandum and articles of association, special resolutions passed by our shareholders, and our register of mortgages and charges). However, we will provide our shareholders with annual audited financial statements.
Anti-Takeover Provisions
Some provisions of our memorandum and articles of association may discourage, delay or prevent a change of control of our company or management that shareholders may consider favorable, including provisions that:
| ● | authorize our board of directors to issue preferred shares in one or more series and to designate the price, rights, preferences, privileges and restrictions of such preferred shares without any further vote or action by our shareholders; and | |
| ● | limit the ability of shareholders to requisition and convene general meetings of shareholders. |
However, under Cayman Islands law, our directors may only exercise the rights and powers granted to them under our memorandum and articles of association for a proper purpose and for what they believe in good faith to be in the best interests of our company.
Exempted Company
We are an exempted company with limited liability under the Companies Act. The Companies Act distinguishes between ordinary resident companies and exempted companies. Any company that is registered in the Cayman Islands but conducts business mainly outside of the Cayman Islands may apply to be registered as an exempted company. The requirements for an exempted company are essentially the same as for an ordinary company except that an exempted company:
| ● | does not have to file an annual return of its shareholders with the Registrar of Companies; | |
| ● | is not required to open its register of members for inspection; | |
| ● | does not have to hold an annual general meeting; | |
| ● | may 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 our 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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Changes in Capital
Our shareholders may from time to time by ordinary resolution:
| ● | increase our share capital by such sum, to be divided into shares of such classes and amount, as the resolution shall prescribe; | |
| ● | consolidate and divide all or any of our share capital into shares of a larger amount than our existing shares; | |
| ● | sub-divide our existing shares, or any of them into shares of a smaller amount, provided that in the subdivision the proportion between the amount paid and the amount, if any, unpaid on each reduced share shall be the same as it was in case of the share from which the reduced share is derived; or | |
| ● | cancel any shares which, at the date of the passing of the resolution, have not been taken or agreed to be taken by any person and diminish the amount of our share capital by the amount of the shares so cancelled. |
Our shareholders may by special resolution, subject to confirmation by the Grand Court of the Cayman Islands on an application by our company for an order confirming such reduction, reduce our share capital or any capital redemption reserve in any manner permitted by law.
Register of Members
Under Companies Act, we must keep a register of members and there should be entered therein:
| ● | the names and addresses of the members, together with a statement of the shares held by each member, and such statement shall confirm (i) of the amount paid or agreed to be considered as paid, on the shares of each member, (ii) the number and category of shares held by each member, and (iii) whether each relevant category of shares held by a member carries voting rights under the articles of association of the company, and if so, whether such voting rights are conditional; | |
| ● | the date on which the name of any person was entered on the register as a member; and | |
| ● | the date on which any person ceased to be a member. |
Under Cayman Islands law, the register of members of our company is prima facie evidence of the matters set out therein (i.e. the register of members will raise a presumption of fact on the matters referred to above unless rebutted) and a member registered in the register of members should be deemed as a matter of Cayman Islands law to have legal title to the shares as set against its name in the register of members. The shareholders recorded in our register of members are deemed to have legal title to the shares set against their name in the register of members.
If the name of any person is incorrectly entered in or omitted from our register of members, or if there is any default or unnecessary delay in entering on the register the fact of any person having ceased to be a member of our company, the person or member aggrieved (or any member of our company or our company itself) may apply to the Grand Court of the Cayman Islands for an order that the register be rectified, and the Court may either refuse such application or it may, if satisfied of the justice of the case, make an order for the rectification of the register.
| C. | Material Contracts |
Other than in the ordinary course of business and other than those described in this item, “Item 4. Information on the Company” or “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions” or elsewhere in this annual report, we have not entered into any material contract during the two years immediately preceding the date of this annual report.
Certain Agreements with GIC
In October 2020, we entered into a series of agreements with GIC Private Limited in connection with a private placement. Set forth below is a summary of certain of the agreements.
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Share Subscription Agreement. On October 5, 2020, we entered into a share subscription agreement with GIC, pursuant to which GIC subscribed for 50,813,008 of our newly issued Class A ordinary shares for an amount of US$15 million. GIC also agreed, for a period of 180 days commencing from the closing date, not to transfer, sell or dispose of any of the newly subscribed shares except to its affiliates.
Registration Rights Agreement. On October 8, 2020, we entered into a registration rights agreement with GIC, pursuant to which, on or no later than three business days after (i) the date of the filing of the annual report on Form 20-F for the fiscal year ended March 31, 2021 and (ii) July 31, 2021, we shall prepare and file with the SEC a registration statement on Form F-3 for an offering to be made on a continuous basis pursuant to Rule 415 under the Securities Act. GIC also has piggyback registration rights.
Share Subscription Agreement with Wells Fargo
On October 5, 2020, we entered into a share subscription agreement with Wells Capital Management, Inc., pursuant to which Wells Fargo subscribed for 33,879,831 of our newly issued Class A ordinary shares for an amount of US$10 million. Wells Fargo also agreed, for a period of 180 days commencing from the closing date, not to transfer, sell or dispose of any of the newly subscribed shares with limited exceptions.
Certain Agreements with NIO Capital and Joy Capital
In June 2021, we entered into a share purchase agreement with, and issued warrants to, Abundance Grace Investment Limited, an affiliate of NIO Capital, and Astral Success Limited, an affiliate of Joy Capital, in connection with a financing transaction.
Share Subscription Agreement. On June 14, 2021, we entered into a share subscription agreement with NIO Capital and Joy Capital. Pursuant to the share subscription agreement, NIO Capital and Joy Capital agreed to subscribe for 436,935,624 of our newly issued senior convertible preferred shares for an aggregate amount of US$150 million. On July 12, 2021, the first closing was completed for an aggregate amount of US$100 million for the issuance of 291,290,416 senior convertible preferred shares. The second closing in the amount of US$27.5 million and US$10 million US$7.5 million was completed for the issuance of 80,104,865, 29,129,042 and 21,846,781 senior convertible preferred shares in November 2021, March 2022 and June 2022, respectively. Each of NIO Capital and Joy Capital also agreed, for a period of 180 days commencing from July 12, 2021, not to transfer, sell or dispose of any of the newly subscribed shares with limited exceptions. In July 2022, NIO Capital assigned its rights and obligations to subscribe for 14,564,520 senior convertible preferred shares under the second closing for the total price of US$5 million to an independent third party. On the same day, we issued 14,564,520 senior convertible preferred shares to the third party and the second closing of the transaction was completed.
Warrant. On July 12, 2021, we issued warrants to each of NIO Capital and Joy Capital. Pursuant to the warrants, each of NIO Capital and Joy Capital has the right to purchase up to 240,314,593 senior convertible preferred shares with an exercise price of US$0.3433, exercisable, at the option of the holder, at any time and from time to time on or prior to 5 p.m. (New York City time) of January 12, 2023.
In June 2022, we entered into a share subscription agreement, or the 2022 Subscription Agreement, with Abundance Grace Investment Limited, an affiliate of NIO Capital, in connection with another round of financing transaction.
Share Subscription Agreement. On June 30, 2022, we entered into a share subscription agreement with NIO Capital, or the 2022 Subscription Agreement, pursuant to which NIO Capital agreed to subscribe for 714,285,714 of our newly issued senior convertible preferred shares for an aggregate amount of US$100 million, which will be paid in multiple installments. The 714,285,714 senior convertible preferred shares were issued on July 27, 2022 in connection with the closing. Pursuant to the then-effective certificate of designation of senior convertible preferred shares of our company, the issuance of the senior convertible preferred shares on July 27, 2022 in connection with the closing of the foregoing transaction has led to an reduction in the conversion price, from US$0.3433 per Class A ordinary share to US$0.14 per Class A ordinary share, of the senior convertible preferred shares issued pursuant to the 2021 Subscription Agreement we entered into with certain investors in June 2021 and then outstanding. The fair value impact of the triggered down round feature amounted to RMB755.6 million and was recorded as a charge to accumulated deficit and a credit to additional-paid in capital.
Set forth below is a summary of certain other agreements in connection with the above transactions.
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Amended and Restated Investors’ Rights Agreement. On July 27, 2022, we entered into an investors’ rights agreement with NIO Capital and Joy Capital, which amended and restated the investor’s rights agreement on July 12, 2021. Pursuant to the amended and restated investors’ rights agreement, NIO Capital and Joy Capital enjoy certain information rights, co-sale rights and rights of first refusal. In addition, they agreed to certain lock-up and transfer restrictions. During the lock-up period, upon the occurrence of certain events, the 40,809,861 Class B ordinary shares beneficially owned by Mr. Kun Dai will be automatically converted into an equal number of Class A ordinary shares.
Voting Agreement. On July 27, 2022, we entered into an additional voting agreement with NIO Capital and Joy Capital, pursuant to which, each of NIO Capital and Joy Capital is entitled to nominate one director of our company under certain conditions. In addition, NIO Capital and Joy Capital are entitled to jointly nominate two independent directors of our company under certain conditions. Mr. Kun Dai is entitled to nominate one director and one independent director under certain conditions.
Registration Rights Agreement. On July 27, 2022, we entered into a registration rights agreement with NIO Capital. Pursuant to the registration rights agreement, on or no later than three business days after the earlier of (i) the date of the filing of the annual report on Form 20-F for the fiscal year ended March 31, 2022 and (ii) July 31, 2022, we shall prepare and file with the SEC a registration statement on Form F-3 for an offering of registrable securities to be made on a continuous basis pursuant to Rule 415 under the Securities Act. NIO Capital also has piggyback registration rights under this registration rights agreement.
Amendment Agreement. On January 12, 2023, we entered into an amendment agreement with Abundance Grace Investment Limited, an affiliate of NIO Capital, and Astral Success Limited, an affiliate of Joy Capital, to extend the expiration date of certain warrants issued in the share purchase agreement entered into in June 2021 from January 12, 2023 to January 12, 2024, which entitled the warrants holders to subscribe to our convertible preferred shares of up to US$165 million.
Supplementary Agreement. On April 4, 2023, we and NIO Capital entered into a Supplementary Agreement and certain other ancillary agreement, pursuant to which the payment method of purchase price payable under the 2022 Subscription Agreement is revised to permit a combination of cash payment and cancellation of indebtedness of us to NIO Capital. NIO Capital fulfilled its obligations to pay a portion of the remaining outstanding purchase price for its subscription of senior convertible preferred shares of us under the 2022 Subscription Agreement, based on further agreed-upon schedule.
Warrant Amendment. On June 30, 2023, we have entered into a definitive agreement with Alpha and Joy Capital, or 2023 Warrant Amendment, regarding the warrants issued by the Company to NIO Capital and Joy Capital in 2021. Pursuant to the foregoing definitive agreement and certain assignments of warrants among Alpha, NIO Capital and Joy Capital, Alpha acquired warrants from NIO Capital and Joy Capital which provide the right to purchase up to 261,810,806 senior convertible preferred shares of the Company at a modified exercise price of US$0.0457 per share. Joy Capital only assigned a portion of its warrants under this amended agreement. Alpha and Joy Capital are entitled to, at their discretion, exercise their respective warrants in full to subscribe for a total of 480,629,186 senior convertible preferred shares of the Company in an aggregate amount of US$21,964,754 no later than September 30, 2023. On August 17, 2023, Joy Capital has exercised its warrants to purchase 218,818,380 senior convertible preferred shares of our company at an exercise price of US$0.0457 per share for a total consideration of US$10.0 million. The warrants to purchase 261,810,806 senior convertible preferred shares held by Alpha were subsequently terminated.
Certain Agreements with Xin Gao
Share Subscription Agreement. On March 26, 2024, we and Xin Gao entered into a share subscription agreement for, and completed on the same day, the issuance of 1,440,922,190 senior convertible preferred shares, or the 2024 Subscription Agreement, to Xin Gao for a total consideration of US$7.0 million.
Investors’ Rights Agreement. On March 26, 2024 and upon the completion of the share issuance to Xin Gao (the “Xin Gao Closing”), we, Mr. Kun Dai, Xin Gao and certain other holders of senior convertible preferred shares entered into an amended and restated investors’ rights agreement, which superseded and replaced the investors’ rights agreement in effect prior to the Xin Gao Closing. Such investors’ rights agreement sets forth certain rights and restrictions of the senior convertible preferred shares acquired by Xin Gao, including that holders of such shares have a right to participate in our new financing and that such shares are subject to a one-year lock-up and a right of first refusal of certain holders of senior convertible preferred shares.
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Voting Agreement. On March 26, 2024 and upon the Xin Gao Closing, we, Kun Dai, Xin Gao and certain other holders of senior convertible preferred shares entered into an amended and restated voting agreement, which superseded and replaced the voting agreement in effect prior to the Xin Gao Closing. Such voting agreement sets the shareholding requirement for director nomination right of Astral Success Limited (“Astral”) and NIO Capital at a certain number of Class A ordinary shares (which number was derived based on the previous threshold number of senior convertible preferred shares and the conversion ratio applicable upon the Xin Gao Closing). The composition of the board under such voting agreement otherwise remains unchanged, i.e., subject to the limitations set forth in such voting agreement, Astral, NIO Capital and Kun Dai shall each be entitled to nominate one director, Astral and NIO Capital shall be collectively entitled to nominate two independent directors and Mr. Kun Dai or the board shall be entitled to appoint the third independent director.
Registration Rights Agreement. On March 26, 2024 and upon the Xin Gao Closing, we and Xin Gao entered into a registration rights agreement with respect to the Class A ordinary shares and American depositary shares representing Class A ordinary shares issuable to Xin Gao upon conversion of the senior convertible preferred shares. The registration rights agreement grants the Xin Gao customary shelf and piggyback registration rights.
| D. | Exchange Controls |
See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations Relating to Foreign Exchange.”
| E. | Taxation |
The following summary of the principal Cayman Islands, PRC and U.S. federal income tax consequences of an investment in our ADSs or ordinary shares is based upon laws and relevant interpretations thereof in effect as of the date of this annual report, all of which are subject to change. This summary does not deal with all possible tax consequences relating to an investment in our ADSs or ordinary shares, such as the tax consequences under U.S. state and local tax laws or under the tax laws of jurisdictions other than the Cayman Islands, the People’s Republic of China and the United States.
Cayman Islands Taxation
The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us or our shareholders levied by the government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or, after execution, brought within the jurisdiction of the Cayman Islands. The Cayman Islands is not party to any double tax treaties that are applicable to any payments made by our company. There are no exchange control regulations or currency restrictions in the Cayman Islands.
Payments of dividends and capital in respect of our ordinary shares and ADSs will not be subject to taxation in the Cayman Islands and no withholding will be required on the payment of a dividend or capital to any holder of our ordinary shares or the ADSs, nor will gains derived from the disposal of our ordinary shares or the ADSs be subject to Cayman Islands income or corporation tax.
People’s Republic of China Taxation
Under the PRC Enterprise Income Tax Law and its implementation rules, an enterprise established outside of the PRC with a “de facto management body” within the PRC is considered a resident enterprise and will be subject to the enterprise income tax at the rate of 25% on its global income. The implementation rules define the term “de facto management body” as the body that exercises full and substantial control over and overall management of the business, productions, personnel, accounts and properties of an enterprise. In April 2009, the State Administration of Taxation issued a circular, known as Circular 82, which provides certain specific criteria for determining whether the “de facto management body” of a PRC-controlled enterprise that is incorporated offshore is located in China. Although this circular only applies to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreigners, the criteria set forth in the circular may reflect the State Administration of Taxation’s general position on how the “de facto management body” test should be applied in determining the tax resident status of all offshore enterprises. According to Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be regarded as a PRC tax resident by virtue of having its “de facto management body” in China only if all of the following conditions are met: (i) the primary location of the day-to-day operational management is in the PRC; (ii) decisions relating to the enterprise’s financial and human resource matters are made or are subject to approval by organizations or personnel in the PRC; (iii) the enterprise’s primary assets, accounting books and records, company seals, and board and shareholder resolutions, are located or maintained in the PRC; and (iv) at least 50% of voting board members or senior executives habitually reside in the PRC.
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We believe that Uxin Limited is not a PRC resident enterprise for PRC tax purposes. Uxin Limited is not controlled by a PRC enterprise or PRC enterprise group and we do not believe that Uxin Limited meets all of the conditions above. Uxin Limited is a company incorporated outside the PRC. As a holding company, its key assets are its ownership interests in its subsidiaries, and its key assets are located, and its records (including the resolutions of its board of directors and the resolutions of its shareholders) are maintained, outside the PRC. For the same reasons, we believe our other entities outside of China are not PRC resident enterprises either. However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body.” There can be no assurance that the PRC government will ultimately take a view that is consistent with us.
If the PRC tax authorities determine that Uxin Limited is a PRC resident enterprise for enterprise income tax purposes, we may be required to withhold a 10% tax from dividends we pay to our shareholders that are non-resident enterprises, including the holders of the ADSs. In addition, non-resident enterprise shareholders (including our ADS holders) may be subject to a 10% PRC tax on gains realized on the sale or other disposition of ADSs or ordinary shares, if such income is treated as sourced from within the PRC. It is unclear whether our non-PRC individual shareholders (including our ADS holders) would be subject to any PRC tax on dividends or gains obtained by such non-PRC individual shareholders in the event we are deemed to be a PRC resident enterprise. If any PRC tax were to apply to such dividends or gains, it would generally apply at a rate of 20% which in the case of dividends may be withheld at source. Any PRC tax liability may be reduced by an applicable tax treaty. However, it is also unclear whether non-PRC shareholders of Uxin Limited would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC in the event that Uxin Limited is treated as a PRC resident enterprise.
Provided that our Cayman Islands holding company, Uxin Limited, is not deemed to be a PRC resident enterprise, holders of our ADSs and ordinary shares who are not PRC residents will not be subject to PRC income tax on dividends distributed by us or gains realized from the sale or other disposition of our shares or the ADSs. SAT Public Notice 7 further clarifies that, if a non-resident enterprise derives income by acquiring and selling shares in an offshore listed enterprise in the public market, such income will not be subject to PRC tax. In addition, SAT Public Notice 37 provided certain key changes to the previous withholding regime, such as (i) the withholding obligation for a non-resident enterprise deriving dividend arises on the date on which the payment is actually made rather than on the date of the resolution that declared the dividends, (ii) non-resident enterprises are not obligated to report tax to relevant authorities if their withholding agents fail to perform the withholding obligation is removed. However, there is uncertainty as to the application of SAT Public Notice 37 and SAT Public Notice 7, we and our non-PRC resident investors may be at risk of being required to file a return and being taxed under SAT Public Notice 37 and SAT Public Notice 7 and we may be required to expend valuable resources to comply with SAT Public Notice 37 and SAT Public Notice 7 or to establish that we should not be taxed under SAT Public Notice 37 and SAT Public Notice 7. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—We face uncertainty with respect to indirect transfers of equity interests in PRC resident enterprises by their non-PRC shareholders.”
United States Federal Income Taxation
The following discussion is a summary of material U.S. federal income tax considerations generally applicable to the ownership and disposition of the ADSs or Class A ordinary shares by a U.S. Holder (as defined below) that holds the ADSs or Class A ordinary shares as “capital assets” (generally, property held for investment) under the U.S. Internal Revenue Code of 1986, as amended (the “Code”). This discussion is based upon the Code, administrative pronouncements, judicial decisions, final, temporary and proposed Treasury regulations, and the income tax treaty between the PRC and the United States (the “Treaty”), all as of the date hereof, any of which is subject to differing interpretations or change, possibly with retroactive effect. This discussion, moreover, does not address the U.S. federal estate, gift, and alternative minimum tax considerations, Medicare tax on certain net investment or any state, local and non-U.S. tax considerations. 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; |
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| ● | pension plans; | |
| ● | cooperatives; | |
| ● | regulated investment companies; | |
| ● | real estate investment trusts; | |
| ● | broker-dealers; | |
| ● | traders that elect to use a mark-to-market method of accounting; | |
| ● | certain former U.S. citizens or long-term residents; | |
| ● | tax-exempt entities, “individual retirement accounts” or “Roth IRAs”; | |
| ● | persons who acquired their ADSs or Class A ordinary shares pursuant to any employee share option or otherwise as compensation; | |
| ● | persons that hold their ADSs or Class A ordinary shares as part of a straddle, conversion, constructive sale or other integrated transaction for U.S. federal income tax purposes; | |
| ● | persons that have a functional currency other than the U.S. dollar; | |
| ● | persons that actually or constructively own 10% or more of the total combined voting power or value of our stock; 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 the ADSs or Class A ordinary shares.
For purposes of this discussion, a “U.S. Holder” is a person that is, for U.S. federal income tax purposes, a beneficial owner of our ADSs or Class A ordinary shares and:
| ● | a citizen or individual resident of the United States; | |
| ● | a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created in, or organized under the law of the United States, any state therein or the District of Columbia; or | |
| ● | an estate or trust the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source. |
If a partnership (or other entity treated as a partnership for U.S. federal income tax purposes) is a beneficial owner of the ADSs or 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 the ADSs or Class A ordinary shares and their partners are urged to consult their tax advisors regarding an investment in the ADSs or Class A ordinary shares.
Passive Foreign Investment Company Consideration
A non-U.S. corporation, such as our company, will be a passive foreign investment company (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 passive income, or (ii) 50% or more of the value of its assets (generally based on an average of the quarterly values of the assets) during such year is attributable to assets that produce passive income or are held for the production of passive income (the “asset test”). Passive income generally includes dividends, interest, royalties, rents, and capital gains. Goodwill and other intangible assets are generally treated as active assets to the extent associated with business activities that generate active income. For purposes of these calculations, a non-U.S. corporation 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 it owns, directly or indirectly, 25% or more (by value) of the stock.
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We do not believe that we were a PFIC for our taxable year ended March 31, 2024. However, because the determination of whether we have been or will become a PFIC is a fact-intensive inquiry made on an annual basis that depends, in part, upon the composition of our income and assets and the value of our assets from time to time, there can be no assurance that we have not been or will not be a PFIC in any taxable year. In prior Annual Reports on Form 20-F, we stated that we believed that we were a PFIC for U.S. federal income tax purposes for our taxable year ended December 31, 2019, and that it is possible that one or more of our subsidiaries were also PFICs for such year for U.S. federal income tax purposes.
Our PFIC status may depend, in part, on the average value of our goodwill and other intangible assets. If the value of our assets (including our goodwill and other intangible assets) is determined by reference to our market capitalization, fluctuations in the market price of our ADSs may result in us becoming a PFIC for the current or future taxable years. The market price of our ADSs may continue to fluctuate considerably and, consequently, we cannot assure you of our PFIC status for any taxable year. The composition of our income and assets may also be affected by how, and how quickly, we use our liquid assets. In addition, if our revenue from activities that produce passive income increases relative to our revenue from activities that produce non-passive income, our risk of becoming a PFIC may substantially increase, including as a result of our potential future inability to operate as a going concern. If we cease to operate as a going concern, our PFIC status may be adversely affected as a result See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—There is substantial doubt as to our ability to continue as a going concern.” If we cease to operate as a going concern, our PFIC status may be adversely affected as a result. If we are a PFIC for any year during which a U.S. Holder holds our ADSs or Class A ordinary shares, we generally would continue to be treated as a PFIC for all succeeding years during which such U.S. Holder holds our ADSs or Class A ordinary shares even if we cease to meet the threshold requirements for PFIC status. As noted above, we believed we were a PFIC for our taxable year ended December 31, 2019. If we were a PFIC for 2019, we will generally continue to be treated as a PFIC with respect to a U.S. Holder that owns ADSs or Class A ordinary shares that such Holder owned during any portion of 2019, even if we are not a PFIC for any other taxable year, unless the U.S. Holder made or makes a “deemed sale” election with respect to our ADSs or Class A ordinary shares. Under a deemed sale election, the U.S. Holder will be deemed to have sold such ADSs or Class A ordinary shares at their fair market value and any gain recognized on such deemed sale will be treated as an “excess distribution,” as described below. As a result of this election, the U.S. Holder will have additional basis (to the extent of any gain recognized in the deemed sale) and, solely for purposes of the PFIC rules, a new holding period in the ADSs or Class A ordinary shares. U.S. Holders that owned our ADSs or Class A ordinary shares in 2019 are urged to consult their tax advisors regarding the potential application of the deemed sale election rules to their particular circumstances.
If we are a PFIC for any taxable year during which a U.S. Holder owns 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 that have a penalizing effect regardless of whether we remain a PFIC 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 to the extent that it is greater than 125 percent of the average annual distributions paid in the three preceding taxable years or, if shorter, the U.S. Holder’s holding period for the ADSs or Class A ordinary shares), and (ii) any gain realized on the sale or other disposition of ADSs or Class A ordinary shares. Under the PFIC rules:
| ● | such excess distribution and/or gain will be allocated ratably over the U.S. Holder’s holding period for the ADSs or Class A ordinary shares; | |
| ● | such 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 become a PFIC (each, a “pre-PFIC year”), will be taxable as ordinary income; | |
| ● | such 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 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. |
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If we are a PFIC for any taxable year during which a U.S. Holder holds our ADSs or Class A ordinary shares and any of our subsidiaries is also a PFIC, such U.S. Holder would be treated as owning a proportionate amount (by value) of the shares of the lower-tier PFIC for purposes of the application of these rules. U.S. Holders are urged to consult their tax advisors regarding the application of the PFIC rules to any of our subsidiaries.
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. The mark-to-market election is available only for “marketable stock,” which is stock that is regularly traded on a qualified exchange or other market, as defined in applicable Treasury regulations. Our ADSs, but not our Class A ordinary shares, are traded on the Nasdaq Global Select Market, which is a qualified exchange for these purposes. However, a mark-to-market election will not be available if our ADSs are delisted from the Nasdaq Global Select Market and are not listed on any other qualified exchange or if our stock is not regularly traded on a qualified exchange. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Our ADSs will be prohibited from trading in the United States under the HFCAA if the PCAOB is unable to inspect or investigate completely auditors located in China for two consecutive years. The delisting of our ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment.” Over-the-counter quotation systems are not qualified exchanges for these purposes. If a U.S. Holder makes this election with respect to the ADSs, the holder will generally (i) include as ordinary income for each taxable year that we are a PFIC the excess, if any, of the fair market value of ADSs held at the end of the taxable year over the adjusted tax basis of such ADSs and (ii) deduct as an ordinary loss in each such taxable year the excess, if any, of the adjusted tax basis of the ADSs over the fair market value of such ADSs held at the end of the taxable year, but such deduction will only be allowed to the extent of the amount previously included in income as a result of the mark-to-market election. The U.S. Holder’s adjusted tax basis in the ADSs would be adjusted to reflect any income or loss resulting from the mark-to-market election. If a U.S. Holder makes a mark-to-market election in respect of the ADSs and we cease to be a PFIC, the U.S. Holder will not be required to take into account the gain or loss described above during any period that we are not a PFIC. If a U.S. Holder makes a mark-to-market election, any gain such U.S. Holder recognizes upon the sale or other disposition of the ADSs in a year when we are a PFIC will be treated as ordinary income and any loss will be treated ordinary loss to the extent of the net amount previously included in income as a result of the mark-to-market election, with any excess treated as capital loss.
There is no provision in the Code, Treasury regulations or other official guidance that would permit U.S. Holders to make a mark-to-market election for any lower-tier PFICs that we may own, the shares of which are not regularly traded. Therefore, a U.S. Holder may continue to be subject to the PFIC rules with respect to such U.S. Holder’s indirect interest in any investments held by us that are treated as an equity interest in a PFIC for U.S. federal income tax purposes.
If we are a PFIC (or with respect to a particular U.S. Holder are treated as a PFIC) for a taxable year of ours in which we pay a dividend or for the prior taxable year, the favorable tax rate described below with respect to “qualified dividend income” paid to certain non-corporate U.S. Holders will not apply.
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 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 U.S. Holder must generally file an annual report containing such information as the United States Treasury Department may require. Each U.S. Holder should consult its tax advisor regarding the U.S. federal income tax consequences of owning and disposing of the ADSs or Class A ordinary shares if we are or become a PFIC, including the possibility of making a mark-to-market election.
Dividends
The following discussion is subject to the discussion under “—Passive Foreign Investment Company Considerations” above.
Any cash distributions (including the amount of any PRC tax withheld) paid on the 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, it is expected that any distributions we pay will be reported by financial intermediaries to U.S. Holders as dividends. The amount of any dividend income paid in non-U.S. currency will be the U.S. dollar amount calculated by reference to the spot rate in effect on the date of receipt, regardless of whether the payment is in fact converted into U.S. dollars. If the dividend is converted into U.S. dollars on the date of receipt, a U.S. Holder should not be required to recognize foreign currency gain or loss in respect of the amount received. A U.S. Holder may have foreign currency gain or loss if the dividend is converted into U.S. dollars after the date of receipt.
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Dividends will not be eligible for the dividends-received deduction generally available to U.S. corporations under the Code. Subject to applicable limitations, dividends paid on our ADSs to certain non-corporate U.S. investors may be taxable at the favorable rates applicable to long-term capital gains for so long as our ADSs are listed on the Nasdaq Global Select Market or if in the future we are eligible for benefits under the Treaty. There can be no assurance that our ADSs will remain listed on the Nasdaq Global Select Market in the future. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Our ADSs will be prohibited from trading in the United States under the HFCAA if the PCAOB is unable to inspect or investigate completely auditors located in China for two consecutive years. The delisting of our ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment.” However, as described above the favorable rate does not apply if we are (or are treated with respect to a U.S. Holder as) a PFIC, for the year the dividend is paid or the preceding year. Non-corporate U.S. Holders should consult their tax advisers to determine whether the favorable rate will apply to dividends they receive and whether they are subject to any special rules that limit their ability to be taxed at this favorable rate.
In the event that we are deemed to be a PRC resident enterprise under the PRC Enterprise Income Tax Law (see “Item 10. Additional Information—E. Taxation—People’s Republic of China Taxation”), a U.S. Holder may be subject to PRC withholding taxes on dividends paid on the ADSs or Class A ordinary shares. In this event, it is unclear whether U.S. Holders would be entitled to claim benefits under the Treaty. For U.S. foreign tax credit purposes, dividends paid on the ADSs or Class A ordinary shares generally will be treated as income from foreign sources and generally will constitute passive category income. Subject to applicable limitations, which vary depending upon the U.S. Holder’s circumstances, and the discussion below regarding certain Treasury regulations, PRC taxes withheld from dividend payments (at a rate not exceeding any applicable Treaty rate) would be creditable against a U.S. Holder’s U.S. federal income tax liability, but, Treasury regulations provide that, in the absence of an election to apply the benefits of an applicable income tax treaty, in order for foreign income taxes to be creditable, the relevant foreign income tax rules must be consistent with certain U.S. federal income tax principles, and we have not determined whether the PRC income tax system meets these requirements. However, the Internal Revenue Service (the “IRS”) released notices that provide relief from certain of the provisions of the Treasury regulations described above for taxable years ending before the date that a notice or other guidance withdrawing or modifying the temporary relief is issued (or any later date specified in such notice or other guidance). If a U.S. Holder does not elect to claim a foreign tax credit, such holder may be able to 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 foreign tax credits are complex. U.S. Holders are urged to consult their tax advisors regarding the availability of the foreign tax credit under their particular circumstances.
Sale or Other Disposition
The following discussion is subject to the discussion under “—Passive Foreign Investment Company Considerations” above.
A U.S. Holder will generally recognize gain or loss upon the sale or other disposition of our ADSs or Class A ordinary shares in an amount equal to the difference between the amount realized upon the disposition and the U.S. Holder’s adjusted tax basis in such ADSs or Class A ordinary shares. The gain or loss will generally be capital gain or loss. Individuals and other non-corporate U.S. Holders who have held the ADS or Class A ordinary shares for more than one year will generally be eligible for reduced tax rates. The deductibility of a capital loss may be subject to limitations.
As described in “Item 10. Additional Information—E. Taxation—People’s Republic of China Taxation,” if we are deemed to be a PRC resident enterprise under the PRC Enterprise Income Tax Law, gains from the disposition of the ADSs or Class A ordinary shares may be subject to PRC income tax. In this event, it is unclear whether U.S. Holders would be entitled to claim benefits under the Treaty. Under the Code, capital gains of U.S. persons are generally treated as U.S. source income. However, if a U.S. Holder is eligible for the benefits of the Treaty, such holder may be able to elect to treat such gain as PRC source income under the Treaty and claim a foreign tax credit in respect of any PRC taxes on such disposition gains. Pursuant to certain 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. As noted above under “—Dividends,” the IRS recently released notices which provide relief from certain of the provisions of the Treasury regulations discussed above (including the limitation described in the preceding sentence) for taxable years ending before the date that a notice or other guidance withdrawing or modifying the temporary relief is issued (or any later date specified in such notice or other guidance). However, even if these Treasury regulations do not prohibit U.S. Holders from claiming a foreign tax credit with respect to PRC income taxes on disposition gains, other limitations under the foreign tax credit rules may preclude U.S. Holders from claiming a foreign tax credit with respect to such taxes. If a U.S. Holder is precluded from claiming a foreign tax credit, it is possible that any PRC income taxes on disposition gains may either be deductible or reduce the amount realized on the disposition. The rules governing foreign tax credits and deductibility of foreign taxes are complex. U.S. Holders should consult their tax advisors regarding the availability of a foreign tax credit or deduction in light of their particular circumstances, including the applicability of the notice, their eligibility for benefits under the Treaty, the Treaty’s resourcing rule, the obligation to report a Treaty-based return position and any limitation on the creditability or deductibility of any PRC tax on disposition gains in their particular circumstances.
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Information Reporting and Backup Withholding
Payments of dividends and sales proceeds that are made within the United States or through certain U.S.-related financial intermediaries may be subject to information reporting and backup withholding, unless (i) the U.S. Holder is a corporation or other “exempt recipient” (and establishes that status if required to do so) and (ii) in the case of backup withholding, the U.S. Holder provides a correct taxpayer identification number and certifies that it is not subject to backup withholding. The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit against its U.S. federal income tax liability and may entitle it to a refund, provided that the required information is timely furnished to the IRS.
Certain U.S. Holders who are individuals (or certain specified entities) may be required to report information relating to their ownership of Class A ordinary shares or non-U.S. accounts through which ADSs or Class A ordinary shares are held. U.S. Holders should consult their tax advisers regarding their reporting obligations with respect to ADSs and Class A ordinary shares.
| F. | Dividends and Paying Agents |
Not applicable.
| G. | Statement by Experts |
Not applicable.
| H. | Documents on Display |
We previously filed with the SEC our registration statement on Form F-1 (Registration No. 333-225266), as amended, including the annual report contained therein, to register the issuance and sale of our ordinary shares represented by ADSs in relation to our initial public offering. We have also filed with the SEC the registration statement on Form F-6 (Registration No. 333-225594) to register the ADSs.
We are subject to periodic reporting and other informational requirements of the Exchange Act as applicable to foreign private issuers, and are required to file reports and other information with the SEC. Specifically, we are required to file annually an annual report on Form 20-F within four months after the end of each fiscal year, which is March 31. All information filed with the SEC can be obtained over the internet at the SEC’s website at www.sec.gov. As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of quarterly reports and proxy statements, and officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act.
We will furnish the Bank of New York Mellon, the depositary of the ADSs, with our annual reports, which will include a review of operations and annual audited consolidated financial statements prepared in conformity with U.S. GAAP, and all notices of shareholders’ meetings and other reports and communications that are made generally available to our shareholders. The depositary will make such notices, reports and communications available to holders of ADSs and, upon our request, will mail to all record holders of ADSs the information contained in any notice of a shareholders’ meeting received by the depositary from us.
In accordance with Nasdaq Stock Market Rule 5250(d), we will post this annual report on Form 20-F on our website at http://ir.xin.com. In addition, we will provide hardcopies of our annual report free of charge to shareholders and ADS holders upon request.
| I. | Subsidiary Information |
Not applicable.
| J. | Annual Report to Security Holders |
Not applicable.
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| Item 11. | Quantitative and Qualitative Disclosures about Market Risk |
Interest Rate Risk
We have not been exposed to material risks due to changes in market interest rates, and we have not used any derivative financial instruments to manage our interest risk exposure.
We may invest in interest-earning instruments. Investments in both fixed rate and floating rate interest earning instruments carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall.
Foreign Exchange Risk
Substantially all of our revenues and expenses are denominated in RMB. We do not believe that we currently have any significant direct foreign exchange risk and have not used any derivative financial instruments to hedge exposure to such risk. Although our exposure to foreign exchange risks should be limited in general, the value of your investment in our ADSs will be affected by the exchange rate between U.S. dollar and Renminbi because the value of our business is effectively denominated in RMB, while our ADSs will be traded in U.S. dollars.
The conversion of Renminbi into foreign currencies, including U.S. dollars, is based on rates set by the People’s Bank of China. The Renminbi has fluctuated against the U.S. dollar, at times significantly and unpredictably. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between Renminbi and the U.S. dollar in the future.
To the extent that we need to convert U.S. dollars into Renminbi for our operations, appreciation of the Renminbi against the U.S. dollar would have an adverse effect on the RMB amount we receive from the conversion. Conversely, if we decide to convert Renminbi into U.S. dollars for the purpose of making payments for dividends on our Class A ordinary shares or the ADSs or for other business purposes, appreciation of the U.S. dollar against the Renminbi would have a negative effect on the U.S. dollar amounts available to us.
As of March 31, 2024, we had RMB-denominated cash and cash equivalents and restricted cash RMB17.3 million, and U.S. dollar-denominated cash balances of US$0.9 million. Assuming we had converted RMB17.3million into U.S. dollars at the exchange rate of RMB7.2203 for US$1.00 as of March 28, 2024, our U.S. dollar cash balance converted from RMB-denominated cash and cash equivalents would have been US$2.4 million. If the RMB had depreciated by 10% against the U.S. dollar, our U.S. dollar cash balance converted from RMB-denominated cash and cash equivalents would have been US$2.2 million instead. Assuming we had converted US$0.9 million into RMB at the exchange rate of RMB7.2203 for US$1.00 as of March 28, 2024, our RMB cash balance converted from U.S. dollar-denominated cash balances would have been RMB6.8 million. If the RMB had depreciated by 10% against the U.S. dollar, our RMB cash balance converted from U.S. dollar-denominated cash balances would have been RMB7.5 million instead.
Inflation
To date, inflation in the PRC has not materially impacted our results of operations. According to the National Bureau of Statistics of China, the year-over-year percent changes in the consumer price index were increases of 1.5% and 1.8% for December 2021 and 2022, and decrease of 0.3% for December 2023, respectively. Although we have not been materially affected by inflation in the past, we can provide no assurance that we will not be affected in the future by higher rates of inflation in the PRC. For example, certain operating costs and expenses, such as employee compensation and office operating expenses may increase as a result of higher inflation. Additionally, because a substantial portion of our assets consists of cash and cash equivalents and short-term investments, high inflation could significantly reduce the value and purchasing power of these assets. We are not able to hedge our exposure to higher inflation in China.
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| 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
An ADS holder will be required to pay the following service fees to the depositary bank and certain taxes and governmental charges (in addition to any applicable fees, expenses, taxes and other governmental charges payable on the deposited securities represented by any of the ADSs):
Persons depositing or withdrawing Class A ordinary shares or ADS holders must pay: |
For: | |
| $5.00 (or less) per 100 ADSs (or portion of 100 ADSs) | Issuance of ADSs, including issuances resulting from a distribution of Class A ordinary shares or rights or other property
Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates | |
| $0.05 (or less) per ADS | Any cash distribution to ADS holders | |
| A fee equivalent to the fee that would be payable if securities distributed to you had been Class A ordinary shares and the Class A ordinary shares had been deposited for issuance of ADSs | Distribution of securities distributed to holders of deposited securities (including rights) that are distributed by the depositary to ADS holders | |
| $0.05 (or less) per ADS per calendar year | Depositary services | |
| Registration or transfer fees | Transfer and registration of Class A ordinary shares on our share register to or from the name of the depositary or its agent when you deposit or withdraw Class A ordinary shares | |
| Expenses of the depositary | Cable and facsimile transmissions (when expressly provided in the deposit agreement)
Converting foreign currency to U.S. dollars | |
| Taxes and other governmental charges the depositary or the custodian has to pay on any ADSs or Class A ordinary shares underlying ADSs, such as stock transfer taxes, stamp duty or withholding taxes | As necessary | |
| Any charges incurred by the depositary or its agents for servicing the deposited securities | As necessary |
Fees and Other Payments Made by the Depositary to Us
The depositary has agreed to reimburse us annually for our expenses incurred in connection with investor relationship programs and any other program related to our ADS facility and the travel expense of our key personnel in connection with such programs. The depositary has also agreed to provide additional payments to us based on the applicable performance indicators relating to our ADS facility. There are limits on the amount of expenses for which the depositary will reimburse us, but the amount of reimbursement available to us is not necessarily tied to the amount of fees the depositary collects from investors. We received reimbursement from the depositary for our expenses incurred in connection with investor relationship programs related to the ADS facility and the travel expense of our key personnel in connection with such programs amounted to approximately US$2.0 million (after tax) in April 2022 and approximately US$1.3 million (after tax) in August 2023, respectively. Except for the accrued and unpaid amount prior to the date of the Second ADS Ratio Change, the depositary shall no longer pay any reimbursement to us after the Second ADS Ratio Change.
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Part II
| Item 13. | Defaults, Dividend Arrearages and Delinquencies |
None.
| Item 14. | Material Modifications to the Rights of Security Holders and Use of Proceeds |
None.
| Item 15. | Controls and Procedures |
| A. | 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 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 the end of the period covered by this annual report, our disclosure controls and procedures were ineffective as of March 31, 2024, because of the material weakness in our internal control over financial reporting described below. However, we believe that the consolidated financial statements included in this annual report on Form 20-F correctly present our financial position, results of operations and cash flows for the fiscal years covered thereby in all material respects.
| B. | 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 Rule 13a-15(f) under the Exchange Act. Our 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 U.S. GAAP, and includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of our company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with U.S. GAAP, and that receipts and expenditures of our company are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of the unauthorized acquisition, use or disposition of our company’s assets that could have a material effect on the consolidated financial statements. Our management evaluated the effectiveness of our internal control over financial reporting as of March 31, 2024, as required by Rule 13a-15(c) of the Exchange Act, based on criteria established in the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management has concluded that our internal control over financial reporting was ineffective as of March 31, 2024 due to a material weakness identified in our internal control over financial reporting as described below.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness of our internal control over financial reporting to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.
Internal Control Over Financial Reporting
During the audit of our financial statements for the fiscal year ended March 31, 2024, we determined that one material weakness (initially identified in connection with the audit for the years ended December 31, 2016 and 2017) remains unremediated at the end of the fiscal year ended March 31, 2024. As defined in the standards established by the Public Company Accounting Oversight Board of the United States, a “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness identified is related to the lack of sufficient accounting staff and management resources with appropriate knowledge of U.S. GAAP and SEC reporting and compliance requirements.
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We are in the process of implementing a number of measures to address the material weakness identified, including: (i) hire more qualified financial and reporting personnel, including financial reporting manager, equipped with relevant U.S. GAAP and SEC reporting experiences and qualifications to strengthen the financial reporting function and to set up financial and system control framework; (ii) implement regular and continuous U.S. GAAP accounting and financial reporting training programs for our accounting and financial reporting personnel; and (iii) enhance our process and controls in dealing with non-recurring and complex transactions.
We cannot assure you that we will remediate our material weakness in a timely manner. The process of designing and implementing an effective financial reporting system is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a financial reporting system that is adequate to satisfy our reporting obligation. See “Risk Factors—Risks Related to Our Business and Industry—If we fail to develop and maintain an effective system of internal control over financial reporting, we may be unable to accurately report our financial results or prevent fraud.”
| C. | Attestation Report of the Registered Public Accounting Firm |
This annual report on Form 20-F does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the SEC where domestic and foreign registrants that are non-accelerated filers, which we are, are not required to provide the auditor attestation report.
| D. | Changes in Internal Control over Financial Reporting |
Other than as described above, there were no changes in our internal controls over financial reporting that occurred during the period covered by this annual report on Form 20-F that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| Item 16. | [Reserved] |
| Item 16A. | Audit Committee Financial Expert |
Our board of directors has determined that Rong Lu, 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 member of our audit committee, is an audit committee financial expert.
| Item 16B. | Code of Ethics |
Our board of directors adopted a code of business conduct and ethics that applies to our directors, officers and employees in June 2018. We have posted a copy of our code of business conduct and ethics on our website at http://irxin.com.
| Item 16C. | Principal Accountant Fees and Services |
The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered by PricewaterhouseCoopers Zhong Tian LLP, our principal external auditors, for the periods indicated.
| In the Fiscal Year ended March 31, 2022 | In the Fiscal Year ended March 31, 2023 | In the Fiscal Year ended March 31, 2024 | ||||||||||
| Audit fees(1) | US$1,381,856 | US$1,295,940 | US$872,540 | |||||||||
| All other fees(2) | — | — | — | |||||||||
| (1) | “Audit fees” means the aggregate fees billed in each of the fiscal years listed for professional services rendered by our principal auditors for the audit of our annual financial statements and assistance with and review of documents filed with the SEC. In the fiscal year of 2022, 2023 and 2024, the audit refers to financial audit. |
| (2) | “All other fees” means the aggregate fees billed in each of the fiscal years listed for professional services rendered by our principal auditors associated with certain financial due diligence projects, permissible services to review and comment on internal control design over financial reporting and other advisory services. |
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The policy of our audit committee is to pre-approve all audit and non-audit services provided by PricewaterhouseCoopers Zhong Tian LLP, including audit services, audit-related services, tax services and other services as described above, other than those for de minimis services which are approved by the audit committee prior to the completion of the audit.
| Item 16D. | Exemptions from the Listing Standards for Audit Committees |
Not applicable.
| Item 16E. | Purchases of Equity Securities by the Issuer and Affiliated Purchasers |
None.
| Item 16F. | Change in Registrant’s Certifying Accountant |
Not applicable.
| Item 16G. | Corporate Governance |
As a Cayman Islands company listed on Nasdaq, 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.
Maples and Calder (Hong Kong) LLP, our Cayman Islands counsel, has provided a letter to the Nasdaq Stock Market certifying that under Cayman Islands law, (i) we are not required to hold annual shareholders meetings every year; (ii) shareholder approval is not required for the adoption or amendment of an equity compensation plan; (iii) shareholder approval is not required for 20% share issuance at a price that is less than the minimum price as required in Nasdaq Rule 5635(d); (iv) we are not required to maintain a majority independent board as required in Nasdaq Rule 5605(b)(1); (v) shareholder approval is not required for issuance or potential issuance of securities that will result in a change of control as required in Nasdaq Rule 5635(b); (vi) we are not required to ensure that voting rights of existing shareholders of publicly traded common stock registered under Section 12 of the Securities Exchange Act of 1934 of the United States cannot be disparately reduced or restricted through any corporate action or issuance; (vii) we are not required to solicit proxies and provide proxy statements for all meetings of shareholders and provide copies of such proxy solicitation to Nasdaq; (viii) we are not required to provide for a quorum as specified in its by-laws for any meeting of the holders of common stock; provided, however, that in no case shall such quorum be less than 33 1/3 % of the outstanding shares of the company’s common voting stock; (ix) shareholder approval is not required in certain circumstances prior to an issuance of securities in connection with the acquisition of the stock or assets of another company as required in Nasdaq Rule 5635(a); (x) shareholder approval is not required prior to the issuance of securities when a stock option or purchase plan is to be established or materially amended or other equity compensation arrangement made or materially amended, pursuant to which stock may be acquired by officers, directors, employees, or consultants, subject to certain exceptions, as required in Nasdaq Rule 5635(c); and (xi) shareholder approval is not required prior to the issuance of securities in connection with a transaction other than a public offering involving the sale, issuance or potential issuance by the company of common stock (or securities convertible into or exercisable for common stock) at a price less than the lower of (i) the Nasdaq Official Closing Price (as reflected on Nasdaq.com) immediately preceding the signing of the binding agreement; or (ii) the average Nasdaq Official Closing Price of the common stock (as reflected on Nasdaq.com) for the five trading days immediately preceding the signing of the binding agreement, which alone or together with sales by officers, directors or substantial shareholders of the company equals 20% or more of common stock or 20% or more of the voting power outstanding before the issuance.
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We followed and intend to continue to follow our home country practice in lieu of the requirement to hold an annual meeting of shareholders no later than one year after the end of a fiscal year under Nasdaq Rule 5620(a). Specifically, we followed home country practice in connection with the transaction with NIO Capital and Joy Capital in June 2021, the transaction with NIO Capital in July 2022 and the adoption of our 2018 Second Amended and Restated Share Incentive Plan in November 2018 in each case without seeking shareholder approval. In addition, in connection with the transaction with Alpha and Joy Capital in June 2023 regarding certain warrants initially issued by us to NIO Capital and Joy Capital in 2021, we have relied on home country practices in lieu of (i) Nasdaq’s requirement that voting rights of existing shareholders of publicly traded common stock registered under Section 12 of the Securities Exchange Act of 1934 of the United States cannot be disparately reduced or restricted through any corporate action or issuance; (ii) Nasdaq’s requirement that shareholder approval is required prior to the issuance of securities when the issuance or potential issuance will result in a change of control of the company and (iii) Nasdaq’s requirement that shareholder approval is required prior to issuance at a price that is less than the minimum price requirements stipulated by the Nasdaq Rule 5635(d). Lastly, we have relied on home country practice and our board of directors does not consist of a majority of independent directors. In addition, we rely on home country practice so that our board of directors does not consist of a majority of independent directors.
Other than the practices described above, there are no significant differences between our corporate governance practices and those followed by U.S. domestic companies under Nasdaq Stock Market Rules.
However, if we choose to follow other home country practice in the future, our shareholders may be afforded less protection than they otherwise would under the Nasdaq corporate governance listing standards applicable to U.S. domestic issuers. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our ADSs—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.”
| Item 16H. | Mine Safety Disclosure |
Not applicable.
| Item 16I. | Disclosure Regarding Foreign Jurisdiction that Prevent Inspections |
Not applicable.
| Item 16J. | Insider Trading Policies |
We have adopted insider trading policies and procedures governing the purchase, sale and other dispositions of our securities by directors, senior management and employees, which policies and procedures are reasonably designed to promote compliance with applicable insider trading laws, rules and regulations, and any listing standards applicable to us. We have filed our insider trading policies, as amended, as Exhibit 11.2 to this annual report on Form 20-F.
| Item 16K. | Cybersecurity |
Cybersecurity risk management is an integral part of our overall risk management program. Our cybersecurity risk management program is based on industry best practices and provide a framework for handling cybersecurity threats and incidents, including threats and incidents associated with the use of applications developed and services provided by third-party service providers, and facilitate coordination across different departments of our company. This framework includes steps for assessing the severity of a cybersecurity threat, identifying the source of a cybersecurity threat including whether the cybersecurity threat is associated with a third-party service provider, implementing cybersecurity countermeasures and mitigation strategies and informing management and our board of directors of material cybersecurity threats and incidents. Our cybersecurity team also engages third-party security experts for risk assessment and our cybersecurity team is responsible for our system enhancements. In addition, our cybersecurity team provides training to all employees annually.
Our board of directors has overall oversight responsibility for our risk management, and delegates cybersecurity risk management oversight to the audit committee of the board of directors. The audit committee is responsible for ensuring that management has processes in place designed to identify and evaluate cybersecurity risks to which the company is exposed and implement processes and programs to manage cybersecurity risks and mitigate cybersecurity incidents. The audit committee also reports material cybersecurity risks to our full board of directors. Management is responsible for identifying, considering and assessing material cybersecurity risks on an ongoing basis, establishing processes to ensure that such potential cybersecurity risk exposures are monitored, putting in place appropriate mitigation measures and maintaining cybersecurity programs. Our cybersecurity programs are under the direction of our chief executive officer who receives reports from our cybersecurity team and monitors the prevention, detection, mitigation, and remediation of cybersecurity incidents. Our chief executive officer has rich management experience, including cybersecurity management. Our vice president of technology, the member of our cybersecurity team, is an experienced information system security professional and information security manager with years of experience. Management, including the chief executive officer and our cybersecurity team, regularly update the audit committee on the company’s cybersecurity programs, material cybersecurity risks and mitigation strategies and provide cybersecurity reports annually that cover, among other topics, third-party assessments of the company’s cybersecurity programs, developments in cybersecurity and updates to the company’s cybersecurity programs and mitigation strategies.
In the fiscal year of 2024, we did not identify any cybersecurity threats that have materially affected or are reasonably likely to materially affect our business strategy, results of operations, or financial condition. However, despite our efforts, we cannot eliminate all risks from cybersecurity threats, or provide assurances that we have not experienced an undetected cybersecurity incident. For more information about these risks, please see “Item 3. Key Information—3.D. Risk Factors—Risk Related to Our Business and Industry—Our business generates and processes a large amount of data, and we are required to comply with PRC and other applicable laws relating to privacy and cybersecurity. The improper use or disclosure of data could have a material and adverse effect on our business and prospects” on page 16 of this annual report.
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part iii
| Item 17. | Financial Statements |
We have elected to provide financial statements pursuant to Item 18.
| Item 18. | Financial Statements |
The consolidated financial statements of Uxin Limited, its subsidiaries and the former VIEs, as applicable, are included at the end of this annual report.
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| Item 19. | Exhibits |
| 140 |
| 141 |
| 142 |
| 143 |
| 144 |
| 145 |
| * | Filed herewith |
| ** | Furnished herewith |
| † | Certain information has been excluded from this exhibit pursuant to Rule 406 under the Securities Act. |
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SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing its annual report on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
| Uxin Limited | ||
| By: | /s/ Kun Dai | |
| Name: | Kun Dai | |
| Title: | Chairman and Chief Executive Officer | |
| Date: July 31, 2024 | ||
| 147 |
UXIN LIMITED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| F-1 |
UXIN LIMITED
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Uxin Limited
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Uxin Limited and its subsidiaries (the “Company”) as of March 31, 2024 and 2023, and the related consolidated statements of comprehensive loss, changes in shareholders’ deficit and cash flows for each of the three years in the period ended March 31, 2024, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended March 31, 2024 in conformity with accounting principles generally accepted in the United States of America.
Substantial Doubt about the Company’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has incurred net losses since inception and, as of March 31, 2024, had an accumulated deficit and net current liability and the Company incurred operating cash outflow during the fiscal year ended March 31, 2024. These events and conditions raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
| F-2 |
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Fair value of a down round feature triggered for the senior convertible preferred shares
As described in Notes 2.24, 16 and 21 to the consolidated financial statements, the conversion rights of the Company’s senior convertible preferred shares issued include a conversion price down round feature. The down round feature is triggered when the Company provides for a lower conversion price in subsequent convertible preferred shares offerings. The provision of a lower conversion price results in the repricing of existing convertible preferred offerings to match any such lower stated conversion rate. When the down round feature is triggered, the Company measures the value of the effect of the feature as the difference between (a) the fair value of the issued financial instrument (without the down round feature) with a conversion or exercise price corresponding to the stated conversion or exercise price before the conversion or exercise price reduction and (b) the fair value of the issued financial instrument (without the down round feature) with a conversion or exercise price corresponding to the reduced conversion or exercise price upon the down round feature being triggered. The Company determined that, the reduction of the conversion price for senior convertible preferred shares in August 2023 and March 2024 triggered the down round feature operative within the then existing senior convertible preferred shares. The fair value impact related to the reduction in the conversion price of the senior convertible preferred shares in August 2023 and March 2024, amounting to RMB278.8 million and RMB1,781.5 million respectively, was recorded as a charge to accumulated deficit and a credit to additional paid in capital in permanent equity. For the fair value impact related to the reduction in the conversion price of the senior convertible preferred shares, with the assistance from a third-party valuation firm, the Company made estimation using a hybrid method comprising the probability-weighted method and the Black-Scholes option pricing model. The use of this hybrid method includes significant unobservable inputs to measure the fair value of the down round feature which required management to make judgments and assumptions relating to probability of the scenarios assumed, expected volatility and expected term.
The principal considerations for our determination that performing procedures relating to the fair value of the down round feature triggered for the senior convertible preferred shares is a critical audit matter are the significant judgment by management when developing the fair value estimation of the down round feature, which in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence relating to management’s significant assumptions. The audit effort also involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among others, (a) reading the senior convertible preferred shares subscription agreements to verify the conversion prices; (b) testing management’s process to estimate the fair value of the down round feature; (c) evaluating the appropriateness of the hybrid method comprising the probability-weighted method and the Black-Scholes option pricing model; (d) testing the completeness, accuracy and relevance of underlying data used in the hybrid method; and (e) evaluating the reasonableness of management’s significant assumptions, including the probability of the scenarios assumed, expected volatility and expected term. In addition, the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained from these procedures.
/s/
July 31, 2024
We have served as the Company’s auditor since 2017.
| F-3 |
UXIN LIMITED
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2023 AND 2024
(All amounts in thousands, except for share and per share data, unless otherwise noted)
March 31, 2023 | March 31, 2024 | |||||||||||
| RMB | RMB | US$ | ||||||||||
| (Note 2.6) | ||||||||||||
| ASSETS | ||||||||||||
| Current assets: | ||||||||||||
| Cash and cash equivalents | ||||||||||||
| Restricted cash | ||||||||||||
| Accounts receivable, net | ||||||||||||
| Inventory, net | ||||||||||||
| Loans recognized as a result of payments under guarantees, net of provision for credit losses of RMB | ||||||||||||
| Other receivables, net of provision for credit losses of RMB | ||||||||||||
| Prepaid expenses and other current assets | ||||||||||||
| Total current assets | ||||||||||||
| Non-current assets: | ||||||||||||
| Property, equipment and software, net | ||||||||||||
| Long-term investments | ||||||||||||
| Finance lease right-of-use assets, net | ||||||||||||
| Operating lease right-of-use assets, net | ||||||||||||
| Other non-current assets | ||||||||||||
| Total non-current assets | ||||||||||||
| Total assets | ||||||||||||
| F-4 |
UXIN LIMITED
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2023 AND 2024
(All amounts in thousands, except for share and per share data, unless otherwise noted)
March 31, 2023 | March 31, 2024 | |||||||||||
| RMB | RMB | US$ | ||||||||||
| (Note 2.6) | ||||||||||||
| LIABILITIES, MEZZANINE EQUITY AND SHAREHOLDERS’ DEFICIT | ||||||||||||
| Current liabilities | ||||||||||||
| Accounts payable | ||||||||||||
| Other payables and other current liabilities | ||||||||||||
| Current portion of finance lease liabilities | ||||||||||||
| Current portion of operating lease liabilities | ||||||||||||
| Warrant liabilities | ||||||||||||
| Short-term borrowing from third parties | ||||||||||||
| Short-term borrowing from related party | ||||||||||||
| Current portion of long-term debt and borrowing | ||||||||||||
| Total current liabilities | ||||||||||||
| Non-current liabilities | ||||||||||||
| Consideration payable to WeBank | ||||||||||||
| Finance lease liabilities | ||||||||||||
| Operating lease liabilities | ||||||||||||
| Long-term borrowing | ||||||||||||
| Long-term debt | ||||||||||||
| Total non-current liabilities | ||||||||||||
| Total liabilities | ||||||||||||
| F-5 |
UXIN LIMITED
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2023 AND 2024
(All amounts in thousands, except for share and per share data, unless otherwise noted)
March 31, 2023 | March 31, 2024 | |||||||||||
| RMB | RMB | US$ | ||||||||||
| (Note 2.6) | ||||||||||||
| Commitments | ||||||||||||
| Mezzanine equity | ||||||||||||
| Redeemable non-controlling interests | ||||||||||||
| Senior convertible preferred shares (US$ par value, and shares authorized as of March 31, 2023 and 2024, respectively; and shares issued and outstanding as of March 31, 2023 and 2024, respectively) | ||||||||||||
| Subscription receivable from preferred shareholders | ( | ) | ||||||||||
| Total Mezzanine equity | ||||||||||||
| Shareholders’ deficit | ||||||||||||
| Ordinary shares (US$par value, and shares authorized as of March 31, 2023 and 2024, respectively; Class A ordinary shares and Class A ordinary shares issued and outstanding as of March 31, 2023 and 2024, respectively; Class B ordinary shares issued and outstanding as of March 31, 2023 and 2024) | ||||||||||||
| Additional paid-in capital | ||||||||||||
| Subscription receivable from shareholders | ( | ) | ( | ) | ||||||||
| Accumulated other comprehensive income | ||||||||||||
| Accumulated deficit | ( | ) | ( | ) | ( | ) | ||||||
| Total Uxin Limited shareholders’ deficit | ( | ) | ( | ) | ( | ) | ||||||
| Non-controlling interests | ( | ) | ( | ) | ( | ) | ||||||
| Total shareholders’ deficit | ( | ) | ( | ) | ( | ) | ||||||
| Total liabilities, mezzanine equity and shareholders’ deficit | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements
| F-6 |
UXIN LIMITED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
FOR THE FISCAL YEARS ENDED MARCH 31, 2022, 2023 AND 2024
(All amounts in thousands, except for share and per share data, unless otherwise noted)
| For the fiscal years ended March 31, | ||||||||||||||||
| 2022 | 2023 | 2024 | ||||||||||||||
| RMB | RMB | RMB | US$ | |||||||||||||
| (Note 2.6) | ||||||||||||||||
| Revenues: | ||||||||||||||||
| Retail vehicle sales | ||||||||||||||||
| Wholesale vehicle sales | ||||||||||||||||
| Others | ||||||||||||||||
| Total Revenues | ||||||||||||||||
| Cost of revenues | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Sales and marketing | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Research and development | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| General and administrative | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Reversal of/(provision for) credit losses, net | ( | ) | ||||||||||||||
| Total operating expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other operating income, net | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest income | ||||||||||||||||
| Interest expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income | ||||||||||||||||
| Other expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Foreign exchange (losses)/gains | ( | ) | ( | ) | ||||||||||||
| Fair value impact of the issuance of senior convertible preferred shares | ( | ) | ( | ) | ||||||||||||
| Losses from extinguishment of debt | ( | ) | ||||||||||||||
| Loss before income tax expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Dividend from long-term investment | ||||||||||||||||
| Equity in income/(loss) of affiliates, net of tax | ( | ) | ( | ) | ( | ) | ||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| F-7 |
UXIN LIMITED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
FOR THE FISCAL YEARS ENDED MARCH 31, 2022, 2023 AND 2024
(All amounts in thousands, except for share and per share data, unless otherwise noted)
| For the fiscal years ended March 31, | ||||||||||||||||
| 2022 | 2023 | 2024 | ||||||||||||||
| RMB | RMB | RMB | US$ | |||||||||||||
| (Note 2.6) | ||||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Less: net (loss)/profit attributable to redeemable non-controlling interests and non-controlling interests shareholders | ( | ) | ||||||||||||||
| Net loss attributable to Uxin Limited | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Deemed dividend to preferred shareholders due to triggering of a down round feature | ( | ) | ( | ) | ( | ) | ||||||||||
| Net loss attributable to ordinary shareholders | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other comprehensive income/(loss) | ||||||||||||||||
| Foreign currency translation, net of nil tax | ( | ) | ||||||||||||||
| Total comprehensive loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Less: total comprehensive (loss)/profit attributable to redeemable non-controlling interests and non-controlling interests shareholders | ( | ) | ||||||||||||||
| Total comprehensive loss attributable to Uxin Limited | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| F-8 |
UXIN LIMITED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
FOR THE FISCAL YEARS ENDED MARCH 31, 2022, 2023, AND 2024
(All amounts in thousands, except for share and per share data, unless otherwise noted)
| For the fiscal years ended March 31, | ||||||||||||||||
| 2022 | 2023 | 2024 | ||||||||||||||
| RMB | RMB | RMB | US$ | |||||||||||||
| (Note 2.6) | ||||||||||||||||
| Net loss attributable to ordinary shareholders | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Weighted average shares outstanding – basic | ||||||||||||||||
| Weighted average shares outstanding – diluted | ||||||||||||||||
| Net loss per share for ordinary shareholders, basic | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss per share for ordinary shareholders, diluted | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-9 |
UXIN LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIT
FOR THE FISCAL YEARS ENDED MARCH 31, 2022, 2023 AND 2024
(All amounts in thousands, except for share and per share data, unless otherwise noted)
Ordinary share (US $ par value) | Additional | Accumulated other | Total Uxin Limited | Non- | Total | |||||||||||||||||||||||||||
Number of shares | Amount | paid-in capital | comprehensive income | Accumulated deficit | shareholders’ deficit | controlling interests | shareholders’ deficit | |||||||||||||||||||||||||
| RMB | RMB | RMB | RMB | RMB | RMB | RMB | ||||||||||||||||||||||||||
| Balance as of March 31, 2021 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Foreign currency translation adjustments | - | |||||||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Issuance of ordinary shares due to exercise of the share options | ||||||||||||||||||||||||||||||||
| Share-based compensation | - | |||||||||||||||||||||||||||||||
| Debt restructuring gain from equity holders of the Company (Note 11) | - | |||||||||||||||||||||||||||||||
| Contribution from a shareholder due to the Restructuring (Note 2.2) | - | |||||||||||||||||||||||||||||||
| Conversion of convertible notes (Note 11) | ||||||||||||||||||||||||||||||||
| Balance as of March 31, 2022 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance as of March 31, 2022 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Foreign currency translation adjustments | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Deemed dividend to preferred shareholders due to triggering of a down round feature (Note 16) | - | ( | ) | |||||||||||||||||||||||||||||
| Issuance of ordinary shares due to exercise of the share options | ||||||||||||||||||||||||||||||||
| Share-based compensation | - | |||||||||||||||||||||||||||||||
| Issuance of ordinary shares to 58.com Holdings Inc. and ClearVue UXin Holdings, Ltd. (“ClearVue”) (Note 11) | ||||||||||||||||||||||||||||||||
| Balance as of March 31, 2023 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| F-10 |
UXIN LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIT
FOR THE FISCAL YEARS ENDED MARCH 31, 2022, 2023 AND 2024
(All amounts in thousands, except for share and per share data, unless otherwise noted)
Ordinary share (US $ par value) | Additional | Subscription receivable | Accumulated other | Total Uxin Limited | Non- | Total | ||||||||||||||||||||||||||||||
| Number of | paid-in | from | comprehensive | Accumulated | shareholders’ | controlling | shareholders’ | |||||||||||||||||||||||||||||
| shares | Amount | capital | shareholders | income | deficit | deficit | interests | deficit | ||||||||||||||||||||||||||||
| RMB | RMB | RMB | RMB | RMB | RMB | RMB | RMB | |||||||||||||||||||||||||||||
| Balance as of March 31, 2023 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Foreign currency translation adjustments | - | |||||||||||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Net loss attributable to redeemable non-controlling interests | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Deemed dividend to preferred shareholders due to triggering of a down round feature (Note 16) | - | ( | ) | |||||||||||||||||||||||||||||||||
| Conversion of senior convertible preferred shares into Class A ordinary shares | ( | ) | ||||||||||||||||||||||||||||||||||
| Issuance of ordinary shares due to exercise of the share options | ( | ) | ||||||||||||||||||||||||||||||||||
| Share-based compensation | - | |||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2024 | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-11 |
UXIN LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED MARCH 31, 2022, 2023 AND 2024
(All amounts in thousands, except for share and per share data, unless otherwise noted)
| For the fiscal years ended March 31, | ||||||||||||||||
| 2022 | 2023 | 2024 | ||||||||||||||
| RMB | RMB | RMB | US$ | |||||||||||||
| (Note 2.6) | ||||||||||||||||
| Cash flows used in operating activities: | ||||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Adjustments to reconcile net loss to net cash generated from operating activities: | ||||||||||||||||
| Shared-based compensation | ||||||||||||||||
| Depreciation and amortization of property, equipment and software | ||||||||||||||||
| Amortization of intangible assets | ||||||||||||||||
| Amortization of right-of-use assets | ||||||||||||||||
| (Gains)/loss from disposal of property, equipment and software | ( | ) | ||||||||||||||
| Equity in (income)/loss of affiliates | ( | ) | ||||||||||||||
| Impairment loss for equity investments accounted for using measurement alternative (Note 7) | ||||||||||||||||
| Inventory valuation adjustments | ( | ) | ||||||||||||||
| (Reversal of)/provision for credit losses | ( | ) | ( | ) | ( | ) | ||||||||||
| Guarantee income | ( | ) | ( | ) | ||||||||||||
| Discounting impact of non-current consideration payables | ||||||||||||||||
| Fair value impact of the issuance of senior convertible preferred shares (Note 11, 16) | ( | ) | ( | ) | ||||||||||||
| Gains from waiver of operating payables (Note 12) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Losses from extinguishment of debt | ||||||||||||||||
| F-12 |
UXIN LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED MARCH 31, 2022, 2023 AND 2024
(All amounts in thousands, except for share and per share data, unless otherwise noted)
| For the fiscal years ended March 31, | ||||||||||||||||
| 2022 | 2023 | 2024 | ||||||||||||||
| RMB | RMB | RMB | US$ | |||||||||||||
| (Note 2.6) | ||||||||||||||||
| Changes in operating assets and liabilities: | ||||||||||||||||
| Receivables, prepaid expenses and other current assets | ( | ) | ( | ) | ||||||||||||
| Amounts due from related parties | ||||||||||||||||
| Loans recognized as a result of payments under guarantees | ||||||||||||||||
| Financial lease receivables | ||||||||||||||||
| Inventory | ( | ) | ( | ) | ( | ) | ||||||||||
| Payables, accruals and other current liabilities net of discounting impact | ( | ) | ( | ) | ||||||||||||
| Deferred revenue | ( | ) | ( | ) | ||||||||||||
| Consideration payable to WeBank, net of discounting impact | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Cash flows used in investing activities: | ||||||||||||||||
| Proceeds from disposal of property, equipment and software | ||||||||||||||||
| Purchase of property, equipment and software | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Proceeds from disposal of subsidiaries | ||||||||||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| F-13 |
UXIN LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED MARCH 31, 2022, 2023 AND 2024
(All amounts in thousands, except for share and per share data, unless otherwise noted)
| For the fiscal years ended March 31, | ||||||||||||||||
| 2022 | 2023 | 2024 | ||||||||||||||
| RMB | RMB | RMB | US$ | |||||||||||||
| (Note 2.6) | ||||||||||||||||
| Cash flows from financing activities: | ||||||||||||||||
| Proceeds from borrowings | ||||||||||||||||
| Repayment of borrowings | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Repayment of long-term debt | ( | ) | ( | ) | ||||||||||||
| Proceeds from exercise of share options | ||||||||||||||||
| Proceeds from the issuance of senior convertible preferred shares | ||||||||||||||||
| Net cash generated from financing activities | ||||||||||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | ( | ) | ( | ) | ( | ) | ||||||||||
| Net decrease in cash, cash equivalents and restricted cash | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Cash, cash equivalents and restricted cash at beginning of the period | ||||||||||||||||
| Cash, cash equivalents and restricted cash at end of the period | ||||||||||||||||
| F-14 |
UXIN LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED MARCH 31, 2022, 2023 AND 2024
(All amounts in thousands, except for share and per share data, unless otherwise noted)
For the fiscal years ended March 31, | ||||||||||||||||
| 2022 | 2023 | 2024 | ||||||||||||||
| RMB | RMB | RMB | US$ | |||||||||||||
| (Note 2.6) | ||||||||||||||||
| Supplemental disclosure of cash flow information | ||||||||||||||||
| - Cash paid for income tax | ||||||||||||||||
| - Cash paid for interest (Note 8) | ||||||||||||||||
| Supplemental schedule of non-cash investing and financing activities | ||||||||||||||||
| - Settlement of finance lease liabilities with the issuance of redeemable non-controlling interests (Note 17) | ||||||||||||||||
| - Net settlement of long-term debt with unreceived disposal consideration (Note 4) | ||||||||||||||||
| - Conversion of long-term debt into Class A ordinary shares (Note 11) | ||||||||||||||||
| - Net settlement of long-term debt with subscription receivable from preferred shareholders (Note 11) | ||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-15 |
UXIN LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
1. PRINCIPAL ACTIVITIES AND ORGANIZATION
The accompanying consolidated financial statements include the financial statements of Uxin Limited (the “Company” or “Uxin”), its subsidiaries and the former variable interest entities (“VIEs”). The Company, its subsidiaries and the former consolidated VIEs are collectively referred to as the “Group”.
The Company was incorporated under the laws of the Cayman Islands as an exempted limited liability company on December 8, 2011. The Company serves as an investment holding company and currently has no operations of its own.
The Group’s principal operations and geographic market is in the People’s Republic of China (“PRC”). The Group operates vehicle sales business through an “inventory-owning” model where the Group sells its own inventory of used vehicles.
As of March 31, 2024, the Company’s principal subsidiaries are as follows:
| Subsidiaries | Place of incorporation | Date of incorporation or acquisition | Percentage of direct or indirect equity ownership | Principal activities | ||||||
| Youxin (Hefei) Automobile Intelligent Remanufacturing Co., Ltd. (“Uxin Hefei”) | % | |||||||||
| Youfang (Beijing) Information Technology Co., Ltd. | % | |||||||||
| Youtang (Shaanxi) Information Technology Co., Ltd. | % | |||||||||
Variable interest entities
In order to comply with PRC regulatory requirements restricting foreign ownership of internet information services under value-added telecommunications services and certain other businesses in China, the Company used to operate online platforms that provided internet information services and engaged in other foreign-ownership-restricted businesses through certain PRC domestic companies, whose equity interests were held by certain management members of the Company (“Nominee Shareholders”). The Company obtained control, as determined under US GAAP, over these PRC domestic companies (“former VIEs”) by entering into a series of contractual arrangements, including exclusive options agreements, power of attorney, exclusive business cooperation agreements (which includes arrangements which provide for services to these domestic companies), equity pledge agreements and loan agreements, with these PRC domestic companies and their respective Nominee Shareholders. Historically, we, through Yougu (Shanghai) Information Technology Co., Ltd. and Youxinpai (Beijing) Information Technology Co., Ltd., had a series of contractual arrangements with the former VIEs and the shareholders of the former VIEs until the Company conducted a series of restructuring transactions in March 2022 to terminate the historical contractual arrangements with the former VIEs, which have become the Company’s wholly-owned subsidiaries, effective from March 31, 2022 (“Restructuring”). As a result of these historical contractual arrangements, we were able to direct the activities of and derive the economic benefits from the former VIEs and were considered the primary beneficiary of the former VIEs, and we have consolidated the financial results of these companies in our consolidated financial statements (through the date of our Restructuring) in accordance with U.S. GAAP. Neither Uxin Limited nor its investors have had an equity ownership in, direct foreign investment in, or control, other than as defined under U.S. GAAP, through contractual arrangements with, the former VIEs. The contractual arrangements were not equivalent to an equity ownership in the business of the former VIEs and their subsidiaries in China. After the Restructuring, we continue to consolidate the financial results of these companies in our consolidated financial statements as they have become our wholly owned subsidiaries.
Pursuant to the Restructuring, the wholly owned subsidiaries that previously had contractual arrangements with the former VIEs and their respective shareholders purchased all equity interests held by such shareholders in the former VIEs. Accordingly, all contractual arrangements that enabled such shareholders to exercise effective control over the former VIEs, receive substantially all of the economic benefits of the former VIEs and have exclusive options to purchase all or part of the equity interests in the former VIEs, were effectively terminated on March 31, 2022.
| F-16 |
UXIN LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
1. PRINCIPAL ACTIVITIES AND ORGANIZATION (CONTINUED)
Liquidity
The Company has incurred net losses since inception
and, as of March 31, 2024, had an accumulated deficit in the amount of approximately RMB billion. The Company’s current liabilities
exceeded its current assets by approximately RMB
The Company’s ability to continue as a going concern is dependent on the effective implementation of management’s plans to mitigate these conditions and events. A summary of management’s plans includes:
Improvement in cash flows from operations:
| ● | Increase in sales and the gross margin on automobile sales, optimize the cost structure of the Group to reduce discretional expenses such as labour costs, advertising expenses and administrative expenses. |
External equity and debt financing:
| ● | As of the date of the issuance of the consolidated financial statements, the Company was entitled to
a consideration receivable of US$ |
|
| ● | On March 18, 2024, the Company entered into a non-binding term sheet with an investment fund
(“NC Fund”) for an aggregate amount of financing of RMB |
|
| ● | As of March 31, 2024, the Group obtained an aggregated inventory-pledging facilities amount
of RMB |
|
| ● | Pursuant to an equity investment agreement entered
into in September 2023 with Hefei Construction Investment North City Industrial Investment
Co., Ltd. (“HCI”), who is also the lessor of the used car retail superstore (the
“Superstore”) in Hefei, HCI will invest by multiple instalments in Uxin Hefei,
and each instalment will be made after the lease payment made by Uxin Hefei over a 10-year
period. The first-year rental of approximately RMB |
|
| ● | On June 21, 2024, the Company entered into another supplemental agreement with WeBank which revised
and extended the repayment schedule of RMB |
The Company’s plans include significant, subjective assumptions that are subject to uncertainty. These assumptions include increasing demand for used cars over the next twelve months, achieving the profit improvement and costs and expenses optimization. In addition, the planned equity and debt financings that are not already contractually committed may not be available at terms that are favourable to the Company, or in amounts that are not sufficient to meet the Company’s needs over the next twelve months.
Based on the evaluation, management has concluded that these uncertainties cast substantial doubt on the Company’s ability to meet its maturing obligations and working capital requirements over the next twelve months, which would impact the Company’s ability to continue as a going concern. The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty.
| F-17 |
UXIN LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
2. PRINCIPAL ACCOUNTING POLICIES
2.1 Basis of presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).
Significant accounting policies followed by the Group in the preparation of its accompanying consolidated financial statements are summarized below.
2.2 Basis of consolidation
The Group’s consolidated financial statements include the financial statements of the Company, its subsidiaries and the former VIEs for which the Company is the primary beneficiary.
A subsidiary is an entity in which the Company, directly or indirectly, controls more than one half of the voting power; has the power to appoint or remove the majority of the members of the board of directors; to cast a majority of votes at the meeting of the board of directors or to govern the financial and operating policies of the investee under a statute or agreement among the shareholders or equity holders.
A VIE is an entity in which the Company, or its subsidiary, through contractual arrangements, bears the risks of, and enjoys the rewards normally associated with, ownership of the entity, and therefore the Company or its subsidiary is the primary beneficiary of the entity.
All transactions and balances among the Company, its subsidiaries, and the former VIEs have been eliminated upon consolidation.
2.3 Use of estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets, long-lived assets and liabilities at the dates of the financial statements and the reported amount of revenues and expenses during the reporting periods. On an ongoing basis, the Company’s management reviews these estimates based on information that is currently available. Changes in facts and circumstances may cause the Company to revise its estimates. Accounting estimates reflected in the Group’s consolidated financial statements include, but are not limited to the fair value of a down round feature triggered for senior convertible preferred shares, the fair value of warrant liabilities and forward contracts, share-based compensation arrangements, fair value of the long-term investment, provision for credit losses for loans recognized as a result of payments under guarantees, trade receivables and other receivables, impairment of long-lived assets, the useful lives of property, equipment and software, discount rate applied in lease accounting, inventory provision, valuation allowances for deferred tax assets and management′s assessment of going concern. Given that changes in circumstances, facts and experience may cause the Group to revise its estimates, actual results could differ from those estimates.
| F-18 |
UXIN LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
2.4 Fair value measurements
Accounting guidance defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Group considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.
Accounting guidance establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Accounting guidance establishes three levels of inputs that may be used to measure fair value:
Level 1 — Quoted prices (unadjusted) for identical assets or liabilities in active markets
Level 2 — Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data
Level 3 — Unobservable inputs which are supported by little or no market activity
Financial instruments of the Company primarily are comprised of cash and cash equivalents, accounts receivable, current portion of long-term debt and borrowing, accounts payable, and warrant liabilities. Except for warrant liabilities which are measured at fair value as of March 31, 2023, the carrying values approximated the fair values of these instruments because of their generally short maturities as of March 31, 2023 and 2024. The warrant liabilities were recorded at the fair value at the inception date and classified as a Level 3 measurement.
2.5 Foreign currencies
The Group uses Renminbi (“RMB”) as its reporting currency. The USD (“US$”) is the functional currency of the Group’s entities incorporated in Cayman Islands, British Virgin Islands and Hong Kong, and the RMB is the functional currency of the Group’s PRC subsidiaries.
Transactions denominated in other than the functional currencies are translated into the functional currency of the entity at the exchange rates quoted by authoritative banks prevailing on the transaction dates. Exchange gains and losses resulting from those foreign currency transactions denominated in a currency other than the functional currency are recorded in the Consolidated Statements of Comprehensive Loss.
The financial statements of the Group are translated from the functional currency into RMB. Assets and liabilities denominated in foreign currencies are translated into RMB using the applicable exchange rates at the balance sheet date. Equity accounts other than earnings generated in current period are translated into RMB at the appropriate historical rates. Revenues, expenses, gain and loss are translated into RMB using the periodic average exchange rates. The resulting foreign currency translation adjustments are recorded in accumulated other comprehensive income as a component of shareholders’ deficit.
2.6 Convenience translation
Translations of Consolidated Balance Sheets, the Consolidated
Statements of Comprehensive Loss and the Consolidated Statements of Cash Flows from RMB into US$ as of and for the fiscal year ended March
31, 2024 are solely for the convenience of the readers and were calculated at the rate of US$1.00=RMB
| F-19 |
UXIN LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
2.7 Cash and cash equivalents
Cash includes currency on hand and deposits held by financial institutions that can be added to or withdrawn without limitation. Cash equivalents represent short-term, highly liquid investments that are readily convertible to known amount of cash and with original maturities from the date of purchase of generally three months or less.
2.8 Restricted cash
As of March 31, 2023 and 2024, restricted cash primarily represents cash reserved in relation to certain litigations.
2.9 Inventory
Inventory consists primarily of used
vehicles and is stated at the lower of cost or net realizable value. Inventory cost is determined by specific identification and includes
acquisition cost, direct and indirect reconditioning costs and inbound transportation expenses. Net realizable value represents the estimated
selling price less costs to complete, dispose and transport the vehicles. Each reporting period the Company recognizes any necessary
adjustments to reflect vehicle inventory at the lower of cost or net realizable value in the cost of revenues in the Consolidated Statements
of Comprehensive Loss. Total carrying amount of used vehicles was RMB
2.10 Property, equipment and software, net
Property, equipment and software are stated at cost less accumulated depreciation and amortization. Depreciation and amortization is computed using the straight-line method over the following estimated useful lives, taking into account any estimated residual value:
| Electronic equipment | |
| Furniture | |
| Vehicles and motors | |
| Software | |
| Machine | |
| Leasehold improvement |
The Company recognizes the gain or loss on the disposal of property, equipment and software in the Consolidated Statements of Comprehensive Loss.
| F-20 |
UXIN LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
2.11 Long-term investments
In accordance with ASC 323 Investment—Equity Method and Joint Ventures, the Company accounts for an equity investment over which it has significant influence but does not own a majority of the equity interest or otherwise controls and the investments are either common stock or in substance common stock using the equity method. The Company’s share of the investee’s profit and loss is recognized in the earnings of the period.
The
Company also holds investments in privately held companies in the form of equity securities without readily determinable fair values
and in which the Company does not have a controlling interest or significant influence. In accordance with ASC 321 Investment- Equity
Securities, investments in equity securities without readily determinable fair values are initially recorded at cost and are subsequently
adjusted to fair value for impairments and price changes from observable transactions in the same or a similar security from the same
issuer. Impairment provision of RMB
Pursuant to ASC 321, for equity investments measured at fair value with changes in fair value recorded in earnings, the Company does not assess whether those securities are impaired. Based on ASU 2016-01, the Company will be able to elect to record equity investments without readily determinable fair values and not accounted for by the equity method either at fair value with changes in fair value recognized in net income or at cost less impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer (“measurement alternative”). For equity investments without readily determinable fair value for which the Company has elected to use the measurement alternative, at each reporting period, the Company makes a qualitative assessment of whether the investment is impaired at each reporting date, applying significant judgement in considering various factors and events including a) adverse performance of investees, credit rating, asset quality, or business prospects of the investee; b) adverse industry developments affecting investees; and c) adverse regulatory, social, economic or other developments affecting investees. If a qualitative assessment indicates that the investment is impaired, the Company estimates the investment’s fair value in accordance with the principles of ASC 820. If the fair value is less than the investment’s carrying value, the Company recognizes an impairment loss in earnings equal to the difference between the carrying value and fair value.
| F-21 |
UXIN LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
2.12 Impairment of long-lived assets
Long-lived assets including property, equipment, financing and operating lease right-of-use assets and software with definite lives are assessed for impairment, whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable in accordance with ASC 360, Property, Plant and Equipment. When these events occur, the Group will assess whether an impairment of the long-lived assets in question exists by comparing the carrying value of the assets to an estimate of future undiscounted cash flows expected to be generated from the use of the asset and its eventual disposition. If the sum of the expected future undiscounted cash flows is less than the carrying value of the asset, the Group recognizes an impairment loss based on the excess of the carrying value of the asset over the fair value of the asset. No impairment of long-lived assets was recognized for the fiscal years ended March 31, 2022, 2023 and 2024.
2.13 Revenue recognition
The Group adopted ASC Topic 606, “Revenue from Contracts with Customers” for all periods presented. Consistent with the criteria of Topic 606, the Group recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to receive in exchange for those goods or services. To achieve that core principle, an entity should apply five steps defined under Topic 606. The Group assesses its revenue arrangements against specific criteria in order to determine if it is acting as principal or agent. Revenue arrangements with multiple performance obligations are divided into separate units of accounting. The Company considered appropriate methods to allocate the transaction price to each performance obligations, based on the relative standalone selling prices of the services provided. In estimating the standalone selling price for the services that are not directly observable, the Company considered the suitable methods included in ASC 606-10-21-34, and determined the adjusted market assessment approach is the most appropriate method. When estimating the relative standalone selling prices, the Group considers standalone selling prices of similar services. Revenue is recognized upon transfer of control of these promised services to a customer.
Revenue is recorded net off value-added-tax.
| F-22 |
UXIN LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
2.13 Revenue recognition (continued)
Retail vehicle sales business
The Company sells used vehicles directly to its customers through its e-commerce platform (www.xin.com). The Company procures used cars by analyzing the extensive user behavioral, used car and transactional data aggregated on its platform over the years. This enables the Company to selectively build its inventory of used cars with value-for-money performance and have greater flexibility in offering more competitive pricing to individual consumer (the “Consumer”).
The prices of used vehicles are set forth in the customer contracts at stand-alone selling prices which are agreed upon prior to delivery. The Company satisfies its performance obligation for used vehicles sales when the Consumer obtains control of the underlying vehicles. The Company receives payment for used vehicle sales directly from the Consumer at the time of sale. Payments received prior to delivery or pick-up of used vehicles are recorded as “Other payables and other current liabilities” within the Consolidated Balance Sheets.
Wholesale vehicle sales business
The Company sells vehicles to wholesalers through offline dealership. These vehicles sold to wholesalers are primarily acquired from individuals that do not meet the Company’s retail standards to list and sell through its e-commerce platform, and therefore, sold through offline dealership. The Company satisfies its performance obligation and recognizes revenue for wholesale vehicle sales at the point in time when the wholesale purchasers obtain control of the underlying vehicles. The payments are received when the vehicles are sold.
Others
Other revenue was immaterial for the fiscal years ended March 31, 2022, 2023 and 2024, respectively. It mainly represented the commissions earned from the Group’s financing and insurance partners from introducing them to the Company’s retail customers with financing needs, as well as revenues earned from warranty services.
Remaining performance obligations
Revenue
allocated to remaining performance obligations represents that portion of the overall transaction price that has been received (or for
which the Group has an unconditional right to payment) allocated to performance obligations that the Group has not yet fulfilled, which
is presented as deferred revenue that has not yet been recognized. As of March 31, 2023 and 2024, the aggregate amount of the transaction
price allocated to remaining performance obligations was RMB
| F-23 |
UXIN LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
2.14 Value-added-tax (“VAT”) and surcharges
The Company’s subsidiaries and the former VIEs are subject to value-added tax and related surcharges on the revenues earned for services provided in the PRC. The applicable value-added-tax rate for general VAT payers is set out in the following table.
| Type of service | Applicable VAT rate (%) | |
| Vehicle sales | ||
| Commission | ||
| Value-added service | ||
| Other services |
The
surcharges (i.e. urban construction and maintenance tax, educational surtax, local educational surtax), vary from
2.15 Cost of revenues
Cost of revenues includes the cost to acquire used vehicles and direct and indirect vehicle reconditioning costs associated with preparing the vehicles for resale and warranty services. Cost of revenues also includes any necessary adjustments to reflect vehicle inventory at the lower of cost or net realizable value.
2.16 Sales and marketing expenses
Sales and marketing expenses primarily consist of salaries and benefits expenses for sales and marketing personnel, advertising and promotion expenses and warranty expenses. Advertising and promotion expenses primarily include branding advertisements, online traffic acquisition costs and costs incurred in other marketing activities. Salaries and benefits for employees engaged in aftersales services and costs relating to outbound logistics were classified as “sales and marketing expense”.
Advertising
costs are expensed as incurred. For those advertisements that are extended over a period of time, the advertising costs are recognised
ratably over the beneficial period. The total amounts charged to the Consolidated Statements of Comprehensive Loss amounted to approximately
RMB
2.17 Research and development expenses
Research and development expenses primarily consist of salaries and benefits expenses, fees for outsourced technical services and depreciation of servers and computers relating to research and development.
All research and development costs are expensed as incurred. Software development costs required to be capitalized under ASC 350-40, Internal-Use Software, were not material to the consolidated financial statements.
| F-24 |
UXIN LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
2.18 General and administrative expenses
General and administrative expenses primarily consist of salaries and benefits and share-based compensation for employees engaged in management and administration positions or involved in general corporate functions, office rental, professional service fees and depreciation.
The Company grants share options, restricted shares and restricted share units (“RSUs”) to eligible employees, director and execute officers. All share-based awards are measured at fair value on the grant date. The share-based compensation expenses have been categorized as either cost of revenues, sales and marketing expenses research and development expenses, or general and administrative expenses, depending on the job functions of the grantees.
Share Options Granted
The Company follows ASC 718 to determine whether a share option should be classified and accounted for as a liability award or equity award. All grants of share-based awards classified as equity awards are recognized in the financial statements based on their grant date fair values which are calculated using an option pricing model. The Company classifies the share-based awards granted to employees as equity award and has elected to recognize compensation expense on share-based awards with service condition on a graded vesting basis over the requisite service period, which is generally the vesting period.
Restricted Shares and RSUs
For the restricted shares, the awards are measured at fair value on the grant date. Share-based compensation expense is recognized using the straight-line method over the requisite service period or immediately at the grant date if no vesting conditions are required.
For grants of RSUs with certain market conditions, it is classified as equity awards and recognized in the financial statements based on their grant date fair values which are determined using the Monte Carlo valuation model, which incorporates various assumptions including expected stock price volatility, risk-free interest rates, and expected timing and proceeds received due to the exercise of warrants and settlement of forward contracts (Note 16). Related expenses are recognized over the derived service period determined based on valuation techniques that are used to estimate fair value and is not adjusted if the market condition is not met, so long as the requisite service is provided.
The assumptions used in share-based compensation expense recognition represent management’s best estimates, but these estimates involve inherent uncertainties and application of management judgment. If factors change or different assumptions are used, the share-based compensation expenses could be materially different for any period. Moreover, the estimates of fair value of the awards are not intended to predict actual future events or the value that ultimately will be realized by grantees who receive share-based awards. In accordance with ASU 2016-09, the Group made an entity-wide accounting policy election to account for forfeitures when they occur.
| F-25 |
UXIN LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
2.20 Taxation
Current income taxes are provided on the basis of net income for financial reporting purposes, adjusted for income and expense items which are not assessable or deductible for income tax purposes, in accordance with the regulations of the relevant tax jurisdictions.
Deferred income taxes are recognized for temporary differences between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements, net operating loss carries forwards and credits. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Current income taxes are provided in accordance with the laws of the relevant taxing authorities. Deferred tax assets and liabilities are measured using enacted rates expected to apply to taxable income in which temporary differences are expected to be received or settled. The effect on deferred tax assets and liabilities of changes in tax rates is recognized in the statements of comprehensive loss in the period of the enactment of the change.
The Group considers positive and negative evidence when determining whether a portion or all of its deferred tax assets will more likely than not be realized. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carry-forward periods, its experience with tax attributes expiring unused, and its tax planning strategies. The ultimate realization of deferred tax assets is dependent upon its ability to generate sufficient future taxable income within the carry-forward periods provided for in the tax law and during the periods in which the temporary differences become deductible. When assessing the realization of deferred tax assets, the Group has considered possible sources of taxable income including (i) future reversals of existing taxable temporary differences, (ii) future taxable income exclusive of reversing temporary differences and carry-forwards, (iii) future taxable income arising from implementing tax planning strategies, and (iv) specific known trend of profits expected to be reflected within the industry.
The Group recognizes a tax benefit associated with an uncertain tax position when, in its judgment, it is more likely than not that the position will be sustained upon examination by a taxing authority. For a tax position that meets the-more-likely-than-not recognition threshold, the Group initially and subsequently measures the tax benefit as the largest amount that the Group judges to have a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority. The Group’s liability associated with unrecognized tax benefits is adjusted periodically due to changing circumstances, such as the progress of tax audits, case law developments and new or emerging legislation. Such adjustments are recognized entirely in the period in which they are identified. The Group’s effective tax rate includes the net impact of changes in the liability for unrecognized tax benefits and subsequent adjustments as considered appropriate by management. The Group classifies interest and penalties recognized on the liability for unrecognized tax benefits as income tax expense. Undistributed earnings are expected to be indefinitely reinvested for the foreseeable future, if any.
Basic loss per share is computed by dividing net loss attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period using the two-class method. Under the two-class method, the net loss is allocated between ordinary shares and other participating securities, including senior convertible preferred shares, based on their participating rights. Net loss is not allocated to other participating securities if based on their contractual terms they are not obligated to share in the loss. The diluted loss per share is calculated by giving effect to all potentially dilutive securities outstanding for the period using the treasury stock method or the if-converted method based on the nature of such securities. Ordinary equivalent shares are not included in the denominator of the diluted loss per share calculation when inclusion of such shares would be anti-dilutive. Except for voting rights, the Class A and Class B ordinary shares have all the same rights and therefore the loss per share for both classes of shares are identical.
| F-26 |
UXIN LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
2.22 Leases
The Company determines if an arrangement is or contains a lease at inception. Operating leases are primarily for offices and stores and are included in Right-of-use assets, net, Operating lease liabilities, current and Operating lease liabilities, non-current on its Consolidated Balance Sheets. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and Operating lease liabilities represent obligation to make lease payment arising from the lease. The operating lease right of use assets and liabilities are recognized at lease commencement date based on the present value of lease payment over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at lease commencement date in determining the present value of lease payments. The right of use assets also includes any lease payments made. The Company’s lease term may include options to extend or terminate the lease. Renewal options are considered within the operating lease right of use assets and liabilities when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Finance lease assets are presented as finance lease right-of-use assets, net, and the corresponding finance lease liabilities are included in current portion of finance lease liabilities for the current portion, and in finance lease liabilities within non-current liabilities on the Consolidated Balance Sheets. Finance lease costs consists of interest expense on the finance lease liabilities as well as amortization of the finance lease right-of-use assets on a straight-line basis over the lease term.
For operating leases with a term of one year or less, the Company has elected to not recognize a lease liability or lease right of use asset on its Consolidated Balance Sheets. Instead, it recognizes the lease payment as expense on a straight-line basis over the lease term. Short-term lease costs are immaterial to its Consolidated Statements of Comprehensive Loss. The Company has operating lease agreements with insignificant non-lease components and has elected the practical expedient to combine and account for lease and non-lease components as a single lease component.
2.23 Provision for credit losses
The Company has several types of financial assets and liabilities that are subject to ASC 326’s CECL model. The CECL reserves for credit loss represents the Company’s best estimate of the expected lifetime credit losses for accounts receivable, loans recognized as a result of payments under guarantees and other receivables as of the balance sheet dates. The adequacy of the reserves for credit losses is assessed quarterly; and the assumptions and models used in establishing the allowance are evaluated regularly. Because credit losses can vary substantially over time, estimating credit loss reserves requires us to estimate lifetime expected credit losses by incorporating historical loss experience, as well as current and future economic conditions over a reasonable and supportable period beyond the balance sheet date.
| F-27 |
UXIN LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
2.23 Provision for credit losses (continued)
Measurement of CECL reserve
The Company estimates its CECL reserve for different financial instruments using various methods including the probability-of-default method, the loss rate method, the roll rate method and the discounted cash flow method.
| ● | For loans recognized as a result of payments under guarantees and financial lease receivables, the loss rate method is applied as the comprehensive product impact of Probability of Default (“PD”) and Loss Given Default (“LGD”). | |
| ● | The roll rate model is adopted for accounts receivable; while for some other receivables which cannot be pooled with financial assets with similar risk characteristics, the reserve for credit losses is evaluated on an individual basis using the discounted cash flow method. |
Note that to incorporate the forward-looking impacts based on the Company’s best macroeconomic forecasts, quantitative adjustments are applied to key parameters such as PD, LGD, loss rates, and roll rates on a collective basis. The Company groups its financial instruments into pools by credit status, product types, accounts receivable aging schedule, collateral types and other risk characteristics as appropriate in the calibration and adjustments of these parameters.
2.24 Accounting of the down round feature
The Company assesses whether there are circumstances that trigger the down round feature for convertible preferred shares and warrants. When the down round feature is triggered, the Company considers the provision of ASC 260-10-30-1 and measures the value of the effect of the feature as the difference between (a) the fair value of the issued financial instrument (without the down round feature) with a conversion or exercise price corresponding to the stated conversion or exercise price before the conversion or exercise price reduction and (b) the fair value of the issued financial instrument (without the down round feature) with a conversion or exercise price corresponding to the reduced conversion or exercise price upon the down round feature being triggered. The excess value of the convertible preferred shares or warrant resulting from the triggering of the down round feature as determined on the measurement date shall be a deemed dividend to the preferred shareholders or to the warrant holders, which should be deducted to arrive at net income/(loss) to ordinary shareholders. Therefore, recognition of the fair value of the down round feature results in a charge to retained earnings/(accumulated deficit) and a credit to additional paid-in capital in permanent equity rather than mezzanine equity.
| F-28 |
UXIN LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
2.25 Recent accounting pronouncements
Recently issued accounting pronouncements not yet adopted
In November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2023-07, Improvements to Reportable Segment Disclosures (Topic 280). This ASU updates reportable segment disclosure requirements by requiring disclosures of significant reportable segment expenses that are regularly provided to the Chief Operating Decision Maker (“CODM”) and included within each reported measure of a segment′s profit or loss. This ASU also requires disclosure of the title and position of the individual identified as the CODM and an explanation of how the CODM uses the reported measures of a segment′s profit or loss in assessing segment′s performance and deciding how to allocate resources. The ASU is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Adoption of the ASU should be applied retrospectively to all prior periods presented in the financial statements. Early adoption is also permitted. This ASU is not expected to have a material impact on the Group’s consolidated financial statements.
In
December 2023, the FASB issued ASU No. 2023-09, Improvements to Income Tax Disclosures (Topic 740). The ASU requires disaggregated information
about a reporting entity′s effective tax rate reconciliation as well as additional information on income taxes paid. The ASU is
effective on a prospective basis for annual periods beginning after December 15, 2024. Early adoption is also permitted for annual financial
statements that have not yet been issued or made available for issuance. This ASU will result in the required additional disclosures
being included in the Group′s consolidated financial statements, once adopted.
| F-29 |
UXIN LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
3. LOANS RECOGNIZED AS A RESULT OF PAYMENTS UNDER GUARANTEES
The Group used to provide loan facilitation related guarantee service before April 2020. The third-party financing partners offered financing solutions to the Borrowers and the Group was required to provide a guarantee. In the event of a payment default from the Borrower, the Group was required to repay the monthly instalment or full amount of outstanding loan to the financing partner as the guarantor. As such, the Group recognized loan receivables as a result of payment under the guarantee deducted by an allowance to its expected recoverable amounts in the Consolidated Balance Sheets.
March 31, 2023 | March 31, 2024 | |||||||
| RMB | RMB | |||||||
| Loans recognized as a result of payments under guarantees | ||||||||
| Less: provision for credit losses | ( | ) | ( | ) | ||||
An aging analysis of loans recognized as result of payments under guarantees was as follows:
March 31, 2023 | March 31, 2024 | |||||||
| RMB | RMB | |||||||
| Up to 6 months | ||||||||
| 6 months to 12 months | ||||||||
| Over 12 months | ||||||||
The Group relies on the consumers’ credit history, loan-to-value ratio and other certain application information to evaluate and rank their respective risk on an ongoing basis. The credit grades represent the relative likelihood of repayment. Customers assigned a grade of “Normal” are determined to have the highest probability of repayment, customers assigned a grade of “Attention” are determined to have a lower probability of repayment, and customers assigned a grade of “Secondary” are determined to have a lowest probability of repayment. Loan performance is reviewed on a recurring basis to identify whether the assigned grades adequately reflect the customers’ likelihood of repayment.
The balance of loans recognized as a result of payments under guarantees by grade of monitored credit risk quality indicator as of March 31, 2023 and 2024 were listed as below:
March 31, 2023 | March 31, 2024 | |||||||
| RMB | RMB | |||||||
| Normal | ||||||||
| Attention | ||||||||
| Secondary | ||||||||
| F-30 |
UXIN LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
3. LOANS RECOGNIZED AS A RESULT OF PAYMENTS UNDER GUARANTEES (CONTINUED)
The movement of provision for credit losses for the fiscal years ended March 31, 2022, 2023 and 2024 was as follows:
| For the fiscal years ended March 31, | ||||||||||||
| 2022 | 2023 | 2024 | ||||||||||
| RMB | RMB | RMB | ||||||||||
| Beginning balance of the period | ( | ) | ( | ) | ( | ) | ||||||
| (Provision for)/reversal of credit losses | ( | ) | ( | ) | ||||||||
| Write-offs | ||||||||||||
| Bought out by certain non-bank financing institutions without recourse | ||||||||||||
| Payments from the borrowers or other recoveries | ||||||||||||
| Ending balance of the period | ( | ) | ( | ) | ( | ) | ||||||
The following table explains the changes in the provision of credit losses by grade of monitored credit risk quality indicator as of March 31, 2022, 2023 and 2024:
| Normal | Attention | Secondary | Total | |||||||||||||
| RMB | RMB | RMB | RMB | |||||||||||||
| Balance at March 31, 2021 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Reversal of/(provision for) credit losses | ( | ) | ( | ) | ||||||||||||
| Write-off | ||||||||||||||||
| Bought out by certain non-bank financing institutions without recourse | ||||||||||||||||
| Payments from the borrowers or other recoveries | ||||||||||||||||
| Transfer from Normal to Attention | ( | ) | ||||||||||||||
| Transfer from Normal to Secondary | ( | ) | ||||||||||||||
| Transfer from Attention to Secondary | ( | ) | ||||||||||||||
| Transfer from Attention to Normal | ( | ) | ||||||||||||||
| Transfer from Secondary to Attention | ( | ) | ||||||||||||||
| Transfer from Secondary to Normal | ( | ) | ||||||||||||||
| Balance at March 31, 2022 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| (Provision for)/reversal of credit losses | ( | ) | ( | ) | ( | ) | ||||||||||
| Write-offs | ||||||||||||||||
| Payments from the borrowers or other recoveries | ||||||||||||||||
| Transfer from Normal to Secondary | ( | ) | ||||||||||||||
| Transfer from Attention to Secondary | ( | ) | ||||||||||||||
| Balance at March 31, 2023 | ( | ) | ( | ) | ||||||||||||
| Reversal of credit losses | ||||||||||||||||
| Payments from the borrowers or other recoveries | ||||||||||||||||
| Balance at March 31, 2024 | ( | ) | ( | ) | ||||||||||||
| F-31 |
UXIN LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
4. OTHER RECEIVABLES, NET
March 31, 2023 | March 31, 2024 | |||||||
| RMB | RMB | |||||||
| Rental and other deposits | ||||||||
| Staff advance | ||||||||
| Others | ||||||||
| Less: provision for credit losses | ( | ) | ( | ) | ||||
The movement of the provision for credit loss for the fiscal years ended March 31, 2022, 2023 and 2024 was as follows:
| For the fiscal years ended March 31, | ||||||||||||
| 2022 | 2023 | 2024 | ||||||||||
| RMB | RMB | RMB | ||||||||||
| Beginning balance of the period | ( | ) | ( | ) | ( | ) | ||||||
| Additions | ( | ) | ( | ) | ||||||||
| Write-offs | ||||||||||||
| Reclassified from amounts due from related parties | ( | ) | ||||||||||
| Ending balance of the period | ( | ) | ( | ) | ( | ) | ||||||
| F-32 |
UXIN LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
5. PREPAID EXPENSES AND OTHER CURRENT ASSETS
March 31, 2023 | March 31, 2024 | |||||||
| RMB | RMB | |||||||
| VAT-input deductible | ||||||||
| Prepaid marketing expense | ||||||||
| Prepaid consulting and professional service fees | ||||||||
| Prepaid insurance cost | ||||||||
| Prepaid rental expense | ||||||||
| Others | ||||||||
6. PROPERTY, EQUIPMENT AND SOFTWARE, NET
Property, equipment and software, net, consist of the following:
| March 31, 2023 | March 31, 2024 | |||||||
| RMB | RMB | |||||||
| Cost | ||||||||
| Leasehold improvement | ||||||||
| Electronic equipment | ||||||||
| Software | ||||||||
| Furniture | ||||||||
| Machine | ||||||||
| Vehicles and motors | ||||||||
| Construction in progress | ||||||||
| Total property, equipment and software | ||||||||
| Less: accumulated depreciation and amortization | ||||||||
| Leasehold improvement | ( | ) | ( | ) | ||||
| Electronic equipment | ( | ) | ( | ) | ||||
| Software | ( | ) | ( | ) | ||||
| Furniture | ( | ) | ( | ) | ||||
| Machine | ( | ) | ||||||
| Vehicles and motors | ( | ) | ( | ) | ||||
| Total accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Net book value | ||||||||
The
total amounts charged to the Consolidated Statements of Comprehensive Loss for depreciation and amortization expense are approximately
RMB
| F-33 |
UXIN LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
7. LONG-TERM INVESTMENTS
The Group’s long-term investments consist of the following:
| March 31, 2023 | March 31, 2024 | |||||||
| RMB | RMB | |||||||
| Equity investments accounted for using the equity method | ||||||||
| Beijing Gangjian Shoubao Cultural Media Center LLP (“Gangjian Shoubao”) | ||||||||
| Weiche Information Technology Co., Ltd. (“Weiche”) | ||||||||
| Equity investments accounted for using the measurement alternative | ||||||||
| Jincheng Consumer Finance (Sichuan) Co., Ltd. (“Jincheng”) | ||||||||
| Total long-term investments | ||||||||
Investment in Jincheng
Investment
in Jincheng represents an investment of
In
November 2022, the Group entered into a definitive agreement with a third-party, pursuant to which the equity interest of Jincheng with
carrying amount of RMB
The
Group performs impairment assessment of its investments under the measurement alternative whenever events or changes in circumstances
indicate that the carrying value of the investment may not be fully recoverable. In January 2024, the Group entered into an equity transfer
agreement with a third party for the disposal of the investment at a cash consideration of RMB
| F-34 |
UXIN LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
8. BORROWINGS
The following table presents short-term and long-term borrowings from commercial banks or other institutions as of March 31, 2023 and 2024.
| Funding Partners | Terms | Rate | March 31, 2023 | March 31, 2024 | ||||||||
| RMB | RMB | |||||||||||
| Short-term borrowing from related party (Note 14) | within | |||||||||||
| Short-term borrowing from third parties | within months | %-% | ||||||||||
| Current portion of long-term borrowings | ||||||||||||
| Non-current portion of long-term borrowings | ||||||||||||
| Long-term borrowings | ||||||||||||
Short-term
borrowings from third parties outstanding as of March 31, 2023 represented the loans drawn down under the Group’s working capital
facility. Short-term borrowings outstanding as of March 31, 2024 comprised of: a) the loans of RMB
The
Group entered into inventory-pledged financing facilities with several reputable banks and financial institutions to finance its procurement
of vehicle inventory, which was pledged by the Group’s vehicle inventory. Under the inventory-pledged financing facilities, repayment
of amounts drawn for the purchase of a vehicle should generally be made within several days after selling or otherwise disposing of the
vehicle or in 90 days if the vehicle is not sold or disposed. The inventory-pledged financing facilities require monthly interest payments
with an annual interest rate of
Long-term
borrowing outstanding as of March 31, 2023 and 2024 was pledged with the equity interest the Group holds in an investment (Note 7). The
long-term borrowing will be due in December 2024. In December 2023, the Group entered into a supplementary agreement with the borrower,
mutually agreed that if the Group successfully disposes the investment pledged and pays the borrower cash proceeds of RMB
The
weighted average interest rate for the outstanding borrowings was approximately
| F-35 |
UXIN LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
9. OTHER PAYABLES AND OTHER CURRENT LIABILITIES
March 31, 2023 | March 31, 2024 | |||||||
| RMB | RMB | |||||||
| Consideration payable to WeBank, current (Note 10) | ||||||||
| Tax payables | ||||||||
| Accrued service fee for IT and other professional support | ||||||||
| Deposits | ||||||||
| Accrued advertising expenses | ||||||||
| Accrued service fee for transaction support | ||||||||
| Accrued salaries and benefits | ||||||||
| Interest payable | ||||||||
| Deferred revenue | ||||||||
| Others | ||||||||
| F-36 |
UXIN LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
10. CONSIDERATION PAYABLE TO WEBANK
March 31, 2023 | March 31, 2024 | |||||||
| RMB | RMB | |||||||
| Consideration payable to WeBank in total (i) | ||||||||
| Less: current portion (recorded in “other payables and other current liabilities” (Note 9) | ( | ) | ( | ) | ||||
| (i) |
Subsequently
on June 21, 2021, the Company entered into another supplemental agreement with WeBank and under this supplemental agreement a total of
RMB
On
June 28, 2023, the Company entered into supplemental agreement with WeBank to extend the repayment of RMB
On
December 31, 2023, the Company entered into another supplemental agreement with WeBank to extend the repayment of RMB
On
June 21, 2024, the Company entered into another supplemental agreement with WeBank which revised and extended the repayment schedule
of RMB
| F-37 |
UXIN LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
11. LONG-TERM DEBT
March 31, 2023 | March 31, 2024 | |||||||
| RMB | RMB | |||||||
| Current portion of long-term debt | ||||||||
| Long-term debt | ||||||||
The
Company entered into a convertible note purchase agreement with affiliates of 58.com, Warburg Pincus, TPG and certain other
investors on May 28, 2019, pursuant to which the Company issued and sold convertible notes in an aggregate principal amount of
US$
On
July 18 and August 29, 2022, the Company issued and Class A ordinary shares with par value of US$ per share
to 58.com and ClearVue in exchange for the full release of the Company’s obligations under the 2024 Notes issued to 58.com and
ClearVue on June 10, 2019. These shares were issued at a price equivalent to US$ per Class A ordinary share with a fair value of
RMB
In
connection with the foregoing transaction, in July 2022, the Company and 58.com have mutually released the other party from claims arising
out of certain obligations under certain additional historical transactions. 58.com released the Company from its long-term debt of RMB
The
long-term debt of RMB
On
April 4, 2023, NIO Capital, NBNW Investment Limited (“NBNW”, an affiliate of NIO Capital) and the long-term debt holders
of the Company, namely WP, TPG, and Magic Carpet, entered into assignment agreements to assign all the rights under the then outstanding
long-term debt of US$
| F-38 |
UXIN LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
12. OTHER OPERATING INCOME, NET
| For the fiscal year ended March 31, | ||||||||||||
| 2022 | 2023 | 2024 | ||||||||||
| RMB | RMB | RMB | ||||||||||
| Gains from waiver of operating payables (i) | ||||||||||||
| Government grant | ||||||||||||
| Guarantee income | ||||||||||||
| Income from sale of loans recognized as a result of payments under guarantees | ||||||||||||
| Transfer-out of unused VAT-input deductible | ( | ) | ||||||||||
| Others | ( | ) | ||||||||||
| (i) |
| F-39 |
UXIN LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
13. LEASES
The
Group recognized lease assets and lease liabilities related to substantially all of the Group’s lease arrangements in the consolidated
financial statements. The Group has operating leases primarily for office and operations space. The Group’s operating lease arrangements
have remaining terms of
The
Group’s finance lease represented the lease of the used car retail superstore (the “Superstore”) in Hefei. A subsidiary
of the Company, Uxin Hefei entered into a lease and purchase agreement with HCI to lease the Superstore in Hefei with a
In
October 2023, Uxin Hefei and HCI mutually agreed that HCI will convert its first-year rental of RMB
In
January 2024, the total lease payment was modified and the lease liability is remeasured based on the modified lease by discounting the
revised lease payments using a revised discount rate at the effective date of the modification. Right-of-us assets and lease liabilities
are adjusted down by RMB
Supplemental Consolidated Balance Sheets information related to leases were as follows:
March 31, 2023 | March 31, 2024 | |||||||
| RMB | RMB | |||||||
| Operating leases | ||||||||
| Right-of-use assets | ||||||||
| Operating lease liabilities - current | ||||||||
| Operating lease liabilities - non-current | ||||||||
| Total operating lease liabilities | ||||||||
| Finance leases | ||||||||
| Right-of-use assets | ||||||||
| Finance lease liabilities - current | ||||||||
| Finance lease liabilities - non-current | ||||||||
| Total finance lease liabilities | ||||||||
| F-40 |
UXIN LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
13. LEASES (CONTINUED)
The components of lease expense are as follows within the Consolidated Statements of Comprehensive Loss:
| For the fiscal year ended March 31, | ||||||||||||
| 2022 | 2023 | 2024 | ||||||||||
| RMB | RMB | RMB | ||||||||||
| Operating lease expense: | ||||||||||||
| Operating lease expense | ||||||||||||
| Short-term lease expense | ||||||||||||
| Total operating lease expenses | ||||||||||||
| Finance lease expense: | ||||||||||||
| Amortization expense | ||||||||||||
| Interest expense | ||||||||||||
| Total finance lease expenses | ||||||||||||
| Total lease expenses | ||||||||||||
Other information related to leases where the Group is the lessee was as follows:
March 31, 2023 | March 31, 2024 | |||||||
| Weighted average remaining lease term | ||||||||
| Operating leases | ||||||||
| Finance leases | - | |||||||
| Weighted average incremental borrowing rate | ||||||||
| Operating leases | % | % | ||||||
| Finance leases | % | |||||||
| F-41 |
UXIN LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
13. LEASES (CONTINUED)
Supplemental cash flow information related to leases were as follows:
| For the fiscal year ended March 31, | ||||||||||||
| 2022 | 2023 | 2024 | ||||||||||
| RMB | RMB | RMB | ||||||||||
| Operating cash outflows from operating leases | ||||||||||||
| Right-of-use assets obtained in exchange for operating lease liabilities | ||||||||||||
| Right-of-use assets obtained in exchange for finance lease liabilities, after modification | ||||||||||||
Maturities of lease liabilities are as follows:
| March 31, 2024 | ||||||||
| Finance lease | Operating lease | |||||||
| RMB | RMB | |||||||
| Fiscal year ended March 31, 2025 | ||||||||
| Fiscal year ended March 31, 2026 | ||||||||
| Fiscal year ended March 31, 2027 | ||||||||
| Fiscal year ended March 31, 2028 | ||||||||
| Fiscal year ended March 31, 2029 | ||||||||
| Thereafter | ||||||||
| Total lease payments | ||||||||
| Less: imputed interest | ( | ) | ( | ) | ||||
| Total lease liabilities | ||||||||
| Less: current portion | ( | ) | ( | ) | ||||
| Non-current portion of lease liabilities | ||||||||
| F-42 |
UXIN LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
14. RELATED PARTY BALANCES AND TRANSACTIONS
The table below sets forth the major related parties and their relationships with the Group as of March 31, 2023 and 2024:
| Name of related parties | Relationship with the Group | |
| 58.com Holdings Inc. | Non-controlling shareholder since July 2022 | |
| Joy Capital | Preferred shareholder before March 27, 2024 and non-controlling shareholder since March 27, 2024 | |
| NIO Capital | Preferred shareholder before March 27, 2024 and controlling shareholder since March 27, 2024 | |
| Xin Gao Group Limited (“Xin Gao”) | Non-controlling shareholder, controlled by Mr. Kun Dai, chairman and chief executive officer of the Company | |
| Mr. Kun Dai (i) | Chairman and chief executive officer of the Company |
(i)
On February 22, 2024, the Company entered into a loan agreement with Mr. Kun Dai, the principal of which is RMB
Except for the loan mentioned above and the senior convertible preferred shares, warrants and forward contracts issued to NIO Capital, Joy Capital and Xin Gao (Note 16), there were no material related party transactions for the years ended March 31, 2022, 2023 and 2024 and balances as of March 31, 2023 and 2024.
| F-43 |
UXIN LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
15. INCOME TAX EXPENSE
Cayman Islands
Under the current laws of the Cayman Islands, the Company and its subsidiaries incorporated in the Cayman Islands are not subject to tax on income or capital gain. Additionally, the Cayman Islands does not impose a withholding tax on payments of dividends to shareholders.
British Virgin Islands
Under the current laws of the British Virgin Islands, entities incorporated in the British Virgin Islands are not subject to tax on their income or capital gains.
Hong Kong
Under
the current Hong Kong Inland Revenue Ordinance, the Group’s subsidiaries in Hong Kong are subject to
China
On
March 16, 2007, the National People’s Congress of PRC enacted a new Corporate Income Tax Law (“new CIT law”), under
which Foreign Investment Enterprises (“FIEs”) and domestic companies would be subject to corporate income tax at a uniform
rate of
Youxin
Internet (Beijing) Information Technology Co., Ltd. (“Youxin Hulian”) and Youfang (Beijing) Information Technology Co., Ltd.
(“Youfang”) have been qualified as “high and new technology enterprise” (“HNTE”) and enjoy a preferential
income tax rate of
The
Group’s other PRC subsidiaries, former VIEs and VIEs’ subsidiaries are subject to the statutory income tax rate of
As of March 31, 2024, the major tax jurisdictions of the Group are China and Hong Kong, and the tax year is the calendar year.
| F-44 |
UXIN LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
15. INCOME TAX EXPENSE (CONTINUED)
Composition of income tax expense
The current and deferred portions of income tax expense included in the Consolidated Statements of Comprehensive Loss during the fiscal years ended March 31, 2022, 2023 and 2024 were as follows:
| For the fiscal year ended March 31, | ||||||||||||
| 2022 | 2023 | 2024 | ||||||||||
| RMB | RMB | RMB | ||||||||||
| Current income tax expense | ( | ) | ( | ) | ( | ) | ||||||
| Deferred income tax expense | ||||||||||||
| Total income tax expense | ( | ) | ( | ) | ( | ) | ||||||
Reconciliation of the differences between statutory tax rate and the effective tax rate
The
following table sets forth a reconciliation between the statutory PRC EIT rate of
| For the fiscal year ended March 31, | ||||||||||||
| 2022 | 2023 | 2024 | ||||||||||
| Statutory income tax rate 25.0% | % | % | % | |||||||||
| Permanent differences | ( | )% | ( | )% | ( | )% | ||||||
| Effect of different tax rate (i) | % | % | ( | )% | ||||||||
| Change of valuation allowance | % | ( | )% | ( | )% | |||||||
| Effective tax rate | % | % | % | |||||||||
| (i) |
| F-45 |
UXIN LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
15. INCOME TAX EXPENSE (CONTINUED)
Deferred tax assets and deferred tax liabilities
The following table sets forth the significant components of the deferred tax assets:
March 31, 2023 | March 31, 2024 | |||||||
| RMB | RMB | |||||||
| Deferred tax assets | ||||||||
| Net operating loss carry forwards | ||||||||
| Deductible advertising expense | ||||||||
| Leases | ||||||||
| Provision for credit losses | ||||||||
| Impairment loss for equity investments accounted for using measurement alternative | ||||||||
| Less: valuation allowance | ( | ) | ( | ) | ||||
| Net deferred tax assets | ||||||||
March 31, 2023 | March 31, 2024 | |||||||
| RMB | RMB | |||||||
| Deferred tax liabilities | ||||||||
| Leases | ( | ) | ( | ) | ||||
| Total deferred tax liabilities, net | ( | ) | ( | ) | ||||
Movement of valuation allowance
| For the fiscal year ended March 31, | ||||||||||||
| 2022 | 2023 | 2024 | ||||||||||
| RMB | RMB | RMB | ||||||||||
| Balance at beginning of the period | ( | ) | ( | ) | ( | ) | ||||||
| Changes of valuation allowance | ( | ) | ( | ) | ||||||||
| Balance at end of the period | ( | ) | ( | ) | ( | ) | ||||||
As
of March 31, 2024, the Group had net operating loss carry forwards of approximately RMB
A valuation allowance is provided to reduce the amount of deferred tax assets if it is considered more likely than not that amount of the deferred tax assets will not be realized. In making such determination, the Group evaluates a variety of factors including the Group’s operating history, accumulated deficit, the existence of taxable temporary differences and reversal periods.
The Group has incurred net accumulated operating losses for income tax purposes since its inception. The Group believes that it is more likely than not that these its net operating losses and other deferred tax assets will not be utilized in the future. Therefore, the Group has provided full valuation allowances for the deferred tax assets as of March 31, 2023 and 2024.
| F-46 |
UXIN LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
16. SENIOR CONVERTIBLE PREFERRED SHARES AND WARRANTS
2021 Subscription Agreement
In
June 2021, the Company entered into shares subscription agreements, respectively, with NIO Capital and Joy Capital for an aggregate investment
amount of up to US$
For
the second closing in the amount of US$
2022 Subscription Agreement
In
June 2022, the Company entered into another definitive agreement with affiliates of an existing shareholder, NIO Capital. Pursuant to
the definitive agreement, NIO Capital had agreed with the Company for the subscription of senior convertible preferred shares
for an aggregate amount of US$
2024 Subscription Agreement
On
March 26, 2024, the Company entered into definitive agreements with Xin Gao Group Limited (“Xin Gao”) and issued
senior convertible preferred shares at conversion price of US$ per Class A ordinary share for an aggregate amount of US$
On March 27, 2024, as agreed by all preferred shareholders, all senior convertible preferred shares were converted into Class A ordinary shares.
| F-47 |
UXIN LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
16. SENIOR CONVERTIBLE PREFERRED SHARES AND WARRANTS (CONTINUED)
The major rights, preferences and privileges of the senior convertible preferred shares under the 2024 Subscription Agreement, 2022 Subscription Agreement and 2021 Subscription Agreement are as follows:
Conversion rights
Each senior convertible preferred share shall be convertible, at any time and from time to time from and after the applicable original issue date of 2021 Subscription Agreement and 2022 Subscription Agreement. The original conversion price for each senior convertible preferred share shall be US$ per Class A ordinary share for 2021 Subscription Agreement.
The conversion price down round feature is triggered when the Company provides for a lower conversion price in subsequent convertible preferred shares offerings. The provision of a lower conversion price results in the repricing of existing convertible preferred offerings to match any such lower stated conversion rate.
According to 2022 Subscription Agreement, the conversion price for each senior convertible preferred share shall be US$ per Class A ordinary share. At the closing of 2022 Subscription, the conversion price for each senior convertible preferred share issued pursuant to the 2021 Subscription Agreement and outstanding were adjusted to US$ per Class A ordinary share. In August 2023, Joy Capital exercised its warrants to purchase senior convertible preferred shares and the Company issued senior convertible preferred shares to Joy Capital at conversion price of US$ per Class A ordinary share. The conversion price for each senior convertible preferred share outstanding as of the date were further adjusted to US$ per Class A ordinary share. On March 26, 2024, the Company issued senior convertible preferred share to Xin Gao Group Limited at conversion price of US$ per Class A ordinary share. As a result, the conversion price for each senior convertible preferred share outstanding as of the date were further adjusted to US$ per Class A ordinary share. On March 27, 2024, as agreed by all preferred shareholders, all senior convertible preferred shares were converted into Class A ordinary shares at conversion price at US$ per ordinary share.
Voting rights
Holder of each senior convertible preferred share shall be entitled to vote that number of votes equal to the largest number of whole shares of Class A ordinary shares into which each such senior convertible preferred shares could be converted.
Dividends
Each
senior convertible preferred share shall have the right to receive dividends, on as converted and non-cumulative basis, when, as and
if declared by the Board.
Liquidation Preference
Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, each senior convertible preferred shareholder shall be entitled to receive out of the assets, whether capital or surplus, of the Company an amount equal to one hundred and fifty percent (%) of applicable stated value, per senior convertible preferred share held by such holder, plus any accrued and unpaid dividends, before any distribution or payment shall be made to the holders of any junior securities.
| F-48 |
UXIN LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
16. SENIOR CONVERTIBLE PREFERRED SHARES AND WARRANTS (CONTINUED)
Redemption Rights
At any time and from time to time, upon written notice of each holder of senior convertible preferred share, the Company shall redeem all or part of the senior convertible preferred share held by such holder at the redemption price (as defined below), provided that any of the following events occurs: (i) any material breach of any of the representations, warranties or covenants by the Company; (ii) any conviction of breaches or violation of Applicable Law by the Company which is reasonably expected to have a material adverse effect; (iii) during the principal lock-up period, all or part of the Class B ordinary shares held by the principal parties shall be subject to enforcement, foreclosure, freezing order or other judicial measures; (iv) the principal’s employment with the Company shall be terminated for whatever reason; (v) the Company shall fail to have available a sufficient number of authorized and unreserved Class A ordinary shares to issue to such holder upon a conversion hereunder; (vi) there shall have occurred a bankruptcy event; (vii) the ADSs shall fail to be listed or quoted for trading on a trading market for more than five () Trading Days, which need not be consecutive trading days; (viii) the electronic transfer by the Company of ADSs through the depository trust company or another established clearing corporation is no longer available or is subject to a “chill”; (ix) with respect to the senior convertible preferred shares issued pursuant to the 2022 Subscription Agreement only, the Company shall receive any notice (whether written or not) from any holder of a 2024 Note declaring accelerate payment of its outstanding principal and interests accruing thereon under the 2024 Note held by it based on occurrence of any Event of Default under the 2024 Notes (whether actual of alleged).
Redemption price is defined as sum of the aggregate amount of the stated value (as adjusted for any share dividends, combinations, splits, recapitalizations and the like), plus an amount accruing at a compound annual rate of eight percent (%) of such stated value for a period of time commencing from the original issue date and ending on the redemption closing date plus any accrued but unpaid dividends.
Accounting for senior convertible preferred share and warrants
The Company classified the senior convertible preferred shares in the mezzanine equity section of the Consolidated Balance Sheets because certain redemption features allow the senior convertible preferred shareholders to force the Company to redeem the preferred shares and therefore, the senior convertible preferred shares are considered contingently redeemable upon the occurrence of certain liquidation events outside of the Company’s control. The senior convertible preferred share is carried at the amount recorded at inception and no accretion to the redemption value is needed until it becomes probable that the preferred shares will become redeemable. Continual evaluation is performed to assess whether probable of becoming redeemable.
The Company classified the warrants in the warrant liabilities and recorded at fair value initially with subsequent changes in fair value recorded in the profit and loss as warrants issued with redeemable share are liabilities within the scope of ASC 480. Warrants issued in connection with debt or equity, if the warrants are classified as a liability and recorded at fair value with changes in fair value recorded in the profit and loss, then the proceeds should be allocated first to the warrants based on their fair value (not relative fair value). The residual should be allocated to the base debt or equity instrument. Therefore, all proceeds were allocated to warrants on July 12, 2021, as the fair value of the warrants on that day was higher than total proceeds received. Besides, financial liabilities that are required to be measured at fair value should be recorded at fair value with the excess of the fair value over the net proceeds received recognized as a loss in the profit and loss.
| F-49 |
UXIN LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
16. SENIOR CONVERTIBLE PREFERRED SHARES AND WARRANTS (CONTINUED)
Accounting for senior convertible preferred share and warrants (continued)
The Company classified the obligation for the second closing as forward contracts as the investors were obligated to purchase and the Company was required to issue the shares within that twelve-month period since the first closing date. Forward contracts were recorded at fair value initially with subsequent fair value changes to be recorded through profit and loss.
The Company determined that, the reduction of the conversion price for senior convertible preferred shares in July 2022, August 2023 and March 2024 the down round feature operative within the then existing senior convertible preferred shares. The fair value impact related to the reduction in the conversion price of the senior convertible preferred shares in July 2022, August 2023 and March 2024, amounting to RMB million, RMB million and RMB million respectively, was recorded as a charge to accumulated deficit and a credit to additional paid in capital in permanent equity.
The Company’s senior convertible preferred shares activities for the fiscal years ended March 31, 2023 and 2024 are summarized below (except the fair value impact of the down round feature which solely affected the classification of permanent equity):
| Preferred shares | ||||
| RMB | ||||
| Beginning balance as of April 1, 2021 | ||||
| Issuance of senior convertible preferred shares | ||||
| Fair value impact recorded upon cash receipt for subscription | ||||
| Ending balance as of March 31, 2022 | ||||
| Issuance of senior convertible preferred shares | ||||
| Subscription receivable from preferred shareholders | ( | ) | ||
| Fair value impact recorded upon cash receipt for subscription | ( | ) | ||
| Ending balance as of March 31, 2023 | ||||
| Issuance of senior convertible preferred shares | ||||
| Settlement of subscription receivable from preferred shareholders (Note 11) | ||||
| Conversion to Class A ordinary shares | ( | ) | ||
| Ending balance as of March 31, 2024 | ||||
| F-50 |
UXIN LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
16. SENIOR CONVERTIBLE PREFERRED SHARES AND WARRANTS (CONTINUED)
The roll forward of Level 3 financial instruments, including both warrant liabilities and forward contracts, during the fiscal year ended March 31, 2022, 2023 and 2024 was as follows:
| Warrant liabilities | Forward contract assets | |||||||
| RMB | RMB | |||||||
| Fair value of Level 3 financial instruments as of March 31, 2021 | ||||||||
| Issuance of warrants | ||||||||
| Fair value of warrants and forward contracts at issuance | ||||||||
| Settlement of forward contracts | ( | ) | ||||||
| The change in fair value of financial instruments | ( | ) | ( | ) | ||||
| Foreign currency translation | ( | ) | ( | ) | ||||
| Fair value of Level 3 financial instruments as of March 31, 2022 | ( | ) | ||||||
| Settlement of forward contracts | ||||||||
| The change in fair value of financial instruments | ( | ) | ( | ) | ||||
| Foreign currency translation | ( | ) | ||||||
| Fair value of Level 3 financial instruments as of March 31, 2023 | ||||||||
| The change in fair value of financial instruments | ||||||||
| Settlement of warrants | ( | ) | ||||||
| Foreign currency translation | ||||||||
| Fair value of Level 3 financial instruments as of March 31, 2024 | ||||||||
| For the fiscal year ended March 31, | ||||||||||||
| 2022 | 2023 | 2024 | ||||||||||
| RMB | RMB | RMB | ||||||||||
| Fair value impact of the warrants | ( | ) | ||||||||||
| Fair value impact of the forward contracts | ( | ) | ||||||||||
| Gain from the TDR of the 2024 Notes (Note 11) | ||||||||||||
| ( | ) | |||||||||||
The forward contracts and warrants are not traded in an active securities market. In terms of forward contracts, discounted cash flow model was applied to estimate its fair value using the risk-free interest rate as the discount rate.
For the warrants, with the assistance from an independent valuation firm, the Company estimated its fair value using the Black-Scholes option pricing model using the following main assumptions:
| For the fiscal year ended March 31, | ||||||||||||
| 2022 | 2023 | 2024 | ||||||||||
| Risk-free interest rate | % | % | % | |||||||||
| Expected volatility | % | % | % | |||||||||
| Dividend yield | % | % | % | |||||||||
| Expected term (in years) | ||||||||||||
| Fair value of underlying senior convertible preferred share | US$~US$ | US$~US$ | US$~US$ | |||||||||
| F-51 |
UXIN LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
16. SENIOR CONVERTIBLE PREFERRED SHARES AND WARRANTS (CONTINUED)
For the fair value impact related to the reduction in the conversion price of the senior convertible preferred shares, with the assistance from an independent valuation firm, the Company made estimation using a hybrid method comprising the probability-weighted method and Black-Scholes option pricing model. In addition to probability of the scenarios assumed, other main data and assumptions used are as follows:
| For the fiscal year ended March 31, | ||||||||
| 2023 | 2024 | |||||||
| Risk-free interest rate | % | %~ | % | |||||
| Expected volatility | % | %- | % | |||||
| Dividend yield | % | % | ||||||
| Expected term (in years) | - | |||||||
17. REDEEMABLE NON-CONTROLLING INTERESTS
In addition to the lease agreement Uxin Hefei entered into with HCI as described in Note 13, Uxin Hefei also entered into an equity investment agreement with HCI. Pursuant to this agreement, HCI will invest by multiple instalments in Uxin Hefei, and each instalment will be made after the lease payment made by Uxin Hefei over a 10-year period. While HCI committed to invest, details of each investment will be subject to future negotiation.
In
October 2023, Uxin Hefei and HCI mutually agreed that HCI will convert its first-year rental of RMB
The
Subsequently, the redeemable non-controlling interests should be carried at the higher of (1) the carrying amount after the attribution of net income or loss of Uxin Hefei (2) the expected redemption value. The Group accretes for the difference between the initial carrying value and the ultimate redemption price to the earliest possible redemption date using the effective interest method. The accretion, which increases the carrying value of the redeemable non-controlling interests, is recorded against accumulated deficit.
The change in the carrying amount of redeemable non-controlling interests for the year ended March 31, 2024 was as follows:
| Redeemable non-controlling interests | ||||
| Beginning balance at April 1, 2023 | ||||
| Issuance of redeemable non-controlling interests | ||||
| Accretion to redemption value of redeemable non-controlling interests | ||||
| Ending balance at March 31, 2024 | ||||
| F-52 |
UXIN LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
18. ORDINARY SHARES
As
of March 31, 2023 and 2024, and ordinary shares had been authorized, respectively. A total of
ordinary shares, par value US$ per share, consists of Class A ordinary shares and Class B ordinary shares,
had been issued and outstanding as of March 31, 2024. A total of ordinary shares, par value US$ per share, consists
of Class A ordinary shares and Class B ordinary shares, had been issued and outstanding as of March 31, 2023.
In
June 2021, the Company entered into a supplemental agreement with 2024 Notes holders. Pursuant to the supplemental agreement,
In
July 2022, the Company entered into a definitive agreement with 58.com, pursuant to which the Company issued Class A ordinary
shares with par value of US$ per share to 58.com in exchange for the full release of the Company’s obligations under the
2024 Notes issued to 58.com amounting to US$
In
August 2022, the Company entered into a definitive agreement with ClearVue, pursuant to which the Company issued Class A ordinary
shares with par value of US$ per share to ClearVue in exchange for the full release of the Company’s obligations under the
2024 Notes issued to ClearVue amounting to US$
Effective
October 28, 2022,
On March 27, 2024, as agreed by all the preferred shareholders, all of the Company’s outstanding senior convertible preferred shares were converted into Class A ordinary shares. Accordingly, subscription receivable of US$ million due from one of the preferred shareholders before conversion reflected as a deduction from mezzanine equity was presented as subscriptions receivable, a contra-equity balance on the Consolidated Balance Sheets as of March 31, 2024. The subscription receivables amounting to US$ million were subsequently received in May, June and July 2024, and the remaining subscription receivables amounting to US$ million were mutually agreed to be received from NIO Capital no later than December 31, 2024.
| F-53 |
UXIN LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
(a) Share options
In 2018, the Company adopted 2018 Second Amended and Restated Incentive Plan (“2018 Second Plan”).
The Company accounts for share-based compensation costs using a graded-vesting method over the requisite service period for the award based on the fair value on their respectively grant date.
| Number of shares | Weighted-average exercise price | Weighted average remaining contractual term | Aggregate intrinsic value | Weighted average fair value of options | ||||||||||||||||
| US$ | YEARS | US$’000 | US$ | |||||||||||||||||
| Outstanding as of March 31, 2021 | ||||||||||||||||||||
| Granted | - | - | ||||||||||||||||||
| Forfeited | ( | ) | - | - | ||||||||||||||||
| Exercised | ( | ) | - | - | ||||||||||||||||
| Outstanding as of March 31, 2022 | ||||||||||||||||||||
| Granted | * | - | - | |||||||||||||||||
| Forfeited | ( | ) | - | - | ||||||||||||||||
| Exercised | ( | ) | - | - | ||||||||||||||||
| Outstanding as of March 31, 2023 | ||||||||||||||||||||
| Granted | * | - | - | |||||||||||||||||
| Forfeited | ( | ) | - | - | ||||||||||||||||
| Exercised | ( | ) | * | - | - | |||||||||||||||
| Outstanding as of March 31, 2024 | ||||||||||||||||||||
| Vested and expected to vest as of March 31, 2024 | ||||||||||||||||||||
| Exercisable as of March 31, 2024 | ||||||||||||||||||||
| * |
| F-54 |
UXIN LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
19. SHARE-BASED COMPENSATION (CONTINUED)
(a) Share options (continued)
As the granted option exercise prices were equal or close to nominal prices during the fiscal years ended March 31, 2022, 2023 and 2024, their fair values approximated the fair values of the Class A ordinary share on the grant day.
(b) Restricted shares
| Number of shares | Weighted average grant date fair value | |||||||
| US$ | ||||||||
| Unvested as of March 31, 2021 | ||||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Unvested as of March 31, 2022 | ||||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Unvested as of March 31, 2023 | ||||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Unvested as of March 31, 2024 | ||||||||
| F-55 |
UXIN LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
19. SHARE-BASED COMPENSATION (CONTINUED)
(c) Performance Awards
In December 2021, the Company issued certain restricted share units with market conditions to certain management (“Performance Awards”). The market conditions are satisfied upon the Company’s achievement of a certain specified market capitalization subject to continuous employment of each recipient. Total numbers of shares to be granted would be a certain percentage of issued and outstanding shares on a fully diluted basis as of the date when the market conditions are fulfilled. The amount of share-based compensation recorded will vary depending on the Company’s attainment of performance-targets and amortized during the requisite service period.
In October 2023, the Company modified the market conditions under the restricted share units. The modification resulted into an incremental fair value of RMB million. The Company will recognize compensation cost equal to the unrecognized grant-date fair value of the original award plus the incremental fair value arising from the modification over the remaining requisite service period.
For the fiscal years ended March 31, 2022, 2023 and 2024, RMB million, RMB million and RMB million related to Performance Awards was recorded in general and administrative expenses. As of March 31, 2024, total amount of unrecognized expense related to the Performance Awards was RMB million.
(d) Share-based compensation to Mr. Kun Dai
Please refer to Note 16 for the details of share-based compensation to Mr. Kun Dai.
(e) Share-based compensation expenses by function
| For the fiscal year ended March 31, | ||||||||||||
| 2022 | 2023 | 2024 | ||||||||||
| RMB | RMB | RMB | ||||||||||
| General and administrative expenses | ||||||||||||
| Research and development expenses | ||||||||||||
| Sales and marketing expenses | ||||||||||||
| Total | ||||||||||||
20. SEGMENT INFORMATION
Segments are business units that offer different services and are reviewed separately by the chief operating decision maker (the “CODM”), or the decision-making group, in deciding how to allocate resources and in assessing performance.
The CODM, who is responsible for allocating resources and assessing performance of the operating segment, has been identified as Uxin’s Chief Executive Officer.
The Group operates as a single operating segment. The single operating segment is reported in a manner consistent with the internal reporting provided to the CODM.
The Group primarily generates its revenues in China, and assets of the Company are also primarily located in China Area. Accordingly, no geographical segments are presented.
| F-56 |
UXIN LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
21. FAIR VALUE MEASUREMENTS
Assets measured at fair value on a nonrecurring basis
The Company measures its property and equipment and, intangible assets at fair value on a nonrecurring basis whenever events or changes in circumstances indicate that the carrying value may no longer be recoverable.
Equity investments without readily determinable fair value are recorded at fair value only if an impairment or observable price adjustment is recognized in the current period. The Company classified these assets as Level 3 within the fair value hierarchy based on the nature of the fair value inputs.
The
Company measured on a non-recurring basis for the fair values associated with the down round feature triggered for the senior convertible
preferred shares issued pursuant to 2021 Subscription Agreement and 2022 Subscription Agreement. These valuations resulted in a deemed
dividend of RMB
Assets and liabilities measured at fair value on a recurring basis
The
Company measures its warrant liabilities and forward contracts at fair value on a recurring basis. As the Company’s warrant liabilities
and forward contracts are not traded in an active market with readily observable prices, the Company uses significant unobservable inputs
to measure the fair value of warrant liabilities and forward contracts. These instruments are categorized in the Level 3 valuation hierarchy
based on the significance of unobservable factors in the overall fair value measurement. The Company did
Assets measured at fair value on a recurring basis (continued)
The following table summarizes the Company’s financial assets and liabilities measured and recorded at fair value on recurring basis as of March 31, 2023:
| March 31, 2023 | ||||||||||||||||
| Active market | Observable input | Non-observable input | ||||||||||||||
| (Level 1) | (Level 2) | (Level 3) | Total | |||||||||||||
| RMB | RMB | RMB | RMB | |||||||||||||
| Liabilities: | ||||||||||||||||
| Warrant liabilities | ||||||||||||||||
| F-57 |
UXIN LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
| For the fiscal years ended March 31, | ||||||||||||
| 2022 | 2023 | 2024 | ||||||||||
| RMB | RMB | RMB | ||||||||||
Basic net loss per share | ||||||||||||
| Numerator: | ||||||||||||
| Net loss attributable to Uxin Limited | ( | ) | ( | ) | ( | ) | ||||||
| Deemed dividend to preferred shareholders due to triggering of a down round feature | ( | ) | ( | ) | ||||||||
| Net loss attributable to ordinary shareholders | ( | ) | ( | ) | ( | ) | ||||||
| Denominator: | ||||||||||||
| Weighted average number of ordinary shares outstanding - basic | ||||||||||||
| Net loss per share attributable to ordinary shareholders, basic | ( | ) | ( | ) | ( | ) | ||||||
| Diluted net loss per share | ||||||||||||
| Numerator: | ||||||||||||
| Net loss attributable to ordinary shareholders | ( | ) | ( | ) | ( | ) | ||||||
| Add: the change in fair value of warrant liabilities | ( | ) | ||||||||||
| Add: the change in fair value of forward contract assets | ( | ) | ||||||||||
| Diluted net loss attributable to ordinary shareholders | ( | ) | ( | ) | ( | ) | ||||||
| F-58 |
UXIN LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
22. NET LOSS PER SHARE (CONTINUED)
| For the fiscal years ended March 31, | ||||||||||||
| 2022 | 2023 | 2024 | ||||||||||
| RMB | RMB | RMB | ||||||||||
| Denominator: | ||||||||||||
| Weighted average number of ordinary shares outstanding - basic | ||||||||||||
| Weighted average effect of potential dilutive securities outstanding | ||||||||||||
| - Warrants | ||||||||||||
| - Forward contracts | ||||||||||||
| Weighted average number of ordinary shares outstanding, diluted | ||||||||||||
| Net loss per share attributable to ordinary shareholders, diluted | ( | ) | ( | ) | ( | ) | ||||||
As the Group incurred losses for the fiscal years ended March 31, 2022, 2023 and 2024, except for the effect of potential dilutive securities related to the Company’s warrants and forward contracts for the year ended March 31, 2022, the other potential ordinary shares were anti-dilutive and excluded from the calculation of diluted net loss per share of the Group. The weighted-average numbers of senior convertible preferred shares and options granted excluded from the calculation of diluted net loss per share of the Group of the respective periods were as follows:
| For the fiscal years ended March 31, | ||||||||||||
| 2022 | 2023 | 2024 | ||||||||||
| Senior convertible preferred shares | ||||||||||||
| Outstanding weighted average share options | ||||||||||||
| Total | ||||||||||||
| F-59 |
UXIN LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
23. EMPLOYEE BENEFITS
Full time employees of the Group in the PRC participate in a government mandated defined contribution plan, pursuant to which certain pension benefits, medical care, employee housing fund and other welfare benefits are provided to the employees. Chinese labour regulations require that the PRC subsidiaries, former VIEs and VIEs’ subsidiaries of the Group make contributions to the government for these benefits based on certain percentage of the employees’ salaries, up to a maximum amount specified by the government. The Group has no legal obligation for the benefits beyond the contribution made.
The
total amounts charged to the Consolidated Statements of Comprehensive Loss for such employee benefits amounted to RMB
24. CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Group to the concentration of credit risks consist of cash and cash equivalents.
The Group deposits its cash and cash equivalents with financial institutions located in jurisdictions where the subsidiaries are located. The Company believes that no significant credit risk exists as these financial institutions and financing partners have high credit quality.
Substantially all revenue was derived from customers located in China. No single customer accounted for more than 10% of the Company’s consolidated revenue in any of the periods presented.
25. COMMITMENTS
As of March 31, 2024, the Group has no material commitments.
| F-60 |
UXIN LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
26. SUBSEQUENT EVENTS
In
addition to the disposal of Jincheng and the repayment of long-term borrowings completed in April 2024 as disclosed in Note 7, the
Group entered into an equity investment agreement with Zhengzhou Airport Automobile Industry Co., Ltd. (“Zhengzhou Airport
Industry”) to establish a subsidiary to operate the new used car super store in Zhengzhou on July 8, 2024. Pursuant to the
equity investment agreement, the Group will contribute RMB
27. RESTRICTED NET ASSETS
Pursuant
to laws applicable to entities incorporated in the PRC, the Group’s subsidiaries in the PRC must make appropriations from after-tax
profit to non-distributable reserve funds. These reserve funds include one or more of the following: (i) a general reserve, (ii) an enterprise
expansion fund and (iii) a staff bonus and welfare fund. Subject to certain cumulative limits, the general reserve fund requires an annual
appropriation of
Since
the Company has a consolidated shareholders’ deficit, its net asset base for purposes of calculating the proportionate share of
restricted net assets of consolidated subsidiaries should be
| F-61 |
UXIN LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
28. CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY
The Company performed a test on the restricted net assets of consolidated subsidiaries in accordance with Securities and Exchange Commission Regulation S-X Rule 4-08 (e) (3), “General Notes to Financial Statements” and concluded that it was applicable for the Company to disclose the financial statements for the parent company.
The subsidiaries did not pay any dividends to the Company for the periods presented. For the purpose of presenting parent company only financial information, the Company records its investments in its subsidiaries under the equity method of accounting. Such investments are presented on the separate condensed balance sheets of the Company as “Investments (deficit) in subsidiaries” and the loss of the subsidiaries is presented as “share of losses of subsidiaries”. Certain information and footnote disclosures generally included in financial statements prepared in accordance with US GAAP have been condensed and omitted. The footnote disclosures contain supplemental information relating to the operations of the Company, as such, these statements should be read in conjunction with the notes to the consolidated financial statements of the Company.
The parent company did not have significant capital and other commitments, long-term obligations, other long-term debt, or guarantees as of March 31, 2023 and 2024.
| F-62 |
UXIN LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
28. CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY (CONTINUED)
Balance sheets
March 31, 2023 | March 31, 2024 | |||||||
| RMB | RMB | |||||||
| ASSETS | ||||||||
| Cash and cash equivalents | ||||||||
| Amounts due from intra-Group entities | ||||||||
| Other receivables | ||||||||
| Prepaid expenses | ||||||||
| Total assets | ||||||||
| LIABILITIES, MEZZANINE EQUITY AND SHAREHOLDERS’ DEFICIT | ||||||||
| Other payables and other current liabilities | ||||||||
| Investment deficit in subsidiaries | ||||||||
| Amounts due to intra-Group entities | ||||||||
| Warrant liabilities | ||||||||
| Total liabilities | ||||||||
| F-63 |
UXIN LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
28. CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY (CONTINUED)
Balance sheets (Continued)
March 31, 2023 | March 31, 2024 | |||||||
| RMB | RMB | |||||||
| Mezzanine equity | ||||||||
| Senior convertible preferred shares (US$ par value, and shares authorized as of March 31, 2023 and 2024, respectively; and issued and outstanding as of March 31, 2023 and 2024, respectively) | ||||||||
| Subscription receivable from preferred shareholders | ( | ) | ||||||
| Total mezzanine equity | ||||||||
| Shareholders’ deficit | ||||||||
| Ordinary shares (US$ par value, and shares authorized as of March 31, 2023 and 2024, respectively; Class A ordinary shares and Class B ordinary shares issued and outstanding as of March 31, 2023; Class A ordinary shares and Class B ordinary shares issued and outstanding as of March 31, 2024) | ||||||||
| Additional paid-in capital | ||||||||
| Subscription receivable from shareholders | ( | ) | ||||||
| Accumulated other comprehensive income | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total shareholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities, mezzanine equity and shareholders’ deficit | ||||||||
| F-64 |
UXIN LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
28. CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY (CONTINUED)
Statements of comprehensive loss
| For the fiscal year ended March 31, | ||||||||||||
| 2022 | 2023 | 2024 | ||||||||||
| RMB | RMB | RMB | ||||||||||
| Operation expense | ||||||||||||
| Sales and marketing | ||||||||||||
| Research and development | ||||||||||||
| General and administrative | ( | ) | ( | ) | ( | ) | ||||||
| Provision for credits losses, net | ( | ) | ||||||||||
| Total operating expenses | ( | ) | ( | ) | ( | ) | ||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ||||||
| Share of loss of subsidiaries | ( | ) | ( | ) | ( | ) | ||||||
| Interest expense, net | ( | ) | ||||||||||
| Other income, net | ||||||||||||
| Foreign exchange (loss)/gain | ( | ) | ( | ) | ||||||||
| Fair value impact of the issuance of senior convertible preferred shares | ( | ) | ||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ||||||
| Deemed dividend to preferred shareholders due to triggering of a down round feature | ( | ) | ( | ) | ||||||||
| Net loss attributable to ordinary shareholders | ( | ) | ( | ) | ( | ) | ||||||
| Net loss | ( | ) | ( | ) | ( | ) | ||||||
| Other comprehensive income/(loss) | ||||||||||||
| Foreign currency translation | ( | ) | ||||||||||
| Total comprehensive loss | ( | ) | ( | ) | ( | ) | ||||||
| F-65 |
UXIN LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
28. CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY (CONTINUED)
Statements of cash flow
| For the fiscal year ended March 31, | ||||||||||||
| 2022 | 2023 | 2024 | ||||||||||
| RMB | RMB | RMB | ||||||||||
| Net cash (used in)/generated from operating activities | ( | ) | ( | ) | ||||||||
| Net cash used in investing activities | ( | ) | ||||||||||
| Net cash generated from financing activities | ||||||||||||
| Effect of exchange rate changes on cash and cash equivalents | ( | ) | ( | ) | ||||||||
| Net increase/(decrease) in cash and cash equivalents | ( | ) | ||||||||||
| Cash and cash equivalents at beginning of the period | ||||||||||||
| Cash and cash equivalents at end of the period | ||||||||||||
| F-66 |