| PROSPECTUS SUPPLEMENT NO. 3 | Filed Pursuant to Rule 424(b)(3) | |
| (to prospectus dated May 17, 2024) | Registration No. 333-274806 |
UP TO 13,663,325 CLASS A ORDINARY SHARES ISSUABLE UPON THE EXERCISE OF WARRANTS
UP TO 59,328,073 CLASS A ORDINARY SHARES AND 2,860,561 WARRANTS TO PURCHASE CLASS A ORDINARY SHARES OFFERED BY SELLING SECURITYHOLDERS
OF
CHECHE GROUP INC.
This Prospectus supplement No. 3 is being filed to update and supplement the information contained in the prospectus dated May 17, 2024 (as supplemented from time to time, the “Prospectus”) that forms a part of our Registration Statement on Form F-1, as amended and supplemented, including by Post-Effective Amendment No. 1 thereto (File No. 333-274806) (the “Registration Statement”) with the information contained in the Current Report on Form 6-K, filed with the Securities and Exchange Commission (“SEC”) on September 30, 2024 (the “Form 6-K”). Accordingly, we have attached the Form 6-K to this Prospectus Supplement No. 3.
The Prospectus and this Prospectus Supplement No. 3 relate to the issuance by us of up to 13,663,325 Class A ordinary shares, par value $0.00001 per share, of the Company (the “Class A Ordinary Shares”), including (1) 10,802,764 Class A Ordinary Shares issuable upon the exercise of warrants to purchase Class A Ordinary Shares at an exercise price of $11.50, which were issued on September 14, 2023 (the “Closing Date”) in exchange for the public warrants of Prime Impact Acquisition I (“Prime Impact”) that were issued in the initial public offering of Prime Impact (the “Public Warrants”) as part of the units (each consisting of one Class A ordinary share of Prime Impact and one-third of one redeemable warrant) at an offering price of US$10.0 per unit; and (2) 2,860,561 Class A Ordinary Shares issuable upon the exercise of warrants to purchase Class A Ordinary Shares at an exercise price of $11.50 per share, which were issued to Prime Impact Cayman LLC (the “Sponsor”) on the Closing Date (the “Sponsor Warrants”) in exchange for the private placement warrants purchased by the Sponsor for a total consideration of $8.6 million (representing a purchase price of US$3.0 per Sponsor Warrant, after taking account of the forfeiture of 2,860,561 Sponsor Warrants in connection with the Business Combination (as defined below)) in a private placement concurrent with the initial public offering of Prime Impact. The Public Warrants and the Sponsor Warrants are collectively referred herein as the “Warrants.”
The Prospectus and this Prospectus Supplement No. 3 also relate to the potential offer and sale from time to time by the selling securityholders named in the Prospectus or their pledgees, donees, transferees, assignees or other successors in interest (that receive any of the securities as a gift, distribution, or other non-sale related transfer) (collectively, the “Selling Securityholders”) of up to (A) 59,328,073 Class A Ordinary Shares, which include (1) an aggregate of 49,692,232 Class A Ordinary Shares beneficially owned by certain former shareholders of Cheche Technology Inc. (“CCT”), which, without accounting for any share transfer between the then shareholders of CCT, were acquired by Tank Stone Ltd. at a price of approximately RMB0.0419 per share, CISG Holdings Ltd. at a price of approximately $6.4886 per share, CICW Holdings Limited at a price of approximately RMB1.3263 per share, Dongprosper Holdings Limited at a price of approximately RMB0.0347 per share, Ruiyuan Technology Holdings Limited at a price of approximately RMB6.7111 per share, Beijing Zhongyuan Ronghui Investment Center, LLP and Ningbo Shiwei Enterprise Management Partnership (L.P.) at a price of approximately RMB5.4054 per share (in Series A investment) and RMB21.1516 per share (at Series B investment), respectively, Lian Jia Enterprises Limited and EAGLE ROVER LTD. at a price of approximately RMB21.1516, respectively, United Gemini Holdings Limited at a price of approximately RMB46.7232 per share, entities affiliated with Yong He and entities affiliated with Tencent Holding Limited at a price of approximately $7.1608 per share, respectively; (2) 4,975,280 Class A Ordinary Shares issued to the Sponsor and certain former directors of Prime Impact (the “Sponsor Shares”) on the Closing Date, of which (i) 4,341,052 Sponsor Shares were exchanged from 4,341,052 Class B ordinary shares of Prime Impact purchased by the Sponsor at a price of approximately $0.003 per share, and (ii) 634,228 Sponsor Shares were acquired by the Sponsor at a price of $10.00 per share; (3) 2,860,561 Class A Ordinary Shares issuable upon the exercise of the Sponsor Warrants; (4) 1,800,000 Class A Ordinary Shares issued to certain investors pursuant to certain private placement transactions on the September 11, 2023 (the “PIPE Shares”), at a price of $10.00 per share; and (B) 2,860,561 Sponsor Warrants. We are registering these securities to satisfy certain registration rights we have granted to permit the Selling Securityholders to sell securities from time to time, in amounts, at prices and on terms determined at the time of offering. The securities registered in the Registration Statement are identified in the Prospectus as the Registered Securities.
This Prospectus Supplement No. 3 updates and supplements the information in the Prospectus and is not complete without, and may not be delivered or utilized except in combination with, the Prospectus, including any amendments or supplements thereto. This Prospectus Supplement No. 3 should be read in conjunction with the Prospectus and if there is any inconsistency between the information in the Prospectus and this Prospectus Supplement No. 3, you should rely on the information in this Prospectus Supplement No. 3.
We will not receive any proceeds from the sale of the Registered Securities by the Selling Securityholders. We will receive proceeds from the exercise of Warrants if the Warrants are exercised for cash. The likelihood that warrant holders will exercise the Warrants and any cash proceeds that we would receive is dependent upon the market price of our Class A Ordinary Shares. Based on the closing price of our Class A Ordinary Shares at $0.763 on September 27, 2024, which is less than the exercise price of $11.50 per share pursuant to the terms of the Warrants, we believe holders of the Warrants will be unlikely to exercise their Warrants, and we are unlikely to receive proceeds from the exercise of Warrants. We will pay the expenses associated with registering the sales by the Selling Securityholders, as described in more details in the section titled “Use of Proceeds” appearing elsewhere in the Prospectus.
Our Class A Ordinary Shares and our warrants to purchase Class A Ordinary Shares are listed on the Nasdaq Stock Market LLC (“Nasdaq”), under the trading symbols “CCG” and “CCGWW,” respectively. On September 27, 2024, the closing price for our Class A Ordinary Shares on Nasdaq was $0.763, and the closing price for our warrants on Nasdaq was $0.0156.
Investing in our securities involves a high degree of risk. See “Risk Factors” beginning on page 16 of the Prospectus and other risk factors contained in the documents incorporated by reference herein for a discussion of information that should be considered in connection with an investment in our securities.
Neither the U.S. Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus supplement is September 30, 2024
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of September 2024
Commission File Number 001-41801
Cheche Group Inc.
8/F, Desheng Hopson Fortune Plaza
13-1 Deshengmenwai Avenue
Xicheng District, Beijing 100088, China
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F ☒ Form 40-F ☐
Exhibit Index
| Exhibit 99.1 — | Interim Condensed Consolidated Financial Statements as of December 31, 2023 and June 30, 2024 (unaudited) and for the six months ended June 30, 2023 (unaudited) and 2024 (unaudited) | |
| Exhibit 99.2— | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
| 101.INS | Inline XBRL Instance Document - this instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase | |
| 104 | Cover Page Interactive Data File (embedded within the Inline IXBRL document) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Cheche Group Inc. | ||
| By: | /s/ Lei ZHANG | |
| Name: | Lei ZHANG | |
| Title: | Chief Executive Officer and Director | |
| Date: September 30, 2024 | ||
Exhibit 99.1
CHECHE GROUP INC.
INDEX TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| F-1 |
CHECHE GROUP INC.
UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
(All amounts in thousands, except for share and per share data)
| Note | As of December 31, 2023 | As of June 30, 2024 | ||||||||
| RMB | RMB | |||||||||
| ASSETS | ||||||||||
| Current assets: | ||||||||||
| Cash and cash equivalents | ||||||||||
| Short-term investments | ||||||||||
| Accounts receivable, net | 4 | |||||||||
| Prepayments and other current assets | 5 | |||||||||
| Total current assets | ||||||||||
| Non-current assets: | ||||||||||
| Restricted cash | ||||||||||
| Property, equipment and leasehold improvement, net | 6 | |||||||||
| Intangible assets, net | 7 | |||||||||
| Right-of-use assets | 8 | |||||||||
| Goodwill | 2 l) | |||||||||
| Other non-current assets | ||||||||||
| Total non-current assets | ||||||||||
| TOTAL ASSETS | ||||||||||
| LIABILITIES | ||||||||||
| Current liabilities | ||||||||||
| Accounts payable | ||||||||||
| Short-term borrowings | 9 | |||||||||
| Contract liabilities | 2 n) | |||||||||
| Salary and welfare benefits payable | ||||||||||
| Tax payable | 11 | |||||||||
| Amounts due to related party | 20 | |||||||||
| Accrued expenses and other current liabilities | 12 | |||||||||
| Short-term lease liabilities | 8 | |||||||||
| Warrant | 21 | |||||||||
| Total current liabilities | ||||||||||
| Non-current liabilities | ||||||||||
| Deferred tax liabilities | ||||||||||
| Long-term lease liabilities | 8 | |||||||||
| Deferred revenue | 2 s) | |||||||||
| Warrant | 21 | |||||||||
| Total non-current liabilities | ||||||||||
| TOTAL LIABILITIES | ||||||||||
| Commitments and contingencies (Note 19) | ||||||||||
| F-2 |
CHECHE GROUP INC.
UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(All amounts in thousands, except for share and per share data)
| Note | As of December 31, 2023 | As of June 30， 2024 | ||||||||
RMB | RMB | |||||||||
| SHAREHOLDERS’ EQUITY : | ||||||||||
| Ordinary shares (US$ par value, and shares (Class A ordinary shares and Class B ordinary shares) authorized as of December 31, 2023 and June 30, 2024, respectively; and shares (Class A ordinary shares and Class B ordinary shares) issued and outstanding as of December 31, 2023 and June 30, 2024, respectively)* | ||||||||||
| Treasury stock | ( | ) | ( | ) | ||||||
| Additional paid-in capital | ||||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||||
| Accumulated other comprehensive income | ||||||||||
| TOTAL SHAREHOLDERS’ EQUITY: | ||||||||||
| TOTAL LIABILITIES, MEZZANINE EQUITY AND SHAREHOLDERS’ EQUITY | ||||||||||
| * |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
| F-3 |
CHECHE GROUP INC.
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS AND COMPREHENSIVE LOSS
(All amounts in thousands, except for share and per share data)
| For the six months ended June 30, | ||||||||||
| Note | 2023 | 2024 | ||||||||
| RMB | RMB | |||||||||
| Net revenues | 14 | |||||||||
| Cost and Operating expenses: | ||||||||||
| Cost of revenues | 15 | ( | ) | ( | ) | |||||
| Selling and marketing expenses | ( | ) | ( | ) | ||||||
| General and administrative expenses | ( | ) | ( | ) | ||||||
| Research and development expenses | ( | ) | ( | ) | ||||||
| Total cost and operating expenses | ( | ) | ( | ) | ||||||
| Operating loss | ( | ) | ( | ) | ||||||
| Other expenses: | ||||||||||
| Interest income | ||||||||||
| Interest expense | ( | ) | ( | ) | ||||||
| Foreign exchange losses | ( | ) | ( | ) | ||||||
| Government grants | ||||||||||
| Changes in fair value of warrant | ( | ) | ||||||||
| Changes in fair value of amounts due to related party | 20 | ( | ) | ( | ) | |||||
| Others, net | ||||||||||
| Loss before income tax | ( | ) | ( | ) | ||||||
| Income tax credit | 10 | |||||||||
| Net loss | ( | ) | ( | ) | ||||||
| Accretions to preferred shares redemption value | ( | ) | ||||||||
| Net loss attributable to the Cheche’s ordinary shareholders | ( | ) | ( | ) | ||||||
| Net loss | ( | ) | ( | ) | ||||||
| Other comprehensive income/ (loss) | ||||||||||
| Foreign currency translation adjustments, net of nil tax | ||||||||||
| Fair value changes of amounts due to related party due to own credit risk | 20 | ( | ) | ( | ) | |||||
| Total other comprehensive income | ||||||||||
| Total comprehensive loss | ( | ) | ( | ) | ||||||
| Accretions to preferred shares redemption value | 13 | ( | ) | |||||||
| Comprehensive loss attributable to the Cheche’s ordinary shareholders | ( | ) | ( | ) | ||||||
| Net loss attributable to the Cheche’s ordinary shareholders per share | ||||||||||
| Basic | ) | ) | ||||||||
| Diluted | ) | ) | ||||||||
| Weighted average number of ordinary shares* | ||||||||||
| Basic | ||||||||||
| Diluted | ||||||||||
| Share-based compensation expenses included in | ( | ) | ( | ) | ||||||
| Cost of revenues | ( | ) | ( | ) | ||||||
| Selling and marketing expenses | ( | ) | ( | ) | ||||||
| General and administrative expenses | ( | ) | ( | ) | ||||||
| Research and development expenses | ( | ) | ( | ) | ||||||
| * |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
| F-4 |
CHECHE GROUP INC.
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS’ (DEFICIT)/EQUITY
(All amounts in thousands, except for share and per share data)
| Ordinary shares* | Treasury stock* | Additional paid-in | Accumulated other comprehensive | Accumulated | Total shareholders’ | |||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | capital* | (loss)/income | deficit | deficit | |||||||||||||||||||||||||||
| Note | RMB | RMB | RMB | RMB | RMB | RMB | ||||||||||||||||||||||||||||
| Balance at January 1, 2023 | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Share-based compensation | 17 a) | - | ||||||||||||||||||||||||||||||||
| Ordinary share issuance | - | ( | ) | |||||||||||||||||||||||||||||||
| Preferred shares redemption value accretion | 13 | - | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | ||||||||||||||||||||||||||||||||
| Fair value changes of amounts due to related party due to own credit risk | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Balance at June 30, 2023 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Ordinary shares | Treasury stock | Additional paid-in | Accumulated other comprehensive | Accumulated | Total shareholders’ | |||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | capital | income/(loss) | deficit | equity | |||||||||||||||||||||||||||
| Note | RMB | RMB | RMB | RMB | RMB | RMB | ||||||||||||||||||||||||||||
| Balance at January 1, 2024 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Share-based compensation | 17 a) | - | ||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | ||||||||||||||||||||||||||||||||
| Fair value changes of amounts due to related party due to own credit risk | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Balance at June 30, 2024 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| * |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
| F-5 |
CHECHE GROUP INC.
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts in thousands, except for share and per share data)
| For the six months ended June 30, | ||||||||
| 2023 | 2024 | |||||||
| RMB | RMB | |||||||
| Cash flows from operating activities: | ||||||||
| Net Loss | ( | ) | ( | ) | ||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation of property, equipment and leasehold improvement | ||||||||
| Amortization of right-of-use asset | ||||||||
| Amortization of intangible assets | ||||||||
| Changes in fair value of warrant | ( | ) | ||||||
| Changes in fair value of amounts due to related party | ||||||||
| Share-based compensation expense | ||||||||
| Provision of allowance for current expected credit losses | ||||||||
| Foreign exchange losses | ||||||||
| Loss on disposal of property, equipment and leasehold improvement | ||||||||
| Deferred income tax | ( | ) | ( | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Prepayments and other current assets | ( | ) | ||||||
| Accounts payable | ||||||||
| Contract liabilities | ( | ) | ||||||
| Salary and welfare benefits payable | ( | ) | ||||||
| Tax payable | ( | ) | ( | ) | ||||
| Accrued expenses and other current liabilities | ( | ) | ( | ) | ||||
| Lease liabilities | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of property, equipment and leasehold improvement | ( | ) | ( | ) | ||||
| Proceeds from disposal of property, equipment and intangible assets | ||||||||
| Loan provided to a third party (Note 5) | ( | ) | ||||||
| Placement of short-term investments | ( | ) | ( | ) | ||||
| Cash received from maturities of short-term investments | ||||||||
| Net cash generated from/(used in) investing activities | ( | ) | ||||||
| Cash flows from financing activities: | ||||||||
| Cash received from short-term borrowings from bank (Note 9) | ||||||||
| Cash repayments of short-term borrowings to bank (Note 9) | ( | ) | ||||||
| Net cash generated from/(used in) financing activities | ( | ) | ||||||
| Effect of foreign exchange rate changes on cash and cash equivalents | ||||||||
| Net increase /(decrease) in cash and cash equivalents and restricted cash | ( | ) | ||||||
| Cash and cash equivalents and restricted cash at beginning of the period | ||||||||
| Cash and cash equivalents and restricted cash at end of the period | ||||||||
| Reconciliation to amounts on consolidated balance sheet: | ||||||||
| Restricted cash at end of the period | ||||||||
| Cash and cash equivalents at end of the period | ||||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash payments of interest expense | ( | ) | ( | ) | ||||
| Cash paid for income tax | ( | ) | ( | ) | ||||
| Supplemental schedule of non-cash investing and financing activities: | ||||||||
| Accretions to preferred shares redemption value | ||||||||
| Right-of-use assets obtained in exchange for obligations | ||||||||
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
| F-6 |
CHECHE GROUP INC. NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (All amounts in thousands, except for share and per share data) |
1. Organization and Principal Activities
Cheche Group Inc. (the “Company” or “Cheche Group”) was incorporated in the Cayman Islands in January 2023 as an exempted company with limited liability. The Company is a holding company and conducts its business mainly through its subsidiaries, variable interest entity (“VIE”) and subsidiaries of VIE (collectively referred to as the “Group”). Cheche Technology Inc. (“CCT”) is a wholly owned subsidiary of the Company. Cheche Technology (HK) Limited (“Cheche HK”) is a wholly owned subsidiary of CCT. Baodafang Technology Co., Ltd. (“Baodafang”) is a wholly owned subsidiary of Cheche HK. Cheche Technology (Ningbo) Co., Ltd. (“Cheche Ningbo”) is wholly foreign-owned enterprise (the “WFOE”). The Group conducted its business in the People’s Republic of China (the “PRC” or “China”) through a series of contractual agreements entered into by the WFOE with the VIE based in China. The Group is primarily engaged in the operation of providing insurance transaction services, Software-as-a-Service (“SaaS”) and technical service and other services in China.
The following sets forth the Company’s consolidated subsidiaries, VIE and subsidiaries of VIE are as follows:
| Percentage of | ||||||
| direct or | ||||||
| Place and | indirect | |||||
| year of | economic | Principal | ||||
| Subsidiaries | incorporation | ownership | activities | |||
| Cheche Technology Inc. (“CCT”) | ||||||
| Cheche Technology (HK) Limited (“Cheche HK”) | ||||||
| Cheche Technology (Ningbo) Co., Ltd. (“Cheche Ningbo” or “wholly foreign-owned enterprise” or “WFOE” or “primary beneficiary of the VIE”) | ||||||
| Baodafang Technology Co., Ltd. (“Baodafang”) |
| Percentage of | ||||||
| direct or | ||||||
| Place and | indirect | |||||
| year of | economic | Principal | ||||
| VIE | incorporation | interest | activities | |||
Beijing Cheche Technology Co., Ltd. (“Beijing Cheche”) |
| Percentage of | ||||||
| Place and | direct or | |||||
| year of | indirect | |||||
| incorporation/ | economic | Principal | ||||
| Subsidiaries of VIE | acquisition | interest | activities | |||
| Cheche Insurance Sales & Service Co., Ltd. (“Cheche Insurance”) | ||||||
| Huicai Insurance Brokerage Co., Ltd. | ||||||
| Cheche Zhixing (Ningbo) Car Service Co., Ltd. |
| * |
| F-7 |
CHECHE GROUP INC. NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (All amounts in thousands, except for share and per share data) |
1. Organization and Principal Activities (Continued)
On September 14, 2023 (the “Closing Date”), the Company completed the business combination (the “Business Combination”) with Prime Impact Acquisition I (“Prime Impact”). Cheche Group began trading on the Nasdaq Stock Exchange on September 18, 2023. On the Closing Date, the Company consummated the Business Combination with Prime Impact, pursuant to the Business Combination Agreement dated January 29, 2023, by and among Prime Impact, the Company, Cheche Merger Sub Inc. (“Merger Sub”), and CCT. Pursuant to the Business Combination Agreement, the Business Combination was effected in two steps. On September 14, 2023, (1) Prime Impact merged with and into the Company (the “Initial Merger”), with the Company surviving the Initial Merger as a publicly traded entity; and (2) immediately following the Initial Merger, Merger Sub merged with and into CCT (the “Acquisition Merger” and, together with the Initial Merger, the “Mergers,” and together with all other transactions contemplated by the Business Combination Agreement, the “Business Combination”), with CCT surviving the Acquisition Merger as a wholly owned subsidiary of the Company.
The Business Combination was accounted for as a reverse recapitalization (the “Reverse Recapitalization”) in accordance with U.S. GAAP. As a result of the Business Combination, CCT was deemed the accounting acquirer. This determination is primarily based on the shareholders of CCT comprising the majority of the voting power of the Company and having the ability to nominate the members of the Company’s Board, CCT’s operations prior to the acquisition comprising the only ongoing operations, and CCT’s senior management comprising a majority of the Group’s senior management. Accordingly, for accounting purposes, the financial statements of the post-combination company represent a continuation of the financial statements of CCT. Prime Impact was treated as the “acquired” company for accounting purposes. As Prime Impact does not meet the definition of a “business” for accounting purposes, the Reverse Recapitalization was treated as the equivalent of CCT issuing shares for the net assets of Prime Impact, accompanied by a recapitalization. The net assets of Prime Impact were stated at historical cost, with no goodwill or other intangible assets recorded. The unaudited interim condensed consolidated financial statements reflect (i) the historical operating results of CCT prior to the Reverse Recapitalization; (ii) the combined results of the Company and CCT following the closing of the Reverse Recapitalization; (iii) the assets and liabilities of CCT at their historical cost; and (iv) the Company’s equity structure for all periods presented. Transaction costs related to the Reverse Recapitalization paid to Prime Impact as part of the Business Combination Agreement were charged to equity as a reduction of the net proceeds received in exchange for the shares issued to the shareholders of Prime Impact.
In
accordance with guidance applicable to these circumstances, the equity structure has been retroactively adjusted in all comparative periods
up to the Closing Date, to reflect the number of shares of the Company’s ordinary shares issued to CCT’s shareholders in
connection with the Reverse Recapitalization transaction. As such, the ordinary shares and corresponding capital amounts and earnings
per share related to CCT convertible redeemable preferred shares and ordinary shares prior to the Reverse Recapitalization have been
retroactively restated as shares reflecting the exchange ratio established pursuant to the Business Combination Agreement. In conjunction
with the Reverse Recapitalization, the Company’s ordinary shares underwent a
Contractual arrangements with VIE
PRC laws and regulations place certain restrictions on foreign investment in value-added telecommunication service businesses. To comply with PRC laws and regulations, the Group operates its businesses in the PRC through the VIE and VIE subsidiaries. Most of the Group’s revenues, cost of revenues, expenses and net loss in China were generated directly or indirectly through the VIE and VIE’s subsidiaries. The Company relies on a series of contractual arrangements among its wholly-owned PRC subsidiary Cheche Ningbo, the VIE and their shareholders to conduct the business operations of the VIE and VIE subsidiaries.
Below is a summary of the currently effective contractual arrangements by and among the Company’s wholly-owned subsidiary Cheche Ningbo, Beijing Cheche and its shareholders (also Nominee Shareholders).
| F-8 |
CHECHE GROUP INC. NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (All amounts in thousands, except for share and per share data) |
1. Organization and Principal Activities (Continued)
Contractual arrangements with VIE (Continued)
| i) | Equity Interest Pledge Agreement |
Pursuant to the Equity Interest Pledge Agreement entered into amongst WFOE, the VIE and Nominee Shareholders of the VIE, the Nominee Shareholders of the VIE pledged all of their equity interests in the VIE to the WFOE to ensure the Nominee Shareholders fully perform their obligations under the Exclusive Option Agreement, the Exclusive Business Cooperation Agreement and the Power of Attorney. The WFOE shall have the right to collect dividends generated by the pledged equity interests during the term of the pledge. If the Nominee Shareholders breach their respective contractual obligations under the Equity Interest Pledge Agreement, the WFOE, as pledgee, will be entitled to rights, including but not limited to being paid based on the monetary valuation that such equity interest is converted into or from the proceeds from the auction or sale of the equity interest. The Nominee Shareholders of the VIE are prohibited from transferring their pledged equity interests, placing or permitting any encumbrance that would prejudice the WFOE’s interests without the WFOE’s prior written consent. The pledge rights were effective upon registration of the pledges with the relevant Administration for Market Regulation (the “SAMR”) (formerly known as State Administration for Industry and Commerce), and the Equity Interest Pledge Agreement will remain effective until all the obligations have been satisfied in full. The WFOE completed the registration of the pledge of equity interests in the VIE with the relevant office of the SAMR in accordance with the PRC Civil Code.
| ii) | Exclusive Option Agreement |
Pursuant to the Exclusive Option Agreement entered into amongst the CCT, WFOE, VIE and the Nominee Shareholders, the Nominee Shareholders irrevocably granted the WFOE or its designated party, an exclusive option to purchase all or part of the equity interests held by the Nominee Shareholders in the VIE at its sole discretion, to the extent permitted under the PRC laws for the cost of the initial contributions to the registered capital or the minimum amount of consideration permitted by applicable PRC law. The WFOE has an option to purchase from VIE at WFOE’s sole discretion, any or all of the assets and business of VIE, to the extent permitted under PRC law, and at the lowest purchase price permitted by PRC law. The Nominee Shareholders should remit to the WFOE any gain that is paid by WFOE or its designated person(s) in connection with the purchased equity interest or the purchased business asset. The WFOE or its designated person(s) have sole discretion to decide when to exercise the option, whether in part or in full. Any and all dividends and other capital distributions made by the VIE to its Nominee Shareholders should be repaid to the WFOE in full amount. CCT would provide unlimited financial support to the VIE if, in the normal operation of business, the VIE should become in need of any form of reasonable financial support. If the VIE were to incur any loss and as a result cannot repay any loans from CCT, CCT should unconditionally forgive any such loans to the VIE given that the VIE provides sufficient proof for its loss and incapacity to repay. This Exclusive Option Agreement remains effective until all equity interests held by Nominee Shareholders in the VIE have been transferred or assigned to the WFOE and/or any other person designated by the WFOE in accordance with this Exclusive Option Agreement.
| iii) | Exclusive Business Cooperation Agreement |
Pursuant
to the Exclusive Business Cooperation Agreements entered into amongst WFOE and VIE, the WFOE is engaged by the VIE to exclusively provide
technical and consulting services including but not limited to the licensing of technology and software, design, development, maintenance
and updating of technologies, business and management consultation, and marketing and promotional services. The WFOE may appoint or designate
its affiliates or other qualified parties to provide the services covered by the Exclusive Business Cooperation Agreement. In return,
the VIE agrees to pay a service fee equal to
| F-9 |
CHECHE GROUP INC. NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (All amounts in thousands, except for share and per share data) |
1. Organization and Principal Activities (Continued)
Contractual arrangements with VIE (Continued)
| iv) | Power of Attorney |
Pursuant to the Power of Attorney agreement entered into amongst WFOE, VIE and the Nominee Shareholders, Nominee Shareholders irrevocably appoint WFOE as their attorney-in-fact to exercise on each shareholder’s behalf any and all rights that each shareholder has in respect of its equity interests in the VIE, including but not limited to executing the voting rights and the right to appoint directors and executive officers of VIE. The agreements will remain effective and irrevocable for as long as the relevant Nominee Shareholder holds any equity interests in VIE.
| v) | Spousal Consent Letter |
Each spouse of the married Nominee Shareholders of the VIE entered into a Spousal Consent Letter, which unconditionally and irrevocably agreed that the equity interests in the VIE held by and registered in the name of their spouse will be disposed of pursuant to the Equity Interest Pledge Agreement and the Power of Attorney. Each spouse agreed not to assert any rights over the equity interests in the VIE held by their spouse. In addition, in the event that the spouses obtain any equity interests in the VIE held by their spouse for any reason, they agreed to be bound by the contractual arrangements.
The Equity Interest Pledge Agreement, Exclusive Option Agreement, Exclusive Business Cooperation Agreement, Power of Attorney and Spousal Consent Letter to Beijing Cheche were amended to reflect the changes of shareholders’ holding in the VIE entity in their respective dates. No other material terms or conditions of these agreements were changed or altered. There was no impact to the Group’s effective control over Beijing Cheche and the Group continues to consolidate Beijing Cheche.
Risks in relation to the VIE structure
The Group’s business is mainly conducted through the VIE and subsidiaries of VIE, of which the Company is the ultimate primary beneficiary. The Company has concluded that (i) the ownership structure of the VIE is not in violation of any applicable PRC laws or regulations currently in effect and (ii) each of the VIE contractual agreements is valid, binding, and enforceable in accordance with their terms and applicable PRC laws or regulations currently in effect. However, uncertainties in the PRC legal system could cause the relevant regulatory authorities to find the current VIE contractual agreements and the legal structure to be in violation of any existing or future PRC laws or regulations.
On March 15, 2019, the National People’s Congress adopted the Foreign Investment Law of the PRC, which became effective on January 1, 2020, together with their implementation rules and ancillary regulations. The Foreign Investment Law does not explicitly classify contractual arrangements as a form of foreign investment, but it contains a catch-all provision under the definition of “foreign investment”, which includes investments made by foreign investors through means stipulated in laws or administrative regulations or other methods prescribed by the State Council. It is unclear whether the Group’s corporate structure will be seen as violating the foreign investment rules as the Group is currently leveraging the contractual arrangements to operate certain business in which foreign investors are prohibited from or restricted to investing. If variable interest entities fall within the definition of foreign investment entities, the Group’s ability to use the contractual arrangements with the VIE and the Group’s ability to conduct business through the VIE could be severely limited.
| F-10 |
CHECHE GROUP INC. NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (All amounts in thousands, except for share and per share data) |
1. Organization and Principal Activities (Continued)
Risks in relation to the VIE structure (Continued)
In addition, if the Group’s corporate structure and the contractual arrangements with the VIE through which the Group conducts its business in the PRC were found to be in violation of any existing or future PRC laws and regulations, the Group’s relevant PRC regulatory authorities could:
| ● | revoke the business licenses and/or operating licenses of the Group’s PRC entities; | |
| ● | impose fines; | |
| ● | confiscate any income that they deem to be obtained through illegal operations, or impose other requirements with which the Group may not be able to comply; | |
| ● | discontinue or place restrictions or onerous conditions on the Group’s operations; | |
| ● | place restrictions on the right to collect revenues; | |
| ● | shut down the Group’s servers or block the Group’s websites or mobile apps; | |
| ● | the Group to restructure ownership structure or operations, including terminating the contractual arrangements with the VIE and deregistering the equity pledges of the VIE, which in turn would affect the ability to consolidate, derive economic interests from the VIE and their subsidiaries; | |
| ● | restrict or prohibit the use of the proceeds from financing activities to finance the business and operations of the VIE and their subsidiaries; or | |
| ● | take other regulatory or enforcement actions that could be harmful to the Group’s business. |
The imposition of any of these penalties may result in a material and adverse effect on the Group’s ability to conduct the Group’s businesses. In addition, if the imposition of any of these penalties causes the Group to lose the rights to direct the activities of the VIE or the right to receive its economic benefits, the Group would no longer be able to consolidate the VIE. The management believes that the likelihood for the Group to lose such ability is remote based on current facts and circumstances. However, the interpretation and implementation of the laws and regulations in the PRC and their application to an effect on the legality, binding effect and enforceability of contracts are subject to the discretion of competent PRC authorities, and therefore there is no assurance that relevant PRC authorities will take the same position as the Group herein in respect of the legality, binding effect and enforceability of each of the contractual arrangements. Meanwhile, since the PRC legal system continues to rapidly evolve, it may lead to changes in PRC laws, regulations, and policies or in the interpretation and application of existing laws, regulations and policies, which may limit legal protections available to the Group to enforce the contractual arrangements should the VIE or the shareholder of the VIE fail to perform their obligations under those arrangements. In addition, shareholder of the VIE is a PRC holding entity beneficially owned by the Founder, chairman of the board of directors and chief executive officer of the Company. The enforceability, and therefore the benefits, of the contractual agreements between the Company and the VIE depend on shareholder enforcing the contracts. There is a risk that shareholder of VIE, who in some cases is also shareholder of the Company may have conflict of interests with the Company in the future or fails to perform their contractual obligations. Given the significance and importance of the VIE, there would be a significant negative impact to the Company if these contracts were not enforced.
| F-11 |
CHECHE GROUP INC. NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (All amounts in thousands, except for share and per share data) |
1. Organization and Principal Activities (Continued)
Risks in relation to the VIE structure (Continued)
The Group’s operations depend on the VIE to honor their contractual agreements with the Group and the enforceability, and therefore the benefits, of the contractual agreements also depends on the authorization by the shareholder of the VIE to exercise voting rights on all matters requiring shareholder approval in the VIE. The Company believes that the agreements on authorization to exercise shareholder’s voting power are enforceable against each party thereto in accordance with their terms and applicable PRC laws or regulations currently in effect and the possibility that it will no longer be able to be the primary beneficiary and consolidate the VIE as a result of the aforementioned risks and uncertainties is remote.
In
accordance with the contractual agreements, the Company could (1) exercise the shareholder’s rights of the VIE and has power to
direct the activities that most significantly affects the economic performance of the VIE and subsidiaries of VIE, (2) absorb substantially
all of the expected losses and receive substantially expected residual returns of the VIE and subsidiaries of VIE; and (3) has an exclusive
call option to purchase all or part of the equity interests in and/or assets of each of VIE and subsidiaries of VIE when and to the extent
permitted by PRC law. Accordingly, the Company is considered as the ultimate primary beneficiary of the VIE and has consolidated the
VIE’s financial results of operations, assets, and liabilities in the Company’s consolidated financial statements. Therefore,
the company considers that there are no assets in the VIE that can be used only to settle obligations of the VIE, except for the paid-in
capital of the VIE amounting to approximately RMB
As
of the date of this report,
| F-12 |
CHECHE GROUP INC. NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (All amounts in thousands, except for share and per share data) |
1. Organization and Principal Activities (Continued)
Risks in relation to the VIE structure (Continued)
The following unaudited interim condensed consolidated financial information of the VIE after the elimination of inter-company transactions between the VIE and its subsidiaries as of December 31, 2023 and June 30, 2024 and for the six months ended June 30, 2023 and 2024 was included in the accompanying unaudited interim condensed consolidated financial statements of the Group as follows:
| As of December 31, | As of June 30, | |||||||
| 2023 | 2024 | |||||||
| RMB | RMB | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | ||||||||
| Short-term investment | ||||||||
| Accounts receivable, net | ||||||||
| Prepayments and other current assets | ||||||||
| Amounts due from intra-Group companies | ||||||||
| Total current assets | ||||||||
| Non-current assets: | ||||||||
| Restricted cash | ||||||||
| Property, equipment and leasehold improvement, net | ||||||||
| Intangible assets, net | ||||||||
| Right-of-use assets | ||||||||
| Goodwill | ||||||||
| Total non-current assets | ||||||||
| TOTAL ASSETS | ||||||||
| LIABILITIES | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | ||||||||
| Short-term borrowings | ||||||||
| Contract liabilities | ||||||||
| Salary and welfare benefits payable | ||||||||
| Tax payable | ||||||||
| Amounts due to related party | ||||||||
| Accrued expenses and other current liabilities | ||||||||
| Short-term lease liabilities | ||||||||
| Amounts due to intra-Group companies | ||||||||
| Total current liabilities | ||||||||
| Non-current liabilities: | ||||||||
| Deferred tax liabilities | ||||||||
| Long-term lease liabilities | ||||||||
| Deferred revenue | ||||||||
| Amounts due to intra-Group companies | ||||||||
| Total non-current liabilities | ||||||||
| TOTAL LIABILITIES (without recourse to the primary beneficiary) | ||||||||
| F-13 |
CHECHE GROUP INC. NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (All amounts in thousands, except for share and per share data) |
1. Organization and Principal Activities (Continued)
Risks in relation to the VIE structure (Continued)
For the six months ended June 30, | ||||||||
| 2023 | 2024 | |||||||
| RMB | RMB | |||||||
| Net revenues | ||||||||
| - earned from external parties | ||||||||
| - earned from intra-Group companies | ||||||||
| Total revenues | ||||||||
| Cost of revenues and operating expenses | ||||||||
| - arising from external parties transactions | ( | ) | ( | ) | ||||
| - arising from intra-Group transactions | ( | ) | ( | ) | ||||
| Total cost of revenues and operating expenses | ( | ) | ( | ) | ||||
| Net loss | ( | ) | ( | ) | ||||
For the six months ended June 30, | ||||||||
| 2023 | 2024 | |||||||
| RMB | RMB | |||||||
| Cash flows from operating activities: | ||||||||
| Net cash generated from transactions with intra-Group companies | ||||||||
| Net cash provided by /(used in) transactions with external parties | ( | ) | ||||||
| Net cash generated from operating activities | ||||||||
| Net cash used in transactions with external parties | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Net cash used in transactions with intra-Group companies | ( | ) | ( | ) | ||||
| Net cash generated from /(used in)transactions with external parties | ( | ) | ||||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Net increase /(decrease) in cash and cash equivalents | ( | ) | ||||||
| Liquidity |
The
Group has incurred recurring operating losses since its inception, including net loss of RMB
| F-14 |
CHECHE GROUP INC. NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (All amounts in thousands, except for share and per share data) |
1. Organization and Principal Activities (Continued)
Liquidity (Continued)
Historically,
the Group has relied principally on both operational sources of cash and non-operational sources of financing from investors to fund
its operations and business development. The Group’s ability to continue as a going concern is dependent on management’s
ability to successfully execute its business plan, which includes increasing revenues while controlling operating expenses, as well as,
generating operational cash flows and continuing to gain support from outside sources of financing. The Group has been continuously receiving
financing support from outside investors through the issuance of preferred shares. Refer to Note 13 and Note 9 for details of the Group’s
preferred shares financing activities and credit facility. In September 2023, the Company successfully completed the Business Combination
and raised gross proceeds of US$
2 Significant Accounting Policies
a) Basis of presentation
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all the information and footnotes required by U.S. GAAP for complete financial statements. Certain information and note disclosures normally included in the annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted consistent with Article 10 of Regulation S-X.
The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of June 30, 2024 and the results of its operations and its cash flows for the six months ended June 30, 2024 and 2023. The results for the six months ended June 30, 2024 are not necessarily indicative of results to be expected for the year ending December 31, 2024, any other interim periods, or any future year or period. These unaudited interim condensed consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements as of and for the year ended December 31, 2023 and notes thereto also included herein.
Reclassification
Certain
reclassifications have been made to prior period amounts to conform to the current period presentation. The Company reclassified technical
service income of RMB
Significant accounting policies followed by the Group in the preparation of the accompanying unaudited interim condensed consolidated financial statements as of and for the six months ended June 30, 2024 and 2023 are summarized below.
| F-15 |
CHECHE GROUP INC. NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (All amounts in thousands, except for share and per share data) |
2 Significant Accounting Policies (Continued)
b) Principles of consolidation
The unaudited interim condensed consolidated financial statements include the financial statements of the Company, its subsidiaries, the VIE and subsidiaries of VIE for which the Company is the primary beneficiary.
Subsidiaries are those entities 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, or to cast a majority of votes at the meeting of the board of directors, or has the power to govern the financial and operating policies of the investee under a statute or agreement among the shareholders or equity holders.
A consolidated VIE is an entity in which the Company, or its subsidiary, through contractual arrangements, has the power to direct the activities that most significantly impact the entity’s economic performance, 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, VIE and subsidiaries of VIE have been eliminated upon consolidation.
c) Use of estimates
The preparation of the Group’s unaudited interim condensed consolidated financial statements in conformity with the U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent liabilities at the balance sheet date and reported revenues and expenses during the reported periods in the unaudited interim condensed consolidated financial statements and accompanying notes. Significant accounting estimates include, but are not limited to, provision of current expected credit losses of receivables, the impairment of goodwill, fair value of amounts due to related party, ordinary shares and preferred shares and warrant, as well as the valuation and recognition of share-based compensation expenses. Actual results could differ from those estimates, and as such, differences may be material to the unaudited interim condensed consolidated financial statements.
d) Functional currency and foreign currency translation
The Group uses Renminbi (“RMB”) as its reporting currency. The functional currency of the Company and its overseas subsidiaries which incorporated in the Cayman Islands and Hong Kong is United States dollars (“US$”). The functional currency of the Group’s PRC entities is RMB.
In the unaudited interim condensed consolidated financial statements, the financial information of the Company and other entities located outside of the PRC have been translated into RMB. Assets and liabilities are translated at the exchange rates on the balance sheet date, equity amounts are translated at historical exchange rates, and revenues, and expenses, gains and losses are translated using the average rate for the period. Translation adjustments are reported as foreign currency translation adjustments, and are shown as a component of other comprehensive loss in the unaudited interim condensed consolidated statements of operations and comprehensive loss.
Foreign currency transactions denominated in currencies other than the functional currency are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency using the applicable exchange rates at the balance sheet dates. Net gains and losses resulting from foreign exchange transactions are included in foreign exchange gains in the unaudited interim condensed consolidated statements of operations and comprehensive loss.
| F-16 |
CHECHE GROUP INC. NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (All amounts in thousands, except for share and per share data) |
2. Significant Accounting Policies (Continued)
e) 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 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities
● Level 2 applies to assets or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical asset or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
● Level 3 applies to asset or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
The Group’s financial instruments include cash and cash equivalents, restricted cash, short-term investments, accounts receivable, other receivables (included in “prepayments and other current assets”), accounts payable, short-term borrowings, contract liabilities and other payables (included in “accrued expenses and other current liabilities”), of which the carrying values approximate their fair value. Lease liabilities are measured at amortized cost using discounted rates reflected time value of money.
f) Cash, cash equivalents and restricted cash
Cash
and cash equivalents mainly represent cash on hand, demand deposits placed with large reputable banks in China, and highly liquid investments
that are readily convertible to known amounts of cash and with original maturities from the date of purchase with terms of three months
or less. As of December 31, 2023 and June 30, 2024, there were cash at bank denominated in US dollars amounting to approximately US$
As
of December 31, 2023 and June 30, 2024, the Group had approximately RMB
| F-17 |
CHECHE GROUP INC. NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (All amounts in thousands, except for share and per share data) |
2. Significant Accounting Policies (Continued)
g) Short-term investments
Short-term
investments represent bank deposits with original maturities of more than three months but within one year. As of December 31, 2023 and
June 30, 2024, the Group had approximately RMB
h) Expected credit losses of receivables
The Group’s accounts receivable and other receivables (included in “prepayments and other current assets”) are within the scope of Accounting Standards Codification (“ASC”) 326. To estimate current expected credit losses, the Group has identified the relevant risk characteristics of its customers and the related receivables and other receivables which include size, type of the services the Group provides, or a combination of these characteristics.
Receivables with similar risk characteristics have been grouped into pools. For each pool, the Group considers the past collection experience, any changes in customer collection trends, the credit worthiness of customers, the contractual and customary payment terms that generally range from 30 to 180 days, current economic conditions, and expectation of future economic conditions (external data and macroeconomic factors). Accounts receivable balances are written off (i.e., charged-off against the allowance) when they are determined to be uncollectible after all means of collection have been exhausted and the potential for recovery is considered remote.
Accounts
receivable is recorded at the invoiced amount and do not bear interest. As of December 31, 2023 and June 30, 2024, the Group’s
accounts receivable consists primarily of receivables from insurance transaction services customers. The Group recorded current expected
credit loss expense of approximately RMB
i) Property, equipment and leasehold improvement, net
Property, equipment and leasehold improvement are stated at cost less accumulated depreciation and impairment, if any. Depreciation is computed using the straight-line method over the following estimated useful lives:
| Leasehold improvement | |
| Furniture and office equipment | |
| Electronics equipment and others |
Expenditures for maintenance and repairs are expensed as incurred. The gain or loss on the disposal of property, equipment and leasehold improvement is the difference between the net sales proceeds and the carrying amount of the relevant assets and is recognized in the unaudited interim condensed consolidated statements of operations and comprehensive loss.
| F-18 |
CHECHE GROUP INC. NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (All amounts in thousands, except for share and per share data) |
2. Significant Accounting Policies (Continued)
j) Intangible assets, net
Intangible assets mainly consist of software, licenses, agency agreements and channel relationship. Intangible assets are carried at cost less accumulated amortization and any recorded impairment. Licenses, agency agreements and channel relationship acquired in a business combination were recognized initially at fair value at the date of acquisition. Identifiable intangible assets are carried at acquisition cost less accumulated amortization and impairment loss, if any. Finite-lived intangible assets are tested for impairment if impairment indicators arise. Amortization of finite-lived intangible assets is computed using the straight-line method over their estimated useful lives, which are as follows:
| Software | |
| Licenses | |
| Agency agreements | |
| Channel relationship |
Licenses
comprise insurance brokerage licenses, which has an estimated useful life of
k) Impairment of long-lived assets
Long-lived assets or asset group, including intangible assets with finite lives, are evaluated for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the carrying value of an asset may not be fully recoverable or that the useful life is shorter than the Group had originally estimated. When these events occur, the Group evaluates the impairment for the long-lived assets 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 assets and their eventual disposition. If the sum of the expected future undiscounted cash flows is less than the carrying value of the assets, the Group recognizes an impairment loss based on the excess of the carrying value of the assets over the fair value of the assets. No impairment charge was recognized for any of the periods presented.
l) Goodwill
Goodwill represents the excess of the purchase price over the amounts assigned to the fair value of the assets acquired and the liabilities assumed of an acquired business. The Group’s goodwill at December 31, 2023 and June 30, 2024 were related to its acquisition of Cheche Insurance (previously named “Fanhua Times Sales and Service Co., Ltd.” or “Fanhua Times”) in October 2017. In accordance with ASC 350, Goodwill and Other Intangible Assets, recorded goodwill amounts are not amortized, but rather are tested for impairment annually or more frequently if there are indicators of impairment present.
| F-19 |
CHECHE GROUP INC. NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (All amounts in thousands, except for share and per share data) |
2. Significant Accounting Policies (Continued)
l) Goodwill (Continued)
Goodwill is not amortized, but is tested for impairment at the reporting unit level at least on an annual basis at the balance sheet date (December 31 for the Group) and between annual tests if an event occurs or circumstances change that would more-likely-than-not reduce the fair value of a reporting unit below its carrying value. These events or circumstances include a significant change in stock prices, business environment, legal factors, financial performances, competition, or events affecting the reporting unit. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. The estimation of fair value of reporting unit using a discounted cash flow methodology also requires significant judgements, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for the Company’s business and determination of the Company’s weighted average cost of capital. The estimates used to calculate the fair value of a reporting unit change from year to year based on operating results and market conditions. Changes in these estimates and assumptions could materially affect the determination of fair value and goodwill impairment for the reporting unit.
Management
has determined that the Group represents the lowest level within the entity at which goodwill is monitored for internal management purposes.
Starting from January 1, 2020, the Company adopted ASU 2017-04, which simplifies the accounting for goodwill impairment by eliminating
Step 2 from the goodwill impairment test, and in accordance with the FASB, pursuant to which the Group has the option to choose whether
it will apply a qualitative assessment first and then a quantitative assessment, if necessary, or to apply a quantitative assessment
directly. The quantitative goodwill impairment test, used to identify both the existence of impairment and the amount of impairment loss,
compares the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of a reporting unit
is greater than zero and its fair value exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. Based
on the impairment assessment, management determined that no impairment loss was recorded for the six months ended June 30, 2023 and 2024.
At December 31, 2023 and June 30, 2024, goodwill was RMB
m) Warrant
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480 and FASB ASC Topic 815, “Derivatives and Hedging” (“ASC 815”). The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is assessed at the end of each reporting period. Accordingly, the Company recognizes the warrant instruments as liabilities at fair value and adjusts the warrants instruments to fair value at each reporting period. The liabilities are subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the Company’s unaudited interim condensed consolidated statements of operations and comprehensive loss.
n) Revenue recognition
Revenue is the transaction price the Group expects to be entitled to in exchange for the promised services in a contract in the common course of the Group’s activities and is recorded net of value-added tax (“VAT”). The services to be accounted for mainly include insurance transaction services, SaaS and technical service and other services.
| F-20 |
CHECHE GROUP INC. NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (All amounts in thousands, except for share and per share data) |
2. Significant Accounting Policies (Continued)
n) Revenue recognition (Continued)
The core principle of the guidance is that an entity should recognize 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 be entitled in exchange for those goods or services. To achieve that core principle, the Group applies the following steps:
| ● | Step 1: Identify the contract(s) with a customer | |
| ● | Step 2: Identify the performance obligations in the contract | |
| ● | Step 3: Determine the transaction price | |
| ● | Step 4: Allocate the transaction price to the performance obligations in the contract | |
| ● | Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation |
Insurance Transaction Services Income
The main source of revenue is insurance transaction services fee directly from (i) insurance carriers who underwrite insurance policies and (ii) insurance intermediaries who directly transact with insurance carriers, both determined based on a percentage of premium paid by the insured. The service fee rate paid by the insurance carriers or insurance intermediaries, shall be based on the terms specified in the service contract with the insurance carriers or with the insurance intermediaries for each insurance policy sold through the Group’s online platform and mobile applications in the PRC. The Group determines that the insurance carrier or insurance intermediary, are its customer in these agreements. Insurance transaction services revenue for the commission earned is recognized at a point in time when the Company has fulfilled its performance obligation. This occurs when the signed insurance policy is in place and the premium is collected by the insurance carriers from the insured.
SaaS and technical service income
The Group provides SaaS services to selected insurance carriers or insurance intermediaries. This cloud-based services allow insurance carriers or insurance intermediaries to use the Group’s self-developed SaaS management system without taking possession of its software. The Group has determined that the insurance carriers or insurance intermediaries as customers and initially records services fee as contract liabilities upon receipt and then recognizes the revenue on a straight-line basis over the service period, which is usually one year.
The Group also provides technical service to third-party companies. The Group charges third-party companies service fee for developing software for them. Technical service revenue is recognized based on cost-to-cost input method of measuring progress upon the completion of each service.
Other Services
The Group provides customer service to third-party companies. The Group satisfies its performance obligation through delivering consulting service to the third-party companies’ customers and receives service fee from these third-party companies. Customer service revenue is recognized on a straight-line basis over the period of the contract when the service is provided, which is usually within 1 year.
| F-21 |
CHECHE GROUP INC. NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (All amounts in thousands, except for share and per share data) |
2. Significant Accounting Policies (Continued)
n) Revenue recognition (Continued)
Contract Balances and Accounts Receivable
Contract liabilities primarily consist of customer advances which relates to the payments received for SaaS and technical service in advance of performance under the contract. The increase in contract liabilities over the periods presented was a result of the increase in consideration received from the Group’s customers, which was in line with the growth of revenues in SaaS and technical service. Due to the generally short-term duration of the relevant contracts, the majority of the performance obligations are satisfied within one year.
During
the six months ended June 30, 2023 and 2024, the Group recognized revenue amounted to RMB
During the six months ended June 30, 2023 and 2024, the Group did not have any arrangement where the performance obligations has already been satisfied in the past year but recognized the corresponding revenue in the current period.
Accounts receivable mainly represent amounts due from insurance transaction services customers, when the Group has satisfied its performance obligations and has the unconditional right to payment. They are carried at net realizable value. Please see Note 4 for additional information.
Practical Expedients
The Group has elected to use the following practical expedients as allowed under ASC Topic 606:
(i) Payment terms and conditions vary by contract type, although terms generally include a requirement of prepayment or payment within one year or less. The Group has determined that its contracts generally do not include a significant financing component.
(ii) Costs to obtain a contract with a customer were expensed as incurred when the amortization period would have been one year or less.
o) Cost of revenue
Amounts recorded as cost of revenues relate to direct expenses incurred in order to generate revenue, which consists primarily of i) cost of referral partners, ii) service fee paid to third-party payment platforms, iii) amortization and depreciation expenses, iv) salary and welfare benefits, v) cloud service fees, and vi) tax and surcharges and others. These costs are charged to the unaudited interim condensed consolidated statements of operations and comprehensive loss as incurred.
p) Research and development expenses
Research and development expenses mainly consist of salary and welfare benefits, share-based compensation expenses and subcontracted development expenses incurred for the development and enhancement to the Company’s online platform including SaaS platform, and mobile applications.
q) Selling and marketing expenses
Selling and marketing expenses consist primarily of advertising and promotional expenses, salary and welfare benefits, share-based compensation expenses to the Group’s sales and marketing personnel, and amortization expenses. Advertising and promotional expenses consist primarily of costs for the promotion of corporate image, online platform and mobile applications. The Group expenses all advertising and promotional expenses as incurred and classifies them under selling and marketing expenses..
| F-22 |
CHECHE GROUP INC. NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (All amounts in thousands, except for share and per share data) |
2. Significant Accounting Policies (Continued)
r) General and administrative expenses
General and administrative expenses consist primarily of share-based compensation expenses, salary and welfare benefits, professional service fees, amortization expenses and related expenses for employees involved in general corporate functions, including finance, legal and human resources; and costs associated with use by these functions of facilities and equipment, such as traveling and general expenses.
s) Government grants
Government grants mainly represent subsidies and tax refunds for operating a business in certain jurisdictions and fulfilment of specified tax payment obligations. Government grants are recognized where there is reasonable assurance that the grant will be received, and all attached conditions will be complied with. When the grant relates to an expense item, it is recognized as income on a systematic basis over the periods that the related costs, for which it is intended to compensate, are expensed. When the grant relates to an asset, it is recognized as income in equal amounts over the expected useful life of the related asset.
Deferred
government grants included RMB
t) Leases
The Group determines if an arrangement is a lease and determines the classification of the lease, as either operating or finance, at commencement. The Group has operating leases for office buildings and has no finance leases as of December 31, 2023 and June 30, 2024. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the lease payments over the lease term at commencement date.
As the Group’s leases do not provide an implicit rate, an incremental borrowing rate is used based on the information available at the commencement date, to determine the present value of lease payments. The incremental borrowing rate approximates the rate the Group would pay to borrow in the currency of the lease payments for the weighted-average life of the lease.
The operating lease ROU assets also include any lease payments made prior to lease commencement and exclude lease incentives and initial direct costs incurred if any. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Group will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.
The Group’s lease agreements contain both lease and non-lease components, which are accounted for separately based on their relative standalone price.
The Company elect to utilize the short-term lease recognition exemption and, for those leases that qualified, the Group did not recognize operating lease right-of-use (“ROU”) assets or operating lease liabilities.
| F-23 |
CHECHE GROUP INC. NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (All amounts in thousands, except for share and per share data) |
2. Significant Accounting Policies (Continued)
Share based compensation expenses arise from share-based awards, including share options for the purchase of ordinary shares and restricted shares. For share options for the purchase of ordinary shares granted to employee and non-employee determined to be equity classified awards, the related share-based compensation expenses are recognized in the unaudited interim condensed consolidated statements of operations and comprehensive loss based on their grant date fair values which are calculated using the binomial option pricing model. The determination of the fair value is affected by the fair value of ordinary shares as well as assumptions regarding a number of complex and subjective variables, including the expected volatility of the fair value of ordinary shares, actual and projected employee share option exercise behavior, risk-free interest rate and expected dividends. The fair value of the ordinary shares is assessed using the income approach, with a discount for lack of marketability, given that the shares underlying the awards were not publicly traded at the time of grant. Share-based compensation expenses are recorded net of estimated forfeitures using straight-line method during the service period requirement, such that expenses are recorded only for those share-based awards that are expected to ultimately vest.
v) Employee benefits
PRC Contribution Plan
Full
time employees of the Group in the PRC participate in a government mandated defined contribution plan, pursuant to which certain pension
benefits, medical care, employee housing fund and other welfare benefits are provided to the employees. Chinese labor regulations require
that the PRC subsidiaries, VIE and subsidiaries of VIE of the Group make contributions to the government for these benefits based on
certain percentages of the employees’ salaries, up to a maximum amount specified by the local government. The Group has no legal
obligation for the benefits beyond the contributions made. The total balances of employee welfare benefits, including the accruals for
estimated underpaid amounts, were approximately RMB
w) Taxation
Income taxes
Current income taxes are provided on the basis of income/(loss) 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 tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and any tax loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates or tax laws is recognized in the unaudited interim condensed consolidated statements of operations and comprehensive loss in the period the change in tax rates or tax laws is enacted. A valuation allowance is provided to reduce the amount of deferred tax assets if it is considered more likely than not that some portion or all of the deferred tax assets will not be realized.
| F-24 |
CHECHE GROUP INC. NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (All amounts in thousands, except for share and per share data) |
2. Significant Accounting Policies (Continued)
w) Taxation (Continued)
Uncertain tax positions
In
order to assess uncertain tax positions, the Group applies a more likely than not threshold and a two-step approach for the tax position
measurement and financial statement recognition. Under the two-step approach, the first step is to evaluate the tax position for recognition
by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained, including
resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that
is more than
x) Related parties
Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or significant influence, such as a family member or relative, shareholder, or a related corporation.
Net loss per share is computed in accordance with ASC 260, Earnings per Share. The two-class method is used for computing earnings per share in the event the Group has net income available for distribution. Under the two-class method, net income is allocated between ordinary shares and participating securities based on dividends declared (or accumulated) and participating rights in undistributed earnings as if all the earnings for the reporting period had been distributed. The Company’s preferred shares are participating securities because they are entitled to receive dividends or distributions on an as converted basis. For the periods presented herein, the computation of basic loss per share using the two-class method is not applicable as the Group is in a net loss position and net loss is not allocated to other participating securities because in accordance with their contractual terms they are not obligated to share in the losses.
Basic net loss per share is computed using the weighted average number of ordinary shares outstanding during the period. Diluted net loss per share is computed using the weighted average number of ordinary shares and potential ordinary shares outstanding during the period under treasury stock method. Potential ordinary shares include options to purchase ordinary shares and preferred shares, unless they were anti-dilutive. The computation of diluted net loss per share does not assume conversion, exercise, or contingent issuance of securities that would have an anti-dilutive effect (i.e. an increase in earnings per share amounts or a decrease in loss per share amounts) on net loss per share.
z) Statutory reserves
In
accordance with China’s Company Laws, the Company’s VIE and subsidiaries of VIE in the PRC must make appropriations from
their after-tax profit, if any (as determined under the accounting principles generally acceptable in the People’s Republic of
China (“PRC GAAP”)), after offsetting accumulated losses from prior years, to non-distributable reserve funds including (i)
statutory surplus fund and (ii) discretionary surplus fund. The appropriation to the statutory surplus fund must be at least 10% of the
after-tax profits calculated in accordance with PRC GAAP. Appropriation is not required if the statutory surplus fund has reached
| F-25 |
CHECHE GROUP INC. NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (All amounts in thousands, except for share and per share data) |
2. Significant Accounting Policies (Continued)
z) Statutory reserves (Continued)
Pursuant
to the laws applicable to China’s Foreign Investment Enterprises, the Company’s subsidiaries that are foreign investment
enterprises in China have to make appropriations from their after-tax profit (as determined under PRC GAAP) to reserve funds including
(i) general reserve fund, (ii) enterprise expansion fund and (iii) staff bonus and welfare fund. The appropriation to the general reserve
fund must be at least 10% of the after-tax profits calculated in accordance with PRC GAAP. Appropriation is not required if the general
reserve fund has reached
The Group has not appropriated any amount to statutory reserves for the six months ended June 30, 2023 and 2024, because the Company’s subsidiary, VIE and subsidiaries of VIE were in the position of accumulated deficit as of December 31, 2023 and June 30, 2024.
aa) Comprehensive loss
Comprehensive loss is defined to include all changes in deficit of the Group during a period arising from transactions and other events and circumstances excluding transactions resulting from investments by shareholders and distributions to shareholders. Other comprehensive income, as presented on the unaudited interim condensed consolidated balance sheets, consists of accumulated foreign currency translation adjustments.
bb) Segment reporting
The Group uses the management approach in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Group’s chief operating decision maker (“CODM”) for making operating decisions, allocating resources and assessing performance as the source for determining the Group’s reportable segments. Management has determined that the Group operates in one segment, as that term is defined by FASB ASC Topic 280, Segment reporting.
cc) Concentration and risk
Foreign currency exchange rate risk
The
Group’s operating transactions are mainly denominated in RMB. RMB is not freely convertible into foreign currencies. The value
of the RMB is subject to changes by the central government policies and to international economic and political developments. In the
PRC, certain foreign exchange transactions are required by law to be transacted only through authorized financial institutions at exchange
rates set by the People’s Bank of China (the “PBOC”). Remittances in currencies other than RMB by the Group in the
PRC must be processed through PBOC or other PRC foreign exchange regulatory bodies which require certain supporting documents in order
to effect the remittances. As of December 31, 2023 and June 30, 2024, the Group’s cash and cash equivalents, and restricted cash
denominated in RMB were RMB
Credit risk and concentration risk
Financial instruments that potentially subject the Group to the concentration of credit risk consist of cash and cash equivalents, restricted cash and accounts receivable. As of December 31, 2023 and June 30, 2024, the Group’s cash and cash equivalents, and restricted cash were typically unsecured and highly concentrated in a few major financial institutions located in China, which management consider being of high credit quality and continually monitors the creditworthiness of these financial institutions. Accounts receivable is typically unsecured and is generally derived from revenue earned from the Company’s insurance transaction services business.
| F-26 |
CHECHE GROUP INC. NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (All amounts in thousands, except for share and per share data) |
2. Significant Accounting Policies (Continued)
cc) Concentration and risk (Continued)
Concentration of customers and suppliers
There was nil and nil customer which individually accounted for 10% or more of the Group’s total operating revenue, nil and one customer which individually accounted for 10% or more of the Group’s total accounting receivable for the six months ended June 30, 2023 and 2024.
There was and supplier which individually accounted for more than 10% of the Group’s total costs and expenses for the six months ended June 30, 2023 and 2024.
dd) Recently issued accounting pronouncements
The Group qualifies as an “emerging growth company”, or EGC, pursuant to the Jumpstart Our Business Startups Act of 2012, as amended, or the JOBS Act. As an EGC, the Group does not need to comply with any new or revised financial accounting standards until such date that a private company is otherwise required to comply with such new or revised accounting standards.
Recent accounting pronouncements not yet adopted
In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative. ASU 2023-06 modify the disclosure or presentation requirements of a variety of Topics in the Codification. Certain of the amendments represent clarifications to or technical corrections of the current requirements. Because of the variety of Topics amended, a broad range of entities may be affected by one or more of those amendments. Many of the amendments allow users to more easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject to the SEC’s requirements. Also, the amendments align the requirements in the Codification with the SEC’s regulations. For entities subject to the SEC’s existing disclosure requirements and for entities required to file or furnish financial statements with or to the SEC in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer, the effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. For all other entities, the amendments will be effective two years later. The amendments in this update should be applied prospectively. For all entities, if by June 30, 2027, the SEC has not removed the applicable requirement from Regulation S-X or Regulation S-K, the pending content of the related amendment will be removed from the Codification and will not become effective for any entity. The Group is currently evaluating the potential impact this standard will have on its consolidated financial statements and related disclosures.
In November 2023, the FASB issued Accounting Standards Update (“ASU”) 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segments Disclosures.” This standard provides guidance to improve the disclosures about a public entity’s reportable segments and address requests from investors for additional, more detailed information about a reportable segment’s expenses. The standard is effective for fiscal years beginning after December 15, 2023 and interim periods in fiscal years beginning after December 15, 2024. Early adoption is permitted, and the disclosures in this standard are required to be applied on a retrospective basis. The Group is currently evaluating the potential impact this standard will have on its consolidated financial statements and related disclosures.
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” This standard requires disaggregated income tax disclosures on the effective tax rate reconciliation and income taxes paid. For public business entities, this standard is effective for annual periods beginning after December 31, 2024. For non-public business entities, this standard is effective for annual periods beginning after December 15, 2025. Early adoption is permitted, and the disclosures in this standard are required to be applied on a prospective basis with the option to apply the standard retrospectively. The Company is currently evaluating the potential impact this standard will have on its consolidated financial statements and related disclosures.
| F-27 |
CHECHE GROUP INC. NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (All amounts in thousands, except for share and per share data) |
2 Significant Accounting Policies (Continued)
dd) Recently issued accounting pronouncements (Continued)
In March 2024, the SEC adopted its rules covering climate-related disclosures which require registrants to provide certain climate-related disclosures in registrants’ SEC filings. The rules require registrants to disclose strategy, governance, risk management, targets and goals, greenhouse gas emissions, and financial statement effects. On April 4, 2024, the SEC voluntarily stayed its final climate rules pending the completion of judicial review thereof by the U.S. Court of Appeals for the Eighth Circuit. The Group is currently evaluating the potential impact this standard will have on its consolidated financial statements and related disclosures.
3. Reverse Recapitalization
On
the Closing Date, (i) Prime Impact converted (a) its issued and outstanding Class A and Class B ordinary shares into Class A ordinary shares of the Company, and (b)
its
On
September 11, 2023, Prime Impact, CCT and the Company entered into certain Subscription Agreements and a Backstop Agreement with global
institutional investors for private investment in public equity (the “PIPE”) in connection with the Business Combination.
Pursuant to such agreements, the Company issued ; ; and Class A ordinary shares to Prime Impact Cayman LLC (the
“Sponsor”); World Dynamic Limited; and Goldrock Holdings Limited for the consideration of US$ per share, respectively.
The consideration from the Sponsor was related to settlement of the Sponsor’s obligations with respect to the payment of certain
Prime Impact transaction expenses in connection with the Business Combination. The Company incurred financing costs of RMB
| F-28 |
CHECHE GROUP INC. NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (All amounts in thousands, except for share and per share data) |
3. Reverse Recapitalization (Continued)
The number of ordinary shares issued immediately following the consummation of the Reverse Recapitalization were as follows:
| Number of shares | ||||
| CCT’s ordinary shares outstanding at December 31, 2022 | ||||
| CCT’s ordinary shares issued to the Preferred Shareholders (Note 13) | ||||
| CCT’s ordinary shares outstanding prior to the Reverse Recapitalization | ||||
| Conversion of CCT’s ordinary shares(1) | ||||
| Conversion of CCT’s convertible redeemable preferred shares(1) | ||||
| Conversion of Prime Impact’s Class A ordinary shares(2) | ||||
| Conversion of Prime Impact’s Class B ordinary shares(2) | ||||
| Ordinary shares attributable to conversion | ||||
| Ordinary shares attributable to Prime Impact Cayman LLC(3) | ||||
| Ordinary shares attributable to World Dynamic Limited(3) | ||||
| Ordinary shares attributable to Goldrock Holdings Limited(3) | ||||
| Total number of ordinary shares as of closing of the Reverse Recapitalization and PIPE transactions | ||||
| (1) | |
| (2) |
| (3) |
4. Accounts receivable, net
Accounts receivable, net is consisted of the following:
| December 31, 2023 | June 30, 2024 | |||||||
| RMB | RMB | |||||||
| Accounts receivable, gross: | ||||||||
| Less: allowance for current expected credit losses | ( | ) | ( | ) | ||||
| Accounts receivable, net | ||||||||
The following table summarizes the movement of the Group’s allowance for current expected credit losses:
| For the six months ended June 30 | ||||||||
| 2023 | 2024 | |||||||
| RMB | RMB | |||||||
| Balance at the beginning of the period | ( | ) | ( | ) | ||||
| Additions | ( | ) | ( | ) | ||||
| Write-offs | ||||||||
| Balance at the end of the period | ( | ) | ( | ) | ||||
| F-29 |
CHECHE GROUP INC. NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (All amounts in thousands, except for share and per share data) |
5. Prepayments and other current assets
The following is a summary of prepayments and other current assets:
| December 31, 2023 | June 30, 2024 | |||||||
| RMB | RMB | |||||||
| Deductible Value Added Tax (“VAT”) | ||||||||
| Loan to a third party (i) | ||||||||
| Service fees (ii) | ||||||||
| Rental and other deposits | ||||||||
| Rental expense for other leases with period less than one year | ||||||||
| Staff advance | ||||||||
| Others | ||||||||
| Balance at the end of the year | ||||||||
| (i) |
| (ii) |
6. Property, equipment and leasehold improvement, net
The following is a summary of property, equipment and leasehold improvement, net:
| December 31, 2023 | June 30, 2024 | |||||||
| RMB | RMB | |||||||
| Leasehold improvement | ||||||||
| Furniture and office equipment | ||||||||
| Electronic equipment and others | ||||||||
| Total property, equipment and leasehold improvement | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Property, equipment and leasehold improvement, net | ||||||||
Depreciation
expenses were RMB
| F-30 |
CHECHE GROUP INC. NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (All amounts in thousands, except for share and per share data) |
7. Intangible assets, net
The following table summarizes the Group’s intangible assets, net:
| December 31, 2023 | June 30, 2024 | |||||||
| RMB | RMB | |||||||
| Gross carrying amount | ||||||||
| Software | ||||||||
| Licenses | ||||||||
| Agency agreements | ||||||||
| Channel relationship | ||||||||
| Total intangible assets | ||||||||
| Less: accumulated amortization | ||||||||
| Software | ( | ) | ( | ) | ||||
| Licenses | ( | ) | ( | ) | ||||
| Agency agreements | ( | ) | ( | ) | ||||
| Channel relationship | ( | ) | ( | ) | ||||
| Total intangible assets, net | ||||||||
Amortization
expense for the six months ended June 30, 2023 and 2024 were RMB
The estimated amortization expenses for each of the following periods are as follows:
| June 30, 2024 | ||||
| RMB | ||||
| Remainder of 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Total | ||||
8. Leases
The Group’s lease payments for office space leases include fixed rental payments and do not consist of any variable lease payments that depend on an index or a rate. As of December 31, 2023 and June 30, 2024, there was no leases that have not yet commenced.
The following represents the aggregate right-of-use assets and related lease liabilities as of December 31, 2023 and June 30, 2024:
| December 31, 2023 | June 30, 2024 | |||||||
| RMB | RMB | |||||||
| Operating lease right-of-use assets | ||||||||
| Short-term operating lease liabilities | ( | ) | ( | ) | ||||
| Long-term operating lease liabilities | ( | ) | ( | ) | ||||
| Total operating leased liabilities | ( | ) | ( | ) | ||||
| F-31 |
CHECHE GROUP INC. NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (All amounts in thousands, except for share and per share data) |
8. Leases (Continued)
The weighted average lease term and weighted average discount rate as of December 31, 2023 and June 30, 2024 were as follows:
| December 31, 2023 | June 30, 2024 | |||||||
| RMB | RMB | |||||||
| Weighted average lease term: | ||||||||
| Operating leases | ||||||||
| Weighted average discount rate: | ||||||||
| Operating leases | % | % | ||||||
The components of lease expenses for the six months ended June 30, 2023 and 2024 were as follows:
| For the six months ended June 30, | ||||||||
| 2023 | 2024 | |||||||
| RMB | RMB | |||||||
| Operating lease cost | ||||||||
| Cost of other leases with period less than one year | ||||||||
| Total | ||||||||
Supplemental cash flow information related to leases for the six months ended June 30, 2023 and 2024 were as follows:
| For the six months ended June 30, | ||||||||
| 2023 | 2024 | |||||||
| RMB | RMB | |||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flows for operating leases | ||||||||
| Supplemental noncash information: | ||||||||
| Right-of-use assets obtained in exchange for lease obligations | ||||||||
Maturities of lease liabilities at December 31, 2023 and June 30, 2024, respectively:
| December 31, 2023 | June 30, 2024 | |||||||
| RMB | RMB | |||||||
| 2024/Remainder of 2024 | ||||||||
| 2025 | ||||||||
| 2026 | ||||||||
| 2027 | ||||||||
| Total remaining undiscounted lease payments | ||||||||
| Less: interest | ( | ) | ( | ) | ||||
| Total present value of operating lease liabilities | ||||||||
| Less: short-term operating lease liabilities | ( | ) | ( | ) | ||||
| Long-term operating lease liabilities | ||||||||
| F-32 |
CHECHE GROUP INC. NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (All amounts in thousands, except for share and per share data) |
9. Short-term borrowings
The following table summarizes the Group’s outstanding short-term borrowings as of December 31, 2023 and June 30, 2024, respectively
| December 31, 2023 | June 30, 2024 | |||||||
| RMB | RMB | |||||||
| Bank borrowings | ||||||||
| (1) | Bank borrowings |
| Maturity date | Principal amount | Interest rate per annum | December
31, 2023 | June
30, 2024 | ||||||||||||||
| Bank of Beijing (i) | % | |||||||||||||||||
| Bank of Beijing (i) | % | |||||||||||||||||
| Bank of Beijing (i) | % | |||||||||||||||||
| Bank of Beijing (ii) | % | |||||||||||||||||
| Industrial Bank Co., Ltd (iii) | % | |||||||||||||||||
| Bank of Beijing (iv) | % | |||||||||||||||||
| Total short-term borrowings | ||||||||||||||||||
| (i) |
| (ii) |
| (iii) |
| (iv) |
| F-33 |
CHECHE GROUP INC. NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (All amounts in thousands, except for share and per share data) |
10. Taxation
| a) | Income taxes |
Cayman Islands
Under the current laws of the Cayman Islands, the Company is not subject to tax on income or capital gain. Additionally, upon payments of dividends by the Company in the Cayman Islands to its shareholders, no Cayman Islands withholding tax will be imposed.
Hong Kong
Subsidiary
incorporated in Hong Kong is subject to Hong Kong profits tax at a rate of
China
Under
the Enterprise Income Tax Law of the PRC, the Company’s Chinese subsidiaries, VIE and subsidiaries of VIE are subject to an income
tax of
Composition of Income Tax Expense
The Company is not subject to income or capital gains tax under the current laws of the Cayman Islands. There are no other taxes likely to be material to the Company levied by the government of the Cayman Islands.
The components of loss before income taxes are as follows (in thousands):
| For the six months ended June 30, | ||||||||
| 2023 | 2024 | |||||||
| RMB | RMB | |||||||
| Loss before income tax expense | ||||||||
| Loss from Chinese mainland operations | ( | ) | ( | ) | ||||
| Loss from non-Chinese mainland operations | ( | ) | ( | ) | ||||
| Total Loss before income tax expense from operations | ( | ) | ( | ) | ||||
| Income tax benefit applicable to Chinese mainland operations | ||||||||
| Deferred tax | ||||||||
| Subtotal income tax benefit applicable to Chinese mainland operations | ||||||||
| Non-Chinese mainland withholding tax expense | ( | ) | ( | ) | ||||
| Total income tax benefit from operations | ||||||||
| F-34 |
CHECHE GROUP INC. NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (All amounts in thousands, except for share and per share data) |
10. Taxation (Continued)
| b) | Withholding income tax |
The
enterprise income tax (“EIT”) Law also imposes a withholding income tax of
To the extent that subsidiaries, VIE and subsidiaries of VIE of the Group have undistributed earnings, the Company will accrue appropriate expected withholding tax associated with repatriation of such undistributed earnings. As of December 31, 2023 and June 30, 2024, the Company did not record any such withholding tax of its subsidiaries, VIE and subsidiaries of VIE in the PRC as they are still in accumulated deficit position.
11. Tax payable
The
Group’s subsidiaries, VIE and subsidiaries of VIE incorporated in China are subject to
The following is a summary of tax payable as of as of December 31, 2023 and June 30, 2024:
| December 31, 2023 | June 30, 2024 | |||||||
| RMB | RMB | |||||||
| VAT payables | ||||||||
| Individual income tax payables | ||||||||
| Construction tax payables | ||||||||
| Educational development payables | ||||||||
| Others | ||||||||
| Total | ||||||||
12. Accrued expenses and other current liabilities
The following is a summary of accrued expenses and other current liabilities as of December 31, 2023 and June 30, 2024:
| December 31, 2023 | June 30, 2024 | |||||||
| RMB | RMB | |||||||
| Professional service fees | ||||||||
| Refund liability | ||||||||
| Accrued expenses | ||||||||
| Payables related to other service fees | ||||||||
| Others | ||||||||
| Total | ||||||||
| F-35 |
CHECHE GROUP INC. NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (All amounts in thousands, except for share and per share data) |
13. Preferred shares
Prior to the Reverse Recapitalization, CCT was authorized to issue ordinary shares and preferred shares. Series A, Series B, Series C, Series D1, Series D2, Series D3 and Series Pre-A convertible redeemable preferred shares held by Ruiyuan Technology Holdings Limited (“Ruiyuan”) after its re-designation are collectively referred to as the “Preferred Shares”. Series Seed preferred shares, Series Pre-A preferred shares held by Cicw Holdings Limited (“Cicw Holdings”), and Series Pre-A preferred shares held by Ruiyuan prior to its re-designation are without redemption right, conversion right and liquidation right, hence together referred as “Ordinary Shares”, in substance.
Series Pre-A financing
In
July 2015, Beijing Cheche issued shares to Shenzhen Ruiyuan Investment Enterprise, LLP (“Shenzhen Ruiyuan”) for the
consideration of RMB
January 2019, in connection with the Reorganization, CCT issued ordinary shares to Ruiyuan, designated by Shenzhen Ruiyuan.
In
October 2019, of ordinary shares were transferred from Ruiyuan to Cicw Holdings for the consideration of RMB
Series A financing
In
July 2016, Beijing Cheche issued and shares to Beijing Zhongyun Ronghui Investment Center, LLP (“Zhongyun Ronghui”)
and Hangzhou Shunying Equity Investment Enterprise, LLP (“Hangzhou Shunying”) for the consideration of RMB
On November 22, 2018, CCT entered into Preferred Share and Warrant Purchase Agreement with Zhongyun Ronghui and Hangzhou Shunying. CCT issued warrants to Zhongyun Ronghui and Hangzhou Shunying in connection with the Reorganization, which entitled them to purchase and shares of Series A convertible redeemable preferred shares, respectively. The warrants were exercised on May 23, 2019.
On
May 23, 2019, CCT issued and Series A preferred shares to Zhongyun Ronghui and Ningbo Shiwei Enterprise Management
Partnership (L.P.) (“Ningbo Shiwei”) (designated by Hangzhou Shunying) for the consideration of US$ equivalent of RMB
Series B financing
In
August 2017, Beijing Cheche issued , , and shares to Zhongyun Ronghui, Hangzhou Shunying, Huzhou Zhongze Jiameng
Equity Investment Enterprise, LLP (“Huzhou Zhongze”) and Zhuhai Hengqin Huarong Zhifu Investment Management Co., Ltd. (“Zhuhai
Hengqin”) for the consideration of RMB
On November 22, 2018, CCT entered into Preferred Share and Warrant Purchase Agreement with Zhongyun Ronghui and Hangzhou Shunying. CCT issued warrants to Zhongyun Ronghui and Hangzhou Shunying in connection with the Reorganization, which entitled them to purchase and shares of Series B convertible redeemable preferred shares, respectively. The warrants were exercised on May 23, 2019.
In January 2019, in connection with the Reorganization, CCT issued and Series B preferred shares to Eagle Rover Ltd. (“Huzhou Zhongze BVI”), and Lian Jia Enterprise Limited (“Zhuhai Hengqin BVI”), designated by Huzhou Zhongze and Zhuhai Hengqin, respectively.
On
May 23, 2019, CCT issued and Series B preferred shares to Zhongyun Ronghui and Ningbo Shiwei (designated by Hangzhou
Shunying) for the consideration of US$ equivalent of RMB
| F-36 |
CHECHE GROUP INC. NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (All amounts in thousands, except for share and per share data) |
13. Preferred shares (Continued)
Series C financing
January
2019, CCT issued Series C preferred shares to White Elephant for the consideration of US$
In
April 2021, CCT issued Series C preferred shares to Yonghe CT Limited for the consideration of US$
In
January 2022, CCT received a notice of redemption request letter (the “Letter”) from White Elephant, as the Group failed
to consummate a QIPO (defined as (i) a public offering of ordinary shares of CCT with an implied valuation of US$ or more
on the first day of listing the shares of CCT and the public offering of ordinary shares accounting for at least of all the ordinary
shares on a fully diluted and as-converted basis on the Stock Exchange of Hong Kong Limited or NASDAQ or a securities exchange or inter-dealer
quotation system recognized by the right holder investors otherwise; or (ii) any public offering agreed by the holders of at least 2/3
of the then issued and outstanding preferred shares; or (iii) any SPAC transaction agreed by the holders of at least 2/3 of the then
issued and outstanding preferred shares) by January 18, 2022, defined as a redemption event under an Amended and Restated Memorandum
and Articles of Association of CCT dated July 26, 2021. In November 2022, in connection with an Amended and Restated Memorandum and Articles
of Association of CCT dated November 3, 2022 (the “Existing M&A”) Article 19(a)(i), which changed the Redemption Event
(i) as “CCT fails to consummate a QIPO by January 18, 2024” and the Letter, the Group and White Elephant agreed and entered
into a Share Repurchase Agreement, whereby CCT repurchased its Series C preferred shares from White Elephant for a consideration
of US$
Series D1 financing
In June 2021, CCT issued Series D1 preferred shares to United Gemini Holdings Limited for the consideration of RMB million.
Series D2 financing
In June 2021, CCT issued and Series D2 preferred shares to Yonghe CT Limited and Yonghe SI Limited for the consideration of US$ million and US$ million, respectively. In February 2022, Yonghe CT Limited transferred its shares to Yonghe CarTech Limited with no consideration.
Series D3 financing
In July 2021, CCT issued and Series D3 preferred shares to Image Digital Investment (HK) Limited and TPP Fund II Holding F Limited for the consideration of US$ million and US$ million, respectively.
The key terms of the Preferred Shares are as follows:
Conversion right
Each of Preferred Shares shall automatically be converted into ordinary shares at the then effective conversion price upon the closing of a QIPO. If the offering does not constitute a QIPO, it is at the option of holders of Preferred Shares to convert. No fractional ordinary share shall be issued upon conversion of the Preferred Shares. In lieu of any fractional ordinary shares to which the holder would otherwise be entitled, CCT shall pay cash equal to such fraction multiplied by the then effective conversion price for any such series of Preferred Shares.
| F-37 |
CHECHE GROUP INC. NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (All amounts in thousands, except for share and per share data) |
13. Preferred shares (Continued)
The conversion ratio for each of Preferred Share shall be determined by dividing the issue price by the then conversion price, in effect at the time of the conversion. The conversion price shall initially be equal to the issue price per ordinary share. No adjustment in the conversion price for any series of Preferred Shares shall be made in respect of the issuance of additional ordinary shares unless below conditions are met: 1) the consideration per share for an additional ordinary share issued or deemed to be issued by CCT is less than the conversion price for such series in effect on the date of and immediately prior to such issuance; 2) the original issue price of each of the Series C, Series D1, Series D2 and Series D3 preferred shares is higher than percent of the QIPO offering price.
Redemption right
The Preferred Shares holders shall have redemption rights upon the occurrence of any of the following events: (i) CCT fails to complete QIPO by January 18, 2022 (the “QIPO date”); (ii) Share Purchase Agreement, Shareholders Agreement and the Memorandum and Articles of Association (“Transaction Document”) fails to obtain necessary corporate proceedings and authorization from the Group Companies, the Founder and the Founder’s Holdco.; (iii) there is a material breach by any Group Companies, the Founder and the Founder’s Holdco of any of its, his or her, warranties, covenants, obligations under any Transaction Document , or (iv) there is a material breach by any Group Companies, the Founder and the Founder’s Holdco of any applicable Laws, which results in a cessation of CCT’s main business for a period of no less than three months; (v) any Group Company’s improper operation of its business and/or illegal activities, any of which have resulted in substantial losses to any Group Company; (vi) Any of Contractual arrangements with VIE has been terminated, declared void or invalid or otherwise incapable of enabling CCT to consolidate the Domestic Company’s financial results pursuant to the International Financial Reporting Standards or the United States’ generally accepted accounting principles; (vii) the Founder having been convicted of a criminal offence; (viii) the Group Companies’ engagement in the business other than the current business (each a “Redemption Event”); then each of Preferred Shares shall be redeemable upon the request of any preferred shareholder.
Under the Amended and Restated Memorandum and Articles of Association of CCT dated November 3, 2022, the Preferred Shareholders agreed to change the QIPO date as part of the Redemption Event (i) to January 18, 2024. On February 23, 2023, the Preferred Shareholders further agreed to amend the QIPO date to January 18, 2025. On the same date, the Group entered into share transfer agreements with the existing Preferred Shareholders and transferred , , , , , , , , , and ordinary shares of CCT at par value to these existing preferred shareholders before the QIPO including Ruiyuan, Zhongyun Ronghui, Ningbo Shiwei, Huzhou Zhongze BVI, Zhuhai Hengqin BVI, Yonghe CT Limited, Yonghe CarTech Limited, United Gemini Holdings Limited, Yonghe SI Limited, Image Digital Investment (HK) Limited and TPP Fund II Holding F Limited, respectively in connection with the modification of the QIPO date relating to the preferred shares.
The
Preferred Shares’ redemption price shall be equal to the greater of (i) the original investment amount of the capital contribution,
plus an amount accruing thereon daily at a compound interest rate of ten percent (
Dividend right
No dividends or other distributions shall be made or declared, whether in cash, in property, or in any other shares of the Group, unless and until dividends have been paid in full on the Preferred Shares.
| F-38 |
CHECHE GROUP INC. NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (All amounts in thousands, except for share and per share data) |
13. Preferred shares (Continued)
Liquidation right
After setting aside or paying in full of the Series D3 preference amount, the Series D2 preference amount, the Series D1 preference amount, the Series C preference amount, the Series B preference amount, the Series A preference amount and the Series Pre-A preference amount, the remaining assets of the Group available for distribution to members, if any, shall be distributed to the holders of the Preferred Shares and Ordinary Shares on a pro rata basis, based on the number of ordinary shares then held by each holder on an as-converted basis.
Voting right
Each of Preferred Shares confers the right to receive notice of, attend and vote at any general meeting of members.
Accounting of Preferred Shares
The Group has classified the Preferred Shares in the mezzanine equity of the consolidated balance sheets as they were redeemable at the options of the holders any time after a certain date and were contingently redeemable upon the occurrence of certain liquidation event outside of CCT’s control. The conversion feature as mentioned above, are initially measured at its fair value, respectively, and the initial carrying value for the Preferred Shares are allocated on a residual basis, net of issuance costs.
Since
the Preferred Shares become redeemable at the option of the holder at any time after a specified date, for each reporting period, CCT
recorded accretions on the Preferred Shares to the redemption value from the issuance dates to the earliest redemption dates as set forth
in the original issuance. While all Preferred Shares are automatically converted upon a QIPO, the effectiveness of a QIPO is not within
the control of CCT and is not deemed probable to occur for accounting purposes until the effective date of the QIPO. As such, CCT continued
to recognize accretion of the Preferred Shares during the six months ended June 30, 2023. The accretion of Preferred Shares was RMB
In addition, the Group records accretions on the Preferred Shares to the redemption value from the issuance dates to the earliest redemption dates. The accretions are recorded against retained earnings, or in the absence of retained earnings, by charges against additional paid-in capital. Once additional paid-in capital has been exhausted, additional charges are recorded by increasing the accumulated deficit. Each issuance of the Preferred Shares is recognized at the respective fair value at the date of issuance net of issuance costs.
The deemed liquidation preference provisions of the Preferred Shares were considered contingent redemption provisions that were not solely within the CCT’s control. As such, prior to the Reverse Recapitalization, the associated balances were presented outside of permanent equity in the mezzanine section of the consolidated balance sheets. As part of the Reverse Recapitalization transaction, as described within Note 3, the Preferred Shares was converted into a certain number of ordinary shares of CCT based on the CCT’s then effective memorandum and articles of association, and then CCT converted the ordinary shares converted from preferred shares into a certain number of the Company’s Class A ordinary shares. The Company had no outstanding Preferred Shares as of December 31, 2023.
Accounting of Re-designation from ordinary shares to preferred shares
The Group considered that re-designation from ordinary shares to preferred shares mentioned above were, in substance, the same as a contribution from ordinary shareholders followed by a cancellation of those ordinary shares and simultaneously an issuance of the preferred shares for no consideration. Therefore, the Group recorded the par value of those ordinary shares cancelled into additional paid-in capital, and recorded the fair value of the preferred shares as deemed distribution to preferred shareholders, against retained earnings, or in the absence of retained earnings, by charging against additional paid-in capital or by increasing the accumulated deficit once additional paid-in capital has been exhausted.
| F-39 |
CHECHE GROUP INC. NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (All amounts in thousands, except for share and per share data) |
13. Preferred shares (Continued)
The Group’s preferred shares activities for the six months ended June 30, 2023 are summarized below:
| Balance
as of January 1, 2023 | Accretions to Preferred Shares redemption value | Balance
as of June 30, 2023 | ||||||||||
| Series Pre-A Preferred shares | ||||||||||||
| Number of shares | ||||||||||||
| Amount | ||||||||||||
| Series A Preferred shares | ||||||||||||
| Number of shares | ||||||||||||
| Amount | ||||||||||||
| Series B Preferred shares | ||||||||||||
| Number of shares | ||||||||||||
| Amount | ||||||||||||
| Series C Preferred shares | ||||||||||||
| Number of shares | ||||||||||||
| Amount | ||||||||||||
| Series D1 Preferred shares | ||||||||||||
| Number of shares | ||||||||||||
| Amount | ||||||||||||
| Series D2 Preferred shares | ||||||||||||
| Number of shares | ||||||||||||
| Amount | ||||||||||||
| Series D3 Preferred shares | ||||||||||||
| Number of shares | ||||||||||||
| Amount | ||||||||||||
| Total Number of shares* | ||||||||||||
| Total amount | ||||||||||||
| * |
| F-40 |
CHECHE GROUP INC. NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (All amounts in thousands, except for share and per share data) |
14. Segment Information
Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”), or decision-making group, in deciding how to allocate resources and in assessing performance. The Company concluded that the Group’s CODM is Mr. Lei Zhang, Chairman of the Board of Directors, and CEO.
In accordance with ASC 280-10, Segment Reporting: Overall, the CODM reviews the consolidated results of operations when making decisions about allocating resources and assessing performance of the Group as a whole; hence, the Group has only one operating segment.
Key revenues streams are as below:
For the six months ended June 30, | ||||||||
| 2023 | 2024 | |||||||
| RMB | RMB | |||||||
| Insurance transaction services income | ||||||||
| SaaS and technical service income | ||||||||
| Others | ||||||||
| Total | ||||||||
Substantially all revenues are derived in China where services are provided to customers. In addition, the Group’s long-lived assets are substantially all located in China. Therefore, no geographical segments are presented.
15. Cost of revenues
Amounts recorded as cost of revenues relate to direct expenses incurred in order to generate revenue, which consists primarily of cost of referral partners, service fee paid to third-party payment platforms, amortization and depreciation expenses, salary and welfare benefits, cloud service fees, tax and surcharges and others. These costs are charged to the unaudited interim condensed consolidated statements of operations and comprehensive loss as incurred. The following table presents the Group’s cost of revenue for the six months ended June 30, 2023 and 2024:
For the six months ended June 30, | ||||||||
| 2023 | 2024 | |||||||
| RMB | RMB | |||||||
| Cost of referral partners | ||||||||
| Service fee paid to third-party payment platforms | ||||||||
| Salary and welfare benefits | ||||||||
| Amortization and depreciation | ||||||||
| Cloud service fees | ||||||||
| Tax and surcharges and others | ||||||||
| Total | ||||||||
| F-41 |
CHECHE GROUP INC. NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (All amounts in thousands, except for share and per share data) |
16. Employee benefits
The Company’s subsidiaries, VIE and subsidiaries of VIE incorporated in China participate in a government-mandated multi-employer defined contribution plan under which certain retirement, medical, housing and other welfare benefits are provided to employees. Chinese labor regulations require the Company’s Chinese subsidiaries, VIE and subsidiaries of VIE to pay to the local labor bureau a monthly contribution at a stated contribution rate based on the monthly basic compensation of qualified employees. The relevant local labor bureau is responsible for meeting all retirement benefit obligations; hence, the Group has no further commitments beyond its monthly contribution. The following table presents the Group’s employee welfare benefits expenses for the six months ended June 30, 2023 and 2024:
For the six months ended June 30， | ||||||||
| 2023 | 2024 | |||||||
| RMB | RMB | |||||||
| Contributions to medical and pension schemes | ||||||||
| Other employee benefits | ||||||||
| Total | ||||||||
*The amounts of “Contributions to medical and pension schemes” and “Other employee benefits” for the six months ended June 30, 2023 have been revised to correct for a formula error in the preparation of this disclosure. The errors were disclosure only and did not have any impact to the previously reported unaudited interim condensed consolidated results of operations, financial position, or cash flows.
The impact of the revision on the previously reported employee welfare benefits expenses for this disclosure is as follows:
| For
the six months ended June 30, | ||||||||||||
| 2023 | ||||||||||||
| As Previously Reported | Adjustment | As Revised | ||||||||||
| RMB | RMB | RMB | ||||||||||
| Contributions to medical and pension schemes | ||||||||||||
| Other employee benefits | ||||||||||||
| Total | ||||||||||||
| F-42 |
CHECHE GROUP INC. NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (All amounts in thousands, except for share and per share data) |
| (a) | Description of stock option plan |
2019 Incentive Plan
In January 2020, the Company permitted the grant of options and restricted shares to relevant directors, officers, senior management, employees and non-employees of the Group (the “2019 Incentive Plan”). Option awards are granted with an exercise price determined by the Board of Directors.
The stock options granted under the 2019 Incentive Plan have a contractual term of 10 years and will expire the earlier of (i) three months after termination of service with the Group, or (ii) upon the tenth anniversary of the grant date.
The stock options granted under the 2019 Incentive Plan will be immediately vested upon grant.
The restricted shares granted under the 2019 Incentive Plan could either be granted with terms that (i) immediately vested upon grant; (ii) % vested on each anniversary or % vested on each quarter for vesting schedule of four years; or (iii) % vested on each anniversary for vesting schedule of two years.
2023 Incentive Plan
In September 2023, the Company permitted the grant of options, restricted shares or any other type of awards to relevant directors, employees and non-employees of the Group (the “2023 Incentive Plan”). Option awards are granted with an exercise price determined by the Board of Directors.
In accordance with ASC 718 Stock Compensation, the Group recorded share-based compensation expense on the grant date of the equity interests to its employees equal to the estimated fair-value of such equity interests at the measurement date. The share-based compensation expense was recorded in cost of revenues, selling and marketing expenses, general and administrative expenses and research and development expenses on the unaudited interim condensed consolidated statements of operations and comprehensive loss.
Stock option replacement (the “Replacement”)
On
January 1, 2023 and July 1, 2023, a total of and vested options were replaced by and restricted shares of CCT, which were converted
into restricted shares of the Company upon the completion of the Reverse Recapitalization (Note 3). The restricted shares awards are
subject to the original vesting schedule of the replaced share options. The Company concluded the cancellation and replacement of awards
is a modification, and determined the modification is a probable-to-probable (Type I) modification. The Company has recognized the portion
of incremental value of RMB
| F-43 |
CHECHE GROUP INC. NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (All amounts in thousands, except for share and per share data) |
17. Share-based compensation (Continued)
| (b) | Valuation assumptions |
For the six months ended June 30, | ||||||||
| Options* | 2023 | 2024 | ||||||
| Fair value per share (US$) | * | ~ | ||||||
| Discount rate (after tax) | * | |||||||
| Risk-free interest rate | * | %-% | ||||||
| Expected volatility | * | %-% | ||||||
| Contractual term (in years) | * | |||||||
| Discount for lack of marketability (“DLOM”) | * | |||||||
| * |
For the six months ended June 30, | ||||||||
| Restricted shares | 2023 | 2024 | ||||||
| Fair value per share (US$) | ||||||||
| Discount rate (after tax) | % | |||||||
| Discount for lack of marketability (“DLOM”) | % | |||||||
The
expected volatility at the grant date and each option valuation date was estimated based on the annualized standard deviation of the
daily return embedded in historical share prices of comparable peer companies with a time horizon close to the expected expiry of the
term of the options. The weighted average volatility is the expected volatility at the grant date weighted by number of options. The
Company has never declared or paid any cash dividends on its shares, and the Group does not anticipate any dividend payments in the foreseeable
future. The contractual term is the contract life of the options. The Group estimated the risk-free interest rate based on the market
yield of US Government Bonds with maturities of
| F-44 |
CHECHE GROUP INC. NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (All amounts in thousands, except for share and per share data) |
17. Share-based compensation (Continued)
| (c) | Stock options activities |
| Number of Options Outstanding* | Weighted Average exercise price | Weighted average remaining contractual life | Aggregated intrinsic value | |||||||||||||||||||||
| Employees | Consultant | Total | ||||||||||||||||||||||
| (in thousands) | (in thousands) | (in thousands) | US$ | (in years) | RMB in thousands | |||||||||||||||||||
| Outstanding at January 1, 2023 | ||||||||||||||||||||||||
| Replacement | ( | ) | ( | ) | ||||||||||||||||||||
| Forfeited | ( | ) | ( | ) | ||||||||||||||||||||
| Outstanding at June 30, 2023 | ||||||||||||||||||||||||
| Exercisable as of June 30, 2023 | ||||||||||||||||||||||||
| Outstanding at January 1, 2024 | ||||||||||||||||||||||||
| Replacement | ( | ) | ( | ) | ||||||||||||||||||||
| Granted | ||||||||||||||||||||||||
| Forfeited | ( | ) | ( | ) | ||||||||||||||||||||
| Outstanding at June 30, 2024 | ||||||||||||||||||||||||
| Exercisable as of June 30, 2024 | ||||||||||||||||||||||||
| * |
The weighted average grant date fair value of options granted for the six months ended June 30, 2023 and 2024 were RMB (US$) and RMB (US$) per option, respectively. No options were exercised for the six months ended June 30, 2023 and 2024.
| F-45 |
CHECHE GROUP INC. NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (All amounts in thousands, except for share and per share data) |
17. Share-based compensation (Continued)
| (d) | Restricted shares activities |
The following table sets forth the summary of restricted share activities for the six months ended June 30, 2023 and 2024:
| Number of Restricted Shares Granted* | Weighted-Average Grant Date Fair Value | |||||||
| (in thousands) | (US$) | |||||||
| Unvested as of January 1, 2023 | ||||||||
| Awarded | ||||||||
| Vested | ( | ) | ||||||
| Forfeited | ( | ) | ||||||
| Outstanding at June 30, 2023 | ||||||||
| Unvested as of January 1, 2024 | ||||||||
| Replacement | ||||||||
| Awarded | ||||||||
| Vested | ( | ) | ||||||
| Forfeited | ( | ) | ||||||
| Outstanding at June 30, 2024 | ||||||||
| * |
For the six months ended June 30, 2023 and 2024, the Company had potential ordinary shares, including preferred shares before the QIPO, restricted shares and share options granted. As the Group incurred losses for the six months ended June 30, 2023 and 2024, these potential preferred shares, restricted shares and shares options granted were anti-dilutive and excluded from the calculation of diluted net loss per share of the Company.
Considering that the holders of preferred shares have no contractual obligation to participate in the Company’s losses, any losses from the Group should not be allocated to preferred shares.
| F-46 |
CHECHE GROUP INC. NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (All amounts in thousands, except for share and per share data) |
18. Net loss per share (Continued)
| For the six months ended June 30, | ||||||||
| 2023 | 2024 | |||||||
| Numerator: | ||||||||
| Net loss | ( | ) | ( | ) | ||||
| Less: accretions to preferred shares redemption value | ( | ) | ||||||
| Net loss attributable to Cheche’s ordinary shareholders | ( | ) | ( | ) | ||||
| Denominator: | ||||||||
| Weighted average number of ordinary shares outstanding, basic | ||||||||
| Weighted average number of ordinary shares outstanding, diluted* | ||||||||
| Basic net loss per share attributable to Cheche’s ordinary shareholders | ( | ) | ( | ) | ||||
| Diluted net loss per share attributable to Cheche’s ordinary shareholders | ( | ) | ( | ) | ||||
| * |
19. Commitments and Contingencies
| (a) | Commitments |
The
Group leases office space under non-cancelable operating lease agreements, which expire at various dates through June 30, 2024. As of
December 31, 2023 and June 30, 2024, future minimum lease of RMB
| (b) | Litigation |
As of December 31, 2023 and June 30, 2024, the Group was not involved in any legal or administrative proceedings that may have a material adverse impact on the Group’s business, financial position results of operations, or cash flows.
20. Related Party Balances and Transactions
The table below sets major related parties of the Group and their relationships with the Group:
| Entity or individual name | Relationship with the Group | |
| Fanhua Group |
| F-47 |
CHECHE GROUP INC. NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (All amounts in thousands, except for share and per share data) |
20. Related Party Balances and Transactions (Continued)
The outstanding balance due to related parties as of December 31, 2023 and June 30, 2024 were as follows:
| As of | As of | |||||||
| Balances with related parties | December 31, 2023 | June 30, 2024 | ||||||
| RMB | RMB | |||||||
| Amounts due to related parties | ||||||||
| Fanhua Group (i) | ||||||||
| (i) |
The
Group issued a convertible loan in the principal amount of RMB
In
2021, the Group repaid the aggregated principal amount of RMB
In
2023, the Group repaid the aggregated amount of RMB
As
of June 30, 2024, the balance of the Corporate borrowings from Fanhua Group was RMB
The
Group elected fair value option to account for the Convertible Loan and the Corporate borrowings from Fanhua Group, and recognized loss/(gain)
under “Changes in fair value of amounts due to related party” and “Fair value changes of amounts due to related party
due to own credit risk” in the unaudited interim condensed consolidated statements of operations and comprehensive loss of RMB
The Group engaged an independent valuation firm to assist the management in its assessment of fair value of the Corporate borrowings at each end of reporting period. The fair value measurements of the Corporate borrowings are based on significant inputs not observable in the market, and thus represent Level 3 fair value measurements. The Group utilized the following assumptions to estimate the fair value of the Corporate borrowings:
| As of | As of | |||||||
| December 31, 2023 | June 30, 2024 | |||||||
| Discount rate | % | % | ||||||
| F-48 |
CHECHE GROUP INC. NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (All amounts in thousands, except for share and per share data) |
20. Related Party Balances and Transactions (Continued)
(i) Corporate borrowings from Fanhua Group (Continued)
The movement of Corporate borrowings from Fanhua Group is as follows:
| Corporate Borrowings | ||||
| RMB | ||||
| Balance as of January 1, 2023 | ||||
| Change in fair value | ||||
| Change in other comprehensive income | ||||
| Balance as of June 30, 2023 | ||||
| Balance as of January 1, 2024 | ||||
| Change in fair value | ||||
| Change in other comprehensive income | ||||
| Others | ||||
| Balance as of June 30, 2024 | ||||
21. Fair Value Measurement
Assets and liabilities measured at fair value on a nonrecurring basis
As of December 31, 2023 and June 30, 2024, the Company had no financial assets or financial liabilities that are measured at fair value on non-recurring basis. The Company measured its non-financial assets, such as its property, equipment and leasehold improvements, intangible assets, goodwill on a nonrecurring basis whenever events or changes in circumstances indicate that the carrying value may no longer be recoverable.
Assets and liabilities measured at fair value on a recurring basis
The Company measured the Corporate borrowings from Fanhua Group and warrant at fair value on a recurring basis. As the Company’s Corporate borrowings from Fanhua Group and warrant are not traded in an active market with readily observable prices, the Company uses significant unobservable inputs to measure the fair value of the Corporate borrowings from Fanhua Group and warrant. They are categorized in the Level 3 valuation hierarchy based on the significance of unobservable factors in the overall fair value measurement. The Company did not transfer any assets or liabilities in or out of level 3 during the six months ended June 30, 2023 and 2024.
The following table summarizes the Company’s financial liabilities measured and recorded at fair value on recurring basis as of December 31, 2023 and June 30, 2024:
| As of December 31, 2023 | ||||||||||||||||
Active Market (Level 1) | Observable Input (Level 2) | Unobservable Input (Level 3) | Total | |||||||||||||
| RMB | RMB | RMB | RMB | |||||||||||||
| Liabilities: | ||||||||||||||||
| Warrant | ||||||||||||||||
| Corporate borrowings from Fanhua Group | ||||||||||||||||
| As of June 30, 2024 | ||||||||||||||||
Active Market (Level 1) | Observable Input (Level 2) | Unobservable Input (Level 3) | Total | |||||||||||||
| RMB | RMB | RMB | RMB | |||||||||||||
| Liabilities: | ||||||||||||||||
| Warrant | ||||||||||||||||
| Corporate borrowings from Fanhua Group | ||||||||||||||||
| F-49 |
CHECHE GROUP INC. NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (All amounts in thousands, except for share and per share data) |
21. Fair Value Measurement (Continued)
Warrant
The fair value of the warrants converted from Prime Impact are measured based on the listed market price of such warrant, a Level 1 measurement. The fair value of the warrants converted from CCT are measured based on binomial option pricing model, a Level 3 measurement. Management is responsible for determining the fair value and assessing a number of factors. The valuation involves complex and subjective judgements as well as the Company’s best estimates on the valuation date. Key inputs related to the binomial option pricing model for the valuation of the fair value of warrants are: expiry date of warrant, fair market value per share as of valuation date, exercise price, risk free rate of interest, dividend yield, expected time to exercise as well as volatility.
Corporate borrowings from Fanhua Group
The Group classified the Corporate borrowings from Fanhua Group as current liability and measured at fair value. The Group classifies the valuation techniques that use fair value of the principle as Level 3 of fair value measurements. Generally, there are no quoted prices in active markets and other inputs that are directly or indirectly observable in the marketplace for the Corporate borrowings from Fanhua Group during the period at the reporting date. In order to determine the fair value, the Group must use the discounted cash flow method and earning forecast as unobservable inputs other than quoted prices in active markets, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
22. Subsequent Events
In
July 2024, the Group received the aggregated principal of RMB
In
August 2024, the Group repaid the aggregated principal of RMB
In August 2024, the Group entered into another supplemental agreement to the Payment Plan Agreement with Fanhua Group to extend the remaining balance of the Corporate borrowings from Fanhua Group to October 26, 2026.
23. Restricted Net Assets
Relevant
PRC laws and regulations permit PRC companies to pay dividends only out of their retained earnings, if any, as determined in accordance
with PRC accounting standards and regulations. Additionally, the Company’s PRC subsidiaries, VIE and subsidiaries of VIE can only
distribute dividends upon approval of the shareholders after they have met the PRC requirements for appropriation to the general reserve
fund and the statutory surplus fund respectively. The general reserve fund and the statutory surplus fund require that annual appropriations
of
| F-50 |
Exhibit 99.2
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless the context otherwise requires, all references in this section to “we,” “us,” or “our” refer collectively to Cheche Group Inc., and its subsidiaries, including Cheche Technology Inc. (“CCT”), Baodafang Technology Co., Ltd., Cheche Technology (Ningbo) Co., Ltd. (“WFOE”), and any other PRC-incorporated subsidiary that we may have in the future, as well as our WFOE’s contractual arrangements, commonly known as the VIE structure, with a variable interest entity (the “VIE”) and its subsidiaries (collectively, the “Affiliated Entities”). You should read the following discussion and analysis of our results of operations and financial condition together with the unaudited consolidated financial statements and related notes included elsewhere in this current report on Form 6-K. See “Exhibit 99.1— Unaudited Interim Consolidated Financial Statements as of December 31, 2023 and June 30, 2024, and the for the six months ended June 30, 2023 and 2024.” This discussion contains forward-looking statements based upon current plans, expectations and beliefs that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those we describe under “Risk Factors” of our annual report on Form 20-F for the year ended December 31, 2023 (the “Annual Report”) filed with the U.S. Securities and Exchange Commission (the “SEC”) on April 29, 2024.
Overview
We are an exempted company with limited liability incorporated under the laws of the Cayman Islands with no substantive operation. We carry out our business in China primarily through WFOE and our contractual arrangements, commonly known as the VIE Structure, with the Affiliated Entities. We are an insurance technology company operating an independent technology-empowered platform primarily for auto insurance transaction services. Capitalizing on our leading position in auto insurance transaction services, we have evolved into a nationally leading platform with a nationwide network that offers a full suite of services and products for digital insurance transactions and insurance SaaS solutions in China. We offer a unified, cloud-based platform that delivers considerable value propositions to each of the participants in its ecosystem, including insurance carriers, insurance intermediaries, third-party platforms, referral partners and consumers. These participants access and utilize our flagship digital insurance transaction products Easy-Insur (车保易) and NEV Insurance Solution, as well as the insurance SaaS solution products Digital Surge (澎湃保) and Sky Frontier (天境) on our platform. These products are designed and programmed in different forms, including mobile, web, WeChat and third-party applications. The open architecture of our platform also enables interoperability of these products with numerous applications, systems and other offerings adopted by our ecosystem participants.
Our net revenues were RMB1,610.4 million and RMB1,639.0 million in the six months ended June 30, 2023 and 2024, respectively. Our net loss was RMB72.2 million and RMB54.9 million in the six months ended June 30, 2023 and 2024, respectively. We recorded adjusted net loss of RMB27.8 million and RMB24.4 million in the six months ended June 30, 2023 and 2024, respectively. For a detailed description of our non-GAAP measures, see “—Non-GAAP Financial Measures.”
The following table sets forth a summary of our unaudited interim condensed consolidating statements of operations and comprehensive loss, both in absolute amount, for the periods indicated. This information has been derived from and should be read together with our unaudited interim condensed consolidating financial statements. The results of operations in any period are not necessarily indicative of the results that may be expected for any future period.
| Six Months Ended June 30, | ||||||||
| 2023 | 2024 | |||||||
| (RMB in thousands) | ||||||||
| Net revenues | 1,610,371 | 1,638,986 | ||||||
| Cost and Operating expenses: | ||||||||
| Cost of revenues | (1,551,979 | ) | (1,574,285 | ) | ||||
| Selling and marketing expenses | (47,755 | ) | (41,661 | ) | ||||
| General and administrative expenses | (49,694 | ) | (61,753 | ) | ||||
| Research and development expenses | (31,303 | ) | (18,525 | ) | ||||
| Total cost and operating expenses | (1,680,731 | ) | (1,696,224 | ) | ||||
| Other expenses: | ||||||||
| Interest income | 1,483 | 3,257 | ||||||
| Interest expense | (541 | ) | (440 | ) | ||||
| Foreign exchange losses | (6,334 | ) | (1,055 | ) | ||||
| Government grants | 7,240 | 234 | ||||||
| Changes in fair value of warrant | (127 | ) | 3,376 | |||||
| Changes in fair value of amounts due to related party | (3,836 | ) | (3,286 | ) | ||||
| Others, net | 29 | 180 | ||||||
| Loss before income tax | (72,446 | ) | (54,972 | ) | ||||
| Income tax credit | 258 | 100 | ||||||
| Net loss | (72,188 | ) | (54,872 | ) | ||||
| Non-GAAP measure: | ||||||||
| Adjusted net loss (1) | (27,763 | ) | (24,441 | ) | ||||
| (1) | Adjusted net loss is defined as net loss adjusted for the impact of share-based compensation expenses, amortization of intangible assets, and changes in fair value of amounts due to a related party related to the acquisition of Cheche Insurance Sales & Services Co., Ltd. (previously named Fanhua Times Sales and Service Co., Ltd), change in fair value of warrants, listing related professional service fees and dispute resolution expenses. Adjusted net loss is not a measure required by, or presented in accordance with, U.S. GAAP. The use of the non-GAAP measure has limitations as an analytical tool, and you should not consider it in isolation from, or as a substitute for analysis of, our results of operations or financial condition as reported under U.S. GAAP. For further details, see “—Non-GAAP Financial Measure.” |
Non-GAAP Financial Measures
We use adjusted net loss, a non-GAAP financial measure, in evaluating our results of operations and for financial and operational decision-making purposes. Adjusted net loss represents net loss excluding share-based compensation expenses, amortization of intangible assets, and changes in fair value of amounts due to a related party related to the acquisition of Cheche Insurance Sales & Services Co., Ltd. (previously named Fanhua Times Sales and Service Co., Ltd), change in fair value of warrants, listing related professional service fees and dispute resolution expenses. Such adjustments have no impact on income tax.
We present the non-GAAP financial measure because it is used by our management to evaluate our operating performance and formulate business plans. Adjusted net loss enables our management to assess our results of operations without considering the impact of share-based compensation expenses, amortization of intangible assets, and changes in fair value of amounts due to a related party related to the acquisition of Cheche Insurance Sales & Services Co., Ltd. (previously named Fanhua Times Sales and Service Co., Ltd), change in fair value of warrants, listing related professional service fees and dispute resolution expenses. We believe that adjusted net loss helps identify underlying trends in our business that could otherwise be distorted by the effect of certain expenses that are included in net loss. We also believe that the use of such non-GAAP measure facilitates investors’ assessment of our operating performance. Adjusted net loss should not be considered in isolation or construed as an alternative to net loss or any other measure of performance or as an indicator of our operating performance. Investors are encouraged to review the reconciliation of our historical non-GAAP financial measures to the most directly comparable GAAP measures. Adjusted net loss presented here may not be comparable to similarly titled measures presented by other companies. Other companies may calculate similarly titled measures differently, limiting their usefulness as comparative measures to our data. We encourage investors and others to review our financial information in its entirety and not rely on a single financial measure. Investors are encouraged to compare the historical non-GAAP financial measures with the most directly comparable GAAP measures. We mitigate these limitations by reconciling the non-GAAP financial measures to the most comparable U.S. GAAP performance measures, all of which should be considered when evaluating our performance.
The following tables set forth a reconciliation of our adjusted net loss to net loss for the periods indicated.
| Six Months Ended June 30, | ||||||||
| 2023 | 2024 | |||||||
| (RMB in thousands) | ||||||||
| Net loss | (72,188 | ) | (54,872 | ) | ||||
| Add: | ||||||||
| Share-based compensation expense | 33,875 | 27,116 | ||||||
| Amortization of intangible assets related to acquisition | 1,050 | 1,050 | ||||||
| Listing related professional expenses | 5,537 | - | ||||||
| Changes in fair value of warrant | 127 | (3,376 | ) | |||||
| Changes in fair value of amounts due to related party | 3,836 | 3,286 | ||||||
| Dispute resolution expenses | - | 2,355 | ||||||
| Adjusted net loss | (27,763 | ) | (24,441 | ) | ||||
Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023
Net revenues. Our net revenues increased by 1.8%, from RMB1,610.4 million in the six months ended June 30, 2023 to RMB1,639.0 million in the six months ended June 30, 2024.The growth was driven by the increase in insurance transactions conducted through our platform by referral partners and third-party platform partners.
Cost of revenues. Our cost of revenues increased by 1.4%, from RMB1,552.0 million in the six months ended June 30, 2023 to RMB1,574.3 million in the six months ended June 30, 2024, which was consistent with the growth of business volume and net revenues.
Selling and marketing expenses. Our selling and marketing expenses decreased by 12.8%, from RMB47.8 million in the six months ended June 30, 2023 to RMB41.7 million the six months ended June 30, 2024, primarily due to the decreases in share-based compensation to our marketing staff and marketing expenses. As a result, selling and marketing expenses as a percentage of net revenues decreased from 3.0% in the six months ended June 30, 2023 to 2.5% in the six months ended June 30, 2024. Excluding the impact of share-based compensation expenses to our marketing staff, the percentage would decrease from 2.4% in the six months ended June 30, 2023 to 2.3% in the six months ended June 30, 2024.
General and administrative expenses. Our general and administrative expenses increased by 24.3%, from RMB49.7 million in the six months ended June 30, 2023 to RMB61.8 million in the six months ended June 30, 2024, primarily due to the increases in share-based compensation, post-listing professional service fees, and dispute resolution expenses. As a result, general and administrative expenses as a percentage of net revenues increased from 3.1% in the six months ended June 30, 2023 to 3.8% in the six months ended June 30, 2024. Excluding the impact of share-based compensation, listing-related professional service fees and dispute resolution expenses, the percentage would increase from 1.8% in the six months ended June 30, 2023 to 2.3% in the six months ended June 30, 2024.
Research and development expenses. Our research and development expenses decreased by 40.8%, from RMB31.3 million in the six months ended June 30, 2023 to RMB18.5 million in the six months ended June 30, 2024, mainly driven by decreased share-based compensation expenses and staff costs. As a result, research and development expenses as a percentage of net revenues decreased from 1.9% in the six months ended June 30, 2023 to 1.1% in the six months ended June 30, 2024. Excluding the impact of share-based compensation expenses, the percentage would decrease from 1.4% in the six months ended June 30, 2023 to 1.0% in the six months ended June 30, 2024.
Net loss. As a result of the foregoing, we incurred a net loss of RMB54.9 million in the six months ended June 30, 2024, as compared to a net loss of RMB72.2 million in the six months ended June 30, 2023.
Liquidity and Capital Resources
In the six months ended June 30, 2023, our principal source of liquidity was cash generated from investing activities and short-term borrowings from banks. In the six months ended June 30, 2024, our principal source of liquidity was cash generated from financing activities in 2023.
As of December 31, 2023 and June 30, 2024, we had cash and cash equivalents of RMB243.4 million and RMB133.1 million, respectively. As of December 31, 2023 and June 30, 2024, we had amounts due to related party of RMB55.3 million and RMB58.8 million, respectively.
We believe that we will be able to meet our financing needs for the next twelve months from the date of this this current report, with cash balances of approximately RMB133.1 million and short-term investments of approximately RMB71.5 million as of June 30, 2024, respectively. However, we may require additional funding due to changing business conditions or other future developments, including any investments or acquisitions we may pursue. If our existing cash resources are insufficient to meet our working capital requirements, we may seek to issue equity or equity-linked securities or debt securities or obtain financing from banks and other third parties. The sale of equity or equity-linked securities would result in additional dilution to our shareholders, while the incurrence of indebtedness could subject us to operating and financial covenants that restrict our operations and ability to pay dividends to our shareholders. There is no assurance that we will be successful in raising funds, obtaining sufficient funding on terms acceptable to us, or if at all, which could have a material adverse effect on our business, financial condition and results of operations. See “Item 3. Key Information— D. Risk Factors — Risks Related to Our Securities — The issuance of additional share capital in connection with financings, acquisitions, investments, our equity incentive plans or otherwise will dilute all other shareholders” of the Annual Report.
The following table sets forth a summary of our cash flows for the periods indicated:
| Six Months Ended June 30, | ||||||||
| 2023 | 2024 | |||||||
| (RMB in thousands) | ||||||||
| Net cash used in operating activities | (7,591 | ) | (44,675 | ) | ||||
| Net cash generated from/(used in) investing activities | 20,204 | (61,462 | ) | |||||
| Net cash generated from/(used in) financing activities | 20,000 | (5,000 | ) | |||||
| Effect of foreign exchange rate changes on cash and cash equivalents | 2,394 | 862 | ||||||
| Net increase/(decrease) in cash, cash equivalents and restricted cash | 35,007 | (110,275 | ) | |||||
| Cash and cash equivalents, and restricted cash at beginning of the period | 119,945 | 248,392 | ||||||
| Cash and cash equivalents, and restricted cash at end of the period | 154,952 | 138,117 | ||||||
Operating Activities
Net cash used in operating activities for the six months ended June 30, 2024 was RMB44.7 million, primarily due a net loss of RMB54.9 million, as adjusted by (1) adjustments primarily consisting of share-based compensation expense of RMB27.1 million, changes in fair value of amounts due to related party of RMB3.3 million, amortization of right-of-use asset of RMB2.8 million, partially offset by changes in fair value of warrant of RMB3.4 million, and (2) net cash outflow of RMB23.5 million from changes in operating assets and liabilities, primarily due to an increase of RMB174.6 million in accounts receivable, a decrease of RMB2.2 million in accrued expenses and other current liabilities, partially offset by an increase of RMB150.7 million in account payable, and a decrease of RMB4.1 million in prepayments and other current assets.
Net cash used in operating activities for the six months ended June 30, 2023 was RMB7.6 million, primarily due to a net loss of RMB72.2 million, as adjusted by (1) adjustments primarily consisting of share-based compensation expense of RMB33.9 million, foreign exchange losses of RMB6.3 million, amortization of right-of-use asset of RMB4.5 million, and changes in fair value of amounts due to related party of RMB3.8 million, and (2) net cash inflow of RMB14.2 million from changes in operating assets and liabilities, primarily driven by an increase of RMB54.0 million in accounts payable and an increase of salary and welfare benefits payable of RMB3.5 million, partially offset by an increase of RMB27.3 million in accounts receivable, a decrease of RMB9.9 million in accrued expenses and other current liabilities, and a decrease of RMB4.8 million in lease liabilities.
Investing Activities
Net cash used in investing activities for the six months ended June 30, 2024 was RMB61.5 million, primarily due to (1) the placement of short-term investments of RMB85.7 million, and (2) loan provide to a third party of RMB10.0 million, partially offset by the cash received from maturities of short-term investments of RMB35.6 million.
Net cash generated from investing activities for the six months ended June 30, 2023 was RMB20.2 million, primarily due to the cash received from maturities of short-term investments of RMB34.8 million, partially offset by the placement of short-term investments of RMB14.5 million.
Financing Activities
Net cash used in financing activities for the six months ended June 30, 2024 was RMB5.0 million, primarily due to cash repayment of short-term borrowings to bank of RMB20.0 million, partially offset by cash received from short-term borrowings from bank of RMB15.0 million.
Net cash generated from financing activities for the six months ended June 30, 2023 was RMB20.0 million, primarily due to the cash received from short-term borrowings from banks.
Capital Expenditures
We incur capital expenditures primarily for purchases of property and equipment. Our capital expenditures were RMB0.2 million and RMB1.4 million in the six months ended June 30, 2023 and 2024, respectively. We will continue to incur capital expenditures to support the growth of our business.
Financial Information Related to the VIEs
The following table presents the unaudited condensed consolidating balance sheet information relating to Cheche Group Inc., and CCT (collectively, the “Parent Company”), WFOE, CCT’s subsidiaries (other than WFOE), the VIE and its subsidiaries for the periods and as of the dates presented.
Selected Condensed Consolidating Statements of Operations Data
| Six months ended June 30, 2024 | ||||||||||||||||||||||||
Parent Company | Other subsidiaries | WFOE | VIE and its subsidiaries | Eliminations | Consolidated totals | |||||||||||||||||||
| (RMB in thousands) | ||||||||||||||||||||||||
| Net revenues | - | 261,759 | 743 | 1,381,944 | (5,460 | ) | 1,638,986 | |||||||||||||||||
| Earned from third-party customers | - | 261,759 | - | 1,377,227 | - | 1,638,986 | ||||||||||||||||||
| Earned from the intra-Group transactions(1) | - | - | 743 | 4,717 | (5,460 | ) | - | |||||||||||||||||
| Cost of revenues | - | (250,424 | ) | (592 | ) | (1,327,986 | ) | 4,717 | (1,574,285 | ) | ||||||||||||||
| Arising from non intra-Group transactions | - | (245,707 | ) | (592 | ) | (1,327,986 | ) | - | (1,574,285 | ) | ||||||||||||||
| Arising from the intra-Group transactions(1) | - | (4,717 | ) | - | - | 4,717 | - | |||||||||||||||||
| Selling and marketing expenses | - | (7,533 | ) | - | (34,871 | ) | 743 | (41,661 | ) | |||||||||||||||
| Arising from non intra-Group transactions | - | (7,533 | ) | - | (34,128 | ) | - | (41,661 | ) | |||||||||||||||
| Arising from the intra-Group transactions(1) | - | - | - | (743 | ) | 743 | - | |||||||||||||||||
| General and administrative expenses | (12,411 | ) | (9,593 | ) | (156 | ) | (39,593 | ) | - | (61,753 | ) | |||||||||||||
| Research and development expenses | - | (8,190 | ) | - | (10,335 | ) | - | (18,525 | ) | |||||||||||||||
| Total operating costs and expense | (12,411 | ) | (275,740 | ) | (748 | ) | (1,412,785 | ) | 5,460 | (1,696,224 | ) | |||||||||||||
| Operating loss | (12,411 | ) | (13,981 | ) | (5 | ) | (30,841 | ) | - | (57,238 | ) | |||||||||||||
| Share of loss from other subsidiaries(2) | (48,672 | ) | - | - | - | 48,672 | - | |||||||||||||||||
| Share of loss of the WFOE(2) | - | (35,354 | ) | - | - | 35,354 | - | |||||||||||||||||
| Share of loss of the VIE(2) | - | - | (35,394 | ) | - | 35,394 | - | |||||||||||||||||
| Interest income from VIE(3) | 900 | 38 | 42 | - | (980 | ) | - | |||||||||||||||||
| Interest expense to WFOE(3) | - | - | - | (42 | ) | 42 | - | |||||||||||||||||
| Interest expense to Parent(3) | - | - | - | (900 | ) | 900 | - | |||||||||||||||||
| Interest expense to other subsidiaries(3) | - | - | - | (38 | ) | 38 | - | |||||||||||||||||
| Others, net | 5,474 | 625 | 3 | (3,836 | ) | - | 2,266 | |||||||||||||||||
| Loss before income taxes | (54,709 | ) | (48,672 | ) | (35,354 | ) | (35,657 | ) | 119,420 | (54,972 | ) | |||||||||||||
| Income tax expense | (163 | ) | - | - | 263 | - | 100 | |||||||||||||||||
| Net loss | (54,872 | ) | (48,672 | ) | (35,354 | ) | (35,394 | ) | 119,420 | (54,872 | ) | |||||||||||||
| Six months ended June 30, 2023 | ||||||||||||||||||||||||
Parent Company | Other subsidiaries | WFOE | VIE and its subsidiaries | Eliminations | Consolidated totals | |||||||||||||||||||
| (RMB in thousands) | ||||||||||||||||||||||||
| Net revenues | - | 71,226 | 852 | 1,545,299 | (7,006 | ) | 1,610,371 | |||||||||||||||||
| Earned from third-party customers | - | 71,226 | 135 | 1,539,010 | - | 1,610,371 | ||||||||||||||||||
| Earned from the intra-Group transactions(1) | - | - | 717 | 6,289 | (7,006 | ) | - | |||||||||||||||||
| Cost of revenues | - | (74,611 | ) | (2,786 | ) | (1,480,871 | ) | 6,289 | (1,551,979 | ) | ||||||||||||||
| Arising from non intra-Group transactions | - | (68,322 | ) | (2,786 | ) | (1,480,871 | ) | - | (1,551,979 | ) | ||||||||||||||
| Arising from the intra-Group transactions(1) | - | (6,289 | ) | - | - | 6,289 | - | |||||||||||||||||
| Selling and marketing expenses | - | (11,933 | ) | - | (35,822 | ) | - | (47,755 | ) | |||||||||||||||
| General and administrative expenses(1) | (5,560 | ) | (7,820 | ) | (214 | ) | (36,817 | ) | 717 | (49,694 | ) | |||||||||||||
| Research and development expenses | - | (9,660 | ) | - | (21,643 | ) | - | (31,303 | ) | |||||||||||||||
| Total operating costs and expense | (5,560 | ) | (104,024 | ) | (3,000 | ) | (1,575,153 | ) | 7,006 | (1,680,731 | ) | |||||||||||||
| Operating loss | (5,560 | ) | (32,798 | ) | (2,148 | ) | (29,854 | ) | - | (70,360 | ) | |||||||||||||
| Share of loss from other subsidiaries(2) | (67,132 | ) | - | - | - | 67,132 | - | |||||||||||||||||
| Share of loss of the WFOE(2) | - | (38,082 | ) | - | - | 38,082 | - | |||||||||||||||||
| Share of loss of the VIE(2) | - | - | (35,985 | ) | - | 35,985 | - | |||||||||||||||||
| Interest income from VIE(3) | 873 | 324 | 50 | - | (1,247 | ) | - | |||||||||||||||||
| Interest expense to WFOE(3) | - | - | - | (50 | ) | 50 | - | |||||||||||||||||
| Interest expense to Parent(3) | - | - | - | (873 | ) | 873 | - | |||||||||||||||||
| Interest expense to other subsidiaries(3) | - | - | - | (324 | ) | 324 | - | |||||||||||||||||
| Others, net | (369 | ) | 3,428 | 1 | (5,146 | ) | - | (2,086 | ) | |||||||||||||||
| Loss before income taxes | (72,188 | ) | (67,128 | ) | (38,082 | ) | (36,247 | ) | 141,199 | (72,446 | ) | |||||||||||||
| Income tax expense | - | (4 | ) | - | 262 | - | 258 | |||||||||||||||||
| Net loss | (72,188 | ) | (67,132 | ) | (38,082 | ) | (35,985 | ) | 141,199 | (72,188 | ) | |||||||||||||
Selected Condensed Consolidating Balance Sheets Data
| As of June 30, 2024 | ||||||||||||||||||||||||
Parent Company | Other subsidiaries | WFOE | VIE and its subsidiaries | Eliminations | Consolidated totals | |||||||||||||||||||
| (RMB in thousands) | ||||||||||||||||||||||||
| ASSETS | ||||||||||||||||||||||||
| Current assets: | ||||||||||||||||||||||||
| Cash and cash equivalents | 42,757 | 18,711 | 1,186 | 70,463 | - | 133,117 | ||||||||||||||||||
| Short-term investments | 64,141 | 7,127 | - | 226 | - | 71,494 | ||||||||||||||||||
| Accounts receivable, net | - | 110,291 | - | 528,942 | - | 639,233 | ||||||||||||||||||
| Prepayments and other current assets | 1,093 | 3,746 | 216 | 47,857 | - | 52,912 | ||||||||||||||||||
| Amount due from Parent(4) | - | - | - | 2,990 | (2,990 | ) | - | |||||||||||||||||
| Amount due from other subsidiaries (4) | - | - | - | 178 | (178 | ) | - | |||||||||||||||||
| Amount due from VIE and its subsidiaries(4) | 879 | 164,157 | 18,056 | - | (183,092 | ) | - | |||||||||||||||||
| Total current assets | 108,870 | 304,032 | 19,458 | 650,656 | (186,260 | ) | 896,756 | |||||||||||||||||
| Non-current assets: | ||||||||||||||||||||||||
| Restricted cash | - | - | - | 5,000 | - | 5,000 | ||||||||||||||||||
| Amount due from other subsidiaries(4) | 458,475 | - | - | - | (458,475 | ) | - | |||||||||||||||||
| Amount due from VIE and its subsidiaries(4) | 184,692 | 40,000 | - | - | (224,692 | ) | - | |||||||||||||||||
| Property, equipment and leasehold improvement, net | - | 282 | - | 2,197 | - | 2,479 | ||||||||||||||||||
| Intangible assets, net | - | - | - | 7,000 | - | 7,000 | ||||||||||||||||||
| Right-of-use assets | - | 1,716 | - | 8,305 | - | 10,021 | ||||||||||||||||||
| Goodwill | - | - | - | 84,609 | - | 84,609 | ||||||||||||||||||
| Other non-current assets | 3,908 | - | - | - | - | 3,908 | ||||||||||||||||||
| Total non-current assets | 647,075 | 41,998 | - | 107,111 | (683,167 | ) | 113,017 | |||||||||||||||||
| Total assets | 755,945 | 346,030 | 19,458 | 757,767 | (869,427 | ) | 1,009,773 | |||||||||||||||||
| LIABILITIES AND INVESTED EQUITY/SHAREHOLDERS’EQUITY | ||||||||||||||||||||||||
| Current liabilities: | ||||||||||||||||||||||||
| Accounts payable | - | 124,832 | - | 342,720 | - | 467,552 | ||||||||||||||||||
| Short-term borrowings | - | 10,000 | - | 5,000 | - | 15,000 | ||||||||||||||||||
| Contract liabilities | - | 3,271 | - | 3 | - | 3,274 | ||||||||||||||||||
| Salary and welfare benefits payable | - | 16,330 | 639 | 56,344 | - | 73,313 | ||||||||||||||||||
| Tax payable | - | 356 | - | 519 | - | 875 | ||||||||||||||||||
| Amounts due to related party | - | - | - | 58,801 | - | 58,801 | ||||||||||||||||||
| Accrued expenses and other current liabilities | 8,062 | 1,030 | - | 14,360 | - | 23,452 | ||||||||||||||||||
| Short-term lease liabilities | - | 1,367 | - | 3,363 | - | 4,730 | ||||||||||||||||||
| Warrant | 1 | - | - | - | - | 1 | ||||||||||||||||||
| Amount due to other subsidiaries(4) | - | - | - | 164,157 | (164,157 | ) | - | |||||||||||||||||
| Amount due to VIE and its subsidiaries(4) | 2,990 | 178 | - | - | (3,168 | ) | - | |||||||||||||||||
| Amount due to parent(4) | - | - | - | 879 | (879 | ) | - | |||||||||||||||||
| Amount due to WOFE(4) | - | - | - | 6,456 | (6,456 | ) | - | |||||||||||||||||
| Deficit in other subsidiaries(5) | 389,784 | - | - | - | (389,784 | ) | - | |||||||||||||||||
| Deficit in WOFE(5) | - | 119,975 | - | - | (119,975 | ) | - | |||||||||||||||||
| Deficit in VIE and its subsidiaries(5) | - | - | 138,794 | - | (138,794 | ) | - | |||||||||||||||||
| Total current liabilities | 400,837 | 277,339 | 139,433 | 652,602 | (823,213 | ) | 646,998 | |||||||||||||||||
| Non-current liabilities: | ||||||||||||||||||||||||
| Deferred tax liabilities | - | - | - | 1,750 | - | 1,750 | ||||||||||||||||||
| Long-term lease liabilities | - | - | - | 4,485 | - | 4,485 | ||||||||||||||||||
| Amount due to parent(4) | - | 458,475 | - | 184,692 | (643,167 | ) | - | |||||||||||||||||
| Amount due to other subsidiaries(4) | - | - | - | 40,000 | (40,000 | ) | - | |||||||||||||||||
| Amount due to WFOE(4) | - | - | - | 11,600 | (11,600 | ) | - | |||||||||||||||||
| Deferred revenue | - | - | - | 1,432 | - | 1,432 | ||||||||||||||||||
| Warrant | 2,921 | - | - | - | - | 2,921 | ||||||||||||||||||
| Total non-current liabilities | 2,921 | 458,475 | - | 243,959 | (694,767 | ) | 10,588 | |||||||||||||||||
| Total liabilities | 403,758 | 735,814 | 139,433 | 896,561 | (1,517,980 | ) | 657,586 | |||||||||||||||||
| Total shareholders’ equity | 352,187 | (389,784 | ) | (119,975 | ) | (138,794 | ) | 648,553 | 352,187 | |||||||||||||||
| Total liabilities, mezzanine equity and shareholders’ equity | 755,945 | 346,030 | 19,458 | 757,767 | (869,427 | ) | 1,009,773 | |||||||||||||||||
| As of December 31, 2023 | ||||||||||||||||||||||||
Parent Company | Other subsidiaries | WFOE | VIE and its subsidiaries | Eliminations | Consolidated totals | |||||||||||||||||||
| (RMB in thousands) | ||||||||||||||||||||||||
| ASSETS | ||||||||||||||||||||||||
| Current assets: | ||||||||||||||||||||||||
| Cash and cash equivalents | 119,033 | 36,769 | 1,260 | 86,330 | - | 243,392 | ||||||||||||||||||
| Short-term investments | - | 21,248 | - | 226 | - | 21,474 | ||||||||||||||||||
| Accounts receivable, net | - | 20,125 | - | 445,941 | - | 466,066 | ||||||||||||||||||
| Prepayments and other current assets | 1,118 | 6,671 | (163 | ) | 41,695 | - | 49,321 | |||||||||||||||||
| Amount due from Parent(4) | - | - | - | 2,972 | (2,972 | ) | - | |||||||||||||||||
| Amount due from WFOE(4) | - | - | - | 1,603 | (1,603 | ) | - | |||||||||||||||||
| Amount due from VIE and its subsidiaries(4) | 1,520 | 159,709 | - | - | (161,229 | ) | - | |||||||||||||||||
| Total current assets | 121,671 | 244,522 | 1,097 | 578,767 | (165,804 | ) | 780,253 | |||||||||||||||||
| Non-current assets: | ||||||||||||||||||||||||
| Restricted cash | - | - | - | 5,000 | - | 5,000 | ||||||||||||||||||
| Amount due from other subsidiaries(4) | 455,638 | - | - | - | (455,638 | ) | - | |||||||||||||||||
| Amount due from VIE and its subsidiaries(4) | 182,652 | 41,438 | 20,381 | - | (244,471 | ) | - | |||||||||||||||||
| Property, equipment and leasehold improvement, net | - | 446 | - | 1,221 | - | 1,667 | ||||||||||||||||||
| Intangible assets, net | - | - | - | 8,050 | - | 8,050 | ||||||||||||||||||
| Right-of-use assets | - | 3,182 | - | 7,067 | - | 10,249 | ||||||||||||||||||
| Goodwill | - | - | - | 84,609 | - | 84,609 | ||||||||||||||||||
| Other non-current assets | 4,149 | - | - | - | - | 4,149 | ||||||||||||||||||
| Total non-current assets | 642,439 | 45,066 | 20,381 | 105,947 | (700,109 | ) | 113,724 | |||||||||||||||||
| Total assets | 764,110 | 289,588 | 21,478 | 684,714 | (865,913 | ) | 893,977 | |||||||||||||||||
| LIABILITIES AND INVESTED | ||||||||||||||||||||||||
| EQUITY/SHAREHOLDERS’EQUITY | ||||||||||||||||||||||||
| Current liabilities: | ||||||||||||||||||||||||
| Accounts payable | - | 33,245 | 76 | 283,547 | - | 316,868 | ||||||||||||||||||
| Short-term borrowings | - | 10,000 | - | 10,000 | - | 20,000 | ||||||||||||||||||
| Contract liabilities | - | 3,669 | - | 626 | - | 4,295 | ||||||||||||||||||
| Salary and welfare benefits payable | - | 15,093 | 638 | 57,878 | - | 73,609 | ||||||||||||||||||
| Tax payable | - | 325 | 1 | 624 | - | 950 | ||||||||||||||||||
| Amounts due to related party | - | - | - | 55,251 | - | 55,251 | ||||||||||||||||||
| Accrued expenses and other current liabilities | 11,310 | 2,564 | 381 | 11,504 | - | 25,759 | ||||||||||||||||||
| Short-term lease liabilities | - | 1,647 | - | 2,304 | - | 3,951 | ||||||||||||||||||
| Warrant | 850 | - | - | - | - | 850 | ||||||||||||||||||
| Amount due to other subsidiaries(4) | - | - | - | 157,128 | (157,128 | ) | - | |||||||||||||||||
| Amount due to VIE and its subsidiaries(4) | 2,972 | 2,581 | 1,603 | - | (7,156 | ) | - | |||||||||||||||||
| Amount due to parent(4) | - | - | - | 1,520 | (1,520 | ) | - | |||||||||||||||||
| Deficit in other subsidiaries(5) | 365,377 | - | - | - | (365,377 | ) | - | |||||||||||||||||
| Deficit in WOFE(5) | - | 129,355 | - | - | (129,355 | ) | - | |||||||||||||||||
| Deficit in VIE and its subsidiaries(5) | - | - | 148,134 | - | (148,134 | ) | - | |||||||||||||||||
| Total current liabilities | 380,509 | 198,479 | 150,833 | 580,382 | (808,670 | ) | 501,533 | |||||||||||||||||
| Non-current liabilities: | ||||||||||||||||||||||||
| Deferred tax liabilities | - | - | - | 2,013 | - | 2,013 | ||||||||||||||||||
| Long-term lease liabilities | - | 848 | - | 4,550 | - | 5,398 | ||||||||||||||||||
| Amount due to parent(4) | - | 455,638 | - | 182,652 | (638,290 | ) | - | |||||||||||||||||
| Amount due to other subsidiaries(4) | - | - | - | 41,438 | (41,438 | ) | - | |||||||||||||||||
| Amount due to WFOE(4) | - | - | - | 20,381 | (20,381 | ) | - | |||||||||||||||||
| Deferred revenue | - | - | - | 1,432 | - | 1,432 | ||||||||||||||||||
| Warrant | 5,419 | - | - | - | - | 5,419 | ||||||||||||||||||
| Total non-current liabilities | 5,419 | 456,486 | - | 252,466 | (700,109 | ) | 14,262 | |||||||||||||||||
| Total liabilities | 385,928 | 654,965 | 150,833 | 832,848 | (1,508,779 | ) | 515,795 | |||||||||||||||||
| Total shareholders’ equity | 378,182 | (365,377 | ) | (129,355 | ) | (148,134 | ) | 642,866 | 378,182 | |||||||||||||||
| Total liabilities, mezzanine equity and shareholders’ equity | 764,110 | 289,588 | 21,478 | 684,714 | (865,913 | ) | 893,977 | |||||||||||||||||
Summary Condensed Consolidating Cash Flows Data
| Six months ended June 30, 2024 | ||||||||||||||||||||||||
Parent Company | other subsidiaries | WFOE | VIE and its subsidiaries | Eliminations | Consolidated totals | |||||||||||||||||||
| (RMB in thousands) | ||||||||||||||||||||||||
| Net cash provided by/received from transactions with intra-group companies(1) | - | (82,000 | ) | (7,612 | ) | 89,612 | - | - | ||||||||||||||||
| Other operating activities | (12,703 | ) | (21,484 | ) | (863 | ) | (9,625 | ) | - | (44,675 | ) | |||||||||||||
| Net cash (used in)/provided by operating activities | (12,703 | ) | (103,484 | ) | (8,475 | ) | 79,987 | - | (44,675 | ) | ||||||||||||||
| Repayment of the investments in and loans from VIE and its subsidiaries(6) | - | 71,021 | 8,400 | - | (79,421 | ) | - | |||||||||||||||||
| Purchase of property, equipment and leasehold improvement | - | (9 | ) | - | (1,433 | ) | - | (1,442 | ) | |||||||||||||||
| Loan provide to a third party | - | - | - | (10,000 | ) | - | (10,000 | ) | ||||||||||||||||
| Placement of short-term investments | (64,274 | ) | (21,380 | ) | - | - | - | (85,654 | ) | |||||||||||||||
| Proceeds from short-term investments | - | 35,634 | - | - | - | 35,634 | ||||||||||||||||||
| Net cash provided by/(used in) investing activities | (64,274 | ) | 85,266 | 8,400 | (11,433 | ) | (79,421 | ) | (61,462 | ) | ||||||||||||||
| Repayment to other subsidiaries(6) | - | - | - | (71,021 | ) | 71,021 | - | |||||||||||||||||
| Repayment to WFOE | - | - | - | (8,400 | ) | 8,400 | - | |||||||||||||||||
| Cash received from short-term borrowings from bank | - | 10,000 | - | 5,000 | - | 15,000 | ||||||||||||||||||
| Cash repayments of short-term borrowings to bank | - | (10,000 | ) | - | (10,000 | ) | - | (20,000 | ) | |||||||||||||||
| Net cash provided by/(used in) financing activities | - | - | - | (84,421 | ) | 79,421 | (5,000 | ) | ||||||||||||||||
| Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash | 701 | 160 | 1 | - | - | 862 | ||||||||||||||||||
| Net decrease in cash and cash equivalents and restricted cash | (76,276 | ) | (18,058 | ) | (74 | ) | (15,867 | ) | - | (110,275 | ) | |||||||||||||
| Cash, cash equivalents and restricted cash at the beginning of the period | 119,033 | 36,769 | 1,260 | 91,330 | - | 248,392 | ||||||||||||||||||
| Cash, cash equivalents and restricted cash at the end of the period | 42,757 | 18,711 | 1,186 | 75,463 | - | 138,117 | ||||||||||||||||||
| (1) | Represents the elimination of the intercompany licensing and other services charge at the consolidation level. In the six months ended June 30, 2024, the total amount of the service fees that charged by VIE under the relevant agreements was RMB4.7 million. In the six months ended June 30, 2024, the total amount of the service fees that the other subsidiaries paid to VIE under the relevant agreements was RMB89.6 million. |
| (2) | Represents the elimination of incurrence of losses by parent company, other subsidiaries and WFOE for their respective subsidiaries, WFOE and VIE and its subsidiaries. |
| (3) | Represents the elimination of interest income / expense from intercompany loans at the consolidation level. |
| (4) | Represents the elimination of intercompany balances among CCT, other subsidiaries, WFOE and the VIE and its subsidiaries. The balances as of June 30, 2024 were related to intercompany loans and prepayment related service charges under certain service agreements. |
| (5) | Represents the elimination of the deficit in other subsidiaries, WOFE and VIE and its subsidiaries by parent company, other subsidiaries and WFOE. |
| (6) | Represents the elimination of intra-group investments and loans related cash activities among other subsidiaries, WFOE, and the VIE and its subsidiaries. During the six months ended June 30, 2024, (i) the repayment of the investments in and loans from VIE and its subsidiaries to other subsidiaries was RMB71.0 million, and (ii) the repayment of the investments in and loans from VIE and its subsidiaries to WOFE was RMB8.4 million. |
| Six months ended June 30, 2023 | ||||||||||||||||||||||||
Parent Company | other subsidiaries | WFOE | VIE and its subsidiaries | Eliminations | Consolidated totals | |||||||||||||||||||
| (RMB in thousands) | ||||||||||||||||||||||||
| Net cash provided by/received from transactions with intra-group companies(1) | - | (40,400 | ) | 2,274 | 38,126 | - | - | |||||||||||||||||
| Other operating activities | (11,992 | ) | (15,463 | ) | (2,542 | ) | 22,406 | - | (7,591 | ) | ||||||||||||||
| Net cash (used in)/provided by operating activities | (11,992 | ) | (55,863 | ) | (268 | ) | 60,532 | - | (7,591 | ) | ||||||||||||||
| Repayment of the investments in and loans from other subsidiaries(6) | 11,128 | - | - | - | (11,128 | ) | - | |||||||||||||||||
| Repayment of the investments in and loans from VIE and its subsidiaries(6) | - | 15,000 | - | - | (15,000 | ) | - | |||||||||||||||||
| Purchase of property, equipment and leasehold improvement | - | (67 | ) | - | (104 | ) | - | (171 | ) | |||||||||||||||
| Placement of short-term investments | - | (14,452 | ) | - | - | - | (14,452 | ) | ||||||||||||||||
| Proceeds from short-term investments | - | 34,823 | - | - | - | 34,823 | ||||||||||||||||||
| Proceeds from disposal of fixed assets, intangible assets and other long-term assets | - | - | - | 4 | - | 4 | ||||||||||||||||||
| Net cash provided by/(used in) investing activities | 11,128 | 35,304 | - | (100 | ) | (26,128 | ) | 20,204 | ||||||||||||||||
| Repayment to parent company(6) | - | (11,128 | ) | - | - | 11,128 | - | |||||||||||||||||
| Repayment to other subsidiaries | - | - | - | (15,000 | ) | 15,000 | - | |||||||||||||||||
| Cash received from short-term borrowings to third parties | - | 10,000 | - | 10,000 | - | 20,000 | ||||||||||||||||||
| Net cash provided by/(used in) financing activities | - | (1,128 | ) | - | (5,000 | ) | 26,128 | 20,000 | ||||||||||||||||
| Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash | 22 | 2,372 | - | - | - | 2,394 | ||||||||||||||||||
| Net (decrease) /increase in cash and cash equivalents and restricted cash | (842 | ) | (19,315 | ) | (268 | ) | 55,432 | - | 35,007 | |||||||||||||||
| Cash, cash equivalents and restricted cash at the beginning of the period | 1,008 | 98,624 | 419 | 19,894 | - | 119,945 | ||||||||||||||||||
| Cash, cash equivalents and restricted cash at the end of the period | 166 | 79,309 | 151 | 75,326 | - | 154,952 | ||||||||||||||||||
| (1) | Represents the elimination of the intercompany licensing and other services charge at the consolidation level. In the six months ended June 30, 2023, the total amount of the service fees that charged by VIE under the relevant agreements was RMB6.3 million. In the six months ended June 30, 2023, the total amount of the service fees that the other subsidiaries paid to VIE under the relevant agreements was RMB38.1 million. |
| (2) | Represents the elimination of incurrence of losses by parent company, other subsidiaries and WFOE for their respective subsidiaries, WFOE and VIE and its subsidiaries. |
| (3) | Represents the elimination of interest income/expense from intercompany loans at the consolidation level. |
| (4) | Represents the elimination of intercompany balances among CCT, other subsidiaries, WFOE and the VIE and its subsidiaries. The balances as of December 31, 2023 were related to intercompany loans and prepayment related service charges under certain service agreements. |
| (5) | Represents the elimination of the deficit in other subsidiaries, WOFE and VIE and its subsidiaries by parent company, other subsidiaries and WFOE. |
| (6) | Represents the elimination of intra-group investments and loans related cash activities among CCT, other subsidiaries, and the VIE and its subsidiaries. During the six months ended June 30, 2023, (i) the repayment of the investments in and loans from other subsidiaries to CCT was RMB11.1 million, and (ii) the repayment of the investments in and loans from VIE and its subsidiaries to CCT was RMB15.0 million. |
Contractual Obligations
The following table sets forth our contractual obligations and commitments as of June 30, 2024.
| Payments Due by | ||||||||||||
| Total | 2024-2027 | Thereafter | ||||||||||
| (RMB in thousands) | ||||||||||||
| Operating lease commitments | 11,305 | 11,305 | - | |||||||||
| Amounts due to related party | 60,596 | 60,596 | - | |||||||||
| Total contractual obligations | 71,901 | 71,901 | - | |||||||||
Off-Balance Sheet Arrangements
We have not entered, and does not expect to enter, into any off-balance sheet arrangements. We have also not entered into any financial guarantees or other commitments to guarantee the payment obligations of third parties. In addition, we have not entered into any derivative contracts indexed to equity interests and classified as shareholders’ equity.
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 that engages in leasing, hedging or research and development services with us.
Risk Factors
This section includes material updates in certain risks relating to us since April 29, 2024, the date of the Annual Report. This section is a supplement to and should be read in conjunction with the section titled “Risk Factors” included in the Annual Report.
Misconduct or other improper activities by, or regulatory penalties imposed on, our employees, ecosystem participants and other third-party service providers could materially and adversely affect our business and reputation and hinder our securities trading or capital-raising activities, which would in turn cause the value of our securities to significantly decline or be worthless.
Our employees, ecosystem participants and other third-party service providers may engage in misconduct or other improper activities, which could subject us to financial losses or regulatory sanctions and damage our reputation. Misconduct could include unauthorized activities resulting in unknown risks or losses, improper use of confidential or private information, or fraudulent and other illegal or improper activities. It is not always possible to deter misconduct that occurs on our platform, and the precautions that we take to prevent and detect this activity may not be effective in all cases.
For example, we cooperate with referral partners to attract potential insurance purchasers to our platform. These referral partners help consumers purchase insurance policies through our platform. As a result, consumers may associate these referral partners with us and hold us accountable for their misconduct. We are also subject to the risk of fraudulent activities by consumers, who may provide us with inaccurate or misleading information or engage in other improper activities through our platform. Furthermore, our SaaS solution products offered to insurance carriers and insurance intermediaries are used in a wide variety of network environments. Such SaaS solution products may be intentionally misused or abused by customers, their employees or third parties who access or use our solution products. Misconduct or other improper activities by our employees and ecosystem participants could damage our brand and reputation, discourage ecosystem participants from using our services and require us to take additional steps to reduce improper and illegal activities on our platform, which could significantly increase our costs.
We also engage third-party service providers for certain professional services, such as audit, legal, tax, and consultancy services. If any of such third-party service providers is subject to regulatory penalties or is found in violation of any applicable rules and regulations, their ability to provide services to us could be materially and adversely affected. For example, on September 13, 2024, the Chinese regulators have imposed administrative penalties on our auditor for works unrelated to us. Such administrative penalties include a six-month suspension on certain business operations of our auditor in mainland China. We may not be able to find alternative third-party service providers on a timely basis or on terms favorable to us, to the extent necessary or desirable, which may have a material adverse effect on our operations and the trading price of our securities. In addition, if we encounter difficulties in locating or transitioning to a replacement auditor if and when it is necessary or desirable, we may be unable to comply with the SEC disclosure requirements, including those under the Securities Exchange Act of 1934 (the “Exchange Act”), in a timely manner. As a result, our ability to facilitate an orderly trading market of our securities or offer securities to investors in capital raising activities could be significantly limited or completely hindered, which would in turn cause the value of our securities to significantly decline or be worthless.
Cautionary Statement Regarding Forward-Looking Statements
This current report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this current report, including statements regarding our future financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions. Forward-looking statements include, without limitation, our expectations concerning the outlook for our business, plans and goals for future operational improvements and capital investments, operational performance, future market conditions or economic performance and developments in the capital and credit markets and expected future financial performance, as well as any information concerning our possible or assumed future results of operations as set forth in this Form 6-K.
Forward-looking statements involve a number of risks, uncertainties and assumptions, and actual results or events may differ materially from those projected or implied in those statements. Important factors that could cause such differences include, but are not limited to:
| ● | the outcome of any legal proceedings that have been or may be instituted against us; | |
| ● | the ability to maintain the listing of the Class A Ordinary Shares on the Nasdaq; | |
| ● | our markets are rapidly evolving and may decline or experience limited growth; | |
| ● | our ability to retain and expand our customer base; | |
| ● | our ability to compete effectively in the markets in which we operate; | |
| ● | our relationships with insurance carriers, referral partners and consumers; | |
| ● | failure to maintain and enhance our brand; | |
| ● | failure to prevent security breaches or unauthorized access to our or our third-party service providers’ data; | |
| ● | the rapidly changing and increasingly stringent laws, contractual obligations and industry standards relating to privacy, data protection and data security; | |
| ● | risks related to our corporate structure, in particular the VIE structure; and | |
| ● | the other matters described in the section titled “Risk Factors” of the Annual Report. |
We caution you against placing undue reliance on forward-looking statements, which reflect current beliefs and are based on information currently available to us as of the date a forward-looking statement is made. Forward-looking statements set forth herein speak only as of the date of this current report. We do not undertake any obligation to revise forward-looking statements to reflect future events, changes in circumstances, or changes in beliefs. In the event that any forward-looking statement is updated, no inference should be made that we will make additional updates with respect to that statement, related matters, or any other forward-looking statements. Any corrections or revisions and other important assumptions and factors that could cause actual results to differ materially from forward-looking statements, including discussions of significant risk factors, may appear, in our public filings with the SEC, which are accessible at www.sec.gov, and which you are advised to consult.