UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

FORM 20-F

 

 

 

(Mark One)

 

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

 

OR

 

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

 

For the fiscal year ended December 31, 2019

 

OR

 

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

 

OR

 

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

 

Date of event requiring this shell company report_______

 

For the transition period from_______to_______

 

Commission file number: 001-38737

 

 

 

TuanChe Limited

 

(Exact name of registrant as specified in its charter)

 

 

 

N/A

(Translation of Registrant’s name into English)

 

Cayman Island

(Jurisdiction of incorporation)

 

9F, Ruihai Building, No. 21 Yangfangdian Road
Haidian District Beijing 100038
The People’s Republic of China

(Address of principal executive offices)

 

Mr. Zhihai Mao, Chief Financial Officer
9F, Ruihai Building, No. 21 Yangfangdian Road
Haidian District Beijing 100038
The People’s Republic of China
Telephone: (86-10)6398-2942
E-mail: zhihai.mao@tuanche.com

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

 

 

 

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

 

Title of each class

Trading Symbol(s)

 Name of each exchange on which registered
     
American depositary shares, each representing four Class A ordinary shares, par value US$0.0001 per share Class A ordinary shares, par value US$0.0001 per share * TC Nasdaq Capital Market

 

 

* Not for trading, but only in connection with the listing on the Nasdaq Capital Market of American depositary shares

 

Securities registered or to be registered pursuant to Section 12(g) of the Act.
None
(Title of Class)

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

___________________________

 

Indicate the number of issued and outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:
Class A ordinary shares, par value US$0.0001 each 268,202,667 shares issued; 266,491,715 shares outstanding
Class B ordinary shares, par value US$0.0001 each 55,260,580 shares issued; 55,260,580 shares outstanding
   
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x
 
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    Yes  ¨    No  x
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes  x    No  ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer  ¨ Accelerated filer  ¨ Non-accelerated filer  x Emerging growth company  x
       
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards † provided pursuant to Section 13(a) of the Exchange Act.   x
 
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
 
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ¨
 
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP  x International Financial Reporting Standards as issued by the International accounting Standards Board  ¨ Other  ¨
     
If “Other” has been checked in response to the previous question indicate by check mark which financial statement item the registrant has elected to follow.   Item 17  ¨    Item 18  ¨
 
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
               

 

 

 

 

 

TABLE OF CONTENTS

 

  Page
INTRODUCTION 1
MARKET AND INDUSTRY DATA 2
PART I 3
ITEM 1.  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS 3
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE 3
ITEM 3.  KEY INFORMATION 3
ITEM 4. INFORMATION ON THE COMPANY 48
ITEM 4A.  UNRESOLVED STAFF COMMENTS 79
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS 79
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES 107
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS 117
ITEM 8. FINANCIAL INFORMATION 118
ITEM 9. THE OFFER AND LISTING 119
ITEM 10. ADDITIONAL INFORMATION 119
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 127
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES 128
PART II 130
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES 130
ITEM 14.  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS 130
ITEM 15. CONTROLS AND PROCEDURES 130
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT 132
ITEM 16B. CODE OF ETHICS 132
ITEM 16C.  PRINCIPAL ACCOUNTANT FEES AND SERVICES 132
ITEM 16D.  EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES 132
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS 132
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT 132
ITEM 16G. CORPORATE GOVERNANCE 132
ITEM 16H. MINE SAFETY DISCLOSURE 132
PART III  133
ITEM 17. FINANCIAL STATEMENTS 133
ITEM 18. FINANCIAL STATEMENTS 133
ITEM 19. EXHIBITS 133
Index to Consolidated Financial Statements F-1

 

-i-

 

 

INTRODUCTION

 

Except where the context otherwise requires and for purposes of this annual report on Form 20-F only:

 

·“ADRs” refers to the American depositary receipts which, if issued, evidence the ADSs;

 

·“ADSs” refers to American depositary shares, each of which represents four Class A ordinary shares;

 

·“auto dealer(s)” refers to both franchised dealers and secondary dealers;

 

·“CAGR” refers to compound annual growth rate;

 

·“China” or “PRC” refers to the People’s Republic of China, excluding, for the purpose of this annual report only, Taiwan and the special administrative regions of Hong Kong and Macau;

 

·“franchised dealer(s)” refers to primary dealers authorized to sell the products of a single brand of automobiles that integrate four standard automotive related businesses, including sales, spare parts, service and survey;
·“GMV” refers to gross merchandise value, reflecting the total sales dollar value for automobiles sold through our marketplace;
   
·“industry customer(s)” refers to business customers to which we offer services, including auto dealers, automakers, automobile accessory manufacturers, aftermarket service providers and other automotive related goods and service providers;

 

·“ordinary shares” or “shares” refer to our Class A and Class B ordinary shares of par value US$0.0001 per share;

 

·“RMB” or “Renminbi” refers to the legal currency of China;

 

·“SEC” refers to the United States Securities and Exchange Commission;

 

·“secondary dealer(s)” refers to car dealers that have no automobile manufacturers certification and do not have specific sales brand restrictions;

 

·“US$,” “U.S. dollars,” “$” or “dollars” refers to the legal currency of the United States of America; and

 

·“we,” “us,” “our,” “our company,” or “TuanChe” refers to TuanChe Limited, its subsidiaries and its consolidated affiliated entities.

 

Names of certain companies provided in this annual report are translated or transliterated from their original Chinese legal names.

 

Discrepancies in any table between the amounts identified as total amounts and the sum of the amounts listed therein are due to rounding.

 

This annual report on Form 20-F includes our audited consolidated financial statements for the 2017, 2018 and 2019 fiscal years.

 

 

 

 

This annual report on Form 20-F contains information from an industry report commissioned by us and prepared by iResearch, an independent research firm, to provide information regarding our industry and our market position in China. We refer to this report as the iResearch report.

 

This annual report contains translations of certain Renminbi amounts into U.S. dollars at specified rates. Unless otherwise stated, the translation of Renminbi into U.S. dollars has been made at RMB6.9618 to US$1.00, the noon buying rate in effect on December 31, 2019 as set forth in the H.10 Statistical Release of the Federal Reserve Board. We make no representation that any Renminbi or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or Renminbi, as the case may be, at any particular rate, the rates stated below, or at all. The PRC government imposes controls over its foreign currency reserves in part through direct regulation of the conversion of Renminbi into foreign exchange and through restrictions on foreign trade.

 

Our ADSs are listed on the Nasdaq Capital Market under the symbol “TC.”

 

MARKET AND INDUSTRY DATA

 

Market data and certain industry forecasts used in this annual report were obtained from internal surveys, market research, publicly available information and industry publications. Industry publications generally state that the information contained therein has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. Similarly, internal surveys, industry forecasts and market research, while believed to be reliable, have not been independently verified, and we make no representation as to the accuracy of such information.

 

-2-

 

 

PART I

 

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

 

Not applicable.

 

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

 

Not applicable.

 

ITEM 3. KEY INFORMATION

 

A.Selected Financial Data

 

We have derived the selected consolidated statement of comprehensive income data for the years ended December 31, 2017, 2018 and 2019, the selected consolidated balance sheet data as of December 31, 2018 and 2019, and the selected consolidated statements of cash flows data for the year ended December 31, 2017, 2018 and 2019 from our audited consolidated financial statements included in this annual report. The selected consolidated statement of comprehensive income data for the year ended December 31, 2016, the consolidated balance sheet data as of December 31, 2016 and 2017, and the selected consolidated statements of cash flows data for the year ended December 31, 2016 have been derived from our audited consolidated financial statements, which are not included in this annual report. Our financial statements have been prepared in accordance with U.S. GAAP.

 

You should read the following information in conjunction with our audited consolidated financial statements and related notes and “Item 5. Operating and Financial Review and Prospects” in this annual report. Our historical operating results presented below are not necessarily indicative of the results to be expected for any future fiscal period.

 

   Year Ended December 31, 
   2016   2017   2018   2019 
   RMB   RMB   RMB   RMB   US$ 
   (in thousands, except for share and per share data) 
Summary Consolidated Statements of Operations and Comprehensive Loss                         
Continuing operations                         
Net revenues   117,353    280,666    651,013    644,773    92,616 
Cost of revenues   (17,748)   (85,742)   (183,369)   (186,541)   (26,795)
Gross profit   99,605    194,924    467,644    458,232    65,821 
Total operating expenses   (180,700)   (266,665)   (535,681)   (719,269)   (103,316)
Net loss from continuing operations   (81,508)   (75,694)   (75,088)   (251,299)   (36,097)
Net loss from discontinued operations   (5,060)   (14,977)   (3,612)        
Net loss   (86,568)   (90,671)   (78,700)   (251,299)   (36,097)
Accretion to pre-IPO preferred shares redemption value   (16,905)   (20,945)   (35,066)        
Comprehensive loss attributable to the TuanChe Limited’s shareholders   (103,156)   (112,983)   (110,365)   (240,869)   (34,598)
Comprehensive loss attributable to non-controlling interest               (659)   (95)
Net loss attributable to the TuanChe Limited’s ordinary shareholders per share from continuing operations                         
Basic   (1.10)   (1.02)   (0.90)   (0.85)   (0.12)
Diluted   (1.10)   (1.02)   (0.90)   (0.85)   (0.12)
Net loss attributable to the TuanChe Limited’s ordinary shareholders per share from discontinuing operations                         
Basic   (0.06)   (0.16)   (0.03)        
Diluted   (0.06)   (0.16)   (0.03)        
Weighted average number of ordinary shares                         
Basic   89,423,362    94,870,580    121,938,427    294,922,074    294,922,074 
Diluted   89,423,362    94,870,580    121,938,427    294,922,074    294,922,074 
Non-GAAP Financial Data(1)                         
Adjusted EBITDA   (81,684)   (84,004)   7,482    (143,868)   (20,665)
Adjusted net (loss)/income   (84,268)   (87,385)   3,276    (140,331)   (20,157)

 

 

(1) See “Item 5. Operating and Financial Review and Prospects—A. Operating results—Non-GAAP Financial Measures.”

 

 -3- 

 

 

   As of December 31, 
   2016   2017   2018   2019 
   RMB   RMB   RMB   RMB   US$ 
   (in thousands) 
Summary Consolidated Balance Sheet Data                         
Cash and cash equivalents   24,785    66,695    578,558    193,920    27,855 
Restricted Cash       11,108        1,529    220 
Accounts receivable, net   4,871    8,467    52,255    72,391    10,398 
Prepayment and other current assets   14,740    16,181    68,819    193,782    27,835 
Total assets   49,375    112,835    725,925    567,195    81,473 
Total liabilities   112,982    176,797    123,935    144,220    20,716 
Total mezzanine equity   226,488    336,073             
Total shareholders’ (deficit)/equity   (290,095)   (400,035)   601,990    422,975    60,757 
Total liabilities, mezzanine equity and shareholders’ deficit/equity   49,375    112,835    725,925    567,195    81,473 

 

    For the year ended
December 31,
 
    2016     2017     2018     2019  
    RMB     RMB     RMB     RMB     US$  
    (in thousands)  
Net cash used in operating activities     (54,092 )     (59,662 )     (53,338 )     (161,806 )     (23,241 )

Net cash generated from/(used in) investing      activities

    14,969       (4,272 )     (20,746 )     (187,548 )     (26,940 )
Net cash generated from/(used in) financing activities     52,477       117,954       562,126       (37,245 )     (5,350 )
Effect of exchange rate effect on cash and cash equivalents     26       (1,002 )     12,713       3,490     501
Net increase/(decrease) in cash, cash equivalents and restricted cash     13,380       53,018       500,755       (383,109 )     (55,030 )
Cash and cash equivalents, and restricted cash at beginning of the period     11,405       24,785       77,803       578,558       83,105  
Cash and cash equivalents, and restricted cash at end of the period     24,785       77,803       578,558       195,449       28,075  

 

 -4- 

 

 

B.Capitalization and Indebtedness

 

Not applicable.

 

C.Reasons for the Offer and Use of Proceeds

 

Not applicable.

 

D.Risk Factors

 

An investment in our ADSs involves risks. You should carefully consider the risks described below, as well as the other information included or incorporated by reference in this annual report, before making an investment decision. Our business, financial condition or results of operations could be materially adversely affected by any of these risks. The market or trading price of our ADSs could decline due to any of these risks, and you may lose all or part of your investment. In addition, the risks discussed below also include forward-looking statements and our actual results may differ substantially from those discussed in these forward-looking statements. You should also review the section of this annual report captioned “Item 5. Operating and Financial Review and ProspectsG. Safe Harbor on Forward-Looking Statements.” Please note that additional risks not presently known to us, that we currently deem immaterial or that we have not anticipated may also impair our business and operations.

 

Risks Related to Our Business and Industry

 

We rely on China’s automotive industry for our net revenues and future growth, the prospects of which are subject to many uncertainties, including government regulations and policies.

 

We rely on China’s automotive industry for our net revenues and future growth. We benefited greatly from the rapid growth of China’s automotive industry in the past. However, the prospects of China’s automotive industry are subject to many uncertainties, including those relating to general economic conditions in China, the urbanization rate of China’s population and the cost of automobiles. In addition, government policies may have a considerable impact on the growth of the automotive industry in China. For example, in an effort to alleviate traffic congestion and improve air quality, a number of cities in China have issued regulations to limit the number of new passenger car license plates issued each year starting from 2010. In September 2013, the PRC government released a plan for the prevention and remediation of air pollution, which requires large cities to further restrict the number of automobiles. In October 2013, the Beijing municipal government issued an additional regulation to limit the total number of automobiles in Beijing to no more than six million by the end of 2017, compared to approximately 5.2 million automobiles in operation by the end of 2013. The annual car license plate quota in 2020 has been further reduced to 100,000, down from 150,000 in 2017. Such regulatory developments, as well as other uncertainties, may adversely affect the growth prospects of China’s automotive industry, and in turn reduce consumer demand for automobiles. If automakers, auto dealers or automotive service providers reduce their marketing expenditures as a result, our business, financial condition and results of operations could be materially and adversely affected.

 

 -5- 

 

 

Our business operations have been and may continue to be materially and adversely affected by the COVID-19 pandemic.

 

The outbreak of a novel strain of coronavirus (COVID-19) spread throughout China and to other countries globally. We, as well as our suppliers and customers, have experienced significant business disruptions due to government-mandated quarantine measures and travel restrictions to contain the spread of the pandemic. Out of public health concerns, we cancelled all offline events such as auto shows and special promotion events previously scheduled in February and March 2020, and held very few offline events in April 2020. We expect to continue to reduce the number of offline events in the coming months, as the Chinese government has issued guidelines to continue to curb indoor public gatherings. For example, on April 6, 2020, the State Council promulgated a notice pursuant to which the various shows and fairs shall be temporarily suspended due to the COVID-19 pandemic. In addition, the spread of COVID-19 may continue to cause a general slowdown of the Chinese economy in 2020 and beyond, leading to a further slump in the demand for automobiles in China. The reduction in the number of auto shows and special promotion events, combined with a sustained decline in demand in the near future, could materially and adversely affect our business, results of operations, financial condition and cash flow. Furthermore, as the business operations of our industry customers have also been severely disrupted, we have experienced a delay in collecting our accounts receivable since the COVID-19 outbreak, which could materially and adversely affect our liquidity. In response to the significant impact of the COVID-19 pandemic, we have implemented measures to adjust the pace of our business expansion and conserve resources, such as furlough arrangements and scaling back our recruitment budget and employee size. We may resort to other cost cutting measures if the outbreak of COVID-19 and its impact persist or escalate, which may result in labor disputes and have a material adverse effect on our business, results of operations and financial condition. We are closely monitoring the development of the COVID-19 pandemic and continuously evaluate its impact on our business, results of operations, financial condition and liquidity, the severity of which will depend on the duration of the pandemic and the government’s responsive measures. For the first quarter of 2020, we expect our net revenues to range from approximately RMB9.0 million to RMB10.0 million, representing a year-over-year decrease of approximately 92.7% to 91.9%, primarily due to cancellation of offline events in February and March resulting from the COVID-19 pandemic.

 

Our business is substantially dependent on our collaboration with our industry customers, including automakers, auto dealers, and automotive service providers, and our agreements with them typically do not contain long-term contractual commitments.

 

Our business is substantially dependent on our collaboration with automakers, auto dealers and automotive service providers. We generally enter into cooperation agreements with them (1) on an ad-hoc basis for a particular auto show or special promotion event or (2) for a stipulated term of up to one year, and our agreements do not impose any contractual obligations requiring them to maintain their relationships with us beyond the completion of each such event we organize or beyond the contractual term. Accordingly, there is no guarantee for future cooperation after the event and there is no assurance that we can maintain stable and long-term business relationships with any such industry customers. If a significant number of our industry customers terminate or do not renew their agreements with us and we are not able to replace these business partners on commercially reasonable terms in a timely manner or at all, our business, results of operations and financial condition would be materially and adversely affected.

  

If we fail to attract and retain automobile consumers, our business and results of operations may be materially and adversely affected.

 

In order to maintain and strengthen our leading market position and to attract industry customers, we must continue to attract and retain consumers to our auto shows and other offline events. We must also innovate and introduce services and applications that improve consumers’ purchase experience. In addition, we must maintain and enhance our brand recognition among automobile consumers. If we fail to enhance consumers’ ability to secure favorable purchase prices, offer a superior purchase experience or maintain and enhance our brand, we may not be able to attract and retain automobile consumers and thus fail to retain and attract our industry customers, from whom we derive our net revenues, and our brand and reputation may be materially and adversely affected.

 

 -6- 

 

 

If our consumer base decreases, our service offerings may be less attractive to our industry customers. As a result, our net revenues may decline, and our business, financial condition and results of operations may be materially and adversely affected.

 

We have incurred net losses in the past and may incur losses again in the future.

 

We commenced our business operations in 2010, and only began to generate significant net revenues in 2012 from our group-purchase facilitation business. Our net revenues from continuing operations were RMB280.7 million, RMB651.0 million and RMB644.8 million (US$92.6 million) in 2017, 2018 and 2019, respectively. We may fail to recapture a sustainable growth rate, which may continue to decrease in the future, especially considering the impact of the COVID-19 pandemic. We experienced net loss attributable to our shareholders of RMB111.6 million, RMB113.8 million and RMB250.6 million (US$36.0 million) in 2017, 2018 and 2019, respectively. See “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information.”

 

Our ability to achieve profitability and positive cash flow will depend in large part on our ability to execute our growth strategies and appropriately control our costs and expenses. We may continue to incur significant losses in the future for a number of reasons, including the other risks described in this annual report. We may also further encounter unforeseen expenses, difficulties, complications, delays and other unknown events. If we fail to increase our net revenues at the rate we anticipate or if our expenses increase at a faster rate than the increase in our net revenues, we may not be able to achieve profitability.

 

We may also continue to incur net losses in the future due to various factors beyond our control, such as changes in the macroeconomic and regulatory environment, as well as competitive dynamics. Our inability to respond to these changes in a timely and effective manner may materially and adversely affect our business, results of operations and financial condition.

 

We may face liquidity risks in the operation and expansion of our business.

 

We face liquidity risks in the operation of our businesses. Under our auto show business, we in some cases permit our industry customers to pay us after they attend the offline events we organize. We also in some cases pay service and venue providers in advance. As we undertake to expand our industry customer base to include more automakers, we may offer extended payment periods. Under our virtual dealership business, we purchase automobiles from automakers and franchised dealerships on behalf of secondary dealers. For details of our virtual dealership business model, see “Item 4. Information on the Company—B. Business Overview—Our Services.” We are typically required to pay the full purchase price to automakers and franchised dealerships in order to take delivery of the automobiles. By contracts, we generally require secondary dealers to pay the full purchase price within a certain number of days after submitting the written purchase request. We may allow secondary dealers to pay us for the automobiles after we pay automakers or franchised dealerships, and we may need to use our own cash to pay for the automobiles before receiving payment from secondary dealers. We sometimes provide supply-chain financial support to our secondary dealers to help them pay automakers. Generally, we provide such support on the condition that secondary dealers have already secured sale orders from consumers. We require secondary dealers to offer the automobiles as collaterals. The credit term is usually shorter than one month. If our industry customers fail to pay us within the pre-agreed payment periods, or if we are unable to collect the proceeds from secondary dealers before or shortly after we pay automakers or franchised dealerships, we may have outlay capital, which might impose a strain on our working capital. The liquidity risks could materially and adversely affect our business, results of our operations, and financial condition.

 

Historically our business focuses have evolved and may continue to change in the future, which may make it difficult to evaluate our business by comparing our results of operations from period to period, or to predict the profitability of certain of our business lines due to their limited operating history.

 

We have expanded and adjusted our business focuses multiple times in the past in order to compete in the evolving automotive industry in China. We commenced our automobile group-purchase business in 2010, and began our auto show business in the fourth quarter of 2016. In 2017, we expanded our auto shows to tier-3 and below cities. We began the operation of our virtual dealership business in the second quarter of 2018. In January 2020, we completed the acquisition of Longye, a leading developer and implementer of social CRM cloud systems for China’s automotive industry. Going forward, we may establish new business lines or discontinue existing ones as our business further develops and new business opportunities arise in the automotive industry. As a result, it is difficult to make period-over-period comparisons of our results of operations, liquidity position or financial conditions. In addition, it may be difficult to predict the profitability of our certain business lines, especially special promotion events, virtual dealership and online marketing services, due to their limited operating history. We cannot assure you that our business will continue to grow as a result of our expanded and adjusted business focuses, or that our attempts to expand or adjust our business focus will be successful.

 

 -7- 

 

 

We may not be able to successfully operate and expand our virtual dealership business and social CRM cloud services, which could materially and adversely affect our business, results of operations and financial condition.

 

In June 2018, we began to operate our virtual dealership business in which we function as a virtual dealer connecting automakers with secondary dealers by providing a suite of services traditionally undertaken by franchised dealers without setting up a permanent physical presence. In January 2020, we completed the acquisition of Longye, a leading developer and implementer of social customer relationship management (social CRM) cloud systems for China’s automotive industry. Longye’s principal software as a service (SaaS) product, Cheshangtong, provides China’s auto dealers with social CRM cloud services based on a system that facilitates the effective flow of information between auto dealers and customers. See “Item 4. Information on the Company—B. Business Overview—Our Services—Virtual Dealerships.” We may fail to successfully implement our virtual dealership business strategies and integrate Longye into our business operations due to our limited operating experience and other reasons beyond our control. For example, we may have disagreement with automakers over whether this new business model complies with the standard contracts commonly adopted by them, and we may also be unable to guarantee that our secondary dealer partners will maintain physical storefronts or otherwise perform their contractual obligations that are critical to our virtual dealership business as well as our collaborative arrangements with automakers. We cannot assure you that Cheshangtong will continue to enjoy its popularity among auto dealers. Should any resulting disputes arise or should we fail to successfully implement our virtual dealership business strategies, our business, results of operations and financial condition could be materially and adversely affected.

 

Our business is subject to risks related to the overall automotive industry ecosystem, including consumer demand, consumption habits, global supply chain challenges and other macroeconomic issues.

 

Decreasing consumer demand could adversely affect the market for automobile purchases and, as a result, adversely affect our business. Consumer purchases of new and used automobiles generally decline during recessionary periods and other periods in which disposable income is adversely affected. Purchases of new and used automobiles are typically discretionary for consumers and have been, and may continue to be, affected by negative trends in the economy, including the rising cost of energy and gasoline, the limited availability and increasing cost of credit, reductions in business and consumer confidence, stock market volatility, and increased unemployment. Further, in recent years the automotive market has experienced rapid changes in technology and consumer demands. Self-driving technology, ride sharing, transportation networks, and other fundamental changes in transportation could impact consumer demand for the purchase of automobiles. A reduction in the number of automobiles purchased by consumers could adversely affect automakers and auto dealers and lead to a reduction in their spending on our services. In addition, our business may be negatively affected by challenges to the overall automotive industry ecosystem, including global supply chain challenges and other macroeconomic issues such as uncertainty with respect to trade policies, treaties, government regulations and tariffs between China and the United States due to the recent trade tension. The occurrence of any of the foregoing could materially and adversely affect our business, results of operations, and financial condition.

 

If we fail to help facilitate the marketing and sales of our industry customers due to factors beyond our control, our operational and financial results might suffer.

 

Our industry customers are attracted to our offline events due to their marketing needs and the prospects of selling a large number of automobiles to individual consumers through the events. The marketing results and the sales volume at our offline events might fail to meet the expectation of our industry customers due to factors beyond our control, including among others, changes in the regulatory environment, a downturn or unfavorable development in the automotive industry, overall economic downturn and the resulting decrease in purchasing power and willingness of consumers, and contingencies that occur on event dates such as inclement weather or sudden public security measures which affect our ability to host the events effectively, or at all. Other factors that affect consumer attendance at our offline events may also affect sales volume, such as conflicts with other local events, road traffic control, outbreaks of contagious disease or the potential for infection, or acts of nature, such as earthquakes, storms, and typhoons. If we fail to help facilitate the marketing and sales of our industry customers, they might be less inclined to participate in our future events, which directly affects our business, results of operations, and financial condition.

 

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We may incur additional costs and decrease the number of auto shows due to severe weather conditions, which could negatively impact our gross profit margin and overall results of operations.

 

We host most of our auto shows outdoors. The table below sets forth the number of outdoor auto shows during the periods indicated:

 

   For the three months ended 
   March 31,
2018
   June 30,
2018
   September 30,
2018
   December 31,
2018
   March 31,
2019
   June 30,
2019
   September 30,
2019
   December 31,
2019
 
Number of outdoor auto shows   59    147          120        204    118    252       132       210 

 

In addition to the recent and fast-evolving COVID-19 pandemic, severe weather conditions may also cause unplanned cancellation of our outdoor auto shows and lower the level of industry customer attendance at the affected auto shows, resulting in a decrease in our net revenues. For example, in 2019, we cancelled 37 auto shows due to weather conditions. In addition, to ensure the smooth operation of these outdoor auto shows and minimize the impact of potential severe weather conditions on these outdoor auto shows, we may seek to manage such contingencies by securing backup indoor venues or setting up temporary facilities for these auto shows. These contingency management plans could lead to our outlay of additional financial resources, which could negatively impact our gross profit margin and overall results of operations.

 

Our failure to obtain necessary permits for our offline events may subject us to penalties and adversely affect our business, results of operations, and financial condition.

 

Under PRC laws and regulations, we may be required to obtain certain permits each time before we hold an offline event, including a security permit to organize large-scale mass activities and a permit for temporary occupation of urban roads, depending on the estimated number of participants and the need to temporarily occupy public roads. See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations Relating to Security Administration of Large-scale Mass Activities and Temporary Urban Road Occupation.” Although we have endeavored and will continue to endeavor to obtain all necessary permits according to our estimate of the condition of each specific event, we cannot assure you that we have been or will continue to be in full compliance with the licensing requirements for all the offline events we have held or will hold because the regulatory practices with respect to an offline event vary among different regions and the local authorities retain broad discretion in enforcing the licensing requirements. In addition, the licensing requirements in China are constantly evolving, and we may be subject to more stringent regulatory requirements due to political or economic changes in the future. We cannot assure you that we will be able to satisfy such regulatory requirements and as a result we may be unable to obtain the necessary permits for each of our offline events in a timely manner in the future. If relevant PRC government authorities determine that we are operating our offline events without proper licenses or permits or impose additional restrictions on the operation of any of our offline events, we might be subject to administrative penalties, such as fines, confiscation of income, additional restrictions and forced discontinuation of our offline events, which may materially and adversely affect our business, results of operations, and financial condition.

 

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Relevant government authorities may suspend our offline events due to various reasons beyond our control.

 

Even if we have obtained all prerequisite permits, government authorities may unexpectedly suspend our scheduled offline events due to a variety of reasons beyond our control. For example, two weeks prior to an auto show in April 2018 in Beijing National Stadium, the local public security authority abruptly demanded that we suspend our auto show for one morning, even though we had already obtained the required approvals. Under such circumstances, we usually negotiate with our industry customers to reschedule the auto show. In addition, the local police security authorities may prevent consumers from entering our auto shows and impose administrative penalties on us if the visitor flow exceeds the prescribed limit. Such abrupt suspensions, re-scheduling and restrictions might adversely affect the sales volumes of our industry customers, which in turn could discourage them from participating in our future events and materially and adversely affect our business, results of operations, and financial condition.

 

Successful strategic relationships with third-party cooperative partners are important for our future success.

 

We have established strategic relationships with third-party business partners from a variety of industries. For example, we have established strategic business relationships with insurance companies that offer automotive insurance products during our offline events, which we believe will enhance consumers’ end-to-end shopping experience. We have also entered into strategic partnerships with Tmall Auto, the automotive arm of Alibaba Group’s Tmall, through which we expect to further explore additional growth opportunities along China’s automotive transaction value chain, and Beijing Easyhome Furnishing Chain Group Co., Ltd. (“Easyhome”), a company that operates one of the largest home improvement supplies and furniture chains in China, through which we expect to jointly establish an innovative one-stop retail experience that combines home decoration products and automotive services to serve a broader range of consumers in China. Also, we operate some of our auto shows in cooperation with one of the leading e-commerce platforms in China, which we believe will increase the influence of our auto shows. We anticipate that we will continue to leverage our strategic relationships with existing third-party business partners and potentially establish new relationships with more partners in order to grow our business. However, we may have disagreements or disputes with such third-party business partners, or our interests may not be aligned with theirs, which could cause disruptions to or terminations of such business collaboration and adversely affect our reputation, results of operations, and financial condition.

 

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We face various forms of competition, and if we fail to compete effectively, we may lose market shares and our business, prospects, and results of operations may be materially and adversely affected.

 

Our offline events face competition from alternative auto show organizers and other marketing service providers, while our virtual dealership business competes with franchised dealerships. As we expand our business operations and service offerings, we expect to encounter more competitors from more industries and markets as well as different forms of competition. For example, our virtual dealership business may face competition from other forms of automobile sales models. Some of these competitors or potential competitors may have longer operating histories and may have better resources than us in terms of funding, management, technology and sales and marketing. Our competitors may be acquired and consolidated by owners who are able to further invest significant resources into our operating field. If we are unable to compete effectively and at a reasonable cost against our existing and future competitors, our business, prospects, and results of operations could be materially and adversely affected.

 

If we are unable to manage our growth or execute our strategies effectively, our business and prospects may be materially and adversely affected.

 

We have experienced rapid growth in our auto shows and other offline events nationwide. Our net revenues increased significantly from RMB280.7 million in 2017, to RMB651.0 million in 2018, and remained stable at RMB644.8 million (US$92.6 million) in 2019. However, we may not be able to sustain this level of growth in the future due to a number of factors, including, among others, our ability to retain and expand our industry customer base, maintain customer satisfaction, compete effectively within the automotive industry, integrate, develop, motivate and manage an increasing number of employees, control our expenses and acquire the resources for our future growth as well as macroeconomic factors that are beyond our control. If our operational capabilities fall behind, the quality of our services and efficiency of our operations could suffer, which could harm our brand, results of operations and our overall business.

 

In addition, our anticipated development and expansion plans will place a significant strain on our management, systems and resources. Our development and expansion strategies of virtual dealership business will require substantial managerial efforts and skills and incurrence of additional expenditures and may subject us to new or increased risks. Moreover, our expansion strategies may incur higher costs than the net revenues generated. Our failure to efficiently or effectively implement our growth strategies or manage the growth of our operations may limit our future growth and hamper our business strategies.

 

Our business depends heavily on our reputation and consumer perception of our brand, and any negative publicity or other harm to our brand or failure to maintain and enhance our brand recognition may materially and adversely affect our financial condition and results of operations.

 

We believe that our reputation and consumer perception of our brand “TuanChe” are critical to our financial condition and results of operations. Maintaining and enhancing our reputation and brand recognition depends primarily on the quality and consistency of our services, as well as the success of our marketing and promotional efforts. While we have devoted significant resources to brand promotion efforts in recent years, our ongoing marketing efforts may not be successful in further promoting our brand. In addition, there may be from time to time negative publicity about our company, our business, our management or our services. For example, if auto dealers breach their contracts with automobile consumers concluded during the auto show and raise the purchase price, we may be found at fault by consumers and our reputation may be materially and adversely affected. We may be subject to litigation as well as government or regulatory investigation as a result of such negative publicity, which might require us to spend significant time and resources to resolve.

 

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Our failure to satisfactorily handle complaints from industry customers and consumers could also harm our reputation and discourage them from attending our future offline events or working with us in our virtual dealership business. For example, they may complain about the cancellation or rescheduling of our auto shows. While we have been improving and will continue to improve our customer service capabilities, we cannot assure you that our employees will satisfactorily resolve all complaints from industry customers or consumers. If we fail to resolve a particular complaint from industry customers or consumers, whether or not such resolutions are within our control, our perceived reputation and the confidence these industry customers and consumers place in us may diminish, which could materially and adversely affect our business, financial condition and results of operations.

 

Acquisitions, strategic alliances and investments could prove difficult to integrate, disrupt our business and lower our results of operations and the value of your investment.

 

As part of our business strategy, we regularly evaluate investments in, or acquisitions of, complementary businesses, joint ventures, services and technologies. For example, in January 2020, we completed the acquisition of Longye, a leading system developer and implementer of social CRM systems. We expect that periodically we will continue to make such investments and acquisitions in the future. Acquisitions, strategic alliances and investments involve numerous risks, including:

 

·the potential failure to achieve the expected benefits and synergies of the combination or acquisition;
   
·difficulties in, and the cost of, integrating operations, technologies, services and personnel;
   
·lack of knowledge and experience in the new business;
   
·inability to obtain funding for the investments;
   
·potential write-offs of acquired assets or investments; and
   
·downward effect on our results of operations.

 

In addition, if we finance acquisitions by issuing equity or convertible debt securities, our existing shareholders may be diluted, which could affect the market price of the ADSs. Further, if we fail to properly evaluate and execute acquisitions or investments, our business and prospects may be seriously harmed and the value of your investment may decline.

 

Furthermore, we may fail to identify or secure suitable acquisition and business partnership opportunities or our competitors may capitalize on such opportunities before we do, which could impair our ability to compete with our competitors and adversely affect our growth prospects and results of operations.

 

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Any financial or economic crisis, or perceived threat of such a crisis, including a significant decrease in consumer confidence, may materially and adversely affect our business, financial condition and results of operations.

 

Any actual or perceived threat of a financial crisis in China, in particular a credit and banking crisis, could have an indirect, but material and adverse, impact on our business and results of operations. Economic conditions in China are sensitive to global economic conditions, as well as changes in domestic economic and political policies and the expected or perceived overall economic growth rate in China.

 

Furthermore, any slowdown in China’s economic development might lead to tighter credit markets, increased market volatility, sudden declines in business and consumer confidence and dramatic changes in business and consumer behaviors. For example, we expect that the recent and fast-evolving COVID-19 pandemic is expected to lead to drastic reduction in domestic consumption as consumers are strongly discouraged from leaving their homes and gathering in public. In response to their perceived uncertainty in economic conditions, consumers might delay, reduce or cancel purchases of automobiles, which to some extent are considered as luxury items by many people in China, and as a result, our industry customers may also defer, reduce or cancel purchasing our services. In addition, although the government-mandated quarantine measures against the COVID-19 pandemic are being gradually lifted in China, it takes time to fully resume normal economic activities in China, including production, transportation and sales of automobiles. The continued spread of the COVID-19 pandemic throughout the world also materially and adversely affect the supply chain of China’s automobile industry, as well as the business, results of operations, financial condition and liquidity of major market players in this industry, including automakers and auto dealers, from whom we generate a substantial portion of our net revenues. To the extent any fluctuations in the Chinese economy significantly affect the demand from automakers or auto dealers for our services or change the spending habits of automobile consumers, our business, results of operations, and financial condition may be materially and adversely affected. See “—Our business operations have been and may continue to be materially and adversely affected by the COVID-19 pandemic.”

 

In addition, the economic downturn may reduce the number of automakers and auto dealers in China resulting in the decrease of the demand for our services. Since the early 1990s, many non-automotive enterprises joined China’s automotive industry and began to offer new lines of automobiles. An increasing number of foreign brands gradually entered the PRC market primarily by forming joint ventures with Chinese brands. Growing automobile production capacity and production volume have significantly increased the number of auto dealers. By contrast, negative economic trends could lead to market consolidation of automakers and auto dealers, which in effect will reduce our customer base and, in turn, reduce the demand for our services. As a result, our ability to generate net revenues, as well as our business, results of operations and financial condition, will be materially and adversely affected.

 

We may not be able to successfully expand our operations into certain additional geographical markets in China.

 

We organized auto shows in 233 cities across China in 2019, and we had sales representatives located in 148 cities as of December 31, 2019. We plan to expand our operations to more cities and counties in China. Geographic expansion is particularly important for us to acquire more industry customers, whose operations are usually localized and spread out in the regions they serve. Nonetheless, expansion into new geographical markets imposes additional burdens on our sales, marketing and general managerial resources. As China is a large and diverse market, business practices and demands may vary significantly by region and our experience in the markets in which we currently operate may not be applicable in other parts of China. As a result, we may not be able to leverage our experience when entering into new markets in China. If we are unable to manage our expansion efforts effectively, if our expansion efforts take longer than planned or if our costs for these efforts exceed our expectations, our business, results of operations, and financial condition may be materially and adversely affected.

  

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We may be subject to administrative penalties if we fail to register our premises as branches.

 

Under the PRC laws and regulations, a company is required to register a branch, whether in the form of a branch office or a subsidiary under the PRC laws, at each of the premises where it conducts business outside its registered domicile. As of the date of this annual report, we have registered certain regional offices, including those in Shenzhen, Hangzhou, Xi’an, Harbin, and Hefei, as our branches, and we have not yet received any inquiry or investigation from any PRC government authority regarding the absence of any registration. However, we cannot assure you that we will set up all necessary branches in a timely manner due to complex procedural requirements and the relocation of branch offices from time to time, if the PRC regulatory authorities determine that we have failed to complete registration in a timely manner as required by the applicable laws and regulations, we may be subject to penalties, including fines, confiscation of income and suspension of operation, which may adversely affect our business, results of operations, and financial condition.

 

Our cooperation with a commercial bank might be deemed as operating financing guarantee business in violation of relevant financing guarantee regulations in China.

 

In October 2019, we commenced our referral services in collaboration with a commercial bank, where we facilitate the bank in expanding its cooperation with our industry customers to grow its auto loan business. With respect to our cooperation with the commercial bank, we are required to provide certain ancillary services, including compensating the bank for the principal and interest repayment of such auto loan upon certain specified events of default by vehicle buyers, including without limitation, the failure to timely complete the vehicle mortgage by the buyers, the overdue repayment of loan before the completion of the vehicle mortgage, or the repayment of the first three installment of loan becoming overdue for more than thirty days. Such cooperation might be deemed as operating financing guarantee business without proper qualification under the Regulations on the Supervision and Administration of Financing Guarantee Companies, or the Financing Guarantee Regulations, which were promulgated by State Council on August 2, 2017 and became effective on October 1, 2017, and the Supplementary Provisions on the Supervision and Administration of Financing Guarantee Companies, or the Financing Guarantee Supplementary Provisions, which were promulgated by CBIRC and other eight PRC regulatory agencies and became effective on October 9, 2019.

 

Pursuant to these Financing Guarantee Regulations, “financing guarantee” refers to the activities in which guarantors provide guarantee to the guaranteed parties as to the debt financing (including but not limited to the extension of loans or issuance of bonds), and “financing guarantee companies” refer to companies legally established and operating financing guarantee business. According to the Financing Guarantee Regulations, the establishment of financing guarantee companies shall be subject to the approval by the competent government authorities, and, unless otherwise stipulated by the state, no entity may operate financing guarantee business without such approval. If any entity violates these regulations and operates financing guarantee business without approval, the entity may be subject to various penalties, including but not limited to suspension of operation, confiscation of illegal gains, fines of up to RMB1,000,000 and criminal liabilities.

 

In addition to the Financing Guarantee Regulations, the Financing Guarantee Supplementary Provisions further clarifies that institutions providing services such as client recommendation and credit assessment to various institutional funding partners shall not render any financing guarantee services, directly or in disguised form, without the necessary approval. Otherwise, the penalties set forth in the Financing Guarantee Regulations may be imposed by the regulatory authorities, and the existing business shall be properly settled. In case an institution intends to continue the financing guarantee business, certain financing guarantee companies shall be established in accordance with the Financing Guarantee Regulations.

 

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As of the date of this annual report, we have not been subject to any fine or other penalties with regard to our cooperation with the commercial bank. However, due to a lack of further interpretations, the exact definition and scope of “operating financing guarantee business” under the Financing Guarantee Regulations or “providing financing guarantee services in disguised form” under the Financing Guarantee Supplementary Provisions remain unclear. It is uncertain whether we would be deemed to have operated financing guarantee business or provided financing guarantee services in disguised form because of our current arrangements with the commercial bank. Nevertheless, we have been proactively taking necessary measures to fully comply with the foregoing laws and regulations on financing guarantee business. For example, since April 2020, we have been communicating with the commercial bank to adjust our current business arrangement. Meanwhile, we may introduce third-party financing guarantee companies with a necessary approval to provide guarantee for the commercial bank, or obtain the necessary approval to operate a financing guarantee business ourselves. However, it is uncertain whether the adjusted cooperation model would be accepted by the commercial bank and/or third-party financing guarantee companies at reasonable commercial terms. Further, due to the lack of interpretation and implementation rules and the rapidly evolving regulatory environment of the financing guarantee business, even if we implement such measures, we cannot assure you that the adjusted business model will be in full compliance with existing and future laws and regulations, nor can we assure you that we would not be required to make further changes to our business in the future. In addition, it is also possible that we could not successfully obtain the approval to operate the financing guarantee business. To the extent any of the foregoing were to occur, our business, results of operations and financial condition could be adversely affected.

 

Material weaknesses in our internal control over financial reporting have been identified, and if we fail to implement and maintain effective internal control over financial reporting, we may be unable to accurately report our results of operations, meet our reporting obligations or prevent fraud.

 

We are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and the rules and regulations of the Nasdaq Capital Market. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. Commencing with our fiscal year ended December 31, 2019, we must perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting in our Form 20-F filing for that year, as required by Section 404 of the Sarbanes-Oxley Act.

 

Our management has concluded that, as of December 31, 2019, our existing disclosure controls and procedures and internal control over financial reporting were ineffective, due to two material weaknesses. In accordance with U.S. GAAP and financial reporting requirements set forth by the SEC, a “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our company’s annual or interim consolidated financial statements will not be prevented or detected on a timely basis. The material weaknesses, which were first identified in the course of preparing our consolidated financial statements for the years ended December 31, 2016 and 2017, relate to (1) our lack of sufficient financial reporting and accounting personnel, especially those with U.S. GAAP knowledge, and (2) lack of formal financial closing policies and effective control over periodic financial closing procedures which resulted into management’s late adjustments at period ends.

 

To remedy the first material weakness, we have begun to, and will continue to, (1) hire additional finance and accounting staff with qualifications and work experiences in U.S. GAAP and SEC reporting requirements to formalize and strengthen the key internal control over financial reporting, (2) allocate sufficient resources to prepare and review consolidated financial statements and related disclosures in accordance with U.S. GAAP and SEC reporting requirements, and (3) hire qualified consultant to assess Sarbanes-Oxley Act compliance readiness, to assess where we can improve our overall internal control over financial reporting function, and to assist us in implementing improvements where necessary. To remedy the second material weakness, we have begun to, and will continue to, expedite and streamline our financial reporting processes and develop our compliance processes. These processes include (1) the establishment of a comprehensive policy and procedure manual in order to allow early detection, prevention and resolution of potential compliance issues, (2) the establishment of clear roles and responsibilities for accounting and financial reporting staff to address accounting and financial reporting issues, and (3) hiring additional experienced personnel to implement comprehensive financial period-end closing policies and procedures, especially those related to period end cut-offs, reclassification, tax related adjustments and valuation allowance. However, such measures have not been fully implemented and we concluded that the material weakness in our internal control over financial reporting had not been remediated as of December 31, 2019.

 

Once we cease to be an “emerging growth company” as such term is defined in the JOBS Act, our independent registered public accounting firm must attest to and report on the effectiveness of our internal control over financial reporting. In the future, our management may conclude that our internal control over financial reporting remains ineffective. Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm, after conducting its own independent testing, may issue a report that is qualified if it is not satisfied with our internal controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. In addition, our reporting obligations may place a significant strain on our management, operational and financial resources and systems for the foreseeable future. We may be unable to timely complete our evaluation testing and any required remediation.

 

Our internal control over financial reporting will not prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. In light of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected.

 

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During the course of documenting and testing our internal control procedures, in order to satisfy the requirements of Section 404, we may identify other weaknesses and deficiencies in our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control over financial reporting, as these standards are modified, supplemented or amended from time to time, we may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404. Generally, if we fail to achieve and maintain an effective internal control environment, we could suffer material misstatements in our financial statements and fail to meet our reporting obligations, which would likely cause investors to lose confidence in our reported financial information. This could in turn limit our access to capital markets, harm our results of operations, and lead to a decline in the trading price of the ADSs. Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the stock exchange on which we list, regulatory investigations and civil or criminal sanctions. We may also be required to restate our financial statements from prior periods.

 

Our failure or alleged failure to comply with China’s anti-corruption laws or the U.S. Foreign Corrupt Practices Act could result in penalties, which could harm our reputation and have an adverse effect on our business, results of operations, and financial condition.

 

We are subject to PRC laws and regulations related to anti-corruption, which prohibit bribery to government agencies, state or government owned or controlled enterprises or entities, to government officials or officials that work for state or government owned enterprises or entities, as well as bribery to non-government entities or individuals. We are also subject to the U.S. Foreign Corrupt Practices Act, or the FCPA, which generally prohibits companies and any individuals or entities acting on their behalf from offering or making improper payments or providing benefits to foreign officials for the purpose of obtaining or keeping business, along with various other anti-corruption laws. Our existing policies prohibit any such conduct and we are in the process of implementing additional policies and procedures, and providing training, to ensure that we, our employees and other third parties comply with PRC anti-corruption laws and regulations, the FCPA and other anti-corruption laws to which we are subject. There is, however, no assurance that such policies or procedures will work effectively all the time or protect us against liability under the FCPA or other anti-corruption laws. There is no assurance that our employees and other third parties would always comply with our policies and procedures. Further, there is uncertainty in connection with the implementation of PRC anti-corruption laws. We could be held liable for actions taken by our employees and other third parties with respect to our business or any businesses that we may acquire. As of the date of this annual report, significantly all our operations are in the PRC. If we are found not to be in compliance with PRC anti-corruption laws, the FCPA and other applicable anti-corruption laws, we may be subject to criminal, administrative, and civil penalties and other remedial measures, which could have an adverse impact on our business, results of operations and financial condition. Any investigation of any potential violations of the FCPA or other anti-corruption laws by U.S. or foreign authorities, including Chinese authorities, could adversely impact our reputation, cause us to lose customer relationships, subject us to administrative penalties or sanctions, and lead to other adverse impacts on our business, results of operations, and financial condition.

 

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If we lose the services of any of our key executive officers, senior management, or other key employees, or are unable to retain, recruit and hire sufficiently qualified staff, our ability to effectively manage and execute our operations and meet our strategic objectives could be harmed.

 

Our future success depends on the continued service of our key executive officers, senior management, and other key employees. We benefit from the leadership of a strong management team with proven vision, rich professional work experience and extensive knowledge of China’s automotive industry. We also rely on a number of key staff for the development and operation of our business. In addition, we will need to continue attracting and retaining skilled and experienced staff for our businesses to maintain our competitiveness.

 

If one or more of our key personnel are unable or unwilling to continue in their present positions, we may not be able to replace them easily or at all and may incur additional expenses to recruit and train new personnel. In addition, if any of our executive officers, senior management, or key employees joins a competitor or forms a competing company, we may be disadvantaged in the competition and risk losing our know-how, trade secrets, suppliers and customers. Substantially all of our employees, including each of our executive officers, senior management, and key employees, have entered into employment agreements with us, which contain customary non-compete provisions. Although non-compete provisions are generally enforceable under PRC laws, PRC legal practice regarding the enforceability of such provisions is not as well-developed as in countries such as the United States. Therefore, if we lose the services of any of our key executive officers, senior management, or other key employees, or are unable to retain, recruit and hire experienced staff, our ability to effectively manage and execute our operations and meet our strategic objectives could be harmed.

 

We rely upon certain advertising service providers, and any significant change in our relationship with these suppliers could have a material adverse effect on our business, results of operations, and financial condition if we cannot find suitable replacements.

 

Historically we relied upon certain advertising service providers to advertise our service offerings. Our two largest advertising service providers accounted for approximately 43% and 55% of our total advertising expenses in 2018 and 2019, respectively. Our agreements with them typically do not contain long-term contractual commitments. We cannot assure you that we will be able to maintain business relationships with these existing advertising suppliers. In the event that the existing major advertising service providers terminate or refuse to renew their agreements with us, and we are unable to find new providers with similar or more favorable terms within a reasonable period of time or at all, our business, results of operations, and financial condition may be materially and adversely affected.

 

If we fail to protect our intellectual property rights, our brand and business performance may suffer.

 

We rely on a combination of trademark, patent, copyright and trade secret protection laws in China and other jurisdictions, as well as through confidentiality agreements and other measures, to protect our intellectual property rights. Our major brand names and logos are registered trademarks in China. Most of our professionally produced contents available on our websites are protected by copyright laws. Despite our precautions, third parties may obtain and use our intellectual property without our authorization. Historically, the Chinese legal system and courts have not protected intellectual property rights to the same extent as the U.S. legal system and courts, and companies operating in China continue to face an increased risk of intellectual property infringement. Furthermore, the validity, application, enforceability and scope of protection of intellectual property rights for many internet-related activities, such as internet commercial methods patents, are uncertain and still evolving in China and abroad, which may make it more difficult for us to protect our intellectual property. From time to time, other websites may use our articles, photographs or other content without our proper authorization. Although such use has not in the past caused any material damage to our business, it is possible that there may be misappropriation on a much larger scale with a material adverse impact to our brand, business, and results of operations.

 

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Third parties may claim that we infringe their proprietary intellectual property rights, which could cause us to incur significant legal expenses and prevent us from promoting our services.

 

Internet, technology and media companies are frequently involved in litigation based on allegations of infringement of intellectual property rights, unfair competition, invasion of privacy, defamation and other violation of other parties’ rights. We have not experienced any material claims on these issues against us in the past, but as we face increasing competition and as litigation becomes more common in China in resolving commercial disputes, we face a higher risk of being the subject of intellectual property infringement claims. We may be subject to legal proceedings and claims from time to time relating to the intellectual property of others in the ordinary course of our business. We could also be subject to claims based upon the content that is displayed on our websites or accessible from our websites through links to other websites or information on our websites supplied by third parties. Intellectual property claims and litigation are expensive and time-consuming to investigate and defend and may divert resources and management attention from the operation of our websites. Such claims, even if they do not result in liability, may harm our reputation. Any resulting liability or expenses, or changes required to our websites to reduce the risk of future liability, may have a material adverse effect on our business, financial condition, and results of operations.

 

We may be subject to liability for placing advertisements with inappropriate or misleading content.

 

PRC laws and regulations prohibit advertising companies from producing, distributing or publishing any advertisement with content that violates PRC laws and regulations, impairs the national dignity of China, involves designs of the national flag, the national emblem or the national anthem, is considered reactionary, obscene, superstitious or absurd, is fraudulent, or disparages similar products. As we provide advertising services to our industry customers, we are obligated to review supporting documents provided by advertisers, verify the content of the advertisements and are prohibited from publishing any advertisement inconsistent with or with the lack of supporting documents. In addition, in case we are advertisers, we are required by PRC laws and regulations to ensure that the content of our advertisements is true and in full compliance with applicable laws and regulations. While we have made significant efforts to comply with such verification requirements before publishing, we cannot assure you that all the content contained in the advertisements is true and accurate as required by the advertising laws and regulations, especially given the uncertainty in the interpretation of these PRC laws and regulations. If we are found to be in violation of applicable PRC advertising laws and regulations, we may be subject to penalties, including fines, confiscation of our advertising income, orders to cease dissemination of the advertisements, orders to publish an announcement correcting the misleading information, and suspension or termination of our advertising business, any of which may have a material and adverse effect on our business and results of operations. See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations Relating to Advertisements.”

 

The performance and reliability of the internet infrastructure and wireless and landline telecommunications networks in China will affect our operations and growth, including our ability to accommodate prospective customers in the future.

 

With our principal executive offices located in China, we conduct central management of consumer data, provide data transmission and communications, and monitor our overall operations, relying on wireless and landline telecommunications networks in China. The national networks in China are connected to the internet through international gateways controlled by the PRC government, which are the only channels through which a domestic user can connect to the internet. These international gateways may not support the demand necessary for the continued growth in internet traffic by users in China. We cannot assure you that the development of China’s information infrastructure will be adequate to support our operations and growth. In addition, in the event of any infrastructure disruption or failure, we would have no access to alternative networks and services on a timely basis, if at all, which could have a material adverse effect on our business, results of operations, and prospects.

 

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Unintended leakage of consumer information or privacy breaches may materially and adversely affect our reputation and business performance.

 

As we conduct our business, we collect and store a large amount of automobile consumer data gathered from our offline events. We rely on encryption and authentication technology to provide the security and authentication necessary for secure transmission of such data. However, our security control may not prevent the improper leakage of consumer data. Anyone may circumvent our security measures and misappropriate proprietary information or cause interruptions in our operations. A security breach that leads to leakage of our consumer data could still harm our reputation. Moreover, many jurisdictions have passed laws regulating the storage, sharing, use, disclosure and protection of personally identifiable or other confidential information and data. The Chinese government has enacted a series of laws and regulations relating to the protection of privacy and personal information, under which internet service providers and other network operators are required to clearly indicate the purposes, methods and scope of any information collection and usage, obtain appropriate user consent and establish user information protection systems with appropriate remedial measures. See “Item 4. Information on the Company—B. Business Overview—Regulations—Regulations Relating to Internet Information Security and Privacy Protection.” However, the regulatory framework for privacy protection in China and other jurisdictions is fast-evolving, and therefore, involves uncertainties and is subject to change in the foreseeable future. We cannot assure you that our existing privacy and personal information protection measures will be considered sufficient under the current or future applicable laws and regulations. In addition to laws, regulations and other applicable rules, industry associations or other private parties may adopt different privacy protection standards. Because the interpretation and application of privacy and data protection laws and privacy protection standards is still uncertain, it is possible that these laws or privacy standards may be interpreted and applied in a manner inconsistent with our practices. Our actual or perceived failure to comply with industry standards, governmental regulation and other legal obligations related to user privacy could harm our business. We may be required to expend significant capital and other resources to prevent such security breaches or alleviate problems caused by such breaches. Any of the circumstances may materially and adversely affect our business and results of operations.

 

Failure to obtain, renew, or retain licenses, permits or approvals or failure to comply with applicable laws and regulations may affect our ability to conduct our business.

 

We have obtained all material licenses, permits or approvals from the PRC regulatory authorities for our current operations, except that we may need to obtain certain permits each time before we hold an offline event. See “—Our failure to obtain necessary permits for our offline events may subject us to penalties and adversely affect our business, results of operations, and financial condition.” However, the licensing requirements in China are constantly evolving, and we may be subject to more stringent regulatory requirements due to changes in the political or economic policies in the relevant jurisdictions. We cannot assure you that we will be able to satisfy such regulatory requirements and as a result we may be unable to retain, obtain or renew relevant licenses, permits or approvals in the future. If we fail to do so, we may be subject to administrative penalties or sanctions, which may materially and adversely affect our business, financial condition, and results of operations. For example, TuanChe Internet has obtained certain value-added telecommunications service license for the operation of internet content service from the Beijing Administration of Telecommunications which will remain valid until September 2023, Drive New Media has obtained certain value-added telecommunications service license for the operation of internet content service from the Guangdong Administration of Telecommunications which will remain valid until June 2024, and TuanChe (Beijing) Automobile Sales & Service Co., Ltd., a subsidiary of TuanChe Internet, has obtained certain value-added telecommunications service license for the operation of internet content service from the Beijing Administration of Telecommunications which will remain valid until January 2021. However, as we provide mobile applications to mobile device users, it is uncertain if we will be required to obtain a separate operating license for our mobile applications in addition to the value-added telecommunications service licenses, although we believe that not obtaining such separate license is in line with the current market practice.

 

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We may need additional capital, and we may be unable to obtain such capital in a timely manner or on acceptable terms, or at all.

 

We may require additional capital from time to time to grow our business, including to better serve our customers, develop new features or enhance our marketplace, improve our operating and technology infrastructure or conduct acquisition of complementary businesses and technologies. Accordingly, we may need to sell additional equity or debt securities or obtain a credit facility. Future issuances of equity or equity-linked securities could significantly dilute our existing shareholders, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our ordinary shares. The incurrence of debt financing would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations or our ability to pay dividends to our shareholders.

 

Our ability to obtain additional capital is subject to a variety of uncertainties, including:

 

·our market position and competitiveness in the automotive industry;
   
·our future profitability, overall financial condition, results of operations and cash flows;
   
·general market conditions for capital raising activities in China and globally; and
   
·economic, political and other conditions in China and globally.
   

We may be unable to obtain additional capital in a timely manner or on acceptable terms or at all, and our financing may also be subject to regulatory requirements. If we are unable to obtain adequate financing on terms satisfactory to us when we require it in the future, our ability to continue to support our business growth could be significantly impaired, and our business and prospects could be adversely affected.

 

Failure to renew or retain any preferential tax treatments that are available in China could adversely affect our results of operations and financial condition.

 

The modified Enterprise Income Tax Law, effective on December 29, 2018 and its implementation rules and regulations generally impose a uniform income tax rate of 25% on all enterprises, but grant preferential treatments, including a preferential enterprise tax rate of 15%, to high and new technology enterprises (“HNTEs”) strongly supported by the state. Such preferential tax rate is subject to reapplication and renewal every three years. During the three-year period, an HNTE must conduct annual qualification self-reviews, and will lose the 15% preferential rate and be subject to the regular 25% rate for any year in which it does not meet relevant criteria. TuanYuan, TuanChe Internet and Drive New Media have been accredited as HNTEs and are eligible for a preferential enterprise tax rate of 15% for as long as they meet the criteria of HNTE in each year of the accredited period. We cannot assure you that our affiliated entities will continue to meet the relevant criteria, and that the tax authorities will continue to approve the preferential tax rate of 15% even if these entities are accredited as HNTE. Moreover, it is uncertain how the modified Enterprise Income Tax Law and its implementing rules and regulations will be interpreted or implemented in the future. It is possible that the HNTE status currently enjoyed by TuanYuan, TuanChe Internet and Drive New Media, and other income tax exemptions for which our affiliated entities qualify, will be challenged by tax authorities and be repealed. Future implementing rules and regulations might be inconsistent with current interpretations of the modified Enterprise Income Tax.

 

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Seasonality may cause fluctuations in our results of operations.

 

Our quarterly net revenues and other results of operations have fluctuated in the past and may continue to fluctuate depending upon a number of factors, many of which are beyond our control. For these reasons, comparing our results of operations on a period-to-period basis may not be meaningful, and you should not rely on our past results as an indication of our future performance. For example, consumer purchases typically slow down in the first quarter, and then increase through the next three quarters of each year. Therefore, the demand for booth spaces in our auto shows is generally the lowest in the first quarter of each year, primarily due to a general slowdown in business activities and a reduced number of working days during the Chinese New Year holiday period. The timing of such releases, however, is subject to uncertainties due to various factors such as automakers’ design or manufacturing issues, their marketing plans, general marketing conditions and government incentives or restrictions. These factors may make our results of operations difficult to predict and cause our quarterly results of operations to fall short of expectations.

 

We may be held liable for injuries to individual participants of our offline events or damages to automobiles displayed in our offline events, which may adversely affect our reputation and adversely affect our financial condition and results of operations.

 

We make every effort to ensure the safety of our participants and the automobiles displayed during our offline events. However, we cannot guarantee that no physical injury or damages will occur during our events, for which we could be held liable. For example, under the PRC laws and regulations, the undertaker of a mass activity bears tort liability for damages to a third party arising from such undertakers’ failure to fulfill its security obligations. If the act of a third party results in damage to others in a mass activity, the undertaker that failed to fulfill security obligations shall also bear supplementary liability. See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations Relating to Consumer Rights Protection and Tort Liabilities.” In addition, we have contractual obligations to compensate the event venue provider from any damages it suffers arising from the accident occurring on the venue and claims by the participants of the event. Therefore, we might face negligence claims alleging that we failed to maintain our facilities or to supervise our employees. In addition, if any participants of our offline events commit acts of violence, we could also face allegations that we failed to provide adequate security or were otherwise responsible for his or her actions.

 

We typically require our event set-up service providers to purchase liability insurance. However, such insurance might not be adequate to cover our potential liabilities, or may not cover us at all. If we are held liable for the injury or damages, we may be subject to litigations, and our financial condition and results of operations may be adversely affected. Additionally, our offline events may be perceived to be unsafe, which may discourage prospective consumers and industry customers from attending. These negative perceptions might also adversely affect our reputation and results of operations.

 

We may be subject to claims under consumer protection laws, product quality laws and tort liabilities law, including health and safety claims and product liability claims, if people or properties are harmed by automobiles sold during our events or through our virtual dealership networks.

 

The automobiles sold during our events or through our virtual dealership networks are designed and manufactured by third parties, and we cannot guarantee that none of these automobiles is defectively designed or manufactured. We may be subject to claims under applicable consumer protection laws, product quality laws and tort liabilities law, including health and safety claims and product liability claims for damages to third parties arising from the defects of automobiles sold through our virtual dealership networks. Although we would have legal recourse against the manufacturer or the sealer of such products under PRC law if the liabilities are attributable to such manufacturer or sealer, attempting to enforce our rights against such manufacturer or dealer may be expensive, time-consuming and ultimately futile. See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations Relating to Consumer Rights Protection and Tort Liabilities.” In addition, we do not currently maintain any third-party liability insurance or product liability insurance in relation to most of the automobiles sold during our events or through our virtual dealership networks. As a result, any material product liability claim or litigation could have a material adverse effect on our business, financial condition and results of operations. Even unsuccessful claims could result in the expenditure of funds and managerial efforts in defending them and could have a negative impact on our reputation.

 

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Our lack of insurance could expose us to significant costs and business disruption.

 

The insurance industry in China is still at an early stage of development. Insurance companies in China offer limited business insurance products and are, to our knowledge, not well-developed in the field of business liability insurance. We do not have any business liability or disruption insurance to cover our operations in China, which, based on public information available to us relating to China’s automotive industry, is consistent with customary industry practice in China. We have determined that the costs of insuring for these risks and the difficulties associated with acquiring such insurance on commercially reasonable terms make it impractical for us to have such insurance. In addition, we do not maintain any insurance policies covering risks including loss and theft of and damages to our servers or other technology infrastructure. Any uninsured occurrence of business disruption, litigation or natural disaster, or significant damages to our uninsured equipment or technology infrastructure could result in substantial costs and diversion of resources for us and could adversely affect our financial condition and results of operations.

 

Any catastrophe, including outbreaks of health pandemics and other extraordinary events, could have a negative impact on our business operations.

 

We are vulnerable to natural disasters and other calamities. Fire, floods, typhoons, earthquakes, power loss, telecommunications failures, wars, riots, terrorist attacks or similar events may give rise to server interruptions, breakdowns, system failures or internet failures, which could cause the loss or corruption of data or malfunctions of software or hardware as well as adversely affect our ability to provide our services.

 

Our business could also be adversely affected by the effects of Ebola virus diseases, H1N1 flu, H7N9 flu, avian flu, Severe Acute Respiratory Syndrome (SARS), COVID-19 or other epidemics. Our business operation could be disrupted if any of our employees is suspected of having any of the aforementioned epidemics or another contagious disease or condition, since it could require our employees to be quarantined and/or our offices to be disinfected. In addition, our business, results of operations and financial condition could be adversely affected to the extent that any of these epidemics harms the Chinese economy in general.

 

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Risks Related to Our Corporate Structure

 

If the PRC government finds that the agreements that establish the structure for operating some of our operations in China do not comply with PRC regulations relating to the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations.

 

Foreign investment in the value-added telecommunication services industry in China is extensively regulated and subject to numerous restrictions. Pursuant to the Guidance Catalog of Industries for Foreign Investment promulgated by the Ministry of Commerce, or MOFCOM, and the National Development and Reform Commission, or the NDRC, which was amended from time to time, or the Foreign Investment Catalog (as amended), with a few exceptions, foreign investors are not allowed to own more than 50% of the equity interests in a value-added telecommunication service provider and any such foreign investor must have experience in providing value-added telecommunications services overseas and maintain a good track record.

 

We are a Cayman Islands company and our wholly-owned PRC subsidiaries are currently considered foreign-invested enterprises. Accordingly, our PRC subsidiaries are not eligible to provide value-added telecommunication services in China. Due to these restrictions, we carry out our value-added telecommunication business in China through TuanChe Internet, Drive New Media and Internet Drive Technology, or our VIEs, and their subsidiaries, collectively our consolidated affiliated entities. We, through TuanYuan and Sangu Maolu, our wholly owned subsidiary in China, or WFOEs, entered into a series of contractual arrangements with our VIEs and their respective shareholders, in order to (1) exercise effective control over our consolidated affiliated entities, (2) receive substantially all of the economic benefits of our consolidated affiliated entities, and (3) have an exclusive option to purchase all or part of the equity interests in our VIEs when and to the extent permitted by PRC law. We have been and expect to continue to be dependent on our consolidated affiliated entities to operate our value-added telecommunication business. As a result of these contractual arrangements, we have control over and are the primary beneficiary of our VIEs and hence consolidate the financial results of our consolidated affiliated entities under U.S. GAAP. See “Item 4. Information on the Company—C. Organizational Structure” for details.

 

In the opinion of our PRC counsel, Shihui Partners, the ownership structures of our WFOEs and our VIEs, currently do not result in any violation of the applicable PRC laws or regulations currently in effect; and the contractual arrangements among our WFOEs, our VIEs and their respective shareholders, are governed by PRC laws or regulations, and are currently valid, binding and enforceable in accordance with the applicable PRC laws or regulations currently in effect, and do not result in any violation of the applicable PRC laws or regulations currently in effect, except that the equity pledge under that certain equity pledge agreement would not be deemed validly created until they are registered with the competent governmental authorities. However, Shihui Partners has also advised us that there are substantial uncertainties regarding the interpretation and application of current or future PRC laws and regulations, and there can be no assurance that the PRC government will ultimately take a view that is consistent with the opinion of our PRC counsel.

 

In particular, in March 2019, the National People’s Congress, or the NPC, passed the PRC Foreign Investment Law, which became effective as of January 1, 2020. For the effect of the PRC Foreign Investment Law on us, see “—Risks Related to Our Corporate Structure—Uncertainties exist with respect to the interpretation and implementation of the PRC Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance and business operations.”

 

If our ownership structure and contractual arrangements are found to violate any PRC laws or regulations, or if we are found to be required but failed to obtain any of the permits or approvals for our value-added telecommunication business, the relevant PRC regulatory authorities, including the Ministry of Industry and Information Technology, or MIIT, would have broad discretion in imposing fines or administrative penalties upon us for such violations, including:

 

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·revoking the business and operating licenses of our company;

 

·discontinuing or restricting any related-party transactions between our group and our consolidated affiliated entities;

 

·imposing fines and penalties, confiscating the income from our company, or imposing additional requirements for our operations which we may not be able to comply with;

 

·requiring us to restructure our ownership structure or operations, including terminating the contractual arrangements and deregistering the equity pledges of our VIEs, which in turn would affect our ability to consolidate, derive economic interests from, or exercise effective control over our consolidated affiliated entities;

 

·restricting or prohibiting our use of the proceeds of this offering to finance our business and operations in China, particularly the expansion of our business through strategic acquisitions; or

 

·restricting the use of financing sources by us or our consolidated affiliated entities or otherwise restricting our or their ability to conduct business.

 

As of the date of this annual report, similar ownership structure and contractual arrangements have been used by many China-based companies listed overseas, including a number of value-added telecommunication companies listed in the United States. To our knowledge, none of the fines or punishments listed above has been imposed on any of these public companies. However, we cannot assure you that such fines or punishments will not be imposed on us or any other companies in the future. If any of the above fines or punishments is imposed on us, our business, financial condition and results of operations could be materially and adversely affected. If any of these penalties results in our inability to direct the activities of our consolidated affiliated entities that most significantly impact their economic performance, and/or our failure to receive the economic benefits from our consolidated affiliated entities, we may not be able to consolidate them in our financial statements in accordance with U.S. GAAP. However, we do not believe that such actions would result in the liquidation or dissolution of our company, our WFOEs or VIEs or their subsidiaries.

 

Uncertainties exist with respect to the interpretation and implementation of the PRC Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance and business operations.

 

On March 15, 2019, the NPC approved the Foreign Investment Law, which came into effect on January 1, 2020 and replaced the trio of existing laws regulating foreign investment in China, namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-invested Enterprise Law, together with their implementation rules and ancillary regulations. In December 2019, the State Council promulgated the Implementation Regulation on the Foreign Investment Law to further clarify relevant provisions of the Foreign Investment Law, which came into effect on January 1, 2020. The Foreign Investment Law and its implementation regulation embody an expected PRC regulatory trend to rationalize its foreign investment regulatory regime in line with prevailing international practice and the legislative efforts to unify the corporate legal requirements for both foreign and domestic investments.

 

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However, since the Foreign Investment Law and its implementation regulation are relatively new, uncertainties still exist in relation to their interpretation and implementation. For instance, under the Foreign Investment Law, “foreign investment” refers to the investment activities directly or indirectly conducted by foreign individuals, enterprises or other entities in China. Though it does not explicitly classify contractual arrangements as a form of foreign investment, there is no assurance that foreign investment via contractual arrangements would not be deemed as a type of indirect foreign investment activities under the definition in the future. In addition, the definition has a catch-all provision which includes investments made by foreign investors through means stipulated in laws or administrative regulations or other methods prescribed by the State Council. However, the Implementation Regulations on the Foreign Investment Law still remains silent on whether contractual arrangements should be deemed as a form of foreign investment. Therefore, it still leaves leeway for future laws, administrative regulations or provisions promulgated by the State Council to provide for contractual arrangements as a form of foreign investment. In any of these cases, it will be uncertain whether our contractual arrangements will be deemed to be in violation of the market access requirements for foreign investment under the PRC laws and regulations. Furthermore, if future laws, administrative regulations or provisions prescribed by the State Council mandate further actions to be taken by companies with respect to existing contractual arrangements, we may face substantial uncertainties as to whether we can complete such actions in a timely manner, or at all. In addition, the Foreign Investment Law provides that foreign-invested enterprises established before the Foreign Investment Law came into effect may maintain their structure and corporate governance within a five-year transition period, which means that we may be required to adjust the structure and corporate governance of certain of our PRC subsidiaries when such transition period ends. Failure to take timely and appropriate measures to cope with any of these or similar regulatory compliance challenges could materially and adversely affect our current corporate structure, corporate governance and business operations.

 

We rely on contractual arrangements with our VIEs and their respective shareholders for a large portion of our business operations which may not be as effective as direct ownership in providing operational control.

 

We have relied and expect to continue to rely on the contractual arrangements with our VIEs and their respective shareholders to operate our value-added telecommunication business. For a description of these contractual arrangements, see “Item 4. Information on the Company—C. Organizational Structure.” The revenue contribution of our consolidated affiliated entities accounted for substantially all of our net revenues in 2017 and 2019, and a portion of our net revenues in 2018. However, these contractual arrangements may not be as effective as direct equity ownership in providing us with control over our consolidated affiliated entities. Any failure by our consolidated affiliated entities, including our VIEs and their respective shareholders, to perform their obligations under the contractual arrangements would have a material adverse effect on our financial position and results of operations. For example, should any dispute relating to the contractual arrangements arises, we will have to enforce our rights under the contracts through the operations of PRC law and arbitration, litigation and other legal proceedings and therefore will be subject to uncertainties in the PRC legal system. Therefore, our contractual arrangements with our VIEs and their respective shareholders may not be as effective in ensuring our control over the relevant portion of our business operations as direct ownership would be.

 

Any failure by our VIEs and their respective shareholders to perform their obligations under our contractual arrangements with them would have a material adverse effect on our business.

 

If our VIEs and their respective shareholders fail to perform their respective obligations under the contractual arrangements, we may have to incur substantial costs and expend additional resources to enforce such arrangements. We may also have to rely on legal remedies under PRC law, including seeking specific performance or injunctive relief, and claiming damages, which we cannot assure will be effective under PRC law. For example, if the shareholders of our VIEs refuse to transfer their equity interest in our VIEs to us or our designee if we exercise the purchase option pursuant to the contractual arrangements, or if they otherwise act in bad faith toward us, then we may have to take legal actions to compel them to perform their contractual obligations. In addition, if any third parties claim any interest in such shareholders’ equity interests in our VIEs, our ability to exercise shareholders’ rights or foreclose the share pledge according to the contractual arrangements may be impaired.

 

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All of the contractual arrangements are governed by and interpreted in accordance with PRC law, and disputes arising from the contractual arrangements will be resolved through arbitration in China. The legal system in the PRC is not as developed as in some other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could limit our ability to enforce these contractual arrangements. See “—Risks Related to Doing Business in China—Uncertainties with respect to the PRC legal system could have a material adverse effect on us.” Meanwhile, there are very few precedents and little formal guidance as to how contractual arrangements in the context of a variable interest entity should be interpreted or enforced under PRC law. There remain significant uncertainties regarding the ultimate outcome of such arbitration should legal action become necessary. In addition, under PRC law, rulings by arbitrators are final, parties cannot appeal the arbitration results in courts, and if the losing parties fail to carry out the arbitration awards within a prescribed time limit, the prevailing parties may only enforce the arbitration awards in PRC courts through arbitration award recognition proceedings, which would require additional expenses and delay. In the event we are unable to enforce the contractual arrangements, or if we suffer significant delays or other obstacles in the process of enforcing these contractual arrangements, we may not be able to exert effective control over our consolidated affiliated entities, and our ability to conduct our business may be negatively affected.

 

The shareholders of our VIEs may have actual or potential conflicts of interest with us, which may materially and adversely affect our business, results of operations and financial condition.

 

The shareholders of our VIEs may have actual or potential conflicts of interest with us. These shareholders may refuse to sign or breach, or cause our VIEs to breach, or refuse to renew, the existing contractual arrangements we have with them and our VIEs, which would have a material adverse effect on our ability to effectively control our consolidated affiliated entities and receive economic benefits from them. For example, the shareholders may be able to cause our agreements with our VIEs to be performed in a manner adverse to us by, among other things, failing to remit payments due under the contractual arrangements to us on a timely basis. We cannot assure you that when conflicts of interest arise any or all of these shareholders will act in the best interests of our company or such conflicts will be resolved in our favor. Currently, we do not have any arrangements to address potential conflicts of interest between these shareholders and our company, except that we could exercise our purchase option under the exclusive option agreement with these shareholders to request them to transfer all of their equity interests in our variable interest entities to a PRC entity or individual designated by us, to the extent permitted by PRC laws. If we cannot resolve any conflict of interest or dispute between us and these shareholders, we would have to rely on legal proceedings, which could result in disruption of our business and subject us to substantial uncertainty as to the outcome of any such legal proceedings.

 

Our contractual arrangements may be subject to scrutiny by the PRC tax authorities and they may determine that we or our VIEs owe additional taxes, which could negatively affect our business, financial condition, and results of operations.

 

Under applicable PRC laws and regulations, arrangements and transactions among related parties may be subject to audit or challenge by the PRC tax authorities. The tax authorities may impose reasonable adjustments on taxation if they have identified any related party transactions that are inconsistent with arm’s length principles. We could face material and adverse tax consequences if the PRC tax authorities determine that our contractual arrangements were not entered into on an arm’s-length basis in such a way as to result in an impermissible reduction in taxes under applicable PRC laws, rules and regulations, and adjust the income of our VIEs in the form of a transfer pricing adjustment. A transfer pricing adjustment could, among other things, result in a reduction of expense deductions recorded by our VIEs for PRC tax purposes, which could in turn increase its tax liabilities without reducing our PRC subsidiary’s tax expenses. In addition, if our WFOEs request the shareholders of our VIEs to transfer their equity interests at nominal or no value pursuant to the contractual arrangements, such transfer could be viewed as a gift and subject our WFOEs to PRC income tax. Furthermore, the PRC tax authorities may impose late payment fees and other penalties on our VIEs for the adjusted but unpaid taxes according to the applicable regulations. Our financial position could be materially and adversely affected if ourVIEs’ tax liabilities increase or if they are required to pay late payment fees and other penalties.

 

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We may lose the ability to use, or otherwise benefit from, the licenses, approvals and assets held by our consolidated affiliated entities, which could severely disrupt our business, render us unable to conduct some or all of our business operations and constrain our growth.

 

We currently conduct our operations in China through contractual arrangements with our VIEs and their respective shareholders. As part of these arrangements, certain assets, licenses and permits that are material to our business operations are held by our VIEs and their subsidiaries, such as value-added telecommunications business license. The contractual arrangements contain terms that specifically obligate shareholders of our VIEs to ensure the valid existence of our VIEs and restrict the disposal of material assets of our VIEs. However, in the event shareholders of our VIEs breach the terms of the contractual arrangements and voluntarily liquidate our VIEs, or any of our VIEs declares bankruptcy and all or part of its assets become subject to liens or rights of third-party creditors, or are otherwise disposed of without our consent, we may be unable to conduct some or all of our business operations or otherwise benefit from the assets held by our consolidated affiliated entities, which could have a material adverse effect on our business, financial condition and results of operations. Furthermore, if our VIEs undergo a voluntary or involuntary liquidation proceeding, their shareholders or unrelated third-party creditors may claim rights to some or all of the assets of our VIEs, thereby hindering our ability to operate our business as well as constrain our growth.

 

Certain existing shareholders have substantial influence over our company and their interests may not be aligned with the interests of our other shareholders.

 

As of April 30, 2020, our directors, officers and principal shareholders collectively own an aggregate of 92.4% of the total voting power of our outstanding ordinary shares. As a result, they have substantial influence over our business, including significant corporate actions such as mergers, consolidations, election of directors and other significant corporate actions.

 

They may take actions that are not in the best interest of us or our other shareholders. This concentration of ownership may discourage, delay or prevent a change in control of our company, which could deprive our shareholders of an opportunity to receive a premium for their shares as part of a sale of our company and may reduce the price of the ADSs. These actions may be taken even if they are opposed by our other shareholders. In addition, the significant concentration of share ownership may adversely affect the trading price of the ADSs due to investors' perception that conflicts of interest may exist or arise.

 

Risks Related to Doing Business in China

 

PRC economic, political and social conditions, as well as changes in any government policies, laws and regulations, could adversely affect the overall economy in China or the automotive market, which could harm our business.

 

Substantially all of our operations are conducted in China, and substantially all of our net revenues are derived from China. Accordingly, our business, prospects, financial condition and results of operations are subject, to a significant extent, to economic, political and legal developments in China.

 

The PRC economy differs from the economies of most developed countries in many respects. Although the PRC economy has been transitioning from a planned economy to a more market-oriented economy since the late 1970s, the PRC government continues to play a significant role in regulating the industry. The PRC government continues to exercise significant control over China’s economic growth through allocating resources, controlling the incurrence and payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. Uncertainties or changes in any of these policies, laws and regulations, especially those affecting the automotive industry in China, could adversely affect the economy in China or our business.

 

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While the PRC economy has experienced significant growth in the past two to three decades, growth has been uneven, both geographically and among various sectors of the economy. Demand for our services depends, in large part, on economic conditions in China. Any significant slowdown in China’s economic growth may reduce our net revenues. In addition, any sudden changes to China’s political system or the occurrence of social unrest could also have a material adverse effect on our business, prospects, financial condition and results of operations.

 

Uncertainties with respect to the PRC legal system could have a material adverse effect on us.

 

The PRC legal system is a civil law system based on written statutes. Unlike the common law system, prior court decisions in a civil law system may be cited as reference but have limited precedential value. Since 1979, newly introduced PRC laws and regulations have significantly enhanced the protections of interest relating to foreign investments in China. However, since these laws and regulations are relatively new and the PRC legal system continues to evolve rapidly, the interpretations of such laws and regulations may not always be consistent, and enforcement of these laws and regulations involves significant uncertainties, any of which could limit the available legal protections.

 

In addition, the PRC administrative and judicial authorities have significant discretion in interpreting, implementing or enforcing statutory rules and contractual terms, and it may be more difficult to predict the outcome of administrative and judicial proceedings and the level of legal protection we may enjoy in the PRC than under some more developed legal systems. Furthermore, the PRC legal system is based in part on government policies and internal rules (some of which are not published in a timely manner or at all) that may have retroactive effect. These uncertainties may affect our decisions on the policies and actions to be taken to comply with PRC laws and regulations, and may affect our ability to enforce our contractual or tort rights. In addition, the regulatory uncertainties may be exploited through unmerited legal actions or threats in an attempt to extract payments or benefits from us. Such uncertainties may therefore increase our operating expenses and costs, and materially and adversely affect our business and results of operations.

 

If we are classified as a PRC resident enterprise for PRC enterprise income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC shareholders and the ADS holders.

 

The PRC enterprise income tax law and its implementing rules provide that enterprises established outside of China whose “de facto management bodies” are located in China are considered “resident enterprises” under PRC tax laws. The implementing rules define the term “de facto management bodies” as a management body which substantially manages, or has control over the business, personnel, finance and assets of an enterprise. In April 2009, the State Administration of Taxation, or the SAT, issued the Notice Regarding the Determination of Chinese-Controlled Overseas Incorporated Enterprises as PRC Tax Resident Enterprises on the Basis of De Facto Management Bodies, or SAT Circular 82, which provides that a foreign enterprise controlled by a PRC company or a group of PRC companies will be classified as a “resident enterprise” with its “de facto management body” located within China if all of the following requirements are satisfied: (1) the senior management and core management departments in charge of its daily operations function are mainly in China; (2) its financial and human resources decisions are subject to determination or approval by persons or bodies in China; (3) its major assets, accounting books, company seals, and minutes and files of its board and shareholders’ meetings are located or kept in China; and (4) at least half of the enterprise’s directors with voting right or senior management reside in China. The SAT issued a bulletin in August 2011 to provide more guidance on the implementation of SAT Circular 82. The bulletin clarifies certain matters relating to resident status determination, post-determination administration and competent tax authorities. Although both the circular and the bulletin only apply to offshore enterprises controlled by PRC enterprises and not those by PRC individuals, the determination criteria set forth in the circular and administration clarification made in the bulletin may reflect the general position of the SAT on how the “de facto management body” test should be applied in determining the tax resident status of offshore enterprises and the administration measures should be implemented, regardless of whether they are controlled by PRC enterprises or PRC individuals.

 

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In addition, the SAT issued a bulletin in January 2014 to provide more guidance on the implementation of SAT Circular 82. This bulletin further provides that, among other things, an entity that is classified as a “resident enterprise” in accordance with the circular shall file the application for classifying its status of residential enterprise with the local tax authorities where its main domestic investors are registered. From the year in which the entity is determined as a “resident enterprise,” any dividend, profit and other equity investment gain shall be taxed in accordance with the enterprise income tax law and its implementing rules.

 

As the tax resident status of an enterprise is subject to the determination by the PRC tax authorities, if we are deemed as a PRC “resident enterprise,” we will be subject to PRC enterprise income tax on our worldwide income at a uniform tax rate of 25.0%, although dividends distributed to us from our existing PRC subsidiaries and any other PRC subsidiaries which we may establish from time to time could be exempt from the PRC dividend withholding tax due to our PRC “resident recipient” status. This could have a material adverse effect on our overall effective tax rate, our income tax expenses and our net income. Furthermore, dividends, if any, paid to our shareholders and ADS holders may be decreased as a result of the decrease in distributable profits. In addition, if we were to be considered a PRC “resident enterprise,” dividends we pay with respect to the ADS or ordinary shares and the gains realized from the transfer of the ADS or ordinary shares may be considered income derived from sources within China and be subject to PRC withholding tax, which could have a material adverse effect on the value of your investment in us and the price of the ADS.

 

PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent us from using the proceeds of our initial offering to make loans to or make additional capital contributions to our PRC subsidiaries and consolidated affiliated entities, which could materially and adversely affect our liquidity and our ability to fund and expand our business.

 

As an offshore holding company of our PRC subsidiaries, we may make loans to our PRC subsidiaries and our consolidated affiliated entities, or we may make additional capital contributions to our PRC subsidiaries. Such loans to our PRC subsidiaries or our consolidated affiliated entities in China and capital contributions are subject to PRC regulations and approvals. For example, loans by us to our PRC subsidiaries and consolidated affiliated entities cannot exceed statutory limits and must be filed with the State Administration of Foreign Exchange, or SAFE, via SAFE’s official online system. Besides SAFE filing, such loans may also need to be filed with the NDRC or its local branches. Capital contributions to our PRC subsidiaries must be approved by or filed with the MOFCOM or its local counterpart. In addition, the PRC government also restricts the convertibility of foreign currencies into Renminbi and use of the proceeds. In March 2015, SAFE promulgated SAFE Circular 19, which took effect and replaced certain previous SAFE regulations from June 2015. SAFE further promulgated the Notice of the State Administration of Foreign Exchange on Reforming and Standardizing the Administrative Provisions on Capital Account Foreign Exchange Settlement, or SAFE Circular 16, effective in June 2016, which, among other things, amend certain provisions of SAFE Circular 19. According to SAFE Circular 19 and SAFE Circular 16, the flow and use of the Renminbi capital converted from foreign currency denominated registered capital of a foreign-invested company is regulated such that Renminbi capital may not be used for business beyond its business scope or to provide loans to persons other than affiliates unless otherwise permitted under its business scope. In October 2019, the SAFE promulgated the Circular Regarding Further Promotion of the Facilitation of Cross-Border Trade and Investment, or SAFE Circular 28, pursuant to which all foreign-invested enterprises can make equity investments in the PRC with their capital funds in accordance with the law. As SAFE Circular 28 is new and the relevant government authorities have broad discretion in interpreting the regulation, it is unclear whether SAFE will permit such capital funds to be used for equity investments in the PRC in actual practice.

 

Violations of the applicable circulars and rules may result in severe penalties, including substantial fines as set forth in the Foreign Exchange Administration Regulations. If our consolidated affiliated entities require financial support from us or our wholly owned subsidiaries in the future and we find it necessary to use foreign currency-denominated capital to provide such financial support, our ability to fund our consolidated affiliated entities’ operations will be subject to statutory limits and restrictions, including those described above.

 

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The applicable foreign exchange circulars and rules may significantly limit our ability to convert, transfer and use the net proceeds from our initial public offering or any offering of additional equity securities in China, which may adversely affect our business, financial condition and results of operations. As the foreign exchange related regulatory regime and practice are complex and still evolving and involve many uncertainties, we cannot assure you that we have complied or will be able to comply with all applicable foreign exchange circulars and rules, or that we will be able to complete the necessary government registrations or filings on a timely basis, if at all, with respect to future loans by us to our PRC subsidiaries or with respect to future capital contributions by us to our PRC subsidiaries. If we fail to complete such registrations or filings, our ability to contribute additional capital to fund our PRC operations may be negatively affected, which could adversely and materially affect our liquidity and our ability to fund and expand our business.

 

There are significant uncertainties under the PRC enterprise income tax law relating to the withholding tax liabilities of our PRC subsidiaries, and dividends payable by our PRC subsidiaries to our offshore subsidiaries may not qualify to enjoy certain treaty benefits.

 

Under the PRC enterprise income tax and its implementation rules, the profits of a foreign-invested enterprise generated through operations, which are distributed to its immediate holding company outside China, will be subject to a withholding tax rate of 10.0%. Pursuant to a special arrangement between Hong Kong and China, such rate may be reduced to 5.0% if a Hong Kong resident enterprise owns at least 25.0% of the equity interest in the PRC company and satisfies other conditions as provided under the special tax arrangement. Our current PRC subsidiaries are wholly owned by our Hong Kong subsidiary.

 

Moreover, under the Notice of the State Administration of Taxation on Issues regarding the Administration of the Dividend Provision in Tax Treaties promulgated in February 2009, the taxpayer needs to satisfy certain conditions to enjoy the benefits under a tax treaty. These conditions include: (1) the taxpayer should be a company as provided in the tax treaty, (2) the taxpayer must directly own the required percentage of equity interests and voting rights in the PRC subsidiaries, and (3) the corporate shareholder to receive dividends from the PRC subsidiaries must have continuously met the direct ownership thresholds during the 12 consecutive months preceding the receipt of the dividends. Further, the SAT promulgated the Notice on Issues Related to the “Beneficial Owner” in Tax Treaties in February 2018, which requires the “beneficial owner” to have ownership and the right to dispose of the income or the rights and properties giving rise to the income and generally engage in substantive business activities and sets forth certain detailed factors in determining the “beneficial owner” status.

 

Entitlement to a lower tax rate on dividends according to tax treaties or arrangements between the PRC central government and governments of other countries or regions is subject to inspection or approval of the relevant tax authorities. As a result, we cannot assure you that we will be entitled to any preferential withholding tax rate under tax treaties for dividends received from our PRC subsidiaries.

 

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We face uncertainties with respect to indirect transfers of the equity interests in PRC resident enterprises by their non-PRC holding companies.

 

In February 2015, the SAT issued the Public Notice Regarding Certain Corporate Income Tax Matters on Indirect Transfer of Properties by Non-Tax Resident Enterprises, or SAT Bulletin 7. SAT Bulletin 7 extends its tax jurisdiction to transactions involving the transfer of taxable assets through offshore transfer of a foreign intermediate holding company. In addition, SAT Bulletin 7 has introduced safe harbors the purchase and sale of equity through a public securities market. SAT Bulletin 7 also brings challenges to both foreign transferor and transferee (or other person who is obligated to pay for the transfer) of taxable assets.

 

In October 2017, the SAT issued the Announcement of the State Administration of Taxation on Issues Concerning the Withholding of Non-resident Enterprise Income Tax at Source, or SAT Bulletin 37, which came into effect in December 2017. The SAT Bulletin 37 further clarifies the practice and procedure of the withholding of non-resident enterprise income tax.

 

Where a non-resident enterprise transfers taxable assets indirectly by disposing of the equity interests of an overseas holding company, which is an Indirect Transfer, the non-resident enterprise as either transferor or transferee, or the PRC entity that directly owns the taxable assets, may report such Indirect Transfer to the relevant tax authority. Using a “substance over form” principle, the PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding or deferring PRC tax. As a result, gains derived from such Indirect Transfer may be subject to PRC enterprise income tax, and the transferee or other person who is obligated to pay for the transfer is obligated to withhold the applicable taxes, currently at a rate of 10% for the transfer of equity interests in a PRC resident enterprise. Both the transferor and the transferee may be subject to penalties under PRC tax laws if the transferee fails to withhold the taxes and the transferor fails to pay the taxes.

 

We face uncertainties as to the reporting and other implications of certain past and future transactions where PRC taxable assets are involved, such as offshore restructuring, sale of the shares in our offshore subsidiaries and investments. Our company may be subject to filing obligations or taxed if our company is transferor in such transactions, and may be subject to withholding obligations if our company is transferee in such transactions, under SAT Bulletin 7 and/or SAT Bulletin 37. For transfer of shares in our company by investors who are non-PRC resident enterprises, our PRC subsidiaries may be requested to assist in the filing under SAT Bulletin 7 and/or SAT Bulletin 37. As a result, we may be required to expend valuable resources to comply with SAT Bulletin 7 and/or SAT Bulletin 37 or to request the relevant transferors from whom we purchase taxable assets to comply with these circulars, or to establish that our company should not be taxed under these circulars, which may have a material adverse effect on our financial condition and results of operations.

 

Restrictions on currency exchange may limit our ability to receive and use our net revenues effectively.

 

Substantially all of our net revenues is denominated in Renminbi. As a result, restrictions on currency exchange may limit our ability to use net revenues generated in Renminbi to fund any business activities we may have outside China in the future or to make dividend payments to our shareholders and ADS holders in U.S. dollars. Under current PRC laws and regulations, Renminbi is freely convertible for current account items, such as trade and service-related foreign exchange transactions and dividend distributions. However, Renminbi is not freely convertible for direct investment or loans or investments in securities outside China, unless such use is approved by SAFE. For example, foreign exchange transactions under our subsidiary’s capital account, including principal payments in respect of foreign currency-denominated obligations, remain subject to significant foreign exchange controls and the approval requirement of SAFE. These limitations could affect our ability to obtain foreign exchange for capital expenditures.

 

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Our PRC subsidiaries are permitted to declare dividends to our offshore subsidiary holding their equity interest, convert the dividends into a foreign currency and remit to its shareholder outside China. In addition, in the event that our PRC subsidiaries liquidate, proceeds from the liquidation may be converted into foreign currency and distributed outside China to our overseas subsidiary holding its equity interest.

 

Other than the above distributions by and through our PRC subsidiaries which are permitted to be made without the necessity to obtain further approvals, any conversion of the Renminbi-denominated net revenues generated by our consolidated affiliated entities for direct investment, loan or investment in securities outside China will be subject to the limitations discussed above. To the extent we need to convert and use any Renminbi-denominated net revenues generated by our consolidated affiliated entities not paid to our PRC subsidiaries and net revenues generated by our PRC subsidiaries not declared and paid as dividends, the limitations discussed above will restrict the convertibility of, and our ability to directly receive and use such net revenues. As a result, our business and financial condition may be adversely affected. In addition, we cannot assure you that the PRC regulatory authorities will not impose more stringent restrictions on the convertibility of Renminbi in the future, especially with respect to foreign exchange transactions.

 

Our subsidiaries and consolidated affiliated entities in China are subject to restrictions on making dividends and other payments to us.

 

We are a holding company and rely principally on dividends paid by our subsidiaries in China for our cash needs, including paying dividends and other cash distributions to our shareholders to the extent we choose to do so, servicing any debt we may incur and paying our operating expenses. The income for our PRC subsidiaries, especially our WFOEs, in turn depends on the service fees paid by our consolidated affiliated entities. Current PRC regulations permit our subsidiaries in China to pay dividends to us only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. Under the applicable requirements of PRC law, our PRC subsidiaries may only distribute dividends after they have made allowances to fund certain statutory reserves. These reserves are not distributable as cash dividends. Furthermore, if our subsidiaries or our consolidated affiliated entities in China incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments to us. Any such restrictions may materially affect such entities’ ability to make dividends or make payments, in service fees or otherwise, to us, which may materially and adversely affect our business, financial condition and results of operations.

 

Fluctuations in the value of the Renminbi may have a material adverse effect on your investment.

 

The value of the Renminbi against the U.S. dollar and other currencies may fluctuate. The change in value of the Renminbi against the U.S. dollar and other currencies is affected by, various factors, such as changes in China’s political and economic conditions. In July 2005, the PRC government changed its decade-old policy of pegging the value of the Renminbi to the U.S. dollar. Under such policy, the Renminbi was permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. Later on, the People’s Bank of China has decided to further implement the reform of the RMB exchange regime and to enhance the flexibility of RMB exchange rates. Such changes in policy have resulted in a significant appreciation of the Renminbi against the U.S. dollar since 2005. There remains significant international pressure on the PRC government to adopt a more flexible currency policy, which could result in a further and more significant adjustment of the Renminbi against the U.S. dollar.

 

Any significant appreciation or revaluation of the Renminbi may have a material adverse effect on the value of, and any dividends payable on, the ADS in foreign currency terms. More specifically, if we decide to convert our Renminbi into U.S. dollars, appreciation of the U.S. dollar against the Renminbi would have a negative effect on the U.S. dollar amount available to us. To the extent that we need to convert U.S. dollars we receive from our initial public offering into Renminbi for our operations, appreciation of the Renminbi against the U.S. dollar would have an adverse effect on the Renminbi amount we would receive from the conversion. In addition, appreciation or depreciation in the exchange rate of the Renminbi to the U.S. dollar could materially and adversely affect the price of the ADS in U.S. dollars without giving effect to any underlying change in our business or results of operations.

 

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Certain PRC regulations, including the M&A Rules and national security regulations, may require a complicated review and approval process which could make it more difficult for us to pursue growth through acquisitions in China.

 

The M&A Rules established additional procedures and requirements that could make merger and acquisition activities in China by foreign investors more time-consuming and complex. For example, MOFCOM must be notified in the event a foreign investor takes control of a PRC domestic enterprise. Moreover, certain acquisitions of domestic companies by offshore companies that are related to or affiliated with the same entities or individuals of the domestic companies, are subject to approval by MOFCOM. In addition, the Implementing Rules Concerning Security Review on Mergers and Acquisitions by Foreign Investors of Domestic Enterprises, issued by MOFCOM in August 2011, require that mergers and acquisitions by foreign investors in “any industry with national security concerns” be subject to national security review by MOFCOM. Furthermore, any activities attempting to circumvent such review process, including structuring the transaction through a proxy or contractual control arrangement, are strictly prohibited.

 

There is significant uncertainty regarding the interpretation and implementation of these regulations relating to merger and acquisition activities in China. In addition, complying with these requirements could be time-consuming, and the required notification, review or approval process may materially delay or affect our ability to complete merger and acquisition transactions in China. As a result, our ability to seek growth through acquisitions may be materially and adversely affected.

 

A failure by the beneficial owners of our shares who are PRC residents to comply with certain PRC foreign exchange regulations could restrict our ability to distribute profits, restrict our overseas and cross-border investment activities and subject us to liability under PRC law.

 

SAFE has promulgated regulations, including the Notice on Relevant Issues Relating to Foreign Exchange Control on Domestic Residents’ Investment and Financing and Round-Trip Investment through Special Purpose Vehicles, or SAFE Circular 37, effective in July 2014, and its appendices, that require PRC residents, including PRC institutions and individuals, to register with local branches of SAFE in connection with their direct establishment or indirect control of an offshore entity, for the purpose of overseas investment and financing, with such PRC residents’ legally owned assets or equity interests in domestic enterprises or offshore assets or interests, referred to in SAFE Circular 37 as a “special purpose vehicle.” The term “control” under SAFE Circular 37 is broadly defined as the operation rights, beneficiary rights or decision-making rights acquired by the PRC residents in the offshore special purpose vehicles by such means as acquisition, trust, proxy, voting rights, repurchase, convertible bonds or other arrangements. SAFE Circular 37 further requires amendment to the registration in the event of any significant changes with respect to the special purpose vehicle, such as increase or decrease of capital contributed by PRC individuals, share transfer or exchange, merger, division or other material event. In the event that a PRC shareholder holding interests in a special purpose vehicle fails to fulfill the required SAFE registration, the PRC subsidiaries of that special purpose vehicle may be prohibited from making profit distributions to the offshore parent and from carrying out subsequent cross-border foreign exchange activities, and the special purpose vehicle may be restricted in its ability to contribute additional capital into its PRC subsidiaries. Further, failure to comply with the various SAFE registration requirements described above could result in liability under PRC law for foreign exchange evasion.

 

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These regulations apply to our direct and indirect shareholders who are PRC residents and may apply to any offshore acquisitions or share transfers that we make in the future if our shares are issued to PRC residents. However, in practice, different local SAFE branches may have different views and procedures on the application and implementation of SAFE regulations. As of the date of this annual report, all PRC residents known to us that currently hold direct or indirect interests in our company have completed the necessary registrations with SAFE as required by SAFE Circular 37. However, we may not be informed of the identities of all the PRC residents or entities holding direct or indirect interest in our company, nor can we compel our beneficial owners to comply with the requirements of SAFE Circular 37. As a result, we cannot assure you that these individuals or any other direct or indirect shareholders or beneficial owners of our company who are PRC residents will be able to successfully complete the registration or update the registration of their direct and indirect equity interest as required in the future. If they fail to make or update the registration, our PRC subsidiaries could be subject to fines and legal penalties, and SAFE could restrict our cross-border investment activities and our foreign exchange activities, including restricting our PRC subsidiaries’ ability to distribute dividends to, or obtain loans denominated in foreign currencies from, our company, or prevent us from contributing additional capital into our PRC subsidiaries. As a result, our business operations and our ability to make distributions to you could be materially and adversely affected.

 

We face regulatory uncertainties in China that could restrict our ability to grant share incentive awards to our employees or consultants who are PRC citizens.

 

Pursuant to SAFE Circular 37, PRC residents who participate in stock incentive plans in overseas non-publicly-listed companies may submit applications to SAFE or its local branches for the foreign exchange registration with respect to offshore special purpose vehicles. In the meantime, pursuant to the Notices on Issues concerning the Foreign Exchange Administration for Domestic Individuals Participating in a Stock Incentive Plan of an Overseas Publicly-Listed Company issued by SAFE in February 2012, or SAFE Circular 7, a qualified PRC agent (which could be the PRC subsidiary of the overseas-listed company) is required to file, on behalf of  “domestic individuals” (both PRC residents and non-PRC residents who reside in China for a continuous period of not less than one year, excluding the foreign diplomatic personnel and representatives of international organizations) who are granted shares or share options by the overseas-listed company according to its share incentive plan, an application with SAFE to conduct SAFE registration with respect to such share incentive plan, and obtain approval for an annual allowance with respect to the purchase of foreign exchange in connection with the share purchase or share option exercise. Such PRC individuals’ foreign exchange income received from the sale of shares and dividends distributed by the overseas listed company and any other income shall be fully remitted into a collective foreign currency account in China, which is opened and managed by the PRC domestic agent before distribution to such individuals. In addition, such domestic individuals must also retain an overseas entrusted institution to handle matters in connection with their exercise of share options and their purchase and sale of shares. The PRC domestic agent also needs to update registration with SAFE within three months after the overseas-listed company materially changes its share incentive plan or make any new share incentive plans.

 

We and our directors, executive officers and other employees who are PRC citizens or who reside in the PRC for a continuous period of no less than one year and who have been granted stock options are subject to these regulations. Failure to complete the SAFE registrations may subject them to fines and legal sanctions, and may also limit our ability to contribute additional capital into our PRC subsidiaries and limit our PRC subsidiaries’ ability to distribute dividends to us. We also face regulatory uncertainties that could restrict our ability to adopt additional incentive plans for our directors, executive officers and employees under PRC law. See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations Relating to Foreign Currency Exchange—Share Option Rules.”

 

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Labor contract laws in China may adversely affect our results of operations.

 

The current PRC labor contract law imposes considerable liabilities on employers and significantly affects the cost of an employer’s decision to reduce its workforce. Further, it requires certain terminations be based on the mandatory retirement age. In the event we decide to significantly change or decrease our workforce, the Labor Contract Law could adversely affect our ability to enact such changes in a manner that is most advantageous to our business or in a timely and cost-effective manner, thus materially and adversely affecting our financial condition and results of operations.

 

Increases in labor costs and employee benefits in China may adversely affect our business and our profitability.

 

The PRC economy has been experiencing significant growth, leading to inflation and increased labor costs. China’s overall economy and the average wage in China are expected to continue to grow. In addition, we are required by PRC laws and regulations to pay various statutory employee benefits, including pensions, housing fund, medical insurance, work-related injury insurance, unemployment insurance and maternity insurance to designated government agencies for the benefit of our employees. It is subject to the determination of the relevant government agencies whether an employer has made adequate payments of the requisite statutory employee benefits, and employers that fail to make adequate payments may be subject to late payment fees, fines and/or other penalties. Future increases in China’s inflation and material increases in labor costs and employee benefits may materially and adversely affect our profitability and results of operations. If we are subject to late fees or fines in relation to the underpaid employee benefits, our financial condition and results of operations may be adversely affected.

 

Failure to make adequate contributions to various mandatory social security plans and withhold individual income tax as required by PRC regulations may subject us to penalties.

 

PRC laws and regulations require us to pay several statutory social welfare benefits for our employees, including pensions, medical insurance, work-related injury insurance, unemployment insurance, maternity insurance and housing provident fund contributions. Local governments usually implement localized requirements as to mandatory social security plans considering differences in economic development in different regions. PRC laws and regulations also require us to withhold individual income tax on employees' salaries based on the actual salary of each employee upon payment. Our failure in making contributions to various mandatory social security plans, withholding individual income tax and in complying with applicable PRC labor-related laws may subject us to late payment penalties. With respect to the underpaid statutory social welfare benefits, we may be required to make up the contributions for these plans as well as to pay late fees and fines; with respect to the underwithheld individual income tax, we may be required to make up sufficient withholding and pay late fees and fines. If we are subject to late fees or fines in relation to the failure in making contributions to various mandatory social security or withholding individual income tax, our financial condition and results of operations may be affected.

 

Proceedings instituted by the SEC against certain PRC-based accounting firms, including our independent registered public accounting firm, could result in financial statements being determined to not be in compliance with the requirements of the Exchange Act.

 

In December 2012, the SEC instituted administrative proceedings against the Big Four PRC-based accounting firms, including our independent registered public accounting firm, alleging that these firms had violated U.S. securities laws and the SEC’s rules and regulations thereunder by failing to provide to the SEC the firms’ audit work papers with respect to certain PRC-based companies that are publicly traded in the United States.

 

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On January 22, 2014, the administrative law judge, or the ALJ, presiding over the matter rendered an initial decision that each of the firms had violated the SEC’s rules of practice by failing to produce audit papers and other documents to the SEC. The initial decision censured each of the firms and barred them from practicing before the SEC for a period of six months.

 

On February 6, 2015, the four China-based accounting firms each agreed to a censure and to pay a fine to the SEC to settle the dispute and avoid suspension of their ability to practice before the SEC and audit U.S.-listed companies. The settlement required the firms to follow detailed procedures and to seek to provide the SEC with access to Chinese firms’ audit documents via the CSRC. Under the terms of the settlement, the underlying proceeding against the four China-based accounting firms was deemed dismissed with prejudice four years after entry of the settlement. The four-year mark occurred on February 6, 2019. While we cannot predict if the SEC will further challenge the four China-based accounting firms’ compliance with U.S. law in connection with U.S. regulatory requests for audit work papers or if the results of such a challenge would result in the SEC imposing penalties such as suspensions, if the accounting firms are subject to additional remedial measures, our ability to file our financial statements in compliance with SEC requirements could be impacted. A determination that we have not timely filed financial statements in compliance with SEC requirements could ultimately lead to the delisting of our ordinary shares from Nasdaq or the termination of the registration of our ordinary shares under the Securities Exchange Act of 1934, or both, which would substantially reduce or effectively terminate the trading of our ordinary shares in the United States.

 

Proceedings instituted by the SEC against Chinese affiliates of the “big four” accounting firms, including our independent registered public accounting firm, could result in financial statements being determined to not be in compliance with the requirements of the Exchange Act.

 

Starting in 2011 the Chinese affiliates of the “big four” accounting firms, including our independent registered public accounting firm, were affected by a conflict between U.S. and Chinese law. Specifically, for certain U.S.-listed companies operating and audited in mainland China, the SEC and the PCAOB sought to obtain from the Chinese firms access to their audit work papers and related documents. The firms were, however, advised and directed that under Chinese law, they could not respond directly to the U.S. regulators on those requests, and that requests by foreign regulators for access to such papers in China had to be channeled through the CSRC.

 

In late 2012, this impasse led the SEC to commence administrative proceedings under Rule 102(e) of its Rules of Practice and also under the Sarbanes-Oxley Act of 2002 against the Chinese accounting firms, including our independent registered public accounting firm. A first instance trial of the proceedings in July 2013 in the SEC’s internal administrative court resulted in an adverse judgment against the firms. The administrative law judge proposed penalties on the firms including a temporary suspension of their right to practice before the SEC, although that proposed penalty did not take effect pending review by the Commissioners of the SEC. On February 6, 2015, before a review by the Commissioner had taken place, the firms reached a settlement with the SEC. Under the settlement, the SEC accepted that future requests by the SEC for the production of documents will normally be made to the CSRC. The firms were to receive matching Section 106 requests, and were required to abide by a detailed set of procedures with respect to such requests, which in substance require them to facilitate production via the CSRC. If they failed to meet specified criteria, the SEC retained authority to impose a variety of additional remedial measures on the firms depending on the nature of the failure.

 

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Under the terms of the settlement, the underlying proceeding against the four China-based accounting firms was deemed dismissed with prejudice four years after entry of the settlement. The four-year mark occurred on February 6, 2019. While we cannot predict if the SEC will further challenge the four China-based accounting firms’ compliance with U.S. law in connection with U.S. regulatory requests for audit work papers or if the results of such a challenge would result in the SEC imposing penalties such as suspensions. If additional remedial measures are imposed on the Chinese affiliates of the “big four” accounting firms, including our independent registered public accounting firm, we could be unable to timely file future financial statements in compliance with the requirements of the Exchange Act.

 

In the event the Chinese affiliates of the “big four” become subject to additional legal challenges by the SEC or PCAOB, depending upon the final outcome, listed companies in the United States with major PRC operations may find it difficult or impossible to retain auditors in respect of their operations in the PRC, which could result in financial statements being determined to not be in compliance with the requirements of the Exchange Act, including possible delisting. Moreover, any negative news about any such future proceedings against these audit firms may cause investor uncertainty regarding China-based, U.S.-listed companies and the market price of our common stock may be adversely affected.

 

If our independent registered public accounting firm was denied, even temporarily, the ability to practice before the SEC and we were unable to timely find another registered public accounting firm to audit and issue an opinion on our financial statements, our financial statements could be determined not to be in compliance with the requirements of the Exchange Act. Such a determination could ultimately lead to the delisting of the ADSs from Nasdaq Stock Market or deregistration from the SEC, or both, which would substantially reduce or effectively terminate the trading of the ADSs in the United States.

 

Our auditor, like other independent registered public accounting firms operating in China, is not permitted to be subject to inspection by Public Company Accounting Oversight Board, and consequently investors may be deprived of the benefits of such inspection.

 

Our auditor, the independent registered public accounting firm that issued the audit reports included elsewhere in this annual report, as an auditor of companies that are traded publicly in the United States and a firm registered with the Public Company Accounting Oversight Board (United States), or PCAOB, is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess its compliance applicable professional standards. Our auditor is located in, and organized under the laws of, the PRC, which is a jurisdiction where the PCAOB has been unable to conduct inspections without the approval of the Chinese authorities. In May 2013, PCAOB announced that it had entered into a Memorandum of Understanding on Enforcement Cooperation with the CSRC and the PRC Ministry of Finance, which establishes a cooperative framework between the parties for the production and exchange of audit documents relevant to investigations undertaken by PCAOB, the CSRC or the PRC Ministry of Finance in the United States and the PRC, respectively. PCAOB continues to be in discussions with the China Securities Regulatory Commission, or CSRC, and the PRC Ministry of Finance to permit joint inspections in the PRC of audit firms that are registered with PCAOB and audit Chinese companies that trade on U.S. exchanges.

 

On December 7, 2018, the SEC and the PCAOB issued a joint statement highlighting continued challenges faced by the U.S. regulators in their oversight of financial statement audits of U.S.-listed companies with significant operations in China. On April 21, 2020, the Chairman of the SEC, Chairman of the PCAOB and certain other SEC divisional heads jointly issued a public statement highlighting the significant disclosure, financial reporting and other risks associated with emerging market investments, including the PCAOB's continued inability to inspect audit work papers in China. The 2018 joint statement and the 2020 public statement reflect a heightened regulatory interest in this issue. However, it remains unclear what further actions the SEC and the PCAOB will take and their impact on Chinese companies listed in the United States.

 

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This lack of PCAOB inspections in China prevents the PCAOB from fully evaluating audits and quality control procedures of our independent registered public accounting firm. As a result, we and investors in our ordinary shares are deprived of the benefits of such PCAOB inspections. The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of our independent registered public accounting firm’s audit procedures or quality control procedures as compared to auditors outside of China that are subject to PCAOB inspections, which could cause investors and potential investors in our stock to lose confidence in our audit procedures and reported financial information and the quality of our financial statements.

 

Regulation and censorship of information disseminated over the internet in China may adversely affect our business and reputation and subject us to liability for information displayed on our website.

 

The PRC government has adopted regulations governing internet access and the distribution of news and other information over the internet. Under these regulations, internet content providers and internet publishers are prohibited from posting or displaying over the internet content that, among other things, violates PRC laws and regulations, impairs the national dignity of China, or is reactionary, obscene, superstitious, fraudulent or defamatory. Failure to comply with these requirements may result in the revocation of licenses to provide internet content and other licenses, and the closure of the concerned websites. The website operator may also be held liable for such censored information displayed on or linked to the websites. If our website is found to be in violation of any such requirements, we may be penalized by relevant authorities, and our operations or reputation could be adversely affected.

 

Risks Related to Our Ordinary Shares and ADSs

 

We are an emerging growth company within the meaning of the Securities Act and may take advantage of certain reduced reporting requirements.

 

We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from requirements applicable to other public companies that are not emerging growth companies including, most significantly, not being required to comply with the auditor attestation requirements of Section 404 for so long as we are an emerging growth company until the fifth anniversary from the date of our initial listing. As a result, if we elect not to comply with such auditor attestation requirements, our investors may not have access to certain information they may deem important. The JOBS Act also provides that an emerging growth company 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.

 

The trading price of our ADSs is likely to be volatile, which could result in substantial losses to investors.

 

The trading price of our ADSs is likely to be volatile and could fluctuate widely due to factors beyond our control. This may happen because of broad market and industry factors, akin to the performance and fluctuation of the market prices of other companies with business operations located mainly in China that have listed their securities in the United States. A number of Chinese companies have listed or are in the process of listing their securities on U.S. stock markets. The securities of some of these companies have experienced significant volatility, including price declines in connection with their initial public offerings. The trading performances of these Chinese companies’ securities after their offerings may affect the perception and attitudes of investors toward Chinese companies listed in the United States in general and consequently may impact the trading performance of our ADSs, regardless of our actual operating performance.

 

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In addition to market and industry factors, the price and trading volume for our ADSs may be highly volatile due to a number of factors, including the following:

 

·regulatory developments affecting us or our industry, and users of our online platform;

 

·actual or anticipated fluctuations in our quarterly results of operations and changes or revisions of our expected results;

 

·changes in the market condition, market potential and competition in automobile industry;

 

·announcements by us or our competitors of new automobile services, expansions, investments, acquisitions, strategic partnerships or joint ventures;

 

·fluctuations in global and Chinese economies;

 

·changes in financial estimates by securities analysts;

 

·adverse publicity about us;

 

·additions or departures of our key personnel and senior management;

 

·release of lock-up or other transfer restrictions on our outstanding equity securities or sales of additional equity securities; and

 

·potential litigation or regulatory investigations.

 

Any of these factors may result in large and sudden changes in the volume and price at which our ADSs will trade.

 

In the past, shareholders of public companies have often brought securities class action suits against those companies following periods of instability in the market price of their securities. If we were involved in a class action suit, it could divert a significant amount of our management’s attention and other resources from our business and operations and require us to incur significant expenses to defend the suit, which could harm our results of operations. Any such class action suit, whether or not successful, could harm our reputation and restrict our ability to raise capital in the future. In addition, if a claim is successfully made against us, we may be required to pay significant damages, which could have a material adverse effect on our financial condition and results of operations.

 

Our dual-class share structure with different voting rights will limit your ability to influence corporate matters and could discourage others from pursuing any change of control transactions that holders of our Class A ordinary shares and ADSs may view as beneficial.

 

Mr. Wei Wen beneficially owns 75.7% of the aggregate voting power of our company as of April 30, 2020. See “Item 6. Directors, Senior Management and Employees—E. Share Ownership.” As a result of the dual-class share structure and the concentration of ownership, Mr. Wei Wen has considerable influence over matters such as decisions regarding mergers, consolidations, sale of all or substantially all of our assets, election of directors and other significant corporate actions. He may take actions that are not in the best interest of us or our other shareholders. This concentration of ownership may discourage, delay or prevent a change in control of our company, which could have the effect of depriving our other shareholders of the opportunity to receive a premium for their shares as part of a sale of our company and may reduce the price of our ADSs. This concentrated control will limit your ability to influence corporate matters and could discourage others from pursuing any potential merger, takeover or other change of control transactions that holders of Class A ordinary shares and ADSs may view as beneficial.

 

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Substantial future sales or perceived potential sales of our ADSs in the public market could cause the price of our ADSs to decline.

 

Sales of substantial amounts of our ADSs in the public market, or the perception that these sales could occur, could adversely affect the market price of our ADSs. All of our outstanding ADSs are freely transferable without restriction or additional registration under the Securities Act and are available for sale upon the expiration of the lock-up period ending 180 days after the pricing of our initial public offering, subject to certain restrictions. Any or all of these shares may be released prior to the expiration of the lock-up period at the discretion of the underwriter. Sales of these shares into the market could cause the market price of our ADSs to decline.

 

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, the market price for our ADSs and trading volume could decline.

 

The trading market for our ADSs will depend in part on the research and reports that securities or industry analysts publish about us or our business. If research analysts do not establish and maintain adequate research coverage or if one or more of the analysts who covers us downgrades our ADSs or publishes inaccurate or unfavorable research about our business, the market price for our ADSs would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which, in turn, could cause the market price or trading volume for our ADSs to decline.

 

Techniques employed by short sellers may drive down the market price of the ADSs.

 

Short selling is the practice of selling securities that the seller does not own but rather has borrowed from a third party with the intention of buying identical securities back at a later date to return to the lender. The short seller hopes to profit from a decline in the value of the securities between the sale of the borrowed securities and the purchase of the replacement shares, as the short seller expects to pay less in that purchase than it received in the sale. As it is in the short seller’s interest for the price of the security to decline, many short sellers publish, or arrange for the publication of, negative opinions regarding the relevant issuer and its business prospects in order to create negative market momentum and generate profits for themselves after selling a security short. These short attacks have, in the past, led to selling of shares in the market.

 

Public companies that have substantially all of their operations in China have been the subject of short selling. Much of the scrutiny and negative publicity has centered on allegations of a lack of effective internal control over financial reporting resulting in financial and accounting irregularities and mistakes, inadequate corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud. As a result, many of these companies are now conducting internal and external investigations into the allegations and, in the interim, are subject to shareholder lawsuits and/or SEC enforcement actions.

 

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It is not clear what effect such negative publicity could have on us. If we were to become the subject of any unfavorable allegations, whether such allegations are proven to be true or untrue, we could have to expend a significant amount of resources to investigate such allegations and/or defend ourselves. While we would strongly defend against any such short seller attacks, we may be constrained in the manner in which we can proceed against the relevant short seller by principles of freedom of speech, applicable state law or issues of commercial confidentiality. Such a situation could be costly and time-consuming, and could distract our management from growing our business. Even if such allegations are ultimately proven to be groundless, allegations against us could severely impact our business operations, and any investment in the ADSs could be greatly reduced or even rendered worthless.

 

Because we do not expect to pay dividends in the foreseeable future, you must rely on price appreciation of our ADSs for return on your investment.

 

We currently intend to retain most, if not all, of our available funds and any future earnings to fund the development and growth of our business. As a result, we do not expect to pay any cash dividends in the foreseeable future. Therefore, you should not rely on an investment in our ADSs as a source for any future dividend income.

 

Our board of directors has complete discretion as to whether to distribute dividends, subject to applicable laws. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividends may exceed the amount recommended by our board of directors. Even if our board of directors decides to declare and pay dividends, the timing, amount and form of future dividends, if any, will depend on, among other things, our future results of operations and cash flow, our capital requirements and surplus, the amount of distributions, if any, received by us from our subsidiaries, our financial condition, contractual restrictions and other factors deemed relevant by our board of directors. Accordingly, the return on your investment in our ADSs will likely depend entirely upon any future price appreciation of our ADSs. We cannot guarantee that our ADSs will appreciate in value or even maintain the price at which you purchased the ADSs. You may not realize a return on your investment in our ADSs and you may even lose your entire investment in our ADSs.

 

As a “controlled company” under the Nasdaq Stock Market Rules, we may be exempt from certain corporate governance requirements that could adversely affect our public shareholders.

 

Since Mr. Wei Wen, our chairman of the board and chief executive officer, is the beneficial owner of a majority of the voting power of our issued and outstanding share capital following, we qualify as a “controlled company” under the Nasdaq Stock Market Rules. Under these rules a company of which more than 50% of the voting power is held by an individual, group or another company is a controlled company and may elect not to comply with certain corporate governance requirements, including the requirement that a majority of our directors be independent, as defined in the Nasdaq Stock Market Rules, and the requirement that our compensation and nominating and corporate governance committees consist entirely of independent directors. Although we do not intend to rely upon any such exemptions, we could elect to rely on any or all of these exemptions in the future. Should we choose to do so, so long as we remain a controlled company relying on any of such exemptions and during any transition period following the time when we are no longer a controlled company, you would not have the same protections afforded to shareholders of companies that are subject to all of NASDAQ corporate governance requirements.

 

We may be classified as a passive foreign investment company for United States federal income tax purposes, which could result in adverse United States federal income tax consequences to United States investors in the ADSs or ordinary shares.

 

We will be classified as a “passive foreign investment company,” or PFIC, if, in the case of any particular fiscal year, either (1) 75.0% or more of our gross income for such year consists of certain types of passive income, or (2) 50.0% or more of the average quarterly value of our assets during such year produce or are held for the production of passive income. Although the law in this regard is unclear, we treat our affiliated entities as being owned by us for United States federal income tax purposes, not only because we exercise effective control over the operation of such entities but also because we are entitled to substantially all of their economic benefits, and, as a result, we consolidate their results of operation in our financial statements. Assuming that we are the owner of our affiliated entities for United States federal income tax purposes, and based upon our historical and current income and assets, we do not believe that we were classified as a PFIC for the fiscal year ended December 31, 2019, and we do not expect to be classified as a PFIC for the current fiscal year.

 

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The determination of whether we are or will become a PFIC will depend upon the composition of our income (which may differ from our historical results and current projections) and assets and the value of our assets from time to time, including, in particular, the value of our goodwill and other unbooked intangibles (which may depend upon the market value of our ADSs or ordinary shares from time-to-time and may be volatile). Among other matters, if our market capitalization declines, we may be classified as a PFIC for the current fiscal year or future fiscal years. It is also possible that the IRS, may challenge our classification or valuation of our goodwill and other unbooked intangibles, which may result in our company being, or becoming classified as, a PFIC for the current fiscal year or future fiscal years.

 

While we do not expect to become a PFIC in the current fiscal year, the determination of whether we will be or become a PFIC may also depend, in part, on how, and how quickly, we use our liquid assets and cash. Under circumstances where we retain significant amounts liquid assets, or if our affiliated entities were not treated as owned by us for United States federal income tax purposes, our risk of being classified as a PFIC may substantially increase. Because there are uncertainties in the application of the relevant rules and PFIC status is a factual determination made annually after the close of each fiscal year, we cannot assure you that we will not be a PFIC for the current fiscal year or any future fiscal year.

 

If we are classified as a PFIC in any fiscal year, a U.S. Holder (as defined in “Item 10. Additional Information—E. Taxation—United States Federal Income Taxation.”) may incur significantly increased United States federal income tax on gain recognized on the sale or other disposition of the ADSs or ordinary shares and on the receipt of distributions on the ADSs or ordinary shares to the extent such gain or distribution is treated as an “excess distribution” under the United States federal income tax rules, and such holders may be subject to burdensome reporting requirements. Further, if we are classified as a PFIC for any year during which a U.S. Holder holds our ADSs or ordinary shares, we generally will continue to be treated as a PFIC for all succeeding years during which such U.S. Holder holds our ADSs or ordinary shares. For more information, see “Item 10. Additional Information—E. Taxation—United States Federal Income Taxation.”

 

Our memorandum and articles of association contains anti-takeover provisions that could have a material adverse effect on the rights of holders of our Class A ordinary shares and ADSs.

 

Our memorandum and articles of association contain provisions to limit the ability of others to acquire control of our company or cause us to engage in change-of-control transactions. These provisions could have the effect of depriving our shareholders of an opportunity to sell their shares at a premium over prevailing market prices by discouraging third parties from seeking to obtain control of our company in a tender offer or similar transaction. For example, our board of directors has the authority, subject to any resolution of the shareholders to the contrary, to issue preferred shares in one or more series and to fix their designations, powers, preferences, privileges, and relative participating, optional or special rights and the qualifications, limitations or restrictions, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights associated with our Class A ordinary shares, in the form of ADS or otherwise. Preferred shares could be issued quickly with terms calculated to delay or prevent a change in control of our company or make removal of management more difficult. If our board of directors decides to issue preferred shares, the price of the ADSs may fall and the voting and other rights of the holders of our Class A ordinary shares and ADSs may be materially and adversely affected.

 

 -42- 

 

 

Because we are incorporated under Cayman Islands law and conduct our operations primarily in emerging markets, you may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited.

 

We are an exempted company incorporated under the laws of the Cayman Islands. Our corporate affairs are governed by our memorandum and articles of association, the Companies Law (2020 Revision) of the Cayman Islands, or the Companies Law, and the common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from the common law of England, the decisions of whose courts are of persuasive authority, but are not binding, on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a less developed body of securities laws than the United States. Some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands. In addition, Cayman Islands companies may not have standing to initiate a shareholder derivative action in a federal court of the United States.

 

The Cayman Islands courts are also unlikely (1) to recognize or enforce against us judgments of courts of the United States based on certain civil liability provisions of U.S. securities laws, or (2) to impose liabilities against us, in original actions brought in the Cayman Islands, based on certain civil liability provisions of U.S. securities laws that are penal in nature.

 

There is no statutory enforcement in the Cayman Islands of judgments obtained in the federal or state courts of the United States and that the Cayman Islands are not a party to any treaties for the reciprocal enforcement or recognition of such judgments, the courts of the Cayman Islands will, at common law, recognize and enforce a foreign money judgment of a foreign court of competent jurisdiction without reexamination of the merits of the underlying disputes based on the principle that a judgment of a competent foreign court imposes upon the judgment debtor an obligation to pay the liquidated sum for which judgment has been given provided certain conditions are met. For such a foreign judgment to be enforced in the Cayman Islands, such judgment must be final and conclusive and for a liquidated sum, and must not be in respect of taxes or a fine or penalty and not obtained in a manner and is not of a kind the enforcement of which is, contrary to natural justice or the public policy of the Cayman Islands. However, the Cayman Islands courts are unlikely to enforce a judgment obtained from the U.S. courts under civil liability provisions of the U.S. federal securities law if such judgment is determined by the courts of the Cayman Islands to give rise to obligations to make payments that are penal or punitive in nature. A Cayman Islands court may stay enforcement proceedings if concurrent proceedings are being brought elsewhere.

 

In addition, we conduct substantially all of our business operations in emerging markets, including China, and substantially all of our directors and senior management are based in China. The SEC, U.S. Department of Justice and other authorities often have substantial difficulties in bringing and enforcing actions against non-U.S. companies and non-U.S. persons, including company directors and officers, in certain emerging markets, including China. Additionally, our public shareholders may have limited rights and few practical remedies in emerging markets where we operate, as shareholder claims that are common in the United States, including class action securities law and fraud claims, generally are difficult or impossible to pursue as a matter of law or practicality in many emerging markets, including China.

 

 -43- 

 

 

As a result of all of the above, our public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or large shareholders than they would as public shareholders of a company incorporated in the United States.

 

Certain judgments obtained against us by our shareholders may not be enforceable.

 

We are a Cayman Islands exempted company and all of our assets are located outside of the United States. Substantially all of our current operations are conducted in China. In addition, a majority of our current directors and officers are nationals and residents of countries other than the United States. Substantially all of the assets of these persons are located outside the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States in the event that you believe that your rights have been infringed under the U.S. federal securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of China may render you unable to enforce a judgment against our assets or the assets of our directors and officers.

 

We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to United States domestic public companies.

 

Because we are a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the securities rules and regulations in the United States that are applicable to U.S. domestic issuers, including:

 

·the rules under the Exchange Act requiring the filing of quarterly reports on Form 10-Q or current reports on Form 8-K with the SEC;

 

·the sections of the Exchange Act regulating the solicitation of proxies, consents, or authorizations in respect of a security registered under the Exchange Act;

 

·the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and

 

·the selective disclosure rules by issuers of material nonpublic information under Regulation FD.

 

We are required to file an annual report on Form 20-F within four months of the end of each fiscal year. In addition, we intend to publish our results on a quarterly basis through press releases, distributed pursuant to the Nasdaq Stock Market Rules. Press releases relating to financial results and material events will also be furnished to the SEC on Form 6-K. However, the information we are required to file with or furnish to the SEC will be less extensive and less timely compared to that required to be filed with the SEC by U.S. domestic issuers. As a result, you may not be afforded the same protections or information, which would be made available to you, were you investing in a U.S. domestic issuer.

 

 -44- 

 

 

As a company incorporated in the Cayman Islands, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from NASDAQ corporate governance listing standards; these practices may afford less protection to shareholders than they would enjoy if we complied fully with NASDAQ corporate governance listing standards.

 

As a Cayman Islands exempted company listed on NASDAQ, we are subject to NASDAQ corporate governance listing standards. However, the Nasdaq Stock Market Rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in the Cayman Islands, which is our home country, may differ significantly from NASDAQ corporate governance listing standards. For instance, we are not required to: (1) have a majority of the board be independent; (2) have a compensation committee or a nominating and corporate governance committee consisting entirely of independent directors; or (3) have regularly scheduled executive sessions with only independent directors each year. We intend to rely on some of these exemptions. As a result, you may not be provided with the benefits of certain corporate governance requirements of the NASDAQ Capital Market.

 

Certain corporate governance practices in the Cayman Islands, which is our home country, differ significantly from requirements for companies incorporated in other jurisdictions such as the United States. To the extent we choose to follow home country practice with respect to corporate governance matters, our shareholders may be afforded less protection than they otherwise would under rules and regulations applicable to U.S. domestic issuers.

 

The voting rights of holders of ADSs are limited by the terms of the deposit agreement, and you may not be able to exercise your right to vote your Class A ordinary shares.

 

As a holder of our ADSs, you will only be able to exercise the voting rights with respect to the underlying Class A ordinary shares represented by your ADSs in accordance with the provisions of the deposit agreement. Under the deposit agreement, you must vote by giving voting instructions to the depositary. Upon receipt of your voting instructions, the depositary will vote the underlying Class A ordinary shares represented by your ADSs in accordance with these instructions. You will not be able to directly exercise your right to vote with respect to the underlying Class A ordinary shares represented by your ADSs unless you withdraw such shares. Under our memorandum and articles of association, the minimum notice period required for convening a general meeting is seven calendar days. When a general meeting is convened, you may not receive sufficient advance notice to withdraw the underlying Class A ordinary shares underlying your ADSs to allow you to vote with respect to any specific matter. If we ask for your instructions, the depositary will notify you of the upcoming vote and will arrange to deliver our voting materials to you. We cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote your shares. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for their manner of carrying out your voting instructions. This means that you may not be able to exercise your right to vote and you may have no legal remedy if the underlying Class A ordinary shares represented by your ADSs are not voted as you requested.

 

The depositary for our ADSs gave us a discretionary proxy to vote our Class A ordinary shares underlying your ADSs if you do not vote at shareholders’ meetings, except in limited circumstances, which could adversely affect your interests.

 

Under the deposit agreement for the ADSs, if you do not vote, the depositary will give us a discretionary proxy to vote our underlying Class A ordinary shares represented by your ADSs at shareholders’ meetings if:

 

·we have timely provided the depositary with notice of meeting and related voting materials;

 

·we have instructed the depositary that we wish to receive a proxy to vote uninstructed shares;

 

·we have informed the depositary that we reasonably do not know any substantial opposition as to a matter to be voted on at the meeting; or

 

·we have informed the depositary that such matter to be voted on at the meeting is not materially adverse to the interest of shareholders.

 

The effect of this discretionary proxy is that if you do not vote at shareholders’ meetings, you cannot prevent our underlying Class A ordinary shares represented by your ADSs from being voted, except that we fail to meet the conditions described above. This may make it more difficult for shareholders to influence the management of our company.

 

 -45- 

 

 

You may not receive dividends or other distributions on our Class A ordinary shares and you may not receive any value for them, if it is illegal or impractical to make them available to you.

 

The depositary of our ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on ordinary shares or other deposited securities underlying our ADSs, after deducting its fees and expenses. You will receive these distributions in proportion to the number of Class A ordinary shares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act but that are not properly registered or distributed under an applicable exemption from registration. The depositary may also determine that it is not feasible to distribute certain property through the mail. Additionally, the value of certain distributions may be less than the cost of mailing them. In these cases, the depositary may determine not to distribute such property. We have no obligation to register under U.S. securities laws any ADSs, ordinary shares, rights or other securities received through such distributions. We also have no obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. This means that you may not receive distributions we make on our ordinary shares or any value for them if it is illegal or impractical for us to make them available to you. These restrictions may cause a material decline in the value of our ADSs.

 

ADSs holders may not be entitled to a jury trial with respect to claims arising under the deposit agreement, which could result in less favorable outcomes to the plaintiff(s) in any such action.

 

The deposit agreement governing the ADSs representing our Class A ordinary shares provides that, to the fullest extent permitted by law, ADS holders waive the right to a jury trial of any claim they may have against us or the depositary arising out of or relating to our shares, the ADSs or the deposit agreement, including any claim under the U.S. federal securities laws.

 

If we or the depositary opposed a jury trial demand based on the waiver, the court would determine whether the waiver was enforceable based on the facts and circumstances of that case in accordance with the applicable state and federal law. To our knowledge, the enforceability of a contractual pre-dispute jury trial waiver in connection with claims arising under the federal securities laws has not been finally adjudicated by the United States Supreme Court. However, we believe that a contractual pre-dispute jury trial waiver provision is generally enforceable, including under the laws of the State of New York, which govern the deposit agreement, by a federal or state court in the City of New York, which has non-exclusive jurisdiction over matters arising under the deposit agreement. In determining whether to enforce a contractual pre-dispute jury trial waiver provision, courts will generally consider whether a party knowingly, intelligently and voluntarily waived the right to a jury trial. We believe that this is the case with respect to the deposit agreement and the ADSs. It is advisable that you consult legal counsel regarding the jury waiver provision before entering into the deposit agreement.

 

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If you or any other holders or beneficial owners of ADSs bring a claim against us or the depositary in connection with matters arising under the deposit agreement or the ADSs, including claims under federal securities laws, you or such other holder or beneficial owner may not be entitled to a jury trial with respect to such claims, which may have the effect of limiting and discouraging lawsuits against us and/or the depositary. If a lawsuit is brought against us and/or the depositary under the deposit agreement, it may be heard only by a judge or justice of the applicable trial court, which would be conducted according to different civil procedures and may result in different outcomes than a trial by jury would have had, including results that could be less favorable to the plaintiff(s) in any such action.

 

Nevertheless, if this jury trial waiver provision is not permitted by applicable law, an action could proceed under the terms of the deposit agreement with a jury trial. No condition, stipulation or provision of the deposit agreement or ADSs serves as a waiver by any holder or beneficial owner of ADSs or by us or the depositary of compliance with any substantive provision of the U.S. federal securities laws and the rules and regulations promulgated thereunder.

 

You may experience dilution of your holdings due to inability to participate in rights offerings.

 

We may, from time to time, distribute rights to our shareholders, including rights to acquire securities. Under the deposit agreement, the depositary will not distribute rights to holders of ADSs unless the distribution and sale of rights and the securities to which these rights relate are either exempt from registration under the Securities Act with respect to all holders of ADSs, or are registered under the provisions of the Securities Act. The depositary may, but is not required to, attempt to sell these undistributed rights to third parties, and may allow the rights to lapse. We may be unable to establish an exemption from registration under the Securities Act, and we are under no obligation to file a registration statement with respect to these rights or underlying securities or to endeavor to have a registration statement declared effective. Accordingly, holders of ADSs may be unable to participate in our rights offerings and may experience dilution of their holdings as a result.

 

You may be subject to limitations on transfer of your ADSs.

 

Your ADSs are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when it deems expedient in connection with the performance of its duties. The depositary may close its books from time to time for a number of reasons, including in connection with corporate events such as a right offering, during which time the depositary needs to maintain an exact number of ADS holders on its books for a specified period. The depositary may also close its books in emergencies, and on weekends and public holidays. The depositary may refuse to deliver, transfer or register transfers of our ADSs generally when our share register or the books of the depositary are closed, or at any time if we or the depositary thinks it is advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason.

 

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ITEM 4. INFORMATION ON THE COMPANY

 

A.History and development of the company

 

We are an exempted company with limited liability incorporated in the Cayman Islands. We commenced our automobile group-purchase facilitation business in 2010. We began our auto show business in the fourth quarter of 2016, and we expanded our auto shows to tier-3 and below cities in 2017. We began the operation of our virtual dealership business in the second quarter of 2018.

 

We conduct our business through our subsidiaries and consolidated affiliated entities in China. Over the past few years, we underwent a series of restructurings. In particular:

 

·Incorporation of the listing entity. In September 2012, we incorporated TuanChe Limited as a holding company and proposed listing entity in the Cayman Islands.

 

·Incorporation of Hong Kong and PRC subsidiaries. In October 2012, we established a wholly-owned subsidiary in Hong Kong, TuanChe Information Limited. In January 2013, we also established a wholly-owned subsidiary in China, TuanYuan Internet Technology (Beijing) Co., Ltd., or TuanYuan, through which we obtained control over TuanChe Internet Information Service (Beijing) Co., Ltd., or TuanChe Internet, based on a series of contractual arrangements.

 

·Contractual arrangements. Due to PRC legal restrictions on foreign ownership in value-added telecommunication services, we carry out our business in China through our VIEs and their subsidiaries. In March 2013, we, through TuanYuan, entered into a series of contractual arrangements with (1) TuanChe Internet, and (2) the shareholders of TuanChe Internet, to obtain effective control of TuanChe Internet and its subsidiaries. These contractual arrangements were recently revised in August 2017. In January 2020, in relation to our acquisition of Longye, we, through Sangu Maolu, a wholly owned subsidiary in China, entered into a series of contractual arrangements with (1) Drive New Media and Internet Drive Technology, and (2) their respective shareholders, to obtain effective control of Drive New Media and Internet Drive Technology and their respective subsidiaries.

 

Since our incorporation of TuanChe Limited in 2012, we have raised approximately US$135.6 million in equity financing from our dedicated group of investors:

 

·Series A financing. In March 2013, we raised an aggregate of US$700,000 from the issuance of 2,828,393 and 16,970,357 Series A preferred shares to K2 Evergreen Partners L.P. and K2 Partners II L.P., respectively.

 

·Series B financing. In September 2013, we raised an aggregate of US$5,564,856 from the issuance of 4,142,781 and 8,285,562 Series B-1 preferred shares to K2 Evergreen Partners L.P. and K2 Partners II L.P., respectively, and the issuance of 18,193,772 and 4,548,443 series B-2 preferred shares to BAI GmbH and K2 Partners II L.P., respectively.

 

·Series C financing. In August 2014, we raised an aggregate of US$23,658,593 from the issuance of 3,427,812 Series C-1 preferred shares, 5,643,437 Series C-2 preferred shares to BAI GmbH, and 27,765,278 Series C-2 preferred shares to Highland 9 — LUX S.à.r.l. In September 2015, Highland 9 — LUX S.à.r.l. transferred such Series C-2 preferred shares to Highland Capital Partners 9 Limited Partnership, Highland Capital Partners 9-B Limited Partnership, and Highland Entrepreneurs’ Fund 9 Limited Partnership, and 483,702 Series C-2 preferred shares to China Equities HK Limited.

 

·Series C+ financing. In June 2017, we raised an aggregate of US$8,682,770 from the issuance of in total 12,593,555 Series C+ preferred shares to Highland Capital Partners 9 Limited Partnership, Highland Capital Partners 9-B Limited Partnership, Highland Entrepreneurs’ Fund 9 Limited Partnership, K2 Partners III Limited, K2 Family Partners Limited, BAI GmbH, and AlphaX Partners Fund I, L.P. On December 21, 2015, we entered into a convertible loan agreement with Lanxi Puhua Juli Equity Investment L.P. (“Lanxi Puhua”) in the amount of RMB30.0 million. On August 18, 2017, we issued 6,261,743 Series C+ preferred shares to Puhua Group Ltd, a company designated by Lanxi Puhua, at nominal value, pursuant to the loan agreement and a share purchase agreement dated June 16, 2017.

 

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  · Convertible note financing. In August 2017, we raised an aggregate principal amount of US$6,300,000 through issuing notes to AlphaX Partners Fund I, L.P., K2 Partners III Limited and K2 Family Partners Limited, and Hongtao Investment-I Ltd (formerly known as Eager Info Investments Limited) pursuant to certain convertible note purchase agreements. In June 2018, the convertible notes were converted into an aggregate of 3,965,043, 1,201,528 and 2,403,057 Series C-4 preferred shares, respectively, all at a conversion price of US$0.8322734 per share.

  

  · Series D-1 financing. In June 2018, we raised an aggregate of US$23,350,000 from the issuance of 3,592,664 and 6,453,887 Series D-1 preferred shares to ACEE Capital Ltd. and Honour Depot Limited, respectively.

  

  · Series D-2 financing. In September 2018, we raised US$50,000,000 from the issuance of 20,630,925 Series D-2 preferred shares to Beijing Z-Park Fund Investment Center (Limited Partner). In October 2018, we raised US$2,300,000 from the issuance of 949,023 Series D-2 preferred shares to Beijing Shengjing Fengtai Innovation Investment Center (Limited Partner).

 

  · Initial public offering. In November 2018, we completed an initial public offering of 2,600,000 ADSs, raising approximately US$15.0 million in net proceeds after deducting underwriting commissions and the offering expenses payable by us.

  

PRC laws and regulations place certain restrictions on foreign investment in value-added telecommunication service businesses. We conduct our operations in the PRC principally through our VIEs and their subsidiaries, collectively referred to as our consolidated affiliated entities in this annual report. We have effective control over our consolidated affiliated entities through a series of contractual arrangements among our WFOEs, our VIEs and their respective shareholders.

 

The contractual arrangements, as described in more detail below, collectively allow us to:

 

·exercise effective control over our consolidated affiliated entities;

 

·receive substantially all of the economic benefits of our consolidated affiliated entities; and

 

·have an exclusive call option to purchase all or part of the equity interests in and/or assets of each of our VIEs when and to the extent permitted by PRC laws.

 

As a result of these contractual arrangements, we are the primary beneficiary of our VIEs and their respective subsidiaries, and, therefore, have consolidated the financial results of our consolidated affiliated entities in our consolidated financial statements in accordance with U.S. GAAP.

 

We listed our ADSs on the Nasdaq Capital Market under the symbol “TC” on November 20, 2018 and completed an initial public offering of 2,600,000 ADSs on November 23, 2018, raising approximately US$15.0 million in net proceeds after deducting underwriting commissions and the offering expenses payable by us.

 

Our principal executive offices are located at 9F, Ruihai Building, No. 21 Yangfangdian Road, Haidian District, Beijing 100038, People’s Republic of China. Our registered office in the Cayman Islands is located at the offices of Osiris International Cayman Limited, Suite #4-210, Governors Square, 23 Lime Tree Bay Avenue, PO Box 32311, Grand Cayman KY1-1209, Cayman Islands. The telephone number of our principal executive offices is (+86-10) 6399-8902. Investors should contact us for any inquiries through the address and telephone number of our principal executive office. Our agent for service of process in the United States is Cogency Global Inc., located at 10 E. 40th Street, 10th Floor, New York, N.Y. 10016, United States. Our principal website is tuanche.com.

 

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For information regarding our principal capital expenditures, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Liquidity and Capital Resources.”

 

SEC maintains an Internet site, http://www.sec/gov, which contains reports, proxy and information statements, and other information regarding us. We also maintain an Internet site, http://ir.tuanche.com/, for investors’ information.

 

B.Business Overview

 

We currently operate primarily two highly synergistic businesses:

  

  · Offline marketing solutions. We turn individual and isolated automobile purchase transactions into large-scale collective purchase activities through our auto shows. By attracting a large number of consumers, these events serve as integrated marketing solutions to our industry customers, which include automakers, franchised dealerships, secondary dealers and automotive service providers. We enable interactions between large numbers of participants on both sides of a potential transaction, creating a “many-to-many” environment, within a short period of time, thus enhancing the value we offer to both consumer and industry customer participants of our offline events. In addition, we have developed our special promotion event services to better support our industry customers in organizing their special promotion events through a series of integrated services, including event planning and executing, marketing training and onsite coaching.

 

  · Virtual dealership services, online marketing services and others. We function as a virtual dealership connecting automakers and franchised dealerships with secondary dealers by providing a suite of services traditionally undertaken by franchised dealerships without setting up permanent physical presence. Mostly directed at lower tier cities, these services include distribution channel expansion services for automakers and sourcing services for secondary dealers. In addition, we help our industry customers increase the efficiency and effectiveness of their marketing campaigns through our online marketing services.

  

Our business model features the integration of two complementary elements: our online platform and offline events. Our online platform consists of our website tuanche.com, our official WeChat account, our WeChat mini-program, our mobile applications, and Cheshangtong, our principal SaaS product. Together, these channels promote our offline events and serve as a consumer acquisition and management tool for our offline events and for the secondary dealers using our virtual dealership services. Our offline events provide consumers physical access to a broad selection of automobiles and serve as a gateway to useful data from consumer participants who have not previously entered their information on our online platform. With our data analytics capabilities, these data enhance our understanding of the automobile demand in various localities and continuously improve the effectiveness of our event planning.

 

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We complement our service offerings by collaborating with service and product providers in China’s automotive industry, such as aftermarket service providers, financial institutions, and insurance companies. By extending our services beyond automobile purchases, we offer consumers one-stop end-to-end shopping experience, establish ongoing relationships with consumers, and attract new consumers who are contemplating automobile purchases. As our consumer base increases, more automakers and auto dealers are incentivized to become our industry customers, which leads to a broader selection of automobiles and more favorable pricing terms for our consumers, driving a significant self-reinforcing virtuous cycle. Meanwhile, our relationships with a growing number of automakers, secondary dealers and consumers pave the way for our virtual dealership business, the success of which heavily depends on securing sufficient automobile supplies and enlarging automobile distribution channels.

 

We have a long operating history in China’s automotive industry and have achieved rapid growth since our inception in 2010. In 2010, we began our group-purchase facilitation service where we gathered consumers interested in purchasing the same brands and models through our online channels, and organized offline store visits to franchised dealerships carrying these brands and models. Leveraging the network of franchised dealerships, we built through our group-purchase facilitation service and the operational capabilities we accumulated through organizing offline events, we launched our auto show business in the last quarter of 2016. In 2017, 2018 and 2019, we organized 304, 851 and 1,055 auto shows, respectively. In June 2018, we began offering virtual dealership services to further penetrate the automotive industry. The total number of automobiles sales transactions we facilitated increased was 193,371, 347,398 and 354,355 in 2017, 2018 and 2019, respectively. The total GMV of all automobile sales transactions we facilitated was approximately RMB48.1 billion and RMB47.5 billion (US$6.8 billion) in 2018 and 2019, respectively. In January 2019, we commenced our special promotion event services to better support our industry customers in organizing their special promotion events through a series of integrated service offerings, including event planning and executing, marketing training and onsite coaching. We facilitated 627 special promotion events through our services in 2019.

 

Historically, we generated our net revenues primarily through our offline events. Starting from 2018, we began to generate net revenue from virtual dealership, online marketing service and others, which amounted to RMB6.8 million and RMB21.6 million (US$3.1 million) in 2018 and 2019, respectively, representing 1.0% and 3.3% of our net revenues for the same periods, respectively. For a detailed breakdown of our net revenues, see “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Key Components of Results of Operations—Net Revenues.”

  

Our net revenues were RMB280.7 million, RMB651.0 million and RMB644.8 million (US$92.6 million) in 2017, 2018 and 2019, respectively. Our net loss was RMB90.7 million, RMB78.7 million and RMB251.3 million (US$36.1 million) in 2017, 2018 and 2019, respectively. Our net loss from continuing operations was RMB75.7 million, RMB75.1 million and RMB251.3 million (US$36.1 million) in 2017, 2018 and 2019, respectively. Our adjusted EBITDA was RMB(84.0) million, RMB7.5 million and RMB(143.9) million (US$(20.7) million) in 2017, 2018 and 2019, respectively. We recorded adjusted net loss of RMB87.4 million, adjusted net profit of RMB3.3 million and adjusted net loss of RMB140.3 million (US$20.2 million) in 2017, 2018 and 2019, respectively. For a detailed description of our non-GAAP measures, see “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Non-GAAP Financial Measures.” The significant increase in our adjusted net loss from 2019 to 2018 was primarily due to the increases in our selling and marketing expenses and administrative expenses in 2019. See “Item 5. Operating and Financial Review and Prospects— A. Operating Results— Year Ended December 31, 2019 Compared to Year Ended December 31, 2018.”

 

Our Business Model

 

We are the first company in China to provide a scalable omni-channel automotive marketplace approach to automobile marketing and distribution, according to the iResearch report. This business model features high sales conversion effectiveness and efficiency, delivering a high and measurable return on investment for our industry customers relative to their overall marketing expenditures. We offer marketing solutions by integrating our online platform and offline sales events. Our online platform, which consists of our tuanche.com website, apps, official WeChat account, WeChat mini-programs, Cheshangtong, and other mobile outlets, serves as a platform for consumer acquisition and management. Our offline events bring consumers, auto dealers, automakers, and automotive service providers together to promote in-person interactions and direct comparisons across a broad selection of vehicles and related service offerings. The integration of these two components is essential to our ability to offer comprehensive and efficient automobile transaction experiences for all participants, including consumers, automakers, auto dealers, and automotive service providers. The chart below illustrates our business model for our integrated marketing solutions:

 

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Driven by our existing marketing solutions, we launched virtual dealerships in order to help automakers and franchised dealerships expand their distribution channels and to help secondary dealers enlarge their sourcing options and number of purchase orders. Our virtual dealerships aim to fill the gap left by traditional franchised dealerships in tier-3 and below cities. The chart below illustrates our current business model for our virtual dealership business:

 

 

 

Our Consumers

 

We use both online and offline channels to effectively attract automobile consumers to participate in our auto shows.

 

Online. Our own online channels consist of our tuanche.com website, our mobile apps, our official WeChat account and WeChat mini-program. As of December 31, 2019, we have created customized city homepages for over 250 cities around China, each targeting local consumers. From January 1, 2016 to December 31, 2019, over 16.2 million consumers have entered their information on our online platform. In 2017, 2018 and 2019, the average monthly unique visits to our online platform was 9.4 million, 14.4 million and 13.6 million, respectively. When users access our website on their desktops or their mobile devices, or when they open our mobile apps or subscribe to our official WeChat account, they will find information of upcoming auto shows across China. Users are prompted to enter their names and cell phone numbers in order to gain free admission and a chance to win prizes at our offline events. Users may also indicate the brand and model they prefer, which helps us better understand the potential needs of the consumer participants at our offline events.

 

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We also utilize online channels owned by others to attract prospective consumer participants to our offline sales events, such as search engines, social media, newsfeed apps, and online content aggregators. Recently, with the fast development in short-form video apps, we began creating short-form video content that promotes our offline events.

 

In 2017, 2018 and 2019, we attracted approximately 3.0 million, 6.8 million, and 5.8 million consumers to sign up for our offline events through our online channels, respectively.

 

Offline. We work with various offline partners to attract participants to our offline events, such as traditional print media, television, radio, and billboards in the streets and subway stations. We also rely on word-of-mouth referral by consumers who have participated in our events in the past.

 

We continue to evolve our marketing strategies as needed for different locations. For example, in lower tier cities, we have historically spent more on offline consumer acquisition channels. However, with the rising popularity of smartphones in those smaller cities, we are able to and will continue to convert offline traffic into online data by encouraging participants at our offline events in tier-3 and below cities to scan our QR code and indicate their automobile purchase plans or preferences. Leveraging our big-data technologies, we are able to analyze the data and gain a better understanding of users’ interests in a particular region, which enables us to adjust our sales and marketing plans accordingly, maximizing our sales conversion rate during our offline events.

 

Our Industry Customers

 

Our industry customers include a variety of businesses within China’s automotive industry, including automakers, franchised dealerships, secondary dealers, aftermarket service providers and others providing automotive services, such as insurance companies and financial institutions. We generate our net revenues primarily from our industry customers that pay for booth spaces at our auto shows. We determine the amount we charge primarily based on locations and sizes of exhibition booths.

 

As of December 31, 2019, we had served over 13,700 industry customers in China, covering over 110 domestic and international automobile brands. We facilitated the sale of 354,355 automobiles for our industry customers in 2019, with a GMV of approximately RMB47.5 billion (US$6.8 billion). In 2017, our top 20 industry customers collectively contributed to less than 10% of our total net revenues from continuing operations, with the largest customer accounting for approximately 1%. In 2018, our top 20 industry customers collectively contributed to approximately 12.0% of our total net revenues from continuing operations with the largest customer accounting for approximately 2.0%. In 2019, our top 20 industry customers collectively contributed to approximately 12.3% of our total net revenues from continuing operations with the largest customer accounting for approximately 2.1%.

   

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Our Services

 

Offline Marketing Solutions

 

Auto shows 

 

We organize auto shows to create a many-to-many consumption environment for prospective local consumers. Our sales-oriented auto shows aim at facilitating successful transactions in a highly efficient and effective manner. We enable industry customers to display a large number of products within a short period of time at a reasonably low cost to an otherwise fragmented consumer base. We charge participating industry customers for booth spaces, and the amount is determined by the locations and sizes of their requested exhibition booths. Usually the larger the area an industry customer wishes to occupy, and the closer the location is to the main entrance, the more we charge.

 

Traditionally, due to inadequate information access, individual automobile consumers often encounter the hassle of bargaining and are rarely confident that they have obtained an optimal price. To solve this problem, before each auto show, we pre-negotiate prices with local participating dealerships and automakers, which then generally offer favorable prices to consumers who purchase automobiles during our auto shows. Our industry customers typically offer the same price to every consumer at a particular auto show who purchases the same brand and model, thus offering consumers transparent pricing. During 2019, consumers who placed purchase orders during our offline events paid on average 6.9% less than the manufacturer suggested retail price. In addition, we also invite industry customers other than auto dealers and automakers in order to provide consumers with value-added services and products, such as insurance products, automobile accessories, and aftermarket services.

 

Our organization of auto shows involves four phases: (1) annual planning, (2) event request initiation, (3) event planning, and (4) event execution.

 

Annual planning. At the beginning of each year, we plan the number of auto shows we target to organize in each region, and the cities we plan to revisit and expand into. We also allocate budget for each region, which serves as a guideline for the specific event requests and action plans.

 

Event request initiation. Each auto show begins with our field employees filling out an event request. The requests outline the basic information and budget breakdown of the auto shows. These requests are first reviewed by the regional supervisors who must approve the plan before presenting them to the head of operations at our corporate headquarters. We involve regional supervisors because they are familiar with local situations and can ensure that the request is appropriate for that particular locality. We ultimately require the approval of our head of operations to make sure that our events nationwide are organized in an orderly and coordinated fashion and are in line with our overall corporate budget and strategic operation plans.

 

Event planning. After an event request passes the two-layered approval system, the field employees must submit specific action plans, covering our coordination plans with venue, material and service providers, with industry customers and with public security authorities. Our field employees must also indicate in the action plans the types of goods and services they need, which typically include exhibition booths and supplies, event set-up services, and event promotion services. These action plans should also include information on anticipated expenses to be paid to suppliers of these goods and services. Each action plan typically allows for miscellaneous spending which is allocated to event-day contingencies.

 

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Event execution. After the action plans are reviewed and approved, the execution phase begins and our field employees start the coordination processes. We reach out to venue providers and enter into appropriate leasing arrangements. We engage event set-up service providers to design the layout of our auto shows and set-up procedures based on the number of industry customers we have solicited. Generally we require our event set-up service providers to purchase insurance to cover unexpected accidents during the auto shows. We place purchase orders for exhibition-related materials such as exhibition booth materials, water, food, and banners. At the same time, we work with various online and offline channels to promote our events and maximize consumer attendance.

 

We also concurrently coordinate with our industry customers. In general, we begin contacting industry customers 30 days before each auto show to allow them sufficient time to arrange event-day logistics since they are responsible for transporting their own vehicles or other merchandise and materials to the auto show venues. In 2016, we introduced the “TuanChe Carnival” auto show model where we invited financial institutions, insurance companies, automotive service providers, car accessories manufacturers and other household goods and services providers, besides automakers and auto dealers in an effort to create a one-stop shopping experience for our consumer participants. We also invited provincial television and radio broadcasting media in order to gain maximum exposure in the local communities.

 

We also work with local public safety officials and hire security personnel through third-party security service providers to ensure we comply with relevant regulations on public gatherings and prevent any public security related issues.

 

In 2017, 2018 and 2019, we hosted 304, 851 and 1,055 auto shows across 75, 196 and 233 cities in China, respectively. The map below shows the cities where we organized at least one auto show as of December 31, 2019.

  

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The table below sets forth a breakdown of the number of cities where we have organized auto shows by city tiers in the periods indicated:

 

    Year ended December 31,  
    2017     2018     2019  
Tier-1 cities     4       4       4  
Tier-2 cities     34       36       72  
Tier-3 and below cities     37       156       157  
Total     75       196       233  

  

The table below sets forth a breakdown of the number of cities where we have established operations by city tiers in the periods indicated:

 

    Year ended December 31,  
    2017     2018     2019  
Tier-1 cities     4       4       4  
Tier-2 cities     35       37       37  
Tier-3 and below cities     39       97       107  
Total     78       138       148  

  

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Special promotion event services

 

We began to provide special promotion event services to our industry customers in January 2019 to better support our industry customers in organizing their special promotion events. We primarily provide a series of integrated services, such as event planning and executing, marketing training and onsite coaching, to support our industry customers’ special promotion events. In 2019, we facilitated 627 special promotion events through our services. We typically generate net revenues from industry customers by charging fixed service fees per event.

 

Virtual Dealerships

 

We commenced our virtual dealership business in June 2018, primarily serving automobile markets in tier-3 and below cities. We decided to expand our business into lower tier cities because of attractive industry trends and market opportunities in those cities. According to the iResearch report, large cities and lower tier cities are driven by different growth trends. Certain tier-1 cities have set stringent quotas on automobile license plate ownership. In Beijing, for example, the Department of Motor Vehicles of Beijing Traffic Management Bureau awards non-electric automobile license plates six times a year by random selection, and the chance for an eligible individual non-electric automobile license plate applicant to obtain a license plate each time is only one out of over 2,000. As a result, new automobile purchases are largely confined to existing automobile owners. With the increase of disposable income of residents in lower tier cities, and the lack of car ownership restrictions, lower tier cities have seen faster growth in automobile sales volumes.

  

In those smaller cities, secondary dealers serve as the intermediary between local consumers and automobile supplies. In general, secondary dealerships do not carry significant inventory but mainly market and solicit purchase orders from consumers, negotiate prices and sales with franchised dealerships or automakers that carry inventory, and deliver the purchased automobiles to consumers.

 

Our virtual dealership business currently offers the following values to automakers, franchised dealerships, and secondary dealers:

 

Sales channels expansion. We expand the sales channels of automakers and franchised dealerships that carry inventory into tier-3 and below cities where they usually do not have an established distribution network. Our ability to do so depends on the secondary dealer network we have established across the country by inviting them to attend our auto shows for free.

 

Automobile inventory sourcing. We offer secondary dealers access to automobile inventory from automakers and franchised dealerships across China. This reduces the amount of work secondary dealers must undertake to simply secure purchase orders from consumers and deliver the vehicle to the consumer.

 

We enter into various distribution agreements with automakers and franchised dealerships. When a consumer places a purchase order with a secondary dealer within our virtual dealership network, we initiate the purchase request to the corresponding automaker or franchised dealership on behalf of the secondary dealer upon receiving the written purchase request from the secondary dealer. The automaker or franchised dealership then ships such automobile directly to the premise at or designated by the secondary dealer. After completing a joint quality inspection on the automobile with us, the secondary dealer then delivers the automobile to the end consumer and handles automobile registration related matters pursuant to its agreement with the end consumer.

 

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By contracts, we generally require secondary dealers to pay the full purchase price within a certain number of days after submitting the written purchase request. We sometimes provide supply-chain financing support to secondary dealers to help them pay automakers. Generally, we provide such support on the condition that secondary dealers have already secured sale orders from consumers. We require secondary dealers to offer the automobiles as collaterals. The credit term is usually shorter than one month. After receiving the full purchase price, we place purchase orders with automakers or franchised dealerships that carry the automobiles.

 

In 2018 and 2019, we facilitated the sales of over 961 and 1,878 automobiles through our virtual dealership services, respectively, with a GMV of over RMB94.5 million and RMB229.5 million (US$32.9 million), respectively. Going forward, we plan to provide financing referral services to secondary dealers which often face a shortage of cash because they need to pay the purchase price of the automobiles before receiving full payment from the consumer. We will also expand our collaboration with aftermarket service providers that offer consumers maintenance and repair services. 

 

Other Services

 

Group-purchase facilitation

 

We offer group-purchase facilitation services in select cities. We solicit groups of prospective automobile consumers who wish to purchase automobiles of the same brands and models. We negotiate prices with various franchised dealerships in the city. Similar to participants of our auto shows, consumers who subscribe to the same group enjoy the same price, which is usually lower than what they would otherwise be able to bargain for in local franchised dealerships, due to our superior bargaining power generated from the increased volume.

 

During 2016 and 2017, we organized 8,201 and 697 group-purchase facilitation events across China, and facilitated the sale of 98,204 and 5,675 automobiles, respectively. We did not organize any group-purchase facilitation events in 2018 and 2019. We may organize group-purchase facilitation events in the future upon the requests of auto dealers, although this line of business will not be our primary focus.

 

Online marketing services

 

We have developed our online marketing services since 2018, catering to the sales and marketing needs of automakers and auto dealers. We work closely with a large network of online and offline media outlets, and have access to abundant flow of information due to our social media resources. Leveraging our advanced search engine, our proprietary data analytical models and advanced digital marketing system, we help industry customers target consumers in an efficient, precise and low-cost manner, maximizing their abilities to acquire consumers and make sales. Our online marketing services primarily include (1) demand-side platform services, where we either provide online advertising services on our website or provide advertising space resale services in collaboration with third parties, such as search engines and other online advertising channels, and (2) marketing information services, through which we provide industry customers with individual consumers’ demands information regarding their purchase preferences for automobiles generated through our online channels upon consumers' consent.

  

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Social CRM cloud services

 

In January 2020, we acquired Longye International Limited, a leading system developer that develops and implements social customer relationship management cloud systems, or social CRM cloud systems, to provide social CRM services to the automotive industry in China. As of the date of this annual report, our core social CRM service, Cheshangtong social CRM cloud system, has served over 11,000 customers.

  

Referral services

 

In October 2019, we commenced our referral services in collaboration with a commercial bank, where we facilitate the bank in expanding its cooperation with our industry customers to grow its auto loan business. We may also provide ancillary services to facilitate each auto loan application. We generate income from charging the bank service fees for approved loan applications.

 

Electric vehicle dealerships (discontinued operation)

 

In 2016, we established our first dealership in Beijing selling new energy automobiles to consumers in major cities where consumers favor new energy cars due to license plate restriction policies. This line of business has been discontinued since December 2017 and was disposed of in June 2018.

 

Sales and Marketing

 

We believe our brand name is well-recognized across China’s automotive industry, thanks to the dedicated services of our sales and marketing team. Our nationwide in-house sales team is mainly responsible for attracting automakers and auto dealers to attend our offline events. As of December 31, 2019, we have established relationships with over 13,700 industry customers across China. Our head sales office in Beijing is in charge of sales management, operational management and strategic decision-making. We also have a dedicated marketing team responsible for both online and offline consumer acquisitions.

  

As of December 31, 2019, we had 513 sales and marketing personnel across China. Depending on the size of the event, we assign two to five salespersons to organize and supervise a particular auto show. Our sales and marketing team also organizes event-driven marketing activities with industry-leading e-commerce platforms and various local governments.

 

Technology

 

We rely on our technologies and IT infrastructure to achieve our operational goals. Our technology development strategies focus on optimizing user experience and maximizing their willingness to participate in our offline events. Our big-data analytics technology processes data and offers precise targeted industry analysis and projections. In particular, our big-data analytics technology is capable of determining what brands and models are more popular in a particular city or among a certain consumer income level. We then offer the information to our industry customers to better facilitate their understanding of the local market and help them adjust their marketing efforts. We also offer technological support to our industry customers in their management of purchase orders and other operational information in order to improve their operational efficiencies.

 

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Intellectual Property

 

Our intellectual properties include trademarks, trademark applications related to our brands and software copyrights. We seek to protect our intellectual properties through a combination of trademark and copyright protection laws in China and other jurisdictions, as well as through confidentiality agreements and other measures.

 

As of the date of this annual report, we hold 158 registered trademarks in China, including our “TuanChe” trademarks. As of the same date, we have 116 registered domain names, including our main website domain names, tuanche.com, as well as one artwork copyright and 46 software copyrights in China.

 

Facilities

 

Our corporate headquarters are located in Beijing, China, where we lease office space with an area of approximately 5,172 square meters as of December 31, 2019. In addition, we had strategically established field sales offices in 148 cities as of December 31, 2019 as support and local command centers for our auto shows in the nearby region. We believe that our existing facilities are generally adequate to meet our current needs, but we expect to seek additional space as needed to accommodate future growth.

  

Our servers are primarily hosted at internet data centers owned by major domestic internet data center providers. The hosting services agreements typically have a one-year term. We believe that our current facilities are adequate and that we will be able to obtain additional facilities, primarily through leasing, to accommodate any future expansion plans.

 

Competition

 

We believe we are a leading omni-channel automotive marketplace in China. While our business model is both disruptive and unique, we could be considered to compete with Autohome, Bitauto and various local auto show and automotive related event organizers. Our virtual dealership competes with traditional franchised dealerships. We believe we are differentiated from our competitors mainly for two reasons: (1) our events are more sales-oriented instead of information-oriented; and (2) our business model integrates our online platform with offline events.

 

Employees

 

As of December 31, 2019 and April 30, 2020, we had 910 and 799 full-time employees. The following table sets forth the number of our full-time employees by functions as of the dates indicated.

 

   As of December 31, 2019  

As of April

30, 2020

 
Functional Area  Number of employees 
Sales and marketing    713    615 
General and administrative    118    104 
Research and development    79    80 
Total    910    799 

 

Our success depends on our ability to attract, retain and motivate qualified employees. We believe that we maintain a good working relationship with our employees, and we have not experienced any material labor disputes as of the date of this annual report. None of our employees is represented by labor unions.

 

In response to the significant impact of the COVID-19 pandemic, we have implemented measures to adjust the pace of our business expansion and conserve resources, such as furlough arrangements and scaling back our recruitment budget and employee size. We may resort to other cost cutting measures if the outbreak of COVID-19 and its impact persist or escalate. For more details, see “Item 3. Key Information—Risk Factors—Risks Related to Our Business and Industry—Our business operations have been and may continue to be materially and adversely affected by the COVID-19 pandemic.”

 

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Legal Proceedings

 

From time to time, we may be subject to various claims and legal actions that arise in the ordinary course of our business. We are not currently subject to any threatened or ongoing legal proceedings that, in the opinion of our management, may have a material adverse effect on our business, results of operations or financial condition.

 

Regulation

 

Regulations Relating to Value-added Telecommunication Service

 

The Telecommunications Regulations of PRC promulgated in September 2000 and amended in July 2014, February 2016 and June 2019 respectively by the State Council and its related implementation rules, including the Catalog of Classification of Telecommunications Business issued by the MIIT, categorize various types of telecommunications and telecommunications-related activities into basic or value-added telecommunications services. The Administrative Measures on Telecommunications Business Operating promulgated in March 2009 and most recently amended in July 2017 by MIIT set forth more specific provisions regarding the types of licenses required to operate value-added telecommunications services, the qualifications and procedures for obtaining such licenses and the administration and supervision of such licenses. Under these regulations, a commercial operator of value-added telecommunications services must first obtain a license for value-added telecommunications business, or value-added telecommunications service license, from the MIIT or its provincial level counterparts.

 

In September 2000, the State Council promulgated the Administrative Measures on Internet Information Services, or the Internet Content Measures, which was amended in January 2011. Under the Internet Content Measures, commercial internet information services operator shall obtain a license for value-added telecommunications business. The Internet Content Measures also set out certain restrictions on the provision of internet information services. For example, the internet information providers are prohibited from producing, copying, publishing or distributing information that is humiliating or defamatory to others or that infringes the legal rights of others. Furthermore, administration of mobile internet application information services is strengthened through the Regulations for Administration of Mobile Internet Application Information Services, or the MIAIS Regulations, issued in June 2016 and effective in August 2016. The MIAIS Regulations were enacted to regulate mobile application information services, or the App, the App providers (including App owners or operators) and online App stores. App service providers are required to obtain relevant qualifications pursuant to PRC laws and regulations.

 

Regulations Relating to Foreign Investment in Value-added Telecommunication Companies

 

The PRC Foreign Investment Law

 

On March 15, 2019, the NPC approved the Foreign Investment Law, which came into effect on January 1, 2020 and replaced the trio of existing laws regulating foreign investment in China, namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-invested Enterprise Law. For more details, see “Item 3. Key Information – Risks Related to our Corporate Structure – Uncertainties exist with respect to the interpretation and implementation of the PRC Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance and business operations.”

 

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On December 26, 2019, the State Council issued the Implementation Regulation on the Foreign Investment Law, which came into effect on 1 January 2020, The Implementation Regulation on the Foreign Investment Law further clarified relevant provisions of the Foreign Investment Law. For example, it provides that the existing foreign-invested enterprises established before the effectiveness of the Foreign Investment Law may change their organizational forms, organizational structures, etc. and go through the change of registration procedures in accordance with the Foreign Investment Law and other relevant laws and regulations at any time prior to January 1, 2025, after which the local branches of State Administration for Market Regulations, or the SAMR, shall stop processing additional registration applications from the said enterprises, and disclose relevant information of such enterprises.

 

In December 2019, the MOC and the SAMR jointly issued the Measures for Reporting of Foreign Investment Information, or the Foreign Investment Information Measures, which came into effect on January 1, 2020, and the Interim Administrative Measures for the Record-filing of the Establishment and Modification of Foreign-invested Enterprises were suspended on the same date. Pursuant to the Foreign Investment Information Measures, from January 1, 2020 on, the foreign investors carrying out investment activities directly or indirectly in China and the relevant foreign-invested enterprises shall, through the Enterprise Registration System and the National Enterprise Credit Information Publicity System operated by the SAMR, disclose their investment information to the competent authorities by submitting various reports, including the reports related to their establishments, modifications and cancellations, and their annual reports.

 

Foreign Investment in Value-added Telecommunication Companies

 

According to the Provisions on the Administration of Foreign-Invested Telecommunications Enterprises issued by the State Council in December 2001 and amended in September 2008 and February 2016, respectively, foreign-invested value-added telecommunications enterprises must be in the form of Sino-foreign equity joint ventures. The regulations restrict the ultimate capital contribution percentage held by foreign investors in a foreign-invested value-added telecommunications enterprise to 50% or less and require the primary foreign investor in a foreign-invested value-added telecommunications enterprise to have a good track record and operational experience in the value-added telecommunications industry. Nevertheless, the Circular of the Ministry of Industry and Information Technology on Liberalizing the Restrictions on Foreign Shareholding Percentages in Online Data Processing and Transaction Processing Business (operational e-commerce business) promulgated by the MIIT, in June 2015, removes the restriction on foreign equity for “online data processing and transaction processing businesses (operational e-commerce business).

 

In July 2006, the Ministry of Information Industry (which was integrated into the MIIT with other governmental departments in March 2008), issued the Notice of the Ministry of Information Industry on Strengthening the Administration over Foreign Investment in the Operation of Value-Added Telecommunications Business, or the MIIT Notice. According to the MIIT Notice, a foreign investor in the telecommunications service industry must establish a foreign invested enterprise and apply for a telecommunications service license. The MIIT Notice also requires that: (1) PRC domestic telecommunications enterprises must not, through any form, lease, transfer or sell a telecommunications service license to a foreign investor, or provide resources, offices and working places, facilities or other assistance to support illegal telecommunications services operations by a foreign investor; (2) value-added telecommunications enterprises or their shareholders must directly own the domain names and trademarks used by such enterprises in their provision of value-added telecommunications services; (3) each value-added telecommunications enterprise must have necessary facilities for its approved business operations and maintain such facilities only in the regions covered by its license; and (4) all value-added telecommunications enterprises are required to maintain network and internet security in accordance with the standards set forth in relevant PRC regulations. If a license holder fails to comply with these requirements in the MIIT Notice and cure any non-compliance, the Ministry of Information Industry or its local counterparts have the discretion to take measures against such license holder, including revoking its value-added telecommunications service license.

 

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Furthermore, the Foreign Investment Catalog (as amended) classifies industries listed therein into two parts: encouraged category, and the category subject to the special management measures for the entry of foreign investment, or the Negative List, which are further divided into the restricted category and prohibited category. Industries not listed in the Foreign Investment Catalog (as amended) are generally deemed to be in a fourth “permitted” category, and are generally open to foreign investment unless specifically restricted by other PRC regulations. The Negative List, in a unified manner, lists the restrictive measures for the entry of foreign investment. For example, some restricted industries must be operated in the form of Sino-foreign equity and/or cooperative joint ventures, and for some restricted industries, Chinese partners are required to hold the majority interests in such joint ventures. In addition, restricted category projects are subject to higher-level government approvals. In addition, foreign investors are not allowed to invest in companies in industries listed in the prohibited category. For the industries not listed the Negative List, the restrictive measures for the entry of foreign investment shall not apply in principle, and establishment of wholly foreign-owned enterprises in such industries is generally allowed. The most recent updated version of Negative List, or the Negative List (2019 version), was promulgated by MOFCOM and NDRC in June 2019 and became effective in July 2019. The Negative List (2019 version) expands the scope of permitted industries by foreign investment by reducing the number of industries that fall within the Negative List where restrictions on the shareholding percentage or requirements on the composition of board or senior management still exists. For example, the Negative List (2019 version) stipulates that the ultimate foreign equity ownership in a value-added telecommunications services provider shall not exceed 50%, except for e-commerce business, domestic multi-party communications services business, store-and-forward business and call center business, which may be 100% owned by foreign investors.

 

Our business falls under value-added telecommunications services, which are under the “restricted category” in the Foreign Investment Catalog (as amended).

 

Regulations Relating to Security Administration of Large-scale Mass Activities and Temporary Urban Road Occupation

 

Pursuant to the Regulation on Security Administration of Large-scale Mass Activities promulgated by the State Council in September 2007 which became effective in October 2007, large-scale mass activities as mentioned in such regulation refer to the following activities that legal persons or other organizations hold for the public with the participants expected to reach 1,000 or more in any single session: sports competition, concert, music concert and other art performances, exhibition, spot sale, etc. The undertaker of large-scale mass activities, or the Undertaker, shall be responsible for the activity’s security, with the principal of Undertaker serving as the person in charge of the security of large-scale mass activities. The Undertaker must apply for a security permit for the large-scale mass activity with the competent public security bureau at least 20 days before the date when the activity is held. For the large-scale mass activity having the expected number of participants larger than 1,000 but lower than 5,000, such security permit shall be issued by the local public security bureau of the people’s government at the county level; for the large-scale mass activity with expected number of participants over 5,000, such security permit shall be issued by the local public security bureau of the people’s government at the level of cities with district or municipalities; in case the large-scale mass activity crosses provinces, autonomous regions or municipalities, the security permit shall be issued by the public security department of the State Council. The Undertaker shall not, without permission, alter the time, location, content of a large-scale mass activity for which a security permit has been obtained, or enlarge its scale. Furthermore, the Undertaker shall immediately stop admitting people if the number of people who have entered the activity venue reaches the approved limit. In case that a public security accident or a security case occurs in the course of a large-scale mass activity, the principal of Undertaker shall immediately initiate the emergency contingency plan and report to the public security department. Any violation of the above provision may result in penalties, including but not limited to banning of such activities, fines, confiscation of illegal gains or criminal liabilities.

 

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In additions, pursuant to the Regulations on Administration of Urban Roads promulgated in June 1996 and most recently amended in March 2019 by the State Council, the temporary occupancy and use of urban roads due to extraordinary circumstances shall be approved by the competent municipal engineering administrative department and the public security and traffic administrative department. Such temporary occupancy and use with approval shall be carried out in conformity with the approved location, area and time limits, without damaging the urban roads, and the road shall be restored to its original conditions upon the expiration of the approved occupation and use duration. The Regulations on Administration of Urban Appearance and Environmental Sanitation promulgated in June 1992 and most recently amended in March 2017 by the State Council also provides that, among other things, the building of non-permanent structure or temporary preservation of materials due to extraordinary circumstances shall be approved by the competent administrative department on urban appearance and environmental sanitation. Any violation of the above provisions may result in, among others, correction order, fines or liability for damage.

 

Regulations Relating to Automobile Sales

 

The sales of new automobiles within the territory of PRC are principally governed by the Administration Measures for the Automobile Sales, or the Automobile Sales Measures, promulgated by the MOFCOM in April 2017, which became effective in July 2017. Pursuant to the Automobile Sales Measures, the auto dealer shall submit its basic information to the National Automobile Circulation Information Administration System of the MOFCOM for record-filing within 90 days after its establishment, update its filing via the system within 30 days after its filed information is changed, and promptly submit the number and types of automobiles sold and other information as required via such system. The Automobile Sales Measures further stipulate that, among other things, (1) automobile suppliers and dealers shall sell automobiles, spare parts and other related products in conformity with relevant regulations and standards, and shall refrain from the sale of products prohibited by applicable laws and regulations, (2) auto dealers shall, in an appropriate manner, expressly indicate the prices of automobiles, spare parts and other related products as well as the rates of charges for various services in their business premises, and shall not charge additional fees beyond the expressly indicated prices, (3) auto dealers shall expressly indicate the quality assurance, warranty service and other after-sales service policies of which customers should be aware in their business premises, (4) auto dealers selling household automobiles shall expressly indicate the information of policies of reparation, replacement and return applicable to household automobiles in their business premises; and (5) auto dealers shall maintain an updated and accurate record of information related to automobiles sold and the customers with a record period of no less than 10 years. Any dealer found to be non-compliant with these requirements may potentially be subject to correction order, warning and/or fines.

 

Regulations Relating to Advertisements

 

According to the PRC laws and regulations, companies that engage in advertising activities must obtain from the State Administration for Industry and Commerce (which was integrated into the SAMR with other governmental departments in March 2018), or the SAIC, or its local branches a business license which specifically includes operating an advertising business within its business scope. The business license of an advertising company is valid for the duration of its existence, unless the license is suspended or revoked due to a violation of any relevant law or regulation. PRC laws and regulations set forth certain content requirements for advertisements in PRC including, among other things, prohibitions on false or misleading content, superlative wording, socially destabilizing content or content involving obscenities, superstition, violence, discrimination or infringement of the public interest. Advertisers, advertising agencies, and advertising distributors are required by PRC laws and regulations to ensure that the content of the advertisements they prepare or distribute is true and in full compliance with applicable law. In providing advertising services, advertising agencies and advertising distributors must review the supporting documents provided by advertisers for advertisements and verify the content of the advertisements against these supporting documents before publishing.

 

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In July 2016, SAIC issued the Interim Measures for the Administration of Internet Advertising, or the Internet Advertising Measures, pursuant to which internet advertisements refers to the commercial advertisement for direct or indirect marketing of goods or services in the form of text, image, audio, video, or others means through websites, webpages, internet applications, or other internet media. The Internet Advertising Measures specifically sets out the following requirements: (1) advertisements must be identifiable and marked with the word “advertisement” to the extent that consumers are able to distinguish them from non-advertisement information; (2) sponsored search results must be clearly distinguished from organic search results; (3) it is forbidden to send advertisements or advertisement links by email without the recipient’s permission or induce internet users to click on an advertisement in a deceptive manner; (4) pop-up advertisements must clearly display the close button so that internet users can close the advertisement with one click; and (5) internet information service providers who do not participate in the business activities of internet advertising but only provide internet information services for the internet advertisement are also required to stop publishing illegal advertisement if they know or should have known that the advertising via their service is illegal.

 

Violation of these laws and regulations may result in penalties, including fines, confiscation of advertising income, orders to cease dissemination of the advertisements and orders to publish an advertisement correcting the misleading information. In circumstances involving serious violations, the SAIC or its local branches may revoke violators' licenses or permits for their advertising business operations. Furthermore, advertisers, advertising agencies and advertising distributors may be subject to civil liability if they infringe on the legal rights and interests of third parties.

 

Regulations Relating to Internet Information Security and Privacy Protection

 

Internet information in China is regulated from a national security standpoint. The Decisions on Preserving Internet Security was enacted by the NPC, in December 2000 and was amended in August 2009, which subject violators to potential criminal punishment in China for any effort to (1) gain improper entry into a computer or system of strategic importance; (2) disseminate politically disruptive information; (3) leak state secrets; (4) spread false commercial information; or (5) infringe intellectual property rights. The Ministry of Public Security of PRC, or the MPS, has promulgated measures that prohibit use of the internet in ways which, among other things, result in a leak of state secrets or a spread of socially destabilizing content. If an internet information service provider violates these measures, the MPS and its local branches may revoke its operating license and shut down its websites.

 

In recent years, PRC government authorities have enacted laws and regulations on internet use to protect personal information from any unauthorized disclosure. Under the Several Provisions on Regulating the Market Order of Internet Information Services, issued by the MIIT in December 2011 and effective in March 2012, an internet information service provider may not collect any user personal information or provide any such information to third parties without the consent of the user. An internet information service provider must expressly inform the users of the method, content and purpose of the collection and processing of such user personal information and may only collect such information necessary for the provision of its services. An internet information service provider is also required to properly maintain the user’s personal information, and in case of any leak or likely leak of the user’s personal information, the internet information service provider must take immediate remedial measures and, in severe circumstances, immediately report to the telecommunications authority. In addition, pursuant to the Decision on Strengthening the Protection of Online Information issued by the Standing Committee of the NPC in December 2012, the Order for the Protection of Telecommunication and Internet User Personal Information issued by the MIIT in July 2013 and came into force in September 2013, any collection and use of user personal information must be subject to the consent of the user, abide by the principles of legality, rationality and necessity and be within the specified purposes, methods and scopes. An internet information service provider must also keep such information strictly confidential, and is further prohibited from divulging, tampering with or destroying any such information, or selling or providing such information to other parties. An internet information service provider is required to take technical and other measures to prevent the collected personal information from any unauthorized disclosure, damage or loss. Any violation of these laws and regulations may subject the internet information service provider to warnings, fines, confiscation of illegal gains, revocation of licenses, cancellation of filings, closedown of websites or even criminal liabilities.

 

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Moreover, pursuant to the Ninth Amendment to the Criminal Law issued by the Standing Committee of the NPC in August 2015 which became effective in November 2015, any internet service provider that fails to fulfill the obligations related to internet information security administration as required by applicable laws and refuses to rectify upon orders, shall be subject to criminal penalty for the result of (1) any dissemination of illegal information in large scale; (2) any severe effect due to the leakage of the client’s information; (3) any serious loss of criminal evidence; or (4) other severe situation. Any individual or entity that (1) sells or provides personal information to others in a way violating the applicable law, or (2) steals or illegally obtain any personal information, shall be subject to criminal penalty in severe situation. In addition, the Interpretations of the Supreme People’s Court and the Supreme People’s Procuratorate of the PRC on Several Issues Concerning the Application of Law in Handling Criminal Cases of Infringing Personal Information, issued in May 2017 and effective in June 2017, clarified certain standards for the conviction and sentencing of the criminals in relation to personal information infringement. In addition, the PRC General Provisions of the Civil Law, promulgated in March 2017 and became effective in October 2017, required personal information of individuals to be protected.

 

In November 2016, the Standing Committee of the NPC released the Internet Security Law, which took effect in June 2017. The Internet Security Law reiterated the requirements regarding collecting and using personal information, including, among others, (1) when collecting or using personal information, network operators shall clearly indicate the purposes, methods and scope of the information collection, the use of information collection, and obtain the consent of those from whom the information is collected; and (2) network operators shall strictly preserve the privacy of user information they collect, and establish and maintain systems to protect user privacy. The Internet Security Law further requires network operators to perform certain functions related to internet security protection and the strengthening of network information management. For instance, under the Internet Security Law, network operators of key information infrastructure generally shall, during their operations in the PRC, store the personal information and important data collected and produced within the territory of the PRC.

 

In January 2019, the Office of the Central Cyberspace Affairs Commission, the MIIT, the Ministry of Public Security, and the SAMR jointly issued an Announcement of Launching Special Crackdown Against Illegal Collection and Use of Personal Information by Apps to carry out special campaigns against mobile apps collecting and using personal information in violation of applicable laws and regulations, which prohibits business operators from collecting personal information irrelevant to their services, or forcing users to give authorization in a disguised manner. In November 2019, the Secretary Bureau of the Cyberspace Administration of PRC, the MIIT, the Ministry of Public Security and the SAMR promulgated the Identification Method of Illegal Collection and Use of Personal Information by App, which provides guidance for the regulatory authorities to identify the illegal collection and use of personal information through mobile apps, for the app operators to conduct self-examination and self-correction, and for other participants to voluntarily monitor compliance.

 

Regulations Relating to Consumer Rights Protection and Tort Liabilities

 

According to the Laws on Protection of Consumers’ Rights and Interests of the PRC, which was latest amended in October 2013, if a consumer’s legitimate rights and interests are infringed upon by the goods seller or service provider at a trade fair, such customer may demand compensation from the infringing seller or service provider. If the trade fair is over, the customer may also demand compensation from the undertaker of such trade fair, in which case the undertaker has the right to recover the compensation from the infringing sellers or service providers afterwards.

 

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In December 2009, the PRC Standing Committee of the NPC promulgated the Tort Liabilities Law of the PRC, which took effect in July 2010, or the Tort Liabilities Law, according to which, undertakers of mass activities shall bear tort liability for damages to others arising from such undertakers’ failure to fulfill security obligations. Moreover, if the act of a third party results in damage to others in a mass activity, while such third party shall bear tort liability, the undertaker that failed to fulfill security obligations shall also bear corresponding supplementary liability.

 

In addition, the Tort Liabilities Law and the Product Quality Law of the PRC, which was latest amended in December 2018, provides that a seller shall bear tort liability if a product causes damages to a third party due to a defect attributable to such seller’s fault or the failure to name the manufacturer or supplier of the defective product sold by such seller. Furthermore, in the event of damage arising from a defective product, the victim may seek compensation from either the manufacturer or seller of the defective product, while such seller shall be entitled to seek reimbursement from the manufacturer upon compensation, if the product defect is caused by the manufacturer.

 

Regulation Related to Financial Lease

 

Pursuant to the Administrative Measures of Supervision on Financial Lease Enterprises formulated by the MOFCOM which became effective on October 1, 2013 (the “Administrative Measures”), financial lease enterprises shall not engage in deposits, loans, entrusted loans or inter-bank borrowing and equity investment unless permission has been granted from relevant departments. The Administrative Measures also contain regulatory provisions specifically focusing on sale-and-leaseback transactions. The leased assets in sale-and-leaseback transactions must be properties that possess economic functions and produce continuous economic benefits. A financial lease enterprise shall give adequate consideration to and objectively evaluate assets leased back, set purchasing prices for subject matter thereof with reference to reasonable pricing basis in compliance with accounting principles, and shall not purchase any subject matter at a price in excess of the value thereof.

 

In April 2018, the MOFCOM transferred the duties to promulgate rules and regulations on the operations and supervision of financial lease enterprises to the newly founded China Banking and Insurance Regulatory Commission. It is uncertain whether the change of the authority may lead to changes in the interpretation and application of existing Administrative Measures or how any such changes might affect financial lease enterprises.

 

Regulations Relating to Financing Guarantee

 

In August 2017, the State Council promulgated the Regulations on the Supervision and Administration of Financing Guarantee Companies, or the Financing Guarantee Regulations, which became effective on October 1, 2017. The Financing Guarantee Regulations define “financing guarantee” as a guarantee provided for the debt financing (including but not limited to the extension of loans or issuance of bonds), and set out that the establishment of a financing guarantee company or engagement in the financing guarantee business without approval may result in several penalties, including but not limited to banning, an order to cease business operation, confiscation of illegal gains, fines of up to RMB1,000,000 and criminal liabilities. The Financing Guarantee Regulations also set forth that the outstanding guarantee liabilities of a financing guarantee company shall not exceed ten times of its net assets, and that the outstanding guarantee liabilities of a financing guarantee company vis-à-vis the same guaranteed party shall not exceed 10% of the net assets of the financing guarantee company, while the outstanding guarantee liabilities of a financing guarantee company vis-à-vis the same guaranteed party and its affiliated parties shall not exceed 15% of its net assets.

 

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In April 2018, seven PRC regulatory agencies including the China Banking and Insurance Regulatory Commission, or the CBIRC, the National Development and Reform Committee and the MIIT, jointly issued four supporting documents, or the CBIRC Circular 1, including Administration Measures for the Permits to Conduct Financing Guarantee Business, Measures for the Calculation of Outstanding Financing Guarantee Liabilities, Administration Measures for the Assets Ratio of Financing Guarantee Companies, and Guidelines to the Cooperation by and between the Banking Financial Institutions and Financing Guarantee Companies, to set forth implementation measures of the Financing Guarantee Regulations. These measures cover various aspects of business operations of financing guarantee companies, including certain limits on outstanding guarantee liabilities and liability-to-asset ratio, and the requirements on cooperation model with the banking financial institutions.

 

On October 9, 2019, the CBIRC and other eight PRC regulatory agencies promulgated the Supplementary Provisions on the Supervision and Administration of Financing Guarantee Companies, or the Financing Guarantee Supplementary Provisions. The Financing Guarantee Supplementary Provisions provides that, among others, institutions providing services such as client recommendation and credit assessment to various institutional funding partners shall not render any financing guarantee service, whether directly or in disguised form, without the necessary approval.

 

Regulations Relating to Intellectual Property Rights

 

The PRC has adopted comprehensive legislation governing intellectual property rights, including copyrights, patents, trademarks and domain names.

 

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Copyright. Copyright in the PRC, including copyrighted software, is principally protected under the Copyright Law of the PRC, which was latest amended in February 2010 and took effect in April 2010, or the Copyright Law, and related rules and regulations. Under the Copyright Law, the term of protection for copyrighted software is 50 years.

 

Patent. The Patent Law of the PRC that was latest amended in December 2008 and became effective in October 2009, or the Patent Law, provides for patentable inventions, utility models and designs. An invention or utility model for which patents may be granted shall have novelty, creativity and practical applicability. The State Intellectual Property Office is responsible for examining and approving patent applications.

 

Trademark. The Trademark Law of the PRC that was latest amended in April 2019 and took effect in November 2019, or the Trademark Law, and its implementation rules protect registered trademarks. The PRC Trademark Office is responsible for the registration and administration of trademarks throughout the PRC. The Trademark Law has adopted a “first-to-file” principle with respect to trademark registration.

 

Domain Name. Domain names are protected under the Administrative Measures on the Internet Domain Names promulgated by MIIT in August 2017, which became effective in November 2017, or the Domain Names Measures. MIIT is the major regulatory body responsible for the administration of the PRC internet domain names. The Domain Names Measures has adopted a “first-to-file” principle with respect to the registration of domain names.

 

Regulations Relating to Tax

 

Enterprise Income Tax

 

PRC enterprise income tax is calculated based on taxable income, which is determined under (1) the PRC Enterprise Income Tax Law, promulgated by the NPC and implemented in January 2008 and amended in December 2018, or the EIT Law, and (2) the implementation rules to the EIT Law promulgated by the State Council in January 2008 and amended in April 2019. The EIT Law imposes a uniform enterprise income tax rate of 25% on all resident enterprises in the PRC, including foreign-invested enterprises and domestic enterprises, unless they qualify for certain exceptions. According to the EIT Law and its implementation rules, the income tax rate of an enterprise that has been determined to be a high and new technology enterprise may be reduced to 15%.

 

In addition, according to the EIT Law, enterprises registered in countries or regions outside the PRC but have their “de facto management bodies” located within China may be considered as PRC resident enterprises and are therefore subject to PRC enterprise income tax at the rate of 25% on their worldwide income. Though the implementation rules of the EIT Law define “de facto management bodies” as “establishments that carry out substantial and overall management and control over the manufacturing and business operations, personnel, accounting, properties, etc., of an enterprise,” the only detailed guidance currently available for the definition of  “de facto management body” as well as the determination and administration of tax residency status of offshore-incorporated enterprises are set forth in the Notice Regarding the Determination of Chinese-Controlled Overseas Incorporated Enterprises as PRC Tax Resident Enterprises on the Basis of De Facto Management Bodies promulgated by SAT in April 2009, or SAT Circular 82, the Administrative Measures for Enterprise Income Tax of Chinese-Controlled Overseas Incorporated Resident Enterprises (Trial Version) issued by the SAT in July 2011, or SAT Bulletin No. 45, and the Notice on Issues Related To Implementation of Determination of Tax Resident Enterprise on the Basis of De Facto Management Bodies issued by the SAT in January 2014, or SAT Bulletin No. 9, all of which provide guidance on the administration as well as the determination of the tax residency status of a Chinese-controlled offshore-incorporated enterprise, defined as an enterprise that is incorporated under the law of a foreign country or territory and that has a PRC company or PRC corporate group as its primary controlling shareholder.

 

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According to SAT Circular 82, a Chinese-controlled offshore-incorporated enterprise will be regarded as a PRC resident enterprise by virtue of having its “de facto management body” in China and will be subject to PRC enterprise income tax on its global income only if all of the following conditions are met:

 

·the senior management and core management departments in charge of the enterprise’s daily operations function are mainly in the PRC;
   
·financial and human resources decisions of the enterprise are subject to determination or approval by persons or bodies in the PRC;
   
·the enterprise’s major assets, accounting books, company seals, and minutes and files of its board and shareholders’ meetings are located or kept in the PRC; and
   
·50% or more of the enterprise’s directors or senior management with voting right habitually reside in the PRC.

 

SAT Bulletin No. 45 further clarifies certain issues related to the determination of tax resident status and competent tax authorities. It also specifies that when provided with a copy of Recognition of Residential Status from a resident Chinese-controlled offshore-incorporated enterprise, a payer does not need to withhold income tax when paying certain PRC-sourced income such as dividends, interest and royalties to such Chinese-controlled offshore-incorporated enterprise.

 

SAT Bulletin No. 9 further provides that, among other things, an entity that is classified as a “PRC resident enterprise” in accordance with the SAT Circular 82 shall file the application for classifying its status of residential enterprise with the local tax authorities where its main domestic investors are registered. From the year in which the entity is determined as a “PRC resident enterprise”, any dividend, profit and other equity investment gain shall be taxed in accordance with the EIT Law and its implementing rules.

 

If TuanChe Limited or any of our subsidiaries outside of China were to be considered a PRC “resident enterprise” under the EIT Law, we will be subject to PRC enterprise income tax on our worldwide income at a uniform tax rate of 25.0%. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—If we are classified as a PRC resident enterprise for PRC enterprise income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC shareholders and ADS holders.”

 

Income Tax for Share Transfers

 

According to the Public Notice Regarding Certain Enterprise Income Tax Matters on Indirect Transfer of Properties by Non-resident Enterprise, or SAT Bulletin 7, promulgated by the SAT in February 2015, if a non-resident enterprise transfers the equity interests of a PRC resident enterprise indirectly by transfer of the equity interests of an offshore holding company (other than a purchase and sale of shares issued by a PRC resident enterprise in public securities market) without a reasonable commercial purpose, the PRC tax authorities have the power to reassess the nature of the transaction and the indirect equity transfer will be treated as a direct transfer. As a result, the gain derived from such transfer, which means the equity transfer price less the cost of equity, will be subject to PRC withholding tax at a rate of up to 10%. Under the terms of SAT Bulletin 7, the transfer which meets all of the following circumstances shall be directly deemed as having no reasonable commercial purposes: (1) over 75% of the value of the equity interests of the offshore holding company are directly or indirectly derived from PRC taxable properties; (2) at any time during the year before the indirect transfer, over 90% of the total properties of the offshore holding company are investments within PRC territory, or in the year before the indirect transfer, over 90% of the offshore holding company’s revenue is directly or indirectly derived from PRC territory; (3) the function performed and risks assumed by the offshore holding company are insufficient to substantiate its corporate existence; or (4) the foreign income tax imposed on the indirect transfer is lower than the PRC tax imposed on the direct transfer of the PRC taxable properties. In October 2017, SAT issued the Announcement of the State Administration of Taxation on Issues Concerning the Withholding of Non-resident Enterprise Income Tax at Source, or the SAT Bulletin 37, which, among others, repeals certain rules stipulated in SAT Bulletin 7 and became effective on December 1, 2017. The SAT Bulletin 37 further details and clarifies the tax withholding methods in respect of income of non-resident enterprises.

 

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There is uncertainty as to the application of SAT Bulletin 7. SAT Bulletin 7 may be determined by the PRC tax authorities to be applicable to our prior private equity financing transactions that involved non-resident investors, if any of such transactions are determined by the tax authorities to lack reasonable commercial purpose. As a result, we and our non-resident investors in such transactions may become at risk of being taxed under SAT Bulletin 7, and we may be required to expend valuable resources to comply with SAT Bulletin 7 or to establish that we should not be taxed under the general anti-avoidance rule of the EIT Law, which may have a material adverse effect on our financial condition and results of operations.

 

Dividend Withholding Tax

 

Pursuant to the EIT Law and its implementation rules, if a non-resident enterprise has not set up an organization or establishment in the PRC, or has set up an organization or establishment but the income derived has no actual connection with such organization or establishment, it will be subject to a withholding tax on its PRC-sourced income at a rate of 10%. Pursuant to the Arrangement between Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income, the withholding tax rate in respect to the payment of dividends by a PRC enterprise to a Hong Kong enterprise is reduced to 5% from a standard rate of 10% if the Hong Kong enterprise directly holds at least 25% of the PRC enterprise. Pursuant to the Notice of the SAT on the Issues concerning the Application of the Dividend Clauses of Tax Agreements, or SAT Circular 81, promulgated by the SAT in February 2009, a Hong Kong resident enterprise must meet the following conditions, among others, in order to enjoy the reduced withholding tax: (1) it should be a company as provided in the tax treaty; (2) it must directly own the required percentage of equity interests and voting rights in the PRC resident enterprise; and (3) it must have directly owned such percentage in the PRC resident enterprise throughout the 12 months prior to receiving the dividends. In August 2015, the SAT promulgated the Administrative Measures for Non-Resident Taxpayers to Enjoy Treatments under Tax Treaties, or SAT Circular 60, which became effective in November 2015 and was amended in June 2018. SAT Circular 60 provides that non-resident enterprises are not required to obtain pre-approval from the relevant tax authority in order to enjoy the reduced withholding tax rate. Instead, non-resident enterprises and their withholding agents may, by self-assessment and on confirmation that the prescribed criteria to enjoy the tax treaty benefits are met, directly apply the reduced withholding tax rate, and file necessary forms and supporting documents when performing tax filings, which will be subject to post-tax filing examinations by the relevant tax authorities. In February 2018, the SAT promulgated the Notice on Issues Related to the “Beneficial Owner” in Tax Treaties, according to which when determining the applicant’s status of the “beneficial owner” regarding tax treatments in connection with dividends in the tax treaties, several factors, including without limitation, whether the applicant is obligated to pay more than 50% of its income in twelve months to residents in third country or region, whether the business operated by the applicant constitutes the actual business activities, and whether the counterparty country or region to the tax treaties does not levy any tax or grant tax exemption on relevant incomes or levy tax at an extremely low rate, will be taken into account, and it will be analyzed according to the actual circumstances of the specific cases. In October 2019, the SAT promulgated the Administrative Measures for Non-Resident Taxpayers to Enjoy Treatments under Tax Treaties, or SAT Circular 35. SAT Circular 35 became effective on January 1, 2020 and superseded SAT Circular 60 on the same date. Compared to SAT Circular 60, SAT Circular 35 provides that the nonresident enterprises and their withholding agents are not required to submit the supporting documents for tax treaty benefits when performing tax filings. Instead, nonresident enterprises and their withholding agents may retain such supporting documents themselves for the post-tax filing examinations by the relevant tax authorities. If our Hong Kong subsidiary satisfies all the requirements under the tax arrangement and receives approval from the relevant tax authority, the dividends paid to the Hong Kong subsidiary would be subject to withholding tax at the standard rate of 5%. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—There are significant uncertainties under the PRC enterprise income tax law relating to the withholding tax liabilities of our PRC subsidiaries, and dividends payable by our PRC subsidiaries to our offshore subsidiaries may not qualify to enjoy certain treaty benefits.”

 

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Regulations Relating to Foreign Currency Exchange

 

Foreign Currency Exchange

 

The principal regulations governing foreign currency exchange in China are the Regulations of the People’s Republic of China on Foreign Exchange Administration, promulgated by the State Council and amended in August 2008. Under these regulations, the Renminbi is freely convertible for current account items, including the trade and service-related foreign exchange transactions and other current exchange transactions, but not for capital account items, such as direct investments, loans, repatriation of investments and investments in securities, unless the prior approval of the SAFE, is obtained and prior registration with SAFE is made.

 

In August 2008, the Notice of the General Affairs Department of the State Administration of Foreign Exchange on the Relevant Operating Issues concerning the Improvement of the Administration of Payment and Settlement of Foreign Currency Capital of Foreign-invested Enterprises, or SAFE Circular 142, was promulgated by the General Affairs Department of SAFE, which regulates the conversion by foreign-invested enterprises of foreign currency capital into Renminbi by restricting how the converted Renminbi may be used. SAFE Circular 142 requires that Renminbi converted from the foreign currency-denominated capital of a foreign-invested enterprise may only be used for purposes within the business scope approved by the relevant government authority and may not be used to make equity investments in PRC, unless specifically provided otherwise. SAFE further strengthened its oversight over the flow and use of Renminbi funds converted from the foreign currency-denominated capital of a foreign-invested enterprise. The use of such Renminbi may not be changed without approval from SAFE, and may not be used to repay Renminbi loans if the proceeds of such loans have not yet been used. Any violation of SAFE Circular 142 may result in severe penalties, including substantial fines.

 

The Notice of the State Administration of Foreign Exchange on Further Improving and Adjusting the Foreign Exchange Administration Policies on Direct Investments was promulgated by SAFE in November 2012 and most recently amended in December 2019, and substantially amends and simplifies the foreign exchange procedure. Pursuant to this circular, the opening of various special purpose foreign exchange accounts, such as pre-establishment expense accounts, foreign exchange capital accounts and guarantee accounts, the reinvestment of Renminbi proceeds by foreign investors in the PRC, and remittance of foreign exchange profits and dividends by a foreign-invested enterprise to its foreign shareholders no longer require the approval or verification of SAFE, and multiple capital accounts for the same entity may be opened in different provinces, which was not possible previously. In addition, according to the Notice of the State Administration of Foreign Exchange on Issuing the Provisions on the Foreign Exchange Administration of Domestic Direct Investment of Foreign Investors and the Supporting Documents promulgated by SAFE in May 2013 and most recently amended in December 2019, the administration by SAFE or its local branches over direct investment by foreign investors in the PRC shall be conducted by way of registration and banks shall process foreign exchange business relating to the direct investment in the PRC based on the registration information provided by SAFE and its branches.

 

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In July 2014, SAFE further reformed the foreign exchange administration system in order to satisfy and facilitate the business and capital operations of foreign investment entities, and issued the Notice of the State Administration of Foreign Exchange on the Pilot Reform of the Administrative Approach Regarding the Settlement of the Foreign Exchange Capitals of Foreign-Invested Enterprises in Certain Areas, or SAFE Circular 36. This circular suspends the application of SAFE Circular 142 in certain areas and allows a foreign-invested enterprise registered in such areas to use the Renminbi capital converted from foreign currency registered capital for equity investments within the PRC if the approved principal business of the foreign-invested enterprise includes investment or it complies with certain foreign exchange procedures.

 

In March 2015, SAFE released the Notice of the State Administration of Foreign Exchange on Reforming the Administrative Approach Regarding the Settlement of the Foreign Exchange Capitals of Foreign-invested Enterprises, or SAFE Circular 19, effective in June 2015 and amended in December 2019, which has made certain adjustments to some regulatory requirements on the settlement of foreign exchange capital of foreign-invested enterprises, lifted some foreign exchange restrictions under SAFE Circular 142, and annulled SAFE Circular 142 and SAFE Circular 36. However, SAFE Circular 19 continues to, prohibit foreign-invested enterprises from, among other things, using Renminbi fund converted from its foreign exchange capitals for expenditure beyond its business scope, providing entrusted loans or repaying loans between non-financial enterprises.

 

In June 2016, SAFE issued the Notice of the State Administration of Foreign Exchange on Reforming and Standardizing the Administrative Provisions on Capital Account Foreign Exchange Settlement, or SAFE Circular 16, which took effect on the same day. Compared to SAFE Circular 19, SAFE Circular 16 provides that, in addition to foreign exchange capital, foreign debt funds and proceeds remitted from foreign listings should also be subject to the discretional foreign exchange settlement. In addition, it also lifted the restriction, that foreign exchange capital under the capital accounts and the corresponding Renminbi capital obtained from foreign exchange settlement should not be used for repaying the inter-enterprise borrowings (including advances by the third party) or repaying bank loans in Renminbi that have been sub-lent to the third party.

 

In January 2017, SAFE promulgated the Circular on Further Improving Reform of Foreign Exchange Administration and Optimizing Genuineness and Compliance Verification, or SAFE Circular 3, which stipulates several capital control measures with respect to the outbound remittance of profit from domestic entities to offshore entities, including (1) under the principle of genuine transaction, banks shall check board resolutions regarding profit distribution, the original version of tax filing records and audited financial statements; and (2) domestic entities shall hold income to account for previous years’ losses before remitting profits. Moreover, pursuant to SAFE Circular 3, domestic entities shall make detailed explanations of the sources of capital and utilization arrangements, and provide board resolutions, contracts and other proof when completing the registration procedures in connection with an outbound investment.

 

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Foreign Exchange Registration of Overseas Investment by PRC Residents

 

In July 2014, SAFE promulgated the Notice of the State Administration of Foreign Exchange on the Administration of Foreign Exchange Involved in Overseas Investment, Financing and Roundtrip Investment Conducted by Residents in China via Special-Purpose Companies, or SAFE Circular 37, which replaced the former circular commonly known as SAFE Circular 75 promulgated by SAFE in October 2005. SAFE Circular 37 requires PRC residents to register with local branches of SAFE in connection with their direct establishment or indirect control of an offshore entity, for the purpose of overseas investment and financing, with such PRC residents’ legally owned assets or equity interests in domestic enterprises or offshore assets or interests, referred to in SAFE Circular 37 as a “special purpose vehicle.” SAFE Circular 37 further requires amendment to the registration in the event of any significant changes with respect to the special purpose vehicle, such as an increase or decrease of capital contributed by PRC individuals, share transfer or exchange, merger, division or other material event. In the event that a PRC shareholder holding interests in a special purpose vehicle fails to fulfill the required SAFE registration, the PRC subsidiaries of that special purpose vehicle may be prohibited from making profit distributions to the offshore parent and from carrying out subsequent cross-border foreign exchange activities, and the special purpose vehicle may be restricted in its ability to contribute additional capital into its PRC subsidiary. Furthermore, failure to comply with the various SAFE registration requirements described above could result in liability under PRC law for evasion of foreign exchange controls.

 

In February 2015, SAFE released the Notice of the State Administration of Foreign Exchange on Further Simplifying and Improving the Policies of Foreign Exchange Administration Applicable to Direct Investment, or SAFE Circular 13, which has amended SAFE Circular 37 by requiring PRC residents or entities to register with qualified banks rather than SAFE or its local branch in connection with their establishment or control of the special purpose vehicle. However, remedial registration applications made by PRC residents that previously failed to comply with the SAFE Circular 37 continue to fall under the jurisdiction of the relevant local branch of SAFE .

 

Share Option Rules

 

Pursuant to SAFE Circular 37, PRC residents who participate in share incentive plans in overseas non-publicly-listed companies may submit applications to SAFE or its local branches for the foreign exchange registration with respect to offshore special purpose companies. In addition, under the Notice of the State Administration of Foreign Exchange on Issues Related to Foreign Exchange Administration in Domestic Individuals Participation in Equity Incentive Plans of Companies Listed Abroad issued by SAFE in February 2012, or the SAFE Circular 7, PRC residents who are granted shares or share options by companies listed on overseas stock exchanges under share incentive plans are required to (1) register with SAFE or its local branches, (2) retain a qualified PRC agent, which may be a PRC subsidiary of the overseas listed company or another qualified institution selected by the PRC subsidiary, to conduct SAFE registration and other procedures with respect to the share incentive plans on behalf of the participants, and (3) retain an overseas institution to handle matters in connection with their exercise of share options, purchase and sale of shares or interests and funds transfers. In addition, the PRC agent is required to amend the SAFE registration with respect to the stock incentive plan if there is any material change to the share incentive plan, the PRC agent or the overseas entrusted institution or other material changes. The PRC agents must, on behalf of the PRC residents who have the right to exercise the employee share options, apply to SAFE or its local branches for an annual quota for the payment of foreign currencies in connection with the PRC residents’ exercise of the employee share options. The foreign exchange proceeds received by the PRC residents from the sale of shares under the stock incentive plans granted and dividends distributed by the overseas listed companies must be remitted into the bank accounts in the PRC opened by the PRC agents before distribution to such PRC residents.

 

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Regulations Relating to Dividend Distribution

 

Under our current corporate structure, our Cayman Islands holding company may rely on dividend payments from our PRC subsidiaries, which is a wholly foreign-owned enterprise incorporated in China, to fund any cash and financing requirements we may have. Under PRC laws and regulations, wholly foreign-owned enterprises in the PRC may pay dividends only out of accumulated profits, after setting aside annually at least 10% of accumulated after-tax profits as statutory reserve fund, if any, unless these reserves have reached 50% of the registered capital of the enterprises. A wholly foreign-owned enterprise may allocate a portion of its after-tax profits to discretionary surplus fund at its discretion. These statutory reserve funds and discretionary surplus funds may not be distributed as cash dividends. Profit of a wholly foreign-owned enterprise shall not be distributed before the losses thereof for the previous accounting years have been made up. Profits retained from prior fiscal years may be distributed together with distributable profits from the current fiscal year.

 

Regulations Relating to M&A and Overseas Listings

 

Six PRC regulatory agencies, including the CSRC, jointly adopted the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, which became effective in September 2006 and was amended in June 2009, or the M&A Rules. Foreign investors shall comply with the M&A Rules when they purchase equity interests of a domestic company or subscribe the increased capital of a domestic company, and thus changing the nature of the domestic company into a foreign-invested enterprise; or when the foreign investors establish a foreign-invested enterprise in the PRC and purchase, through such enterprise, any assets of a domestic company and operate such assets; or when the foreign investors purchase the asset of a domestic company, establish a foreign-invested enterprise by injecting such assets and operate the assets. The M&A Rules, among other things, require offshore special purpose vehicles formed for overseas listing purposes through acquisitions of PRC domestic companies and controlled by PRC companies or individuals, to obtain the approval of the CSRC prior to publicly listing their securities on an overseas stock exchange.

 

Regulations Relating to Employment

 

Pursuant to the Labor Law of PRC, promulgated by the Standing Committee of NPC in July 1994 and amended in August 2009, or the Labor Law, and the Labor Contract Law of PRC, promulgated by Standing Committee of the NPC in June 2007 and amended in December 2012, or the Labor Contract Law, employers must execute written employment contracts with full-time employees. If an employer fails to enter into a written employment contract with an employee for more than a month but less than a year from the date on which the employment relationship is established, the employer must rectify the situation by entering into a written employment contract with the employee and pay the employee twice the employee’s salary for the period from the day following the lapse of one month from the date of establishment of the employment relationship to the day prior to the execution of the written employment contract. If an employer fails to conclude a written labor contract with a worker within one year as of the date when it employs the worker, it shall be deemed to have concluded an open-ended labor contract with the latter. All employers must compensate their employees with wages equal to at least the local minimum wage. Violations of the Labor Law and the Labor Contract Law may result in fines and other administrative sanctions, and serious violations may result in criminal liabilities.

 

Enterprises in China are required by the Social Insurance Law of PRC promulgated by the Standing Committee of the NPC in October 2010 which became effective in July 2011, or the Social Insurance Law, the Regulations on Management of Housing Provident Fund released by the State Council in March 2002 and amended in March 2019, and other related rules and regulations, to participate in certain employee benefit plans, including social insurance funds, namely a pension plan, a medical insurance plan, an unemployment insurance plan, an on-the-job injury insurance plan and a maternity insurance plan, and a housing provident fund, and contribute to the plans or funds in amounts equal to certain percentages of salaries, including bonuses and allowances, of the employees as specified by the local government. Failure to make adequate contributions to various employee benefit plans may be subject to fines and other administrative sanctions. According to the Social Insurance Law, an employer that fails to make social insurance contributions may be ordered to rectify the non-compliance and pay the required contributions within a stipulated deadline and be subject to a late fee of 0.05% per day, as the case may be. If the employer still fails to rectify the failure to make social insurance contributions within the deadline, it may be subject to a fine ranging from one to three times the amount overdue. According to the Regulations on Management of Housing Fund, an enterprise that fails to make housing fund contributions may be ordered to rectify the noncompliance and pay the required contributions within a stipulated deadline; otherwise, an application may be made to a local court for compulsory enforcement.

 

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C.            Organizational Structure

 

The following diagram illustrates our corporate structure, including our principal subsidiaries and affiliated entities, as of the date of this annual report:

 

 

 

 

(1)Mr. Zhiwen Lan, Mr. Jianchen Sun, Mr. Qiuhua Xu, Mr. Xingyu Du, Mr. Zijing Zhou, Mr. Zhen Ye, and Lanxi Puhua Juli Equity Investment L.P. hold a 1.1226%, 1.1967%, 0.9972%, 0.0997%, 0.0973%, 0.5836%, and 2.70% equity interest in TuanChe Internet, respectively.

 

The following table sets out the details of our subsidiaries, affiliated entity and schools/subsidiaries held by our affiliated entity that are significant to us.

 

Subsidiaries 

Place of
Incorporation

 

Ownership Interest

 
TuanChe Information Limited (“TuanChe Information”)  Hong Kong   100%
TuanYuan Internet Technology (Beijing) Co., Ltd. (“TuanYuan”)  PRC   100%
Longye International Limited  Cayman Islands   

 

100

 

%

Long Ye Information Technology Limited  Hong Kong   100%
Beijing Sangu Maolu Information Technology Co., Ltd. (“Sangu Maolu”)  PRC   100%

 

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Major VIEs 

Place of
Incorporation

  Ownership Interest 
TuanChe Internet Information Service (Beijing) Co., Ltd. (“TuanChe Internet”)  PRC   100%
Best Cars Limited (“Best Cars”)  British Virgin Islands   

 

100

 

%

Shenzhen Drive New Media Co., Ltd. (“Drive New Media”)  PRC   100%
Beijing Internet Drive Technology Co., Ltd. (“Internet Drive Technology”)  PRC   100%

 

Major subsidiaries of VIEs 

Place of
Incorporation

  Ownership Interest 
Beijing Zhongrui Guochuang Automobile Sales & Service Co., Ltd. (“Zhongrui Guochuang”)*  PRC   100%
TuanChe (Beijing) Automobile Sales & Service Co., Ltd. (“TuanChe Automobile”)  PRC   100%
Beijing GuoHeng Chuangxin Automobile Sales & Service Co., Ltd. (“GuoHeng Chuangxin”)  PRC   100%
Tengzhou GuoChuang Automobile Sales & Service Co., Ltd. (“GuoChuang Automobile”)  PRC   100%
Tianjin Hengyuan Chuangxin Automobile Sales Co., Ltd. (“Tianjin Hengyuan”)  PRC   100%

 

 

*On June 22, 2018, Zhongrui Guochuang was restructured from being a VIE of TuanYuan to a subsidiary of TuanChe Internet.

 

Our Contractual Arrangements

 

PRC laws and regulations place certain restrictions on foreign investment in value-added telecommunication service businesses. We conduct our operations in the PRC principally through TuanChe Internet, Drive New Media and Internet Drive Technology, which are our variable interest entities, or our VIEs, and their subsidiaries, collectively referred to as our consolidated affiliated entities in this annual report. We have entered into a series of contractual arrangements, through TuanYuan or Sangu Maolu(as applicable), or our WFOEs, with each of our VIEs and their respective shareholders, respectively, which enable us to:

 

·exercise effective control over each of our consolidated affiliated entities;
   
·receive substantially all of the economic benefits of our consolidated affiliated entities; and
   
·have an exclusive call option to purchase all or part of the equity interests in and/or assets of each of our VIEs when and to the extent permitted by PRC laws.

 

As a result of these contractual arrangements, we are the primary beneficiary of our consolidated affiliated entities, and, therefore, have consolidated their financial results in our consolidated financial statements in accordance with U.S. GAAP.

 

Below is a summary of the currently effective contractual arrangements by and among our VIEs, WFOEs and their respective shareholders.

 

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Exclusive Business Cooperation Agreement

 

Pursuant to the exclusive business cooperation agreement between each of our VIEs and the applicable WFOE, the respective WFOE has the exclusive right to provide or designate any third party to provide, among other things, comprehensive business support, technical support and consulting services to our VIEs. In exchange, VIEs pay service fees to the respective WFOE in an amount determined at such WFOE’s discretion. Without the prior written consent of the applicable WFOE, our VIEs cannot accept any consulting and/or services provided by or establish similar cooperation relationship with any third party. Such WFOE owns the exclusive intellectual property rights created as a result of the performance of this agreement. The agreement shall remain effective unless unilaterally terminated by such WFOE with a written notice or pursuant to other provisions of the agreement, whereas our VIEs do not have any right to unilaterally terminate the exclusive business cooperation agreement.

 

Exclusive Call Option Agreement

 

Under the exclusive call option agreement among the applicable WFOE, each of our VIEs and their respective shareholders, each of the shareholders of our VIEs irrevocably granted such WFOE a right to purchase, or designate a third party to purchase, all or any part of their equity interests in our VIEs at a purchase price equal to the lowest price permissible by the then-applicable PRC laws and regulations at such WFOE’s sole and absolute discretion to the extent permitted by PRC law. The shareholders of our VIEs shall promptly give all considerations they received from the exercise of the options to our WFOEs (as applicable). Without the applicable WFOE’s prior written consent, our VIEs and their respective shareholders shall not enter into any major contract except for those entered in the daily business operations. Without the applicable WFOE’s prior written consent, our VIEs and their respective shareholders shall not sell, transfer, license or otherwise dispose of any of our VIEs’ assets or allow any encumbrance of any assets. Our VIEs shall not be dissolved or liquidated without the written consent by the applicable WFOE. This agreement shall remain in effect and our VIEs do not have any right to unilaterally terminate the exclusive call option agreement.

 

Equity Pledge Agreement

 

Under the equity interest pledge agreement among the applicable WFOE, each of our VIEs and their respective shareholders, our VIEs’ shareholders pledged all of their equity of our VIEs to WFOEs as security for performance of the obligations of our VIEs and their respective shareholders under the exclusive call option agreement, the exclusive business cooperation agreement and the powers of attorney. If any of the specified events of default occurs, the respective WFOE may exercise the right to enforce the pledge immediately. Such WFOE may transfer all or any of its rights and obligations under the equity pledge agreement to its designee(s) at any time. The equity pledge agreement is binding on our VIEs’ shareholders and their successors. The equity pledge agreement shall remain in effect and our VIEs do not have any right to unilaterally terminate the equity interest pledge agreement.

 

Powers of Attorney

 

Pursuant to the powers of attorney executed by the shareholders of our VIEs, each of them irrevocably authorized the applicable WFOE to act on their respective behalf as exclusive agent and attorney, with respect to all rights of shareholders concerning all the equity interest held by each of them in our VIEs, including but not limited to the right to attend shareholder meetings on behalf of such shareholder, the right to exercise all shareholder rights and the voting rights (including the right to sell, transfer, pledge and dispose of all or a portion of the equity interests held by such shareholder), and the right to appoint legal representatives, directors, supervisors and chief executive officers and other senior management.

 

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In the opinion of Shihui Partners, our PRC legal counsel, the contractual arrangements among WFOEs, Our VIEs and their respective shareholders are valid, binding and enforceable under applicable PRC law currently in effect, except that the equity pledge under that certain equity pledge agreement would not be deemed validly created until they are registered with the competent governmental authorities. However, Shihui Partners has also advised us that there are substantial uncertainties regarding the interpretation and application of current or future PRC laws and regulations and there can be no assurance that the PRC government will ultimately take a view that is consistent with the opinion of our PRC legal counsel. For a description of the risks related to our corporate structure, see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure.”

 

Spousal Consent Letters

 

Pursuant to the spousal consent letters, each of the spouses of the individual shareholders of our VIEs unconditionally and irrevocably agrees that the equity interest in our VIEs held by and registered in the name of her respective spouse will be disposed of pursuant to the relevant equity pledge agreement, the exclusive call option agreement and the powers of attorney. In addition, each of them agrees not to assert any rights over the equity interest in our VIEs held by his or her respective spouse. In addition, in the event that any of them obtains any equity interest in our VIEs held by her respective spouse for any reason, such spouse agrees to be bound by similar obligations and agreed to enter into similar contractual arrangements.

 

D.            Property, plants and equipment

 

See “Item 4. Information on the Company—B. Business Overview—Facilities.”

 

ITEM 4A. UNRESOLVED STAFF COMMENTS

 

None.

 

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

 

The following discussion of our financial condition and results of operations is based upon and should be read in conjunction with our consolidated financial statements and their related notes included in this annual report. This report contains forward-looking statements. See “Item 5. Operating and Financial Review and Prospects—G. Safe Harbor on Forward-Looking Statements.” In evaluating our business, you should carefully consider the information provided under the caption “Item 3. Key Information—D. Risk Factors” in this annual report. We caution you that our businesses and financial performance are subject to substantial risks and uncertainties.

 

A.            Operating Results

 

Overview

 

We believe we are a leading omni-channel automotive marketplace in China. We provide a scalable omni-channel automotive marketplace approach to automobile marketing and distribution. We offer marketing solutions by integrating our online platform and offline sales events. In 2017, 2018 and 2019, we hosted 304, 851 and 1,055 auto shows across 75, 196 and 233 cities in China, respectively. Our auto shows offered a total of 11,046, 27,008 and 29,063 booth spaces in 2017, 2018 and 2019, respectively. The total number of automobile sales transactions we facilitated was 347,398 and 354,355 in 2018 and 2019, respectively, with a total GMV of approximately RMB48.1 billion and RMB47.5 billion (US$6.8 billion) in the same year, respectively.

  

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Historically, we generated our net revenues primarily through our offline events. Our net revenues were RMB280.7 million, RMB651.0 million and RMB644.8 million (US$92.6 million) in 2017, 2018 and 2019, respectively. Our net loss was RMB90.7 million, RMB78.7 million and RMB251.3 million (US$36.1 million) in 2017, 2018 and 2019, respectively. Our net loss from continuing operations was RMB75.7million, RMB75.1 million and RMB251.3 million (US$36.1 million) in 2017, 2018 and 2019, respectively. Our adjusted EBITDA was RMB(84.0) million, RMB7.5 million and RMB(143.9) million (US$(20.7) million) in 2017, 2018 and 2019, respectively. We recorded adjusted net loss of RMB87.4 million and RMB140.3 million (US$20.2 million) in 2017 and 2019, respectively, and adjusted net profit of RMB3.3 million in 2018. For a detailed description of our non-GAAP measures, see “—Non-GAAP Financial Measures.”

 

General Factors Affecting Our Results of Operations

 

We operate in China’s automotive industry, and our results of operations and financial condition are significantly affected by general factors driving this industry. With the increase in disposable income for automobile consumers, especially in lower tier cities, and declining automobile prices, automobiles have become more affordable to Chinese consumers. The urbanization of China’s population has led to infrastructure development, which makes automobiles a more desirable solution for short-distance traveling. In particular, tier-3 and below cities are experiencing, and are expected to continue to experience, a faster growth rate than tier-1 and tier-2 cities in terms of new automobile sales volume. New automobile sales volume in tier-3 and below cities is expected to grow at a CAGR of 7.3% from 2017 to 2022, much higher than the CAGR of 0.3% over the same period in tier-1 and tier-2 cities, according to the iResearch report.

 

In 2019, we faced continuing macroeconomic and industry-wide headwinds. In addition, as a result of the government-mandated quarantine measures to contain the virus spread, we cancelled all offline events such as auto shows and special promotion events previously scheduled in February and March 2020, and held very few offline events in April 2020. We may continue to do so, depending on the development of the COVID-19 pandemic and the government’s responsive measures, which could materially and adversely affect our operating and financial performance. Furthermore, as the business operations of our industry customers have also been severely disrupted, we have experienced a delay in collecting our accounts receivable since the COVID-19 outbreak, which could materially and adversely affect our liquidity. In response to the significant impact of the COVID-19 pandemic, we have adopted more prudent strategies regarding hiring, selling and marketing and business expansion with the aim of optimizing the efficiency of our geographic coverage and refining our cost structures in anticipation of the overall market stagnation in the near future. For example, we have implemented measures to adjust the pace of our business expansion and conserve resources, such as furlough arrangements and scaling back our recruitment budget and employee size. We may resort to other cost cutting measures if the outbreak of COVID-19 and its impact persist or escalate. We are closely monitoring the status of the COVID-19 pandemic to timely adjust our strategies. For more details, see “Item 3. Key Information—Risk Factors—Risks Related to Our Business and Industry—Our business operations have been and may continue to be materially and adversely affected by the COVID-19 pandemic.” For the first quarter of 2020, we expect our net revenues to range from approximately RMB9.0 million to RMB10.0 million, representing a year-over-year approximate decrease of 92.7% to 91.9%, primarily due to cancellation of offline events in February and March resulting from the COVID-19 pandemic. Although we believe the adverse market conditions will continue to affect our business, results of operations, financial condition and liquidity in the near-term, we are confident that our ongoing efforts to fortify our position as the leading omni-channel sales platform and cultivate additional revenue streams will assure our growth prospects in the long term.

 

In addition to general economic conditions and industry factors, we believe the following company-specific factors have had, and will continue to have, a significant impact on our results of operations.

 

Specific Factors Affecting Our Results of Operations

 

While our business is influenced by general factors affecting China’s automotive industry, we believe our results of operations are more directly affected by company specific factors, including the following:

 

Scale of Our Business

 

The scale of our business, including the number of offline events we organize, the number of cities in which we operate, the number of automobile sales transactions we facilitate, and the number of industry customers we serve, has a significant impact on our results of operations. In 2017, 2018 and 2019, we organized 304, 851 and 1,055 auto shows, respectively. In June 2018, we began our virtual dealership business to further penetrate the automotive industry. The total number of automobiles sales transactions we facilitated increased significantly from 193,371 in 2017 to 347,398 in 2018, and further to 354,355 in 2019. The total number of industry customers we served through our various service offerings increased from 4,737 in 2017 to 8,281 in 2018, and further to 8,313 in 2019. As of December 31, 2017, 2018 and 2019, our sales operations cover 78, 138 and 148 cities across China, respectively. Our scale in terms of industry customer size, the number of auto shows we host, the number of cities in which we operate, and the number of automobiles sold during our offline events has enabled us to generate a substantial amount of net revenues and to lower our average fixed costs such as selling and administrative overheads. Our scale has also enabled us to establish an extensive network of industry customers, which is critical to our ability to expand the variety of services we offer and solidify our market leadership. 

 

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Pricing

 

Our ability to maintain or potentially increase the service fees we charge our industry customers directly impacts our results of operations. We generate net revenues from our offline events by charging participating industry customers for booth spaces. Our net revenues for our auto show business is the product of the number of paying industry customers we attract for each auto show, the amount we charge each of those industry customers and the number of auto shows we host, while our net revenues for our special promotion event services depend on the number of special promotion events we facilitate, the amount we charge the industry customers for each event and, in some cases, the number of automobiles we sell and our commissions for each automobile sold in the offline events. While for most of our offline events our pricing is not based on the number of successful transactions, we believe our ability to bring a steady stream of purchase orders increases our industry customers’ stickiness and propensity to continue using our services, which is crucial to our ability to maintain and raise overall booth space prices while retaining industry customers as we increase the scale of our offline events nationwide. In the long run, we expect to maintain and increase the prices for our booth spaces in our auto shows in all cities where we organize auto shows. However, as we expand into an increasing number of tier-3 and below cities where booth space price levels are generally lower than tier-1 and tier-2 cities, we may experience decline in overall price per booth at our auto shows.

  

For our virtual dealership business, the amount of commission we charge secondary dealers is directly related to our results of operations. We plan to offer secondary dealers technical and operational support in addition to automobile sales facilitation in an effort to enhance secondary dealers’ reliance on us, which will enable us to achieve an optimal pricing level in the future. In January 2020, we completed the acquisition of Longye, whose flagship software product Cheshangtong will improve our customers’ capabilities in consumer acquisition and management, which we believe will improve their reliance on and stickiness to our services.

 

Operational Efficiency

 

Our ability to maintain and enhance operational efficiency for our offline events directly impacts our results of operations. We depend on our standardized event planning and operating procedures and we rely on our employees’ skills and know-how to carry out those procedures in light of varying local conditions. As we expand the scale of our offline events and tap into new service offerings and regions, our ability to enhance operational efficiency by improving our standardized operating procedures will be crucial in controlling our cost of sales and improving our gross margin, and our ability to streamline our corporate functions and improve our administrative efficiency will contribute to a slower growth rate in our operating expenses compared to that in our net revenues.

 

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Consumer Acquisition

 

Consumer acquisition affects our results of operations in two ways. On one hand, a large, high-quality, and engaged consumer base is attractive to our industry customers seeking to sell automobiles and related automotive services. On the other hand, high consumer acquisition efficiency enables us to control our selling and marketing expenses, which mainly consist of event promotion expenses and sales employee compensation. As our business expands in scale and as our reputation grows, we expect to continue to improve our consumer acquisition efficiency by increasing word-of-mouth referrals and negotiating more favorable terms with our various online and offline channels.

 

Seasonality

 

We generally experience effects of seasonality primarily due to the consumption habits of Chinese automobile consumers. For example, we generally organize fewer offline events and generate less net revenues during the first quarter of each year than any of the other three quarters due to the effect of the Chinese New Year holidays when consumers tend to stay home with their families. In contrast, we may experience higher net revenues growth during the last quarter of each year than any of the other three quarters when consumers increase their purchasing activities in preparation for the coming holiday season, subject to industry-wide and macroeconomic uncertainties beyond our control, such as general marketing conditions and government incentives or restrictions.

  

Non-Commercial Contingencies

 

Due to the nature of our business, certain contingencies and non-commercial factors, such as weather conditions and number of weekends during a specific period, may also affect our results of operations. We host many of our offline events outdoors throughout the year. Severe weather conditions may force us to cancel pre-scheduled outdoor events and lower the level of industry customer attendance at the affected events, negatively impacting our net revenues. Further, our efforts to manage such weather contingencies, such as securing backup indoor venues or setting up temporary facilities, will lead to increased set-up and venue rental cost, which may negatively impact our gross profit and overall results of operations.

 

Because we generally organize offline events during weekends in order to maximize consumer attendance, the number of weekends in a particular period could affect the net revenues and our overall results of operations for that period. For example, because September 29 and 30, 2018 were converted into working days by regulation, there was one fewer weekend in the three months ended September 30, 2018 compared to the preceding quarter, which negatively impacted the number of auto shows we hosted and the net revenues we generated.

 

Our offline events may also be halted as a result of any public health crisis. For example, due to the outbreak of COVID-19 in China, we cancelled all offline events such as auto shows and special promotion events previously scheduled in February and March 2020, and held very few offline events in April 2020. We expect to continue to reduce the number of offline sales events in the coming months, depending on the development of the pandemic and the government’s responsive measures. For more information, see “Item 3. Key Information—Risk Factors—Risks Related to Our Business and Industry—Our business operations have been and may continue to be materially and adversely affected by the COVID-19 pandemic.”

 

Critical Accounting Policies

 

We prepared the consolidated financial statements in accordance with U.S. GAAP. When reviewing our financial statements, you should consider our selection of critical accounting policies, our judgments and other uncertainties affecting our applications of those policies and the sensitivity of reported results to changes of such policies, judgments and uncertainties. We believe the following accounting policies involve the most significant judgments and estimates used in the preparation of our financial statements. You should read the following descriptions of critical accounting policies, judgments and estimates in conjunction with our consolidated financial statements and other disclosures included in this annual report.

 

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Principles of Consolidation

 

The consolidated financial statements include the financial statements of ourselves, our subsidiaries, and our consolidated affiliated entities for which we are the primary beneficiary. Subsidiaries are those entities in which we, directly or indirectly, control more than half of the voting power, have 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 have 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 affiliated entity is an entity in which we, or our subsidiary, through contractual arrangements, have the power to direct the activities that most significantly impact the entity’s economic performance, bear the risks of and enjoy the rewards normally associated with ownership of the entity, and therefore we or our subsidiaries are the primary beneficiary of the entity.

 

All transactions and balances among ourselves, our subsidiaries, and our consolidated affiliated entities have been eliminated upon consolidation.

 

Discontinued Operations

 

A component of a reporting entity or a group of components of a reporting entity that are disposed or meet the criteria to be classified as held for sale, such as the management, having the authority to approve the action, commits to a plan to sell the disposal group, should be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. Discontinued operations are reported when a component of an entity comprising operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity is classified as held for disposal or has been disposed of, if the component either (1) represents a strategic shift or (2) have a major impact on an entity’s financial results and operations. In the consolidated statements of operations and comprehensive loss, result from discontinued operations is reported separately from the income and expenses from continuing operations and prior periods are presented on a comparative basis. Cash flows from discontinuing operations are presented separately in Note 3 to the consolidated financial statements included in this annual report. In order to present the financial effects of the continuing operations and discontinued operations, revenues and expenses arising from intra-group transactions are eliminated except for those revenues and expenses that are considered to continue after the disposal of the discontinued operations.

  

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Revenue Recognition

  

We adopted ASC Topic 606, "Revenue from Contracts with Customers" for all periods presented. Consistent with the criteria of Topic 606, we 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 receive in exchange for those goods or services using the five steps defined under ASC Topic 606.

 

We assess our revenue arrangements against specific criteria in order to determine if we are acting as principal or agent. Based on revenue arrangements, there are no multiple performance obligations identified. Revenue is recognized upon transfer of control of promised goods or services to a customer.

 

Revenue is recorded net of Value Added Tax (“VAT”) and related surcharges collected from customers, which are subsequently remitted to government authorities.

 

Auto show revenue

 

Our online website and offline infrastructure allow us to organize auto shows, which aim at facilitating transactions between consumers and auto dealers that includes auto dealers, automakers and automotive service providers. We charge a fixed admission fee per auto show event to our industry customers for arranging, decorating and providing booth space at auto shows. We have identified one performance obligation for the transaction, providing a decorated venue for auto dealers, automakers and automotive service providers, as the individual service promised in auto show contracts are not distinct individually. As we have control of the auto show services and discretion in establishing the price of auto show admission fee to auto dealers, automakers and other automotive service providers, we are considered to be a principal in accordance with ASC 606. The auto shows revenue is recognized over the period of the contract when the services are provided.

 

Special promotion event services revenue

 

We provide integrated services to support industry customers’ special promotion events during a specific period, which include event planning and execution, marketing training and onsite coaching. We charge a fixed service fee per special promotion event. We have identified one performance obligation, as the individual service promised in service contracts are not distinct individually. As we have control of the special promotion event services and discretion in establishing the price of services fees to industry customers, we are considered to be a principal in accordance with ASC 606. Revenue generated from the special promotion event services is recognized over the period of the contract when the services are provided.

 

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Group-purchase facilitation revenue

 

We solicit a group of automobile consumers who are interested in the same brand and model using our online platform, and organize group-purchase events by inviting these consumers to the dealerships that offer favorable prices on that brand and model. We collect group-purchase facilitation service fees from the dealerships in the form of a fixed service fee per group-purchase event or a fixed commission fee per automobile sold during the group-purchase event. We recognize revenue when the service of group-purchase or facilitation is rendered, which occurs upon the closing of the group-purchase event.

 

Virtual dealership service revenue

 

We operate a virtual dealership by connecting automakers or franchised dealerships with secondary dealerships whereby we purchase automobiles on behalf of secondary dealers from automakers or franchised dealerships. We charge secondary dealers a commission fee for sales transactions that we facilitate. As we have neither inventory risk nor the discretion to establish automobile prices, we act as an agent in accordance with ASC 606. We recognize the virtual dealership commission revenue upon the secondary dealers’ acceptance of the delivery of automobiles from automakers or franchised dealerships.

 

Online marketing services revenue

 

Our online marketing services revenue primarily include demand-side platform services and marketing information services.

For our demand-side platform services, we generate revenue through (1) online advertising services and (2) advertising space resale services. For our advertising services, we provide advertising spaces on our website to customers and recognize the service fees we receive as revenue on a straight-line basis over the period of the service period. For our advertising space resale services, we purchase wholesale advertising spaces from suppliers such as search engines and other online advertising channels and resell those spaces to our customers. Our customers pay us a membership fee to access these spaces. We recognize the membership fee on a straight-line basis over the membership period, which is usually one year. As we do not have discretion over the price of advertisement charged by suppliers, who are the primary obligors for providing the advertising services, and recognize revenue from advertising space resale services on a net basis.

For the marketing information services, we provide industry customers with individual consumers’ demands information regarding their purchase preferences for automobiles generated through our online channels upon consumers' consent. The marketing information service fee is charged based on the quantity of consumers’ demand information delivered. We recognize revenue at a point in time upon the delivery of such consumers’ demand information.

 

Long-term investments

 

In accordance with ASU 2016-01 Investment—Other, for investments in equity instruments which we do not have significant influence and whose fair value is not readily determinable, we apply the cost less impairment method accounting. Gain or losses are realized when such investment is sold or when dividends are declared or payments are received. We assess our equity investments for other-than-temporary impairment by considering factors including, but not limited to, current economic and market conditions, the operating performance of the companies including current earnings trends, and other company-specific information such as financing rounds.

 

Investments in entities in which we can exercise significant influence but does not own a majority equity interest or control are accounted for using the equity method of accounting in accordance with ASC topic 323 Investments-Equity Method and Joint Ventures. We adjust the carrying amount of equity method investment for its share of the income or losses of the investee and reports the recognized income or losses in the consolidated statements of operations and comprehensive loss. Our share of the income or losses of an investee are based on the shares of common stock and in-substance common stock held by us.

 

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Warrant

 

We issued warrant which enables the recipient to purchase our Series C-2 convertible redeemable preferred shares. We record the fair value of the warrant on the issuance date as a liability on the date of issuance, and record subsequent changes in its fair value in our consolidated statements of operations and comprehensive loss. The consideration of the warrant issuance we received was our ability to enter into future debt financing transactions with the recipient of the warrant. Therefore, we record the fair value of the warrant as non-current asset.

 

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 income 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 income 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 income tax assets and liabilities of a change in tax rates or tax laws is recognized in the 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 income tax assets if it is considered more likely than not that some portion or all of the deferred income tax assets will not be realized.

 

Uncertain tax positions

 

In order to assess uncertain tax positions, we apply 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 50% likely of being realized upon settlement. We recognize interest and penalties, if any, under accrued expenses and other current liabilities on our consolidated balance sheet and under other expenses in our consolidated statements of operations and comprehensive loss. We did not have any significant unrecognized uncertain tax positions as of and for the years ended December 31, 2017, 2018 and 2019.

 

Share-based Compensation

 

Share based compensation expenses arise from share based awards, including share options for the purchase of ordinary shares and restricted shares. We account for share-based awards granted to employees in accordance with ASC 718 Compensation—Stock Compensation and share-based awards granted to non-employee in accordance with ASC 505. For share options for the purchase of ordinary shares granted to employees determined to be equity classified awards, the related share-based compensation expenses are recognized in the consolidated financial statements 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 share price as well as assumptions regarding a number of complex and subjective variables, including the expected share price volatility, actual and projected employee share option exercise behavior, risk-free interest rates and expected dividends. The fair value of the ordinary shares is assessed using the income approach/discounted cash flow method, 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 actual 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.

 

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Share-based compensation expenses for share options granted to non-employees are measured at fair value at the earlier of the performance commitment date or the date service is completed, and recognized over the period during which the service is provided. We apply the guidance in ASC 505-50 to measure share options granted to non-employees based on the then-current fair value at each reporting date.

 

If a share-based award is modified after the grant date, we evaluate for such modifications in accordance with ASC 718 Compensation—Stock Compensation and if the modification is determined to be a probable-to-probable (Type 1) modification, additional compensation expenses are recognized in an amount equal to the excess of the fair value of the modified equity instrument over the fair value of the original equity instrument immediately before modification. The additional compensation expenses are recognized immediately on the date of modification or over the remaining requisite service period, depending on the vesting status of the award.

 

Non-GAAP Financial Measures

 

To supplement our consolidated financial statements which are presented in accordance with U.S. GAAP, we also use adjusted EBITDA and adjusted net loss/profit as additional non-GAAP financial measures. We present these non-GAAP financial measures because they are used by our management to evaluate our operating performance. We also believe that these non-GAAP financial measures provide useful information to investors and others in understanding and evaluating our consolidated results of operations in the same manner as our management and in comparing financial results across accounting periods and to those of our peer companies.

 

We define adjusted EBITDA as net loss excluding depreciation and amortization, interest (expenses)/income, net, fair value loss of warrant, share-based compensation expenses and impairment of investment. We define adjusted net loss/profit as net loss excluding fair value loss of warrant, share-based compensation expenses and impairment of investment. We believe that adjusted EBITDA and adjusted net loss/profit provide useful information to investors and others in understanding and evaluating our operating results. These non-GAAP financial measures adjust for the impact of items that we do not consider indicative of the operational performance of our business and 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 compare the historical non-GAAP financial measures with the most directly comparable GAAP measures. Adjusted EBITDA and adjusted net loss/profit 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.

   

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The following tables set forth a reconciliation of our adjusted EBITDA and adjusted net loss/profit to net loss for the years indicated.

 

   For the year ended December 31, 
   2017   2018   2019 
   RMB   RMB   RMB   US$ 
   (in thousands) 
Net loss    (90,671)   (78,700)   (251,299)   (36,097)
Add:                    
Depreciation and amortization    965    1,060    3,483    500 
Interest expense, net    2,416    3,146         
Subtract:                    
Interest income, net           7,020    1,008 
EBITDA    (87,290)   (74,494)   (254,836)   (36,605)
Add:                    
Fair value loss of warrant    1,390    3,843         
Share-based compensation expenses    1,896    78,133    109,968    15,796 
Impairment of investment            1,000    144 
Adjusted EBITDA    (84,004)   7,482    (143,868)   (20,665)

 

    For the year ended December 31,  
    2017     2018     2019  
    RMB       RMB       RMB       US$    
Net loss     (90,671 )     (78,700 )     (251,299 )     (36,097 )
Add:                                
Fair value loss of warrant     1,390       3,843              
Share-based compensation expenses     1,896       78,133       109,968       15,796  
Impairment of investment                 1,000       144  
Adjusted net (loss)/profit     (87,385 )     3,276       (140,331 )     (20,157 )

 

Key Components of Results of Operations

 

Net Revenues

 

We generate net revenues primarily from (1) offline marketing services and (2) virtual dealership, online marketing services and other services. In 2017, 2018, and 2019, our net revenues were RMB280.7 million, RMB651.0 million and RMB644.8 million (US$92.6 million), respectively. The following table sets forth the breakdown of our total net revenues, both in absolute amounts and as a percentage of total net revenues, for the years indicated.

 

    For the year ended December 31,  
    2017     2018     2019  
    RMB     %     RMB     %     RMB     US$     %  
    (in thousands, except for percentages)  
Net revenues:                                                        
Offline marketing services                                                        
Auto show     263,927       94.0       644,252       99.0       603,407       86,674       93.6  
Group-purchase facilitation     16,739       6.0                                
Special promotion events                             19,772       2,840       3.1  
Virtual dealership, online marketing services and others                 6,761       1.0       21,594       3,102       3.3  
Total net revenues     280,666       100.0       651,013       100.0       644,773       92,616       100.0  

 

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Offline marketing services revenue

 

Our offline marketing services revenue primarily consists of revenues from auto shows, group purchase facilitation events and other special promotion events.

 

Auto shows

 

We typically generate net revenues from industry customers that pay for booth spaces in our auto shows. In 2017, 2018, and 2019, net revenues generated from our auto shows were RMB263.9 million, RMB644.3 million and RMB603.4 (US$86.7 million), respectively, representing 94.0%, 99.0% and 93.6%of our net revenues for the same periods, respectively.

 

Group-purchase facilitation

 

We typically generate net revenues from auto dealers by charging them a fixed fee per group-purchase event or a fixed fee per automobile sold during the group-purchase event. In 2017, 2018, and 2019, net revenues generated from our group-purchase facilitation services were RMB16.7 million, nil and nil, respectively, representing 6.0%, 0.0% and 0.0% of our net revenues for the same years, respectively. We may organize group-purchase facilitation events in the future upon the requests of auto dealers, although this line of business will not be our primary focus.

 

Special promotion event services

 

We began to provide special promotion event services to our industry customers in January 2019 to better support them in organizing their special promotion events. We primarily provide a series of integrated services, such as event planning and executing, marketing training and onsite coaching. In 2019, we facilitated 627 special promotion events through our services. We typically generate net revenues by charging industry customers fixed service fees per event. In 2019, net revenues from special promotion events were RMB19.8 million (US$2.8 million), representing 3.1% of our total net revenues.

  

Virtual dealership, online marketing services and others

 

We began our virtual dealership business in June 2018. We also conducted our online marketing services throughout 2018 and 2019. We generated net revenues primarily from these services of approximately RMB6.8 million and RMB21.6 million (US$3.1 million) in 2018 and 2019, respectively. We expect that our net revenues from our virtual dealership business will experience significant growth in the next few years, and will make a meaningful contribution to our overall net revenues in the future.

 

Cost of Revenues

 

Our cost of revenues consists of (1) venue set-up costs, (2) venue rental costs, (3) security costs, (4) direct labor costs, and (5) other direct costs. The following table sets forth the components of cost of revenues, both in absolute amount and as a percentage of net revenues for the years indicated.

  

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   For the year ended December 31, 
   2017   2018   2019 
   RMB   %   RMB   %   RMB   US$   % 
   (in thousands, except for percentages) 
Net revenues   280,666    100.0    651,013    100.0    644,773    92,616    100.0 
Cost of revenues:                                   
Venue set-up costs   32,250    11.5    76,621    11.8    61,736    8,868    9.6 
Venue rental costs   30,959    11.0    66,718    10.3    77,134    11,080    12.0 
Security costs   8,215    2.9    7,326    1.1    9,071    1,303    1.4 
Direct labor costs   4,810    1.7    7,364    1.1    9,767    1,403    1.5 
Other direct costs   9,508    3.4    25,340    3.9    28,833    4,141    4.4 
Total cost of revenues   85,742    30.5    183,369    28.2    186,541    26,795    28.9 

 

Venue set-up costs

 

We engage third-party service providers to assemble exhibition booths and coordinate maintenance issues with participating industry customers. In exchange, we pay these service providers service fees, which we recognize as venue set-up costs after the relevant services are rendered. Our venue set-up costs were RMB32.3 million, RMB76.6 million and RMB61.7 million (US$8.9 million) in 2017, 2018 and 2019, respectively.

 

Venue rental costs

 

We use venues owned by third-party property owners for our auto shows and pay these property owners rental fees which we recognize as venue rental costs at the end of the rental period. The amount of rent primarily depends on the venue’s location and size. Our venue rental costs were RMB31.0 million, RMB66.7 million and RMB77.1 million (US$11.1 million) in 2017, 2018 and 2019, respectively.

 

Security costs

 

To comply with regulatory requirements on public gatherings and to ensure the safety of participants at our offline events and of the merchandise on display, we hire security personnel through third-party security service providers and in some cases set up security checkpoints to ensure that our offline event venues are free from harmful or dangerous substances and are in compliance with laws and regulations. We recognize the payments we make to such security personnel and to set up the security checkpoints as security costs, which were RMB8.2 million, RMB7.3 million and RMB9.1 million (US$1.3 million) in 2017, 2018 and 2019, respectively.

 

Direct labor costs

 

We assign our own field employees to each of our offline events who are responsible for handling event-day logistics and contingencies. We recognize the salaries and benefits we pay to those employees as direct labor costs. In 2017, 2018 and 2019, our direct labor costs were RMB4.8 million, RMB7.4 million and RMB9.8 million (US$1.4 million), respectively.

 

Other direct costs

 

Other direct costs primarily include costs related to the planning and organization of our offline events, such as meals, package deliveries, and telecommunications. In 2017, 2018 and 2019, our other costs were RMB9.5 million, RMB25.3 million and RMB28.8 million (US$4.1 million), respectively.

 

Gross Profit

 

As a result of the foregoing, our gross profit was RMB194.9 million, RMB467.6 million and RMB458.2 million (US$65.8 million) in 2017, 2018 and 2019, respectively, and our gross profit margin was 69.5%, 71.8% and 71.1% in 2017, 2018 and 2019, respectively.

 

 -90- 

 

 

Operating Expenses

 

Our operating expenses consist of selling and marketing expenses, general and administrative expenses, and research and development expenses. The following table sets forth the components of operating expenses, in absolute amounts and as a percentage of net revenues, for the years indicated.

 

   For the year ended December 31, 
   2017   2018   2019 
   RMB   %   RMB   %   RMB   US$   % 
   (in thousands, except for percentages) 
Net revenues    280,666    100.0    651,013    100.0    644,773    92,616    100.0 
Operating expenses:                                   
Selling and marketing expenses    223,249    79.5    432,059    66.4    572,040    82,168    88.7 
General and administrative expenses    27,491    9.8    84,360    13.0    103,890    14,923    16.1 
Research and development expenses    15,925    5.7    19,262    3.0    43,339    6,225    6.7 
Total operating expenses    266,665    95.0    535,681    82.4    719,269    103,316    111.5 

 

Selling and marketing expenses

 

Our selling and marketing expenses consist primarily of (1) advertising and promotion expenses, which entail expenditures related to online and offline promotion of our business, (2) sales staff compensation, (3) transportation expenses incurred by our sales staff and field sales office rental expenses, and (4) call center expenses. We expect that our selling and marketing expenses will continue to increase as we further expand into new markets and service offerings and as we enhance our brand recognition. The following table sets forth the components of our selling and marketing expenses, in absolute amounts and as a percentage of net revenues, for the years indicated.

 

   For the year ended December 31, 
   2017   2018   2019 
   RMB   %   RMB   %   RMB   US$   % 
   (in thousands, except for percentages) 
Net revenues   280,666    100.0    651,013    100.0    644,773    92,616    100.0 
Selling and marketing expenses:                                   
Advertising and promotion expense   134,181    47.8    260,245    40.0    291,192    41,827    45.2 
Sales staff compensation   71,304    25.4    125,468    19.3    243,331    34,952    37.7 
Transportation and rental expenses   7,122    2.5    6,249    1.0    2,753    395    0.4 
Call center expenses   1,309    0.5    19,750    3.0    20,153    2,895    3.1 
Others   9,333    3.3    20,347    3.1    14,611    2,099    2.3 
Total selling and marketing expenses   223,249    79.5    432,059    66.4    572,040    82,168    88.7 

 

 -91- 

 

 

General and administrative expenses

 

General and administrative expenses consist primarily of (1) administrative staff compensation, (2) professional service expenses, (3) office expenses, and (4) others, including allowance of doubtful accounts. The following table sets forth the components of general and administrative expenses, in absolute amounts and as a percentage of net revenues, for the years indicated.

 

   For the year ended December 31, 
   2017   2018   2019 
   RMB   %   RMB   %   RMB   US$   % 
   (in thousands, except for percentages) 
Net revenues   280,666    100.0    651,013    100.0    644,773    92,616    100.0 
General and administrative expenses:                                   
Administrative staff compensation   14,027    5.0    61,997    9.5    59,444    8,539    9.2 
Professional service expenses   4,231    1.5    10,412    1.6    12,209    1,754    1.9 
Office expenses   4,580    1.6    4,856    0.8    9,240    1,327    1.4 
Others   4,653    1.7    7,095    1.1    22,997    3,303    3.6 
Total general and administrative expenses   27,491    9.8    84,360    13.0    103,890    14,923    16.1 

 

Taxation

 

Cayman Islands

 

We are incorporated in the Cayman Islands. Under the current law of the Cayman Islands, we are not subject to income or capital gains tax. In addition, dividend payments are not subject to withholding tax in the Cayman Islands.

 

Hong Kong

 

Commencing from the year of assessment 2018/2019, the first HK$2.0 million of profits earned by the Group’s subsidiaries incorporated in Hong Kong will be taxed at half the current tax rate (i.e., 8.25%) while the remaining profits will continue to be taxed at the existing 16.5% tax rate. Payments of dividends by the subsidiary to the Company are not subject to withholding tax in Hong Kong.

 

PRC

 

Our subsidiaries and consolidated affiliated entities in China are companies incorporated under PRC law and, as such, are subject to PRC enterprise income tax on their taxable income in accordance with the relevant PRC income tax laws. Pursuant to the modified PRC Enterprise Income Tax Law, a uniform 25% enterprise income tax rate is generally applicable to both foreign-invested enterprises and domestic enterprises, except where a special preferential rate applies. The enterprise income tax is calculated based on the entity’s global income as determined under PRC tax laws and accounting standards. Preferential tax treatments are granted to enterprises qualified as high and new technology enterprise, or HNTE. In 2018, our subsidiary TuanYuan and consolidated affiliated entity TuanChe Internet were accredited as HNTEs and are entitled to the preferential enterprise income tax rate of 15% from 2018 to 2020, if TuanYuan and TuanChe Internet successfully meet the criteria of HNTE each year. In 2019, our consolidated affiliated entity Drive New Media were accredited as HNTEs and are entitled to the preferential enterprise income tax rate of 15% from 2019 to 2021, if Drive New Media successfully meet the criteria of HNTE each year. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—Failure to renew or retain any preferential tax treatments that are available in China could adversely affect our results of operations and financial condition.”

 

 -92- 

 

 

 

Our subsidiaries and consolidated affiliated entities in China are subject to value-added tax at a rate of 6% on the services they provide, less any deductible value-added tax they have already paid or borne. Our subsidiaries and consolidated affiliated entities in China are also subject to surcharges on value-added tax payments in accordance with PRC law.

 

As a Cayman Islands holding company, we may receive dividends from our PRC subsidiaries. The PRC Enterprise Income Tax Law and its implementing rules provide that dividends paid by a PRC entity to a non-resident enterprise for income tax purposes is subject to PRC withholding tax at a rate of 10%, subject to reduction by an applicable tax treaty with China. Pursuant to the Arrangement between Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income, the withholding tax rate in respect to the payment of dividends by a PRC enterprise to a Hong Kong enterprise may be reduced to 5% from a standard rate of 10% if the Hong Kong enterprise directly holds at least 25% of the PRC enterprise. Pursuant to the Notice of the State Administration of Taxation on the Issues concerning the Application of the Dividend Clauses of Tax Agreements, or SAT Circular 81, a Hong Kong resident enterprise must meet the following conditions, among others, in order to apply the reduced withholding tax rate: (1) it must be a company as provided in the tax treaty; (2) it must directly own the required percentage of equity interests and voting rights in the PRC resident enterprise; and (3) it must have directly owned such required percentage in the PRC resident enterprise throughout the 12 months prior to receiving the dividends. In August 2015, the SAT promulgated the Administrative Measures for Non-Resident Taxpayers to Enjoy Treatment under Tax Treaties, or SAT Circular 60, which became effective in November 2015. SAT Circular 60 provides that non-resident enterprises are not required to obtain pre-approval from the relevant tax authority in order to enjoy the reduced withholding tax. Instead, non-resident enterprises and their withholding agents may, by self-assessment and on confirmation that the prescribed criteria to enjoy the tax treaty benefits are met, directly apply the reduced withholding tax rate, and file the necessary forms and supporting documents when performing tax filings, which will be subject to post-tax filing examinations by the relevant tax authorities. In October 2019, the SAT promulgated the Administrative Measures for Non-Resident Taxpayers to Enjoy Treatments under Tax Treaties, or SAT Circular 35. SAT Circular 35 became effective on January 1, 2020 and superseded SAT Circular 60 on the same date. Compared to SAT Circular 60, SAT Circular 35 provides that the nonresident enterprises and their withholding agents are not required to submit the supporting documents for tax treaty benefits when performing tax filings. Instead, nonresident enterprises and their withholding agents may retain such supporting documents themselves for the post-tax filing examinations by the relevant tax authorities. Accordingly, TuanChe Information Limited and Long Ye Information Technology Limited, our Hong Kong subsidiaries, may be able to benefit from the 5% withholding tax rate for the dividends it receives from our PRC subsidiaries, if it satisfies the conditions prescribed under SAT Circular 81 and other relevant tax rules and regulations. However, according to SAT Circular 81 and SAT Circular 35, if the relevant tax authorities consider the transactions or arrangements we have are for the primary purpose of enjoying a favorable tax treatment, the relevant tax authorities may adjust the favorable withholding tax in the future.

 

If our holding company in the Cayman Islands or any of our subsidiaries outside of China were deemed to be a “resident enterprise” under the PRC Enterprise Income Tax Law, it would be subject to enterprise income tax on its worldwide income at a rate of 25%, which could result in unfavorable tax consequences to us and our non-PRC shareholders. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—If we are classified as a PRC resident enterprise for PRC enterprise income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC shareholders and ADS holders.”

 

 -93- 

 

 

Results of Operations

 

The following table sets forth a summary of our consolidated results of operations for the years indicated. You should read this information together with our consolidated financial statements and related notes included elsewhere in this annual report. The results of operations in any period are not necessarily indicative of the results that may be expected for any future years or periods.

 

    Year Ended December 31,  
    2017     2018     2019  
    RMB     RMB     RMB     US$  
    (in thousands, except for share and per share data)  
Summary Consolidated Statements of Operations and Comprehensive Loss                                
Continuing operations                                
Net Revenues     280,666       651,013       644,773       92,616  
Cost of revenues     (85,742 )     (183,369 )     (186,541 )     (26,795 )
Gross profit     194,924       467,644       458,232       65,821  
Total operating expenses     (266,665 )     (535,681 )     (719,269 )     (103,316 )
Net loss from continuing operations     (75,694 )     (75,088 )     (251,299 )     (36,097 )
Net loss from discontinued operations     (14,977 )     (3,612 )            
Net loss     (90,671 )     (78,700 )     (251,299 )     (36,097 )
Accretion to pre-IPO preferred shares redemption value     (20,945 )     (35,066 )            
Comprehensive loss attributable to the TuanChe Limited’s shareholders     (112,983 )     (110,365 )     (240,869 )     (34,598 )
Comprehensive loss attributable to non-controlling interest                 (659 )     (95 )
Net loss attributable to the TuanChe Limited’s ordinary shareholders per share from continuing operations                                
Basic     (1.02 )     (0.90 )     (0.85 )     (0.12 )
Diluted     (1.02 )     (0.90 )     (0.85 )     (0.12 )
Net loss attributable to the TuanChe Limited’s ordinary shareholders per share from discontinuing operations                                
Basic     (0.16 )     (0.03 )            
Diluted     (0.16 )     (0.03 )            
Weighted average number of ordinary shares                                
Basic     94,870,580       121,938,427       294,922,074       294,922,074  
Diluted     94,870,580       121,938,427       294,922,074       294,922,074  
Non-GAAP Financial Data (1)                                
Adjusted EBITDA     (84,004 )     7,482       (143,868 )     (20,665 )
Adjusted net (loss)/profit     (87,385 )     3,276       (140,331 )     (20,157 )

 

 

(1) See “—Non-GAAP Financial Measures.”

 

Year Ended December 31, 2019 Compared to Year Ended December 31, 2018

 

Net Revenues

Our net revenues from continuing operations decreased by 1.0% from RMB651.0 million in 2018 to RMB644.8 million (US$92.6 million) in 2019, primarily due to the decrease in our net revenues from our auto show business as a result of the market stagnation of China’s automobile industry.

 

 -94- 

 

 

 

  · Net revenues from auto show services decreased by 6.3% from RMB644.3 million in 2018 to RMB603.4 million (US$86.7 million) in 2019, primarily due to the decrease in the service fees we charged our industry customers to attract and retain them amid the market slowdown in China. In 2018 and 2019, we organized 851 and 1,055 auto shows in 196 and 233 cities, offering a total of 27,008 and 29,063 booths, respectively.
     
  · In 2019, we commenced our special promotion event services and facilitated 627 special promotion events for our industry customers. We generated RMB19.8 million (US$2.8 million) in net revenues, representing 3.1% of our total net revenues for the same year.
     
  · Net revenues from our virtual dealership business, online marketing services and others increased significantly from approximately RMB6.8 million in 2018 to RMB21.6 million (US$3.1 million) in 2019, primarily due to the increase in the number of automobiles sales transactions we facilitated through our virtual dealership business from 961 with a GMV of over RMB94.5 million in 2018 to 1,878 with a GMV of RMB229.5 million (US$32.9 million) in 2019.

 

Cost of Revenues

 

Our cost of revenues increased by 1.7% from RMB183.4 million in 2018 to RMB186.5 million (US$26.8 million) in 2019, primarily due to the following reasons.

 

·Our venue set-up costs decreased by 19.4% from RMB76.6 million in 2018 to RMB61.7 million (US$8.9 million) in 2019. Although the number of auto shows we organized and set up increased from 851 in 2018 to 1,055 in 2019, we managed to lower the venue set-up costs for each auto show, benefiting from economies of scale.

 

·Our venue rental costs increased by 15.6% from RMB66.7 million in 2018 to RMB77.1 million (US$11.1 million) in 2019, generally in line with the increase in the number of our auto shows.

 

·Our security costs increased by 23.8% from RMB7.3 million in 2018 to RMB9.1 million (US$1.3 million) in 2019, primarily due to the increase in the number of our auto shows. To ensure the safety of our auto show participants, we typically hire security personnel from third-party security companies to maintain the event-day orders of our offline events. Based on our past experience in operating auto shows, we are able to ensure the safety of our auto shows while hiring fewer security personnel per show. We also began to utilize our own employees to handle certain security related matters, which led to a decrease in the amount of security related costs paid to third-party security companies.

 

  · Our direct labor costs increased by 32.6% from RMB7.4 million in 2018 to RMB9.8 million (US$1.4 million) in 2019, primarily due to the increased number of field employees, driven by (1) an increase in the number of auto shows we organized from 851 in 2018 to 1,055 in 2019, and (2) the deployment of our own employees to handle certain security related event-day matters.

  

Gross Profit

 

As a result of the foregoing, our gross profit from continuing operations decreased by 2.0% from RMB467.6 million in 2018 to RMB458.2 million (US$65.8 million) in 2019.

 

 -95- 

 

 

Operating Expenses

 

Selling and marketing expenses

 

Our selling and marketing expenses increased by 32.4% from RMB432.1 million in 2018 to RMB572.0 million (US$82.2 million) in 2019, primarily due to the increases in our advertising and promotion expenses and sales staff compensation expenses.

 

Our advertising and promotion expenses increased by 11.9% from RMB260.2 million in 2018 to RMB291.2 million (US$41.8 million) in 2019, primarily driven by the number of cities covered by our offline events. In order to gain consumer awareness and establish business relationships with local industry customers, we incur additional selling and marketing expenses when we expand into a new city. The number of cities where we have established sales operations increased from 138 as of December 31, 2018 to 148 as of December 31, 2019.

 

Our sales staff compensation expenses increased by 93.9% from RMB125.5 million in 2018 to RMB243.3 million (US$35.0 million) in 2019, primarily (1) driven by the increase in salaries and benefits for our sales staff, and to a lesser extent, (2) driven by the increase in our share-based compensation in connection with our sales employees during 2019. Excluding the effect of share-based compensation, our sales staff compensation expenses would have increased by 97.0% from RMB84.1 million in 2018 to RMB165.7 million (US$23.8 million) in 2019.

 

Our call center expenses increased by 2.0% from RMB19.8 million in 2018 to RMB20.2 million (US$2.9 million) in 2019. Since 2018, we have significantly enhanced our collaboration with third party call center service providers to proactively communicate with consumers who have signed up for our offline events and inform them of the automobile brands and automotive services these consumers will have access to during the events. We believe that the personal follow-up communications contributed to higher consumer attendance at our offline events, which in turn increased the attractiveness of our offline events to our industry customers. We will continue to invest in technologies to facilitate our communications with potential consumers in an effort to reduce our call center expenses.

 

Our selling and marketing expenses as a percentage of total net revenues increased from 66.4% in 2018 to 88.7% in 2019. This is primarily due to significantly increased salaries and benefits for our sales staff.

 

 -96- 

 

 

General and administrative expenses

 

Our general and administrative expenses increased by 23.2% from RMB84.4 million in 2018 to RMB103.9 (US$14.9 million) in 2019, primarily due to the increases in (1) allowance for doubtful accounts, (2) office expenses, and (3) professional service expenses. General and administrative expenses, as a percentage of total net revenues, increased from 13.0% in 2018 to 16.1% in 2019, primarily due to the significant increase in allowance for doubtful accounts. We closely monitor the collection of our accounts receivable and record allowance for doubtful accounts against aged accounts receivable and specifically identified non-recoverable amounts. We may record additional allowances amid economic downturn or deteriorated financial condition of our customers that may result in impairment of their ability to make payments.

 

Research and Development Expenses

 

Our research and development expenses increased significantly from RMB19.3 million to RMB43.3 million (US$6.2 million), primarily due to the increase in salaries and benefits for our research and development personnel driven by an increased headcount in line with our business expansion and our strengthened research and development efforts.

 

Operating Loss

 

As a result of the foregoing, our operating loss increased significantly from RMB68.0 million in 2018 to RMB261.0 million (US$37.5 million) in 2019.

 

    For the year ended December 31,  
    2018     2019  
    (in thousands, except for percentages)  
    RMB       %       RMB       US$       %    
Net revenues     651,013       100.0       644,773       92,616       100.0  
Loss from continuing operations     (68,037 )     (10.5 )     (261,037 )     (37,495 )     (40.5 )
Other Expenses:                                        
Interest (expenses)/income, net     (3,146 )     (0.5 )     7,020       1,008       1.1  
Exchange gains/(losses)     1,063       0.2       (661 )     (95 )     (0.1 )
Investment income/(loss)     (660 )           (917 )     (132 )     (0.1 )
Fair value change of warrant     (3,843 )     (0.6 )                  
Impairment of investment                 (1,000 )     (144 )     (0.2 )
Others, net     (465 )     (0.1 )     5,296       761       0.8  
Net loss from continuing operations     (75,088 )     (11.5 )     (251,299 )     (36,097 )     (39.0 )
Net loss from discontinued operations     (3,612 )     (0.1 )                  
Net loss     (78,700 )     (12.1 )     (251,299 )     (36,097 )     (39.0 )

 

Others, net included in other expenses primarily include government grants, VAT refund and bank rebates, partially offset by bank charges in connection with our Cayman bank accounts.

 

We adjust the amount of warrant liability based on its fair value, and record any increase and decrease in its fair value as losses and gains in our consolidated statement of operations.

 

Net Loss

 

As a result of the foregoing, we had net loss of RMB78.7 million and RMB251.3 million (US$36.1 million) in 2018 and 2019, respectively.

 

 -97- 

 

 

Accretion to Pre-IPO Preferred Shares Redemption Value

 

We have issued various preferred shares and record the fair value of preferred shares as mezzanine equity. Pursuant to the preferred share purchase agreements, shareholders have the right to convert those preferred shares into our ordinary shares upon a successful public offering. This right to convert has a fair market value independent from the preferred shares themselves. We record accretion to pre-IPO preferred shares redemption value over the period between preferred share issuance and the earliest redemption date. We record the accretions against retained earnings, or in the absence of retained earnings, against additional paid-in capital. Once additional paid-in capital has been exhausted, we record additional charges by increasing the accumulated deficit.

 

Redemption rights arise out of issuance of preferred shares. Therefore, the value of such redemption rights correlates with the changes in the number of preferred shares we have issued. Our accretion to pre-IPO preferred shares redemption value decreased from RMB35.1 million in 2018 to nil in 2019 as no redemption of preferred shares took place in 2019.

 

Year Ended December 31, 2018 Compared to Year Ended December 31, 2017

 

Net Revenues

 

Our net revenues from continuing operations increased significantly from RMB280.7 million in 2017 to RMB651.0 million in 2018, primarily due to a sharp increase in our net revenues from our auto show business as a result of our continued geographical expansion.

 

·Net revenues from auto show services increased significantly from RMB263.9 million in 2017 to RMB644.3 million in 2018. The percentage of net revenues generated from auto show services increased from 94.0% in 2017 to 99.0% in 2018, which reflects our strategy to pivot into the auto show business from our group-purchase facilitation business. The increase in our auto show revenues was primarily due to the increase in the number of cities where we operated, the number of auto shows we organized, and the number of booths we offered to our industry customers, which include franchised dealers, automakers and automotive service providers. In 2017, we organized 304 auto shows in 75 cities, offering a total of 11,046 booths. In 2018, we significantly expanded the scale of our auto show business with 851 auto shows in 196 cities across China, offering a total of 27,008 booths.

 

·Net revenues from group-purchase facilitation services decreased from RMB16.7 million in 2017 to nil in 2018. The percentage of net revenue generated from group-purchase facilitation services decreased from 6.0% in 2017 to nil in 2018. This decrease was primarily due to a shift of our focus from group-purchase facilitation services to auto show services from 2017 to 2018. In 2017, we organized 697 group-purchase events, while in 2018 we did not organize any group-purchase events.

 

  · Net revenues from our virtual dealership business, online marketing services and others were approximately RMB6.8 million in 2018. We began generating revenues from virtual dealership business in June 2018 and facilitated sales of 961 automobiles with a GMV of over RMB94.5 million in 2018.

  

 -98- 

 

 

We shifted the focus of our business from group-purchase events to auto shows in the last quarter of 2016, as we believe that automobile consumers in China are increasingly willing to explore more brands that fit their budgets and needs. Our auto shows offer consumers the option to compare multiple brands in a many-to-many environment. For detailed descriptions of our group-purchase events and auto shows, see “Item 4. Information on the Company—B. Business Overview—Our Services.”

 

Cost of Revenues

 

Our cost of revenues increased significantly from RMB85.7 million in 2017 to RMB183.4 million in 2018, primarily due to the significant increase in the number of auto shows we organized in 2018 compared to 2017, and the resulting increase in the amount of costs directly related to the organization and operation of auto shows, such as venue rental, venue set-up and security costs.

 

·Our venue set-up costs increased significantly from RMB32.3 million in 2017 to RMB76.6 million in 2018. Our venue set-up costs directly correlate to the number of auto shows we organize and set up, which increased significantly from 304 in 2017 to 851 in 2018.

 

·Our venue rental costs increased significantly from RMB31.0 million in 2017 to RMB66.7 million in 2018. Our venue rental costs vary based on the number of venues we rent, which in turn depends on the number of auto shows we organize. The number of auto shows we organized increased significantly from 304 in 2017 to 851 in 2018.

 

·Our security costs decreased by 10.8% from RMB8.2 million in 2017 to RMB7.3 million in 2018. To ensure the safety of our auto show participants, we typically hire security personnel from third-party security companies to maintain the event-day orders of our offline events. Based on our past experience in operating auto shows, we are able to ensure the safety of our auto shows while hiring fewer security personnel per show. We also began to utilize our own employees to handle certain security related matters, which led to a decrease in the amount of security related costs paid to third-party security companies.

 

·Our direct labor costs increased by 53.1% from RMB4.8 million in 2017 to RMB7.4 million in 2018, primarily due to the increased number of field employees, driven by (1) an increase in the number of auto shows we organized from 304 in 2017 to 851 in 2018, and (2) our deployment of our own employees to handle certain security related event-day matters.

 

Gross Profit

 

As a result of the foregoing, our gross profit from continuing operations increased from RMB194.9 million in 2017 to RMB467.6 million in 2018.

 

Operating Expenses

 

Selling and marketing expenses

 

Our selling and marketing expenses increased significantly from RMB223.2 million in 2017 to RMB432.1 million in 2018, primarily due to the increase in our advertising and promotion expenses and sales staff compensation.

 

 -99- 

 

 

Our advertising and promotion expenses increased significantly from RMB134.2 million in 2017 to RMB260.2 million in 2018, primarily driven by the number of cities covered by our offline events. In order to gain consumer awareness and establish business relationships with local industry customers, we incur additional selling and marketing expenses when we expand into a new city. The number of cities where we have established sales operations increased significantly from 75 as of December 31, 2017 to 196 as of December 31, 2018.

 

Our sales staff compensation expenses increased from RMB71.3 million in 2017 to RMB125.5 million in 2018, which reflect share-based compensation in connection with our sales employees during 2018. After excluding the effect of share-based compensation, our sales staff compensation expenses increased by 19.0% from RMB70.7 million in 2017 to RMB84.1 million in 2018. The percentage increase in sales staff compensation expenses was lower than the percentage increase in our total net revenues in 2018, primarily due to our adjustment of the method by which we calculate sales staff compensation in an effort to better align sales staff incentives with our operational success.

 

Our call center expenses increased significantly from RMB1.3 million to RMB19.8 million from 2017 to 2018. In 2018, we significantly enhanced our collaboration with third party call center service providers in order to proactively communicate with consumers who have signed up for our offline events and to inform them of the automobile brands and automotive services these consumers will have access to during the events. We believe that this type of personal follow-up communications contribute to higher consumer attendance at our offline events, which in turn increases the attractiveness of our offline events to our industry customers. We expect to invest in technologies to facilitate our communications with potential consumers in an effort to reduce our call center expenses.

 

Despite growth in absolute amount, our selling and marketing expenses as a percentage of total net revenues decreased from 79.5% in 2017 to 66.4% in 2018. This is primarily due to our increased marketing and consumer acquisition efficiency with respect to our auto show business, and higher sales employee efficiency enabled by the collective know-how accumulated by our sales force.

 

General and administrative expenses

 

Our general and administrative expenses increased significantly from RMB27.5 million in 2017 to RMB84.4 million in 2018, primarily due to (1) an RMB34.1 million increase in share-based compensation, resulting from our replacement of options with restricted shares, new grant of restricted shares, and grant of super voting right to Mr. Wei Wen; and (2) an increase in employee cash compensation expenses for our administrative staff driven by the increased headcount from 69 as of December 31, 2017 to 118 as of December 31, 2018, and (3) an increase in professional fees associated with our initial public offering in November 2018 and other expenses as a result of our status as a public company.

 

General and administrative expenses, as a percentage of total net revenues, increased from 9.8% in 2017 to 13.0% in 2018, primarily due to the significant share-based compensation expenses in 2018.

  

Research and Development Expenses

 

Our research and development expenses were relatively stable in 2017 and 2018. We expect to increase our research and development expenses in the future as we carry out our strategy to enhance our technology and data analytics capabilities.

 

 -100- 

 

 

Loss from Continuing Operations

 

As a result of the foregoing, our loss from continuing operations was RMB71.7 million and RMB68.0 million in 2017 and 2018, respectively.

 

    For the year ended December 31,  
    2017     2018  
    (in thousands, except for percentages)  
    RMB       %       RMB       US$       %    
Net revenues     280,666       100.0       651,013       94,686       100.0  
Loss from continuing operations     (71,741 )     (25.6 )     (68,037 )     (9,896 )     (10.5 )
Other Expenses:                                        
Interest expenses, net     (2,416 )     (0.9 )     (3,146 )     (458 )     (0.5 )
Exchange gains/(losses)     (199 )     (0.1 )     1,063       155       0.2  
Investment income/(loss)                 (660 )     (96 )      
Fair value change of warrant     (1,390 )     (0.5 )     (3,843 )     (559 )     (0.6 )
Others, net     52             (465 )     (66 )     (0.1 )
Net loss from continuing operations     (75,694 )     (27.0 )     (75,088 )     (10,920 )     (11.5 )
Net loss from discontinued operations     (14,977 )     (5.3 )     (3,612 )     (525 )     (0.1 )
Net loss     (90,671 )     (32.3 )     (78,700 )     (11,445 )     (12.1 )

 

Our other expenses include (1) interest income and interest expenses, (2) gains and losses which resulted when we convert RMB into foreign currencies, and vice versa, (3) investment income and loss, (4) fair value change of warrant which results from changes in the fair value of our issued warrant, and (5) others, net which primarily includes banking fees in connection with our Cayman bank accounts and penalty incomes.

 

We adjust the amount of warrant liability based on its fair value, and record any increase and decrease in its fair value as losses and gains in our consolidated statement of operations.

 

Discontinued Operations

 

In 2016, we began our electric automobile sales business and established dealerships in major cities selling electric vehicles to consumers. In December 2017, our shareholders and board of directors resolved to discontinue our electric automobile sales business, which incurred losses of RMB15.0 million and RMB3.6 million in 2017 and 2018, respectively. The electric automobile sales business was disposed of in June 2018. The following table sets forth the results of operations of our discontinued operations for the years indicated.

 

  Results of discontinued operations:

 

  

For the year

ended

December 31,

  

For the period

from January 1 to

June 30,

 
   2017   2018 
   RMB   RMB 
Net revenues   17,768    4,807 
Cost of revenues   (627)   (280)
Gross profit   17,141    4,527 
Operating expenses:          
Selling and marketing expenses   (30,065)   (6,800)
General and administrative expenses   (1,077)   (1,368)
Total operating expense   (31,142)   (8,168)
Loss from operations   (14,001)   (3,641)
Other expenses:          
Interest expenses, net   (924)   (676)
Gain from disposal of discontinued operations   -    771 
Others, net   (52)   (66)
Loss from discontinued operations before income taxes   (14,977)   (3,612)
Income tax expense   -    - 
Net loss from discontinued operations   (14,977)   (3,612)

 

 -101- 

 

 

Net Loss

 

As a result of the foregoing, we had net loss of RMB90.7 million and RMB78.7 million in 2017 and 2018, respectively.

 

Accretion to Pre-IPO Preferred Shares Redemption Value

 

We have issued various preferred shares and record the fair value of preferred shares as mezzanine equity. Pursuant to the preferred share purchase agreements, shareholders have the right to convert those preferred shares into our ordinary shares upon a successful public offering. This right to convert has a fair market value independent from the preferred shares themselves. We record accretion to pre-IPO preferred shares redemption value over the period between preferred share issuance and the earliest redemption date. We record the accretions against retained earnings, or in the absence of retained earnings, against additional paid-in capital. Once additional paid-in capital has been exhausted, we record additional charges by increasing the accumulated deficit.

 

Redemption rights arise out of issuance of preferred shares. Therefore, the value of such redemption rights correlates with the changes in the number of preferred shares we have issued. Our accretion to pre-IPO preferred shares redemption value increased from RMB20.9 million in 2017 to RMB35.1 million in 2018, primarily due to the issuance of Series D-1 and Series D-2 preferred shares in 2018.

 

B.       Liquidity and Capital Resources

 

Liquidity and Capital Resources

 

Our principal sources of liquidity have been cash generated from operations, the issuance of preferred shares, incurrence of convertible loans and proceeds from our initial public offering.

 

As of December 31, 2017, 2018 and 2019, we had RMB66.7 million, RMB578.6 million and RMB193.9 million (US$27.9 million), respectively, in cash and cash equivalents. As of December 31, 2017, 2018 and 2019, we held a cash balance of RMB34.4 million, RMB504.2 million and RMB109.1 million (US$15.6 million) denominated in U.S. dollars, respectively. As of the same dates, we held a cash balance of RMB32.2 million, RMB74.4 million and RMB84.8 million (US$12.2 million) denominated in RMB, respectively, representing 48.3%, 12.9% and 43.7% of our total cash and cash equivalents, respectively. We had time deposits of RMB69.8 million (US$10.0 million) as of December 31, 2019 and no time deposits as of December 31, 2018 and 2017. We believe that our current cash and cash equivalents, time deposits and anticipated cash flow from operations will be sufficient to meet our anticipated cash needs from operations and other commitments for at least the next 12 months from the date of the issuance of the consolidated financial statements, taking into consideration the impact of the COVID-19 pandemic on our business and operations.

  

 -102- 

 

 

As of December 31, 2019, we had a net current asset of RMB389.3 million (US$55.9 million). 

 

We intend to finance our operations from our current available working capital and cash generated from operating activities. In response to the impact of COVID-19, we have implemented measures to adjust the pace of our business expansion and conserve resources, such as furlough arrangements and scaling back our recruitment budget and employee size. We may resort to other costs cutting measures if the outbreak of COVID-19 and its impact persist or escalate. Our working capital is sufficient for our present requirements. We may, however, require additional cash resources due to changing business conditions or other future developments, including acquisitions or investments we may decide to selectively pursue. If our existing cash resources are insufficient to meet our requirements, we may seek to issue equity or debt securities or obtain credit facilities. The issue of additional equity securities would result in further dilution to our shareholders. The incurrence of indebtedness would result in increased fixed obligations and could result in operating covenants that would restrict our operations. We cannot assure you that financing will be available in the amounts we need or on terms acceptable to us, if at all. If we are unable to obtain additional equity or debt financing as required, our business operations and prospects may suffer. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—We may need additional capital, and we may be unable to obtain such capital in a timely manner or on acceptable terms, or at all.”

 

For the first quarter of 2020, we expect our net revenues to range from approximately RMB9.0 million to RMB10.0 million, representing a year-over-year decrease of approximately 92.7% to 91.9%, primarily due to cancellation of offline events in February and March resulting from the COVID-19 pandemic. Furthermore, as the business operations of our industry customers have also been severely disrupted, we have experienced a delay in collecting our accounts receivable since the COVID-19 outbreak, which could materially and adversely affect our liquidity.

 

The following table sets forth a summary of our cash flows for the years indicated.

 

    For the year ended
December 31,
 
    2017     2018     2019  
    RMB     RMB     RMB     US$  
    (in thousands)  
Net cash used in operating activities     (59,662 )     (53,338 )     (161,806 )     (23,241 )
Net cash used in investing activities     (4,272 )     (20,746 )     (187,548 )     (26,940 )
Net cash generated from/(used in) financing activities     117,954       562,126       (37,245 )     (5,350 )
Effect of exchange rate effect on cash and cash equivalents     (1,002 )     12,713       3,490     501
Net increase/(decrease) in cash, cash equivalents and restricted cash     53,018       500,755       (383,109 )     (55,030 )
Cash and cash equivalents, and restricted cash at beginning of the period     24,785       77,803       578,558       83,105  
Cash and cash equivalents, and restricted cash at end of the period     77,803       578,558       195,449       28,075  

 

Operating Activities

 

Cash used in operating activities was RMB161.8 million (US$23.2 million) in 2019. In 2019, the difference between our cash used in operating activities and our net loss of RMB251.3 million (US$36.1 million) resulted primarily from (1) share based compensation of RMB110.0 million (US$15.8 million), (2) allowance of doubtful accounts of RMB13.7 million (US$2.0 million), and (3) an increase in salary and welfare benefits payable of RMB19.2 million (US$2.8 million), partially offset by (1) an increase in accounts receivable of RMB30.5 million (US$4.4 million), (2) an increase in prepayment and other current assets of RMB24.1 million (US$3.5 million), and (3) a decrease in advance from customers of RMB9.9 million (US$1.4 million).

 

Cash used in operating activities was RMB53.3 million in 2018. In 2018, the difference between our cash used in operating activities and our net loss of RMB78.7 million resulted primarily from (1) an increase in prepayment and other current assets of RMB50.4, (2) an increase in accounts receivable of RMB44.3 million, (3) an decrease in other taxes payable of RMB4.5 million, partially offset by (1) share-based compensation of RMB78.1 million, (2) an increases in current liabilities other than tax payable of RMB37.4 million, (3) change in fair value of warrant of RMB3.8 million and (4) interest expense – net of RMB2.1 million.

  

 -103- 

 

 

Cash used in operating activities was RMB59.7 million in 2017. In 2017, the difference between our cash used in operating activities and our net loss of RMB90.7 million resulted primarily from (1) an increase in tax payable of RMB13.3 million which represents an increase in employee individual income tax withholding of RMB10.6 million, (2) an increase in salary and welfare benefits payable of RMB5.0 million which reflects an increase in the number of employees from 581 as of December 31, 2016 to 594 as of December 31, 2017, and (3) an increase in advance from customers of RMB7.1 million.

 

Investing Activities

 

Net cash used in investing activities was RMB187.5 million (US$26.9 million) in 2019, primarily due to (1) cash payment of RMB99.1 million (US$14.2 million) for a bridge loan, (2) cash payment of RMB69.8 million (US$10.0 million) for time deposits, and (3) purchase of property, equipment and software, and other non-current assets of RMB13.2 million (US$1.9 million).

 

Net cash used in investing activities was RMB20.7 million in 2018, primarily due to purchase of computers for our employees, and long-term investments in a company in the automobile industry in exchange for 5% of its shares.

 

Net cash used in investing activities was RMB4.3 million in 2017, primarily due to a RMB4.0 million loan we made to a third party which was fully repaid in 2018.

 

Financing Activities

 

Net cash used in financing activities was RMB37.2 million (US$5.4 million) in 2019, primarily due to (1) repurchase of stricted shares from employees of RMB26.2 million (US$3.8 million), and (2) stock repurchase from the secondary market of RMB13.7 million (US$2.0 million).

 

Net cash generated from financing activities was RMB562.1 million in 2018, primarily due to (1) proceeds from issuance of Series D-1 and D-2 convertible redeemable preferred shares of RMB511.0 million, and (2) proceeds from our initial public offering of RMB103.4 million, partially offset by repayment of various loans of RMB81.8 million.

 

Net cash generated from financing activities was RMB118.0 million in 2017, primarily due to (1) RMB59.1 million proceeds from issuance of Series C+ convertible redeemable preferred shares, (2) RMB41.2 million proceeds from issuance of four promissory notes in August 2017, and (3) RMB27.9 million bank borrowings from SPD Silicon Valley Bank. See Note 10 to the consolidated financial statements included in this annual report.

  

Indebtedness

 

For details of our outstanding short-term and long-term borrowings as of December 31, 2017, 2018 and 2019 see Note 10 to the consolidated financial statements included in this annual report.

 

Holding Company Structure

 

TuanChe Limited is a holding company with no material operations of its own. We conduct our operations primarily through our subsidiaries and our consolidated affiliated entities in China. As a result, our ability to pay dividends depends upon dividends paid by our subsidiaries and fees paid by our consolidated affiliated entities. If our subsidiaries or any newly formed subsidiaries incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us.

 

 -104- 

 

 

In addition, our subsidiaries in China are permitted to pay dividends to us only out of their retained earnings, if any, as determined in accordance with the Accounting Standards for Business Enterprise as promulgated by the Ministry of Finance of the PRC, or PRC GAAP. Under PRC law, each of our PRC subsidiaries and our consolidated affiliated entities is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory surplus reserve until such reserve reaches 50% of its registered capital. In addition, our wholly foreign-owned subsidiary in China and our consolidated affiliated entities may allocate a portion of its after-tax profits based on PRC accounting standards to a discretionary surplus fund at its discretion. Although the statutory reserves can be used, among other ways, to increase the registered capital and eliminate future losses in excess of retained earnings of the respective companies, the statutory reserve funds are not distributable as cash dividends.

 

As an offshore holding company, we are permitted under PRC laws and regulations to provide funding from the proceeds of our offshore fundraising activities to our PRC subsidiaries only through loans or capital contributions, and to our consolidated affiliated entity only through loans, in each case subject to the satisfaction of the applicable government registration and approval requirements. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China— PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent us from using the proceeds of our initial offering to make loans to or make additional capital contributions to our PRC subsidiaries and consolidated affiliated entities, which could materially and adversely affect our liquidity and our ability to fund and expand our business.” As a result, there is uncertainty with respect to our ability to provide prompt financial support to our subsidiaries and consolidated affiliated entities in China when needed.

 

C.       Research and Development, Patents and Licenses, etc.

 

See “Item 4. Information on the Company—B. Business Overview—Technology” and “Item 4. Information on the Company—B. Business Overview—Intellectual Property.”

 

D.       Trend Information

 

Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the 2019 that are reasonably likely to have a material adverse effect on our net revenue, income, profitability, liquidity or capital resources, or that caused the disclosed financial information to be not necessarily indicative of future operating results or financial condition.

  

E.       Off-Balance Sheet Arrangements

 

We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or product development services with us.

 

 -105- 

 

 

F.       Tabular Disclosure of Contractual Obligations

 

Contractual Obligations

 

We lease office spaces under non-cancelable operating lease agreements, which expire at various dates through December 2024. As of December 31, 2019, future minimum payments under non-cancelable operating lease agreements were as follows:

 

   Payment due by period 
   Total   Less than 1
year
   1-3 years   More than 3
years
 
   (RMB in thousands) 
Auto shows venues(1)   1,352    1,224    128     
Office spaces(2)     18,013       10,031       7,192       790

 

 

(1) Represents minimum payments under non-cancelable operating lease agreements related to our auto show venues.

(2) Represents minimum payments under non-cancelable operating lease agreements related to our office spaces.

 

G.       Safe Harbor

 

This annual report contains forward-looking statements that reflect our current expectations and projections of future events. You can identify these forward-looking statements by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “likely to,” “potential,” “continue” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections of future events that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include, but are not limited to, statements about:

 

·our goals and strategies;

 

·our ability to retain and increase the number of customers;

 

·our future business development, financial condition and results of operations;

 

·expected changes in our net revenues, costs or expenditures;

 

·our ability to manage and expand the sales network and other aspects of our operations;

 

·our projected markets and growth in markets;

 

·our potential need for additional capital and the availability of such capital;

 

·competition in our industry;

 

·relevant government policies and regulations relating to our industry;

 

·general economic and business conditions globally and in China;

 

  · the length and severity of the recent COVID-19 pandemic and its impact on our business and industry;

 

·our use of the proceeds from our initial public offering; and

 

·assumptions underlying or related to any of the foregoing.

 

 -106- 

 

 

You should read this annual report and the documents that we refer to and have filed as exhibits to this annual report completely and with the understanding that our actual future results may be materially different from and worse than what we expect. Moreover, new risk factors and uncertainties emerge from time to time and it is not possible for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We qualify all of our forward-looking statements by these cautionary statements.

 

This annual report also contains certain data and information that we obtained from various government and private publications, including the iResearch report. Statistical data in these publications also include projections based on a number of assumptions. Failure of the market to grow at the projected rate may have a material adverse effect on our business and the market price of the ADSs. In addition, projections or estimates about our business and financial prospects involve significant risks and uncertainties. Furthermore, if any one or more of the assumptions underlying the market data are later found to be incorrect, actual results may differ from the projections based on these assumptions. You should not place undue reliance on these forward-looking statements.

 

The forward-looking statements made in this annual report relate only to events or information as of the date on which the statements are made in this annual report. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless specifically expressed as such, and should only be viewed as historical data. You should read this annual report and the documents that we refer to in this annual report and have filed as exhibits to the registration statement, of which this annual report is a part, completely and with the understanding that our actual future results may be materially different from what we expect.

 

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

 

A.       Directors and Senior Management

 

The following table sets forth information regarding our directors and senior management as of the date of this annual report:

 

Directors and Executive Officers     Age       Position/Title  
Wei Wen     43     Chairman and Chief Executive Officer
Jianchen Sun     41     Director and President
Wendy Hayes     50     Independent Director
Zhishuo Liu     47     Independent Director
Zijing Zhou     37     Independent Director
Hui Yuan     42     Chief Operating Officer
Zhihai Mao     44     Chief Financial Officer

 

 -107- 

 

 

Wei Wen is our co-founder and has been serving as the chairman of our board of directors and our chief executive officer since our inception. Mr. Wen oversees our overall strategies and business operations. Prior to founding TuanChe, Mr. Wen had over ten years of entrepreneurial experience in the information technology and automotive industries. He founded Bright Sunshine Technology Co., Ltd., a communication services provider which established one of the earliest Chinese ride-hailing platforms, in 2000; Beijing Puhua Hengxin Consulting Co., Ltd., an enterprise training company, in 2002; Beijing Yiyang Online Internet Service Center, a communication services provider, in 2003; and Beijing Guoyuan Innovative Technology Co., Ltd., an electronic device company, in 2006. Before he started his own companies, Mr. Wen was a channel manager of Mitsubishi Electric Shanghai. Mr. Wen received a bachelor’s degree in industrial foreign trade from Beijing Jiaotong University.

 

Jianchen Sun has been serving as our director since 2010 and is our co-founder and president. Prior to joining us, Mr. Sun held multiple positions including regional manager, channel manager, general manager of communication division and deputy general manager, in Changzhou Huaxin Electric Appliance Research Institute, Yiyang Group, Changzhou Boyun Communication Technology Co., Ltd., and Beijing Guoyuan Innovative Technology Co., Ltd., respectively. Mr. Sun received a bachelor’s degree in international economics and trade from Renmin University of China.

 

Wendy Hayes has been serving as our independent director since November 2018. Ms. Hayes is also an independent director of Xinyuan Real Estate Co., Ltd. and an advisor to several other companies. Between May 2013 and September 2018, Ms. Hayes served as the inspections leader at the Public Company Accounting Oversight Board in the U.S. Prior to that, Ms. Hayes was an audit partner at Deloitte (China). Ms. Hayes received her bachelor’s degree in international finance from University of International Business and Economics in 1991, and her executive MBA from Cheung Kong Graduate School of Business in 2012. Ms. Hayes is a certified public accountant in the United States (California) and China.

 

Zhishuo Liu has been serving as our independent director since November 2018 after serving as our director since September 2018. As a founding partner, Mr. Liu founded Tianjin Huizhi Joint Venture Investment Partnership (Limited Partnership), Zhongguancun River Capital Group, Zhongguancun M&A Fund, and Zhongguancun Longmen Fund in 2009, 2014, 2016, and 2018, respectively. As an investor and fund manager, Mr. Liu has invested in multiple companies, including Changyou.com Limited (NASDAQ: CYOU). From 2008 to 2010, Mr. Liu served as a director of Sohu.com Inc. (NASDAQ: SOHU). From 2003 to 2007, Mr. Liu served as the deputy general manager of Beijing Information Infrastructure Construction Co., Ltd. Prior to that, Mr. Liu served as the chairman of Beijing Guangxia Network Technology Co., Ltd. from 2000 to 2003. Mr. Liu received a bachelor’s degree in accounting from Harbin Institute of Technology in 1995.

 

Zijing Zhou has been serving as our independent director since November 2019. Mr. Zhou founded Aplus Investment Consulting (Beijing) Co., Ltd. ("Ether Capital") in 2014 and served as the chief executive officer of Ether Capital since 2014. From 2011 to 2014, Mr. Zhou served as a senior financial adviser of China Renaissance Holding Limited (HKG:1911). From 2009 to 2011, Mr. Zhou served as a senior product manager of Alibaba Group Holding Limited (NYSE: BABA). From 2006 to 2009, Mr. Zhou served as an internet technology developer of Anhui Jinyu Internet Technology Co., Ltd. Mr. Zhou received a bachelor’s degree in physics-computer science from Zhejiang University in 2003, and a master’s degree in computer science from Tsinghua University in 2006.

 

Hui Yuan has been serving as our chief operating officer since May 2019. Mr. Yuan has over 18 years of experience in China’s automotive industry with expertise in the management of product development, operations, sales, and marketing. Prior to joining TuanChe, Mr. Yuan co-founded XiongmaoCar and served as a Vice President of Bitauto Holdings Limited (NYSE: BITA). Before launching his career in the automotive industry, Mr. Yuan also held product R&D positions in several Chinese internet companies, including Dangdang.com.

 

 -108- 

 

 

 

Zhihai Mao has been serving as our chief financial officer since March 2018. Mr. Mao is in charge of corporate finance, financial reporting, legal affairs and investor relations of the Company. Mr. Mao is a U.S. Certified Public Accountant with extensive experience in corporate financial reporting and disclosure. Before he joined our company, Mr. Mao was the chief financial officer of Megvii Technology Limited, ACFUN, LINEKONG Interactive Co., Ltd., and China TransInfo Technology Corp. in 2017, from 2015 to 2017, from 2014 to 2015, and from 2008 to 2010, respectively. From 2010 to 2013, Mr. Mao worked for two other investment companies and was mainly responsible for financial and investment related matters. From 2006 to 2007, Mr. Mao was a senior auditor at the Beijing office of Deloitte & Touche Tohmatsu CPA, Ltd. Prior to that, Mr. Mao worked at Deloitte & Touche USA LLP and Deloitte Tax LLP USA from 2003 to 2006. Mr. Mao received a master’s degree of accounting from University of North Carolina, Chapel Hill.

 

B.            Compensation

 

Compensation of Directors and Executive Officers

 

In 2019, the aggregate cash compensation to directors and executive officers was approximately RMB5.8 million (US$0.8 million). This amount consisted only of cash and did not include any share-based compensation or benefits in kind. Each of our directors and officers is entitled to reimbursement for all necessary and reasonable expenses properly incurred in the course of employment or service. Our directors and officers participate in our share incentive plan. See “—Share Incentive Plan.” We do not pay or set aside any amounts for pension, retirement or other benefits for our directors and officers, except our contributions on behalf of our officers located in China to a government-mandated multi-employer defined contribution plan.

 

Share Incentive Plan

 

From July 2012 to June 2018, we granted a total of 23,157,017 share options to our directors, officers, other employees and consultants and 15,473,653 share options which were outstanding as of June 15, 2018 were replaced by 13,740,480 restricted shares granted under the Share Incentive Plan we adopted in June 2018. The option awards granted from July 2012 to June 2018 were generally scheduled to vest over a period of four years. The weighted average exercise price of such option awards outstanding as of December 31, 2016 and 2017 was US$0.43 and US$0.37, respectively.

 

In June 2018, we adopted the Share Incentive Plan, or the Plan, to attract and retain best available personnel, provide additional incentives to employees, directors and consultants, and promote the success of our business. Under the Plan, the maximum aggregate number of Shares which may be issued pursuant to all awards (including incentive share options) are 38,723,321 shares, representing 15% of the total outstanding shares of our company on an as-converted basis as of the date of the adoption of the Plan. As of December 31, 2019, we had granted 35,935,134 restricted shares under the Plan.

 

The following paragraphs describe the principal terms of the Plan:

 

Types of awards. The Plan permits the awards of options, restricted shares or restricted share units.

 

Plan administration. Our board of directors or a committee of one or more members of the board will administer the Plan. The committee or the full board of directors, as applicable, will determine the participants to receive awards, the type and number of awards to be granted to each participant, and the terms and conditions of each award grant.

 

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Award agreement. Awards granted under the Plan are evidenced by an award agreement that sets forth terms, conditions and limitations for each award, which may include the term of the award, the provisions applicable in the event of the grantee’s employment or service terminates, and our authority to unilaterally or bilaterally amend, modify, suspend, cancel or rescind the award.

 

Eligibility. We may grant awards to our employees, directors and consultants of our company, and other individuals, as determined by the plan administrator. However, we may grant options that are intended to qualify as incentive share options only to our employees and employees of our parent companies and subsidiaries.

 

Vesting schedule. In general, the plan administrator determines the vesting schedule, which is specified in the relevant award agreement.

 

Restricted shares. Restricted shares are subject to such restrictions on transferability and other restrictions as the committee may impose.

 

Exercise of options. The committee determines the exercise price of each option, which is set forth in the Award Agreement. The committee also determines the exercise time and conditions for each option, provided that the maximum exercisable term is 10 years absent amendment or modification.

 

Transfer restrictions. Awards may not be transferred in any manner by the recipient except under limited circumstances, including by will or the laws of descent and distribution, unless otherwise provided by the plan administrator.

 

Termination and amendment of the Plan. The committee, with the prior approval of the board, may terminate, amend or modify the Plan, subject to some limitations.

 

The following table sets forth information on restricted shares that we have awarded or have agreed to award as of December 31, 2019 pursuant to the Plan.

 

    Number of Restricted
Shares Awarded(1)
    Grant Date  
Directors and Executive Officers              
Wei Wen       *  

June 15, 2018

July 1, 2018

 
Jianchen Sun       *  

June 15, 2018

July 1, 2018

 
Zhihai Mao     3,356,021     June 15, 2018  
Hui Yuan       *   July 1, 2019  
Zijing Zhou       *   June 15, 2018  
Wendy Hayes       *  

November 20, 2018

November 20, 2019

 
Total     11,663,961        

 

 

*Less than 1% of our total outstanding shares on an as-converted basis.
(1)The restricted shares awarded under the Plan are held by Best Cars Limited, the nominee of our equity incentive trust. See “—Equity Incentive Trust.”

 

Equity Incentive Trust

 

An equity incentive trust was established pursuant to a deed dated June 13, 2018 among us, The Core Trust Company Limited, as the trustee, and Best Cars Limited, as a nominee. Through such trust, our Class A ordinary shares underlying equity awards granted pursuant to our Share Incentive Plan may be provided to certain of recipients of such equity awards. As of April 30, 2020, Best Cars Limited held 18,494,965 Class A ordinary shares pursuant to our Share Incentive Plan. Upon satisfaction of vesting conditions and exercise by a grant recipient, the trustee will transfer the Class A ordinary shares underlying the relevant equity awards to such grant recipient.

 

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To the extent permitted under the Plan and applicable law and regulations, the trustee shall follow the instruction of the Board or a committee of the Board consisting one or more members of the Board in respect of the exercise of voting rights (if any) and powers in relation to the Class A ordinary shares held by Best Cars Limited until they have been transferred outside of the trust and/or the nominee to the personal accounts of the relevant grant recipient.

 

C.           Board Practices

 

Board of Directors

 

Our board of directors consists of eight directors. A director is not required to hold any shares in our company for qualification, and may be an individual or a company. A director may vote with respect to any contract, proposed contract, or arrangement in which he or she is materially interested provided (1) such director, if his interest in such contract or arrangement is material, has declared the nature of his interest at the earliest meeting of the board at which it is practicable for him to do so, either specifically or by way of a general notice and (2) if such contract or arrangement is a transaction with a related party, such transaction has been approved by the audit committee. A director may exercise all the powers of the company to borrow money, mortgage or charge its undertaking, property and assets (present and future) and uncalled capital, or any part thereof, to issue debentures, debenture stock, bonds and other securities whether outright or as collateral security for any obligation of the company or of any third party.

 

Committees of the Board of Directors

 

Our board of directors has established an audit committee, a compensation committee and a nominating and corporate governance committee, and has adopted a charter for each of the three committees. Each committee’s members and functions are described below.

 

Audit Committee. Our audit committee consists of Ms. Wendy Hayes, Mr. Zhishuo Liu, and Mr. Zijing Zhou and is chaired by Ms. Wendy Hayes. Each of the members of the audit committee satisfies the “independence” requirements of Rule 5605(a)(2) of the Nasdaq Stock Market Rules and meet the independence standards under Rule 10A-3 under the Exchange Act. We have determined that Ms. Wendy Hayes qualifies as an “audit committee financial expert.”

 

The audit committee will oversee our accounting and financial reporting processes and the audits of the financial statements of our company. The audit committee will be responsible for, among other things:

 

·selecting the independent registered public accounting firm and pre-approving all auditing and non-auditing services permitted to be performed by the independent registered public accounting firm;
   
·reviewing with the independent registered public accounting firm any audit problems or difficulties and management’s response;
   
·reviewing and approving all proposed related party transactions, as defined in Item 404 of Regulation S-K under the Securities Act;

 

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·discussing the annual audited financial statements with management and the independent registered public accounting firm;

 

·reviewing major issues as to the adequacy of our internal controls and any special audit steps adopted in light of material control deficiencies;
   
·reviewing and reassessing annually the adequacy of our audit committee charter;
   
·meeting separately and periodically with management and the independent registered public accounting firm;
   
·monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance; and.
   
·reporting regularly to the board.

 

Compensation Committee. Our compensation committee consists of Mr. Wei Wen, Ms. Wendy Hayes and Mr. Zijing Zhou, and is chaired by Mr. Wei Wen. Ms. Wendy Hayes and Mr. Zijing Zhou satisfy the “independence” requirements of Rule 5605(a)(2) of the Nasdaq Stock Market Rules. As a foreign private issuer, we have elected to not have our compensation committee consist of entirely independent directors. The compensation committee will evaluate or recommend to the board of directors for actions all matters related to the company’s annual compensation and/or bonus plan, equity incentive plans, and other employee-related compensation matters, and will also approve all management compensation levels and arrangements. The compensation committee will be responsible for, among other things:

 

·reviewing and approving, or recommending to the board for its approval, the total compensation package for our chief executive officer and other executive officers;
   
·reviewing and recommending to the board for determination with respect to the compensation of our non-employee directors;
   
·reviewing periodically and approving any incentive compensation or equity plans, programs or similar arrangements; and
   
·selecting compensation consultant, legal counsel or other adviser only after taking into consideration all factors relevant to that person’s independence from management.

 

Nominating and Corporate Governance Committee. Our nominating and corporate governance committee consists of Mr. Wei Wen, Mr. Zhishuo Liu, and Mr. Zijing Zhou, and is chaired by Mr. Wei Wen. Mr. Zhishuo Liu and Mr. Zijing Zhou satisfy the “independence” requirements of Rule 5605(a)(2) of the Nasdaq Stock Market Rules. As a foreign private issuer, we have elected to not have our nominating and corporate governance committee consist of entirely independent directors. The nominating and corporate governance committee will assist the board in selecting individuals qualified to become our directors and in determining the composition of the board and its committees. The nominating and corporate governance committee will be responsible for, among other things:

 

·recommending nominees to the board for election or re-election to the board, or for appointment to fill any vacancy on the board;

 

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·reviewing annually with the board the current composition of the board with regards to characteristics such as independence, age, skills, experience and availability of service to us;
   
·selecting and recommending to the board the names of directors to serve as members of the audit committee and the compensation committee, as well as of the nominating and corporate governance committee itself;
   
·developing and reviewing the corporate governance principles adopted by the board and advising the board with respect to significant developments in the law and practice of corporate governance and our compliance with such laws and practices; and
   
·evaluating the performance and effectiveness of the board as a whole.

 

Duties of Directors

 

Under Cayman Islands law, our directors owe to us fiduciary duties, including a duty of loyalty, a duty to act honestly and a duty to act in what they consider in good faith to be in our best interests. Our directors must also exercise their powers only for a proper purpose. Our directors also have a duty to exercise the skill they actually possess and such care and diligence that a reasonably prudent person would exercise in comparable circumstances. It was previously considered that a director need not exhibit in the performance of his duties a greater degree of skill than what may reasonably be expected from a person of his knowledge and experience. However, English and Commonwealth courts have moved towards an objective standard with regard to the required skill and care, and these authorities are likely to be followed in the Cayman Islands. In fulfilling their duty of care to us, our directors must ensure compliance with our memorandum and articles of association, as amended and restated from time to time. Our company may have the right to seek damages if a duty owed by our directors is breached.

 

Terms of Directors and Officers

 

Pursuant to the amended and restated memorandum and articles of association, our officers are elected by and serve at the discretion of the board. Our directors are not subject to a term of office, unless so specified in a written agreement between the Company and the relevant director, and hold office until such time as they resign or are removed from office by ordinary resolution of our shareholders. The office of a director will be vacated if the director (1) becomes bankrupt or makes any arrangement or composition with his creditors; (2) dies or is found to be or becomes of unsound mind; (3) resigns his office by notice in writing to the Company; (4) without special leave of absence from the board of directors, is absent from meetings of the board of directors for three consecutive meetings and the board of directors resolves that his office be vacated; or (5) is removed from office pursuant to any other provision of the amended and restated memorandum and articles of association.

 

Employment Agreements

 

We have entered into employment agreements with our executive officers. Each of our executive officers is employed for a specified time period, which will be automatically extended for successive one-year terms unless either party gives the other party a prior written notice to terminate employment. We may terminate the employment for cause, at any time, without advance notice or remuneration, for certain acts of the executive officer, including conviction or pleading of guilty to a felony, fraud, misappropriation or embezzlement; negligent or dishonest act to our detriment; misconduct or failure to perform his or her duty; disability; or death. An executive officer may terminate his or her employment at any time with a one-month prior written notice if there is a material and substantial reduction in such executive officer’s existing authority and responsibilities or at any time if the termination is approved by our board of directors.

 

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Each executive officer has agreed to hold, both during and after the employment agreement expires, in strict confidence and not to use or disclose to any person, corporation or other entity without written consent, any confidential information. Each executive officer has also agreed to assign to us all his or her all inventions, improvements, designs, original works of authorship, formulas, processes, compositions of matter, computer software programs, databases, mask works and trade secrets.

 

D.           Employees

 

As of December 31, 2017, 2018 and 2019 and April 30, 2020, we had 612, 833, 910 and 799 full-time employees. The following table sets forth the numbers of our full-time employees by functions as of the dates indicated.

 

   As of the December 31,  

As of the

April 30,

 
   2017   2018   2019   2020 
Sales and marketing   500    653    713    615 
General and administrative   69    118    118    104 
Research and development   43    62    79    80 
Total   612    833    910    799 

 

As required by PRC laws and regulations, we participate in various employee social security plans for our employees that are administered by local PRC governments, including housing, pension, medical insurance and unemployment insurance. We compensate our employees with basic salaries and performance-based bonuses. None of our employees is represented by any collective bargaining arrangements. Our success depends on our ability to attract, retain and motivate qualified employees. We believe that we maintain a good working relationship with our employees, and we have not experienced any material labor disputes as of the date of this annual report. None of our employees is represented by labor unions.

 

Since the COVID-19 outbreak, we have implemented measures to adjust the pace of our business expansion and conserve resources, such as furlough arrangements and scaling back our recruitment budget and employee size. We may resort to other cost cutting measures if the outbreak of COVID-19 and its impact persist or escalate. For more details, see “Item 3. Key Information—Risk Factors—Risks Related to Our Business and Industry—Our business operations have been and may continue to be materially and adversely affected by the COVID-19 pandemic.”

 

E.           Share Ownership

 

The following table sets forth information concerning the beneficial ownership of our ordinary shares as of April 30, 2020 by:

 

·each of our directors and executive officers; and
   
·each person known to us to beneficially own more than 5.0% of our ordinary shares.

 

The calculations in the table below are based on the fact that there were 321,752,295 ordinary shares outstanding as of April 30, 2020, including (1) 266,491,715 Class A ordinary shares, including 18,494,965 Class A ordinary shares held by Best Cars Limited, the nominee of our equity incentive trust that, although legally issued and outstanding, are not deemed as outstanding from an accounting perspective and (2) 55,260,580 Class B ordinary shares.

 

Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, we have included shares that the person has the right to acquire within 60 days, including through the exercise of any option, warrant, or other right or the conversion of any other security. These shares, however, are not included in the computation of the percentage ownership of any other person.

 

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    Ordinary shares
Beneficially Owned
    Voting Power
Beneficially
Owned
 
    Class A
Ordinary
Shares
    Class B
Ordinary
Shares
    % †     % ††  
Directors and Executive Officers**                                
Wei Wen (1)    

1,280,632

      55,260,580       18.0 %     75.7 %
Jianchen Sun (2)     14,130,692             4.4 %     1.3 %
Wendy Hayes     *             *       *  
Zhishuo Liu                        
Zijing Zhou     *             *       *  
Hui Yuan                        
Zhihai Mao     *             *     *  
Directors and executive officers as a group    

18,287,536

    55,260,580       22.9 %     77.3 %
Principal Shareholders                                
WW Long Limited (3)           55,260,580       17.2 %     75.7 %
K2 Partners (4)      40,877,879             12.7 %     3.7 %
Best Cars Limited (5)      18,494,965             5.7 %     1.7 %
Highland Funds (6)      30,666,093             9.5 %     2.8 %
BAI GmbH (7)     28,715,429             8.9 %     2.6 %
Beijing Z-Park Fund Investment Center (Limited Partner) (8)     30,482,380             9.5 %     2.8 %
First Aqua Inc. (9)      16,458,038             5.1 %     1.5 %

 

 

 

* Less than 1% of our total outstanding shares as of April 30, 2020.
**

The business address of our directors and executive officers is 9F, Ruihai Building, No. 21 Yangfangdian Road, Haidian District, Beijing 100038, People’s Republic of China.

 

The calculation of each director or executive's percentage of aggregate voting power does not take into account that person's unvested restricted shares which were still held by Best Cars Limited, the nominee of our equity incentive trust, as of April 30, 2020, the voting power of which remains vested with the trustee who shall follow the instruction of the Board or a committee of the Board consisting one or more members of the Board in respect of the exercise of such power until such vested restricted shares have been transferred outside of the trust and/or the nominee to the personal accounts of the relevant grant recipient. The calculation of each director or executive's beneficial ownership does not take into account that person's restricted shares which were still held by Best Cars Limited and would not be vested within 60 days after April 30, 2020.

For each person and group included in this column, percentage ownership is calculated by dividing the number of shares beneficially owned by such person or group by the sum of the total number of shares outstanding and the number of shares such person or group has the right to acquire upon exercise of option, warrant or other right within 60 days after April 30, 2020.
†† For each person and group included in this column, percentage of voting power is calculated by dividing the voting power beneficially owned by such person or group by the voting power of all of our Class A and Class B ordinary shares as a single class. Each holder of Class A ordinary shares is entitled to one vote per share and each holder of our Class B is entitled to 15 votes per share on all matters submitted to them for vote. Our Class B ordinary shares are convertible at any time by the holder thereof into Class A ordinary shares on a one-for-one basis.
(1) Represents (i) 1,280,632 Class A ordinary shares in the form of ADS, representing the number of restricted shares granted to Mr. Wei Wen that have vested or will vest within 60 days after April 30, 2020, and (ii) 55,260,580 Class B ordinary shares directly held by WW Long Limited, a company organized and existing under the laws of the British Virgin Islands and wholly owned by Mr. Wei Wen. The registered office of WW Long Limited is Start Chambers, Wickham’s Cay II, P.O. Box 2221, Road Town, Tortola, British Virgin Islands.
(2) Represents (i) 2,810,692 Class A shares in the form of ADS, representing the number of restricted shares granted to Mr. Jianchen Sun that have vested or will vest within 60 days after April 30, 2020, and (ii) 11,320,000 Class A ordinary shares directly held by Sunzhiyuan Limited, a company organized and existing under the laws of the British Virgin Islands and wholly owned by Mr. Jianchen Sun. The registered office of Sunzhiyuan Limited is Start Chambers, Wickham’s Cay II, P.O. Box 2221, Road Town, Tortola, British Virgin Islands.
(3) WW Long Limited is a British Virgin Islands company wholly owned by Mr. Wei Wen. The registered office of WW Long Limited is Start Chambers, Wickham’s Cay II, P.O. Box 2221, Road Town, Tortola, British Virgin Islands.

  

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(4) Represents (i) 6,971,174 Class A ordinary shares directly held by K2 Evergreen Partners L.P., a Cayman Islands exempted limited partnership, (ii) 29,804,362 Class A ordinary shares directly held by K2 Partners II L.P., a Cayman Islands exempted limited partnership, (iii) 3,076,757 Class A ordinary shares directly held by K2 Partners III Limited, a Hong Kong limited company, and (iv) 1,025,586 Class A ordinary shares directly held by K2 Family Partners Limited, a Hong Kong limited company. K2 Evergreen Partners L.P., K2 Partners II L.P., K2 Partners III Limited, and K2 Family Partners Limited are collectively referred to as K2 Partners. K2 Evergreen Partners LLC acts as the general partner of K2 Evergreen Partners L.P., K2 Partners II GP, LLC is the general partner of K2 Partners II GP, L.P., which is the general partner of K2 Partners II L.P., K2 Partners III GP, L.P. acts as the general partner of K2 Partners III L.P., which is the sole shareholder of K2 Partners III Limited. K2 Family Partners GP, L.P. acts as the general partner of K2 Family Partners L.P., which is the sole shareholder of K2 Family Partners Limited. K2 Evergreen Partners LLC, K2 Partners II GP, LLC, K2 Partners III GP, L.P. and K2 Family Partners GP, L.P. are all controlled by KPartners Limited, a Cayman Islands limited company. The registered office of K2 Evergreen Partners L.P. and K2 Partners II L.P. is Osiris International Cayman Limited of Suite #4-210, Governors Square, 23 Lime Tree Bay Avenue, Po Box 32311, Grand Cayman KY1-1209, Cayman Islands. The registered office of K2 Partners III Limited and K2 Family Partners Limited is RM C 20/F, Lucky Plaza, 315-321, Lockhart Rd, Wanchai, Hong Kong.
(5) Represents 18,494,965 Class A ordinary shares, including 671,644 Class A ordinary shares in the form of 167,911 ADSs, directly held by Best Cars Limited, a company organized and existing under the laws of the British Virgin Islands, as the nominee of our equity incentive trust. Best Cars Limited is wholly owned by The Core Trust Company Limited, a trust company established in Hong Kong that acts as the trustee of our equity incentive trust. The registered office of Best Cars Limited is Vistra Corporate Services Centre, Wickhams Cay II, Road Town, Tortola, VG1110, British Virgin Islands.
To the extent permitted under the Plan and applicable law and regulations, the trustee shall follow the instruction of the Board or a committee of the Board consisting one or more members of the Board in respect of the exercise of voting rights (if any) and powers in relation to the Class A ordinary shares held by Best Cars Limited until they have been transferred outside of the trust and/or the nominee to the personal accounts of the relevant grant recipient.
(6) Represents (i) 19,542,537 Class A ordinary shares directly held by Highland Capital Partners 9 Limited Partnership, a Delaware limited partnership, (ii) 8,417,752 Class A ordinary shares directly held by Highland Capital Partners 9-B Limited Partnership, a Delaware limited partnership, (iii) 1,705,800 Class A ordinary shares directly held by Highland Entrepreneurs’ Fund 9 Limited Partnership, a Delaware limited partnership, (iv) 658,752 Class A ordinary shares in the form of 164,688 ADSs owned by Highland Capital Partners 9 Limited Partnership, (v) 283,752 Class A ordinary shares in the form of 70,938 ADSs owned by Highland Capital Partners 9-B Limited Partnership, and (vi) 57,500 Class A ordinary shares in the form of 14,375 ADSs owned by Highland Entrepreneurs’ Fund 9 Limited Partnership. Highland Capital Partners 9 Limited Partnership, Highland Capital Partners 9-B Limited Partnership, and Highland Entrepreneurs’ Fund 9 Limited Partnership are collectively referred to as the Highland Funds. Highland Management Partners 9 Limited Partnership, a Delaware limited partnership, or HMP 9 LP, is the general partner of the Highland Funds. Highland Management Partners 9, LLC, a Delaware limited liability company, or HMP 9 LLC, is the general partner of HMP 9 LP. Paul A. Maeder, Sean M. Dalton, Robert J. Davis, Daniel J. Nova and Corey M. Mulloy, are the managing members of HMP 9 LLC. HMP 9 LLC, as the general partner of HMP 9 LP, which is the general partner of the Highland Funds, may be deemed to have beneficial ownership of the shares held by the Highland Funds. The managing members have shared power over all investment decisions of HMP 9 LLC and therefore may be deemed to share beneficial ownership of the shares held by the Highland Funds by virtue of their status as controlling persons of HMP 9 LLC. Each managing member of HMP 9 LLC disclaims beneficial ownership of the shares held by the Highland Funds, except to the extent of each such managing member’s pecuniary interest therein. Each of HMP 9 LLC and HMP 9 LP disclaims beneficial ownership of the shares held by the Highland Funds, except to the extent of each such entity’s pecuniary interest therein. The principal business address for each of the entities in this paragraph is One Broadway, 16th Floor, Cambridge, MA 02142, U.S.
(7) Represents 28,715,429 Class A ordinary shares held by BAI GmbH, a company organized and existing under the laws of Germany. BAI GmbH is a wholly-owned subsidiary of subsidiary of Bertelsmann SE & Co. KGaA, a company organized and existing under the laws of Germany. The registered office of BAI GmbH and Bertelsmann SE & Co. KGaA is Carl-Bertelsmann-Strasse 270, 33311 Gütersloh, Germany.
(8) Represents 30,482,380 Class A ordinary shares held by Beijing Z-Park Fund Investment Center (Limited Partner) (“Z-Park Fund”). The registered office of Z-Park Fund is Room 208, No. 11 Fengzhi East Road, Baiwang Innovation Technology Park, Haidian District, Beijing, PRC.
(9) Represents 16,458,038 Class A ordinary shares held by First Aqua Inc., a company organized and existing under the laws of the British Virgin Islands and wholly owned by Mr. Zhiwen Lan. The registered office of First Aqua Inc. is Start Chambers, Wickham’s Cay II, P.O. Box 2221, Road Town, Tortola, British Virgin Islands.

 

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As of April 30, 2020, a total of 81,534,393 Class A ordinary shares are held by four record holders in the United States, including The Bank of New York Mellon, the depositary of our ADS program, representing 25.3% of our total outstanding shares. None of our outstanding Class B ordinary shares are held by record holders in the United States. We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company.

  

For information regarding our stock options, see “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Critical Accounting Policies—Share-based Compensation.”

 

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

 

A.            Major Shareholders

 

See “Item 6. Directors, Senior Management and Employees—E. Share Ownership.”

 

B.            Related Party Transactions

 

Contractual Arrangements with Our VIEs and Their Respective Shareholders

 

We, through our WFOEs, entered into a series of contractual arrangements with our VIEs and their respective shareholders to obtain effective control of our consolidated affiliated entities. The contractual arrangements collectively allow us to (1) exercise effective control over each of our consolidated affiliated entities; (2) receive substantially all of the economic benefits of our consolidated affiliated entities; and (3) have an exclusive call option to purchase all or part of the equity interests in and/or assets of each of our VIEs when and to the extent permitted by PRC laws. For a description of these contractual arrangements, see “Item 4. Information on the Company—C. Organizational Structure—Our Contractual Arrangements.”

 

Loans to Related Parties

 

In 2016, we granted an interest free loan amounted to RMB1.2 million to Mr. Wei Wen, our co-founder, chairman of the board, and chief executive officer. The loan was fully repaid by Mr. Wei Wen in June 2018.

 

In 2017, we granted an interest free loan amounted to RMB1.0 million to Mr. Xingyu Du, a founding shareholder. The loan was fully repaid by Mr. Xingyu Du in July 2018.

 

In 2018, we granted Mr. Wei Wen an RMB1.0 million (US$0.2 million) interest free loan, which was fully repaid in August 2018.

 

In 2018, we granted Mr. Xingyu Du an RMB0.8 million (US$0.1 million) interest free loan, which was fully repaid in August 2018.

 

In 2018, we granted an RMB1.0 million interest free loan Mr. Wei Wen. The loan was fully repaid by Mr. Wei Wen in October 2018.

 

Private Placements

 

See “Item 4. Information on the Company—A. History and Development of the Company.”

 

Shareholders Agreement

 

See “Item 4. Information on the Company—A. History and Development of the Company.”

 

Employment Agreements

 

See “Item 6. Directors, Senior Management and Employees—C. Board Practices—Employment Agreements.”

 

Share Incentive Plan

 

See “Item 6. Directors, Senior Management and Employees—B. Compensation—Share Incentive Plan.”

 

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C.           Interests of Experts and Counsel

 

Not applicable.

 

ITEM 8. FINANCIAL INFORMATION

 

A.            Consolidated Statements and Other Financial Information

 

We have appended consolidated financial statements filed as part of this annual report.

 

Legal Proceedings

 

See “Item 4. Information on the Company—B. Business Overview—Legal Proceedings.”

 

Dividend Policy

 

We have not declared or paid any dividends. We do not have any present plans to pay any cash dividends on our ordinary shares or the ADSs in the foreseeable future. We currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business.

 

Our board of directors has complete discretion in deciding the payment of any future dividends, subject to applicable laws. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividends may exceed the amount recommended by our board of directors. Under Cayman Islands law, a Cayman Islands company may pay a dividend on its shares out of its profits, realized or unrealized, or from any reserve set aside from profits which its directors determine is no longer required or out of the share premium account, provided that in no circumstances may a dividend be paid if this would result in the company being unable to pay its debts due in the ordinary course of business. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our board of directors. The declaration and payment of dividends will depend upon, among other things, our future operations and earnings, capital requirements and surplus, our financial condition, contractual restrictions, general business conditions and other factors as our board of directors may deem relevant.

 

We are a holding company incorporated in the Cayman Islands. We may rely on dividends from our subsidiaries in China for our cash requirements, including any payment of dividends to our shareholders. PRC regulations may restrict the ability of our PRC subsidiaries to pay dividends to us. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Our subsidiaries and consolidated affiliated entities in China are subject to restrictions on making dividends and other payments to us.”

 

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If we pay any dividends, we will pay those dividends which are payable in respect of the Class A ordinary shares underlying the ADSs to the depositary, as the registered holder of such Class A ordinary shares, and the depositary will then pay such amounts to our ADS holders in proportion to the Class A ordinary shares underlying the ADSs held by such ADS holders, subject to the terms of the deposit agreement, including the fees and expenses payable thereunder. Cash dividends on our Class A ordinary shares, if any, will be paid in U.S. dollars.

 

B.           Significant Changes

 

Except as disclosed elsewhere in this annual report, we have not experienced any significant changes since the date of our audited consolidated financial statements included in this annual report.

 

ITEM 9. THE OFFER AND LISTING

 

A.           Offer and Listing Details

 

Our ADSs are listed on the Nasdaq Capital Market under the symbol “TC.” Each ADS represents four Class A ordinary shares or right to receive four Class A ordinary shares.

 

B.           Plan of Distribution

 

Not applicable.

 

C.           Markets

 

Our ADSs have been listed for trading on the Nasdaq Capital Market under the symbol “TC” since November 20, 2018.

 

D.           Selling Shareholders

 

Not applicable.

 

E.          Dilution

 

Not applicable.

 

F.           Expenses of the Issue

 

Not applicable.

 

ITEM 10. ADDITIONAL INFORMATION

 

A.           Share Capital

 

Not applicable.

 

B.           Memorandum and Articles of Association

 

We incorporate by reference into this annual report our amended and restated memorandum of association and our amended and restated articles of association filed as Exhibit 3.2 to our registration statement on Form F-1 (File No. 333-227940), as amended, initially filed with the SEC on October 23, 2018. Pursuant to the special resolution passed during our annual general meeting on November 15, 2019, Article 90(c) of the Seventh Amended and Restated Articles of Association has been amended to read “No person shall, unless recommended by the Directors for election, be eligible for election as a Director at any general meeting.” See Exhibit 1.1 to this annual report for the currently effective version of our memorandum and articles of association.

 

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C.           Material Contracts

 

Material contracts other than in the ordinary course of business are described in Item 4 and Item 7 or elsewhere in this annual report.

 

D.           Exchange Controls

 

See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations Relating to Foreign Currency Exchange.”

 

E.           Taxation

 

The following discussion of material Cayman Islands, PRC and United States federal income tax consequences of an investment in our ADSs or Class A ordinary shares is based upon laws and relevant interpretations thereof in effect as of the date of this annual report, all of which are subject to change. This discussion does not deal with all possible tax consequences relating to an investment in our ADSs or Class A ordinary shares, such as the tax consequences under state, local and other tax laws.

 

Cayman Islands Taxation

 

The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us levied by the government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or after execution brought within the jurisdiction of the Cayman Islands. The Cayman Islands is not party to any double tax treaties applicable to payments to or by our company. There are no exchange control regulations or currency restrictions in the Cayman Islands.

 

Payments of dividends and capital in respect of the shares will not be subject to taxation in the Cayman Islands and no withholding will be required on the payment of a dividend or capital to any holder of our shares, nor will gains derived from the disposal of the shares be subject to Cayman Islands income or corporation tax.

 

Pursuant to Section 6 of the Tax Concessions Law (2020 Revision) of the Cayman Islands, we may apply for an undertaking from the Financial Secretary of the Cayman Islands that:

 

·no law which is enacted in the Cayman Islands imposing any tax to be levied on profits or income or gains or appreciation shall apply to us or our operations; and
   
·the aforesaid tax or any tax in the nature of estate duty or inheritance tax shall not be payable on our shares, debentures or other obligations.

 

The undertaking for us is for a period of 20 years from the date of issuance.

 

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PRC Taxation

 

See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations Relating to Tax.”

 

United States Federal Income Taxation

 

The following discussion is a summary of material United States federal income tax considerations relating to the ownership and disposition of the ADSs or ordinary shares by a U.S. Holder, as defined below, that holds the ADSs or ordinary shares as “capital assets” (generally, property held for investment) under the United States Internal Revenue Code of 1986, as amended, or the Code. This discussion is based upon existing United States federal income tax law as of the date of this annual report, which is subject to differing interpretations or change, possibly with retroactive effect. No ruling has been sought from the Internal Revenue Service, or the IRS, with respect to any United States federal income tax consequences described below, and there can be no assurance that the IRS or a court will not take a contrary position. This discussion does not address all aspects of United States federal income taxation that may be important to particular investors in light of their individual circumstances, including investors subject to special tax rules (such as, for example, financial institutions, insurance companies, regulated investment companies, real estate investment trusts, broker-dealers, traders in securities that elect mark-to-market treatment, partnerships or other pass-through entities and their partners or investors, tax-exempt organizations (including private foundations)), investors who are subject to special tax accounting rules under Section 451(b) of the Code, investors who are not U.S. Holders, investors that own (directly, indirectly, or constructively) ADSs or ordinary shares representing 10% or more of our stock (by vote or by value), investors that hold their ADSs or ordinary shares as part of a straddle, hedge, conversion, constructive sale or other integrated transaction, or investors that have a functional currency other than the U.S. dollar, or certain former citizens or long-term residents of the United States, all of whom may be subject to tax rules that differ significantly from those summarized below. In addition, this discussion does not address any United States federal non-income, state, local, or non-United States tax considerations, the alternative minimum tax, or the Medicare contribution tax on net investment income. Each potential investor is urged to consult its tax advisor regarding the United States federal, state, local and non-United States income and other tax considerations of an investment in the ADSs or ordinary shares.

 

General

 

For purposes of this discussion, a “U.S. Holder” is a beneficial owner of the ADSs or ordinary shares that is, for United States federal income tax purposes, (1) an individual who is a citizen or resident of the United States, (2) a corporation (or other entity treated as a corporation for United States federal income tax purposes) created in, or organized under the laws of, the United States or any state thereof or the District of Columbia, (3) an estate the income of which is includible in gross income for United States federal income tax purposes regardless of its source, or (4) a trust (a) the administration of which is subject to the primary supervision of a United States court and which has one or more United States persons who have the authority to control all substantial decisions of the trust or (b) that has otherwise elected to be treated as a United States person under the Code.

 

If a partnership (or other entity treated as a partnership for United States federal income tax purposes) is a beneficial owner of the ADSs or ordinary shares, the tax treatment of a partner in the partnership will depend upon the status of the partner and the activities of the partnership. Partnerships and partners of a partnership holding the ADSs or ordinary shares are urged to consult their tax advisors regarding an investment in the ADSs or ordinary shares.

 

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The discussion below assumes the deposit agreement and any related agreement will be complied with in accordance with its terms.

 

For United States federal income tax purposes, a U.S. Holder of ADSs will generally be treated as the beneficial owner of the underlying shares represented by the ADSs. Accordingly, deposits or withdrawals of ordinary shares for ADSs will generally not be subject to United States federal income tax.

 

Passive foreign investment company considerations

 

A non-United States corporation, such as our company, will be classified as a “passive foreign investment company,” or PFIC, for United States federal income tax purposes, if, in the case of any particular fiscal year, either (1) 75% or more of its gross income for such year consists of certain types of “passive” income or (2) 50% or more of its average quarterly assets during such year is attributable to assets that produce or are held for the production of passive income. For this purpose, cash is categorized as a passive asset and the company’s unbooked intangibles associated with active business activities may generally be classified as active assets. Passive income generally includes, among other things, dividends, interest, rents, royalties, and gains from the disposition of passive assets. We will be treated as owning our proportionate share of the assets and earning our proportionate share of the income of any other non-United States corporation in which we own, directly or indirectly, more than 25% (by value) of the stock.

 

The determination of whether we will be or become a PFIC will depend upon the composition of our income (which may differ from our historical results and current projections) and assets and the value of our assets from time to time, including, in particular the value of our goodwill and other unbooked intangibles (which may depend upon the market value of the ADSs or ordinary shares from time-to-time and may be volatile). In addition, although the law in this regard is unclear, we treat our consolidated affiliated entities as being owned by us for United States federal income tax purposes, not only because we exercise effective control over the operation of such entities but also because we are entitled to substantially all of their economic benefits, and, as a result, we combine and consolidate their operating results in our consolidated financial statements. Assuming that we are the owner of our consolidated affiliated entities for United States federal income tax purposes, based upon the historical and current value of our assets, composition of our income and assets and value of the ADSs and ordinary shares, we do not believe we were classified as a PFIC for the fiscal year ending December 31, 2019 and we do not expect to be classified as a PFIC for the current fiscal year. Among other matters, if our market capitalization declines, we may be classified as a PFIC for the current fiscal year or future fiscal years. It is also possible that the IRS, may challenge our classification or valuation of our goodwill and other unbooked intangibles, which may result in our company being, or becoming classified as, a PFIC for the current fiscal year or one or more future fiscal years.

 

The determination of whether we will be or become a PFIC may also depend, in part, on how, and how quickly, we use our liquid assets and cash. Under circumstances where we retain significant amounts of liquid assets, or if our consolidated affiliated entities were not treated as owned by us for United States federal income tax purposes, our risk of being classified as a PFIC may substantially increase. Because there are uncertainties in the application of the relevant rules and PFIC status is a factual determination made annually after the close of each fiscal year, there can be no assurance that we will not be a PFIC for the current fiscal year ending December 31, 2020 or any future fiscal year or that the IRS will not take a contrary position. If we are classified as a PFIC for any year during which a U.S. Holder holds the ADSs or ordinary shares, we generally would continue to be treated as a PFIC for all succeeding years during which such U.S. holder holds the ADSs or ordinary shares.

 

The discussion below under “Dividends” and “Sale or other disposition of ADSs or ordinary shares” is written on the basis that we will not be classified as a PFIC for United States federal income tax purposes.

 

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The United States federal income tax rules that apply if we are classified as a PFIC for the current fiscal year or any subsequent fiscal year are discussed below under “Passive foreign investment company rules.”

 

Dividends

 

Subject to the PFIC rules described below, any cash distributions (including the amount of any PRC tax withheld) paid on the ADSs or ordinary shares out of our current or accumulated earnings and profits, as determined under United States federal income tax principles, will generally be includible in the gross income of a U.S. Holder as dividend income on the day actually or constructively received by the U.S. Holder, in the case of ordinary shares, or by the depositary bank, in the case of ADSs. Because we do not intend to determine our earnings and profits on the basis of United States federal income tax principles, any distribution will generally be treated as a “dividend” for United States federal income tax purposes. Under current law, a non-corporate recipient of dividend income will generally be subject to tax on dividend income from a “qualified foreign corporation” at the lower rates applicable to “qualified dividend income” rather than the marginal tax rates generally applicable to ordinary income, provided that certain holding period and other requirements are met.

 

A non-United States corporation (other than a corporation that is classified as a PFIC for the fiscal year in which the dividend is paid or the preceding fiscal year) will generally be considered to be a qualified foreign corporation (1) if it is eligible for the benefits of a comprehensive tax treaty with the United States which the Secretary of Treasury of the United States determines is satisfactory for purposes of this provision and which includes an exchange of information program, or (2) with respect to any dividend it pays on stock (or ADSs in respect of such stock) which is readily tradable on an established securities market in the United States. Our ADSs on NASDAQ. We believe, but cannot assure you, that the ADSs will be readily tradable on an established securities market in the United States and that we will be a qualified foreign corporation with respect to dividends paid on the ADSs. Since we do not expect that our ordinary shares will be listed on established securities markets, it is unclear whether dividends that we pay on our ordinary shares that are not backed by ADSs currently meet the conditions required for the reduced tax rate. There can be no assurance that the ADSs will continue to be considered readily tradable on an established securities market in later years. In the event we are deemed to be a PRC resident enterprise under the Enterprise Income Tax Law (see “—PRC Taxation”), we may be eligible for the benefits of the Agreement Between the Government of the United States of America and the Government of the People’s Republic of China for the Avoidance of Double Taxation and the Prevention of Tax Evasion with Respect to Taxes on Income, or the United States-PRC income tax treaty (which the Secretary of the Treasury of the United States has determined is satisfactory for this purpose), in which case we would be treated as a qualified foreign corporation with respect to dividends paid on our ordinary shares (regardless of whether such shares are backed by ADSs) or ADSs. U.S. Holders are urged to consult their tax advisors regarding the availability of the reduced tax rate on dividends in their particular circumstances. Dividends received on the ADSs or ordinary shares will not be eligible for the dividends received deduction allowed to qualifying corporations under the Code.

 

For United States foreign tax credit purposes, dividends paid on the ADSs or ordinary shares will generally be treated as income from foreign sources and will generally constitute passive category income. In the event that we are deemed to be a PRC resident enterprise under the Enterprise Income Tax Law, a U.S. Holder may be subject to PRC withholding taxes on dividends paid, if any, on the ADSs or ordinary shares. A U.S. Holder may be eligible, subject to a number of complex limitations, to claim a foreign tax credit in respect of any foreign withholding taxes imposed on dividends received on the ADSs or ordinary shares. A U.S. Holder who does not elect to claim a foreign tax credit for foreign tax withheld may instead claim a deduction for United States federal income tax purposes in respect of such withholding, but only for a year in which such holder elects to do so for all creditable foreign income taxes. The rules governing the foreign tax credit are complex. U.S. Holders are urged to consult their tax advisors regarding the availability of the foreign tax credit under their particular circumstances.

 

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Sale or other disposition of ADSs or ordinary shares

 

Subject to the PFIC rules discussed below, a U.S. Holder will generally recognize capital gain or loss, if any, upon the sale or other disposition of ADSs or ordinary shares in an amount equal to the difference between the amount realized upon the disposition and the holder’s adjusted tax basis in such ADSs or ordinary shares. Any capital gain or loss will be long-term capital gain or loss if the ADSs or ordinary shares have been held for more than one year and will generally be United States source gain or loss for United States foreign tax credit purposes. Long-term capital gains of non-corporate U.S. Holders are currently eligible for reduced rates of taxation. In the event that we are treated as a PRC resident enterprise under the EIT Law, and gain from the disposition of the ADSs or ordinary shares is subject to tax in the PRC (see “—PRC Taxation”), such gain may be treated as PRC source gain for foreign tax credit purposes under the United States-PRC income tax treaty. The deductibility of a capital loss may be subject to limitations. U.S. Holders are urged to consult their tax advisors regarding the tax consequences if a foreign tax is imposed on a disposition of the ADSs or ordinary shares, including the availability of the foreign tax credit under their particular circumstances.

 

Passive foreign investment company rules

 

If we are classified as a PFIC for any fiscal year during which a U.S. Holder holds the ADSs or ordinary shares, unless the U.S. Holder makes one of certain elections (as described below), the U.S. Holder will, except as discussed below, be subject to special tax rules that have a penalizing effect, regardless of whether we remain a PFIC, on (1) any excess distribution that we make to the U.S. Holder (which generally means any distribution paid during a fiscal year to a U.S. Holder that is greater than 125% of the average annual distributions paid in the three preceding fiscal years or, if shorter, the U.S. Holder’s holding period for the ADSs or ordinary shares), and (2) any gain realized on the sale or other disposition, including, under certain circumstances, a pledge, of ADSs or ordinary shares. Under the PFIC rules:

 

·the excess distribution and/or gain will be allocated ratably over the U.S. Holder’s holding period for the ADSs or ordinary shares;

 

·the amount of the excess distribution or gain allocated to the fiscal year of distribution or gain and to any fiscal years in the U.S. Holder’s holding period prior to the first fiscal year in which we are classified as a PFIC (each such fiscal year, a pre-PFIC year) will be taxable as ordinary income; and

 

·the amount of the excess distribution or gain allocated to each prior fiscal year, other than the current fiscal year of distribution or gain or a pre-PFIC year, will be subject to tax at the highest tax rate in effect applicable to the individuals or corporations, as appropriate, for that other fiscal year, and will be increased by an additional tax equal to interest on the resulting tax deemed deferred with respect to each such other fiscal year.

 

If we are a PFIC for any fiscal year during which a U.S. Holder holds the ADSs or ordinary shares and any of our non-United States subsidiaries or other corporate entities in which we own equity interests is also a PFIC, such U.S. Holder would be treated as owning a proportionate amount (by value) of the shares of the lower-tier PFIC for purposes of the application of these rules. Each U.S. Holder is advised to consult its tax advisors regarding the application of the PFIC rules to any of our lower-tier PFICs.

 

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If we are a PFIC for any fiscal year during which a U.S. Holder holds the ADSs or ordinary shares, we will continue to be treated as a PFIC with respect to such U.S. Holder for all succeeding years during which the U.S. Holder holds the ADSs or ordinary shares, unless we were to cease to be a PFIC and the U.S. Holder makes a “deemed sale” election with respect to the ADSs or ordinary shares. If such election is made, the U.S. Holder will be deemed to have sold the ADSs or ordinary shares it holds at their fair market value and any gain from such deemed sale would be subject to the rules described in the preceding two paragraphs. After the deemed sale election, so long as we do not become a PFIC in a subsequent fiscal year, the ADSs or ordinary shares with respect to which such election was made will not be treated as shares in a PFIC and, as a result, the U.S. Holder will not be subject to the rules described above with respect to any “excess distribution” the U.S. Holder receives from us or any gain from an actual sale or other disposition of the ADSs or ordinary shares. Each U.S. Holder is strongly urged to consult its tax advisors as to the possibility and consequences of making a deemed sale election if we are and then cease to be a PFIC and such an election becomes available to the U.S. Holder.

 

As an alternative to the foregoing rules, a U.S. Holder of  “marketable stock” in a PFIC may make a mark-to-market election with respect to the ADSs, provided that the ADSs are “regularly traded” (as specially defined) on NASDAQ, which is a qualified exchange or other market for these purposes. No assurances may be given regarding whether the ADSs qualify, or will continue to qualify, as being regularly traded in this regard. If a mark-to-market election is made, the U.S. Holder will generally (1) include as ordinary income for each fiscal year that we are a PFIC the excess, if any, of the fair market value of ADSs held at the end of the fiscal year over the U.S. Holder’s adjusted tax basis in such ADSs and (2) deduct as an ordinary loss the excess, if any, of the U.S. Holder’s adjusted tax basis in the ADSs over the fair market value of such ADSs held at the end of the fiscal year, but only to the extent of the net amount previously included in income as a result of the mark-to-market election. The U.S. Holder’s adjusted tax basis in the ADSs would be adjusted to reflect any income or loss resulting from the mark-to-market election. If a U.S. Holder makes an effective mark-to-market election, in each year that we are a PFIC any gain recognized upon the sale or other disposition of the ADSs will be treated as ordinary income and any loss will be treated as ordinary loss, but only to the extent of the net amount previously included in income as a result of the mark-to-market election. Because our ordinary shares are not listed on a stock exchange, U.S. Holders will not be able to make a mark-to-market election with respect to our ordinary shares.

 

If a U.S. Holder makes a mark-to-market election in respect of a corporation classified as a PFIC and such corporation ceases to be classified as a PFIC, the U.S. Holder will not be required to take into account the mark-to-market gain or loss described above during any period that such corporation is not classified as a PFIC.

 

Because a mark-to-market election cannot be made for any lower-tier PFICs that a PFIC may own, a U.S. Holder who makes a mark-to-market election with respect to the ADSs may continue to be subject to the general PFIC rules with respect to such U.S. Holder’s indirect interest in any of our non-United States subsidiaries or other corporate entities in which we own equity interests that is classified as a PFIC.

 

We do not intend to provide information necessary for U.S. Holders to make qualified electing fund elections, which, if available, would result in tax treatment different from the general tax treatment for PFICs described above.

 

As discussed above under “Dividends,” dividends that we pay on the ADSs or ordinary shares will not be eligible for the reduced tax rate that applies to qualified dividend income if we are classified as a PFIC for the fiscal year in which the dividend is paid or the preceding fiscal year. In addition, if a U.S. Holder owns the ADSs or ordinary shares during any fiscal year that we are a PFIC, the holder must file an annual information return with the IRS. Each U.S. Holder is urged to consult its tax advisor concerning the United States federal income tax consequences of purchasing, holding, and disposing ADSs or ordinary shares if we are or become a PFIC, including the possibility of making a mark-to-market election and the unavailability of the qualified electing fund election.

 

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Information reporting and backup withholding

 

Certain U.S. Holders are required to report information to the IRS relating to an interest in “specified foreign financial assets” (as defined in the Code), including shares issued by a non-United States corporation, for any year in which the aggregate value of all specified foreign financial assets exceeds $50,000 (or a higher dollar amount prescribed by the IRS), subject to certain exceptions (including an exception for shares held in custodial accounts maintained with a United States financial institution). These rules also impose penalties if a U.S. Holder is required to submit such information to the IRS and fails to do so.

 

In addition, U.S. Holders may be subject to information reporting to the IRS and backup withholding with respect to dividends on and proceeds from the sale or other disposition of the ADSs or ordinary shares. Information reporting will apply to payments of dividends on, and to proceeds from the sale or other disposition of, ordinary shares or ADSs by a paying agent within the United States to a U.S. Holder, other than U.S. Holders that are exempt from information reporting and properly certify their exemption. A paying agent within the United States will be required to withhold at the applicable statutory rate, currently 24%, in respect of any payments of dividends on, and the proceeds from the disposition of, ordinary shares or ADSs within the United States to a U.S. Holder (other than U.S. Holders that are exempt from backup withholding and properly certify their exemption) if the holder fails to furnish its correct taxpayer identification number or otherwise fails to comply with applicable backup withholding requirements. U.S. Holders who are required to establish their exempt status generally must provide a properly completed IRS Form W-9.

 

Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against a U.S. Holder’s United States federal income tax liability. A U.S. Holder generally may obtain a refund of any amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the IRS in a timely manner and furnishing any required information. Each U.S. Holder is advised to consult with its tax advisor regarding the application of the United States information reporting rules to their particular circumstances.

 

F.            Dividends and Paying Agents

 

Not applicable.

 

G.            Statement by Experts

 

Not applicable.

 

H.            Documents on display

 

We have previously filed with the SEC our registration statement on Form F-1 (File Number 333-227940), as amended.

 

We are subject to the periodic reporting and other informational requirements of the Exchange Act. Under the Exchange Act, we are required to file reports and other information with the SEC. Specifically, we are required to file annually a Form 20-F within four months after the end of each fiscal year. Copies of reports and other information, when so filed, may be inspected without charge and may be obtained at prescribed rates at the public reference facilities maintained by the SEC at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. The public may obtain information regarding the Washington, D.C. Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a web site at www.sec.gov that contains reports, proxy and information statements, and other information regarding registrants that make electronic filings with the SEC using its EDGAR system.

 

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As a foreign private issuer, we are exempt from the rules of the Exchange Act prescribing the furnishing and content of quarterly reports and proxy statements, and our executive officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act.

 

We will furnish The Bank of New York Mellon, the depositary of our ADSs, with all notices of shareholders’ meetings and other reports and communications that are made generally available to our shareholders. The depositary will make such notices, reports and communications available to holders of ADSs and, upon our request, will mail to all record holders of ADSs the information contained in any notice of a shareholders’ meeting received by the depositary from us. We will, upon request, furnish our shareholders with our annual reports, which will include a review of operations and annual audited consolidated financial statements prepared in conformity with U.S .GAAP.

 

I.             Subsidiary Information

 

For a listing of our subsidiaries, see “Item 4. Information on the Company—C. Organizational Structure.”

 

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Credit Risk

 

Financial instruments that potentially subject us to the concentration of credit risk consist of cash and cash equivalents, restricted cash and accounts receivable, short-term investments and prepayment and other current assets. As of December 31, 2017, 2018 and 2019, substantially all of our cash and cash equivalents, and restricted cash were held in major financial institutions located in the United States or China, which our management considers being of high credit quality. Accounts receivable is typically unsecured and is mainly derived from net revenues earned from our auto shows business. Short-term investments consist of an interest-bearing loan to a third party, which was repaid on July 3, 2018. None of our customers had a receivable balance exceeding 10% of our total accounts receivable balance as of December 31, 2016 and 2017. As of December 31, 2018, only one customer had receivable balances exceeding 10% of our total accounts receivable balances. None of our customers had a receivable balance exceeding 10% of our total accounts receivable balance as of December 31, 2019.

 

Foreign Exchange Risk

 

Substantially all of our net revenues and expenses are denominated in Renminbi, which is the functional currency of our subsidiaries and our consolidated affiliated entities in China. Therefore, we have limited exposure to foreign exchange risk for operating activities, and we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. Although in general, our exposure to foreign exchange risks should be limited, the value of your investment in the ADSs will be affected by the foreign exchange rate between U.S. dollars and Renminbi because the value of our business is effectively denominated in Renminbi, while the ADSs will be traded in U.S. dollars.

 

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Renminbi is not freely convertible into foreign currencies for capital account transactions. The value of the Renminbi against the U.S. dollar and other currencies is affected by, among other things, changes in China’s political and economic conditions and China’s foreign exchange policies. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the Renminbi to the U.S. dollar, and the Renminbi appreciated more than 20% against the U.S. dollar over the following three years. Between July 2008 and June 2010, this appreciation halted and the exchange rate between the Renminbi and the U.S. dollar remained within a narrow band. Since June 2010, the Renminbi has fluctuated against the U.S. dollar, at times significantly and unpredictably. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the Renminbi and the U.S. dollar in the future. Our cash and cash equivalents, restricted cash, and term deposits denominated in RMB amounted to RMB32.2 million, RMB74.4 million and RMB84.7 million (US$12.2 million) as of December 31, 2017, 2018 and 2019, respectively.

 

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

 

A.            Debt Securities

 

Not applicable.

 

B.            Warrants and Rights

 

Not applicable.

 

C.            Other Securities

 

Not applicable.

 

D.            American Depositary Shares

 

Fees and Expenses

 

Our ADS holders are required to pay the following service fees to the depositary bank, the Bank of New York Mellon, and certain taxes and governmental charges (in addition to any applicable fees, expenses, taxes and other governmental charges payable on the deposited securities represented by any of your ADSs):

 

Persons depositing or withdrawing shares or ADS
holders must pay :
  For :
US$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)   Issuance of ADSs, including issuances resulting from a distribution of Class A ordinary shares or rights or other property Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates
US$.05 (or less) per ADS   Any cash distribution to ADS holders
A fee equivalent to the fee that would be payable if securities distributed to you had been Class A ordinary shares and the Class A ordinary shares had been deposited for issuance of ADSs   Distribution of securities distributed to holders of deposited securities (including rights) that are distributed by the depositary to ADS holders
US$.05 (or less) per ADS per calendar year   Depositary services

 

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Persons depositing or withdrawing shares or ADS
holders must pay :
  For :
Registration or transfer fees   Transfer and registration of Class A ordinary shares on our share register to or from the name of the depositary or its agent when you deposit or withdraw Class A ordinary shares
Expenses of the depositary   Cable and facsimile transmissions (when expressly provided in the deposit agreement) Converting foreign currency to U.S. dollars
Taxes and other governmental charges the depositary or the custodian has to pay on any ADSs or Class A ordinary shares underlying ADSs, such as stock transfer taxes, stamp duty or withholding taxes   As necessary
Any charges incurred by the depositary or its agents for servicing the deposited securities   As necessary

 

The depositary collects its fees for delivery and surrender of ADSs directly from investors depositing Class A ordinary shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cash distributions or by directly billing investors or by charging the book-entry system accounts of participants acting for them. The depositary may collect any of its fees by deduction from any cash distribution payable (or by selling a portion of securities or other property distributable) to ADS holders that are obligated to pay those fees. The depositary may generally refuse to provide fee-attracting services until its fees for those services are paid.

 

From time to time, the depositary may make payments to us to reimburse us for costs and expenses generally arising out of establishment and maintenance of the ADS program, waive fees and expenses for services provided to us by the depositary or share revenue from the fees collected from ADS holders. In performing its duties under the deposit agreement, the depositary may use brokers, dealers, foreign currency dealers or other service providers that are owned by or affiliated with the depositary and that may earn or share fees, spreads or commissions.

 

The depositary may convert currency itself or through any of its affiliates and, in those cases, acts as principal for its own account and not as agent, advisor, broker or fiduciary on behalf of any other person and earns revenue, including, without limitation, transaction spreads, that it will retain for its own account. The revenue is based on, among other things, the difference between the exchange rate assigned to the currency conversion made under the deposit agreement and the rate that the depositary or its affiliate receives when buying or selling foreign currency for its own account. The depositary makes no representation that the exchange rate used or obtained in any currency conversion under the deposit agreement will be the most favorable rate that could be obtained at the time or that the method by which that rate will be determined will be the most favorable to ADS holders, subject to the depositary’s obligations under the deposit agreement. The methodology used to determine exchange rates used in currency conversions is available upon request.

 

Payment by Depositary

 

We had not received any payment from the Bank of New York Mellon as of December 31, 2018.

 

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PART II

 

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

 

None.

 

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

 

Material Modifications to the Rights of Security Holders

 

See “Item 10. Additional Information” for a description of the rights of securities holders, which remain unchanged.

 

Use of Proceeds

 

The following “Use of Proceeds” information relates to the registration statement on Form F-1, as amended (File Number 333-227940), or the F-1 Registration Statement, in relation to our initial public offering of 2,600,000 ADSs representing 104,000,000 Class A ordinary shares, at an initial offering price of US$7.80 per ADS. Our initial public offering closed in November 2018. Maxim Group LLC and AMTD Tiger were the representatives of the underwriters for our initial public offering.

 

The F-1 Registration Statement was declared effective by the SEC on November 19, 2018. For the period from the effective date of the F-1 Registration Statement to December 31, 2018, the total expenses incurred for our company’s account in connection with our initial public offering was approximately US$3.9 million. We received net proceeds of approximately US$15.0 million from our initial public offering. None of the transaction expenses included payments to directors or officers of our company or their associates, persons owning more than 10% or more of our equity securities or our affiliates. None of the net proceeds from the initial public offering were paid, directly or indirectly, to any of our directors or officers or their associates, persons owning 10% or more of our equity securities or our affiliates.

 

For the period from November 19, 2018, the date that the Form F-1 Registration Statement was declared effective by the SEC, to the date of this annual report, we have not used the net proceeds from our initial public offering.

 

ITEM 15. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Our management, with the participation of our chief executive officer and chief financial officer, has performed an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report, as required by Rule 13a-15(b) under the Exchange Act.

 

Notwithstanding management’s assessment that our internal control over financial reporting was ineffective as of December 31, 2019 due to the material weaknesses described below, we believe that the consolidated financial statements included in this annual report on Form 20-F fairly present our financial position, results of operations and cash flows for the fiscal years covered thereby in all material respects.

 

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Management’s Annual Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of its published consolidated financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective may not prevent or detect misstatements and can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. As required by Section 404 of the Sarbanes-Oxley Act of 2002 and related rules promulgated by the SEC, our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2019. In making this assessment, it used the criteria established within the Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, our management has concluded that, as of December 31, 2019, our internal control over financial reporting was ineffective due to the two material weaknesses identified below.

 

In accordance with reporting requirements set forth by the SEC, a “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our company’s annual or interim consolidated financial statements will not be prevented or detected on a timely basis. The material weaknesses, which were first identified in the course of preparing our consolidated financial statements for the years ended December 31, 2016 and 2017, relate to (1) lack of sufficient financial reporting and accounting personnel, especially those with U.S. GAAP knowledge, and (2) lack of formal financial closing policies and effective control over periodic financial closing procedures which resulted into management’s late adjustments at period ends. We do not believe that these material weaknesses had a significant impact on our financial reporting.

 

To remedy the first material weakness, we have begun to, and will continue to, (1) hire additional finance and accounting staff with qualifications and work experiences in U.S. GAAP and SEC reporting requirements to formalize and strengthen the key internal control over financial reporting, (2) allocate sufficient resources to prepare and review consolidated financial statements and related disclosures in accordance with U.S. GAAP and SEC reporting requirements, and (3) hire qualified consultant to assess Sarbanes-Oxley Act compliance readiness, to assess where we can improve our overall internal control over financial reporting function, and to assist us in implementing improvements where necessary.

 

To remedy the second material weakness, we have begun to, and will continue to, expedite and streamline our financial reporting processes and develop our compliance processes. These processes include (1) the establishment of a comprehensive policy and procedure manual in order to allow early detection, prevention and resolution of potential compliance issues, (2) the establishment of clear roles and responsibilities for accounting and financial reporting staff to address accounting and financial reporting issues, and (3) hiring additional experienced personnel to implement comprehensive financial period-end closing policies and procedures, especially those related to period end cut-offs, reclassification, tax related adjustments and valuation allowance.

 

However, such measures have not been fully implemented and we concluded that the material weaknesses in our internal control over financial reporting have not been remediated as of December 31, 2019.

 

In 2020, we will continue to implement additional measures to remediate the existing material weaknesses as discussed above. However, we cannot assure you that we will remediate our material weaknesses sin a timely manner. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—Material weaknesses in our internal control over financial reporting have been identified, and if we fail to implement and maintain effective internal control over financial reporting, we may be unable to accurately report our results of operations, meet our reporting obligations or prevent fraud.”

 

Since we qualified as an “emerging growth company” as defined under the JOBS Act as of December 31, 2019, this annual report on Form 20-F does not include an attestation report of our independent registered public accounting firm.

 

Changes in Internal Control over Financial Reporting

 

Other than as described above, there were no changes in our internal controls over financial reporting that occurred during the period covered by this annual report on Form 20-F that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

  

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ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

 

Our board of directors has determined that Ms. Wendy Hayes, an independent director (under the standards set forth in Rule 5605(a)(2) of the Nasdaq Stock Market Rules and Rule 10A-3 under the Exchange Act) and the chairman of our audit committee, is our audit committee financial expert.

 

ITEM 16B. CODE OF ETHICS

 

Our board of directors has adopted our code of conduct and ethics, a code that applies to members of the board of directors including its chairman and other senior officers, including the chief executive officer, the chief financial officer and the chief operations officer. This code is publicly available on our website at http://ir.tuanche.com/.

 

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered by PricewaterhouseCoopers Zhong Tian LLP, our independent registered public accounting firm, for the years indicated. We did not pay any other fees to our independent registered public accounting firm during the periods indicated below.

 

    2017     2018     2019  
    (RMB in thousands)  
Audit fees (1)           4,556             6,880             5,000  

  

 

(1)Audit Fees are defined as the standard audit work that needs to be performed each year in order to issue opinions on our consolidated financial statements and agreed-upon procedures performed in relation to interim financial information.

 

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

 

None.

 

ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

 

None.

 

ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

 

Not applicable.

 

ITEM 16G. CORPORATE GOVERNANCE

 

As a Cayman Islands company listed on NASDAQ, we are subject to NASDAQ corporate governance listing standards. However, the Nasdaq Stock Market Rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in the Cayman Islands, which is our home country, may differ significantly from NASDAQ corporate governance listing standards. Certain corporate governance practices in the Cayman Islands, which is our home country, differ significantly from requirements for companies incorporated in other jurisdictions such as the United States. To the extent we choose to follow home country practice with respect to corporate governance matters, our shareholders may be afforded less protection than they otherwise would under rules and regulations applicable to U.S. domestic issuers. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Ordinary Shares and ADSs—As a company incorporated in the Cayman Islands, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from NASDAQ corporate governance listing standards; these practices may afford less protection to shareholders than they would enjoy if we complied fully with NASDAQ corporate governance listing standards.”

 

ITEM 16H. MINE SAFETY DISCLOSURE

 

Not applicable.

 

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PART III

ITEM 17. FINANCIAL STATEMENTS

 

We have elected to provide financial statements pursuant to Item 18.

 

ITEM 18. FINANCIAL STATEMENTS

 

Our consolidated financial statements are included at the end of this annual report.

 

ITEM 19. EXHIBITS

 

Exhibit No.     Description of Exhibit  
1.1   Seventh Amended and Restated Articles of Association of the Registrant (as amended by the special resolution passed during the annual general meeting on November 15, 2019)
2.1   Registrant’s specimen American depositary receipt (included in Exhibit 2.3)
2.2   Registrant’s specimen certificate for ordinary shares (incorporated by reference to Exhibit 4.2 of our Registration Statement on Form F-1 (file No. 333-227940) filed with the Securities and Exchange Commission on October 23, 2018)
2.3   Form of deposit agreement by and among the Registrant, the depositary and holders of the American Depositary Receipts (incorporated by reference to Exhibit 4.3 of our Registration Statement on Form F-1 (file No. 333-227940) filed with the Securities and Exchange Commission on October 23, 2018)
2.4*   Description of Securities
3.1   Shareholders Agreement, among the Registrant and other parties thereto dated September 29, 2018 (incorporated by reference to Exhibit 4.4 of our Registration Statement on Form F-1 (file no. 333-227940) filed with the Securities and Exchange Commission on October 23, 2018)
4.1   Form of Employment Agreement between the Registrant and the executive officers of the Registrant (incorporated by reference to Exhibit 10.1 of our Registration Statement on Form F-1 (file No. 333-227940) filed with the Securities and Exchange Commission on October 23, 2018)
4.2   Form of Indemnification Agreement between the Registrant and its directors and executive officers (incorporated by reference to Exhibit 10.2 of our Registration Statement on Form F-1 (file No. 333-227940) filed with the Securities and Exchange Commission on October 23, 2018)
4.3   English translation of Exclusive Business Cooperation Agreement between TuanYuan and TuanChe Internet dated August 18, 2017 (incorporated by reference to Exhibit 10.3 of our Registration Statement on Form F-1 (file No. 333-227940) filed with the Securities and Exchange Commission on October 23, 2018)
4.4   English translation of Exclusive Call Option Agreement among TuanYuan, TuanChe Internet and its shareholders dated August 18, 2017 (incorporated by reference to Exhibit 10.4 of our Registration Statement on Form F-1 (file No. 333-227940) filed with the Securities and Exchange Commission on October 23, 2018)
4.5   English translation of Equity Pledge Agreement among TuanYuan, TuanChe Internet and its shareholders dated August 18, 2017 (incorporated by reference to Exhibit 10.5 of our Registration Statement on Form F-1 (file No. 333-227940) filed with the Securities and Exchange Commission on October 23, 2018)
4.6   English translations of Consent Letter granted by the spouse of each individual shareholder of TuanChe Internet (incorporated by reference to Exhibit 10.6 of our Registration Statement on Form F-1 (file No. 333-227940) filed with the Securities and Exchange Commission on October 23, 2018)
4.7   English translations of Powers of Attorney granted by the shareholders of TuanChe Internet dated August 18, 2017 (incorporated by reference to Exhibit 10.7 of our Registration Statement on Form F-1 (file No. 333-227940) filed with the Securities and Exchange Commission on October 23, 2018)
4.8*   English translation of Exclusive Business Cooperation Agreement between Sangu Maolu and Internet Drive Technology dated May 31, 2019
4.9*   English translation of Exclusive Call Option Agreement among Sangu Maolu, Internet Drive Technology and its shareholders dated May 31, 2019

 

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Exhibit No.   Description of Exhibit
4.10*   English translation of Equity Pledge Agreement among Sangu Maolu, Internet Drive Technology and its shareholders dated May 31, 2019
4.11*   English translations of Consent Letter granted by the spouse of each individual shareholder of Internet Drive Technology dated May 31, 2019
4.12*   English translations of Powers of Attorney Agreement between Sangu Maolu and the shareholders of Internet Drive Technology dated May 31, 2019
4.13*   English translation of Exclusive Business Cooperation Agreement between Sangu Maolu and Drive New Media dated May 31, 2019
4.14*   English translation of Exclusive Call Option Agreement among Sangu Maolu, Drive New Media and its shareholders dated May 31, 2019
4.15*   English translation of Equity Pledge Agreement among Sangu Maolu, Drive New Media and its shareholders dated May 31, 2019
4.16*   English translations of Consent Letter granted by the spouse of each individual shareholder of Drive New Media dated May 31, 2019
4.17*   English translations of Powers of Attorney Agreement between Sangu Maolu and the shareholders of Drive New Media dated May 31, 2019
4.18*   Share Purchase Agreement among Longye International Limited, TuanChe Limited and other parties named therein, dated May 31, 2019
4.19   Share Incentive Plan (incorporated by reference to Exhibit 10.8 of our Registration Statement on Form F-1 (file No. 333-227940) filed with the Securities and Exchange Commission on October 23, 2018)
8.1*   List of subsidiaries and affiliated entities of the Registrant
11.1   Code of business conduct and ethics (incorporated by reference to Exhibit 99.1 of our Registration Statement on Form F-1 (file No. 333-227940) filed with the Securities and Exchange Commission on October 23, 2018)
12.1*   CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
12.2*   CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
13.1**   CEO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
13.2**   CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
15.1*   Consent of Shihui Partners
15.2*   Consent of PricewaterhouseCoopers Zhong Tian LLP
15.3   Consent of iResearch (incorporated by the reference of Exhibit 99.3 of our Registration Statement on Form F-1 (file No. 333-227940) filed with the Securities and Exchange Commission on October 23,2018)
101.INS*   XBRL Instance Document
101.SCH*   XBRL Taxonomy Extension Schema Document
101.CAL*   XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*   XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*   XBRL Taxonomy Extension Label Linkbase Document
101.PRE*   XBRL Taxonomy Extension Presentation Linkbase Document

 

 

*Filed with this annual report on Form 20-F
**Furnished with this annual report on Form 20-F

 

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SIGNATURES

 

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

 

  TUANCHE LIMITED
   
   
  By: /s/ Zhihai Mao
    Name: Zhihai Mao
    Title: Chief Financial Officer
Date: May 18, 2020  

 

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INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

  Page 
Report of independent registered public accounting firm F-2
Consolidated balance sheets as at December 31, 2018 and 2019 F-4
Consolidated statements of operations and comprehensive loss for the years ended December 31, 2017, 2018 and 2019 F-5
Consolidated statements of changes in shareholders' (deficit)/equity for the years ended December 31, 2017, 2018 and 2019 F-6
Consolidated statements of cash flows for the years ended December 31, 2017, 2018 and 2019 F-8
Notes to consolidated financial statements F-9

 

F-1

 

  

Report of Independent Registered Public Accounting Firm

 

To the Board of Directors and Shareholders of TuanChe Limited

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of TuanChe Limited and its subsidiaries (the “Company”) as of December 31, 2019 and 2018, and the related consolidated statements of operations and comprehensive loss, of changes in shareholders' (deficit)/equity and of cash flows for each of the three years in the period ended December 31, 2019, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

 

F-2

 

 

Subsequent Event

 

As discussed in Note 19 to the consolidated financial statements, Subsequent Events, the Company has been negatively impacted by the outbreak of a novel coronavirus beginning in January 2020. All auto shows and special promotional events previously scheduled were cancelled for February and March 2020. As a result of these developments, the Company expects an unfavorable impact on its business, results of operations, financial condition and cash flows in 2020. Management’s plans to mitigate this matter are also described in Note 19.

 

/s/PricewaterhouseCoopers Zhong Tian LLP

Beijing, the People's Republic of China

May 18, 2020

 

We have served as the Company's auditor since 2018.

  

 

F-3

 

 

TUANCHE LIMITED

CONSOLIDATED BALANCE SHEETS

(All amounts in thousands, except for share and per share data)

 

   December 31, 2018   December 31,
2019
 
   RMB   RMB   US$ Note 2(g) 
ASSETS            
Current assets:               
Cash and cash equivalents   578,558    193,920    27,855 
Restricted cash   -    1,529    220 
Time deposits   -    69,762    10,021 
Accounts receivable, net   52,255    72,391    10,398 
Prepayment and other current assets   68,819    193,782    27,835 
Total current assets   699,632    531,384    76,329 
Non-current assets:               
Property, equipment and software, net   11,636    20,360    2,925 
Long-term investments   4,390    7,874    1,131 
Other non-current assets   10,267    7,577    1,088 
Total non-current assets   26,293    35,811    5,144 
Total assets   725,925    567,195    81,473 
LIABILITIES AND SHAREHOLDERS’ EQUITY               
Current liabilities:               
Accounts payable (including accounts payable of the consolidated variable interest entities (“VIEs”) without recourse to the primary beneficiary of RMB1,871 and RMB3,624 as of December 31, 2018 and 2019, respectively)   6,996    5,825    837 
Advance from customers (including advance from customers of the consolidated VIEs without recourse to the primary beneficiary of RMB13,922 and RMB2,677 as of December 31, 2018 and 2019, respectively)   14,704    4,805    690 
Salary and welfare benefits payable (including salary and welfare benefits payable of the consolidated VIEs without recourse to the primary beneficiary of RMB30,535 and RMB29,970 as of December 31, 2018 and 2019, respectively)   48,835    68,025    9,771 
Other taxes payable (including other taxes payable of the consolidated VIEs without recourse to the primary beneficiary of RMB12,651 and RMB12,412 as of December 31, 2018 and 2019, respectively)   16,974    22,494    3,231 
Other current liabilities (including other current liabilities of the consolidated VIEs without recourse to the primary beneficiary of RMB5,306 and RMB800 as of December 31, 2018 and 2019, respectively)   36,426    40,913    5,877 
Total current liabilities   123,935    142,062    20,406 
Other non-current liabilities   -    2,158    310 
Total non-current liabilities   -    2,158    310 
Total liabilities   123,935    144,220    20,716 
Shareholders’ equity:               
Class A ordinary shares: US$0.0001 par value; 800,000,000 shares authorized; 259,836,223 shares issued and 234,030,828 shares outstanding as of December 31, 2018 ; US$0.0001 par value; 800,000,000 shares authorized; 259,836,223 shares issued and 239,031,946 shares outstanding as of December 31, 2019   166    173    25 
Class B ordinary shares: US$0.0001 par value; 60,000,000 shares authorized, and 55,260,580 issued and outstanding as of December 31, 2018 and 2019   35    35    5 
Treasury stock   -    (47,888)   (6,879)
Additional paid-in capital   1,077,183    1,187,577    170,585 
Accumulated deficit   (468,026)   (718,666)   (103,229)
Accumulated other comprehensive (loss)/income   (7,368)   2,403    345 
Total TuanChe Limited shareholders’ equity   601,990    423,634    60,852 
Non-controlling interests   -    (659)   (95)
Total shareholders’ equity   601,990    422,975    60,757 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY   725,925    567,195    81,473 
Commitments and contingencies (Note 17)               

 

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

 

F-4

 

 

TUANCHE LIMITED

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(All amounts in thousands, except for share and per share data)

 

   2017   2018   2019 
   RMB   RMB   RMB   US$ Note 2(g) 
Continuing operations                    
Net revenues                    
Offline Marketing Services:                    
Auto shows   263,927    644,252    603,407    86,674 
Special promotion events   -    -    19,772    2,840 
Group-purchase facilitation   16,739    -    -    - 
Virtual dealership, online marketing services and others   -    6,761    21,594    3,102 
Total net revenues   280,666    651,013    644,773    92,616 
Cost of revenues   (85,742)   (183,369)   (186,541)   (26,795)
Gross profit   194,924    467,644    458,232    65,821 
Operating expenses:                    
Selling and marketing expenses   (223,249)   (432,059)   (572,040)   (82,168)
General and administrative expenses   (27,491)   (84,360)   (103,890)   (14,923)
Research and development expenses   (15,925)   (19,262)   (43,339)   (6,225)
Total operating expenses   (266,665)   (535,681)   (719,269)   (103,316)
Loss from continuing operations   (71,741)   (68,037)   (261,037)   (37,495)
Other income/(expenses):                    
Interest (expenses)/income, net   (2,416)   (3,146)   7,020    1,008 
Exchange (losses)/gains, net   (199)   1,063    (661)   (95)
Investment loss   -    (660)   (917)   (132)
Change in fair value of warrant   (1,390)   (3,843)   -    - 
Impairment of investment   -    -    (1,000)   (144)
Others, net   52    (465)   5,296    761 
Loss from continuing operations before income taxes   (75,694)   (75,088)   (251,299)   (36,097)
Income tax expense   -    -    -    - 
Net loss from continuing operations   (75,694)   (75,088)   (251,299)   (36,097)
Discontinued operations                    
Gain from disposal of discontinued operations before income taxes   -    771    -    - 
Loss from discontinued operations before income taxes   (14,977)   (4,383)   -    - 
Income tax expense, net   -    -    -    - 
Net loss from discontinued operations   (14,977)   (3,612)   -    - 
Net loss   (90,671)   (78,700)   (251,299)   (36,097)
Accretions to pre-IPO preferred shares redemption value   (20,945)   (35,066)   -    - 
Net loss attributable to the TuanChe Limited’s shareholders   (111,616)   (113,766)   (250,640)   (36,002)
Net loss attributable to the non-controlling interests   -    -    (659)   (95)
Net loss   (90,671)   (78,700)   (251,299)   (36,097)
Other comprehensive (loss)/ income:                    
Foreign currency translation adjustments   (1,367)   3,401    9,771    1,404 
Total other comprehensive (loss)/ income   (1,367)   3,401    9,771    1,404 
Total comprehensive loss   (92,038)   (75,299)   (241,528)   (34,693)
Accretions to pre-IPO preferred shares redemption value   (20,945)   (35,066)   -    - 
Comprehensive loss attributable to:                    
TuanChe Limited’s shareholders   (112,983)   (110,365)   (240,869)   (34,598)
Non-controlling interests   -    -    (659)   (95)
Net loss attributable to the TuanChe Limited’s ordinary shareholders per share from continuing operations                    
Basic   (1.02)   (0.90)   (0.85)   (0.12)
Diluted   (1.02)   (0.90)   (0.85)   (0.12)
Net loss attributable to the TuanChe Limited’s ordinary shareholders per share from discontinuing operations                    
Basic   (0.16)   (0.03)   -    - 
Diluted   (0.16)   (0.03)   -    - 
Weighted average number of ordinary shares                    
Basic   94,870,580    121,938,427    294,922,074    294,922,074 
Diluted   94,870,580    121,938,427    294,922,074    294,922,074 
Share-based compensation expenses included in:                    
Cost of revenues   12    10    -    - 
Selling and marketing expenses   582    41,363    77,646    11,153 
General and administrative expenses   1,287    35,440    28,081    4,034 
Research and development expenses   15    1,320    4,241    609 

 

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

 

F-5

 

 

TUANCHE LIMITED

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   Accumulated
other
comprehensive
   TuanChe Limited
shareholders’
   Non-controlling   Total
shareholders’
 
   Shares   Amounts   Shares   Amounts   capital   deficit   (loss)/gain   (deficit)/equity   interests   (deficit)/equity 
       RMB       RMB   RMB   RMB   RMB   RMB   RMB   RMB 
Balance at January 1, 2017   94,870,580    60    -    -    -    (280,753)   (9,402)   (290,095)   -    (290,095)
Share-based compensation   -    -    -    -    1,896    -    -    1,896    -    1,896 
Deemed capital contribution   -    -    -    -    1,147    -    -    1,147    -    1,147 
Accretions to pre-IPO preferred shares redemption value   -    -    -    -    (3,043)   (17,902)   -    (20,945)   -    (20,945)
Net loss   -    -    -    -    -    (90,671)   -    (90,671)   -    (90,671)
Foreign currency translation adjustments   -    -    -    -    -    -    (1,367)   (1,367)   -    (1,367)
Balance at December 31, 2017   94,870,580    60    -    -    -    (389,326)   (10,769)   (400,035)   -    (400,035)
Balance at January 1, 2018   94,870,580    60    -    -    -    (389,326)   (10,769)   (400,035)   -    (400,035)
Grant of restricted shares   24,407,184    16    (24,407,184)        (16)   -    -    -    -    - 
Vesting of restricted shares   -    -    12,917,926         71,209    -    -    71,209    -    71,209 
Share issuance upon the initial public offering, net of issuance costs   10,400,000    7    -         103,365    -    -    103,372    -    103,372 
Share issuance upon the conversion and redesignation of pre-IPO preferred shares into Class A ordinary shares   171,102,902    118    -    -    930,318    -    -    930,436    -    930,436 
Vesting of share options   -    -    -    -    576    -    -    576    -    576 
Share-based compensation for super voting right   -    -    -    -    4,657    -    -    4,657    -    4,657 
Share-based compensation for transfer of Class A ordinary shares   -    -    -    -    1,690    -    -    1,690    -    1,690 
Deemed capital contribution   -    -    -    -    450    -    -    450    -    450 
Accretions to pre-IPO preferred shares redemption value   -    -    -    -    (35,066)   -    -    (35,066)   -    (35,066)
Net loss   -    -    -    -    -    (78,700)   -    (78,700)   -    (78,700)
Foreign currency translation adjustment   -    -    -    -    -    -    3,401    3,401    -    3,401 
Balance at December 31,2018   300,780,666    201    (11,489,258)   -    1,077,183    (468,026)   (7,368)   601,990    -    601,990 
Balance at January 1, 2019   300,780,666    201    (11,489,258)   -    1,077,183    (468,026)   (7,368)   601,990    -    601,990 
Grant of restricted shares   11,527,950    7    (11,527,950)   -    (7)   -    -    -    -    - 

 

F-6

 

 

TUANCHE LIMITED

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ (DEFICIT)/EQUITY (Continued)

(All amounts in thousands, except for share and per share data)

 

   Ordinary shares   Treasury stock   Additional
paid-in
   Accumulated   Accumulated
other
comprehensive
   TuanChe
Limited
shareholders’
   Non-controlling   Total
shareholders’
 
   Shares   Amounts   Shares   Amounts   capital   deficit   (loss)/gain   (deficit)/equity   interests   (deficit)/equity 
       RMB       RMB   RMB   RMB   RMB   RMB   RMB   RMB 
Forfeit of restricted shares   (733,764)   -    733,764    -    -    -    -    -    -    - 
Vesting of restricted shares   -    -    13,070,570    -    109,968    -    -    109,968    -    109,968 
Share-based compensation to non employee   -    -    -    -    433    -    -    433    -    433 
Repurchase of restricted shares from employees   -    -    (6,358,500)   (32,784)   -    -    -    (32,784)   -    (32,784)
Repurchase of shares   -    -    (1,710,952)   (15,104)   -    -    -    (15,104)   -    (15,104)
Net loss   -    -    -    -    -    (250,640)   -    (250,640)   (659)   (251,299)
Foreign currency translation adjustment   -    -    -    -    -    -    9,771    9,771    -    9,771 
Balance at December 31, 2019   311,574,852    208    (17,282,326)   (47,888)   1,187,577    (718,666)   2,403    423,634    (659)   422,975 

 

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

 

F-7

 

 

TUANCHE LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS

(All amounts in thousands, except for share and per share data)

 

   For the year ended December 31, 
   2017   2018   2019 
   RMB   RMB   RMB   US$
Note 2(g)
 
Cash flows from operating activities:                    
Net Loss   (90,671)   (78,700)   (251,299)   (36,097)
Adjustment to reconcile net loss to net cash used in operating activities:                    
Provisions for asset impairment   -    -    1,000    144 
Depreciation of property, equipment and software   965    1,060    3,483    500 
Amortization of leasehold improvement   -    -    287    42 
Amortization of non-current assets   -    -    656    94 
Share-based compensation   1,896    78,133    109,968    15,796 
Allowance for doubtful accounts   418    491    13,684    1,966 
Investment loss from long-term investments   -    660    917    132 
Change in fair value of warrant   1,390    3,843    -    - 
Interests income/(expenses) - net   1,147    2,083    (252)   (36)
Losses/ (Gains) on disposal of property and equipment   -    1    (5)   (1)
Recognition of deferred income   -    -    (611)   (88)
Exchange losses   -    -    661    95 
Changes in operating assets and liabilities:                    
Accounts receivable   (4,014)   (44,279)   (30,524)   (4,385)
Receivables due from related parties   (1,000)   -    -    - 
Prepayment and other current assets   (1,441)   (50,377)   (24,100)   (3,462)
Held-for-sale assets   251    837    -    - 
Accounts payable   3,153    3,656    (1,171)   (168)
Advance from customers   7,116    4,953    (9,899)   (1,422)
Salary and welfare benefits payable   5,031    7,538    19,190    2,757 
Other taxes payable   13,281    (4,502)   (1,037)   (149)
Other current liabilities   3,562    21,265    7,246    1,041 
Held-for-sale liabilities   (746)   -    -    - 
Net cash used in operating activities   (59,662)   (53,338)   (161,806)   (23,241)
Cash flows from investing activities:                    
Purchase of property, equipment and software, and other non-current assets   (272)   (20,708)   (13,243)   (1,902)
Placement of time deposits   -    -    (69,762)   (10,021)
Cash payment of bridge loan   -    -    (99,148)   (14,242)
Cash paid for short-term investments   (4,000)   -    -    - 
Cash paid for long-term investments   -    (4,250)   (5,400)   (776)
Cash received from disposal of property, equipment and software   -    12    5    1 
Cash received from disposal of short-term investments   -    4,200    -    - 
Net cash used in investing activities   (4,272)   (20,746)   (187,548)   (26,940)
Cash flows from financing activities:                    
Cash payments for repurchase of restricted shares from employees   -    -    (26,228)   (3,767)
Cash payments for repurchase of shares   -    -    (13,749)   (1,975)
Cash received from convertible loans   41,165    -    -    - 
Cash received from short-term borrowings   37,797    19,942    -    - 
Cash repayments of short-term borrowings   (17,854)   (44,913)   -    - 
Cash received from long-term borrowings   9,945    -    -    - 
Cash repayments of long-term borrowings   (1,985)   (2,932)   -    - 
Cash repayments of borrowing from a third party   (12,991)   (19,486)   -    - 
Cash received from loans provided by employees   3,235    11,199    -    - 
Cash repayments of loans provided by employees   -    (14,434)   -    - 
Proceeds from issuance of Series C+ convertible redeemable preferred shares   59,091    -    -    - 
Payment of issuance cost for Series C+ convertible redeemable preferred shares   (449)   -    -    - 
Proceeds from issuance of Series D-1 convertible redeemable preferred shares   -    151,118    -    - 
Payment of issuance cost for Series D-1 convertible redeemable preferred shares   -    (307)   -    - 
Proceeds from issuance of Series D-2 convertible redeemable preferred shares   -    359,834    -    - 
Payment of issuance cost for Series D-2 convertible redeemable preferred shares   -    (1,267)   -    - 
Proceeds of initial public offering, net of issuance costs   -    103,372    -    - 
Cash received from the depositary bank   -    -    2,732    392 
Net cash generated from/(used in) financing activities   117,954    562,126    (37,245)   (5,350)
Effect of exchange rate changes on cash, cash equivalents and restricted cash   (1,002)   12,713    3,490    501 
Net increase/(decrease) in cash, cash equivalents and restricted cash   53,018    500,755    (383,109)   (55,030)
Cash, cash equivalents and restricted cash at beginning of the year   24,785    77,803    578,558    83,105 
Including:                    
Cash and cash equivalents at the beginning of the year   24,785    66,695    578,558    83,105 
Restricted cash at the beginning of the year   -    11,108    -    - 
Cash, cash equivalents and restricted cash at end of the year   77,803    578,558    195,449    28,075 
Including:                    
Cash and cash equivalents at the end of the year   66,695    578,558    193,920    27,855 
Restricted cash at the end of the year   11,108    -    1,529    220 
Supplemental disclosures of cash flow information:                    
Cash paid for interest expense   (1,366)   (4,340)   -    - 
Supplemental schedule of non-cash investing and financing activities:                    
Accretions to pre-IPO preferred shares redemption value   20,945    35,066    -    - 
Imputed interest for borrowing from a third party   1,147    450    -    - 
Conversion and redesignation of pre-IPO preferred shares into Class A ordinary shares   -    930,436    -    - 

 

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

 

F-8

 

 

TUANCHE LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except for share and per share data)

 

1.Organization and Reorganization

 

TuanChe Limited (the “Company”) was incorporated in the Cayman Islands on September 28, 2012. The Company is a holding company and conducts its business mainly through its subsidiaries, variable interest entities ("VIEs") and subsidiaries of VIEs (collectively referred to as the "Group"). The Group is primarily engaged in the operation of providing auto shows, group-purchase facilitation, special promotion events services, virtual dealership, online marketing services and others related businesses in the People’s Republic of China (the "PRC" or "China"). The Group commenced its auto shows business from the fourth quarter of 2016. The Group decided to discontinue the electric vehicle sales facilitation business in December 2017. In June 2018, the Group commenced its virtual dealership business and online marketing services business. In January 2019, the Group commenced its special promotion events business.

 

As of December 31, 2019, the Company's major subsidiaries, major VIEs and major subsidiaries of VIEs are as follows:

 

Major Subsidiaries   Place and year of incorporation   Percentage of direct or indirect economic ownership   Principal activities
TuanChe Information Limited (“TuanChe Information”)   Hong Kong, PRC 2012   100   Investment holding
TuanYuan Internet Technology (Beijing) Co., Ltd. (“TuanYuan”)   Beijing, PRC 2013   100   Technical support and consulting services, auto shows, special promotion events, virtual dealership, online marketing services

 

Major VIEs   Place and year of incorporation/ acquisition   Percentage of direct or indirect economic ownership   Principal activities
TuanChe Internet Information Service (Beijing) Co., Ltd. (“TuanChe Internet”)   Beijing, PRC 2012   100   Auto shows, special promotion events, online marketing services
Best Cars Limited (“Best Cars”)   British Virgin Islands, 2018   100   Holding of ordinary shares for restricted share awards

 

Major subsidiaries of VIEs   Place and year of incorporation   Percentage of direct or indirect economic ownership   Principal activities
Beijing Zhongrui Guochuang Automobile Sales & Service Co., Ltd. (“Zhongrui Guochuang”)   Beijing, PRC 2016   100   Auto shows
TuanChe (Beijing) Automobile Sales Service Co., Ltd. (“TuanChe Automobile”)   Beijing, PRC 2015   100   Vehicle sales facilitation
Beijing GuoHeng Chuangxin Automobile Sales & Service Co., Ltd. (“GuoHeng Chuangxin”)   Beijing, PRC 2016   100   Vehicle sales facilitation
Tengzhou GuoChuang Automobile Sales & Service Co., Ltd. (“GuoChuang Automobile”)   Shandong, PRC 2016   100   Vehicle sales facilitation
Tianjin Hengyuan Chuangxin Automobile Sales & Service Co., Ltd. (“Tianjin Hengyuan”)   Tianjin, PRC 2016   100   Vehicle sales facilitation

 

F-9

 

 

TUANCHE LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

1.Organization and Reorganization (Continued)

 

History of the Group

 

Reorganization

 

The Group commenced operations through TuanChe Internet, a PRC company established by several PRC citizens in May 2012. TuanChe Internet holds an Internet Content Provider (“ICP”) license to operate Tuanche.com that provides internet information services to automobile manufacturers, car dealers and consumers.

 

The Company was incorporated in the Cayman Islands in September 2012. The Company established TuanYuan in January 2013 to control TuanChe Internet through contractual arrangements and TuanChe Internet became a VIE of the Group (the “Reorganization”). These arrangements were accounted for as a reorganization and the historical financial statements were presented on a carryover basis.

 

Discontinued operations

 

On December 10, 2017, pursuant to the resolution of the shareholders and board of directors of the Company, management decided to discontinue its electric vehicle sales facilitation business (the “Discontinued Business”). On June 30, 2018, the Company completed the disposal of the Discontinued Business. Refer to Note 3 for details of discontinued operations.

 

Initial Public Offering

 

On November 20, 2018, the Company completed its initial public offering (“IPO”) on the NASDAQ Global Market in the United States of America. In this offering, 2,600,000 American Depositary Shares (“ADSs”), representing 10,400,000 Class A ordinary shares, were issued and sold to the public at a price of US$7.80 per ADS. The net proceeds to the Company from the IPO, after deducting commissions and offering expenses, were approximately US$15.0 million (RMB103.4 million).

 

Contractual arrangements with VIEs

 

PRC laws and regulations place certain restrictions on foreign investment in value-added telecommunication service businesses. The Company conducts a portion of their operations in the PRC through TuanChe Internet, and its subsidiaries. The Company has effective control over its VIEs and subsidiaries of VIEs through a series of contractual arrangements among its wholly-owned PRC subsidiary TuanYuan, VIEs and their shareholders.

 

The contractual arrangements, as described in more detail below, collectively allow the Company to:

 

exercise effective control over each of its VIEs and subsidiaries of VIEs;

 

receive substantially all of the economic benefits of VIEs and subsidiaries of VIEs; and

 

have an exclusive call option to purchase all or part of the equity interests in and/or assets of each of VIEs and subsidiaries of VIEs when and to the extent permitted by PRC laws.

 

As a result of these contractual arrangements, the Company is the primary beneficiary of VIEs and subsidiaries of VIEs, and, therefore, has consolidated the financial results of VIEs and subsidiaries of VIEs in its consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

 

Below is a summary of the currently effective contractual arrangements by and among the Company’s wholly-owned subsidiary TuanYuan, TuanChe Internet and its shareholders.

 

Exclusive Management Services and Business Cooperation Agreement

 

Pursuant to the exclusive management services and business cooperation agreement among TuanYuan, TuanChe Internet and its shareholders, TuanYuan has the exclusive right to provide or designate any third party to provide, among other things, transfer of technology, technology development services, online advertising services, consulting services, technological support and business support to TuanChe Internet and its subsidiaries. In exchange, TuanChe Internet and its subsidiaries pay service fees to TuanYuan in an amount at TuanYuan’s discretion. Without the prior written consent of TuanYuan, TuanChe Internet and its subsidiaries cannot accept services provided by or establish similar cooperation relationship with any third party. TuanYuan owns the exclusive intellectual property rights created as a result of the performance of this agreement unless otherwise provided by PRC laws or regulations. This agreement was entered into on March 6, 2013 and became effective on March 6, 2013 and will remain effective unless unanimously agreed by the parties concerned or unilaterally terminated by TuanYuan with a written notice. Unless otherwise required by applicable PRC laws, TuanChe Internet and its shareholders do not have any right to terminate the exclusive service agreement.

 

F-10

 

 

TUANCHE LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

1.Organization and Reorganization (Continued)

 

Contractual arrangements with VIEs (Continued)

 

Exclusive Call Option Agreement

 

Under the exclusive call option agreement among TuanYuan, TuanChe Internet and its shareholders, each of the shareholders of TuanChe Internet irrevocably granted TuanYuan a right to purchase, or designate a third party to purchase, all or any part of their equity interests in TuanChe Internet at a purchase price equal to the lowest price permissible by the then-applicable PRC laws and regulations at TuanYuan’s sole and absolute discretion to the extent permitted by PRC law. The shareholders of TuanChe Internet shall promptly give all considerations they received from the exercise of the options to TuanYuan or a designated third party of TuanYuan. Without TuanYuan’s prior written consent, TuanChe Internet and its shareholders shall not enter into any major contract to transfer any equity of TuanChe Internet. Without TuanYuan’s prior written consent, TuanChe Internet and its shareholders shall not sell, transfer, license or otherwise dispose of any TuanChe Internet’s assets or allow any encumbrance of any assets, except for the disposal or the encumbrances of the assets that are treated as necessary for their daily business operations with the value of the assets involved in a single transaction not exceeding RMB100,000. TuanChe Internet shall not be dissolved or liquidated without the written consent by TuanYuan. This agreement was entered into on March 6, 2013 and became effective on March 6, 2013 and shall remain in effect upon expiry or early termination of this agreement.

 

Equity Pledge Agreement

 

Under the Equity Pledge Agreement among TuanYuan, TuanChe Internet and its shareholders, TuanChe Internet’s shareholders pledged all of their equity of TuanChe Internet to TuanYuan as security for performance of the obligations of TuanChe Internet and its shareholders under the exclusive call option agreement, the exclusive management services and business cooperation agreement and the powers of attorney. If any of the specified events of default occurs, TuanYuan may exercise the right to enforce the pledge immediately. TuanYuan may transfer all or any of its rights and obligations under the Equity Pledge Agreement to its designee(s) at any time. The equity pledge agreement is binding on TuanChe Internet’s shareholders and their successors. This agreement was entered into on March 6, 2013 and became effective on March 6, 2013, and shall remain in effect until the fulfillment of all the obligations under the Exclusive Call Option Agreement, the Exclusive Management Services and Business Cooperation Agreement and the Powers of Attorney.

 

Powers of Attorney

 

Pursuant to the Powers of Attorney executed by TuanChe Internet and its shareholders, each of them irrevocably authorized TuanYuan to act on their respective behalf as exclusive agent and attorney, to the extent permitted by law, with respect to all rights of shareholders concerning all the equity interest and sponsor interest held by each of them in TuanChe Internet or its subsidiaries, including but not limited to proposing to convene or attend shareholder meetings, board meetings or council meetings, signing the resolutions and minutes of such meetings, exercising all the rights as shareholders or sponsors (including but not limited to voting rights, nomination rights, appointment rights, the right to receive dividends and the right to sell, transfer, pledge or dispose of all the equity or the sponsor interest held in part or in whole). This agreement was entered into on March 6, 2013 and became effective on March 6, 2013.

 

In August 2014, June 2017 and August 2017, the Exclusive Management Services and Business Cooperation Agreement, Exclusive Call Option Agreement, Equity Pledge Agreement and Powers of Attorney to TuanChe Internet were amended to reflect the changes of shareholders’ holding in the VIE entity. No other material terms or conditions of these agreements were changed or altered. There was no impact to the Group’s effective control over TuanChe Internet and the Group continues to consolidate TuanChe Internet.

 

Zhongrui Guochuang was incorporated in 2016 to carry out similar business as TuanChe Internet. The Company has effective control over Zhongrui Guochuang through a series of contractual arrangements having similar terms with that of the contractual arrangements with TuanChe Internet among TuanYuan, Zhongrui Guochuang and its shareholders (also nominee shareholders). As a result of these contractual arrangements with Zhongrui Guochuang , the Company is the primary beneficiary of Zhongrui Guochuang, and, therefore, consolidated the financial results of Zhongrui Guochuang in its consolidated financial statements in accordance with U.S. GAAP. On June 22, 2018, Zhongrui Guochuang was restructured from being a VIE of TuanYuan to a subsidiary of TuanChe Internet.

 

F-11

 

 

TUANCHE LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

1.Organization and Reorganization (Continued)

 

Risks in relation to the VIE structure

 

In May 2018, Best Cars Limited (“Best Cars”), a British Virgin Islands (“BVI”) incorporated company and a consolidated variable interest entity of the Group, was established by its shareholders to facilitate the adoption of the Company’s employee stock incentive plans. The Company entered into an agreement with Best Cars and its shareholder in which provides the Company with effective control over Best Cars and enables the Company to obtain substantially all of the economic benefits arising from Best Cars. As of December 31, 2018 and 2019, Best Cars held 38,723,321 and 38,723,321 Class A ordinary shares of the Company, respectively.

 

A significant part of the Company's business is conducted through the VIEs of the Group, of which the Company is the ultimate primary beneficiary. In the opinion of management, the contractual arrangements with the VIEs and the nominee shareholders are in compliance with PRC laws and regulations and are legally binding and enforceable. The nominee shareholders are also shareholders of the Group and have indicated they will not act contrary to the contractual arrangements. However, there are substantial uncertainties regarding the interpretation and application of PRC laws and regulations including those that govern the contractual arrangements, which could limit the Group's ability to enforce these contractual arrangements and if the nominee shareholders of the VIEs were to reduce their interests in the Group, their interest may diverge from that of the Group and that may potentially increase the risk that they would seek to act contrary to the contractual arrangements.

 

In January 2015, the Ministry of Commerce ("MOFCOM"), released for public comment a proposed PRC law, the Draft Foreign Investment Enterprises ("FIE") Law, that appears to include VIEs within the scope of entities that could be considered to be FIEs, that would be subject to restrictions under existing PRC law on foreign investment in certain categories of industry. Specifically, the Draft FIE Law introduces the concept of "actual control" for determining whether an entity is considered to be an FIE. In addition to control through direct or indirect ownership or equity, the Draft FIE Law includes control through contractual arrangements within the definition of "actual control". On March 15, 2019, the National People’s Congress adopted the Foreign Investment Law of the PRC, which became effective on January 1, 2020 and replaced three laws regulating foreign investment in China, namely, the Wholly Foreign-Invested Enterprise Law of the PRC, the Sino-Foreign Cooperative Joint Venture Enterprise Law of the PRC and the Sino-Foreign Equity Joint Venture Enterprise Law of the PRC, together with their implementation rules and ancillary regulations. On December 26, 2019, the State Council issued the Regulations on Implementing the Foreign Investment Law of the PRC, which came into effect on January 1, 2020, and replaced the Regulations on Implementing the Sino-Foreign Equity Joint Venture Enterprise Law, Provisional Regulations on the Duration of Sino-Foreign Equity Joint Venture Enterprise Law, the Regulations on Implementing the Wholly Foreign-Invested Enterprise Law , and the Regulations on Implementing the Sino-Foreign Cooperative Joint Venture Enterprise Law. The Foreign Investment Law of the PRC embodies an expected PRC regulatory trend to rationalize its foreign investment regulatory regime in line with prevailing international practice and the legislative efforts to unify the corporate legal requirements for both foreign and domestic investments. Under the Foreign Investment Law of the PRC, VIEs that are controlled via contractual arrangement would not be absolutely deemed as Foreign-Invested Enterprises, or FIEs. Therefore, the current legal status of Contractual Arrangement as a whole and each of the agreements comprising the Contractual Arrangement will not be materially affected by the Foreign Investment Law of the PRC and its implementing regulations. However, since it is relatively new, uncertainties still exist in relation to its interpretation and implementation. For example, the Foreign Investment Law of the PRC adds a catch-all clause to the definition of “foreign investment” so that foreign investment, by its definition, includes “investments made by foreign investors in China through other means defined by other laws or administrative regulations or provisions promulgated by the State Council” without further elaboration on the meaning of “other means.” It leaves leeway for the future legislations promulgated by the State Council to provide for contractual arrangements as a form of foreign investment. It is therefore uncertain whether the Group’s corporate structure will be seen as violating the foreign investment rules as the Group is currently leverage the contractual arrangement to operate certain businesses in which foreign investors are prohibited from or restricted to investing. Furthermore, if future legislations prescribed by the State Council mandate further actions to be taken by companies with respect to existing contractual arrangement, the Group may face substantial uncertainties as to whether the Group can complete such actions in a timely manner, or at all. If the Group fails to take appropriate and timely measures to comply with any of these or similar regulatory compliance requirements, the Group’s current corporate structure, corporate governance and business operations could be materially and adversely affected.

 

The Company's ability to control the VIEs also depends on the Power of Attorney the shareholders has to vote on all matters requiring shareholder approval in the VIEs. As noted above, the Company believes these Power of Attorney are legally enforceable but may not be as effective as direct equity ownership.

 

In addition, if the Group's corporate structure or the contractual arrangements with the VIEs were found to be in violation of any existing or future PRC laws and regulations, the PRC regulatory authorities could, within their respective jurisdictions:

 

revoke the Group's business and operating licenses

 

F-12

 

 

TUANCHE LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

1.Organization and Reorganization (Continued)

 

Risks in relation to the VIE structure (Continued)

 

require the Group to discontinue or restrict its operations;
   
 restrict the Group's right to collect revenues;
   
 block the Group's websites;
   
 require the Group to restructure the operations, re-apply for the necessary licenses or relocate the Group's businesses, staff and assets;
   
 impose additional conditions or requirements with which the Group may not be able to comply; or
   
 take other regulatory or enforcement actions against the Group that could be harmful to the Group's business.

 

F-13

 

 

TUANCHE LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

1. Organization and Reorganization (Continued)

 

Risks in relation to the VIE structure (Continued)

 

The imposition of any of these restrictions or actions could result in a material adverse effect on the Group's ability to conduct its business. In such case, the Group may not be able to operate or control the VIEs, which may result in deconsolidation of the VIEs in the Group's consolidated financial statements. In the opinion of the Company’s management, the likelihood for the Group to lose such ability is remote based on current facts and circumstances. The Group believes that the contractual arrangements among each of the VIEs, their respective shareholders and relevant wholly foreign owned enterprise are in compliance with PRC law and are legally enforceable. The Group's operations depend on the VIEs to honor their contractual arrangements with the Group. These contractual arrangements are governed by PRC law and disputes arising out of these agreements are expected to be decided by arbitration in the PRC. Management believes that each of the contractual arrangements constitutes valid and legally binding obligations of each party to such contractual arrangements under PRC laws. However, the interpretation and implementation of the laws and regulations in the PRC and their application 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 evolve, the interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws, regulations and rules involve uncertainties, which may limit legal protections available to the Group to enforce the contractual arrangements should the VIEs or the nominee shareholders of the VIEs fail to perform their obligations under those arrangements.

 

The following combined financial information of the Group's VIEs as of December 31, 2018 and 2019 and for the years ended December 31, 2017, 2018 and 2019 were included in the accompanying consolidated financial statements of the Group as follows:

 

    As of December 31,
    As of December 31,
 
    2018     2019  
      RMB       RMB  
ASSETS                
Current assets:                
Cash and cash equivalents     25,166       13,136  
Accounts receivable, net     27,160       6,834  
Prepayments and other current assets     16,692       17,092  
Amount due from the subsidiaries of the Group     4,973       11,197  
Total current assets     73,991       48,259  
Non-current assets:                
Property, equipment and software, net     522       313  
Long-term investments     4,390       7,874  
Total non-current assets     4,912       8,187  
TOTAL ASSETS     78,903       56,446  
Current liabilities:                
Accounts payable     1,871       3,624  
Advance from customers     13,922       2,677  
Salary and welfare benefits payable     30,535       29,970  
Other taxes payable     12,651       12,412  
Other current liabilities     5,306       800  
Amount due to the subsidiaries of the Group     233,295       183,674  
Total current liabilities     297,580       233,157  
TOTAL LIABILITIES     297,580       233,157  

 

 

 

F-14

 

 

TUANCHE LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

1. Organization and Reorganization (Continued)

 

Risks in relation to the VIE structure (Continued)

 

    For the year ended  
    December 31,
    December 31,
    December 31,
 
    2017     2018     2019  
    RMB     RMB     RMB  
Net revenues     280,081       329,788       144,115  
Net (loss)/profit from continuing operations     (66,300 )     (34,674 )     7,450  
Net (loss)/profit from discontinued operations     (14,977 )     (3,612 )     -  
Net (loss)/profit     (81,277 )     (38,286 )     7,450  

 

    For the year ended  
    December 31,
    December 31,
    December 31,
 
    2017     2018     2019  
    RMB     RMB     RMB  
Net cash (used in)/generated from operating activities     (10,540 )     24,144       (6,612 )
Net cash used in investing activities     -       (50 )     (5,418 )
Net cash generated from/(used in) financing activities     18,148       (31,138 )     -  
Net increase/(decrease) in cash and cash equivalent     7,608       (7,044 )     (12,030 )

 

In accordance with various contractual agreements, the Company has the power to direct the activities of the VIEs and subsidiaries of VIEs and can have assets transferred out of the VIEs. Therefore, the Company considers that there are no assets in the respective VIEs that can be used only to settle obligations of the respective VIEs, except for the registered capital of the VIEs amounting to approximately RMB10.0 million and RMB10.0 million, as of December 31, 2018 and 2019. As the respective VIEs are incorporated as limited liability companies under the PRC Company Law, creditors do not have recourse to the general credit of the Company for the liabilities of the respective VIEs. There is currently no contractual arrangement that would require the Company to provide additional financial support to the VIEs. As the Group is conducting certain businesses in the PRC through the VIEs, the Group may provide additional financial support on a discretionary basis in the future, which could expose the Group to a loss.

 

There is no VIE in the Group where the Company or any subsidiary has a variable interest but is not the primary beneficiary.

 

Liquidity

 

The Group incurred net losses of RMB90.7 million, RMB78.7 million and RMB251.3 million for the years ended December 31, 2017, 2018 and 2019, respectively. Net cash used in operating activities was RMB59.7 million, RMB53.3 million and RMB161.8 million for the years ended December 31, 2017, 2018 and 2019, respectively. Accumulated deficit was RMB468.0 million and RMB718.7 million as of December 31, 2018 and 2019, respectively. In addition, the outbreak of a novel strain of coronavirus (COVID-19) in January 2020 has materially and adversely affect the Group’s business, results of operations, financial condition and cash flows in 2020 as further disclosed in Note 19. The Group assessed its liquidity by its currently available working capital and its ability to reduce cash used in operating activities, taking into consideration of the impact of COVID-19 pandemic on the Group’s business and operations.

 

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 and responding to the material impact of the COVID-19 pandemic, which includes controlling operating expenses, as well as, to reduce cash used in operating activities. The Group has implemented measures to adjust the pace of its operation expansion, conserve resources such as furlough arrangements, scaling back the Group’s recruitment budget and employee size and may resort to other costs cutting measures if the outbreak of COVID-19 and its impact persist or escalate. Based on these considerations, the Group believes the cash and cash equivalents and time deposits currently on hand are sufficient to meet the cash requirements to fund planned operations and other commitments for at least the next twelve months from the date of the issuance of the consolidated financial statements. The Group's consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liquidation of liabilities in the normal course of business.

 

 

F-15

 

 

TUANCHE LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

2. Significant Accounting Policies

 

a) Basis of presentation

 

The consolidated financial statements of the Group have been prepared in accordance with U.S. GAAP. Significant accounting policies followed by the Group in the preparation of the accompanying consolidated financial statements are summarized below.

 

b) Reclassifications

 

The Company changed the presentation of revenue within its consolidated statements of operations for the twelve months ended December 31, 2019. Revenue, previously reported as a single line item, has been disaggregated to present revenue by the various services the Company provides. Amounts for the comparative prior periods have been reclassified to conform to the current period presentation. These reclassifications had no impact on previously reported net income or financial position and do not represent a restatement of any previously reported financial results.

 

c) Principles of consolidation

 

The consolidated financial statements include the financial statements of the Company, its subsidiaries, VIEs and subsidiaries of VIEs 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, VIEs and subsidiaries of VIEs have been eliminated upon consolidation.

 

d) Discontinued operations

 

A component of a reporting entity or a group of components of a reporting entity that are disposed or meet the criteria to be classified as held for sale, such as the management, having the authority to approve the action, commits to a plan to sell the disposal group, should be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. Discontinued operations are reported when a component of an entity comprising operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity is classified as held for disposal or has been disposed of, if the component either (1) represents a strategic shift or (2) have a major impact on an entity’s financial results and operations. In the consolidated statements of operations and comprehensive loss, result from discontinued operations is reported separately from the income and expenses from continuing operations and prior periods are presented on a comparative basis. Cash flows for discontinuing operations are presented separately in Note 3. In order to present the financial effects of the continuing operations and discontinued operations, revenues and expenses arising from intra-group transactions are eliminated except for those revenues and expenses that are considered to continue after the disposal of the discontinued operations.

 

 

F-16

 

 

TUANCHE LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

  

2. Significant Accounting Policies (Continued)

 

e) Use of estimates

 

The preparation of the Group's 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 consolidated financial statements and accompanying notes. Significant accounting estimates include, but are not limited to determining the provision for accounts receivable, assessment for valuation allowance of deferred tax assets, determination of the fair value of ordinary shares, preferred shares and warrant, and valuation and recognition of share-based compensation expenses.

 

f) 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 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 year. Translation adjustments are reported as foreign currency translation adjustments, and are shown as a component of other comprehensive loss in the 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 exchange (losses)/gains in the consolidated statements of operations and comprehensive loss.

 

g) Convenience Translation

 

Translations of balances in the consolidated balance sheets, consolidated statements of operations and comprehensive loss and consolidated statements of cash flows from RMB into US$ as of and for the year ended December 31, 2019 are solely for the convenience of the reader and were calculated at the rate of US$1.00 = RMB6.9618 representing the noon buying rate in The City of New York for cable transfers of RMB as certified for customs purposes by the Federal Reserve Bank of New York on December 31, 2019. No representation is made that the RMB amounts represent or could have been, or could be, converted, realized or settled into US$ at that rate on December 31, 2019, or at any other rate.

 

 

F-17

 

 

TUANCHE LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

  

2. Significant Accounting Policies (Continued)

 

h) 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, time deposits, accounts receivable, other receivables, accounts payable and other payables, of which the carrying values approximate their fair value.

 

See Note 21 for additional information.

 

 

F-18

 

 

TUANCHE LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

  

2. Significant Accounting Policies (Continued)

 

i) Cash, cash equivalents and restricted cash

 

Cash and cash equivalents mainly represent cash on hand, demand deposits placed with large reputable banks in the United States of America or 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, 2018 and 2019, there were cash at bank and demand deposits with terms of less than three months denominated in US dollars amounting to approximately US$73.5 million and US$15.6 million, respectively (equivalent to approximately RMB504.2 million and RMB109.1 million, respectively).

 

As of December 31, 2018 and 2019, the Group had approximately RMB74.4 million and RMB91.9 million cash and cash equivalents held by its PRC subsidiaries, VIEs and subsidiaries of VIEs, representing 12.9% and 47.4% of total cash and cash equivalents of the Group, respectively.

 

As of December 31, 2018 and 2019, the Company had a restricted cash balance approximately nil and RMB1.5 million, respectively, which are security deposits for the referral services in collaboration with a commercial bank and ancillary services to facilitate auto loan applications.

 

j) Accounts receivable, net

 

The carrying value of accounts receivable is reduced by an allowance that reflects the Group’s best estimate of the amounts that will not be collected. An allowance for doubtful accounts is recorded in the period when a loss is probable based on an assessment of specific evidence indicating collection is unlikely, historical bad debt rates, accounts aging, financial conditions of the customer and industry trends. Accounts receivable balances are written off against the allowance when they are determined to be uncollectible. Notes receivable represents notes receivable issued by reputable financial institutions that entitle the Group to receive the full face amount from the financial institutions at maturity. Refer to Note 4 for details.

 

k) Time deposits

 

Time deposits mainly represent demand deposits placed with banks with original maturities of more than three months but within one year. Interest earned is recorded as interest income in the consolidated statements of operations and comprehensive loss during the periods.

 

l) Property, equipment and software, net

 

Property, equipment and software 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:

 

 

Furniture and electronic equipment 3 years
Vehicles 10 years
Software 5 years
Leasehold improvements Shorter of expected lives of leasehold improvements and lease term

 

 

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

 

 

F-19

 

 

TUANCHE LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data) 

 

2. Significant Accounting Policies (Continued)

 

m) Impairment of long-lived assets

 

Long-lived assets 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.

 

n) Long-term investments

 

In accordance with ASU 2016-01, for investments in equity instruments which the Company does not have significant influence, and whose fair value is not readily determinable, the cost less impairment accounting is applied. Gain or losses are realized when such investment is sold or when dividends are declared or payments are received. The Company assesses its equity investments for other-than-temporary impairment by considering factors including, but not limited to, current economic and market conditions, the operating performance of the companies including current earnings trends, and other company-specific information such as financing rounds.

 

Investments in entities in which the Company can exercise significant influence but does not own a majority equity interest or control are accounted for using the equity method of accounting in accordance with ASC topic 323 Investments-Equity Method and Joint Ventures. The Company adjusts the carrying amount of equity method investment for its share of the income or losses of the investee and reports the recognized income or losses in the consolidated statements of operations and comprehensive loss. The Company’s share of the income or losses of an investee are based on the shares of common stock and in-substance common stock held by the Company.

 

o) Other non-current assets

 

As of December 31, 2018 and 2019, other non-current assets comprises mainly prepayments for the purchases of softwares.

 

p) Warrant

 

On October 31, 2017, a warrant to purchase Series C-2 convertible redeemable preferred shares of the Company was issued in connection with the debt financing and is classified as a liability and is treated as upfront issuance costs based on the estimated fair value of the warrant at issuance date. Subsequently, changes in the fair value of the warrant for Series C-2 convertible redeemable preferred shares is recorded in the consolidated statements of operations and comprehensive loss. The upfront issuance costs are amortized over the term of the debt financing.

 

As of December 31, 2018 and 2019, upfront issuance costs of RMB0.7 million and nil were included in other non-current assets, respectively.

 

 

F-20

 

 

TUANCHE LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data) 

 

2. Significant Accounting Policies (Continued)

 

q) Revenue recognition

 

The Group adopted ASC Topic 606, "Revenue from Contracts with Customers" for all periods presented. Consistent with the criteria of Topic 606, the Group recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to receive in exchange for those goods or services using the five steps defined under ASC Topic 606.

 

The Group assesses its revenue arrangements against specific criteria in order to determine if it is acting as principal or agent. Based on revenue arrangements, there are no multiple performance obligations identified. Revenue is recognized upon transfer of control of promised goods or services to a customer.

 

Revenue is recorded net of Value Added Tax (“VAT”) and related surcharges collected from customers, which are subsequently remitted to government authorities.

 

Auto shows revenue

 

The Group’s online website and offline infrastructure allow them to organize auto shows, which aim at facilitating transactions between consumers and auto dealers that includes auto dealers, automakers and automotive service providers. The Group charges a fixed admission fee per auto show event to its industry customers for arranging, decorating and providing booth space at auto shows. The Group has identified one performance obligation for the transaction - providing a decorated venue for auto dealers, automakers and automotive service providers, as the individual service promised in auto show contracts are not distinct individually. As the Group has control of the auto show services and discretion in establishing the price of auto show admission fee to auto dealers, automakers and other automotive service providers, it is considered to be a principal in accordance with ASC 606. The auto shows revenue is recognized over the period of the contract when the services are provided.

 

Special promotion events revenue

 

The Group provides integrated services to support auto dealers’ own special promotion events during a specific period. The services include event planning and execution, marketing, training and onsite coaching, etc. The Group charges a fixed service fee per special promotion event. The Group has identified one performance obligation as the individual service promised in service contracts are not distinct individually. As the Group has control of the service and discretion in establishing the price of the fee to auto dealers, it is considered to be a principal in accordance with ASC 606. The special promotion events revenue is recognized over the period of the contract when the services are provided.

 

Group-purchase facilitation revenue

 

The Group facilitates transactions between consumers and auto dealers by organizing group-purchase events. The Group charges group-purchase facilitation revenue to the auto dealers in the form of either a fixed fee per event or a fixed fee per car sold during the group-purchase event. There is no financing component or consideration payable to any consumers. The Group has identified one performance obligation - organizing group-purchase events. As the Group has control of the group-purchase facilitation services and discretion in establishing the price of group-purchase facilitation service fee, it is considered to be a principal in accordance with ASC 606. Since the Group’s performance obligation is satisfied once the transaction is complete, the group-purchase facilitation service revenue is recognized at the point in time when the service of group-purchase facilitation is rendered, which occurs upon the closing of the group-purchase event.

 

Virtual dealership revenue

 

The Group operates a virtual dealership by connecting automakers or franchised dealerships with secondary dealers whereby the Group purchases cars on behalf of the secondary dealers from the automakers or franchised dealerships. The Group charges a commission fee at a pre-agreed percentage of the car costs to the secondary dealers. As the Group has neither inventory risk nor the discretion to establish the cost of cars to secondary dealers, it is considered to be an agent in accordance with ASC 606. The virtual dealership commission revenue is recognized upon the secondary dealers’ acceptance of the delivery of cars from automakers or franchised dealerships.

 

 

F-21

 

 

TUANCHE LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

  

2. Significant Accounting Policies (Continued)

 

q) Revenue recognition (Continued)

 

Online marketing services revenue

 

The Group's online marketing services revenue primarily include (i) demand-side platform services and (ii) marketing information services.

 

The demand-side platform services generate revenue through (1) online advertising services and (2) advertising space resale services. For the advertising services, the Group provides advertising spaces on the website to customers and recognize the service fees received as revenue on a straight-line basis over the period of the service period. Under the advertising space resale services, the Group purchases advertising spaces wholesale from suppliers such as search engines and other online advertising channels and resell those spaces to the customers. The customers pay the Group a membership fee to access these spaces. The Group recognizes the membership fee on a straight-line basis over the membership period, which is usually one year. Because the Group does not have discretion over the price of advertisement charged by suppliers, who are the primary obligors for providing the advertising services, revenue from advertising space resale services is recognized on a net basis.

 

For the marketing information services, the Group generates consumers’ demand information through its online channels and provides to the industry customers upon consumers' consent. The marketing information service fee is charged based on the quantity of consumers’ demand information delivered. Revenue is recognized at a point in time upon the delivery of such consumers’ demand information.

 

r) Cost of revenues

 

Costs of revenues, consist primarily of rental costs for auto show venues, venue set-up costs, security costs, direct labor costs and other direct costs.

 

s) Research and development expenses

 

Research and development expenses mainly consist of payroll-related expenses incurred for the employees who develop and enhance the Group's websites and platform of applications.

 

t) Selling and marketing expenses

 

Selling and marketing expenses consist primarily of advertising and promotional expenses, salaries and other compensation-related expenses for the Group's sales and marketing personnel. Advertising and promotional expenses consist primarily of costs for the promotion of corporate image and offline events. The Group expenses all advertising and promotional expenses as incurred and classifies them under selling and marketing expenses. For the years ended December 31, 2017, 2018 and 2019, the advertising and promotional expenses were RMB134.2 million, RMB238.0million and RMB291.2 million, respectively.

 

u) Leases

 

Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Rental expense is recognized from the date of initial possession of the leased property on a straight-line basis over the term of the lease. Certain lease agreements contain rent holidays, which are recognized on a straight-line basis over the lease term. Lease renewal periods are considered on a lease-by-lease basis and are generally not included in the initial lease terms. Rental costs for auto show venues incurred by the Group were RMB31 million, RMB67 million and RMB77 million for the years ended December 31, 2017, 2018 and 2019, respectively. Rental expenses for office space incurred by the Group were RMB6.6 million, RMB6.6 million and RMB8.7 million for the years ended December 31, 2017, 2018 and 2019, respectively.

 

The Group has no capital leases for any of the periods presented.

 

 

F-22

 

 

TUANCHE LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data) 

 

2. Significant Accounting Policies (Continued)

 

v) Share-based compensation

 

Share-based compensation expenses arise from share-based awards, including share options for the purchase of ordinary shares and restricted shares. The Company accounts for share-based awards granted to employees in accordance with ASC 718 Compensation—Stock Compensation and share-based awards granted to non-employee in accordance with ASC 505. For share options for the purchase of ordinary shares granted to employees determined to be equity classified awards, the related share-based compensation expenses are recognized in the consolidated financial statements 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 share price as well as assumptions regarding a number of complex and subjective variables, including the expected share price volatility, actual and projected employee share option exercise behavior, risk-free interest rates and expected dividends. The fair value of the ordinary shares is assessed using the income approach/discounted cash flow method, 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 actual 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.

 

Share-based compensation expenses for share options granted to non-employees are measured at fair value at the earlier of the performance commitment date or the date service is completed, and recognized over the period during which the service is provided. The Group applies the guidance in ASC 505-50 to measure share options granted to non-employees based on the then-current fair value at each reporting date.

 

If a share-based award is modified after the grant date, the Group evaluates for such modifications in accordance with ASC 718 Compensation—Stock Compensation and if the modification is determined to be a probable-to-probable (Type 1) modification, additional compensation expenses are recognized in an amount equal to the excess of the fair value of the modified equity instrument over the fair value of the original equity instrument immediately before modification. The additional compensation expenses are recognized immediately on the date of modification or over the remaining requisite service period, depending on the vesting status of the award.

 

w) 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, VIEs and subsidiaries of VIEs 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 amounts of such employee benefit expenses, which were expensed as incurred, were approximately RMB10.8 million, RMB24.6 million and RMB39.2 million for the years ended December 31, 2017, 2018 and 2019, respectively.

 

x) 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 income 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 income 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 income tax assets and liabilities of a change in tax rates or tax laws is recognized in the 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 income tax assets if it is considered more likely than not that some portion or all of the deferred income tax assets will not be realized.

 

 

F-23

 

 

TUANCHE LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

2.Significant Accounting Policies (Continued)

 

x)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 50% likely of being realized upon settlement. The Group recognizes interest and penalties, if any, under accrued expenses and other current liabilities on its consolidated balance sheet and under other expenses in its consolidated statements of operations and comprehensive loss. The Group did not have any significant unrecognized uncertain tax positions as of and for the years ended December 31, 2017, 2018 and 2019.

 

y)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.

 

z)Net loss per share

 

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 preferred shares, share options, convertible loan, warrant and restricted shares granted, unless they were anti-dilutive. The computation of diluted net income/(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 income/(loss) per share.

 

F-24

 

 

TUANCHE LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

2.Significant Accounting Policies (Continued)

 

aa)Statutory reserves

 

In accordance with China's Company Laws, the Company's VIEs in PRC must make appropriations from their after-tax profit (as determined under the accounting principles generally acceptable in China ("PRC GAAP")) 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 50% of the registered capital of the respective company. Appropriation to the discretionary surplus fund is made at the discretion of the respective company.

 

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 50% of the registered capital of the respective company. Appropriations to the other two reserve funds are at the respective companies' discretion.

 

The Company has not appropriated any amount to statutory reserves for the years ended December 31, 2017, 2018 and 2019 as its subsidiaries, VIEs and subsidiaries of VIEs in the PRC are still in accumulated deficit position.

 

bb)Comprehensive loss

 

Comprehensive loss is defined to include all changes in equity 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 (loss)/income, as presented on the consolidated balance sheets, consists of accumulated foreign currency translation adjustments.

 

cc)Non-controlling interests

 

Non-controlling interests are recognized to reflect the portion of the equity of majority-owned subsidiary which is not attributable, directly or indirectly, to the controlling shareholder. Non-controlling interests are classified as a separate line item in the equity section of the Group’s consolidated balance sheets and have been separately disclosed in the Group’s consolidated statements of operations and comprehensive loss to distinguish the interests from that of the Company.

 

dd)Treasury stock

 

The Company accounts for treasury shares using the cost method. Under this method, the cost incurred to purchase the shares is recorded in the treasury shares account on the consolidated balance sheets. At retirement of the treasury shares, the ordinary shares account is charged only for the aggregate par value of the shares. The excess of the acquisition cost of treasury shares over the aggregate par value is allocated between additional paid-in capital (up to the amount credited to the additional paid-in capital upon original issuance of the shares) and retained earnings.

 

ee)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 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 operated its continuing operations in one segment, as that term is defined by FASB ASC Topic 280, Segment reporting.

 

F-25

 

 

TUANCHE LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

2.Significant Accounting Policies (Continued)

 

ff)Concentrations and Risks

 

Online advertising and promotional service provider

 

The Group relied on online advertising and promotional service providers and their affiliates for online advertising and promotional service to support its operations during the years ended December 31, 2017, 2018 and 2019 as follows:

 

   For the year ended December 31, 
   2017   2018   2019 
Total number of online advertising and promotional service providers   21    32    25 
Number of online service providers that accounted for 10% or more of the Group's online advertising and promotional service   2    2    2 
Total percentage of the Group's online advertising and promotional service expenses that were paid to these service providers who accounted for 10% or more of the Group’s online advertising and promotional service expenses   50%   43%   55%

 

Credit risk

 

Financial instruments that potentially subject the Group to the concentration of credit risk consist of cash and cash equivalents, restricted cash, time deposits and accounts receivable. As of December 31, 2018 and 2019, all of the Group's cash and cash equivalents, restricted cash and time deposits were held in large reputable financial institutions located in the United States of America or China, which management consider being of high credit quality. Accounts receivable is typically unsecured and is derived from revenue earned from the Company’s businesses.

 

Major customers

 

There was one customer and no customer had receivable balances exceeding l0% of the total accounts receivable balances of the Group as of December 31, 2018 and 2019, respectively, as follows:

 

   For the year ended December 31, 
   2018   2019 
Customer A   22%   5%

 

gg)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.

 

In January 2016, the FASB issued ASU No. 2016-01 Financial Instruments—Overall (Subtopic 825-10) "Recognition and Measurement of Financial Assets and Financial Liabilities". The amendments in this ASU require all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under equity method of accounting or those that result in consolidation of the investee). The amendments in this accounting standard update also require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. In addition, the amendments in this accounting standard update eliminate the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities and the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet for public business entities. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. For all other entities including not-for-profit entities and employee benefit plans within the scope of Topics 960 through 965 on plan accounting, the amendments in this update are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. All entities that are not public business entities may adopt the amendments in this update earlier as of the fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Group adopted this new standard effective on January 1, 2019. The adoption of ASU 2016-01 did not have a material impact on the Group’s consolidated financial statements.

 

F-26

 

 

TUANCHE LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

2.Significant Accounting Policies (Continued)

 

gg)Recently issued accounting pronouncements (Continued)

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”). Further, as a clarification of the new guidance, the FASB issued several amendments and updates. Under the new provisions, all lessees will report a right-of-use asset and a liability for the obligation to make payments for all leases with the exception of those leases with a term of 12 months or less. All other leases will fall into one of two categories: (i) financing leases, similar to capital leases, which will require the recognition of an asset and liability, measured at the present value of the lease payments and (ii) operating leases which will require the recognition of an asset and liability measured at the present value of the lease payments. Lessor accounting remains substantially unchanged with the exception that no leases entered into after the effective date will be classified as leveraged leases. For sale leaseback transactions, the sale will only be recognized if the criteria in the new revenue recognition standard are met. The amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years for public entities. For all other entities, the amendments in this update are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. The Group will adopt the new lease guidance in its consolidated financial statements for the year ended December 31, 2020. The Group has finalized its analysis and the most significant impact will be the recognition of right-of-use assets and lease liabilities for rental of its office space.

 

In June 2016, the FASB amended guidance related to the impairment of financial instruments as part of ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. For public business entities that are U.S. Securities and Exchange Commission (SEC) filers, the amendments in this update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For all other public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. For all other entities, including not-for-profit entities and employee benefit plans within the scope of Topics 960 through 965 on plan accounting, the amendments in this update are effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. All entities may adopt the amendments in this update earlier as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The guidance replaces the incurred loss impairment methodology with an expected credit loss model for which the Group is required to recognize an allowance based on its estimate of expected credit loss. The Group will adopt the new credit loss guidance beginning January 1, 2021. The Group is currently evaluating the impact of this new guidance on its consolidated financial statements.

 

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 provides guidance for targeted changes with respect to how cash receipts and cash payments are classified in the statements of cash flows, with the objective of reducing diversity in practice. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. The Group adopted ASU 2016-15 on January 1, 2019 and the adoption has no material impact on the Group’s consolidated financial statements.

 

F-27

 

 

TUANCHE LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

2.Significant Accounting Policies (Continued)

 

gg)Recently issued accounting pronouncements (Continued)

 

In June 2018, the FASB issued ASU No. 2018-07 Compensation—Stock Compensation (Topic 718) "Improvements to Nonemployee Share-Based Payment Accounting". The amendments in this update expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period). The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. The Group will adopt the new stock compensation guidance beginning January 1, 2020 and the adoption will have no material impact on the Group’s consolidated financial statements.

 

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates, adds and modifies certain disclosure requirements for fair value measurements. Under the guidance, public companies will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The guidance is effective for all entities for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years, but entities are permitted to early adopt either the entire standard or only the provisions that eliminate or modify the requirements. The Group will adopt the new fair value measurement guidance beginning January 1, 2020 and the adoption will have no material impact on the Group’s consolidated financial statements.

  

3.Discontinued operations

 

On December 10, 2017, pursuant to the resolutions of the shareholders and board of directors, the Company decided to discontinue the electric vehicle sales facilitation business. The Discontinued Business represents a strategic shift that has a major effect on the Group’s operations and financial results. The assets and liabilities related to the Discontinued Business are classified as assets/liabilities held for sale as of December 31, 2017, and the results were reported as loss from discontinued operations.

 

Assets and liabilities related to the Discontinued Business to be transferred were reclassified as assets/liabilities held for sale as of December 31, 2017, while results of operations related to the Discontinued Business, including comparatives, were reported as loss from discontinued operations.

 

On June 30, 2018, the Company completed the disposal of the Discontinued Business resulting a gain of disposal of RMB0.8 million.

 

F-28

 

 

TUANCHE LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

3.Discontinued operations (Continued)

 

Results of discontinued operations:        
   For the year
ended
December 31,
   For the period
from
January 1
to June 30,
 
   2017   2018 
   RMB   RMB 
Net revenues   17,768    4,807 
Cost of revenues   (627)   (280)
Gross profit   17,141    4,527 
Operating expenses:          
Selling and marketing expenses   (30,065)   (6,800)
General and administrative expenses   (1,077)   (1,368)
Total operating expense   (31,142)   (8,168)
Loss from operations   (14,001)   (3,641)
Other expenses:          
Interest expenses, net   (924)   (676)
Gain from disposal of discontinued operations   -    771 
Others, net   (52)   (66)
Loss from discontinued operations before income taxes   (14,977)   (3,612)
Income tax expense   -    - 
Net loss from discontinued operations   (14,977)   (3,612)
           

 

F-29

 

 

TUANCHE LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

3.Discontinued operations (Continued)

 

Cash flows of the discontinued operations:

   For the year
ended
December 31,
2017
   For the period
from
January 1
to June 30,
2018
 
    RMB    RMB 
Cash flows used in discontinued operations          
Net cash used in operating activities   (27,875)   (2,817)
Net cash used in investing activities   (10)   - 
Net cash generated from/(used in) financing activities   17,904    (2,513)
Net decrease in cash and cash equivalents   (9,981)   (5,330)

 

4.Accounts receivable, net

 

Accounts and notes receivables are consisted of the following:

 

   December 31,
2018
   December 31,
2019
 
   RMB   RMB 
Notes receivable   3,625    12,209 
Accounts receivable, gross   49,121    74,357 
Less: allowance for doubtful accounts   (491)   (14,175)
Accounts receivable, net   52,255    72,391 

 

The Group closely monitors the collection of its accounts receivable and records allowance for doubtful accounts against aged accounts receivable and for specifically identified non-recoverable amounts. If the economic situation and the financial condition of a customer deteriorate resulting in an impairment of the customer's ability to make payments, additional allowances might be required. Notes receivable were 3.6 million and 12.2 million for the years ended December 31, 2018 and 2019, respectively. The prior year figures for notes receivable have been reclassified to conform to current year presentation to facilitate comparison.

 

Receivable balance are written off when they are determined to be uncollectable. The following table sets out movements of the allowance for doubtful accounts for the years ended December 31, 2017, 2018 and 2019:

 

   December 31,
2017
   December 31,
2018
   December 31,
2019
 
    RMB    RMB    RMB 
Balance at the beginning of the period   -    418    491 
Additions charged to bad debt expense   418    491    13,684 
Write-off of bad debt allowance   -    (418)   - 
Balance at the end of the period   418    491    14,175 

 

F-30

 

 

TUANCHE LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data) 

 

5.Prepayment and other current assets

 

The following is a summary of prepayments and other current assets:

 

    December 31, 2018     December 31, 2019  
    RMB     RMB  
Receivables due from dealerships     10,661       -  
Deductible VAT     4,852       4,056  
Deposits     8,637       14,496  
Prepaid rental expenses     2,168       1,662  
Receivables due from third-party online payment platforms     469       4,755  
Staff advances     695       4,131  
Prepaid promotion expenses     36,538       54,382  
Prepaid service fees     2,574       4,591  
Prepaid insurance fees     -       3,648  
Bridge loan receivable*     -       100,611  
Others     2,225       1,450  
Total     68,819       193,782  

 

 

F-31

 

 

TUANCHE LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

5.Prepayment and other current assets (continued)

 

* On May, 2019, the Company (the “Purchaser”) entered into a share purchase agreement (the “Agreement”) with, among other parties, Longye International Limited (the “Seller”), a company incorporated in the Cayman Islands, to acquire its entire entity interest for a total consideration of U.S.-dollar equivalent of RMB200,000,000 in the form of cash and the Company’s securities in aggregate. According to the Agreement, the Purchaser shall pay RMB100,000,000 equivalent in USD as a bridge loan to the Seller. Subject to the customary closing conditions, the Company will credit this bridge loan to the cash portion of the purchase price.

 

6.Property, equipment and software, net

 

The following is a summary of property, equipment and software, net:

 

    December 31, 2018     December 31, 2019  
    RMB     RMB  
Furniture and electronic equipment     4,304       5,398  
Vehicles     426       425  
Software     10,850       18,948  
Leasehold improvement     -       2,874  
Total property, equipment and software     15,580       27,645  
Less: accumulated depreciation – Furniture, electronic equipment and vehicles     (3,283 )     (3,502 )
accumulated amortization - Software     (661 )     (3,435 )
accumulated amortization - Leasehold improvement     -       (348 )
Property, equipment and software, net     11,636       20,360  

 

Depreciation expenses of property, equipment and software were RMB1.0 million, RMB1.1 million and RMB3.5 million for the years ended December 31, 2017, 2018 and 2019, respectively. Amortization expenses of leasehold improvement were nil, nil and RMB0.3 million for the years ended December 31, 2017, 2018 and 2019, respectively. No impairment charge was recognized for any of the periods presented.

 

Based on the current amount of property, equipment and software subject to amortization, the estimated amortization expenses for each of the following five years are as follows: 2020: RMB5.5 million, 2021: RMB5.3 million, 2022: RMB4.5 million, 2023: RMB3.4 million and 2024: RMB1.0 million.

 

 

F-32

 

 

TUANCHE LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

7.Long- term investments

 

As of December 31, 2018 and 2019, long-term investments include equity investments in privately held companies.

 

a)       Equity investments without readily determinable fair values

 

The Group carries these investments at cost less impairment as the Group does not have significant influence and the investments do not have a readily determinable fair value. As of December 31, 2019, the carrying value of equity investments at cost less impairment was RMB5.7 million.

 

b)       Equity investments accounted for using the equity method

 

On September 3, 2018, TuanChe Internet invested RMB4.0 million in cash for a 40% equity interest in Shanghai Three Drivers Culture Media Co., Limited ("STDC") that operates a car media business. TuanChe Internet applies the equity method of accounting to account for its equity investment in common stock of STDC, over which it has significant influence but does not own a majority equity interest or otherwise control. As of December 31, 2019, the carrying value of equity investment for using equity method was RMB2.2 million.

 

Impairment provision made for the years ended December 31, 2017, 2018 and 2019 was nil, nil and RMB1.0 million respectively.

 

For the year ended December 31, 2019, the Group made impairment provision of RMB1.0 million for one of its equity investments without readily determinable fair values.

 

8.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 their shareholders, no Cayman Islands withholding tax will be imposed.

 

Hong Kong

 

Commencing from the year of assessment 2018/2019, the first HK$2.0 million of profits earned by the Group’s subsidiaries incorporated in Hong Kong will be taxed at half the current tax rate (i.e., 8.25%) while the remaining profits will continue to be taxed at the existing 16.5% tax rate. Payments of dividends by the subsidiary to the Company are not subject to withholding tax in Hong Kong.

 

China

 

Under the Enterprise Income Tax Law of the PRC, the Group’s Chinese subsidiaries and VIEs are subject to an income tax of 25%.

 

The following table presents a reconciliation of the differences between the statutory income tax rate and the Company's effective income tax rate for the years ended December 31, 2017, 2018 and 2019:

 

 

F-33

 

 

TUANCHE LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

8.Taxation (Continued)

 

a)Income taxes (Continued)

 

    For the year ended December 31,  
    2017     2018     2019  
    %     %     %  
Statutory income tax rate of the PRC     25.0       25.0       25.0  
Permanent differences     (11.5 )     (10.4 )     (10.0 )
Change in valuation allowance     (13.5 )     (14.6 )     (15.0 )
Effective income tax rate     -       -       -  

 

As of December 31, 2019, certain entities of the Company had net operating tax loss carry forwards as follows:

 

    RMB  
Loss expiring in 2020     34,177  
Loss expiring in 2021     15,037  
Loss expiring in 2022     19,771  
Loss expiring in 2023     61,016  
Loss expiring in 2024     29,343  
      159,344  

 

b)Sales tax

 

The Group's subsidiaries and VIEs incorporated in China are mainly subject to 6% VAT for services rendered.

 

c)Deferred tax assets and liabilities

 

The following table presents the tax impact of significant temporary differences that give rise to the deferred tax assets as of December 31, 2018 and 2019:

 

    December 31, 2018     December 31, 2019  
    RMB     RMB  
Deferred tax assets:                
Advertising expense in excess of deduction limit     25,473       43,262  
Accrued expense and other payables     5,303       6,615  
Net operating tax loss carry forwards     31,938       39,836  
Total deferred tax assets     62,714       89,713  
Less: valuation allowance     (62,714 )     (89,713 )
Net deferred tax assets     -       -  

 

The Group does not believe that sufficient positive evidence exists to conclude that the recoverability of the above deferred tax assets of certain entities of the Group is more likely than not to be realized. Consequently, the Group has provided full valuation allowances on the related deferred tax assets. The following table sets forth the movement of the aggregate valuation allowances for deferred tax assets for the periods presented:

 

    Balance at January 1     Addition     Balance at December 31  
    RMB     RMB     RMB  
2017     (39,613 )     (8,942 )     (48,555 )
2018     (48,555 )     (14,159 )     (62,714 )
2019     (62,714 )     (26,999 )     (89,713 )

 

 

F-34

 

 

TUANCHE LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

8.Taxation (Continued)

 

d)Withholding income tax

 

The enterprise income tax (“EIT”) Law also imposes a withholding income tax of 10% on dividends distributed by a foreign-invested entity ("FIE") to its immediate holding company outside of China, if such immediate holding company is considered as a non-resident enterprise without any establishment or place within China or if the received dividends have no connection with the establishment or place of such immediate holding company within China, unless such immediate holding company's jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement. The Cayman Islands, where the Company incorporated, does not have such tax treaty with China. According to the arrangement between Mainland China and Hong Kong Special Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal Evasion in August 2006, dividends paid by a FIE in China to its immediate holding company in Hong Kong will be subject to withholding tax at a rate that may be lowered to 5% (if the foreign investor owns directly at least 25% of the shares of the FIE). The State Administration of Taxation ("SAT") further promulgated Circular 601 on October 27, 2009, which provides that tax treaty benefits will be denied to "conduit" or shell companies without business substance and that a beneficial ownership analysis will be used based on a "substance-over-form" principle to determine whether or not to grant the tax treaty benefits. Further, the SAT promulgated the Notice on Issues Related to the “Beneficial Owner” in Tax Treaties in February 2018, which requires the “beneficial owner” to have ownership and the right to dispose of the income or the rights and properties giving rise to the income and generally engage in substantive business activities and sets forth certain detailed factors in determining the “beneficial owner” status.

 

As of December 31, 2018 and 2019, the Company did not record any such withholding tax of its subsidiaries, VIEs and subsidiaries of VIEs in the PRC as they are still in accumulated deficit position.

 

9.Other taxes payable

 

The following is a summary of other taxes payable as of December 31, 2018 and 2019:

 

    December 31, 2018     December 31, 2019  
    RMB     RMB  
Withholding individual income taxes for employees     4,268       9,727  
VAT payables     11,728       12,105  
Others     978       662  
Total     16,974       22,494  

 

10.Short-term and long-term borrowings

 

The following table summarizes the Group's outstanding short-term and long-term borrowings which were fully repaid as of December 31, 2018:

 

Short-term borrowings   Maturity
date
    Principal
amount
    Interest rate
per annum
    Name of bank  
Term loan                                
Loan I(a)     March 30, 2018       9,944       7.25 %    

SPD Silicon

Valley Bank loan

 
                                 
Revolving loan                                
Loan II(a)     December 31, 2018 and June 28, 2019       9,945       7.50 %    

SPD Silicon

Valley Bank loan

 
Secured loan                                
Loan III(b)     December 28, 2018       10,000       4.35 %    

SPD Silicon

Valley Bank loan

 

 

 

F-35

 

 

TUANCHE LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

10.Short-term and long-term borrowings (Continued)

 

Long-term borrowings   Maturity
date
    Principal
amount
    Interest rate
per annum
    Type  
Loan II(a)     June 28, 2019       9,945       7.50 %    

SPD Silicon

Valley Bank loan

 

 

(a)The Group was granted an RMB20.0 million credit facility that was expired on June 30, 2019 for general corporate purposes. Thereinto, RMB10.0 million is allocated to a term loan facility and RMB10.0 million is a revolving loan credit facility. The credit facility was guaranteed by the Company.

 

There were two financial covenants for the credit facility as follows: (i) new equity financing round: to close a new equity financing round representing investment of no less than RMB50.0 million from the investors no later than June 30, 2017; (ii) minimum quarterly gross profit: to meet gross profit for 2017 Q1 of RMB20.0 million, 2017 Q2 of RMB28.0 million, 2017 Q3 of RMB32.0 million, 2017 Q4 of RMB35.0 million and 2018 Q1 of RMB25.0 million.

 

On March 30, 2018, above financial covenants for the credit facility have been amended as follows: (i) minimum monthly liquidity ratio: 2.0:1.0; liquidity ratio is defined as (unrestricted cash on the consolidated basis + accounts receivable) divided by total unsecured bank debt. (ii) minimum quarterly net revenue for 2018 Q1 of RMB65.0 million, 2018 Q2 of RMB120.0 million, 2018 Q3 of RMB150.0 million, 2018 Q4 of RMB200.0 million and 2019 Q1 of RMB65.0 million.

 

The Group was in compliance with the covenants of the above credit facility for the year ended December 31, 2018.

 

Term loan

 

Loan I:

 

Under the term loan facility, the Group drew down RMB8.0 million and RMB1.9 million on April 1, 2017 and July 21, 2017, respectively. The interest is payable on a monthly basis and the principal will be due upon maturity. These loans were repaid on March 30, 2018.

 

Revolving loan

 

Loan II:

 

Under the revolving loan facility, the Group drew down RMB1.6 million, RMB5.9 million and RMB2.5 million on July 31, August 7 and September 12, 2017, respectively. The principal and interest is payable on a monthly basis. These loans will be repaid by equivalent installment of principal in each month until June 28, 2019. These loans were repaid in the fourth quarter of 2018 in advance.

 

Secured loan

 

(b)Loan III:

 

As of December 31, 2017, the outstanding balance of the loan was secured by a US$ deposit of the Group in Silicon Valley Bank located in United States of America in the equivalent amount of RMB11.1 million, which was recorded as restricted cash. SPD Silicon Valley Bank is an onshore branch of Silicon Valley Bank. The interest is payable on a monthly basis and the principal will be due upon maturity. The loan was matured and fully repaid on December 28, 2018.

 

In conjunction with Loan III, a warrant was granted to China Equities Hong Kong Limited (“China Equities”) on October 31, 2017 for a cash consideration of US$0.621 to purchase up to 670,814 Series C-2 convertible redeemable preferred shares of the Company at US$0.64829 per share or if the fair market value of the warrant shares exceeds the exchange price, China Equities may effect a net cashless exchange of this warrant within five years after the grant of the warrant. In accordance with ASC 480-10-55-33, the warrant shall be classified as liability, initially recorded at fair value and subsequently measure at fair value through earnings. On September 29, 2018, China Equities has effected a net cashless exchange of the warrant for 483,702 Series C-2 convertible redeemable preferred shares with a consideration of nil.

 

 

F-36

 

 

TUANCHE LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

11. Other current liabilities

 

The following is a summary of other current liabilities as of December 31, 2018 and 2019:

 

    December 31, 2018     December 31, 2019  
    RMB     RMB  
Professional service fee     10,238       5,741  
Online promotional expense payables     9,554       28,595  
Software purchases payables     2,760       -  
Tickets printing&delivery payables     2,450       1,271  
Advertising expenses     8,611       1,798  
Others     2,813       3,508  
Total     36,426       40,913  

 

F-37

 

 

TUANCHE LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

12. Preferred shares

 

The China Best, Series A, B-1, B-2, C-1, C-2, C+, C-4, D-1 and D-2 convertible redeemable preferred shares are collectively referred to as the "Preferred Shares”. Since their inception in 2012, the Company have raised approximately USD$125.1 million in equity financing from a group of investors:

 

China Best financing

 

In June 2012, the Company raised an aggregate of RMB1,260,000 from the issuance of 5,660,000 preferred shares of the Company to China Best.

 

Series A financing

 

In March 2013, the Company raised an aggregate of US$700,000 from the issuance of 2,828,393 and 16,970,357 Series A preferred shares of the Company to K2 Evergreen Partner L.P. and K2 Partners II L.P., respectively.

 

Series B financing

 

In September 2013, the Company raised an aggregate of US$5,564,856 from the issuance of 4,142,781 and 8,285,562 Series B-1 preferred shares of the Company to K2 Evergreen Partners L.P. and K2 Partners II L.P., respectively, and the issuance of 18,193,772 and 4,548,443 Series B-2 preferred shares of the Company to BAI GmbH and K2 Partners II L.P., respectively.

 

Series C financing

 

In August 2014, the Company raised an aggregate of US$23,658,593 from the issuance of 3,427,812 Series C-1 preferred shares of the Company to BAI GmbH, and the issuance of 5,643,437, 18,290,377, 7,878,398 and 1,596,503 Series C-2 preferred shares of the Company to BAI GmbH, Highland Capital Partners 9 L.P., Highland Capital Partners 9-B L.P. and Highland Entrepreneurs’ Fund 9 L.P., respectively.

 

Series C+ financing

 

In June 2017, the Company raised an aggregate of US$8,682,770 from the issuance of 2,175,611, 725,204, 1,450,408, 1,910,912, 823,106, 166,797 and 5,341,517 Series C+ preferred shares of the Company to K2 Partners III Limited, K2 Family Partners Limited, BAI GmbH, Highland Capital Partners 9 Limited Partnership, Highland Capital Partners 9-B Limited Partnership, Highland Entrepreneurs’ Fund 9 Limited Partnership and AlphaX Partners Fund I, L.P., respectively. In addition, Puhua’s convertible loans of RMB30.0 million was converted into 6,261,743 Series C+ preferred shares.

 

Series C-4 financing

 

In June 2018, the August 2017 Loan of US$6.3 million plus its accrued interests were converted into 7,569,628 Series C-4 preferred shares.

 

Series D-1 financing

 

In June 2018, the Company raised an aggregate of US$23,350,000 from the issuance of 3,592,664 and 6,453,887 Series D-1 preferred shares of the Company to ACEE Capital Ltd. and Honour Depot Limited, respectively.

 

Series D-2 financing

 

In September 2018, the Company raised US$50.0 million from the issuance of 20,630,925 Series D-2 preferred shares of the Company to Beijing Z-Park Fund.

 

F-38

 

 

TUANCHE LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

12. Preferred shares (Continued)

 

Accounting for the Preferred Shares

 

The Company has classified the Preferred Shares in the mezzanine equity of the consolidated balance sheets as they are contingently redeemable at the option of the holders. In addition, the Company records accretion 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 issue price at the date of issuance net of issuance costs.

 

The Company has determined that there was no beneficial conversion feature attributable to all preferred shares because the initial effective conversion prices of these preferred shares were higher than the fair value of the Company's common shares determined by the Company taking into account independent valuations.

 

Upon the completion of the Company’s IPO in November 2018, all of the issued and outstanding pre-IPO Preferred Shares were automatically converted and redesignated into Class A ordinary shares based on the conversion rate stipulated in their Share Purchase Agreements.

 

F-39

 

 

TUANCHE LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

13. Employee Benefits

 

The Company's subsidiaries, VIEs and subsidiaries of VIEs 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, VIEs and subsidiaries of VIEs 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 years ended December 31, 2017, 2018 and 2019:

 

   For the year ended
December 31,
 
   2017   2018   2019 
   RMB   RMB   RMB 
Medical and welfare defined contribution plan   8,504    21,869    38,183 
Other employee benefits   2,340    2,741    969 
Total   10,844    24,610    39,152 

 

14. Share-based Compensation

 

(a)Description of stock option plan

 

In July 2012, the Group permits the grant of options of the Company to relevant directors, officers, other employees and consultants of the Company. Option awards are granted with an exercise price determined by the Board of Directors. Those option awards generally vest over a period of four years.

 

The Group recognizes share-based compensation expenses in the consolidated statements of operations and comprehensive loss based on awards ultimately expected to vest, after considering actual forfeitures.

 

The Company has replaced these share options with restricted shares for all employees and non-employees on June 15, 2018 (Note 14(d)).

 

(b)Valuation assumptions

 

The Group historically uses binomial option pricing model to determine fair value of the share-based awards. The estimated fair value of each option granted is estimated on the date of grant using the binomial option-pricing model with the following assumptions:

 

   2017   2018   2019
Expected volatility   57.90%-59.70%   57.30%  Not applicable
Weighted average volatility   58.44%   57.30%  Not applicable
Expected dividends   -    -   Not applicable
Risk-free rate   2.60%-3.18%   3.10%  Not applicable
Contractual term (in years)   10    10   Not applicable
Enterprise value   US$0.32-US$0.65    US$0.65   Not applicable

 

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 capital stock, and the Group does not anticipate any dividend payments in the foreseeable future. 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 Bond with maturity of ten years as of the valuation date, plus country default risk spread between United States and China.

 

F-40

 

 

TUANCHE LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

14. Share-based Compensation (Continued)

  

  (c) Share options activities

 

The following table presents a summary of the Company’s options activities for the years ended December 31, 2017, 2018 and 2019.

 

    Employees     Consultants     Total     Weighted average
exercise price
    Remaining
contractual life
    Aggregated
intrinsic value
 
    (in thousands)     (in thousands)     (in thousands)     US$           RMB  
Outstanding at January 1, 2017     18,892       1,637       20,529       0.43       1.39       9,975  
Granted     60       -       60       0.42       -       -  
Exercised     -       -       -       -       -       -  
Forfeited     (1,877 )     -       (1,877 )     0.94       -       -  
Outstanding at December 31, 2017     17,075       1,637       18,712       0.37       0.72       8,951  
Granted     205       -       205       1.00       -       -  
Exercised     -       -       -       -       -       -  
Forfeited     (3,443 )     -       (3,443 )     0.12       -       -  
Replaced by restricted shares     (13,837 )     (1,637 )     (15,474 )     (0.43 )     -       -  
Outstanding at December 31, 2018 and 2019     -       -       -       -       -       -  
Exercisable as of December 31, 2017     10,606       1,424       12,030       0.28       0.39       5,293  
Exercisable as of December 31, 2018 and 2019     -       -       -       -       -       -  

 

The weighted average grant date fair value of options granted for the years ended December 31, 2017 and 2018 was RMB0.4851 and RMB1.8692 per option, respectively.

 

No options were exercised for the years ended December 31, 2018 and 2019.

 

 

F-41

 

 

TUANCHE LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

  

14. Share-based Compensation (Continued)

 

(d)Share option replacement

 

In June 2018, the directors of the Company (the “Directors”) approved the TuanChe Limited Share Incentive Plan (the “Share Incentive Plan”). Under the Share Incentive Plan, 38,723,321 ordinary shares were issued to Best Cars which is a VIE of the Company for the restricted share awards at consideration of nil. Meanwhile, the incentive share options granted to employees and non-employees of the Company shall be replaced by the restricted shares. As a result of the Share Incentive Plan, on June 15, 2018, a total of 15,473,653 share options of the Company were replaced by 13,740,480 restricted shares. 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 1) modification. The Company has recognized the portion of incremental value of RMB10.7 million as expenses immediately for those vested share options; the portion of the incremental value of RMB3.7 million as the result of the replacement for unvested share options will be recognized as expenses over the remaining vesting periods of 1 to 4 years.

 

For years ended December 31, 2018 and 2019, the Company has granted 24,407,184 (including the abovementioned 13,740,480 restricted shares granted to replace the 15,473,653 share options on June 15, 2018) and 11,527,950 restricted shares to its employees. The total fair value of RMB109.0 million and RMB112.6 million for those granted restricted shares will be recognized as expenses over the vesting periods of nil to 4 years.

 

A summary of the restricted shares activities is presented below:

 

    Number of restricted shares    

Weighted-Average

Grant-Date Fair Value

 
              US$  
Outstanding as of January 1, 2018     -       -  
Granted     24,407,184       1.595  
Vested     (12,917,926 )     1.595  
Outstanding as of December 31, 2018     11,489,258       1.595  
Granted     11,527,950       1.440  
Forfeit     (733,764 )     1.593  
Vested     (13,070,570 )     1.623  
Outstanding as of December 31, 2019     9,212,874       1.364  

 

For the year ended December 31, 2018, total share-based compensation expenses recognized by the Group for the share options and restricted shares granted were RMB0.6million and RMB71.2million, respectively. For the year ended December 31, 2019, total share-based compensation expenses recognized by the Group for the restricted shares granted were RMB110.0 million.

 

As of December 31, 2018 and 2019, there were RMB77.0 million and RMB79.5 million of unrecognized share-based compensation expenses related to the restricted shares granted. That expenses are expected to be recognized over a weighted-average period of 2.54 years.

 

(e)Super voting right

 

On June 13, 2018, the Company changed its capital structure to re-designate its ordinary shares into Class A ordinary shares and Class B ordinary shares. The effect of this re-designation has been accounted for retroactively for all periods presented. Mr. Wei Wen, Chairman of the Board of Directors and CEO of the Company holds Class B ordinary shares through his British Virgin Islands (“BVI”) company and each Class B ordinary share carries fifteen (15) votes at meetings of shareholders. Upon further transfer of Class B ordinary shares by Mr. Wei Wen to anyone, such Class B ordinary shares will automatically convert into an equal number of Class A ordinary shares.

 

The grant of the super voting right was authorized by the Board of Directors on June 13, 2018. There are no additional vesting conditions attached to the grant. Accordingly, the Company recognized the incremental value of RMB4.7 million of Class B ordinary shares in general and administrative expenses as share based compensation on the grant date.

 

 

F-42

 

 

TUANCHE LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

  

14. Share-based Compensation (Continued)

 

(f)Transfer of ordinary shares

 

On September 29, 2018, the Class A ordinary share holder of the Company, First Aqua Inc., entered into a share transfer agreement with ACEE Capital Ltd., the Series D-1 preferred share holder of the Company, to transfer 521,962 Class A Ordinary Shares to ACEE Capital Ltd., for an aggregate selling price of US$1.1 million. The transfer of Class A ordinary shares was authorized by the Board of Directors on September 28, 2018. Accordingly, the Company recognized the incremental value of RMB1.7 million between the consideration and the fair value of 521,962 Class A ordinary shares in general and administrative expenses as share based compensation on the transfer date.

 

(g)Repurchase of restricted shares from employees

 

On June 17, 2019, the Company repurchased and reserved 6,358,500 vested restricted shares held by certain employees at the price of US$0.75 per share (US$3.00 per ADSs). The total consideration of US$4.8 million did not exceeded the fair value of the vested restricted shares at repurchase date, the repurchase of restricted shares has been accounted for under the cost method and presented as “treasury stock” in equity on the Group’s consolidated balance sheet without any additional compensation cost incurred.

 

The Company concluded repurchase of restricted shares from employees was an isolated case that was not considered as frequent, and the likelihood to recur is remote. Since there is no repurchase obligation in the Company’s Share Incentive Plan, the Company’s such repurchase action does not prevent the awards from being equity-classified.

 

15. Ordinary shares

 

On November 20, 2018, the Company completed its initial public offering on the NASDAQ Capital Market. In this offering, the Company issued and sold to the public 2,600,000 ADS, representing 10,400,000 Class A ordinary shares, at a price of US$7.80 per ADS. The aggregate proceeds the Company received from this offering, net of issuance costs, were approximately RMB 103.4 million (US$15.0 million).

 

Immediately prior to the completion of this offering, all of the issued and outstanding pre-IPO preferred shares were automatically converted and pre-IPO China Best redeemable shares, pre-IPO Series A convertible redeemable preferred shares, pre-IPO Series B-1 convertible redeemable preferred shares, pre-IPO Series B-2 convertible redeemable preferred shares, pre-IPO Series C-1 convertible redeemable preferred shares, pre-IPO Series C-2 convertible redeemable preferred shares, pre-IPO Series C+ convertible redeemable preferred shares, pre-IPO Series C-4 convertible redeemable preferred shares were re-designated into Class A ordinary shares on a one-for-one basis, pre-IPO Series D-1 convertible redeemable preferred shares and pre-IPO Series D-2 convertible redeemable preferred shares were re-designated into Class A ordinary shares on a 1-for-1.47 basis.

 

On June 17, 2019, the Company announced that its board of directors authorized a share repurchase program of up to US$20 million of the Company’s outstanding ADSs within the next twelve months. As of December 31, 2019, the Company has repurchased approximately 1,710,952 ordinary shares (equivalent to 427,738 ADSs) on the open market in a total consideration of approximately RMB15.1 million (equivalent to US$2.0 million), at an average price of US$1.16 per share (US$4.65 per ADSs). The repurchased shares has been reserved and accounted for under the cost method and presented as “treasury stock” in equity on the Group’s consolidated balance sheet.

 

The Company agreed to issue 80,000 ordinary shares (20,000 ADSs) to a nonemployee for the provision of consulting services from August 2019 to August 2020 The equity award granted to the nonemployee is fully vested and non-forfeiture at the date of grant. The share-based compensation to this nonemployee was therefore accounted for based on the fair value of the equity instrument granted and recognized in the consolidated statement of comprehensive loss for the year ended December 31, 2019 at the date of grant.

 

 

F-43

 

 

TUANCHE LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

  

16. Net Loss Per Share

 

As the Group incurred losses for the years ended December 31, 2017, 2018 and 2019, the potential preferred shares, share options, convertible loan, warrant and restricted shares granted were anti-dilutive and excluded from the calculation of diluted net loss per share of the Company.

 

Considering that the holder of preferred shares has no contractual obligation to participate in the Company’s losses, any losses from the Group should not be allocated to preferred shares.

 

The following table sets forth the computation of basic and diluted net loss per share for the years ended December 31, 2017, 2018 and 2019:

 

    2017     2018     2019  
Numerator :                        
Net loss from continuing operations     (75,694 )     (75,088 )     (251,299 )
Net loss from discontinued operations     (14,977 )     (3,612 )     -  
Total net loss     (90,671 )     (78,700 )     (251,299 )
Net loss from continuing operations     (75,694 )     (75,088 )     (251,299 )
Less: Accretions to pre-IPO preferred shares redemption value     (20,945 )     (35,066 )     -  
Net loss attributable to TuanChe Limited's shareholders from continuing operations     (96,639 )     (110,154 )     (251,299 )
Net loss attributable to TuanChe Limited's shareholders from discontinued operations     (14,977 )     (3,612 )     -  
Denominator:                        
Weighted average number of ordinary shares outstanding, basic     94,870,580       121,938,427       294,922,074  
Weighted average number of ordinary shares outstanding, diluted     94,870,580       121,938,427       294,922,074  
Basic net loss per share attributable to TuanChe Limited’s shareholders from continuing operations     (1.02 )     (0.90 )     (0.85 )
Diluted net loss per share attributable to TuanChe Limited’s shareholders from continuing operations     (1.02 )     (0.90 )     (0.85 )
Basic net loss per share attributable to TuanChe Limited’s shareholders from discontinued operations     (0.16 )     (0.03 )     -  
Diluted net loss per share attributable to TuanChe Limited’s shareholders from discontinued operations     (0.16 )     (0.03 )     -  

 

 

F-44

 

 

TUANCHE LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

  

17. Commitments and Contingencies

 

(a)Commitments

 

The Group leases venue for auto shows and office space under non-cancelable operating lease agreements, which expire at various dates through December 2024. As of December 31, 2019, future minimum lease under non-cancelable operating lease agreements were as follows:

 

(i)Venue for auto shows

 

    Total operating lease
commitments
 
2020     1,224  
2021     128  
Total     1,352  

 

(ii)Office space

 

    Total operating lease
commitments
 
2020     10,031  
2021     5,658  
2022     1,534  
2023     499  
2024     291  
Total     18,013  

 

(b)Litigation

 

From time to time, the Group is involved in claims and legal proceedings that arise in the ordinary course of business. Based on currently available information, management does not believe that the ultimate outcome of any unresolved matters, individually and in the aggregate, is reasonably possible to have a material adverse effect on the Group's financial position, results of operations or cash flows. However, litigation is subject to inherent uncertainties and the Group's view of these matters may change in the future. The Group records a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. The Group reviews the need for any such liability on a regular basis. The Group has not recorded any material liabilities in this regard as of December 31, 2018 and 2019.

 

18.Related party transactions

 

In 2017, the Group granted an interest free loan amounted to RMB1.0 million to Mr. Xingyu Du, Vice President of administration. The loan was fully repaid by Mr. Xingyu Du in July 2018.

 

In 2018, the Group granted an interest free loan amounted to RMB1.0 million to Mr. Wei Wen, Chairman of the Board of Directors and CEO of the Company. The loan was fully repaid by Mr. Wei Wen in August 2018.

 

In 2018, the Group granted an interest free loan amounted to RMB0.8 million to Mr. Xingyu Du, Vice President of administration. The loan was fully repaid by Mr. Xingyu Du in August 2018.

 

In 2018, the Group granted an interest free loan amounted to RMB1.0 million to Mr. Wei Wen, Chairman of the Board of Directors and CEO of the Company. The loan was fully repaid by Mr. Wei Wen in October 2018.

 

 

F-45

 

 

TUANCHE LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

  

19.Subsequent events

 

COVID-19 pandemic

 

The outbreak of a novel strain of coronavirus (COVID-19) spread throughout China and to other countries globally. The Group, as well as its suppliers and customers, have experienced significant business disruptions due to government-mandated quarantine measures and travel restrictions to contain the spread of the pandemic. Out of public health concerns, the Group cancelled all offline events such as auto shows and special promotion events previously scheduled in February and March 2020, and held very few offline events in April 2020. The Group expects to continue to reduce the number of offline events in the coming months, as the Chinese government has issued guidelines to continue to curb indoor public gatherings. In addition, the spread of COVID-19 may continue to cause a general slowdown of the Chinese economy in 2020 and beyond, leading to a further slump in the demand for automobiles in China. The reduction in the number of auto shows and special promotion events, combined with a sustained decline in demand in the near future, could materially and adversely affect the Group’s business, results of operations, financial condition and cash flows. Furthermore, as the business operations of the industry customers have also been disrupted, the Group has experienced a delay in collecting the accounts receivable due to the COVID-19 pandemic, which could materially and adversely affect its liquidity. In response to the material impact of the COVID-19 pandemic, the Group has implemented measures to adjust the pace of its operation expansion, conserve resources such as furlough arrangements, scaling back the Group’s recruitment budget and employee size and may resort to other costs cutting measures if the outbreak of COVID-19 and its impact persist or escalate, which may have a material adverse effect on the Group’s business, results of operations, financial condition and cash flows. The Group is closely monitoring the development of the COVID-19 pandemic and continuously evaluating its impact on the Group’s business, results of operations, financial condition and cash flows, the severity of which will depend on the duration of the pandemic and the government’s responsive measures. For the first quarter of 2020, the Company expects net revenues to range from approximately RMB9.0 million to RMB10.0 million, representing a year-over-year approximate decrease of 92.7% to 91.9%, mainly due to cancellation of offline events in February and March as a result of the COVID-19 pandemic.

 

Acquisition of Longye International

 

The closing of the acquisition transaction (the “Closing”) pursuant to the share purchase agreement (the “Agreement”) with, among other parties, Longye International Limited, a company incorporated in the Cayman Islands (“Longye”), took place on January 13, 2020 (the “Closing Date”). Following the Closing, the Company has acquired the entire equity interest in Longye for a consideration of RMB200 million in the form of a combination of cash and the Company’s securities. The Company had extended a bridge loan of an amount of U.S. dollar equivalent to RMB100 million upon the execution of the Agreement and other related documents. On the Closing Date, the Company credited this bridge loan to the cash portion of the purchase price, and issued 8,366,444 Class A ordinary shares of the Company (“Consideration Shares”) to the selling shareholders of Longye in satisfaction of the securities portion of the total consideration. The Consideration Shares are calculated by dividing a US-dollar equivalent of RMB100 million by the average closing price of the Company’s Class A ordinary shares (as represented by American depositary shares) during the thirty-day period ended on May 10, 2019. As of the Closing Date, 20% of the Consideration Shares had fully vested, while the remaining Consideration Shares remain subject to contractual restrictions on transfer. On January 1, 2021, and January 1, 2022, the contractual restrictions related to 30% and 50% of the total Consideration Shares will be lifted, respectively. The above 100% equity interest acquisitions are accounted for as a business combination. The Group is in process of determining the fair value of acquired assets and liabilities, based on management’s experiences with similar assets and liabilities with the assistance from an independent valuation firm. Through the date on which the financial statements were issued, the valuation report for the acquisition is not finished and the initial accounting for the business combination were incomplete.

 

 

F-46

 

 

TUANCHE LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

20.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. Wei Wen, Chairman of the Board of Directors and CEO.

 

The Group's organizational structure is based on a number of factors that the CODM uses to evaluate, view and run its business operations which include, but not limited to, customer base, homogeneity of products and technology. The Group's operating segments are based on such organizational structure and information reviewed by the Group's CODM to evaluate the operating segment results. The Group has internal reporting of revenue, cost and expenses by nature as a whole. Hence, the Group has two operating segments-Continuing Business and Discontinued Business in 2017 and 2018.

 

The Company’s one segment is auto shows, group-purchase facilitation, special promotion events and virtual dealership, online marketing services and others (the “segment”).

 

The Company disposed of its electric vehicle sales facilitation business in June 2018. This is the Discontinued Business and the results of this segment are included as discontinued operations for the years ended December 31, 2017 and 2018.

 

Key revenue streams of the segment are as below:

 

    December 31, 2017     December 31, 2018     December 31, 2019  
    RMB     RMB     RMB  
Offline Marketing Services:                        
Auto shows     263,927       644,252       603,407  
Special promotion events     -       -       19,772  
Group-purchase facilitation     16,739       -       -  
Virtual dealership, online marketing services and others     -       6,761       21,594  
Total     280,666       651,013       644,773  

 

Substantially all revenues are derived from China based on the geographical locations 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.

 

21. Fair Value Measurement

 

Assets and liabilities disclosed at fair value

 

The Company measures its cash and cash equivalents, restricted cash, short-term investments, short-term borrowings and convertible loans at amortized cost. The fair value was estimated by discounting the scheduled cash flows through to estimated maturity using estimated discount rates based on current offering rates of comparable institutions with similar services. The carrying value of the Company's debt obligations approximate fair value as the borrowing rates are similar to the market rates that are currently available to the Company for financing obligations with similar terms and credit risks and represent a level 2 measurement.

 

F-47

 

 

TUANCHE LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

21. Fair Value Measurement (Continued)

 

Assets measured at fair value on a nonrecurring basis

 

The Company measured its property, equipment and software, long-term investments at fair value 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 its warrant at fair value on a recurring basis. As the Company's warrant is not traded in an active market with readily observable prices, the Company uses significant unobservable inputs to measure the fair value of warrant. This instrument 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 years ended December 31, 2016 and 2017. In 2018, the Company transferred the warrant out of level 3 to mezzanine as China Equities has effected a net cashless exchange of the warrant for 483,702 Series C-2 convertible redeemable preferred shares on September 29, 2018.

 

Warrant

 

The Company adopted Black Scholes model to assess the warrant's fair value. 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 Black Scholes 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.

 

22. 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, VIEs and subsidiaries of VIEs 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 10% of net after-tax income should be set aside prior to payment of any dividends. As a result of these and other restrictions under PRC laws and regulations, the PRC subsidiaries, VIEs and subsidiaries of VIEs are restricted in their ability to transfer a portion of their net assets to the Company either in the form of dividends, loans or advances, which restricted portion amounted to approximately RMB139.9 million and RMB 183.0 million as of December 31, 2018 and December 31, 2019 respectively. Even though the Company currently does not require any such dividends, loans or advances from the PRC subsidiaries, VIEs and subsidiaries of VIEs for working capital and other funding purposes, the Company may in the future require additional cash resources from its PRC subsidiaries, VIEs and subsidiaries of VIEs due to changes in business conditions, to fund future acquisitions and developments, or merely declare and pay dividends to or distributions to the Company's shareholders.

 

The Company performed a test on the restricted net assets of its consolidated subsidiaries and VIEs in accordance with Securities and Exchange Commission Regulation S-X Rule 4-08 (e)(3), “General Notes to the Financial Statements” and concluded that it was applicable for the Company to disclose the condensed financial information for the parent company (Note 23) for the years ended December 31, 2017, 2018 and 2019. For the purposes of presenting parent only financial information, the Company records its investments in its subsidiaries and VIEs under the equity method of accounting. Such investments are presented on the separate condensed balance sheets of the Company as “Investments in subsidiaries, VIEs and subsidiaries of VIEs” and subsidiaries of VIEs’ loss are presented as “Equity in loss of subsidiaries, VIEs and subsidiaries of VIEs” on the Condensed statements of operations and comprehensive loss.

 

F-48

 

 

TUANCHE LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

23. Additional Information — Condensed Financial Information of the Parent Company

 

Condensed statements of operations and comprehensive loss:

 

   For the year ended
December 31,
 
   2017   2018   2019 
   RMB   RMB   RMB   US$ 
Operating expenses:                    
Selling and marketing expenses   -    (1,511)   (256)   (37)
General and administrative expenses   (1,600)   (12,936)   (19,801)   (2,844)
Research and development expenses   -    (84)   (422)   (61)
Total operating expenses   (1,600)   (14,531)   (20,479)   (2,942)
Interest (expenses)/income, net   (657)   (1,470)   6,142    883 
Change in fair value of warrant   (1,390)   (3,843)   -    - 
Equity in loss of subsidiaries, VIEs and subsidiaries of VIEs   (87,023)   (58,864)   (235,804)   (33,871)
Others, net   (1)   8    (499)   (72)
Net loss attributable to ordinary shareholders   (90,671)   (78,700)   (250,640)   (36,002)
Accretions to preferred shares redemption value   (20,945)   (35,066)   -    - 
Net loss   (111,616)   (113,766)   (250,640)   (36,002)
Other comprehensive (loss)/income:                    
Foreign currency translation adjustments,   net of nil tax   (1,367)   3,401    9,771    1,404 
Total comprehensive loss   (112,983)   (110,365)   (240,869)   (34,598)

 

F-49

 

 

TUANCHE LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

23. Additional Information — Condensed Financial Information of the Parent Company (Continued)

 

Condensed balance sheets:

 

   As of December 31 
   2018   2019 
   RMB   RMB   US$ 
ASSETS            
Current assets:               
Cash and cash equivalents   458,936    102,002    14,652 
Time deposits   -    69,762    10,021 
Prepayment and other current assets   -    104,572    15,021 
Receivables due from subsidiaries, VIEs and subsidiaries of VIEs   108,066    110,348    15,850 
Total current assets   567,002    386,684    55,544 
Non-current assets:               
Investments in subsidiaries, VIEs and subsidiaries of VIEs   39,157    46,087    6,620 
Other non-current assets   644    -    - 
Total non-current assets   39,801    46,087    6,620 
TOTAL ASSETS   606,803    432,771    62,164 
LIABILITIES AND SHAREHOLDERS’ EQUITY               
Current liabilities:               
Other taxs payable   -    6,654    956 
Other current liabilities   -    325    47 
Payables due to subsidiaries, VIEs and subsidiaries of VIEs   4,813    -    - 
Total current liabilities   4,813    6,979    1,003 
Non-current liabilities:               
Other non-current liabilities   -    2,158    309 
Total non-current liabilities   -    2,158    309 
TOTAL LIABILITIES   4,813    9,137    1,312 
SHAREHOLDERS’ EQUITY               
Class A ordinary shares   166    173    25 
Class B ordinary shares   35    35    5 
Treasury stock   -    (47,888)   (6,879)
Additional paid-in capital   1,077,183    1,187,577    170,585 
Accumulated deficit   (468,026)   (718,666)   (103,229)
Accumulated other comprehensive (loss)/income   (7,368)   2,403    345 
TOTAL SHAREHOLDERS' EQUITY   601,990    423,634    60,852 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY   606,803    432,771    62,164 

 

F-50

 

 

TUANCHE LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

23. Additional Information — Condensed Financial Information of the Parent Company (Continued)

 

Condensed statements of cash flows:

 

   For the year ended December 31, 
   2017   2018   2019 
   RMB   RMB   RMB   US$ 
Net cash used in operating activities   (6,466)   (9,640)   (3,086)   (442)
Cash flows from investing activities:                    
Cash paid for investments in subsidiaries, VIEs and subsidiaries of VIEs   (47,002)   (201,744)   (151,006)   (21,691)
Cash payment of time deposits   -    -    (69,762)   (10,021)
Cash payment of bridge loan   -    -    (99,148)   (14,242)
Net cash used in investing activities   (47,002)   (201,744)   (319,916)   (45,954)
Cash flows from financing activities:                    
Cash payments for repurchase of restricted shares from employees   -    -    (26,228)   (3,767)
Cash payments for repurchase of shares   -    -    (13,749)   (1,975)
Cash received from convertible loans   41,165    -    -    - 
Proceeds from issuance of Series C+ convertible redeemable preferred shares   59,091    -    -    - 
Payments of issuance cost for Series C+ convertible redeemable preferred shares   (449)   -    -    - 
Proceeds from issuance of Series D-1 convertible redeemable preferred shares   -    151,118    -    - 
Payment of issuance cost for Series D-1 convertible redeemable preferred shares   -    (307)   -    - 
Proceeds from issuance of Series D-2 convertible redeemable preferred shares   -    359,834    -    - 
Payment of issuance cost for Series D-2 convertible redeemable preferred shares   -    (1,267)   -    - 
Proceeds of initial public offering, net of issuance costs   -    103,372    -    - 
Cash received from the depositary bank   -    -    2,732    392 
Net cash generated from/(used in) financing activities   99,807    612,750    (37,245)   (5,350)
Effect of exchange rate changes on cash, cash equivalents and restricted cash   (981)   12,134    3,313    476 
Net increase/(decrease) in cash, cash equivalents and restricted cash   45,358    413,500    (356,934)   (51,270)
Cash, cash equivalents and restricted cash at the beginning of year   78    45,436    458,936    65,922 
Cash, cash equivalents and restricted cash at the end of year   45,436    458,936    102,002    14,652 

 

Basis of presentation

 

The Company’s accounting policies are the same as the Group’s accounting policies with the exception of the accounting for the investments in subsidiaries, VIEs and subsidiaries of VIEs.

 

For the Company only condensed financial information, the Company records its investments in subsidiaries, VIEs and subsidiaries of VIEs under the equity method of accounting as prescribed in ASC 323, Investments—Equity Method and Joint Ventures. Such investments are presented on the Condensed balance sheets as “Investments in subsidiaries, VIEs and subsidiaries of VIEs” and shares in the subsidiaries, VIEs and subsidiaries of VIEs’ loss are presented as “Equity in loss of subsidiaries, VIEs and subsidiaries of VIEs” on the Condensed statements of operations and comprehensive loss. The parent company only condensed financial information should be read in conjunction with the Group’ consolidated financial statements.

 

F-51

 

Exhibit 2.4

 

 

Description of rights of each class of securities

registered under Section 12 of the Securities Exchange Act of 1934 (the “Exchange Act”)

 

American Depositary Shares (“ADSs”), each representing four Class A ordinary shares of TuanChe Limited (“we,” “our,” “our company,” or “us”), are listed and traded on the Nasdaq Capital Market and, in connection with this listing (but not for trading), the Class A ordinary shares are registered under Section 12(b) of the Exchange Act. This exhibit contains a description of the rights of (i) the holders of Class A ordinary shares and (ii) the holders of ADSs. Class A ordinary shares underlying the ADSs are held by The Bank of New York Mellon, as depositary, and holders of ADSs will not be treated as holders of the Class A ordinary shares.

 

Description of Class A Ordinary Shares

 

The following is a summary of material provisions of our currently effective third amended and restated memorandum and articles of association (the “Memorandum and Articles of Association”), as well as the Companies Law (as amended) of the Cayman Islands (the “Companies Law”) insofar as they relate to the material terms of our ordinary shares. Notwithstanding this, because it is a summary, it may not contain all the information that you may otherwise deem important. For more complete information, you should read the entire Memorandum and Articles of Association, which has been filed with the SEC as an exhibit to our Registration Statement on Form F-1 (File No. 333-227940).

 

Type and Class of Securities (Item 9.A.5 of Form 20-F)

 

The par value of Class A ordinary share is US$0.0001 per share. The number of Class A ordinary shares that had been issued as of December 31, 2019 is provided on the cover of the annual report on Form 20-F for the fiscal year ended December 31, 2019. Certificates representing the ordinary shares are issued in registered form. Our shareholders who are non-residents of the Cayman Islands may freely hold and vote their ordinary shares.

 

Preemptive Rights (Item 9.A.3 of Form 20-F)

 

Our shareholders do not have preemptive rights.

 

Limitations or Qualifications (Item 9.A.6 of Form 20-F)

 

We have a dual-class voting structure such that our ordinary shares consist of Class A ordinary shares and Class B ordinary shares. Each Class A ordinary share shall entitle the holder thereof to one vote on all matters subject to the vote at general meetings of our company, and each Class B ordinary share shall entitle the holder thereof to fifteen (15) votes on all matters subject to the vote at general meetings of our company. Due to the super voting power of Class B ordinary share holder, the voting power of the Class A ordinary shares may be materially limited.

 

Rights of Other Types of Securities (Item 9.A.7 of Form 20-F)

 

Not applicable.

 

Rights of Class A Ordinary Shares (Item 10.B.3 of Form 20-F)

 

 

 

 

Classes of Ordinary Shares

 

Our ordinary shares are divided into Class A ordinary shares and Class B ordinary shares. Holders of our Class A ordinary shares and Class B ordinary shares will have the same rights except for voting and conversion rights. Our ordinary shares are issued in registered form and are issued when registered in our register of shareholders. We may not issue shares to bearer. Our shareholders who are non-residents of the Cayman Islands may freely hold and vote their shares.

 

Conversion

 

Each Class B ordinary share is convertible into one Class A ordinary share at any time by the holder thereof. Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances. Upon any sale, transfer, assignment or disposition of any Class B ordinary share by a holder thereof to any person who is not an Affiliate (as defined in our post-offering amended and restated memorandum and articles of association) of such holder, or upon a change of ultimate beneficial ownership of any Class B ordinary share to any person or entity who is not an Affiliate of the registered holder, such Class B ordinary shares will be automatically and immediately converted into an equal number of Class A ordinary shares.

 

Dividends

 

The holders of our ordinary shares are entitled to such dividends as may be declared by our board of directors, subject to our post-offering amended and restated memorandum and articles of association. In addition, our shareholders may by an ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our directors. Our post-offering amended and restated memorandum and articles of association provide that our directors may, before recommending or declaring any dividend, set aside out of the funds legally available for distribution such sums as they think proper as a reserve or reserves which shall, in the absolute discretion of our directors, be applicable for meeting contingencies or for equalising dividends or for any other purpose to which those funds may be properly applied. Under the laws of the Cayman Islands, our company may pay a dividend out of either our profit or share premium account, provided that in no circumstances may a dividend be paid if, immediately after this payment, this would result in our company being unable to pay its debts as they fall due in the ordinary course of business.

 

Voting Rights

 

Holders of Class A ordinary shares and Class B ordinary shares vote together as a single class on all matters submitted to a vote by our shareholders, except as may otherwise be required by law or provided for in our post-offering amended and restated memorandum and articles of association. In respect of matters requiring shareholders' vote, each Class A ordinary share entitles the holder thereof to one vote, and each Class B ordinary share entitles the holder thereof to 15 votes. Voting at any shareholders’ meeting is by show of hands unless a poll is (before or on the declaration of the result of the show of hands) demanded. A poll may be demanded by the chairman of such meeting or any shareholder present in person or by proxy at the meeting.

 

 

 

 

An ordinary resolution to be passed at a meeting by the shareholders requires the affirmative vote of a simple majority of the votes attaching to the ordinary shares cast by those shareholders entitled to vote who are present in person or by proxy at a general meeting, while a special resolution requires the affirmative vote of no less than two-thirds of the votes cast attaching to the outstanding ordinary shares cast by those shareholders entitled to vote who are present or by proxy at a general meeting. Both ordinary resolutions and special resolutions may also be passed by a unanimous written resolution signed by all the shareholders of our company, as permitted by the Companies Law and our post-offering amended and restated memorandum and articles of association. A special resolution will be required for important matters such as a change of name or making changes to our post-offering amended and restated memorandum and articles of association. We may, among other things, subdivide or consolidate our shares by ordinary resolution.

 

General Meetings of Shareholders.

 

As a Cayman Islands exempted company, we are not obliged by the Companies Law to call shareholders' annual general meetings. Our post-offering amended and restated memorandum and articles of association provide that we may (but are not obliged to) in each year hold a general meeting as our annual general meeting in which case we shall specify the meeting as such in the notices calling it, and the annual general meeting shall be held at such time and place as may be determined by our directors.

 

Shareholders’ general meetings may be convened by the chairman of our board of directors or a majority of our board of directors. Advance notice of at least seven (7) calendar days is required for the convening of our annual general shareholders' meeting (if any) and any other general meeting of our shareholders. A quorum required for any general meeting of shareholders consists of one or more shareholder present or by proxy or, if a corporation or other non-natural person by its duly authorized representative, representing not less than one-third of all votes attaching to the issued and outstanding shares in our company entitled to vote at general meetings.

 

The Companies Law provides shareholders with only limited rights to requisition a general meeting, and does not provide shareholders with any right to put any proposal before a general meeting. However, these rights may be provided in a company’s articles of association. Our post-offering amended and restated memorandum and articles of association provide that upon the requisition of shareholders representing in aggregate not less than one-third (1/3) of all votes attaching to the issued and outstanding shares of our company entitled to vote at general meetings as at the date of the deposit of the requisition, our board is obliged to convene an extraordinary general meeting and put the resolutions so requisitioned to a vote at such meeting. However, our post-offering amended and restated memorandum and articles of association do not provide our shareholders with any right to put any proposals before annual general meetings or extraordinary general meetings not called by such shareholders.

 

Transfer of Ordinary Shares

 

Subject to the restrictions in our post-offering amended and restated memorandum and articles of association as set out below, any of our shareholders may transfer all or any of his or her ordinary shares by an instrument of transfer in the usual or common form or any other form approved by our board of directors.

 

Our board of directors may, in its absolute discretion, decline to register any transfer of any share which is not fully paid up or on which we have a lien. Our board of directors may also decline to register any transfer of any share unless:

 

·the instrument of transfer is lodged with us, accompanied by the certificate for the shares to which it relates and such other evidence as our board of directors may reasonably require to show the right of the transferor to make the transfer;

 

 

 

 

·the instrument of transfer is in respect of only one class of shares;

 

·the instrument of transfer is properly stamped, if required;

 

·in the case of a transfer to joint holders, the number of joint holders to whom the share is to be transferred does not exceed four; and

 

·a fee of such maximum sum as NASDAQ may determine to be payable or such lesser sum as our directors may from time to time require is paid to us in respect thereof.

 

If our directors refuse to register a transfer they shall, within three calendar months after the date on which the transfer was lodged with us, send to each of the transferor and the transferee notice of such refusal.

 

The registration of transfers may, after compliance with any notice requirement of NASDAQ, be suspended and the register closed at such times and for such periods as our board of directors may from time to time determine, provided, however, that the registration of transfers shall not be suspended nor the register closed for more than 30 calendar days in any calendar year as our board may determine.

 

Liquidation

 

On a return of capital or the winding up of our company, if the assets available for distribution amongst our shareholders shall be more than sufficient to repay the whole of the share capital at the commencement of the winding up, the surplus shall be distributed amongst our shareholders in proportion to the par value of the shares held by them at the commencement of the winding up, subject to a deduction from those shares in respect of which there are monies due, of all monies payable to our company for unpaid calls or otherwise. If our assets available for distribution are insufficient to repay the whole of the share capital, the assets will be distributed so that the losses are borne by our shareholders in proportion to the par value of the shares held by them.

 

Calls on Shares and Forfeiture of Shares

 

Our board of directors may from time to time make calls upon shareholders for any amounts unpaid on their shares in a notice served to such shareholders at least 14 calendar days prior to the specified time and place of payment. The shares that have been called upon and remain unpaid are subject to forfeiture.

 

Redemption, Repurchase and Surrender of Shares

 

We may issue shares on terms that such shares are subject to redemption, at our option or at the option of the holders of these shares, on such terms and in such manner as may be determined by our board of directors or by the shareholders by special resolution. Our company may also repurchase any of our shares (including any redeemable shares) on such terms and in such manner as have been approved by our board of directors or by an ordinary resolution of our shareholders. Under the Companies Law, the redemption or repurchase of any share may be paid out of our company’s profits or out of the proceeds of a new issue of shares made for the purpose of such redemption or repurchase, or out of capital (including share premium account and capital redemption reserve) if our company can, immediately following such payment, pay its debts as they fall due in the ordinary course of business. In addition, under the Companies Law no such share may be redeemed or repurchased (a) unless it is fully paid up, (b) if such redemption or repurchase would result in there being no shares outstanding or (c) if our company has commenced liquidation. In addition, our company may accept the surrender of any fully paid share for no consideration.

 

 

 

 

Inspection of Books and Records

 

Holders of our ordinary shares will have no general right under Cayman Islands law to inspect or obtain copies of our list of shareholders or our corporate records. See “Where You Can Find More Information.”

 

Requirements to Change the Rights of Holders of Class A Ordinary Shares (Item 10.B.4 of Form 20-F)

 

Variations of Rights of Shares

 

If at any time, our share capital is divided into different classes or series of shares, the rights attached to any class or series of shares (unless otherwise provided by the terms of issue of the shares of that class or series), whether or not our company is being wound-up, may be varied with the consent in writing of the holders of two-thirds of the issued shares of that class or series or with the sanction of a special resolution passed at a separate meeting of the holders of the shares of the class or series. The rights conferred upon the holders of the shares of any class issued shall not, unless otherwise expressly provided by the terms of issue of the shares of that class, be deemed to be materially adversely varied by the creation or issue of further shares with preferred or other rights including without limitation the creation of shares with enhanced or weighted voting rights. 

 

Limitations on the Rights to Own Class A Ordinary Shares (Item 10.B.6 of Form 20-F)

 

There are no limitations under the laws of the Cayman Islands or under the Memorandum and Articles of Association that limit the right of non-resident or foreign owners to hold or vote Class A ordinary shares, other than anti-takeover provisions contained in the Memorandum and Articles of Association to limit the ability of others to acquire control of our company or cause our company to engage in change-of-control transactions.

 

Provisions Affecting Any Change of Control (Item 10.B.7 of Form 20-F)

 

Anti-Takeover Provisions

 

Some provisions of our post-offering amended and restated memorandum and articles of association may discourage, delay or prevent a change of control of our company or management that shareholders may consider favorable, including provisions that:

 

·authorize our board of directors to issue preference shares in one or more series and to designate the price, rights, preferences, privileges and restrictions of such preference shares without any further vote or action by our shareholders; and

 

·limit the ability of shareholders to requisition and convene general meetings of shareholders.

 

However, under Cayman Islands law, our directors may only exercise the rights and powers granted to them under our post-offering amended and restated memorandum and articles of association for a proper purpose and for what they believe in good faith to be in the best interests of our company.

 

 

 

 

Ownership Threshold (Item 10.B.8 of Form 20-F)

 

There are no provisions under Cayman Islands law applicable to the Company, or under the Memorandum and Articles of Association, governing the ownership threshold above which shareholder ownership must be disclosed.

 

Differences Between the Law of Different Jurisdictions (Item 10.B.9 of Form 20-F)

 

The Companies Law is derived, to a large extent, from the older Companies Acts of England, but does not follow recent English statutory enactments and accordingly there are significant differences between the Companies Law and the current Companies Act of England. In addition, the Companies Law differs from laws applicable to U.S. corporations and their shareholders. Set forth below is a summary of certain significant differences between the provisions of the Companies Law applicable to us and the laws applicable to companies incorporated in the United States and their shareholders.

 

Mergers and Similar Arrangements

 

The Companies Law permits mergers and consolidations between Cayman Islands companies and between Cayman Islands companies and non-Cayman Islands companies. For these purposes, (1) “merger” means the merging of two or more constituent companies and the vesting of their undertaking, property and liabilities in one of such companies as the surviving company, and (2) a “consolidation” means the combination of two or more constituent companies into a consolidated company and the vesting of the undertaking, property and liabilities of such companies to the consolidated company. In order to effect such a merger or consolidation, the directors of each constituent company must approve a written plan of merger or consolidation, which must then be authorized by (a) a special resolution of the shareholders of each constituent company, and (b) such other authorization, if any, as may be specified in such constituent company’s articles of association. The plan must be filed with the Registrar of Companies of the Cayman Islands together with a declaration as to the solvency of the consolidated or surviving company, a declaration as to the assets and liabilities of each constituent company and an undertaking that a copy of the certificate of merger or consolidation will be given to the members and creditors of each constituent company and that notification of the merger or consolidation will be published in the Cayman Islands Gazette. Court approval is not required for a merger or consolidation which is effected in compliance with these statutory procedures.

 

A merger between a Cayman parent company and its Cayman subsidiary or subsidiaries does not require authorization by a resolution of shareholders of that Cayman subsidiary if a copy of the plan of merger is given to every member of that Cayman subsidiary to be merged unless that member agrees otherwise. For this purpose a company is a “parent” of a subsidiary if it holds issued shares that together represent at least 90% of the votes at a general meeting of the subsidiary.

 

The consent of each holder of a fixed or floating security interest over a constituent company is required unless this requirement is waived by a court in the Cayman Islands.

 

 

 

 

Save in certain limited circumstances, a shareholder of a Cayman constituent company who dissents from the merger or consolidation is entitled to payment of the fair value of his shares (which, if not agreed between the parties, will be determined by the Cayman Islands court) upon dissenting to the merger or consolidation, provide the dissenting shareholder complies strictly with the procedures set out in the Companies Law. The exercise of dissenter rights will preclude the exercise by the dissenting shareholder of any other rights to which he or she might otherwise be entitled by virtue of holding shares, save for the right to seek relief on the grounds that the merger or consolidation is void or unlawful.

 

Separate from the statutory provisions relating to mergers and consolidations, the Companies Law also contains statutory provisions that facilitate the reconstruction and amalgamation of companies by way of schemes of arrangement, provided that the arrangement is approved by a majority in number of each class of shareholders and creditors with whom the arrangement is to be made, and who must in addition represent three-fourths in value of each such class of shareholders or creditors, as the case may be, that are present and voting either in person or by proxy at a meeting, or meetings, convened for that purpose. The convening of the meetings and subsequently the arrangement must be sanctioned by the Grand Court of the Cayman Islands. While a dissenting shareholder has the right to express to the court the view that the transaction ought not to be approved, the Grand Court of the Cayman Islands can be expected to approve the arrangement if it determines that:

 

·the statutory provisions as to the required majority vote have been met;

 

·the shareholders have been fairly represented at the meeting in question and the statutory majority are acting bona fide without coercion of the minority to promote interests adverse to those of the class;

 

·the arrangement is such that may be reasonably approved by an intelligent and honest man of that class acting in respect of his interest; and

 

·the arrangement is not one that would more properly be sanctioned under some other provision of the Companies Law.

 

The Companies Law also contains a statutory power of compulsory acquisition which may facilitate the “squeeze out” of dissentient minority shareholder upon a tender offer. When a tender offer is made and accepted by holders of 90% of the shares affected within four months, the offeror may, within a two-month period commencing on the expiration of such four month period, require the holders of the remaining shares to transfer such shares to the offeror on the terms of the offer. An objection can be made to the Grand Court of the Cayman Islands but this is unlikely to succeed in the case of an offer which has been so approved unless there is evidence of fraud, bad faith or collusion.

 

If an arrangement and reconstruction is thus approved, or if a tender offer is made and accepted, a dissenting shareholder would have no rights comparable to appraisal rights, which would otherwise ordinarily be available to dissenting shareholders of Delaware corporations, providing rights to receive payment in cash for the judicially determined value of the shares.

 

Shareholders’ Suits

 

In principle, we will normally be the proper plaintiff to sue for a wrong done to us as a company, and as a general rule a derivative action may not be brought by a minority shareholder. However, based on English authorities, which would in all likelihood be of persuasive authority in the Cayman Islands, the Cayman Islands court can be expected to follow and apply the common law principles (namely the rule in Foss v. Harbottle and the exceptions thereto) which permit a minority shareholder to commence a class action against or derivative actions in the name of our company to challenge actions where:

 

 

 

 

·a company acts or proposes to act illegally or ultra vires and is therefore incapable of ratification by the shareholders;

 

·the act complained of, although not ultra vires, could only be effected duly if authorized by more than a simple majority vote that has not been obtained; and

 

·those who control our company are perpetrating a “fraud on the minority.”

 

Indemnification of Directors and Executive Officers and Limitation of Liability

 

Cayman Islands law does not limit the extent to which a company’s memorandum and articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime. Our post-offering amended and restated memorandum and articles of association provide that that we shall indemnify our officers and directors against all actions, proceedings, costs, charges, expenses, losses, damages or liabilities incurred or sustained by such directors or officer, other than by reason of such person’s dishonesty, willful default or fraud, in or about the conduct of our company’s business or affairs (including as a result of any mistake of judgment) or in the execution or discharge of his duties, powers, authorities or discretions, including without prejudice to the generality of the foregoing, any costs, expenses, losses or liabilities incurred by such director or officer in defending (whether successfully or otherwise) any civil proceedings concerning our company or its affairs in any court whether in the Cayman Islands or elsewhere. This standard of conduct is generally the same as permitted under the Delaware General Corporation Law for a Delaware corporation.

 

In addition, we have entered into indemnification agreements with our directors and executive officers that provide such persons with additional indemnification beyond that provided in our post-offering amended and restated memorandum and articles of association.

 

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or persons controlling us under the foregoing provisions, we have been informed that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

 

Directors’ Fiduciary Duties

 

Under Delaware corporate law, a director of a Delaware corporation has a fiduciary duty to the corporation and its shareholders. This duty has two components: the duty of care and the duty of loyalty. The duty of care requires that a director act in good faith, with the care that an ordinarily prudent person would exercise under similar circumstances. Under this duty, a director must inform himself of, and disclose to shareholders, all material information reasonably available regarding a significant transaction. The duty of loyalty requires that a director acts in a manner he reasonably believes to be in the best interests of the corporation. He must not use his corporate position for personal gain or advantage. This duty prohibits self-dealing by a director and mandates that the best interest of the corporation and its shareholders take precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the shareholders generally. In general, actions of a director are presumed to have been made on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the corporation. However, this presumption may be rebutted by evidence of a breach of one of the fiduciary duties. Should such evidence be presented concerning a transaction by a director, the director must prove the procedural fairness of the transaction, and that the transaction was of fair value to the corporation.

 

 

 

 

As a matter of Cayman Islands law, a director of a Cayman Islands company is in the position of a fiduciary with respect to our company and therefore it is considered that he owes the following duties to our company, including a duty to act bona fide in the best interests of our company, a duty not to make a profit based on his position as director (unless our company permits him to do so), a duty not to put himself in a position where the interests of our company conflict with his personal interest or his duty to a third party, and a duty to exercise powers for the purpose for which such powers were intended. A director of a Cayman Islands company owes to our company a duty to act with skill and care. It was previously considered that a director need not exhibit in the performance of his duties a greater degree of skill than may reasonably be expected from a person of his knowledge and experience. However, English and Commonwealth courts have moved towards an objective standard with regard to the required skill and care and these authorities are likely to be followed in the Cayman Islands.

 

Shareholder Action by Written Consent

 

Under the Delaware General Corporation Law, a corporation may eliminate the right of shareholders to act by written consent by amendment to its certificate of incorporation. The Companies Law and our post-offering amended and restated articles of association provide that our shareholders may approve corporate matters by way of a unanimous written resolution signed by or on behalf of each shareholder who would have been entitled to vote on such matter at a general meeting without a meeting being held.

 

Shareholder Proposals

 

Under the Delaware General Corporation Law, a shareholder has the right to put any proposal before the annual meeting of shareholders, provided it complies with the notice provisions in the governing documents. A special meeting may be called by the board of directors or any other person authorized to do so in the governing documents, but shareholders may be precluded from calling special meetings.

 

The Companies Law provides shareholders with only limited rights to requisition a general meeting, and does not provide shareholders with any right to put any proposal before a general meeting. However, these rights may be provided in a company’s articles of association. Our post-offering amended and restated articles of association allow our shareholders holding in aggregate not less than a majority of all votes attaching to the issued and outstanding shares of our company entitled to vote at general meetings to requisition an extraordinary general meeting of our shareholders, in which case our board is obliged to convene an extraordinary general meeting and to put the resolutions so requisitioned to a vote at such meeting. Other than this right to requisition a shareholders' meeting, our post-offering amended and restated articles of association do not provide our shareholders with any other right to put proposals before annual general meetings or extraordinary general meetings. As an exempted Cayman Islands company, we are not obliged by law to call shareholders' annual general meetings.

 

 

 

 

Cumulative Voting

 

Under the Delaware General Corporation Law, cumulative voting for elections of directors is not permitted unless the corporation’s certificate of incorporation specifically provides for it. Cumulative voting potentially facilitates the representation of minority shareholders on a board of directors since it permits the minority shareholder to cast all the votes to which the shareholder is entitled on a single director, which increases the shareholder’s voting power with respect to electing such director. There are no prohibitions in relation to cumulative voting under the laws of the Cayman Islands but our post-offering amended and restated articles of association do not provide for cumulative voting. As a result, our shareholders are not afforded any less protections or rights on this issue than shareholders of a Delaware corporation.

 

Removal of Directors

 

Under the Delaware General Corporation Law, a director of a corporation with a classified board may be removed only for cause with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. Under our post-offering amended and restated articles of association, directors may be removed with or without cause, by an ordinary resolution of our shareholders. A director shall hold office until the expiration of his or her term or his or her successor shall have been elected and qualified, or until his or her office is otherwise vacated. In addition, a director’s office shall be vacated if the director (1) becomes bankrupt or makes any arrangement or composition with his creditors; (2) is found to be or becomes of unsound mind or dies; (3) resigns his office by notice in writing to our company; (4) without special leave of absence from our board of directors, is absent from three consecutive meetings of the board and the board resolves that his office be vacated; (5) is prohibited by law from being a director; or (6) is removed from office pursuant to any other provisions of our post-offering amended and restated memorandum and articles of association.

 

Transactions with Interested Shareholders

 

The Delaware General Corporation Law contains a business combination statute applicable to Delaware corporations whereby, unless the corporation has specifically elected not to be governed by such statute by amendment to its certificate of incorporation, it is prohibited from engaging in certain business combinations with an “interested shareholder” for three years following the date that such person becomes an interested shareholder. An interested shareholder generally is a person or a group who or which owns or owned 15% or more of the target’s outstanding voting share within the past three years. This has the effect of limiting the ability of a potential acquirer to make a two-tiered bid for the target in which all shareholders would not be treated equally. The statute does not apply if, among other things, prior to the date on which such shareholder becomes an interested shareholder, the board of directors approves either the business combination or the transaction which resulted in the person becoming an interested shareholder. This encourages any potential acquirer of a Delaware corporation to negotiate the terms of any acquisition transaction with the target’s board of directors.

 

Cayman Islands law has no comparable statute. As a result, we cannot avail ourselves of the types of protections afforded by the Delaware business combination statute. However, although Cayman Islands law does not regulate transactions between a company and its significant shareholders, the directors of the Company are required to comply with the fiduciary duties which they owe to the Company under Cayman Islands law, including the duty to ensure that, in their opinion, any such transaction are entered into bona fide in the best interests of our company, and are entered into for proper corporate purpose and not with the effect of constituting a fraud on the minority shareholders.

 

 

 

 

Dissolution; Winding Up

 

Under the Delaware General Corporation Law, unless the board of directors approves the proposal to dissolve, dissolution must be approved by shareholders holding 100% of the total voting power of the corporation. Only if the dissolution is initiated by the board of directors may it be approved by a simple majority of the corporation’s outstanding shares. Delaware law allows a Delaware corporation to include in its certificate of incorporation a supermajority voting requirement in connection with dissolutions initiated by the board.

 

Under Cayman Islands law, a company may be wound up by either an order of the courts of the Cayman Islands or by a special resolution of its members or, if our company is unable to pay its debts as they fall due, by an ordinary resolution of its members. The court has authority to order winding up in a number of specified circumstances including where it is, in the opinion of the court, just and equitable to do so. Under the Companies Law and our post-offering amended and restated articles of association, our company may be dissolved, liquidated or wound up by a special resolution of our shareholders.

 

Variation of Rights of Shares

 

Under the Delaware General Corporation Law, a corporation may vary the rights of a class of shares with the approval of a majority of the outstanding shares of such class, unless the certificate of incorporation provides otherwise. Under Cayman Islands law and our post-offering amended and restated articles of association, if our share capital is divided into more than one class of shares, we may vary the rights attached to any class with the written consent of the holders of all of the issued shares of that class or with the sanction of an ordinary resolution passed at a general meeting of the holders of the shares of that class.

 

Amendment of Governing Documents

 

Under the Delaware General Corporation Law, a corporation’s governing documents may be amended with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. Under the Companies Law and our post-offering amended and restated memorandum and articles of association, our memorandum and articles of association may only be amended by a special resolution of our shareholders.

 

Rights of Non-Resident or Foreign Shareholders

 

There are no limitations imposed by our post-offering amended and restated memorandum and articles of association on the rights of non-resident or foreign shareholders to hold or exercise voting rights on our shares. In addition, there are no provisions in our post-offering amended and restated memorandum and articles of association governing the ownership threshold above which shareholder ownership must be disclosed.

 

Changes in Capital (Item 10.B.10 of Form 20-F)

 

Our shareholders may from time to time by ordinary resolution:

 

·increase our share capital by such sum, to be divided into shares of such classes and amount, as the resolution shall prescribe;

 

 

 

 

·consolidate and divide all or any of our share capital into shares of a larger amount than our existing shares;

 

·sub-divide our existing shares, or any of them into shares of a smaller amount as fixed by the post-offering memorandum of association, provided that in the subdivision the proportion between the amount paid and the amount, if any, unpaid on each reduced share shall be the same as it was in case of the share from which the reduced share is derived; or

 

·cancel any shares which, at the date of the passing of the resolution, have not been taken or agreed to be taken by any person and diminish the amount of our share capital by the amount of the shares so cancelled.

 

Our shareholders may by special resolution reduce our share capital or any capital redemption reserve in any manner permitted by law.

 

Debt Securities (Item 12.A of Form 20-F)

 

Not applicable.

 

Warrants and Rights (Item 12.B of Form 20-F)

 

Not applicable.

 

Other Securities (Item 12.C of Form 20-F)

 

Not applicable.

 

Description of American Depositary Shares (Items 12.D.1 and 12.D.2 of Form 20-F)

 

The Bank of New York Mellon, as depositary, will register and deliver the ADSs. Each ADS represents ownership of four Class A ordinary shares, deposited with The Hongkong and Shanghai Banking Corporation Limited, as custodian for the depositary in Hong Kong. Each ADS will also represent any other securities, cash or other property which may be held by the depositary. The deposited Class A ordinary shares together with any other securities, cash or other property held by the depositary are referred to as the deposited securities. The depositary’s principal executive office at which the ADSs will be administered is located at 240 Greenwich Street, New York, New York 10286.

 

You may hold ADSs either (A) directly (i) by having an American Depositary Receipt, also referred to as an ADR, which is a certificate evidencing a specific number of ADSs, registered in your name, or (ii) by having uncertificated ADSs registered in your name, or (B) indirectly by holding a security entitlement in ADSs through your broker or other financial institution that is a direct or indirect participant in The Depository Trust Company, also called DTC. If you hold ADSs directly, you are a registered ADS holder, also referred to as an ADS holder. This description assumes you are an ADS holder. If you hold the ADSs indirectly, you must rely on the procedures of your broker or other financial institution to assert the rights of ADS holders described in this section. You should consult with your broker or financial institution to find out what those procedures are.

 

 

 

 

Registered holders of uncertificated ADSs will receive statements from the depositary confirming their holdings.

 

As an ADS holder, we will not treat you as one of our shareholders and you will not have shareholder rights. The laws of the Cayman Islands govern shareholder rights. The depositary will be the holder of the Class A ordinary shares underlying your ADSs. As a registered holder of ADSs, you will have ADS holder rights. A deposit agreement among us, the depositary, ADS holders and all other persons indirectly or beneficially holding ADSs sets out ADS holder rights as well as the rights and obligations of the depositary. New York law governs the deposit agreement and the ADSs.

 

The following is a summary of the material provisions of the deposit agreement. For more complete information, you should read the entire deposit agreement and the form of ADR which contains the terms of your ADSs. The deposit agreement has been filed with the SEC as an exhibit to a Registration Statement on Form F-6 (File No. 333-227940) for our company. The form of ADR is on file with the SEC (as a prospectus) and was filed on October 23, 2018.

 

Dividends and Other Distributions

 

How will you receive dividends and other distributions on the Class A ordinary shares?

 

The depositary has agreed to pay or distribute to ADS holders the cash dividends or other distributions it or the custodian receives on Class A ordinary shares or other deposited securities, upon payment or deduction of its fees and expenses. You will receive these distributions in proportion to the number of Class A ordinary shares your ADSs represent. 

 

·Cash. The depositary will convert any cash dividend or other cash distribution we pay on the Class A ordinary shares into U.S. dollars, if it can do so on a reasonable basis and can transfer the U.S. dollars to the United States. If that is not possible or if any government approval is needed and cannot be obtained, the deposit agreement allows the depositary to distribute the foreign currency only to those ADS holders to whom it is possible to do so. It will hold the foreign currency it cannot convert for the account of the ADS holders who have not been paid. It will not invest the foreign currency and it will not be liable for any interest.

 

Before making a distribution, any withholding taxes, or other governmental charges that must be paid will be deducted. See “Taxation.” The depositary will distribute only whole U.S. dollars and cents and will round fractional cents to the nearest whole cent. If the exchange rates fluctuate during a time when the depositary cannot convert the foreign currency, you may lose some of the value of the distribution.

 

·Class A Ordinary Shares. The depositary may distribute additional ADSs representing any Class A ordinary shares we distribute as a dividend or free distribution. The depositary will only distribute whole ADSs. It will sell Class A ordinary shares which would require it to deliver a fraction of an ADS (or ADSs representing those Class A ordinary shares) and distribute the net proceeds in the same way as it does with cash. If the depositary does not distribute additional ADSs, the outstanding ADSs will also represent the new Class A ordinary shares. The depositary may sell a portion of the distributed Class A ordinary shares (or ADSs representing those Class A ordinary shares) sufficient to pay its fees and expenses in connection with that distribution.

 

 

 

 

·Rights to purchase additional shares. If we offer holders of our securities any rights to subscribe for additional shares or any other rights, the depositary may (1) exercise those rights on behalf of ADS holders, (2) distribute those rights to ADS holders or (3) sell those rights and distribute the net proceeds to ADS holders, in each case after deduction or upon payment of its fees and expenses. To the extent the depositary does not do any of those things, it will allow the rights to lapse. In that case, you will receive no value for them. The depositary will exercise or distribute rights only if we ask it to and provide satisfactory assurances to the depositary that it is legal to do so. If the depositary will exercise rights, it will purchase the securities to which the rights relate and distribute those securities or, in the case of Class A ordinary shares, new ADSs representing the new Class A ordinary shares, to subscribing ADS holders, but only if ADS holders have paid the exercise price to the depositary. U.S. securities laws may restrict the ability of the depositary to distribute rights or ADSs or other securities issued on exercise of rights to all or certain ADS holders, and the securities distributed may be subject to restrictions on transfer.

 

·Other Distributions. The depositary will send to ADS holders anything else we distribute on deposited securities by any means it thinks is legal, fair and practical. If it cannot make the distribution in that way, the depositary has a choice. It may decide to sell what we distributed and distribute the net proceeds, in the same way as it does with cash. Or, it may decide to hold what we distributed, in which case ADSs will also represent the newly distributed property. However, the depositary is not required to distribute any securities (other than ADSs) to ADS holders unless it receives satisfactory evidence from us that it is legal to make that distribution. The depositary may sell a portion of the distributed securities or property sufficient to pay its fees and expenses in connection with that distribution. U.S. securities laws may restrict the ability of the depositary to distribute securities to all or certain ADS holders, and the securities distributed may be subject to restrictions on transfer.

 

The depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any ADS holders. We have no obligation to register ADSs, shares, rights or other securities under the Securities Act. We also have no obligation to take any other action to permit the distribution of ADSs, shares, rights or anything else to ADS holders. This means that you may not receive the distributions we make on our Class A ordinary shares or any value for them if it is illegal or impractical for us to make them available to you.

 

Deposit, Withdrawal and Cancellation

 

How are ADSs issued?

 

The depositary will deliver ADSs if you or your broker deposits Class A ordinary shares or evidence of rights to receive Class A ordinary shares with the custodian. Upon payment of its fees and expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees, the depositary will register the appropriate number of ADSs in the names you request and will deliver the ADSs to or upon the order of the person or persons that made the deposit.

 

How can ADS holders withdraw the deposited securities?

 

You may surrender your ADSs to the depositary for the purpose of withdrawal. Upon payment of its fees and expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees, the depositary will deliver the Class A ordinary shares and any other deposited securities underlying the ADSs to the ADS holder or a person the ADS holder designates at the office of the custodian. Or, at your request, risk and expense, the depositary will deliver the deposited securities at its office, if feasible. However, the depositary is not required to accept surrender of ADSs to the extent it would require delivery of a fraction of a deposited share or other security. The depositary may charge you a fee and its expenses for instructing the custodian regarding delivery of deposited securities.

 

 

 

 

How do ADS holders interchange between certificated ADSs and uncertificated ADSs?

 

You may surrender your ADR to the depositary for the purpose of exchanging your ADR for uncertificated ADSs. The depositary will cancel that ADR and will send to the ADS holder a statement confirming that the ADS holder is the registered holder of uncertificated ADSs. Upon receipt by the depositary of a proper instruction from a registered holder of uncertificated ADSs requesting the exchange of uncertificated ADSs for certificated ADSs, the depositary will execute and deliver to the ADS holder an ADR evidencing those ADSs.

 

Voting Rights

 

How do you vote?

 

ADS holders may instruct the depositary how to vote the number of deposited Class A ordinary shares their ADSs represent. If we request the depositary to solicit your voting instructions (and we are not required to do so), the depositary will notify you of a shareholders’ meeting and send or make voting materials available to you. Those materials will describe the matters to be voted on and explain how ADS holders may instruct the depositary how to vote. For instructions to be valid, they must reach the depositary by a date set by the depositary. The depositary will try, as far as practical, subject to the laws of the Cayman Islands and the provisions of our articles of association or similar documents, to vote or to have its agents vote the Class A ordinary shares or other deposited securities as instructed by ADS holders. If we do not request the depositary to solicit your voting instructions, you can still send voting instructions, and, in that case, the depositary may try to vote as you instruct, but it is not required to do so.

 

Except by instructing the depositary as described above, you will not be able to exercise voting rights unless you surrender your ADSs and withdraw the Class A ordinary shares. However, you may not know about the meeting enough in advance to withdraw the Class A ordinary shares. In any event, the depositary will not exercise any discretion in voting deposited securities and it will only vote or attempt to vote as instructed.

 

We cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote your shares. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for the manner of carrying out voting instructions. This means that you may not be able to exercise voting rights and there may be nothing you can do if your shares are not voted as you requested.

 

If we asked the depositary to solicit your instructions at least 30 days before the meeting date, but the depositary does not receive voting instructions from you by the specified date and we confirm to the depositary that:

 

·we wish to receive a proxy to vote uninstructed shares;

 

 

 

 

·we reasonably do not know of any substantial shareholder opposition to a particular question; and

 

·the particular question is not materially adverse to the interests of shareholders,

 

the depositary will consider you to have authorized and directed it to give, and it will give, a discretionary proxy to a person designated by us to vote the number of deposited securities represented by your ADSs as to that question.

 

In order to give you a reasonable opportunity to instruct the depositary as to the exercise of voting rights relating to the deposited Class A ordinary shares, if we request the depositary to disseminate a notice, we will give the depositary notice of the meeting, details concerning the matters to be voted upon and copies of materials to be made available to the ADS holders in connection with the meeting not less than 30 days prior to the meeting date.

 

Fees and Expenses

 

Persons depositing or withdrawing Class A ordinary shares or
ADS holders must pay:
For:
US$5.00 (or less) per 100 ADSs (or portion of 100 ADSs) Issuance of ADSs, including issuances resulting from a distribution of Class A ordinary shares or rights or other property
Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates
US$.05 (or less) per ADS Any cash distribution of ADS holders
A fee equivalent to the fee that would be payable if securities distributed to you had been Class A ordinary shares and the Class A ordinary shares had been deposited for issuance of ADSs Distribution of securities distributed to holders of deposited securities (including rights) that are distributed by the depositary to ADS holders
US$.05 (or less) per ADS per calendar year Depositary services
Registration or transfer fees Transfer and registration of Class A ordinary shares on our share register to or from the name of the depositary or its agent when you deposit or withdraw Class A ordinary shares
Expenses of the depositary Cable and facsimile transmissions (when expressly provided in the deposit agreement)
Converting foreign currency to U.S. dollars
Taxes and other governmental charges the depositary or the custodian has to pay on any ADSs or Class A ordinary shares underlying ADSs, such as stock transfer taxes, stamp duty or withholding taxes As necessary
Any charges incurred by the depositary or its agents for servicing the deposited securities As necessary  

 

 

 

 

The depositary collects its fees for delivery and surrender of ADSs directly from investors depositing Class A ordinary shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cash distributions or by directly billing investors or by charging the book-entry system accounts of participants acting for them. The depositary may collect any of its fees by deduction from any cash distribution payable (or by selling a portion of securities or other property distributable) to ADS holders that are obligated to pay those fees. The depositary may generally refuse to provide fee-attracting services until its fees for those services are paid.

 

From time to time, the depositary may make payments to us to reimburse us for costs and expenses generally arising out of establishment and maintenance of the ADS program, waive fees and expenses for services provided to us by the depositary or share revenue from the fees collected from ADS holders. In performing its duties under the deposit agreement, the depositary may use brokers, dealers, foreign currency dealers or other service providers that are owned by or affiliated with the depositary and that may earn or share fees, spreads or commissions.

 

The depositary may convert currency itself or through any of its affiliates and, in those cases, acts as principal for its own account and not as agent, advisor, broker or fiduciary on behalf of any other person and earns revenue, including, without limitation, transaction spreads, that it will retain for its own account. The revenue is based on, among other things, the difference between the exchange rate assigned to the currency conversion made under the deposit agreement and the rate that the depositary or its affiliate receives when buying or selling foreign currency for its own account. The depositary makes no representation that the exchange rate used or obtained in any currency conversion under the deposit agreement will be the most favorable rate that could be obtained at the time or that the method by which that rate will be determined will be the most favorable to ADS holders, subject to the depositary’s obligations under the deposit agreement. The methodology used to determine exchange rates used in currency conversions is available upon request.

 

Payment of Taxes

 

You will be responsible for any taxes or other governmental charges payable on your ADSs or on the deposited securities represented by any of your ADSs. The depositary may refuse to register any transfer of your ADSs or allow you to withdraw the deposited securities represented by your ADSs until those taxes or other charges are paid. It may apply payments owed to you or sell deposited securities represented by your ADSs to pay any taxes owed and you will remain liable for any deficiency. If the depositary sells deposited securities, it will, if appropriate, reduce the number of ADSs to reflect the sale and pay to ADS holders any proceeds, or send to ADS holders any property, remaining after it has paid the taxes.

 

 

 

 

Tender and Exchange Offers; Redemption, Replacement or Cancellation of Deposited Securities

 

The depositary will not tender deposited securities in any voluntary tender or exchange offer unless instructed to do by an ADS holder surrendering ADSs and subject to any conditions or procedures the depositary may establish.

 

If deposited securities are redeemed for cash in a transaction that is mandatory for the depositary as a holder of deposited securities, the depositary will call for surrender of a corresponding number of ADSs and distribute the net redemption money to the holders of called ADSs upon surrender of those ADSs.

 

If there is any change in the deposited securities such as a sub-division, combination or other reclassification, or any merger, consolidation, recapitalization or reorganization affecting the issuer of deposited securities in which the depositary receives new securities in exchange for or in lieu of the old deposited securities, the depositary will hold those replacement securities as deposited securities under the deposit agreement. However, if the depositary decides it would not be lawful and practical to hold the replacement securities because those securities could not be distributed to ADS holders or for any other reason, the depositary may instead sell the replacement securities and distribute the net proceeds upon surrender of the ADSs.

 

If there is a replacement of the deposited securities and the depositary will continue to hold the replacement securities, the depositary may distribute new ADSs representing the new deposited securities or ask you to surrender your outstanding ADRs in exchange for new ADRs identifying the new deposited securities.

 

If there are no deposited securities underlying ADSs, including if the deposited securities are cancelled, or if the deposited securities underlying ADSs have become apparently worthless, the depositary may call for surrender or of those ADSs or cancel those ADSs upon notice to the ADS holders.

 

Amendment and Termination

 

How may the deposit agreement be amended?

 

We may agree with the depositary to amend the deposit agreement and the ADRs without your consent for any reason. If an amendment adds or increases fees or charges, except for taxes and other governmental charges or expenses of the depositary for registration fees, facsimile costs, delivery charges or similar items, or prejudices a substantial right of ADS holders, it will not become effective for outstanding ADSs until 30 days after the depositary notifies ADS holders of the amendment. At the time an amendment becomes effective, you are considered, by continuing to hold your ADSs, to agree to the amendment and to be bound by the ADRs and the deposit agreement as amended.

 

How may the deposit agreement be terminated?

 

The depositary will initiate termination of the deposit agreement if we instruct it to do so. The depositary may initiate termination of the deposit agreement if

 

·60 days have passed since the depositary told us it wants to resign but a successor depositary has not been appointed and accepted its appointment;

 

 

 

 

·we delist our shares from an exchange on which they were listed and do not list the shares on another exchange;

 

·we appear to be insolvent or enter insolvency proceedings;

 

·all or substantially all the value of the deposited securities has been distributed either in cash or in the form of securities;

 

·there are no deposited securities underlying the ADSs or the underlying deposited securities have become apparently worthless; or

 

·there has been a replacement of deposited securities.

 

If the deposit agreement will terminate, the depositary will notify ADS holders at least 90 days before the termination date. At any time after the termination date, the depositary may sell the deposited securities. After that, the depositary will hold the money it received on the sale, as well as any other cash it is holding under the deposit agreement, unsegregated and without liability for interest, for the pro rata benefit of the ADS holders that have not surrendered their ADSs. Normally, the depositary will sell as soon as practicable after the termination date.

 

After the termination date and before the depositary sells, ADS holders can still surrender their ADSs and receive delivery of deposited securities, except that the depositary may refuse to accept a surrender for the purpose of withdrawing deposited securities or reverse previously accepted surrenders of that kind if it would interfere with the selling process. The depositary may refuse to accept a surrender for the purpose of withdrawing sale proceeds until all the deposited securities have been sold. The depositary will continue to collect distributions on deposited securities, but, after the termination date, the depositary is not required to register any transfer of ADSs or distribute any dividends or other distributions on deposited securities to the ADSs holder (until they surrender their ADSs) or give any notices or perform any other duties under the deposit agreement except as described in this paragraph.

 

Limitations on Obligations and Liability

 

Limits on our Obligations and the Obligations of the Depositary; Limits on Liability to Holders of ADSs

 

The deposit agreement expressly limits our obligations and the obligations of the depositary. It also limits our liability and the liability of the depositary. We and the depositary:

 

·are only obligated to take the actions specifically set forth in the deposit agreement without negligence or bad faith, and the depositary will not be a fiduciary or have any fiduciary duty to holders of ADSs;

 

·are not liable if we are or it is prevented or delayed by law or by events or circumstances beyond our or its ability to prevent or counteract with reasonable care or effort from performing our or its obligations under the deposit agreement;

 

·are not liable if we or it exercises discretion permitted under the deposit agreement;

 

·are not liable for the inability of any holder of ADSs to benefit from any distribution on deposited securities that is not made available to holders of ADSs under the terms of the deposit agreement, or for any special, consequential or punitive damages for any breach of the terms of the deposit agreement;

 

 

 

 

·have no obligation to become involved in a lawsuit or other proceeding related to the ADSs or the deposit agreement on your behalf or on behalf of any other person;

 

·may rely upon any documents we believe or it believes in good faith to be genuine and to have been signed or presented by the proper person;

 

·are not liable for the acts or omissions of any securities depository, clearing agency or settlement system; and

 

·the depositary has no duty to make any determination or provide any information as to our tax status, or any liability for any tax consequences that may be incurred by ADS holders as a result of owning or holding ADSs or be liable for the inability or failure of an ADS holder to obtain the benefit of a foreign tax credit, reduced rate of withholding or refund of amounts withheld in respect of tax or any other tax benefit.

 

In the deposit agreement, we and the depositary agree to indemnify each other under certain circumstances.

 

Requirements for Depositary Actions

 

Before the depositary will deliver or register a transfer of ADSs, make a distribution on ADSs, or permit withdrawal of Class A ordinary shares, the depositary may require:

 

·payment of stock transfer or other taxes or other governmental charges and transfer or registration fees charged by third parties for the transfer of any Class A ordinary shares or other deposited securities;

 

·satisfactory proof of the identity and genuineness of any signature or other information it deems necessary; and

 

·compliance with regulations it may establish, from time to time, consistent with the deposit agreement, including presentation of transfer documents.

 

The depositary may refuse to deliver ADSs or register transfers of ADSs when the transfer books of the depositary or our transfer books are closed or at any time if the depositary or we think it advisable to do so.

 

Your Right to Receive the Class A Ordinary Shares Underlying your ADSs

 

ADS holders have the right to cancel their ADSs and withdraw the underlying Class A ordinary shares at any time except:

 

·when temporary delays arise because: (1) the depositary has closed its transfer books or we have closed our transfer books; (2) the transfer of Class A ordinary shares is blocked to permit voting at a shareholders’ meeting; or (3) we are paying a dividend on our Class A ordinary shares;

 

·when you owe money to pay fees, taxes and similar charges; or

 

 

 

 

·when it is necessary to prohibit withdrawals in order to comply with any laws or governmental regulations that apply to ADSs or to the withdrawal of Class A ordinary shares or other deposited securities.

 

This right of withdrawal may not be limited by any other provision of the deposit agreement.

 

Direct Registration System

 

In the deposit agreement, all parties to the deposit agreement acknowledge that the Direct Registration System, also referred to as DRS, and Profile Modification System, also referred to as Profile, will apply to the ADSs. DRS is a system administered by DTC that facilitates interchange between registered holding of uncertificated ADSs and holding of security entitlements in ADSs through DTC and a DTC participant. Profile is feature of DRS that allows a DTC participant, claiming to act on behalf of a registered holder of uncertificated ADSs, to direct the depositary to register a transfer of those ADSs to DTC or its nominee and to deliver those ADSs to the DTC account of that DTC participant without receipt by the depositary of prior authorization from the ADS holder to register that transfer.

 

In connection with and in accordance with the arrangements and procedures relating to DRS/Profile, the parties to the deposit agreement understand that the depositary will not determine whether the DTC participant that is claiming to be acting on behalf of an ADS holder in requesting registration of transfer and delivery as described in the paragraph above has the actual authority to act on behalf of the ADS holder (notwithstanding any requirements under the Uniform Commercial Code). In the deposit agreement, the parties agree that the depositary’s reliance on and compliance with instructions received by the depositary through the DRS/Profile system and in accordance with the deposit agreement will not constitute negligence or bad faith on the part of the depositary.

 

Shareholder Communications; Inspection of Register of Holders of ADSs

 

The depositary will make available for your inspection at its office all communications that it receives from us as a holder of deposited securities that we make generally available to holders of deposited securities. The depositary will send you copies of those communications or otherwise make those communications available to you if we ask it to. You have a right to inspect the register of holders of ADSs, but not for the purpose of contacting those holders about a matter unrelated to our business or the ADSs.

 

Jury Trial Waiver

 

The deposit agreement provides that, to the extent permitted by law, ADS holders waive the right to a jury trial of any claim they may have against us or the depositary arising out of or relating to our shares, the ADSs or the deposit agreement, including any claim under the U.S. federal securities laws. If we or the depositary opposed a jury trial demand based on the waiver, the court would determine whether the waiver was enforceable in the facts and circumstances of that case in accordance with applicable case law.

 

Arbitration Provision

 

The deposit agreement gives the depositary or an ADS holder asserting a claim against us the right to require us to submit that claim to binding arbitration in New York under the International Arbitration Rules of the American Arbitration Association, including any securities law claim. However, a claimant could also elect not to submit its securities law claim to arbitration and instead bring such claim in any court having jurisdiction of it. The deposit agreement does not give us the right to require anyone to submit such claim to arbitration.

 

 

 

Exhibit 4.8

 

Exclusive Business Cooperation Agreement

 

This Exclusive Business Cooperation Agreement (hereinafter referred to as this “Agreement”) is executed by and between the following two Parties on May 31, 2019 in Beijing, PRC.

 

Party A:  Beijing Sangu Maolu Information Technology Co., Ltd., a limited liability company incorporated and existing in accordance with PRC laws under the address of 1011A33, 9F, Yard 1, No. 32 Xizhimen North Avenue, Haidian District, Beijing

 

Party B:  Beijing Internet Drive Technology Co., Ltd., a limited liability company incorporated and existing in accordance with PRC laws under the address of No. 3009-190, 3F, Block B, Building 1, Yard 2, No. 2 Yongcheng North Road, Haidian District, Beijing

 

Party A and Party B are hereinafter each referred to as a “Party” and collectively referred to as both “Parties”.

 

Whereas:

1.Party A is a wholly foreign-owned enterprise registered in the People’s Republic of China (hereinafter referred to as “PRC”) with necessary resources for the provision of technical business services and business consultation services;

 

2.Party B is a domestic-funded company registered in PRC with approval form related government agencies to engage in technology development, technology promotion, technology transfer, technology consultation, technology service; advertisement design, preparation and release and advertising agency service; organization of culture and art exchange activities (excluding commercial performances); organization of exhibitions and shows; conference service; corporate management consultation; public relations service; conference service; and market survey (hereinafter referred to as “Business Scope”);

 

3.Party A agrees that by making use of its advantages in human resource, technology and information, Party A or any party designated by Party A provides Party B with exclusive technique, business support, business consultation and other services within the Business Scope of Party B during the term of validity hereof, and Party B agrees to accept such exclusive services provided by Party A or any party designated by Party A in accordance with the terms hereof.

 

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In view of the above, both Parties hereby enter into the following agreement through negotiation:

 

1.Provision of Services by Party A

 

1.1In accordance with the terms and conditions provided for herein, Party B hereby entrusts Party A as Party B’s exclusive service provider during the term hereof of comprehensive business support, technical services and consulting services, including all services determined by Party A from time to time within Party B’s Business Scope, including without limitation: technical services, network support, business consulting, intellectual property licensing, lease of equipment or offices, market consulting, system integration, product research and development, and system maintenance.

 

1.2Party B agrees to accept the consultation and services provided by Party A. Party B further agrees that, unless with prior written consent of Party A, during the term hereof, with respect to the matters provided for herein, Party B may neither accept any consultation and/or service provided by any third party, nor cooperate with any third party. Party A may designate other parties (such designated parties may execute certain agreements specified in Article 1.3 hereof with Party B) to provide Party B with the consultation and/or services hereunder. For the avoidance of doubt, none of the terms hereof restricts Party A from providing third parties with consultation and/or services in any way, and Party A is not required to get consent from Party B when providing third parties with any consultation and/or services.

 

1.3Means of service provision

 

1.3.1Both Parties agree that during the term hereof they may, directly or through their respective affiliates, execute other technical service agreements and consulting service agreements to provide for the specific content and charging standards of specific technical services and consulting services and the specific service mode and service staff.

 

1.3.2In order to perform this Agreement, both Parties agree that during the term hereof they may, directly or through their respective affiliates, execute intellectual property (including but not limited to copyright, software, trademark, patent, patent application, know-how, business secret and others) licensing agreements, which shall permit Party B to use relevant intellectual property rights of Party A or parties designated by Party A based on its business needs.

 

1.3.3In order to perform this Agreement, both Parties agree that during the term hereof they may, directly or through their respective affiliates, execute equipment or plant lease agreements, which shall permit Party B to use relevant equipment or plants of Party A based on its business needs at any time.

 

1.3.4For the avoidance of doubt, Party A shall have the absolute discretion to determine whether Party A or parties designated by Party A shall provide the consultation or services, whether to provide consultation or services, and the type, content, time, method and frequency of the specific consultation or services. Party A's failure to provide all consultation or services under Articles 1.3.1 to 1.3.3 does not constitute a breach of the Agreement.

 

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2.Calculation and Payment of Service Fee

 

2.1Both Parties agree that Party A will issue bills to Party B on a quarterly basis according to the workload and commercial value of the technical services provided by it for Party B and the price agreed to by both Parties, and Party B shall pay corresponding consulting service fees and other service fees to Party A or any party designated by Party A in accordance with the date and amount specified in the bills. Party A may adjust the charging standards of consulting service fees at any time according to the quantity and content of consulting services provided by it for Party B. The aforesaid adjustment will take effect after notifying Party B in writing.

 

2.2Within fifteen (15) working days as of the end of each financial year, Party B shall provide Party A with the financial statements of such year and all business records, business contracts and financial information required for the issuance thereof. Where Party A has any doubt about the financial information provided by Party B, it may entrust an independent accountant with good reputation to audit relevant information, for which Party B shall render cooperation.

 

3.Intellectual Property Rights and Confidentiality

 

3.1Party A enjoys exclusive and proprietary rights and interests to all rights, ownership, interests and intellectual property rights generated or created in order to perform this Agreement, including but not limited to copyrights, patents, patent applications, trademarks, software, technical secrets, trade secrets, and others, no matter whether they are developed by Party A or Party B. Party A or any party designated by Party A licenses Party B to use the intellectual property rights, but does not grant Party B any ownership of the intellectual property rights, and the intellectual property rights developed by Party B based on Party A's consultation or services shall be owned by Party A.

 

3.2Both Parties acknowledge that any oral or written information exchanged in respect hereof shall be confidential information. Each Party shall keep confidential of all such information and, without the written consent of the other Party, may not disclose to any third party any relevant information, unless: (a) the public is or will be aware of such information (which is not caused by any disclosure by the receiving Party to the public); (b) such information shall be disclosed as required by applicable laws or the rules or provisions of any securities exchange; (c) either Party is required to disclose such information to its legal consultant or financial consultant with respect to any transaction provided for hereunder, and such legal consultant or financial consultant is also required to be bound by confidentiality obligation similar to that provided for in this clause. The disclosure of any confidential information by any staff or organization employed by either Party shall be deemed as disclosure of such confidential information by such Party, and such Party shall bear legal liability for its violation hereof. This clause shall survive the termination hereof for whatever reason.

 

3.3Both Parties agree that this clause shall remain in force no matter whether this Agreement is changed, revoked or terminated.

 

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4.Representations and Warranties

 

4.1Party A represents and warrants as follows:

 

4.1.1Party A is a company legally registered and validly existing in accordance with the PRC laws.

 

4.1.2Party A’s execution and performance hereof is within its corporate capacity and scope of business; Party A has taken necessary corporate actions, been granted proper authorization, and obtained the consent and approval of third parties and government authorities, and is not in violation of laws or other restrictions which are binding upon or have impacts on Party A.

 

4.1.3This Agreement constitutes a legal, valid and binding obligation of Party A, and such obligation is enforceable to Party A in accordance with the terms hereof.

 

4.2Party B represents and warrants as follows:

 

4.2.1Party B is a company legally registered and validly existing in accordance with the laws of PRC with approval form related government agencies to engage in technology development, technology promotion, technology transfer, technology consultation, technology service; advertisement design, preparation and release and advertising agency service; organization of culture and art exchange activities (excluding commercial performances); organization of exhibitions and shows; conference service; corporate management consultation; public relations service; conference service; and market survey.

 

4.2.2Party B’s execution and performance hereof is within its corporate capacity and scope of business; Party B has taken necessary corporate actions, been granted proper authorization, and obtained the consent and approval of third parties and government authorities, and is not in violation of laws or other restrictions which are binding upon or have impacts on Party B.

 

4.2.3This Agreement constitutes a legal, valid and binding obligation of Party B, and such obligation is enforceable to Party B in accordance with the terms hereof.

 

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5.Effectiveness and Term

 

5.1This Agreement is executed on and shall take effect as of the date first written above. Unless terminated early in accordance with the provisions hereof or other agreements executed by both Parties, this Agreement shall remain valid for 10 years. After executing this Agreement, both Parties shall review this Agreement every three months to determine whether to modify or supplement provisions hereof in accordance with the actual situations at the time.

 

5.2Prior to the expiration of this Agreement, the validity of this Agreement may be extended upon Party A's written confirmation. If Party A decides to extend the term, the extended term of validity shall be determined by Party A, and Party B shall accept such extended term of validity without conditions.

 

6.Termination

 

6.1Unless renewed in accordance with relevant terms hereof, this Agreement shall terminate on the date of expiry.

 

6.2During the term of validity hereof, Party B shall not terminate this Agreement before the date of expiry, unless Party A has gross negligence or fraudulent practice against Party B. Nevertheless, Party A may terminate this Agreement at any time by notifying Party B in writing 30 days in advance.

 

6.3The rights and obligations of both Parties under Articles 3, 7 and 8 hereof shall remain valid after the termination of this Agreement.

 

7.Applicable Laws and Dispute Settlement

 

7.1The execution, effectiveness, interpretation, performance, modification and termination hereof and the settlement of disputes hereunder shall be governed by PRC laws.

 

7.2Any dispute arising from the interpretation and performance hereof shall be settled by both Parties through bona fide negotiation. Where any Party fails to reach any agreement on the settlement of such dispute within 30 days after a request for settlement of the dispute through negotiation is made by any Party to the other Party, the Party may submit the dispute to China International Economic and Trade Arbitration Commission for settlement in accordance with its then effective arbitration rules. The arbitration shall be held in Beijing, and the language of the arbitration shall be Chinese. The arbitration award shall be final and binding upon both Parties.

 

7.3Where any dispute arises from the interpretation and performance hereof, or during the period when any dispute is subject to arbitration, except for the matters under dispute, both Parties shall continue to exercise their respective rights and perform their respective obligations hereunder.

 

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8.Indemnification

 

Party B shall indemnify Party A and hold Party A harmless from any loss, damage, liability or cost incurred by any litigation, claim for compensation for other claims against Party A resulting or arising from the consultation and services provided by Party A at the request of Party B, unless such loss, damage, liability or cost is incurred as a result of Party A’s gross negligence or willful misconduct.

 

9.Notice

 

9.1All notices and other communications to be sent as required or permitted hereunder shall be sent by personal delivery or postage prepaid registered mail, commercial courier service or fax to the following address of the receiving Party. For each notice, a confirmation letter shall be sent via email. Such notice shall be deemed effectively delivered on:

 

9.1.1the date of delivery or rejection at the designated receiving address, if sent by personal delivery, courier service or postage prepaid registered mail.

 

9.1.2the date of successful transmission (evidenced by an automatically generated message confirming the transmission), if sent by fax.

 

9.2Any Party may change at any time its address for the receipt of notices by notifying the other Party in accordance with the terms of this clause.

 

10.Transfer

 

10.1Without the prior written consent of Party A, Party B may not transfer any of its rights and obligations hereunder to any third party.

 

10.2Party B agrees that Party A may transfer its rights and obligations hereunder to any third party by notifying Party B in writing in advance without the consent of Party B.

 

11.Severability

 

Where any provision(s) hereof is/are determined by any laws or regulations to be void, illegal or unenforceable in any respect, the validity, legality or enforceability of the remaining provisions hereof shall not be affected or damaged in any respect. The Parties shall endeavor through bona fide negotiation to replace such void, illegal or unenforceable provision(s) with valid provision(s) to the maximum extent permitted by laws and expected by the Parties, and the economic effects of such valid provision(s) shall be similar to that of such void, illegal or unenforceable provision(s).

 

12.Modification and Supplement

 

Any modification and supplement hereto shall be made in writing. Modification agreements and supplementary agreements executed by both Parties in relation to this Agreement shall be an integral part hereof, and shall have the same legal force and effect as this Agreement.

 

13.Language and Counterpart

 

This Agreement is written in Chinese in two or more counterparts, both of which shall have the same legal force and effect.

 

——The following is the signature page——

 

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Signature only on this page for Exclusive Business Cooperation Agreement

 

Party A:

 

Beijing Sangu Maolu Information Technology Co., Ltd. (Seal)

 

Legal Representative: Mingyou LI

 

 

 

 

 

 

 

 

 

 

 

Party B:

 

Beijing Internet Drive Technology Co., Ltd. (Seal)

 

Legal Representative: Mingyou LI

 

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Exhibit 4.9

 

Exclusive Call Option Agreement

 

This Exclusive Call Option Agreement (hereinafter referred to as this “Agreement”) is executed by and among the following parties on May 31, 2019 in Beijing, PRC:

 

Party A:      Beijing Sangu Maolu Information Technology Co., Ltd., a limited liability company incorporated and existing in accordance with Chinese laws under the address of 1011A33, 9F, Yard 1, No. 32 Xizhimen North Avenue, Haidian District, Beijing

 

Party B:       Party B1: Li Mingyou, a Chinese citizen, ID card number: ******;
Party B2: Du Xingyu, a Chinese citizen, ID card number: ******
and

 

Party C:       Beijing Internet Drive Technology Co., Ltd., a limited liability company incorporated and existing in accordance with Chinese laws under the address of No. 3009-190, 3F, Block B, Building 1, Yard 2, No. 2 Yongcheng North Road, Haidian District, Beijing

 

In this Agreement, Party A, Party B and Party C are hereinafter each referred to as a “Party” and collectively referred to as the “Parties”.

 

Whereas: Party B holds 100% of the equity interests in Party C;

 

Now the Parties enter into the following agreement through negotiation:

 

1.Sale and Purchase of Equity and Asset

 

1.1Grant of right

 

1.1.1Party B hereby irrevocably grants Party A an irrevocable exclusive right (the Purchasing Right for Equity”) to purchase or designate a person or persons (each referred to as a “Designated Person of Shares”) to purchase at any time from Party B all or part of the equity held by it in Party C at one time or multiple times by steps decided by Party A at its own discretion at the price stated in Article 1.3 hereof, to the extent permitted by laws of the People’s Republic of China (“PRC”). No one other than Party A and the Designated Persons of Shares may enjoy the Purchasing Right for Equity or other rights in relation to Party B’s equity. Party C hereby agrees that Party B grants Purchasing Right for Equity to Party A. The term “Person” referred to in this clause and this Agreement means an individual, company, joint venture, partnership, enterprise, trust or non-corporate organization.

 

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1.1.2Party C hereby irrevocably grants Party A an irrevocable exclusive right (“Purchasing Right for Asset”) to purchase or designate a person or persons (“Designated Person of Asset”, and collectively referred to as “Designated Person” together with Designated Person of Equity) to purchase at any time from Party B all or part of the assets held by it in Party C at one time or multiple times by steps decided by Party A at its own discretion at the price stated in Article 1.3 hereof, to the extent permitted by laws of PRC. No one other than Party A and the Designated Persons of Asset may enjoy the purchasing right or other rights in relation to Party C’s asset. Party B agrees that Party C shall grant Party A the right to purchase such assets in accordance with provisions hereof.

 

1.2Exercising steps

 

Subject to the terms and conditions of this Agreement, Party A has absolute discretion to determine the specific time, method and frequency for it to exercise the rights where permitted by laws of PRC.

 

Party A shall exercise its Purchasing Right for Equity in compliance with the provisions of PRC laws and regulations. To exercise its purchasing right, Party A shall notify Party B in writing (the “Purchase Notice”), specifying the following matters: (a) Party A’s decision on the exercise of the purchasing right; (b) the equity shares Party A intends to purchase from Party B (the “Purchased Equity”); and (c) the date to purchase/transfer the Purchased Equity.

 

Party A shall exercise its Purchasing Right for Asset in compliance with the provisions of PRC laws and regulations. To exercise its purchasing right, Party A shall notify Party C in writing (the “Asset Purchase Notice”), specifying the following matters: (a) Party A’s decision on the exercise of the purchasing right; (b) the asset Party A intends to purchase from Party C (the “Purchased Asset”); and (c) the date to purchase/transfer the Purchased Asset.

 

When Party A exercises the Purchasing Right for Equity or Purchasing Right for Asset, Party A can not only transfer the Purchased Equity or Purchased Asset on its own, but also designate the Purchased Equity or Purchased Asset to be wholly or partly transferred to the Designated Person.

 

1.3Purchase price of equity and asset

 

1.3.1Regarding the Purchased Equity, the purchase price of the purchased equity (Purchase Price of Equity”) shall be RMB 1.00, unless laws or regulations of PRC require the appraisal at the time when Party A exercises the rights; where the minimum price allowed by laws of PRC is then higher than the aforesaid price, the minimum price allowed by the laws shall prevail. Where Party B obtains a transfer price higher than RMB 1.00 for the Purchased Equity held by Party B, or receives any form of profit distribution, interests, bonuses or dividends from Party C, Party B agrees that Party A has the right to obtain the above-mentioned gains of more than RMB 1.00 to the extent that laws of PRC are not violated. Party B shall instruct relevant transferee or Party C to pay such proceeds to the bank account designated by Party A.

 

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1.3.2Regarding the Purchasing Right for Asset, the purchase price of the Purchased Asset (“Purchase Price of Asset”) shall be the net book value of the purchased asset, unless laws of PRC require the assessment at the time when Party A exercises such right; where the minimum price allowed by laws of PRC is then higher than the aforesaid net book value, the minimum price allowed by the PRC laws shall prevail.

 

1.4Transfer of the purchased equity and asset

 

Each time Party A exercises its Purchasing Right for Equity or Purchasing Right for Asset:

 

1.4.1Party B and Party C shall cause party C to hold in a timely manner a shareholders’ meeting and/or a board meeting (whichever is applicable), in which a resolution on approval of the transfer by Party B of the equity to Party A and/or the Designated Person of Shares, or on approval of the transfer by Party C of the asset to Party A and/or the Designated Person;

 

1.4.2Party B or Party C (whichever is applicable) shall execute an equity transfer agreement or an asset transfer agreement (collectively referred to as the “Transfer Contract”) for each transfer with Party A and/or (whichever is applicable) the Designated Person in accordance with the provisions hereof and the corresponding purchase notice.

 

1.4.3Relevant parties shall execute all other necessary contracts, agreements or documents, obtain all necessary government licenses and permissions, and take all necessary actions to transfer the good title of the Purchased Equity or Purchased Asset to Party A and/or the Designated Persons (whichever is applicable) without any Security Interest thereon, and cause Party A and/or the Designated Persons to become the registered owner of the Purchased Equity or Purchased Asset (if needed). For the purpose of this clause and this Agreement, “Security Interest” includes guarantees, mortgages, pledge, lien, claim, third party rights or interests, any share options, acquisition rights, preemptive rights, setoff rights, retention of title or other guarantee arrangements; provided that for the purpose of clarity, any security interest incurred under this Agreement and Party B’s Equity Pledge Agreement are excluded. "Party B’s Equity Pledge Agreement" referred to in this clause and this Agreement means the Equity Pledge Agreement executed by Party A, Party B and Party C on the date of execution hereof, according to which Party B pledge all of its equity in Party C to Party A in order to ensure that Party B and/or Party C can perform their obligations under this Agreement, the Exclusive Business Cooperation Agreement and other relevant transaction documents executed by them with Party A.

 

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2.Undertakings

 

2.1Undertakings in relation to Party C

 

Party B (as Party C’s shareholders) and Party C hereby undertake that:

 

2.1.1Without the prior written consent of Party A, they may not by any means supplement, change or amend Party C’s articles of association and rules and regulations, increase or decrease its registered capital, or in other ways change the structure of its registered capital;

 

2.1.2They shall maintain the existence of the company and prudently and effectively operate its business and handle its affairs in accordance with good financial and business standards and practices;

 

2.1.3Without the prior written consent of Party A, they shall not sell, transfer, mortgage, pledge or by any other means dispose of any legal or beneficial interest in Party C’s equity, assets, business or income or have the same encumbered with any Security Interest at any time from the date of execution hereof;

 

2.1.4Without the prior written consent of Party A, no debt shall be incurred, inherited, guaranteed or allowed to exist, except for: (i) debts arising from the normal course of business rather than the obtaining of loans, and (ii) debts that have been disclosed to and approved in writing by Party A;

 

2.1.5They ensure that they operate all of Party C’s businesses during normal course of business, so as to maintain the value of Party C’s assets, and refrain from any act/omission that may affect its business status and asset value;

 

2.1.6Without the prior written consent of Party A, Party C may not be urged to execute any material contract, except for those executed during normal course of business (for the purpose of this paragraph, a contract will be deemed as a material one if its value exceeds RMB 100,000);

 

2.1.7Without the prior written consent of Party A, Party C may not be urged to provide any loan, credit, guarantee or warranty for anyone;

 

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2.1.8They shall provide all materials in relation to Party C’s operation and financial conditions for Party A at the request of Party A;

 

2.1.9They shall, if any request is made by Party A, take out and hold insurance in relation to Party C’s assets and business from an insurance company approved by Party A, the amount of and the risks covered by which shall be in line with that of and those covered by the insurance purchased by companies engaged in similar business;

 

2.1.10Without the prior written consent of Party A, Party C may not be urged or permitted to merge or consolidate with anyone or acquire or invest in anyone or be acquired or invested by anyone;

 

2.1.11Without the prior written consent of Party A, Party C may not be liquidated, dissolved or deregistered;

 

2.1.12They shall forthwith notify Party A of any litigation, arbitration or administrative procedure that arose or may arise in relation to Party C’s assets, business or income;

 

2.1.13They shall execute all necessary or appropriate documents, take all necessary or appropriate actions, file all necessary or appropriate complaints, or make necessary and appropriate defense against all claims, so as to maintain Party C’s title to all of its assets;

 

2.1.14Without the prior written consent of Party A, they shall ensure that Party C may not by any means distribute any profits, dividends or bonuses to its shareholders, provided that once requested by Party A in writing, Party C shall forthwith distribute all distributable profits, dividends and bonuses to its shareholders;

 

2.1.15At the request of Party A, they shall appoint any personnel designated by Party A to serve as Party C’s director, supervisor or executive who shall be appointed and/or dismissed by Party B;

 

2.1.16Party A shall be informed in a timely manner of any situation that may have a materially adverse effect on Party C's existence, business operation, financial status, assets or goodwill, and all measures approved by Party A shall be taken in a timely manner to eliminate such adverse conditions or take effective remedial measures; and

 

2.1.17At the request of Party A at any time, Party C shall immediately and unconditionally transfer the purchased asset to Party A and/or the Designated Person in accordance with purchasing right for asset hereof.

 

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2.2Party B’s undertakings
Party B hereby undertakes that:

 

2.2.1Without the prior written consent of Party A, it may not sell, transfer, mortgage, pledge or by any other means dispose of any legal or beneficial interest in the equity of Party C owned by it, or have the same encumbered with any Security Interest, except for pledge of such equity under Party B’s Equity Pledge Agreement;

 

2.2.2Party B shall procure that Party C’s board of shareholders and/or board of directors will not approve without the prior written consent of Party A any sale, transfer, mortgage, pledge or disposition in any other way of any legal or beneficial interest in the equity of Party C owned by Party B, or have the same encumbered with any Security Interest, except for pledge of such equity under Party B’s Equity Pledge Agreement;

 

2.2.3Without the prior written consent of Party A, Party B shall procure that Party C’s board of shareholders or board of directors will not approve any merger or consolidation with anyone, or any acquisition of or investment in anyone, or any acquisition by or investment from anyone;

 

2.24Party B shall forthwith notify Party A of any litigation, arbitration or administrative procedure that arose or may arise in relation to equity or asset of Party C owned by it;

 

2.2.5Party B shall procure that Party C’s board of shareholders or board of directors will vote on its approval for the transfer of the Purchased Equity or Purchased Asset hereunder and take any and all other actions that may be requested by Party A;

 

2.2.6Party B shall execute all necessary or appropriate documents, take all necessary or appropriate actions, file all necessary or appropriate complaints, or make necessary and appropriate defense against all claims, so as to maintain its title to the equity of Party C;

 

2.2.7At the request of Party A, Party B shall appoint any personnel designated by Party A to serve as Party C’s director;

 

2.2.8At the request of Party A at any time, Party B shall forthwith and unconditionally transfer its equity in Party C to Party A and/the Designated Person of Shares based on the purchasing right hereunder, and Party B hereby waives its preemptive right (if any) to transfer of Party C’s equity by other shareholders of Party C; and

 

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2.2.9Party B shall strictly comply with the provisions of this Agreement and other contracts executed by Party B and Party C jointly or separately with Party A, perform its obligations thereunder, and not engage in any act/omission that may affect the validity and enforceability thereof. Where Party B owns any residual right to the equity under this Agreement, the Party B’s Equity Pledge Agreement executed by the Parties hereto, or the Powers of Attorney Agreement granted with Party A as the beneficiary, unless as instructed by Party A in writing, Party B may not exercise such right.

 

3.Representations and Warranties

 

Party B and Party C hereby jointly and separately represent and warrant to Party A on the date of execution hereof and each date of transfer of the purchased equity and asset as follows:

 

3.1They have complete and independent legal status and legal ability to sign, deliver and perform this Agreement, and can act as the subject of a lawsuit independently. Furthermore, they are authorized to execute and deliver this Agreement and any Transfer Contract and perform their obligations thereunder. They agree to execute a Transfer Contract in line with the terms hereof at the time when Party A or its Designated Person exercises its Purchasing Right for Equity or Purchasing Right for Asset. This Agreement and Transfer Contracts to which they are a party constitute or will constitute their legal, valid and binding obligations and shall be enforceable against them in accordance with the terms thereof;

 

3.2Neither the execution and delivery of nor the obligations under this Agreement or any Transfer Contract shall: (i) result in any violation of any applicable PRC laws; (ii) conflict with the articles of association, rules and regulations or other organizational documents of Party C; (iii) result in violation of or constitute any breach of contract under any contract or instrument to which they are a party or which is binding upon them; (iv) result in any violation of any condition for the grant and/or continued validity of any license or permit issued to either of them; or (v) result in the suspension or revocation of or additional conditions for any license or permit issued to either of them;

 

3.3Party B owns good and merchantable title to the equity held by it in Party C, and has not encumbered the same with any Security Interest other than those under the Party B’s Equity Pledge Agreement.

 

3.4Party C owns good and merchantable title to all of its assets, and has not encumbered the aforesaid assets with any Security Interest;

 

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3.5Party C does not have any outstanding debt, except for (i) debts arising from the normal course of business, and (ii) debts that have been disclosed to and approved in writing by Party A;

 

3.6There is no pending or threatened litigation, arbitration or administrative procedure in relation to Party C or its equity or assets.

 

3.7Apart from the registration for equity pledge in administration authority of industry and commerce management in accordance with provisions specified in Party B’s Equity Pledge Agreement, no consent, permission, waiver and authorization from a third party or approval, permit, exemption from any governmental agencies or registration and filing procedures in any governmental agencies is required for the execution and performance of this Agreement and granting and exercising purchasing right for equity or asset hereof.

 

4.Date of Effectiveness

 

This Agreement shall take effect as of the date of execution hereof by the Parties with a term of 10 years, and Party A is entitled to extend the term. If Party A decides to extend the term, the extended term of validity shall be determined by Party A, and Party B and Party C shall unconditionally accept such extended term of validity.

 

5.Applicable Laws and Dispute Settlement

 

5.1.Applicable laws

 

The execution, effectiveness, interpretation, performance, modification and termination hereof and the settlement of disputes hereunder shall be governed by laws of PRC.

 

5.2.Settlement of disputes

 

Any dispute arising from the interpretation and performance hereof shall be settled by the Parties through friendly negotiation first. Where the Parties fail to reach any agreement on the settlement of such dispute within 30 days after a request for settlement of the dispute through negotiation is made by any Party to the other Parties, any Party may submit the dispute to China International Economic and Trade Arbitration Commission for settlement in accordance with its then effective arbitration rules. The arbitration shall be held in Beijing, and the language of the arbitration shall be Chinese. The arbitration award shall be final and binding upon the Parties.

 

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6.Taxes and Fees

 

Each Party shall pay any and all transfer and registration taxes, expenses and fees incurred by or imposed on such Party in accordance with PRC laws with respect to the preparation and execution of this Agreement and Transfer Contracts and the completion of the transactions thereunder.

 

Regardless of the contrary, where the taxation authority considers that the Purchase Price of Equity or Purchase Price of Asset is not a reasonable transfer price and adjusts the tax base, Party B (applicable to the case where Party A exercises the Purchasing Right for Equity) or Party C (applicable to the case where Party A exercises the Purchasing Right for Asset) shall bear the additional taxes.

 

7.Notice

 

7.1All notices and other communications to be sent as required or permitted hereunder shall be sent by personal delivery or postage prepaid registered mail, commercial courier service or fax to the following address of the receiving Party. For each notice, a confirmation letter shall be sent via email. Such notice shall be deemed effectively delivered on:

 

7.1.1the date of delivery or rejection at the designated receiving address, if sent by personal delivery, courier service or postage prepaid registered mail.

 

7.1.2the date of successful transmission (evidenced by an automatically generated message confirming the transmission), if sent by fax.

 

7.2Any Party may change at any time its address for the receipt of notices by notifying the other Parties in accordance with the terms of this clause.

 

8.Confidentiality Liability

 

The Parties acknowledge that any oral or written information exchanged in respect hereof shall be confidential information. Each Party shall keep confidential all such information and, without the written consent of the other Parties, may not disclose to any third party any relevant information, unless: (a) the public is or will be aware of such information (which is not caused by any disclosure by the receiving Party to the public); (b) such information shall be disclosed as required by applicable laws or the rules or provisions of any securities exchange; (c) any Party is required to disclose such information to its legal consultant or financial consultant with respect to any transaction provided for hereunder, and such legal consultant or financial consultant is also required to be bound by confidentiality obligation similar to that provided for in this clause. The disclosure of any confidential information by any staff or organization employed by any Party shall be deemed as disclosure of such confidential information by such Party, and such Party shall bear legal liability for its violation hereof. This clause shall survive the termination hereof for whatever reason.

 

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9.Further Warranties

 

The Parties agree to promptly execute other documents and take further actions reasonably required for or favorable to the implementation of the provisions and purposes hereof.

 

10.Miscellaneous

 

10.1Amendment, revision and supplement

 

Any amendment, revision and supplement hereto shall be subject to a written agreement executed by the Parties.

 

10.2Entire contract

 

Except for any written amendment, supplement or change hereto made after the execution hereof, this Agreement shall constitute the entire agreement among the Parties in respect of the subject matter hereof, and supersede all prior oral and written negotiation, statements and contracts reached by them with respect to the subject matter hereof.

 

10.3Headings

 

The headings herein are for the convenience of reading only, and shall not be used for the interpretation or explanation of or in any other respect affecting the meaning of the provisions hereof.

 

10.4Language

 

This Agreement is written in Chinese in one or more counterparts, both of which shall have the same legal force and effect.

 

10.5Severability

 

Where any provision(s) hereof is/are determined by any laws or regulations to be void, illegal or unenforceable in any respect, the validity, legality or enforceability of the remaining provisions hereof shall not be affected or damaged in any respect. The Parties shall endeavor through bona fide negotiation to replace such void, illegal or unenforceable provision(s) with valid provision(s) to the maximum extent permitted by laws and expected by the Parties, and the economic effects of such valid provision(s) shall be similar to that of such void, illegal or unenforceable provision(s).

 

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10.6.Transfer

 

Without the prior written consent of Party A, other parties shall not transfer any rights and/or obligations hereof to any third party. Party B and Party C agree that Party A has the right to unilaterally transfer any of its rights/obligations hereof to any third party without their consent, but shall notify other parties in writing.

 

10.7Successor

 

This Agreement shall be binding upon and inure to the benefit of the respective successors of the Parties and the permitted assigns of such Parties.

 

10.8Survival

 

10.8.1Any obligation arising from this Agreement or becoming due prior to the expiry or early termination hereof shall survive the expiry or early termination hereof.

 

10.8.2The provisions of Articles 5, 7, 8 hereof and this Article 10 shall survive the termination hereof.

 

10.9Waiver

 

Any Party may waive any terms and conditions hereof, provided that such waiver shall be made in writing and executed by the Parties. The waiver by any Party under certain circumstances with respect to other Parties’ breach of contract shall not be deemed as waiver by such Party under other circumstances with respect to similar breach of contract.

 

—— The following is the signature page ——

 

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Signature only on this page for Exclusive Call Option Agreement

 

 

Party A:

 

Beijing Sangu Maolu Information Technology Co., Ltd. (Seal)

 

Legal Representative:  Mingyou LI

 

 

Party C:

 

Beijing Internet Drive Technology Co., Ltd. (Seal)

 

Legal Representative:  Mingyou LI

 

 

 

Signature only on this page for Exclusive Call Option Agreement

 

Party B:

 

Mingyou LI

 

/s/ Mingyou LI  

 

 

 

Signature only on this page for Exclusive Call Option Agreement

 

Party B:

 

Xingyu DU

 

/s/ Xingyu DU  

 

 

 

Exhibit 4.10

 

Equity Pledge Agreement

 

This Equity Pledge Agreement (hereinafter referred to as this “Agreement”) is executed by and among the following Parties on May 31, 2019 in Beijing, PRC:

 

Party A:   Beijing Sangu Maolu Information Technology Co., Ltd., a limited liability company incorporated and existing in accordance with Chinese laws under the address of 1011A33, 9F, Yard 1, No. 32 Xizhimen North Avenue, Haidian District, Beijing; (hereinafter referred to as the “Pledgee”)

 

Party B     (hereinafter referred to as the “Pledgors”)

Party B1: Li Mingyou, a Chinese citizen, ID card number: ******;
Party B2: Du Xingyu, a Chinese citizen, ID card number: ******

 

Party C:   Beijing Internet Drive Technology Co., Ltd., a limited liability company incorporated and existing in accordance with Chinese laws under the address of No. 3009-190, 3F, Block B, Building 1, Yard 2, No. 2 Yongcheng North Road, Haidian District, Beijing

 

In this Agreement, the Pledgee, the Pledgors and Party C are hereinafter each referred to as a “Party” and collectively referred to as the “Parties”.

 

Whereas:

 

1.The Pledgors hold 100% of the equity of Party C. Party C is a limited liability company registered in Beijing, PRC, and is engaged in technology development, technology promotion, technology transfer, technology consultation, technology service; advertisement design, preparation and release, and advertising agency service; organization of culture and art exchange activities (excluding commercial performances); organization of exhibitions and shows; conference service; corporate management consultation; public relations service; conference service; and market survey. Party C acknowledges the respective rights and obligations of the Pledgors and the Pledgee hereunder, and agrees to provide any necessary assistance in the registration of such Right of Pledge;

 

2.The Pledgee is a wholly foreign-owned enterprise incorporated in Beijing, PRC. The Pledgee and Party C executed an Exclusive Business Cooperation Agreement (hereinafter referred to as the “Exclusive Business Cooperation Agreement”) on May 31, 2019; the Pledgee, the Pledgors and Party C executed an Exclusive Call Option Agreement (hereinafter referred to as the “Exclusive Call Option Agreement”) on May 31, 2019; each Pledgor executed a Power of Attorney Agreement (hereinafter referred to as the “Power of Attorney Agreement”, collectively referred to as the “Program Agreements” together with the Exclusive Business Cooperation Agreement and the Exclusive Call Option Agreement) on May 31, 2019;

 

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3.Purpose of the pledge: in order to ensure that (A) the Pledgee can collect all payments due and payable, including but not limited to consultation and service fees, from Party C in accordance with the Exclusive Business Cooperation Agreement; (B) the Pledgee can effectively exercise the options and/or asset purchase rights in accordance with the Exclusive Call Option Agreement; and (C) the Pledgee can exercise its voting rights in accordance with the Power of Attorney Agreement, the Pledgors agree to pledge all of the equity owned by them in Party C to the Pledgee for various obligations of Party B and Party C under the Program Agreements.

 

Therefore, the Parties agree to execute this Agreement in accordance with the following terms.

 

1.Definitions

 

Unless otherwise specified herein, the following words shall have the meanings ascribed to them below:

 

1.1"Right of Pledge" shall mean the security interest granted by the Pledgors to the Pledgee pursuant to Article 2 hereof, i.e., the Pledgee’s right to be paid in priority with the price at which the Equity is transferred, auctioned or sold.

 

1.2"Pledged Equity" shall mean all 100% equity legally held by the Pledgors in Party C, and the increased amount of capital contribution and dividend as described in Article 2.3 and Article 2.4 hereof.

 

1.3"Term of Pledge" shall mean the term provided for in Article 3 hereof.

 

1.4"Program Agreements" shall have the same meaning in foreword hereof.

 

1.5"Contractual Obligations" shall mean all contractual obligations of the Pledgors and Party C under this Agreement and the Program Agreements.

 

1.6"Secured Debt" shall mean payment and other obligations of Party C under the Exclusive Business Cooperation Agreement, and all direct, indirect and derivative losses and loss of predictable interests suffered by the Pledgee as a result of any Event of Default (as defined below) by any Pledgor and/or Party C. Basis for the amount of such losses includes but is not limited to the Pledgee’s reasonable business plan and earnings estimate, service fees payable by Party C under the Exclusive Business Cooperation Agreement, and all costs incurred by the Pledgee to force the Pledgors and/or the Party C to perform their Contractual Obligations.

 

1.7"Event of Default" shall mean any circumstance specified in Article 7 hereof.

 

1.8"Default Notice" shall mean notice issued by the Pledgee in accordance with this Agreement to declare any Event of Default.

 

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2.Right of Pledge

 

2.1As a repayment guarantee for Secured Debt, each Pledgor hereby pledges all of the Pledged Equity held by it in Party C to the Pledgee. Party C hereby agreed that the Pledgor shall pledge the Pledged Equity to the Pledgee in accordance with provisions hereof.

 

2.2The Pledgors undertake to record the equity pledge arrangement in Party C’s register of shareholders.

 

2.3With the prior written consent of the Pledgee, the Pledgors may increase their capital in Party C. The amount of additional contribution made by the Pledgors in the registered capital of Party C due to capital increase shall also fall under the Pledged Equity. The Pledgors undertake to record the equity pledge of the newly added capital under Article 2.3 in Party C's register of shareholders and apply for registration with the Registration Authority (as defined below) within ten (10) business days after the capital increase.

 

2.4During the Term of Pledge, the Pledgee shall have the right to receive the returns (including but not limited to any dividends and profits) arising from the Pledged Equity. With the prior written consent of the Pledgee, the Pledgors may obtain dividends or bonus from the Pledged Equity. Dividends or bonus obtained by the Pledgors from the Pledged Equity shall be deposited in the Pledgee's designated account, supervised by the Pledgee, and used to settle the Secured Debt first.

 

3.Term of Pledge

 

3.1The Right of Pledge shall take effect upon the registration with the competent administration for industry and commerce management at the place where Party C is located (hereinafter referred to as the “Registration Authority”). The Parties agree that after the Agreement is executed, the Pledgors and Party A shall file an application to the Registration Authority for the registration of the equity pledge within the term as agreed by both Parties. The Parties further agree that, within twenty (20) business days as of the date of formal acceptance by the Registration Authority of the application for equity pledge registration, all formalities for equity pledge registration shall be completed, a registration notice issued by the Registration Authority shall be obtained, and the equity pledge shall be recorded completely and accurately on the equity pledge register by the Registration Authority.

 

3.2The term of the Agreement shall last till the Contractual Obligations are fully performed or the Secured Debt is completely discharged.

 

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4.Custody of Equity Records

 

During the Term of Pledge provided for herein, the Pledgors shall deliver within a week upon the execution hereof the register of shareholders on which the Right of Pledge is recorded to the Pledgee for custody. The Pledgee shall keep such documents throughout the Term of Pledge provided for herein.

 

5.Representations and Warranties of the Pledgors

 

5.1Each Pledgor is a Chinese legal person, enjoys full capacity, possesses the legal rights and capabilities to sign this Agreement, and assumes legal obligations according to this Agreement. Duly executed by the Pledgors, the Agreement constitutes a legal, valid and binding obligation to the Pledgors.

 

5.2Each Pledgor is the sole legal and beneficial owner of the Pledged Equity, and has no dispute regarding the title of the Pledged Equity. Each Pledgor has the right to dispose of the Pledged Equity and any part thereof.

 

5.3Other than this Right of Pledge, each Pledgor has not placed any security interest or other encumbrances on the equity.

 

5.4Any third party's consent, permission, waiver, authorization, or any government agencies’ approval, permit, exemption, or registration or filing procedure (if required by the law) for the execution and performance of this Agreement and equity pledge hereof has been obtained or processed (except for pledge registration with the Registration Authority), and will be fully effective during the term of validity hereof.

 

5.5The Pledgors hereby assure the Pledgee that the above representations and warranties are true and correct and shall be fully followed in all circumstances at any time before the Contractual Obligations are fully fulfilled or the Secured Debt is fully settled.

 

6.Undertakings and Further Consent of the Pledgors

 

6.1During the term hereof, the Pledgors hereby undertake to the Pledgee that:

 

6.1.1Except for performing the Exclusive Call Option Agreement, without the prior written consent of the Pledgee, they may not transfer the equity or place or allow the existence of any security interest or other encumbrances thereon which may affect the rights and interests of the Pledgee in the equity;

 

6.1.2They will forthwith notify the Pledgee of any event or any notice received by the Pledgors which may affect the Pledgee’s right to the equity or any part thereof and any event or any notice received by the Pledgors which may affect any warranty or other obligations of the Pledgors arising from this Agreement.

 

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6.2Each Pledgor agrees that the Right of Pledge obtained by the Pledgee in accordance with this Agreement may not be interrupted or obstructed by such Pledgor or any successor or representative thereof or any other person through legal procedure.

 

6.3Each Pledgor hereby undertakes to the Pledgee that it will comply with and perform all warranties, undertakings, agreements, statements and conditions hereunder. Where any Pledgor fails to perform, partially or in full, its warranties, undertakings agreements, statements and conditions, such Pledgor shall compensate the Pledgee for all losses resulting therefrom.

 

6.4Each Pledgor hereby waives the preemptive right it may have when the Pledgee exercises the Right of Pledge.

 

7.Event of Default

 

7.1Each of the following circumstances shall be deemed as an Event of Default:

 

7.1.1Failure by Party C to pay up the consultation and service fees payable under the Exclusive Business Cooperation Agreement or violation by Party C of its any other obligations thereof;

 

7.1.2Violation by Party C or any Pledgor of other provisions in the Program Agreements;

 

7.1.3Any statement or warranty made by any Pledgor in Article 5 hereof includes gross misrepresentation or error, and/or any Pledgor violates any warranty in Article 5 hereof; or any Pledgor violates undertakings and further consent in Article 6 hereof;

 

7.1.4The Pledgors and Party C fail to complete the equity pledge registration with the Registration Authority as provided for in Article 3.1 hereof;

 

7.1.5Any Pledgor or Party C violates any provisions hereof;

 

7.1.6Unless specified in Article 6.1.1, any Pledgor transfers or intends to transfer or waives the Pledged Equity or assigns the Pledged Equity without the written consent of the Pledgee;

 

7.1.7Any liability of the Pledgor per se for any loan from or any guarantee, compensation, undertaking or other debts to any third party: (i) is required to be repaid or performed in advance due to the Pledgors’ breach of contract; or (ii) has become due but cannot be repaid or performed on time;

 

7.1.8Any approval, license, permit or authorization of government authorities which makes this Agreement enforceable, legal and valid is withdrawn or suspended, becomes void, or is changed substantially;

 

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7.1.9The promulgation of applicable laws which makes this Agreement illegal or makes any Pledgor unable to continue to perform its obligations hereunder;

 

7.1.10Any adverse change in the property owned by any Pledgor, causing the Pledgee to deem that such Pledgor’s ability to perform its obligations hereunder is affected;

 

7.1.11Party C’s successor or trustee can only partially perform or refuses to perform the payment liabilities under the Exclusive Business Cooperation Agreement or the Exclusive Call Option Agreement; and

 

7.1.12Any other circumstances under which the Pledgee is unable or may be unable to exercise its Right of Pledge.

 

7.2Upon knowing or detecting any circumstance specified in Article 7.1 or the occurrence of any event which may result in the aforesaid circumstances, the Pledgors shall forthwith notify the Pledgee in writing accordingly.

 

7.3Unless the Event of Default specified in this Article 7.1 has been successfully settled to the satisfaction of the Pledgee, the Pledgee may issue a Default Notice to any Pledgor upon or at any time after the occurrence of any Event of Default, requesting the latter to pay all outstanding payments and amount due and payable under the Program Agreements to the Pledgee, and/or dispose of the Right of Pledge in accordance with the provisions of Article 8 hereof.

 

8.Exercise of the Right of Pledge

 

8.1Before the Secured Debt is fully paid, no Pledgor may transfer its equity in Party C or re-pledge the equity to any third party without the written consent of the Pledgee.

 

8.2The Pledgee may issue a Default Notice to the Pledgors at the time of exercising the Right of Pledge.

 

8.3Subject to the provisions of Article 7.3, the Pledgee may exercise the Right of Pledge at the time of or at any time after issuing the Default Notice in accordance with Article 7.2.

 

8.4The Pledgee may be paid in priority in accordance with legal procedures with the price at which all or part of the Pledged Equity hereunder is transferred, auctioned or sold, until all outstanding payments and other amounts due under the Program Agreements have been paid up.

 

8.5When the Pledgee disposes of the Right of Pledge in accordance with this Agreement, the Pledgors and Party C shall render necessary assistance, so that the Pledgee may exercise the Right of Pledge pursuant to this Agreement.

 

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9.Transfer

 

9.1Without the prior written consent of the Pledgee, the Pledgor may not assign its rights or delegate its obligations hereunder. However, at any time, the Pledgee may assign or delegate its rights and obligations hereof without the consent of the Pledgors or Party C, provided that the Pledgors and Party C are notified within a reasonable time.

 

9.2This Agreement shall be binding upon the Pledgor and its successors and permitted assigns, and shall be valid for the Pledgor and each of its successors and assigns.

 

9.3The Pledgee may transfer at any time any and all of its rights and obligations under the Program Agreements to any (natural/legal) person designated by it, in which case the transferee shall enjoy the rights and bear the obligations of the Pledgee hereunder, as if it were an original party hereto. When the Pledgee transfers any of its rights and obligations under the Program Agreements, at the request of the Pledgee, the Pledgor shall execute relevant agreements or other documents in relation to such transfer.

 

9.4Where the Pledgee is changed as a result of the transfer, at the request of the Pledgee, the Pledgor shall execute a new pledge agreement with the new Pledgee on the same terms and conditions as that of this Agreement, revised Exclusive Business Cooperation Agreement, Exclusive Call Option Agreement, Power of Attorney Agreement and other relevant documents.

 

9.5The Pledgor shall strictly comply with the provisions of this Agreement and other contracts executed jointly or separately by the Parties or any of them, including the Exclusive Business Cooperation Agreement, the Exclusive Call Option Agreement and the Power of Attorney Agreement granted to the Pledgee, perform its obligations under this Agreement and other contracts, and not engage in any act/omission that may affect the validity and enforceability thereof. Unless instructed by the Pledgee in writing, the Pledgor may not exercise any residual right to the Pledged Equity hereunder.

 

10.Termination and Rescission of Pledge

 

After the Pledgor and Party C have fully and completely performed all of their Contractual Obligations and paid off all Secured Debts, the Pledgee shall, at the request of the Pledgor, as soon as reasonably practicable, rescind the pledge of the Pledged Equity hereunder, and cooperate with the Pledgors to handle formalities for cancelling the registration of Pledged Equity in Party C’s register of shareholders and for cancelling the registration of pledge with Registration Authority.

 

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11.Commission and Other Fees

 

All fees and actual expenditures in relation to this Agreement, including but not limited to the lawyer’s fee, cost of production, stamp duty, and any other taxes and costs shall be borne by Party C. Where any applicable law requires that the Pledgee shall bear some relevant taxes and fees, the Pledgors shall cause Party C to repay in full the taxes and fees that have been paid by the Pledgee.

 

12.Confidentiality Liability

 

The Parties acknowledge that any oral or written information exchanged in respect hereof shall be confidential information. Each Party shall keep confidential all such information and, without the written consent of the other Parties, may not disclose to any third party any relevant information, unless: (a) the public is or will be aware of such information (which is not caused by any disclosure by the receiving Party to the public); (b) such information shall be disclosed as required by applicable laws or the rules or provisions of any securities exchange; (c) any Party is required to disclose such information to its legal consultant or financial consultant with respect to any transaction provided for hereunder, and such legal consultant or financial consultant is also required to be bound by confidentiality obligation similar to that provided for in this clause. The disclosure of any confidential information by any staff or organization employed by any Party shall be deemed as disclosure of such confidential information by such Party, and such Party shall bear legal liability for its violation hereof. This clause shall survive the termination hereof for whatever reason.

 

13.Applicable Laws and Dispute Settlement

 

13.1The execution, effectiveness, interpretation and performance hereof and the settlement of disputes hereunder shall be governed by laws of PRC.

 

13.2Any dispute arising from the interpretation and performance hereof shall be settled by the Parties through friendly negotiation first. Where the Parties fail to reach any agreement on the settlement of such dispute within 30 days after a request for settlement of the dispute through negotiation is made by any Party to the other Parties, any Party may submit the dispute to China International Economic and Trade Arbitration Commission for settlement in accordance with its then effective arbitration rules. The arbitration shall be held in Beijing, and the language of the arbitration shall be Chinese. The arbitration award shall be final and binding upon the Parties.

 

13.3Where any dispute arises from the interpretation and performance hereof, or during the period when any dispute is subject to arbitration, except for the matters under dispute, the Parties shall continue to exercise their respective rights and perform their respective obligations hereunder.

 

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14.Notice

 

14.1All notices and other communications to be sent as required or permitted hereunder shall be sent by personal delivery or postage prepaid registered mail, commercial courier service or fax to the following address of the receiving Party. For each notice, a confirmation letter shall be sent via email. Such notice shall be deemed effectively delivered on:

 

14.1.1the date of delivery or rejection at the designated receiving address, if sent by personal delivery, courier service or postage prepaid registered mail; or

 

14.1.2the date of successful transmission (evidenced by an automatically generated message confirming the transmission), if sent by fax.

 

14.2Any Party may change at any time its address for the receipt of notices by notifying the other Parties in accordance with the terms of this clause.

 

15.Severability

 

Where any provision(s) hereof is/are determined by any laws or regulations to be void, illegal or unenforceable in any respect, the validity, legality or enforceability of the remaining provisions hereof shall not be affected or damaged in any respect. The Parties shall endeavor through bona fide negotiation to replace such void, illegal or unenforceable provision(s) with valid provision(s) to the maximum extent permitted by laws and expected by the Parties, and the economic effects of such valid provision(s) shall be similar to that of such void, illegal or unenforceable provision(s).

 

16.Appendix

 

The appendixes listed herein shall be an integral part hereof.

 

17.Effectiveness

 

17.1This Agreement shall take effect on the date of execution hereof by the Parties. Any and all amendments, modifications and supplements hereto shall be made in writing and take effect after the signature or seal of the Parties and the completion of government registration procedures (if applicable).

 

17.2This Agreement is written in Chinese in one or more counterparts, each of which shall have the same legal force and effect.

 

——The following is the signature page——

 

9

 

 

Signature only on this page for Equity Pledge Agreement

 

 

 

Party A:

 

Beijing Sangu Maolu Information Technology Co., Ltd. (Seal)

 

Legal Representative: Mingyou LI

 

 

 

 

 

 

 

 

 

 

 

Party C:

 

Beijing Internet Drive Technology Co., Ltd. (Seal)

 

Legal Representative: Mingyou LI

 

 

 

 

Signature only on this page for Equity Pledge Agreement

 

Party B:  
   
Mingyou LI  
   
/s/ Mingyou LI  

 

 

 

 

Signature only on this page for Equity Pledge Agreement

 

Party B:  
   
Xingyu DU  
   
/s/ Xingyu DU  

 

 

 

 

Appendix

 

Register of Shareholders

 

No. Name Identity Card Number Capital Contribution (RMB) Situation of Equity Pledge
1. Li Mingyou ****** 99,000 All pledged to Beijing Sangu
Maolu Information Technology
Co., Ltd.
2. Du Xingyu ****** 1,000 All pledged to Beijing Sangu
Maolu Information Technology
Co., Ltd.

 

 

 

 

Exhibit 4.11

 

Consent Letter

 

I, Zhou Shixue (certificate number: ******, the legal spouse of Li Mingyou, hereby unconditionally and irrevocably agree that Li Mingyou executes the following documents (hereinafter referred to as the “Transaction Documents”) on May 31, 2019, and that the equity of Beijing Internet Drive Technology Co., Ltd. (hereinafter referred to as the “Domestic-funded Company”) held by and registered under the name of Li Mingyou will be disposed of in accordance with the provisions of the following Transaction Documents:

 

(1)the Equity Pledge Agreement executed by and among Beijing Sangu Maolu Information Technology Co., Ltd. (hereinafter referred to as the “WFOE”), Domestic-funded Company and all shareholders thereof; and

 

(2)the Exclusive Call Option Agreement executed by and among the WFOE, the Domestic-funded Company and all shareholders thereof;

 

(3)the Power of Attorney Agreement executed with the WFOE.

 

I acknowledge that I do not enjoy any interest to the equity of the Domestic-funded Company, and undertake that I will not file any claim in respect of the equity of the Domestic-funded Company. I further acknowledge that no additional authorization or consent by me is required for the performance and further modification or termination of the Transaction Documents by Li Mingyou.

 

I undertake that I will execute all necessary documents and take all necessary actions to ensure the proper performance of the Transaction Documents (as amended from time to time).

 

I agree and undertake that if for any reason I obtain any equity of the Domestic-funded Company, I shall be bound by the Transaction Documents (as amended from time to time) and comply with the obligations thereunder as a shareholder of the Domestic-funded Company and, for that purpose, once requested by the WFOE, execute a series of written documents, the format and content of which are basically the same with that of the Transaction Documents (as amended from time to time).

 

I further acknowledge, undertake and warrant that, under any circumstances, including but not limited to my divorce with my spouse, my spouse has the right to independently dispose of the equity of domestic-funded enterprises held by him and the corresponding assets, and I will not take any action which may affect or interfere with the performance by my spouse of his obligations under the Transaction Documents.

 

The conclusion, validity, interpretation, performance, modification and termination hereof and the settlement of disputes arising from this Consent Letter shall all be governed by the Chinese laws. Any dispute arising from the interpretation and performance hereof shall first of all be settled by the signatories hereto through friendly negotiation. Where the dispute is still not settled within thirty (30) days upon written notification by a Party to the other Parties requesting for the settlement of the dispute through negotiation, any Party may submit the dispute to China International Economic and Trade Arbitration Commission for settlement in accordance with its arbitration rules. The arbitration shall be held in Beijing, and the language of the arbitration shall be Chinese. The arbitration award shall be final and binding upon the Parties.

 

  Signature: /s/ Shixue ZHOU

 

  Name: Shixue ZHOU
   
  Date: May.31, 2019

 

 

 

 

Consent Letter

 

I, Li Qunfang (certificate number: ******), the legal spouse of Du Xingyu, hereby unconditionally and irrevocably agree that Du Xingyu executes the following documents (hereinafter referred to as the “Transaction Documents”) on May 31, 2019, and that the equity of Beijing Internet Drive Technology Co., Ltd. (hereinafter referred to as the “Domestic-funded Company”) held by and registered under the name of Du Xingyu will be disposed of in accordance with the provisions of the following Transaction Documents:

 

(1)the Equity Pledge Agreement executed by and among Beijing Sangu Maolu Information Technology Co., Ltd. (hereinafter referred to as the “WFOE”), the Domestic-funded Company and all shareholders thereof; and

 

(2)the Exclusive Call Option Agreement executed by and among the WFOE, the Domestic-funded Company and all shareholders thereof;

 

(3)the Power of Attorney Agreement executed with the WFOE.

 

I acknowledge that I do not enjoy any interest to the equity of the Domestic-funded Company, and undertake that I will not file any claim in respect of the equity of the Domestic-funded Company. I further acknowledge that no additional authorization or consent by me is required for the performance and further modification or termination of the Transaction Documents by Du Xingyu.

 

I undertake that I will execute all necessary documents and take all necessary actions to ensure the proper performance of the Transaction Documents (as amended from time to time).

 

I agree and undertake that if for any reason I obtain any equity of the Domestic-funded Company, I shall be bound by the Transaction Documents (as amended from time to time) and comply with the obligations thereunder as a shareholder of the Domestic-funded Company and, for that purpose, once requested by the WFOE, execute a series of written documents, the format and content of which are basically the same with that of the Transaction Documents (as amended from time to time).

 

I further acknowledge, undertake and warrant that, under any circumstances, including but not limited to my divorce with my spouse, my spouse has the right to independently dispose of the equity of domestic-funded enterprises held by him and the corresponding assets, and I will not take any action which may affect or interfere with the performance by my spouse of his obligations under the Transaction Documents.

 

The conclusion, validity, interpretation, performance, modification and termination hereof and the settlement of disputes arising from this Consent Letter shall all be governed by the Chinese laws. Any dispute arising from the interpretation and performance hereof shall first of all be settled by the signatories hereto through friendly negotiation. Where the dispute is still not settled within thirty (30) days upon written notification by a Party to the other Parties requesting for the settlement of the dispute through negotiation, any Party may submit the dispute to China International Economic and Trade Arbitration Commission for settlement in accordance with its arbitration rules. The arbitration shall be held in Beijing, and the language of the arbitration shall be Chinese. The arbitration award shall be final and binding upon the Parties.

 

  Signature: /s/ Qunfang LI

 

  Name: Qunfang LI
   
  Date: May 31, 2019

 

 

 

 

Exhibit 4.12

 

Power of Attorney Agreement

 

This Power of Attorney Agreement (hereinafter referred to as the “Agreement”) is executed by and between the following two Parties on May 31, 2019 in Beijing, China.

 

Party A: Beijing Sangu Maolu Information Technology Co., Ltd., a limited liability company incorporated and existing in accordance with Chinese laws under the address of 1011A33, 9F, Yard 1, No. 32 Xizhimen North Avenue, Haidian District, Beijing;

 

Party B: Li Mingyou, a Chinese citizen, ID card number: ******.

 

In the Agreement, Party A and Party B are hereinafter each referred to as a “Party” and collectively referred to as the “Parties”.

 

Whereas:

 

Party B holds 99% of the equity (“Party B’s Equity”) of Beijing Internet Drive Technology Co., Ltd. (“Domestic-funded Company”).

 

Both Parties hereby enter into the following agreement through negotiation:

 

Party B hereby, with respect to Party B’s Equity, irrevocably authorizes Party A to exercise the following rights within the validity period of the Agreement:

 

Party A is hereby authorized as the sole agent and authorized person of Party B to act on behalf of Party B in respect of all matters concerning Party B’s Equity, including but not limited to: 1) attending shareholders’ meetings of the Domestic-funded Company; 2) exercising all shareholders’ rights and voting rights enjoyed by Party B in accordance with Chinese laws and Domestic-funded Company’s articles of association, including but not limited to the sale, transfer, pledge or disposition of all or part of Party B’s Equity; and 3) designating and appointing the Domestic-funded Company’s legal representative (chairman of the board of directors), directors, supervisors, chief executive officer and other senior executives on behalf of Party B.

 

Without limiting the generality of the authority granted hereunder, Party A shall have the power and be authorized in accordance with the Agreement to execute the transfer contract specified in the Exclusive Call Option Agreement (Party B is required to be a party thereto) on behalf of Party B and perform the terms of the Equity Pledge Agreement and the Exclusive Call Option Agreement to which Party B is a party and which are executed on the date of execution hereof.

 

All acts of Party A in relation to Party B’s Equity shall be deemed as Party B’s own acts, and all documents executed by Party A in relation to Party B’s Equity shall be deemed as executed by Party B. Party B hereby acknowledges and approves such acts and/or documents of Party A.

 

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Party A may decide at its own discretion to grant authority or transfer its rights in relation to the aforesaid matters to any other personnel or entity without notifying or obtaining the consent of Party B in advance.

 

During the period when Party B is a shareholder of the Domestic-funded Company, the Agreement and the authorization hereunder shall be irrevocable and remain in force as of the date of execution hereof.

 

During the term of validity of the Agreement, Party B hereby waives and may not exercise by itself all rights in relation to Party B’s Equity which have been delegated to Party A by the Agreement.

 

If at any time during the term of the Agreement, the grant or exercise of entrusted rights under the Agreement cannot be realized for any reason, both Parties should immediately seek an alternative solution closest to the unfulfillable provisions, and sign a supplementary agreement to revise or adjust the terms of the Agreement if necessary to ensure that the purpose of the Agreement can to be achieved in an ongoing basis.

 

The conclusion, entry into force, performance, revision, interpretation and termination of the Agreement shall be governed by the laws of the People’s Republic of China.

 

Any dispute arising from the interpretation and performance hereof shall be settled by the Parties through friendly negotiation first. Where the Parties fail to reach any agreement on the settlement of such dispute within 30 days after a request for settlement of the dispute through negotiation is made by any Party to the other Parties, any Party may submit the dispute to China International Economic and Trade Arbitration Commission for settlement in accordance with its then effective arbitration rules. The arbitration shall be held in Beijing, and the language of the arbitration shall be Chinese. The arbitration award shall be final and binding upon both Parties.

 

The Agreement is written in Chinese in two or more counterparts, with each Party holding one copy respectively, both of which shall have the same legal effect.

 

——THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK——

 

2

 

 

Signature only on this page for Power of Attorney Agreement

 

Party A:  
   
Beijing Sangu Maolu Information Technology Co., Ltd. (Seal)  
   
Legal Representative: Mingyou LI  

 

 

Party B:  
   
Mingyou LI  
   
Signature: /s/ Mingyou LI  

 

 

 

 

Power of Attorney Agreement

 

This Power of Attorney Agreement (hereinafter referred to as the “Agreement”) is executed by and between the following two Parties on May 31, 2019 in Beijing, China.

 

Party A: Beijing Sangu Maolu Information Technology Co., Ltd., a limited liability company incorporated and existing in accordance with Chinese laws under the address of 1011A33, 9F, Yard 1, No. 32 Xizhimen North Avenue, Haidian District, Beijing;

 

Party B: Du Xingyu, a Chinese citizen, ID card number: ******.

 

In this Agreement, Party A and Party B are hereinafter each referred to as a “Party” and collectively referred to as the “Parties”.

 

Whereas:

 

Party B holds 1% of the equity (“Party B’s Equity”) of Beijing Internet Drive Technology Co., Ltd. (“Domestic-funded Company”).

 

Both Parties hereby enter into the following agreement through negotiation:

 

Party B hereby, with respect to Party B’s Equity, irrevocably authorizes Party A to exercise the following rights within the validity period of this Agreement:

 

Party A is hereby authorized as the sole agent and authorized person of Party B to act on behalf of Party B in respect of all matters concerning Party B’s Equity, including but not limited to: 1) attending shareholders’ meetings of the Domestic-funded Company; 2) exercising all shareholders’ rights and voting rights enjoyed by Party B in accordance with Chinese laws and Domestic-funded Company’s articles of association, including but not limited to the sale, transfer, pledge or disposition of all or part of Party B’s Equity; and 3) designating and appointing the Domestic-funded Company’s legal representative (chairman of the board of directors), directors, supervisors, chief executive officer and other senior executives on behalf of Party B.

 

Without limiting the generality of the authority granted hereunder, Party A shall have the power and be authorized in accordance with this Agreement to execute the transfer contract specified in the Exclusive Call Option Agreement (Party B is required to be a party thereto) on behalf of Party B and perform the terms of the Equity Pledge Agreement and the Exclusive Call Option Agreement to which Party B is a party and which are executed on the date of execution hereof.

 

All acts of Party A in relation to Party B’s Equity shall be deemed as Party B’s own acts, and all documents executed by Party A in relation to Party B’s Equity shall be deemed as executed by Party B. Party B hereby acknowledges and approves such acts and/or documents of Party A.

 

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Party A may decide at its own discretion to grant authority or transfer its rights in relation to the aforesaid matters to any other personnel or entity without notifying or obtaining the consent of Party B in advance.

 

During the period when Party B is a shareholder of the Domestic-funded Company, this Agreement and the authorization hereunder shall be irrevocable and remain in force as of the date of execution hereof.

 

During the term of validity of this Agreement, Party B hereby waives and may not exercise by itself all rights in relation to Party B’s Equity which have been delegated to Party A by this Agreement.

 

If at any time during the term of this Agreement, the grant or exercise of entrusted rights under this Agreement cannot be realized for any reason, both Parties should immediately seek an alternative solution closest to the unfulfillable provisions, and sign a supplementary agreement to revise or adjust the terms of this Agreement if necessary to ensure that the purpose of this Agreement can to be achieved in an ongoing basis.

 

The conclusion, entry into force, performance, revision, interpretation and termination of this Agreement shall be governed by the laws of the People’s Republic of China.

 

Any dispute arising from the interpretation and performance hereof shall be settled by the Parties through friendly negotiation first. Where the Parties fail to reach any agreement on the settlement of such dispute within 30 days after a request for settlement of the dispute through negotiation is made by any Party to the other Parties, any Party may submit the dispute to China International Economic and Trade Arbitration Commission for settlement in accordance with its then effective arbitration rules. The arbitration shall be held in Beijing, and the language of the arbitration shall be Chinese. The arbitration award shall be final and binding upon both Parties.

 

This Agreement is written in Chinese in two or more counterparts, with each Party holding one copy respectively, both of which shall have the same legal effect.

 

——THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK——

 

2

 

 

Signature only on this page for Power of Attorney Agreement

 

Party A:  
   
Beijing Sangu Maolu Information Technology Co., Ltd. (Seal)  
   
Legal Representative: Mingyou LI  

 

 

 

 

Signature only on this page for Power of Attorney

 

Party B:  
   
Xingyu DU  
   
Signature: /s/ Xingyu DU  

  

 

 

Exhibit 4.13

 

Exclusive Business Cooperation Agreement

 

This Exclusive Business Cooperation Agreement (hereinafter referred to as this “Agreement”) is executed by and between the following two Parties on May 31, 2019 in Beijing, PRC.

 

Party A:    Beijing Sangu Maolu Information Technology Co., Ltd., a limited liability company incorporated and existing in accordance with PRC laws under the address of 1011A33, 9F, Yard 1, No. 32 Xizhimen North Avenue, Haidian District, Beijing

 

Party B:    Shenzhen Drive New Media Co., Ltd., a limited liability company incorporated and existing in accordance with Chinese laws under the address of 31F, Dachong International Center, 39 Tonggu Road, Yuehai Street, Nanshan District, Shenzhen

 

Party A and Party B are hereinafter each referred to as a “Party” and collectively referred to as both “Parties”.

 

Whereas:

 

1.Party A is a wholly foreign-owned enterprise registered in the People’s Republic of China (hereinafter referred to as “PRC”) with necessary resources for the provision of technical business services and business consultation services;

 

2.Party B is a domestic-funded company registered in PRC with approval form related government agencies to engage in Mobile TV network construction, technology promotion, mobile multimedia research and development, technology integration and product sales, operating e-commerce, and advertising business(hereinafter referred to as “Business Scope”);

 

3.Party A agrees that by making use of its advantages in human resource, technology and information, Party A or any party designated by Party A provides Party B with exclusive technique, business support, business consultation and other services within the Business Scope of Party B during the term of validity hereof, and Party B agrees to accept such exclusive services provided by Party A or any party designated by Party A in accordance with the terms hereof.

 

In view of the above, both Parties hereby enter into the following agreement through negotiation:

 

1.Provision of Services by Party A

 

1.1In accordance with the terms and conditions provided for herein, Party B hereby entrusts Party A as Party B’s exclusive service provider during the term hereof of comprehensive business support, technical services and consulting services, including all services determined by Party A from time to time within Party B’s Business Scope, including without limitation: technical services, network support, business consulting, intellectual property licensing, lease of equipment or offices, market consulting, system integration, product research and development, and system maintenance.

 

1.2Party B agrees to accept the consultation and services provided by Party A. Party B further agrees that, unless with prior written consent of Party A, during the term hereof, with respect to the matters provided for herein, Party B may neither accept any consultation and/or service provided by any third party, nor cooperate with any third party. Party A may designate other parties (such designated parties may execute certain agreements specified in Article 1.3 hereof with Party B) to provide Party B with the consultation and/or services hereunder. For the avoidance of doubt, none of the terms hereof restricts Party A from providing third parties with consultation and/or services in any way, and Party A is not required to get consent from Party B when providing third parties with any consultation and/or services.

 

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1.3Means of service provision

 

1.3.1Both Parties agree that during the term hereof they may, directly or through their respective affiliates, execute other technical service agreements and consulting service agreements to provide for the specific content and charging standards of specific technical services and consulting services and the specific service mode and service staff.

 

1.3.2In order to perform this Agreement, both Parties agree that during the term hereof they may, directly or through their respective affiliates, execute intellectual property (including but not limited to copyright, software, trademark, patent, patent application, know-how, business secret and others) licensing agreements, which shall permit Party B to use relevant intellectual property rights of Party A or parties designated by Party A based on its business needs.

 

1.3.3In order to perform this Agreement, both Parties agree that during the term hereof they may, directly or through their respective affiliates, execute equipment or plant lease agreements, which shall permit Party B to use relevant equipment or plants of Party A based on its business needs at any time.

 

1.3.4For the avoidance of doubt, Party A shall have the absolute discretion to determine whether Party A or parties designated by Party A shall provide the consultation or services, whether to provide consultation or services, and the type, content, time, method and frequency of the specific consultation or services. Party A's failure to provide all consultation or services under Articles 1.3.1 to 1.3.3 does not constitute a breach of the Agreement.

 

2.Calculation and Payment of Service Fee

 

2.1Both Parties agree that Party A will issue bills to Party B on a quarterly basis according to the workload and commercial value of the technical services provided by it for Party B and the price agreed to by both Parties, and Party B shall pay corresponding consulting service fees and other service fees to Party A or any party designated by Party A in accordance with the date and amount specified in the bills. Party A may adjust the charging standards of consulting service fees at any time according to the quantity and content of consulting services provided by it for Party B. The aforesaid adjustment will take effect after notifying Party B in writing.

 

2.2Within fifteen (15) working days as of the end of each financial year, Party B shall provide Party A with the financial statements of such year and all business records, business contracts and financial information required for the issuance thereof. Where Party A has any doubt about the financial information provided by Party B, it may entrust an independent accountant with good reputation to audit relevant information, for which Party B shall render cooperation.

 

3.Intellectual Property Rights and Confidentiality

 

3.1Party A enjoys exclusive and proprietary rights and interests to all rights, ownership, interests and intellectual property rights generated or created in order to perform this Agreement, including but not limited to copyrights, patents, patent applications, trademarks, software, technical secrets, trade secrets, and others, no matter whether they are developed by Party A or Party B. Party A or any party designated by Party A licenses Party B to use the intellectual property rights, but does not grant Party B any ownership of the intellectual property rights, and the intellectual property rights developed by Party B based on Party A's consultation or services shall be owned by Party A.

 

3.2Both Parties acknowledge that any oral or written information exchanged in respect hereof shall be confidential information. Each Party shall keep confidential of all such information and, without the written consent of the other Party, may not disclose to any third party any relevant information, unless: (a) the public is or will be aware of such information (which is not caused by any disclosure by the receiving Party to the public); (b) such information shall be disclosed as required by applicable laws or the rules or provisions of any securities exchange; (c) either Party is required to disclose such information to its legal consultant or financial consultant with respect to any transaction provided for hereunder, and such legal consultant or financial consultant is also required to be bound by confidentiality obligation similar to that provided for in this clause. The disclosure of any confidential information by any staff or organization employed by either Party shall be deemed as disclosure of such confidential information by such Party, and such Party shall bear legal liability for its violation hereof. This clause shall survive the termination hereof for whatever reason.

 

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3.3Both Parties agree that this clause shall remain in force no matter whether this Agreement is changed, revoked or terminated.

 

4.Representations and Warranties

 

4.1Party A represents and warrants as follows:

 

4.1.1Party A is a company legally registered and validly existing in accordance with the PRC laws.

 

4.1.2Party A’s execution and performance hereof is within its corporate capacity and scope of business; Party A has taken necessary corporate actions, been granted proper authorization, and obtained the consent and approval of third parties and government authorities, and is not in violation of laws or other restrictions which are binding upon or have impacts on Party A.

 

4.1.3This Agreement constitutes a legal, valid and binding obligation of Party A, and such obligation is enforceable to Party A in accordance with the terms hereof.

 

4.2Party B represents and warrants as follows:

 

4.2.1Party B is a company legally registered and validly existing in accordance with the laws of PRC with approval form related government agencies to engage in Mobile TV network construction, technology promotion, mobile multimedia research and development, technology integration and product sales, operating e-commerce, and advertising business.

 

4.2.2Party B’s execution and performance hereof is within its corporate capacity and scope of business; Party B has taken necessary corporate actions, been granted proper authorization, and obtained the consent and approval of third parties and government authorities, and is not in violation of laws or other restrictions which are binding upon or have impacts on Party B.

 

4.2.3This Agreement constitutes a legal, valid and binding obligation of Party B, and such obligation is enforceable to Party B in accordance with the terms hereof.

 

5.Effectiveness and Term

 

5.1This Agreement is executed on and shall take effect as of the date first written above. Unless terminated early in accordance with the provisions hereof or other agreements executed by both Parties, this Agreement shall remain valid for 10 years. After executing this Agreement, both Parties shall review this Agreement every three months to determine whether to modify or supplement provisions hereof in accordance with the actual situations at the time.

 

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5.2Prior to the expiration of this Agreement, the validity of this Agreement may be extended upon Party A's written confirmation. If Party A decides to extend the term, the extended term of validity shall be determined by Party A, and Party B shall accept such extended term of validity without conditions.

 

6.Termination

 

6.1Unless renewed in accordance with relevant terms hereof, this Agreement shall terminate on the date of expiry.

 

6.2During the term of validity hereof, Party B shall not terminate this Agreement before the date of expiry, unless Party A has gross negligence or fraudulent practice against Party B. Nevertheless, Party A may terminate this Agreement at any time by notifying Party B in writing 30 days in advance.

 

6.3The rights and obligations of both Parties under Articles 3, 7 and 8 hereof shall remain valid after the termination of this Agreement.

 

7.Applicable Laws and Dispute Settlement

 

7.1The execution, effectiveness, interpretation, performance, modification and termination hereof and the settlement of disputes hereunder shall be governed by PRC laws.

 

7.2Any dispute arising from the interpretation and performance hereof shall be settled by both Parties through bona fide negotiation. Where any Party fails to reach any agreement on the settlement of such dispute within 30 days after a request for settlement of the dispute through negotiation is made by any Party to the other Party, the Party may submit the dispute to China International Economic and Trade Arbitration Commission for settlement in accordance with its then effective arbitration rules. The arbitration shall be held in Beijing, and the language of the arbitration shall be Chinese. The arbitration award shall be final and binding upon both Parties.

 

7.3Where any dispute arises from the interpretation and performance hereof, or during the period when any dispute is subject to arbitration, except for the matters under dispute, both Parties shall continue to exercise their respective rights and perform their respective obligations hereunder.

 

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8.Indemnification

 

Party B shall indemnify Party A and hold Party A harmless from any loss, damage, liability or cost incurred by any litigation, claim for compensation for other claims against Party A resulting or arising from the consultation and services provided by Party A at the request of Party B, unless such loss, damage, liability or cost is incurred as a result of Party A’s gross negligence or willful misconduct.

 

9.Notice

 

9.1All notices and other communications to be sent as required or permitted hereunder shall be sent by personal delivery or postage prepaid registered mail, commercial courier service or fax to the following address of the receiving Party. For each notice, a confirmation letter shall be sent via email. Such notice shall be deemed effectively delivered on:

 

9.1.1the date of delivery or rejection at the designated receiving address, if sent by personal delivery, courier service or postage prepaid registered mail.

 

9.1.2the date of successful transmission (evidenced by an automatically generated message confirming the transmission), if sent by fax.

 

9.2Any Party may change at any time its address for the receipt of notices by notifying the other Party in accordance with the terms of this clause.

 

10.Transfer

 

10.1Without the prior written consent of Party A, Party B may not transfer any of its rights and obligations hereunder to any third party.

 

10.2Party B agrees that Party A may transfer its rights and obligations hereunder to any third party by notifying Party B in writing in advance without the consent of Party B.

 

11.Severability

 

Where any provision(s) hereof is/are determined by any laws or regulations to be void, illegal or unenforceable in any respect, the validity, legality or enforceability of the remaining provisions hereof shall not be affected or damaged in any respect. The Parties shall endeavor through bona fide negotiation to replace such void, illegal or unenforceable provision(s) with valid provision(s) to the maximum extent permitted by laws and expected by the Parties, and the economic effects of such valid provision(s) shall be similar to that of such void, illegal or unenforceable provision(s).

 

12.Modification and Supplement

 

Any modification and supplement hereto shall be made in writing. Modification agreements and supplementary agreements executed by both Parties in relation to this Agreement shall be an integral part hereof, and shall have the same legal force and effect as this Agreement.

 

13.Language and Counterpart

 

This Agreement is written in Chinese in two or more counterparts, both of which shall have the same legal force and effect.

 

——The following is the signature page——

  

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Signature only on this page for Exclusive Business Cooperation Agreement

 

Party A:

 

Beijing Sangu Maolu Information Technology Co., Ltd. (Seal)

 

Legal Representative: Mingyou LI

 

 

Party B:

 

Shenzhen Drive New Media Co., Ltd. (Seal)

 

Legal Representative: Mingyou LI

 

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Exhibit 4.14 

 

Exclusive Call Option Agreement

 

This Exclusive Call Option Agreement (hereinafter referred to as this “Agreement”) is executed by and among the following parties on May 31, 2019 in Beijing, PRC:

 

Party A:Beijing Sangu Maolu Information Technology Co., Ltd., a limited liability company incorporated and existing in accordance with Chinese laws under the address of 1011A33, 9F, Yard 1, No. 32 Xizhimen North Avenue, Haidian District, Beijing

 

Party B:Party B1: Li Mingyou, a Chinese citizen, ID card number: ******;
Party B2: Du Xingyu, a Chinese citizen, ID card number: ******
and

 

Party C:Shenzhen Drive New Media Co., Ltd., a limited liability company incorporated and existing in accordance with Chinese laws under the address of 31F, Dachong International Center, 39 Tonggu Road, Yuehai Street, Nanshan District, Shenzhen

 

In this Agreement, Party A, Party B and Party C are hereinafter each referred to as a “Party” and collectively referred to as the “Parties”.

 

Whereas: Party B holds 100% of the equity interests in Party C;

 

Now the Parties enter into the following agreement through negotiation:

 

1.Sale and Purchase of Equity and Asset

 

1.1Grant of right

 

1.1.1Each of Party B hereby irrevocably grants Party A an irrevocable exclusive right (the Purchasing Right for Equity”) to purchase or designate a person or persons (each referred to as a “Designated Person of Shares”) to purchase at any time from either party of Party B all or part of the equity held by it in Party C at one time or multiple times by steps decided by Party A at its own discretion at the price stated in Article 1.3 hereof, to the extent permitted by laws of the People’s Republic of China (“PRC”). No one other than Party A and the Designated Persons of Shares may enjoy the Purchasing Right for Equity or other rights in relation to Party B’s equity. Party C hereby agrees that Party B grants Purchasing Right for Equity to Party A. The term “Person” referred to in this clause and this Agreement means an individual, company, joint venture, partnership, enterprise, trust or non-corporate organization.

 

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1.1.2Party C hereby irrevocably grants Party A an irrevocable exclusive right (“Purchasing Right for Asset”) to purchase or designate a person or persons (“Designated Person of Asset”, and collectively referred to as “Designated Person” together with Designated Person of Equity) to purchase at any time from Party B all or part of the assets held by it in Party C at one time or multiple times by steps decided by Party A at its own discretion at the price stated in Article 1.3 hereof, to the extent permitted by laws of PRC. No one other than Party A and the Designated Persons of Asset may enjoy the purchasing right or other rights in relation to Party C’s asset. Party B agrees that Party C shall grant Party A the right to purchase such assets in accordance with provisions hereof.

 

1.2Exercising steps

 

Subject to the terms and conditions of this Agreement, Party A has absolute discretion to determine the specific time, method and frequency for it to exercise the rights where permitted by laws of PRC.

 

Party A shall exercise its Purchasing Right for Equity in compliance with the provisions of PRC laws and regulations. To exercise its purchasing right, Party A shall notify Party B in writing (the “Purchase Notice”), specifying the following matters: (a) Party A’s decision on the exercise of the purchasing right; (b) the equity shares Party A intends to purchase from Party B (the “Purchased Equity”); and (c) the date to purchase/transfer the Purchased Equity.

 

Party A shall exercise its Purchasing Right for Asset in compliance with the provisions of PRC laws and regulations. To exercise its purchasing right, Party A shall notify Party C in writing (the “Asset Purchase Notice”), specifying the following matters: (a) Party A’s decision on the exercise of the purchasing right; (b) the asset Party A intends to purchase from Party C (the “Purchased Asset”); and (c) the date to purchase/transfer the Purchased Asset.

 

When Party A exercises the Purchasing Right for Equity or Purchasing Right for Asset, Party A can not only transfer the Purchased Equity or Purchased Asset on its own, but also designate the Purchased Equity or Purchased Asset to be wholly or partly transferred to the Designated Person.

 

1.3Purchase price of equity and asset

 

1.3.1Regarding the Purchased Equity, the purchase price of the purchased equity (Purchase Price of Equity”) shall be RMB 1.00, unless laws or regulations of PRC require the appraisal at the time when Party A exercises the rights; where the minimum price allowed by laws of PRC is then higher than the aforesaid price, the minimum price allowed by the laws shall prevail. Where Party B obtains a transfer price higher than RMB 1.00 for the Purchased Equity held by Party B, or receives any form of profit distribution, interests, bonuses or dividends from Party C, Party B agrees that Party A has the right to obtain the above-mentioned gains of more than RMB 1.00 to the extent that laws of PRC are not violated. Party B shall instruct relevant transferee or Party C to pay such proceeds to the bank account designated by Party A.

 

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1.3.2Regarding the Purchasing Right for Asset, the purchase price of the Purchased Asset (“Purchase Price of Asset”) shall be the net book value of the purchased asset, unless laws of PRC require the assessment at the time when Party A exercises such right; where the minimum price allowed by laws of PRC is then higher than the aforesaid net book value, the minimum price allowed by the PRC laws shall prevail.

 

1.4Transfer of the purchased equity and asset

 

Each time Party A exercises its Purchasing Right for Equity or Purchasing Right for Asset:

 

1.4.1Party B and Party C shall cause party C to hold in a timely manner a shareholders’ meeting and/or a board meeting (whichever is applicable), in which a resolution on approval of the transfer by Party B of the equity to Party A and/or the Designated Person of Shares, or on approval of the transfer by Party C of the asset to Party A and/or the Designated Person;

 

1.4.2Party B or Party C (whichever is applicable) shall execute an equity transfer agreement or an asset transfer agreement (collectively referred to as the “Transfer Contract”) for each transfer with Party A and/or (whichever is applicable) the Designated Person in accordance with the provisions hereof and the corresponding purchase notice.

 

1.4.3Relevant parties shall execute all other necessary contracts, agreements or documents, obtain all necessary government licenses and permissions, and take all necessary actions to transfer the good title of the Purchased Equity or Purchased Asset to Party A and/or the Designated Persons (whichever is applicable) without any Security Interest thereon, and cause Party A and/or the Designated Persons to become the registered owner of the Purchased Equity or Purchased Asset (if needed). For the purpose of this clause and this Agreement, “Security Interest” includes guarantees, mortgages, pledge, lien, claim, third party rights or interests, any share options, acquisition rights, preemptive rights, setoff rights, retention of title or other guarantee arrangements; provided that for the purpose of clarity, any security interest incurred under this Agreement and Party B’s Equity Pledge Agreement are excluded. "Party B’s Equity Pledge Agreement" referred to in this clause and this Agreement means the Equity Pledge Agreement executed by Party A, Party B and Party C on the date of execution hereof, according to which Party B pledge all of its equity in Party C to Party A in order to ensure that Party B and/or Party C can perform their obligations under this Agreement, the Exclusive Business Cooperation Agreement and other relevant transaction documents executed by them with Party A.

 

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2.Undertakings

 

2.1Undertakings in relation to Party C

 

Party B (as Party C’s shareholders) and Party C hereby undertake that:

 

2.1.1Without the prior written consent of Party A, they may not by any means supplement, change or amend Party C’s articles of association and rules and regulations, increase or decrease its registered capital, or in other ways change the structure of its registered capital;

 

2.1.2They shall maintain the existence of the company and prudently and effectively operate its business and handle its affairs in accordance with good financial and business standards and practices;

 

2.1.3Without the prior written consent of Party A, they shall not sell, transfer, mortgage, pledge or by any other means dispose of any legal or beneficial interest in Party C’s equity, assets, business or income or have the same encumbered with any Security Interest at any time from the date of execution hereof;

 

2.1.4Without the prior written consent of Party A, no debt shall be incurred, inherited, guaranteed or allowed to exist, except for: (i) debts arising from the normal course of business rather than the obtaining of loans, and (ii) debts that have been disclosed to and approved in writing by Party A;

 

2.1.5They ensure that they operate all of Party C’s businesses during normal course of business, so as to maintain the value of Party C’s assets, and refrain from any act/omission that may affect its business status and asset value;

 

2.1.6Without the prior written consent of Party A, Party C may not be urged to execute any material contract, except for those executed during normal course of business (for the purpose of this paragraph, a contract will be deemed as a material one if its value exceeds RMB 100,000);

 

2.1.7Without the prior written consent of Party A, Party C may not be urged to provide any loan, credit, guarantee or warranty for anyone;

 

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2.1.8They shall provide all materials in relation to Party C’s operation and financial conditions for Party A at the request of Party A;

 

2.1.9They shall, if any request is made by Party A, take out and hold insurance in relation to Party C’s assets and business from an insurance company approved by Party A, the amount of and the risks covered by which shall be in line with that of and those covered by the insurance purchased by companies engaged in similar business;

 

2.1.10Without the prior written consent of Party A, Party C may not be urged or permitted to merge or consolidate with anyone or acquire or invest in anyone or be acquired or invested by anyone;

 

2.1.11Without the prior written consent of Party A, Party C may not be liquidated, dissolved or deregistered;

 

2.1.12They shall forthwith notify Party A of any litigation, arbitration or administrative procedure that arose or may arise in relation to Party C’s assets, business or income;

 

2.1.13They shall execute all necessary or appropriate documents, take all necessary or appropriate actions, file all necessary or appropriate complaints, or make necessary and appropriate defense against all claims, so as to maintain Party C’s title to all of its assets;

 

2.1.14Without the prior written consent of Party A, they shall ensure that Party C may not by any means distribute any profits, dividends or bonuses to its shareholders, provided that once requested by Party A in writing, Party C shall forthwith distribute all distributable profits, dividends and bonuses to its shareholders;

 

2.1.15At the request of Party A, they shall appoint any personnel designated by Party A to serve as Party C’s director, supervisor or executive who shall be appointed and/or dismissed by Party B;

 

2.1.16Party A shall be informed in a timely manner of any situation that may have a materially adverse effect on Party C's existence, business operation, financial status, assets or goodwill, and all measures approved by Party A shall be taken in a timely manner to eliminate such adverse conditions or take effective remedial measures; and

 

2.1.17At the request of Party A at any time, Party C shall immediately and unconditionally transfer the purchased asset to Party A and/or the Designated Person in accordance with purchasing right for asset hereof.

 

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2.2Party B’s undertakings
Party B hereby undertakes that:

 

2.2.1Without the prior written consent of Party A, it may not sell, transfer, mortgage, pledge or by any other means dispose of any legal or beneficial interest in the equity of Party C owned by it, or have the same encumbered with any Security Interest, except for pledge of such equity under Party B’s Equity Pledge Agreement;

 

2.2.2Party B shall procure that Party C’s board of shareholders and/or board of directors will not approve without the prior written consent of Party A any sale, transfer, mortgage, pledge or disposition in any other way of any legal or beneficial interest in the equity of Party C owned by Party B, or have the same encumbered with any Security Interest, except for pledge of such equity under Party B’s Equity Pledge Agreement;

 

2.2.3Without the prior written consent of Party A, Party B shall procure that Party C’s board of shareholders or board of directors will not approve any merger or consolidation with anyone, or any acquisition of or investment in anyone, or any acquisition by or investment from anyone;

 

2.24Party B shall forthwith notify Party A of any litigation, arbitration or administrative procedure that arose or may arise in relation to equity or asset of Party C owned by it;

 

2.2.5Party B shall procure that Party C’s board of shareholders or board of directors will vote on its approval for the transfer of the Purchased Equity or Purchased Asset hereunder and take any and all other actions that may be requested by Party A;

 

2.2.6Party B shall execute all necessary or appropriate documents, take all necessary or appropriate actions, file all necessary or appropriate complaints, or make necessary and appropriate defense against all claims, so as to maintain its title to the equity of Party C;

 

2.2.7At the request of Party A, Party B shall appoint any personnel designated by Party A to serve as Party C’s director;

 

2.2.8At the request of Party A at any time, Party B shall forthwith and unconditionally transfer its equity in Party C to Party A and/the Designated Person of Shares based on the purchasing right hereunder, and Party B hereby waives its preemptive right (if any) to transfer of Party C’s equity by other shareholders of Party C; and

 

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2.2.9Party B shall strictly comply with the provisions of this Agreement and other contracts executed by Party B and Party C jointly or separately with Party A, perform its obligations thereunder, and not engage in any act/omission that may affect the validity and enforceability thereof. Where Party B owns any residual right to the equity under this Agreement, the Party B’s Equity Pledge Agreement executed by the Parties hereto, or the Powers of Attorney Agreement granted with Party A as the beneficiary, unless as instructed by Party A in writing, Party B may not exercise such right.

 

3.Representations and Warranties

 

Party B and Party C hereby jointly and separately represent and warrant to Party A on the date of execution hereof and each date of transfer of the purchased equity and asset as follows:

 

3.1They have complete and independent legal status and legal ability to sign, deliver and perform this Agreement, and can act as the subject of a lawsuit independently. Furthermore, they are authorized to execute and deliver this Agreement and any Transfer Contract and perform their obligations thereunder. They agree to execute a Transfer Contract in line with the terms hereof at the time when Party A or its Designated Person exercises its Purchasing Right for Equity or Purchasing Right for Asset. This Agreement and Transfer Contracts to which they are a party constitute or will constitute their legal, valid and binding obligations and shall be enforceable against them in accordance with the terms thereof;

 

3.2Neither the execution and delivery of nor the obligations under this Agreement or any Transfer Contract shall: (i) result in any violation of any applicable PRC laws; (ii) conflict with the articles of association, rules and regulations or other organizational documents of Party C; (iii) result in violation of or constitute any breach of contract under any contract or instrument to which they are a party or which is binding upon them; (iv) result in any violation of any condition for the grant and/or continued validity of any license or permit issued to either of them; or (v) result in the suspension or revocation of or additional conditions for any license or permit issued to either of them;

 

3.3Party B owns good and merchantable title to the equity held by it in Party C, and has not encumbered the same with any Security Interest other than those under the Party B’s Equity Pledge Agreement.

 

3.4Party C owns good and merchantable title to all of its assets, and has not encumbered the aforesaid assets with any Security Interest;

 

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3.5Party C does not have any outstanding debt, except for (i) debts arising from the normal course of business, and (ii) debts that have been disclosed to and approved in writing by Party A;

 

3.6There is no pending or threatened litigation, arbitration or administrative procedure in relation to Party C or its equity or assets.

 

3.7Apart from the registration for equity pledge in administration authority of industry and commerce management in accordance with provisions specified in Party B’s Equity Pledge Agreement, no consent, permission, waiver and authorization from a third party or approval, permit, exemption from any governmental agencies or registration and filing procedures in any governmental agencies is required for the execution and performance of this Agreement and granting and exercising purchasing right for equity or asset hereof.

 

4.Date of Effectiveness

 

This Agreement shall take effect as of the date of execution hereof by the Parties with a term of 10 years, and Party A is entitled to extend the term. If Party A decides to extend the term, the extended term of validity shall be determined by Party A, and Party B and Party C shall unconditionally accept such extended term of validity.

 

5.Applicable Laws and Dispute Settlement

 

5.1.Applicable laws

 

The execution, effectiveness, interpretation, performance, modification and termination hereof and the settlement of disputes hereunder shall be governed by laws of PRC.

 

5.2.Settlement of disputes

 

Any dispute arising from the interpretation and performance hereof shall be settled by the Parties through friendly negotiation first. Where the Parties fail to reach any agreement on the settlement of such dispute within 30 days after a request for settlement of the dispute through negotiation is made by any Party to the other Parties, any Party may submit the dispute to China International Economic and Trade Arbitration Commission for settlement in accordance with its then effective arbitration rules. The arbitration shall be held in Beijing, and the language of the arbitration shall be Chinese. The arbitration award shall be final and binding upon the Parties.

 

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6.Taxes and Fees

 

Each Party shall pay any and all transfer and registration taxes, expenses and fees incurred by or imposed on such Party in accordance with PRC laws with respect to the preparation and execution of this Agreement and Transfer Contracts and the completion of the transactions thereunder.

 

Regardless of the contrary, where the taxation authority considers that the Purchase Price of Equity or Purchase Price of Asset is not a reasonable transfer price and adjusts the tax base, Party B (applicable to the case where Party A exercises the Purchasing Right for Equity) or Party C (applicable to the case where Party A exercises the Purchasing Right for Asset) shall bear the additional taxes.

 

7.Notice

 

7.1All notices and other communications to be sent as required or permitted hereunder shall be sent by personal delivery or postage prepaid registered mail, commercial courier service or fax to the following address of the receiving Party. For each notice, a confirmation letter shall be sent via email. Such notice shall be deemed effectively delivered on:

 

7.1.1the date of delivery or rejection at the designated receiving address, if sent by personal delivery, courier service or postage prepaid registered mail.

 

7.1.2the date of successful transmission (evidenced by an automatically generated message confirming the transmission), if sent by fax.

 

7.2Any Party may change at any time its address for the receipt of notices by notifying the other Parties in accordance with the terms of this clause.

 

8.Confidentiality Liability

 

The Parties acknowledge that any oral or written information exchanged in respect hereof shall be confidential information. Each Party shall keep confidential all such information and, without the written consent of the other Parties, may not disclose to any third party any relevant information, unless: (a) the public is or will be aware of such information (which is not caused by any disclosure by the receiving Party to the public); (b) such information shall be disclosed as required by applicable laws or the rules or provisions of any securities exchange; (c) any Party is required to disclose such information to its legal consultant or financial consultant with respect to any transaction provided for hereunder, and such legal consultant or financial consultant is also required to be bound by confidentiality obligation similar to that provided for in this clause. The disclosure of any confidential information by any staff or organization employed by any Party shall be deemed as disclosure of such confidential information by such Party, and such Party shall bear legal liability for its violation hereof. This clause shall survive the termination hereof for whatever reason.

 

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9.Further Warranties

 

The Parties agree to promptly execute other documents and take further actions reasonably required for or favorable to the implementation of the provisions and purposes hereof.

 

10.Miscellaneous

 

10.1Amendment, revision and supplement

 

Any amendment, revision and supplement hereto shall be subject to a written agreement executed by the Parties.

 

10.2Entire contract

 

Except for any written amendment, supplement or change hereto made after the execution hereof, this Agreement shall constitute the entire agreement among the Parties in respect of the subject matter hereof, and supersede all prior oral and written negotiation, statements and contracts reached by them with respect to the subject matter hereof.

 

10.3Headings

 

The headings herein are for the convenience of reading only, and shall not be used for the interpretation or explanation of or in any other respect affecting the meaning of the provisions hereof.

 

10.4Language

 

This Agreement is written in Chinese in multiple counterparts, each of which shall have the same legal force and effect.

 

10.5Severability

 

Where any provision(s) hereof is/are determined by any laws or regulations to be void, illegal or unenforceable in any respect, the validity, legality or enforceability of the remaining provisions hereof shall not be affected or damaged in any respect. The Parties shall endeavor through bona fide negotiation to replace such void, illegal or unenforceable provision(s) with valid provision(s) to the maximum extent permitted by laws and expected by the Parties, and the economic effects of such valid provision(s) shall be similar to that of such void, illegal or unenforceable provision(s).

 

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10.6.Transfer

 

Without the prior written consent of Party A, other parties shall not transfer any rights and/or obligations hereof to any third party. Party B and Party C agree that Party A has the right to unilaterally transfer any of its rights/obligations hereof to any third party without their consent, but shall notify other parties in writing.

 

10.7Successor

 

This Agreement shall be binding upon and inure to the benefit of the respective successors of the Parties and the permitted assigns of such Parties.

 

10.8Survival

 

10.8.1Any obligation arising from this Agreement or becoming due prior to the expiry or early termination hereof shall survive the expiry or early termination hereof.

 

10.8.2The provisions of Articles 5, 7, 8 hereof and this Article 10 shall survive the termination hereof.

 

10.9Waiver

 

Any Party may waive any terms and conditions hereof, provided that such waiver shall be made in writing and executed by the Parties. The waiver by any Party under certain circumstances with respect to other Parties’ breach of contract shall not be deemed as waiver by such Party under other circumstances with respect to similar breach of contract.

 

—— The following is the signature page ——

 

11

 

 

Signature only on this page for Exclusive Call Option Agreement

 

Party A:  
   
Beijing Sangu Maolu Information Technology Co., Ltd. (Seal)  
   
Legal Representative: Mingyou LI  
   
Party C:  
   
Shenzhen Drive New Media Co., Ltd. (Seal)  
   
Legal Representative: Mingyou LI  
     

 

 

 

Signature only on this page for Exclusive Call Option Agreement

 

Party B:  
   
Mingyou LI  
   
/s/ Mingyou LI  

 

 

 

 

Signature only on this page for Exclusive Call Option Agreement

 

Party B:  
   
Xingyu DU  
   
/s/ Xingyu DU  

 

 

 

 

Exhibit 4.15

 

Equity Pledge Agreement

 

This Equity Pledge Agreement (hereinafter referred to as this “Agreement”) is executed by and among the following Parties on May 31, 2019 in Beijing, PRC:

 

Party A:   Beijing Sangu Maolu Information Technology Co., Ltd., a limited liability company incorporated and existing in accordance with Chinese laws under the address of 1011A33, 9F, Yard 1, No. 32 Xizhimen North Avenue, Haidian District, Beijing; (hereinafter referred to as the “Pledgee”)

 

Party B:    including:

Party B1: Li Mingyou, a Chinese citizen, ID card number: ******;
Party B2: Du Xingyu, a Chinese citizen, ID card number: ******; (hereinafter referred to as the “Pledgors”)

 

Party C:   Shenzhen Drive New Media Co., Ltd., a limited liability company incorporated and existing in accordance with Chinese laws under the address of 31F, Dachong International Center, 39 Tonggu Road, Yuehai Street, Nanshan District, Shenzhen

 

In this Agreement, the Pledgee, the Pledgors and Party C are hereinafter each referred to as a “Party” and collectively referred to as the “Parties”.

 

Whereas:

 

1.The Pledgors hold 100% of the equity of Party C. Party C is a limited liability company registered in Beijing, PRC, and is engaged in Mobile TV network construction, technology development, mobile multimedia research and development, technology integration and product sales, operating e-commerce, and advertising business. Party C acknowledges the respective rights and obligations of the Pledgors and the Pledgee hereunder, and agrees to provide any necessary assistance in the registration of such Right of Pledge;

 

2.The Pledgee is a wholly foreign-owned enterprise incorporated in Beijing, PRC. The Pledgee and Party C executed an Exclusive Business Cooperation Agreement (hereinafter referred to as the “Exclusive Business Cooperation Agreement”) on May 31, 2019; the Pledgee, the Pledgors and Party C executed an Exclusive Call Option Agreement (hereinafter referred to as the “Exclusive Call Option Agreement”) on May 31, 2019; each Pledgor executed a Power of Attorney Agreement (hereinafter referred to as the “Power of Attorney Agreement”, collectively referred to as the “Program Agreements” together with the Exclusive Business Cooperation Agreement and the Exclusive Call Option Agreement) on May 31, 2019;

 

3.Purpose of the pledge: in order to ensure that (A) the Pledgee can collect all payments due and payable, including but not limited to consultation and service fees, from Party C in accordance with the Exclusive Business Cooperation Agreement; (B) the Pledgee can effectively exercise the options and/or asset purchase rights in accordance with the Exclusive Call Option Agreement; and (C) the Pledgee can exercise its voting rights in accordance with the Power of Attorney Agreement, the Pledgors agree to pledge all of the equity owned by them in Party C to the Pledgee for various obligations of Party B and Party C under the Program Agreements.

 

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Therefore, the Parties agree to execute this Agreement in accordance with the following terms.

 

1.Definitions

 

Unless otherwise specified herein, the following words shall have the meanings ascribed to them below:

 

1.1"Right of Pledge" shall mean the security interest granted by the Pledgors to the Pledgee pursuant to Article 2 hereof, i.e., the Pledgee’s right to be paid in priority with the price at which the Equity is transferred, auctioned or sold.

 

1.2"Pledged Equity" shall mean all 100% equity legally held by the Pledgors in Party C, and the increased amount of capital contribution and dividend as described in Article 2.3 and Article 2.4 hereof.

 

1.3"Term of Pledge" shall mean the term provided for in Article 3 hereof.

 

1.4"Program Agreements" shall have the same meaning in foreword hereof.

 

1.5"Contractual Obligations" shall mean all contractual obligations of the Pledgors and Party C under this Agreement and the Program Agreements.

 

1.6"Secured Debt" shall mean payment and other obligations of Party C under the Exclusive Business Cooperation Agreement, and all direct, indirect and derivative losses and loss of predictable interests suffered by the Pledgee as a result of any Event of Default (as defined below) by any Pledgor and/or Party C. Basis for the amount of such losses includes but is not limited to the Pledgee’s reasonable business plan and earnings estimate, service fees payable by Party C under the Exclusive Business Cooperation Agreement, and all costs incurred by the Pledgee to force the Pledgors and/or the Party C to perform their Contractual Obligations.

 

1.7"Event of Default" shall mean any circumstance specified in Article 7 hereof.

 

1.8"Default Notice" shall mean notice issued by the Pledgee in accordance with this Agreement to declare any Event of Default.

 

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2.Right of Pledge

 

2.1As a repayment guarantee for Secured Debt, each Pledgor hereby pledges all of the Pledged Equity held by it in Party C to the Pledgee. Party C hereby agreed that the Pledgor shall pledge the Pledged Equity to the Pledgee in accordance with provisions hereof.

 

2.2The Pledgors undertake to record the equity pledge arrangement in Party C’s register of shareholders.

 

2.3With the prior written consent of the Pledgee, the Pledgors may increase their capital in Party C. The amount of additional contribution made by the Pledgors in the registered capital of Party C due to capital increase shall also fall under the Pledged Equity. The Pledgors undertake to record the equity pledge of the newly added capital under Article 2.3 in Party C's register of shareholders and apply for registration with the Registration Authority (as defined below) within ten (10) business days after the capital increase.

 

2.4During the Term of Pledge, the Pledgee shall have the right to receive the returns (including but not limited to any dividends and profits) arising from the Pledged Equity. With the prior written consent of the Pledgee, the Pledgors may obtain dividends or bonus from the Pledged Equity. Dividends or bonus obtained by the Pledgors from the Pledged Equity shall be deposited in the Pledgee's designated account, supervised by the Pledgee, and used to settle the Secured Debt first.

 

3.Term of Pledge

 

3.1The Right of Pledge shall take effect upon the registration with the competent administration for industry and commerce management at the place where Party C is located (hereinafter referred to as the “Registration Authority”). The Parties agree that after the Agreement is executed, the Pledgors and Party A shall file an application to the Registration Authority for the registration of the equity pledge within the term as agreed by both Parties. The Parties further agree that, within twenty (20) business days as of the date of formal acceptance by the Registration Authority of the application for equity pledge registration, all formalities for equity pledge registration shall be completed, a registration notice issued by the Registration Authority shall be obtained, and the equity pledge shall be recorded completely and accurately on the equity pledge register by the Registration Authority.

 

3.2The term of the Agreement shall last till the Contractual Obligations are fully performed or the Secured Debt is completely discharged.

 

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4.Custody of Equity Records

 

During the Term of Pledge provided for herein, the Pledgors shall deliver within a week upon the execution hereof the register of shareholders on which the Right of Pledge is recorded to the Pledgee for custody. The Pledgee shall keep such documents throughout the Term of Pledge provided for herein.

 

5.Representations and Warranties of the Pledgors

 

5.1Each Pledgor is a Chinese legal person, enjoys full capacity, possesses the legal rights and capabilities to sign this Agreement, and assumes legal obligations according to this Agreement. Duly executed by the Pledgors, the Agreement constitutes a legal, valid and binding obligation to the Pledgors.

 

5.2Each Pledgor is the sole legal and beneficial owner of the Pledged Equity, and has no dispute regarding the title of the Pledged Equity. Each Pledgor has the right to dispose of the Pledged Equity and any part thereof.

 

5.3Other than this Right of Pledge, each Pledgor has not placed any security interest or other encumbrances on the equity.

 

5.4Any third party's consent, permission, waiver, authorization, or any government agencies’ approval, permit, exemption, or registration or filing procedure (if required by the law) for the execution and performance of this Agreement and equity pledge hereof has been obtained or processed (except for pledge registration with the Registration Authority), and will be fully effective during the term of validity hereof.

 

5.5The Pledgors hereby assure the Pledgee that the above representations and warranties are true and correct and shall be fully followed in all circumstances at any time before the Contractual Obligations are fully fulfilled or the Secured Debt is fully settled.

 

6.Undertakings and Further Consent of the Pledgors

 

6.1During the term hereof, the Pledgors hereby undertake to the Pledgee that:

 

6.1.1Except for performing the Exclusive Call Option Agreement, without the prior written consent of the Pledgee, they may not transfer the equity or place or allow the existence of any security interest or other encumbrances thereon which may affect the rights and interests of the Pledgee in the equity;

 

6.1.2They will forthwith notify the Pledgee of any event or any notice received by the Pledgors which may affect the Pledgee’s right to the equity or any part thereof and any event or any notice received by the Pledgors which may affect any warranty or other obligations of the Pledgors arising from this Agreement.

 

4

 

 

6.2Each Pledgor agrees that the Right of Pledge obtained by the Pledgee in accordance with this Agreement may not be interrupted or obstructed by such Pledgor or any successor or representative thereof or any other person through legal procedure.

 

6.3Each Pledgor hereby undertakes to the Pledgee that it will comply with and perform all warranties, undertakings, agreements, statements and conditions hereunder. Where any Pledgor fails to perform, partially or in full, its warranties, undertakings agreements, statements and conditions, such Pledgor shall compensate the Pledgee for all losses resulting therefrom.

 

6.4Each Pledgor hereby waives the preemptive right it may have when the Pledgee exercises the Right of Pledge.

 

7.Event of Default

 

7.1Each of the following circumstances shall be deemed as an Event of Default:

 

7.1.1Failure by Party C to pay up the consultation and service fees payable under the Exclusive Business Cooperation Agreement or violation by Party C of its any other obligations thereof;

 

7.1.2Violation by Party C or any Pledgor of other provisions in the Program Agreements;

 

7.1.3Any statement or warranty made by any Pledgor in Article 5 hereof includes gross misrepresentation or error, and/or any Pledgor violates any warranty in Article 5 hereof; or any Pledgor violates undertakings and further consent in Article 6 hereof;

 

7.1.4The Pledgors and Party C fail to complete the equity pledge registration with the Registration Authority as provided for in Article 3.1 hereof;

 

7.1.5Any Pledgor or Party C violates any provisions hereof;

 

7.1.6Unless specified in Article 6.1.1, any Pledgor transfers or intends to transfer or waives the Pledged Equity or assigns the Pledged Equity without the written consent of the Pledgee;

 

7.1.7Any liability of the Pledgor per se for any loan from or any guarantee, compensation, undertaking or other debts to any third party: (i) is required to be repaid or performed in advance due to the Pledgors’ breach of contract; or (ii) has become due but cannot be repaid or performed on time;

 

7.1.8Any approval, license, permit or authorization of government authorities which makes this Agreement enforceable, legal and valid is withdrawn or suspended, becomes void, or is changed substantially;

 

7.1.9The promulgation of applicable laws which makes this Agreement illegal or makes any Pledgor unable to continue to perform its obligations hereunder;

 

5

 

 

7.1.10Any adverse change in the property owned by any Pledgor, causing the Pledgee to deem that such Pledgor’s ability to perform its obligations hereunder is affected;

 

7.1.11Party C’s successor or trustee can only partially perform or refuses to perform the payment liabilities under the Exclusive Business Cooperation Agreement or the Exclusive Call Option Agreement; and

 

7.1.12Any other circumstances under which the Pledgee is unable or may be unable to exercise its Right of Pledge.

 

7.2Upon knowing or detecting any circumstance specified in Article 7.1 or the occurrence of any event which may result in the aforesaid circumstances, the Pledgors shall forthwith notify the Pledgee in writing accordingly.

 

7.3Unless the Event of Default specified in this Article 7.1 has been successfully settled to the satisfaction of the Pledgee, the Pledgee may issue a Default Notice to any Pledgor upon or at any time after the occurrence of any Event of Default, requesting the latter to pay all outstanding payments and amount due and payable under the Program Agreements to the Pledgee, and/or dispose of the Right of Pledge in accordance with the provisions of Article 8 hereof.

 

8.Exercise of the Right of Pledge

 

8.1Before the Secured Debt is fully paid, no Pledgor may transfer its equity in Party C or re-pledge the equity to any third party without the written consent of the Pledgee.

 

8.2The Pledgee may issue a Default Notice to the Pledgors at the time of exercising the Right of Pledge.

 

8.3Subject to the provisions of Article 7.3, the Pledgee may exercise the Right of Pledge at the time of or at any time after issuing the Default Notice in accordance with Article 7.2.

 

8.4The Pledgee may be paid in priority in accordance with legal procedures with the price at which all or part of the Pledged Equity hereunder is transferred, auctioned or sold, until all outstanding payments and other amounts due under the Program Agreements have been paid up.

 

8.5When the Pledgee disposes of the Right of Pledge in accordance with this Agreement, the Pledgors and Party C shall render necessary assistance, so that the Pledgee may exercise the Right of Pledge pursuant to this Agreement.

 

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9.Transfer

 

9.1Without the prior written consent of the Pledgee, the Pledgor may not assign its rights or delegate its obligations hereunder. However, at any time, the Pledgee may assign or delegate its rights and obligations hereof without the consent of the Pledgors or Party C, provided that the Pledgors and Party C are notified within a reasonable time.

 

9.2This Agreement shall be binding upon the Pledgor and its successors and permitted assigns, and shall be valid for the Pledgor and each of its successors and assigns.

 

9.3The Pledgee may transfer at any time any and all of its rights and obligations under the Program Agreements to any (natural/legal) person designated by it, in which case the transferee shall enjoy the rights and bear the obligations of the Pledgee hereunder, as if it were an original party hereto. When the Pledgee transfers any of its rights and obligations under the Program Agreements, at the request of the Pledgee, the Pledgor shall execute relevant agreements or other documents in relation to such transfer.

 

9.4Where the Pledgee is changed as a result of the transfer, at the request of the Pledgee, the Pledgor shall execute a new pledge agreement with the new Pledgee on the same terms and conditions as that of this Agreement, revised Exclusive Business Cooperation Agreement, Exclusive Call Option Agreement, Power of Attorney Agreement and other relevant documents.

 

9.5The Pledgor shall strictly comply with the provisions of this Agreement and other contracts executed jointly or separately by the Parties or any of them, including the Exclusive Business Cooperation Agreement, the Exclusive Call Option Agreement and the Power of Attorney Agreement granted to the Pledgee, perform its obligations under this Agreement and other contracts, and not engage in any act/omission that may affect the validity and enforceability thereof. Unless instructed by the Pledgee in writing, the Pledgor may not exercise any residual right to the Pledged Equity hereunder.

 

10.Termination and Rescission of Pledge

 

After the Pledgor and Party C have fully and completely performed all of their Contractual Obligations and paid off all Secured Debts, the Pledgee shall, at the request of the Pledgor, as soon as reasonably practicable, rescind the pledge of the Pledged Equity hereunder, and cooperate with the Pledgors to handle formalities for cancelling the registration of Pledged Equity in Party C’s register of shareholders and for cancelling the registration of pledge with Registration Authority.

 

11.Commission and Other Fees

 

All fees and actual expenditures in relation to this Agreement, including but not limited to the lawyer’s fee, cost of production, stamp duty, and any other taxes and costs shall be borne by Party C. Where any applicable law requires that the Pledgee shall bear some relevant taxes and fees, the Pledgors shall cause Party C to repay in full the taxes and fees that have been paid by the Pledgee.

 

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12.Confidentiality Liability

 

The Parties acknowledge that any oral or written information exchanged in respect hereof shall be confidential information. Each Party shall keep confidential all such information and, without the written consent of the other Parties, may not disclose to any third party any relevant information, unless: (a) the public is or will be aware of such information (which is not caused by any disclosure by the receiving Party to the public); (b) such information shall be disclosed as required by applicable laws or the rules or provisions of any securities exchange; (c) any Party is required to disclose such information to its legal consultant or financial consultant with respect to any transaction provided for hereunder, and such legal consultant or financial consultant is also required to be bound by confidentiality obligation similar to that provided for in this clause. The disclosure of any confidential information by any staff or organization employed by any Party shall be deemed as disclosure of such confidential information by such Party, and such Party shall bear legal liability for its violation hereof. This clause shall survive the termination hereof for whatever reason.

 

13.Applicable Laws and Dispute Settlement

 

13.1The execution, effectiveness, interpretation and performance hereof and the settlement of disputes hereunder shall be governed by laws of PRC.

 

13.2Any dispute arising from the interpretation and performance hereof shall be settled by the Parties through friendly negotiation first. Where the Parties fail to reach any agreement on the settlement of such dispute within 30 days after a request for settlement of the dispute through negotiation is made by any Party to the other Parties, any Party may submit the dispute to China International Economic and Trade Arbitration Commission for settlement in accordance with its then effective arbitration rules. The arbitration shall be held in Beijing, and the language of the arbitration shall be Chinese. The arbitration award shall be final and binding upon the Parties.

 

13.3Where any dispute arises from the interpretation and performance hereof, or during the period when any dispute is subject to arbitration, except for the matters under dispute, the Parties shall continue to exercise their respective rights and perform their respective obligations hereunder.

 

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14.Notice

 

14.1All notices and other communications to be sent as required or permitted hereunder shall be sent by personal delivery or postage prepaid registered mail, commercial courier service or fax to the following address of the receiving Party. For each notice, a confirmation letter shall be sent via email. Such notice shall be deemed effectively delivered on:

 

14.1.1the date of delivery or rejection at the designated receiving address, if sent by personal delivery, courier service or postage prepaid registered mail; or

 

14.1.2the date of successful transmission (evidenced by an automatically generated message confirming the transmission), if sent by fax.

 

14.2Any Party may change at any time its address for the receipt of notices by notifying the other Parties in accordance with the terms of this clause.

 

15.Severability

 

Where any provision(s) hereof is/are determined by any laws or regulations to be void, illegal or unenforceable in any respect, the validity, legality or enforceability of the remaining provisions hereof shall not be affected or damaged in any respect. The Parties shall endeavor through bona fide negotiation to replace such void, illegal or unenforceable provision(s) with valid provision(s) to the maximum extent permitted by laws and expected by the Parties, and the economic effects of such valid provision(s) shall be similar to that of such void, illegal or unenforceable provision(s).

 

16.Appendix

 

The appendixes listed herein shall be an integral part hereof.

 

17.Effectiveness

 

17.1This Agreement shall take effect on the date of execution hereof by the Parties. Any and all amendments, modifications and supplements hereto shall be made in writing and take effect after the signature or seal of the Parties and the completion of government registration procedures (if applicable).

 

17.2This Agreement is written in Chinese in one or more counterparts, each of which shall have the same legal force and effect.

 

——The following is the signature page——

 

9

 

 

Signature only on this page for Equity Pledge Agreement

 

 

Party A:

 

Beijing Sangu Maolu Information Technology Co., Ltd. (Seal)

 

Legal Representative: Mingyou LI

 

 

 

 

 

 

 

 

 

 

 

Party C:

 

Shenzhen Drive New Media Co., Ltd. (Seal)

 

Legal Representative: Mingyou LI

 

 

 

 

Signature only on this page for Equity Pledge Agreement

 

Party B:  
   
Xingyu DU  
   
/s/ Xingyu DU  

 

 

 

 

Signature only on this page for Equity Pledge Agreement

 

Party B:  
   
Mingyou LI  
   
/s/ Mingyou LI  

 

 

 

 

Appendix

 

Register of Shareholders

 

No. Name Identity Card Number Capital Contribution (RMB) Situation of Equity Pledge
1. Li Mingyou ****** 29,700,000 All pledged to Beijing Sangu
Maolu Information Technology
Co., Ltd.
2. Du Xingyu ****** 300,000 All pledged to Beijing Sangu
Maolu Information Technology
Co., Ltd.

 

 

 

 

Exhibit 4.16

 

Consent Letter

 

I, Zhou Shixue (certificate number: ******, the legal spouse of Li Mingyou, hereby unconditionally and irrevocably agree that Li Mingyou executes the following documents (hereinafter referred to as the “Transaction Documents”) on May 31, 2019, and that the equity of Shenzhen Drive New Media Co., Ltd. (hereinafter referred to as the “Domestic-funded Company”) held by and registered under the name of Li Mingyou will be disposed of in accordance with the provisions of the following Transaction Documents:

 

(1) the Equity Pledge Agreement executed by and among Beijing Sangu Maolu Information Technology Co., Ltd. (hereinafter referred to as the “WFOE”), Domestic-funded Company and all shareholders thereof; and

 

(2) the Exclusive Call Option Agreement executed by and among the WFOE, the Domestic-funded Company and all shareholders thereof;

 

(3) the Power of Attorney Agreement executed with the WFOE.

 

I acknowledge that I do not enjoy any interest to the equity of the Domestic-funded Company, and undertake that I will not file any claim in respect of the equity of the Domestic-funded Company. I further acknowledge that no additional authorization or consent by me is required for the performance and further modification or termination of the Transaction Documents by Li Mingyou.

 

I undertake that I will execute all necessary documents and take all necessary actions to ensure the proper performance of the Transaction Documents (as amended from time to time).

 

I agree and undertake that if for any reason I obtain any equity of the Domestic-funded Company, I shall be bound by the Transaction Documents (as amended from time to time) and comply with the obligations thereunder as a shareholder of the Domestic-funded Company and, for that purpose, once requested by the WFOE, execute a series of written documents, the format and content of which are basically the same with that of the Transaction Documents (as amended from time to time).

 

I further acknowledge, undertake and warrant that, under any circumstances, including but not limited to my divorce with my spouse, my spouse has the right to independently dispose of the equity of domestic-funded enterprises held by him and the corresponding assets, and I will not take any action which may affect or interfere with the performance by my spouse of his obligations under the Transaction Documents.

 

The conclusion, validity, interpretation, performance, modification and termination hereof and the settlement of disputes arising from this Consent Letter shall all be governed by the Chinese laws. Any dispute arising from the interpretation and performance hereof shall first of all be settled by the signatories hereto through friendly negotiation. Where the dispute is still not settled within thirty (30) days upon written notification by a Party to the other Parties requesting for the settlement of the dispute through negotiation, any Party may submit the dispute to China International Economic and Trade Arbitration Commission for settlement in accordance with its arbitration rules. The arbitration shall be held in Beijing, and the language of the arbitration shall be Chinese. The arbitration award shall be final and binding upon the Parties.

 

  Signature: /s/ Shixue Zhou
 
  Name: Shixue Zhou
 
  Date: May 31, 2019

 

 

 

 

Consent Letter

 

I, Li Qunfang (certificate number: ******), the legal spouse of Du Xingyu, hereby unconditionally and irrevocably agree that Du Xingyu executes the following documents (hereinafter referred to as the “Transaction Documents”) on May 31, 2019, and that the equity of Shenzhen Drive New Media Co., Ltd. (hereinafter referred to as the “Domestic-funded Company”) held by and registered under the name of Du Xingyu will be disposed of in accordance with the provisions of the following Transaction Documents:

 

(1)the Equity Pledge Agreement executed by and among Beijing Sangu Maolu Information Technology Co., Ltd. (hereinafter referred to as the “WFOE”), the Domestic-funded Company and all shareholders thereof; and

 

(2) the Exclusive Call Option Agreement executed by and among the WFOE, the Domestic-funded Company and all shareholders thereof;

 

(3) the Power of Attorney Agreement executed with the WFOE.

 

I acknowledge that I do not enjoy any interest to the equity of the Domestic-funded Company, and undertake that I will not file any claim in respect of the equity of the Domestic-funded Company. I further acknowledge that no additional authorization or consent by me is required for the performance and further modification or termination of the Transaction Documents by Du Xingyu.

 

I undertake that I will execute all necessary documents and take all necessary actions to ensure the proper performance of the Transaction Documents (as amended from time to time).

 

I agree and undertake that if for any reason I obtain any equity of the Domestic-funded Company, I shall be bound by the Transaction Documents (as amended from time to time) and comply with the obligations thereunder as a shareholder of the Domestic-funded Company and, for that purpose, once requested by the WFOE, execute a series of written documents, the format and content of which are basically the same with that of the Transaction Documents (as amended from time to time).

 

I further acknowledge, undertake and warrant that, under any circumstances, including but not limited to my divorce with my spouse, my spouse has the right to independently dispose of the equity of domestic-funded enterprises held by him and the corresponding assets, and I will not take any action which may affect or interfere with the performance by my spouse of his obligations under the Transaction Documents.

 

The conclusion, validity, interpretation, performance, modification and termination hereof and the settlement of disputes arising from this Consent Letter shall all be governed by the Chinese laws. Any dispute arising from the interpretation and performance hereof shall first of all be settled by the signatories hereto through friendly negotiation. Where the dispute is still not settled within thirty (30) days upon written notification by a Party to the other Parties requesting for the settlement of the dispute through negotiation, any Party may submit the dispute to China International Economic and Trade Arbitration Commission for settlement in accordance with its arbitration rules. The arbitration shall be held in Beijing, and the language of the arbitration shall be Chinese. The arbitration award shall be final and binding upon the Parties.

 

  Signature: /s/ Qunfang LI
 
  Name: Qunfang LI
 
  Date: May 31, 2019

 

 

 

 

Exhibit 4.17

 

Power of Attorney Agreement

 

This Power of Attorney Agreement (hereinafter referred to as the “Agreement”) is executed by and between the following two Parties on May 31, 2019 in Beijing, China.

 

Party A: Beijing Sangu Maolu Information Technology Co., Ltd., a limited liability company incorporated and existing in accordance with Chinese laws under the address of 1011A33, 9F, Yard 1, No. 32 Xizhimen North Avenue, Haidian District, Beijing;

 

Party B: Li Mingyou, a Chinese citizen, ID card number: ******.

 

In the Agreement, Party A and Party B are hereinafter each referred to as a “Party” and collectively referred to as the “Parties”.

 

Whereas:

 

Party B holds 99% of the equity (“Party B’s Equity”) of Shenzhen Drive New Media Co., Ltd. (“Domestic-funded Company”).

 

Both Parties hereby enter into the following agreement through negotiation:

 

Party B hereby, with respect to Party B’s Equity, irrevocably authorizes Party A to exercise the following rights within the validity period of the Agreement:

 

Party A is hereby authorized as the sole agent and authorized person of Party B to act on behalf of Party B in respect of all matters concerning Party B’s Equity, including but not limited to: 1) attending shareholders’ meetings of the Domestic-funded Company; 2) exercising all shareholders’ rights and voting rights enjoyed by Party B in accordance with Chinese laws and Domestic-funded Company’s articles of association, including but not limited to the sale, transfer, pledge or disposition of all or part of Party B’s Equity; and 3) designating and appointing the Domestic-funded Company’s legal representative (chairman of the board of directors), directors, supervisors, chief executive officer and other senior executives on behalf of Party B.

 

Without limiting the generality of the authority granted hereunder, Party A shall have the power and be authorized in accordance with the Agreement to execute the transfer contract specified in the Exclusive Call Option Agreement (Party B is required to be a party thereto) on behalf of Party B and perform the terms of the Equity Pledge Agreement and the Exclusive Call Option Agreement to which Party B is a party and which are executed on the date of execution hereof.

 

All acts of Party A in relation to Party B’s Equity shall be deemed as Party B’s own acts, and all documents executed by Party A in relation to Party B’s Equity shall be deemed as executed by Party B. Party B hereby acknowledges and approves such acts and/or documents of Party A.

 

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Party A may decide at its own discretion to grant authority or transfer its rights in relation to the aforesaid matters to any other personnel or entity without notifying or obtaining the consent of Party B in advance.

 

During the period when Party B is a shareholder of the Domestic-funded Company, the Agreement and the authorization hereunder shall be irrevocable and remain in force as of the date of execution hereof.

 

During the term of validity of the Agreement, Party B hereby waives and may not exercise by itself all rights in relation to Party B’s Equity which have been delegated to Party A by the Agreement.

 

If at any time during the term of the Agreement, the grant or exercise of entrusted rights under the Agreement cannot be realized for any reason, both Parties should immediately seek an alternative solution closest to the unfulfillable provisions, and sign a supplementary agreement to revise or adjust the terms of the Agreement if necessary to ensure that the purpose of the Agreement can to be achieved in an ongoing basis.

 

The conclusion, entry into force, performance, revision, interpretation and termination of the Agreement shall be governed by the laws of the People’s Republic of China.

 

Any dispute arising from the interpretation and performance hereof shall be settled by the Parties through friendly negotiation first. Where the Parties fail to reach any agreement on the settlement of such dispute within 30 days after a request for settlement of the dispute through negotiation is made by any Party to the other Parties, any Party may submit the dispute to China International Economic and Trade Arbitration Commission for settlement in accordance with its then effective arbitration rules. The arbitration shall be held in Beijing, and the language of the arbitration shall be Chinese. The arbitration award shall be final and binding upon both Parties.

 

The Agreement is written in Chinese in two or more counterparts, with each Party holding one copy respectively, both of which shall have the same legal effect.

 

——THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK——

 

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Signature only on this page for Power of Attorney Agreement

 

Party A:  
   
Beijing Sangu Maolu Information Technology Co., Ltd. (Seal)  
   
Legal Representative: Mingyou LI  

 

Party B:

 

Mingyou LI

 

Signature: /s/ Mingyou LI  

 

 

 

 

Power of Attorney Agreement

 

This Power of Attorney Agreement (hereinafter referred to as the “Agreement”) is executed by and between the following two Parties on May 31, 2019 in Beijing, China.

 

Party A: Beijing Sangu Maolu Information Technology Co., Ltd., a limited liability company incorporated and existing in accordance with Chinese laws under the address of 1011A33, 9F, Yard 1, No. 32 Xizhimen North Avenue, Haidian District, Beijing;

 

Party B: Du Xingyu, a Chinese citizen, ID card number: ******.

 

In this Agreement, Party A and Party B are hereinafter each referred to as a “Party” and collectively referred to as the “Parties”.

 

Whereas:

 

Party B holds 1% of the equity (“Party B’s Equity”) of Shenzhen Drive New Media Co., Ltd. (“Domestic-funded Company”).

 

Both Parties hereby enter into the following agreement through negotiation:

 

Party B hereby, with respect to Party B’s Equity, irrevocably authorizes Party A to exercise the following rights within the validity period of this Agreement:

 

Party A is hereby authorized as the sole agent and authorized person of Party B to act on behalf of Party B in respect of all matters concerning Party B’s Equity, including but not limited to: 1) attending shareholders’ meetings of the Domestic-funded Company; 2) exercising all shareholders’ rights and voting rights enjoyed by Party B in accordance with Chinese laws and Domestic-funded Company’s articles of association, including but not limited to the sale, transfer, pledge or disposition of all or part of Party B’s Equity; and 3) designating and appointing the Domestic-funded Company’s legal representative (chairman of the board of directors), directors, supervisors, chief executive officer and other senior executives on behalf of Party B.

 

Without limiting the generality of the authority granted hereunder, Party A shall have the power and be authorized in accordance with this Agreement to execute the transfer contract specified in the Exclusive Call Option Agreement (Party B is required to be a party thereto) on behalf of Party B and perform the terms of the Equity Pledge Agreement and the Exclusive Call Option Agreement to which Party B is a party and which are executed on the date of execution hereof.

 

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All acts of Party A in relation to Party B’s Equity shall be deemed as Party B’s own acts, and all documents executed by Party A in relation to Party B’s Equity shall be deemed as executed by Party B. Party B hereby acknowledges and approves such acts and/or documents of Party A.

 

Party A may decide at its own discretion to grant authority or transfer its rights in relation to the aforesaid matters to any other personnel or entity without notifying or obtaining the consent of Party B in advance.

 

During the period when Party B is a shareholder of the Domestic-funded Company, this Agreement and the authorization hereunder shall be irrevocable and remain in force as of the date of execution hereof.

 

During the term of validity of this Agreement, Party B hereby waives and may not exercise by itself all rights in relation to Party B’s Equity which have been delegated to Party A by this Agreement.

 

If at any time during the term of this Agreement, the grant or exercise of entrusted rights under this Agreement cannot be realized for any reason, both Parties should immediately seek an alternative solution closest to the unfulfillable provisions, and sign a supplementary agreement to revise or adjust the terms of this Agreement if necessary to ensure that the purpose of this Agreement can to be achieved in an ongoing basis.

 

The conclusion, entry into force, performance, revision, interpretation and termination of this Agreement shall be governed by the laws of the People’s Republic of China.

 

Any dispute arising from the interpretation and performance hereof shall be settled by the Parties through friendly negotiation first. Where the Parties fail to reach any agreement on the settlement of such dispute within 30 days after a request for settlement of the dispute through negotiation is made by any Party to the other Parties, any Party may submit the dispute to China International Economic and Trade Arbitration Commission for settlement in accordance with its then effective arbitration rules. The arbitration shall be held in Beijing, and the language of the arbitration shall be Chinese. The arbitration award shall be final and binding upon both Parties.

 

This Agreement is written in Chinese in two or more counterparts, with each Party holding one copy respectively, both of which shall have the same legal effect.

 

——THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK——

 

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Signature only on this page for Power of Attorney Agreement

 

Party A:  
   
Beijing Sangu Maolu Information Technology Co., Ltd. (Seal)  
   
Legal Representative: Mingyou LI  

 

 

 

 

 

Signature only on this page for Power of Attorney

 

Party B:
 
Xingyu DU
 
Signature: /s/ Xingyu DU  

 

 

 

 

Exhibit 4.18

  

SHARE PURCHASE AGREEMENT

  

among

  

Longye International Limited

 

TuanChe Limited

 

and

 

OTHER PARTIES NAMED THEREIN

  

Dated as of May 31, 2019

 

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This SHARE PURCHASE AGREEMENT (this “Agreement”), dated as of May 31, 2019 (the “Execution Date”), among

 

(1)TuanChe Limited, a company incorporated in the Cayman Islands (the “Purchaser”);

 

(2) Longye International Limited, a company incorporated in the Cayman Islands (the “Company”);

 

(3) Long Ye Information Technology Limited (龍業信息技術有限公司), a company duly incorporated and validly existing under the laws of Hong Kong (the “HK Company”);

 

(4) Beijing Sangumaolu Information Technology Limited (北京三顾茅庐 信息科技有限公司), a limited liability company incorporated and existing under the PRC Law (the “WFOE”);

 

(5) Shenzhen Drive New Media Co. LTD (深圳市驱动新媒体有限公司), a limited liability company incorporated and existing under the PRC Law (“Shenzhen Company”);

 

(6)  Beijing Hulian Drive Technology Co. LTD (北京互联驱动科技有限公 司), a limited liability company incorporated and existing under the PRC Law (“Beiing Company”, together with the Company, HK Company, the WFOE and Shenzhen Company, the “Group Companies” and each a “Group Company”);

 

(7)Long Ye Group Holding Inc, a company incorporated in the British Virgin Islands (the “Founder’s BVI”);

 

(8)Li Mingyou (李明友), a PRC national with PRC ID No. ****** (the “Founder”, together with Founder’s BVI, the “Sellers”, and each a “Seller”).

  

WHEREAS, the Group Companies are engaged in the business of providing the software-as-a-service platform that provides customer-relationship-management service for auto dealer (the “Business”).

 

WHEREAS, the Seller owns all of the outstanding share capital of the Company, which is one (1) share of the Company (the “Shares”).

 

WHEREAS, the Sellers wish to sell to the Purchaser and the Purchaser wishes to purchase from the Sellers, the Shares, upon the terms and subject to the conditions set forth in this Agreement.

 

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NOW, THEREFORE, in consideration of the premises and the mutual agreements and covenants hereinafter set forth, and intending to be legally bound, all parties to this Agreement hereby agree as follows:

  

ARTICLE I

 

DEFINITIONS

 

SECTION 1.1 Certain Defined Terms. For purposes of this Agreement:

 

(i)            “Acquisition Proposal” means any proposal or offer to acquire all or a substantial part of the business or properties of the Company or any Equity Security of any Group Company, whether by merger, tender offer, exchange offer, sale of assets or similar transaction involving the Company, divisions or operating or principal business units.

 

(ii)          “Action” means any claim, action, suit, arbitration, inquiry, proceeding or investigation by or before any Governmental Authority.

 

(iii)         “Affiliate” means, (a) with respect to any specified Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such specified Person, for any Person that is a private equity or venture capital investment fund, the term “Affiliate” shall also include any investment fund which is Controlled by or under common Control with one or more general partners of such Person or its Affiliates; and (b) in the case of an individual, shall include, without limitation, his spouse, child, brother, sister, parent, trustee of any trust in which such individual or any of his immediate family members is a beneficiary or a discretionary object, or any entity or company Controlled by any of the aforesaid persons.

 

(iv)         “Affiliated Group” means any affiliated, combined, consolidated, unitary or other similar group that has filed a consolidated return for income Tax purposes for a period during which any Group Company was a member.

 

(v)          Ancillary Agreements” means the various agreements, instruments or documents attached to or entered into in connection with this Agreement.

 

(vi)        “Approval” means any approval, license, authorization, release, order, or consent required to be obtained from, or any registration, qualification, designation, declaration, filing, notice, statement or other communication required to be filed with or delivered to, any Governmental Authority or any other Person, or any waiver of any of the foregoing.

 

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(vii)       Business Day” means any day (other than a Saturday or Sunday) on which commercial banking institutions in the Cayman Islands, Hong Kong and the PRC are open for business.

 

(viii)      “Circular 37” means the Circular 37, issued by SAFE on July 4, 2014, titled “Circular on Issues concerning Foreign Exchange Administration over the Overseas Investment and Financing and Round-trip Investment by Domestic Residents via Special Purpose Vehicles,” effective as of July 4, 2014, and any of its predecessors.

 

(ix)         “Contract” means, as to any Person, any contract, agreement, undertaking, understanding, indenture, note, bond, loan, instrument, lease, mortgage, deed of trust, franchise, or license to which such Person is a party or by which such Person or any of its property is bound, whether oral or written.

 

(x)          “Control” of a given Person means the power or authority, whether exercised or not, to direct the business, management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by Contract or otherwise; provided, that such power or authority shall conclusively be presumed to exist upon possession of beneficial ownership or power to direct the vote of more than fifty percent (50%) of the votes entitled to be cast at a meeting of the members or shareholders of such Person or power to control the composition of a majority of the board of directors of such Person. The terms “Controlled” and “Controlling” have meanings correlative to the foregoing.

 

(xi)        “Disclosure Schedule” means the Disclosure Schedule attached hereto, dated as of the date hereof, delivered by the Company and the Sellers to the Purchaser in connection with this Agreement.

 

(xii)       “Domestic Resident” has the meaning set forth in Circular 37 and/or other Law related to Circular 37.

 

(xiii)      “Encumbrance” means any security interest, pledge, hypothecation, mortgage, lien (including environmental and tax liens), violation, charge, lease, license, encumbrance, servient easement, adverse claim, reversion, reverter, preferential arrangement, restrictive covenant, condition or restriction of any kind, including any restriction on the use, voting, transfer, receipt of income or other exercise of any attributes of ownership.

 

(xiv)Equity Securities” means, with respect to a Person, any shares,

 

share capital, registered capital, ownership interest, equity interest, or other securities of such Person, and any option, warrant, or right to subscribe for, acquire or purchase any of the foregoing, or any other security or instrument convertible into or exercisable or exchangeable for any of the foregoing, or any equity appreciation, phantom equity, equity plans or similar rights with respect to such Person, or any Contract of any kind for the purchase or acquisition from such Person of any of the foregoing, either directly or indirectly.

 

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(xv)       “Family Group” means, with respect to any natural person, such person’s spouse, parents and siblings, and each of their respective descendants (whether natural or adopted) and any trust or other entity (including a corporation, partnership or limited liability Companies) formed solely for the benefit of such person and/or such person’s spouse, parents, siblings and/or their respective descendants (whether natural or adopted).

 

(xvi)      “Governmental Authority” means any PRC or non-PRC national, supranational, state, provincial, local, or similar government, governmental, regulatory or administrative authority, agency or commission or any court, tribunal, or judicial or arbitral body.

 

(xvii)    “Governmental Order” means any order, ruling, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Authority.

 

(xviii)   “Group Companies” means the Company, HK Company, the WFOE, Shenzhen Company and the Subsidiaries of the forgoing, and the “Group Company” refers to each of them. The particulars of the Group Companies are set forth in Exhibit A attached hereto.

 

(xix)Hong Kong” means the Hong Kong Special Administrative Region

 

of the PRC.

 

(xx)        Indebtedness” means, with respect to any Person, (a) all indebtedness of such Person, whether or not contingent, for borrowed money, (b) all obligations of such Person for the deferred purchase price of property or services, (c) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (d) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (e) all obligations of such Person as lessee under leases that have been or should be, in accordance with U.S. GAAP, recorded as capital leases, (f) all obligations, contingent or otherwise, of such Person under acceptance, letter of credit or similar facilities, (g) all obligations of such Person to purchase, redeem, retire, defease or otherwise acquire for value any capital Share or registered capital of such Person or any warrants, rights or options to acquire such capital Share or registered capital, (h) all Indebtedness of others referred to in clauses (a) through (g) above guaranteed directly or indirectly in any manner by such Person, or in effect guaranteed directly or indirectly by such Person through an agreement (i) to pay or purchase such Indebtedness or to advance or supply funds for the payment or purchase of such Indebtedness, (ii) to purchase, sell or lease (as lessee or lessor) property, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such Indebtedness or to assure the holder of such Indebtedness against loss, (iii) to supply funds to or in any other manner invest in the debtor (including any agreement to pay for property or services irrespective of whether such property is received or such services are rendered) or (iv) otherwise to assure a creditor against loss, and (i) all Indebtedness referred to in clauses (a) through (g) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Encumbrance on property (including accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness.

 

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(xxi)      Indemnifiable Loss” means, with respect to any Person, any action, claim, cost, damage, deficiency, diminution in value, disbursement, expense, liability, loss, obligation, penalty, settlement, suit, or Tax of any kind or nature, together with all interest, penalties, legal, accounting and other professional fees and expenses incurred in the investigation, collection, prosecution and defense of claims and amounts paid in settlement, that may be imposed on or otherwise incurred or suffered by such Person, whether directly or indirectly.

 

(xxii)     “Intellectual Property Rights” means (i) patents, patent applications and statutory invention registrations, (ii) trademarks, service marks, Company Marks, Internet domain names, trade dress, trade names, logos, and other source identifiers, including registrations and applications for registration thereof, (iii) copyrights, including registrations and applications for registration thereof, (iv) software, and (v) confidential and proprietary information, including trade secrets, know-how, designs and drawings, engineering documents, technical manuals, patterns, processes, formulae, inventions and discoveries (whether patentable or not), and all related documentation, developer notes, comments and annotations, and other similar rights of the Company and its Affiliates, and all applications therefor and registrations thereof, and all rights to sue for past, present and future infringement or other violations of the Intellectual Property Rights, and all goodwill associated with any of the foregoing.

 

(xxiii)   “Investment” as applied to any Person means (i) any direct or indirect purchase or other acquisition by such Person of any notes, obligations, instruments, shares, securities or ownership interest (including partnership interests and joint venture interests) of any other Person and (ii) any capital contribution by such Person to any other Person.

 

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(xxiv)   “Law” means any PRC or non-PRC national, supranational, state, provincial, local or similar statute, law, ordinance, regulation, rule, code, Governmental Order, requirement or rule of law (including common law).

 

(xxv)    “Liabilities” means any and all debts, liabilities and obligations, whether accrued or fixed, absolute or contingent, matured or unmatured or determined or determinable, including those arising under any Law (including any Tax Law), Action or Governmental Order and those arising under any contract, agreement, arrangement, commitment or undertaking.

 

(xxvi)   “Material Adverse Effect” means any event, circumstance, change in or effect on the Business, the Company and the Affiliates or the Sellers and their Affiliates, as the context dictates, that, individually or in the aggregate with all other events, circumstances, changes in or effects on the Business, the Company and the Affiliates or the Sellers and their Affiliates, as the context dictates, has had or is reasonably expected to have a material adverse effect on the business, operations, prospect assets or liabilities (including without limitation, contingent liabilities) results of operations or the condition (financial or otherwise) of the Business, the Company and the Affiliates or the Sellers and their Affiliates, as the context dictates, taken as a whole.

 

(xxvii)  “Ordinary Course” means the ordinary course of business consistent with past custom and practice.

 

(xxviii)    “PRC GAAP” means PRC Accounting Standards for Business Enterprises and other relevant accounting laws and regulations in effect from time to time applied consistently throughout the periods involved.

 

(xxix)      “Person” means any individual, partnership, firm, corporation, limited liability company, association, trust, unincorporated organization or other entity, as well as any syndicate or group that would be deemed to be a person under Section 13(d)(3) of the Securities Exchange Act of 1934.

 

(xxx)      Restructuring Documents” means the following contracts: (i) Exclusive Business Cooperation Agreement (独家业务合作协议) to be respectively entered into by and between the WFOE and each of the Shenzhen Company and Beijing Company, (ii) Exclusive Option Agreement (独家购买权协议) to be respectively entered into by and among the WFOE, each of the Shenzhen Company and Beijing Company and their respectively equity holders, (iii) Power of Attorney (授权委托书) to be respectively entered into by and among the WFOE, each of the Shenzhen Company and Beijing Company and their respectively equity holders, (iv) Equity Pledge Agreement (股权质押合同) to be respectively entered into by and among the WFOE, each of the Shenzhen Company and Beijing Company and their respectively equity holders, and (v) Spouse Consent Letter (配偶同意函)to be signed by the spouse of the individual equity holders of Shenzhen Company and/or Beijing Company, each of which shall be in substantially the forms attached hereto as Exhibit E.

 

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(xxxi)RMB” means Renminbi, the law currency of the PRC.

 

(xxxii)SAFE” means State Administration of Foreign Exchange of the PRC.

 

(xxxiii)     “SAFE Rules and Regulations” shall mean collectively, the Circular 37 and any other applicable SAFE rules and regulations, as amended.

 

(xxxiv)    “Subsidiary” means, with respect to any Person, any corporation, limited liability company, partnership, association or other business entity of which (i) if a corporation, 50% or more of the total voting power of shares entitled (without regard to the occurrence of any contingency) to vote in the election of members of the board of directors or similar body governing the affairs of such entity, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, or (ii) if a limited liability company, partnership, association or other business entity, 50% or more of the partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more Subsidiaries of that Person or a combination thereof. For purposes hereof, a Person or Persons shall be deemed to have a 50% or more ownership interest in a limited liability company, partnership, association or other business entity if such Person or Persons shall be allocated 50% or more of limited liability company, partnership, association or other business entity gains or losses or shall be or control any managing director or general partner of such limited liability company, partnership, association or other business entity. With respect to the Company, the Seller or the Purchaser, a Subsidiary shall include any corporation, partnership, limited liability company, association or other business entity that the Company consolidates in its consolidated financial statements as a variable interest entity in accordance with US GAAP.

 

(xxxv)     “Tax” or “Taxes” shall mean any and all taxes, fees, levies, duties, tariffs, imposts and other charges of any kind (together with any and all interest, penalties, additions to tax and additional amounts imposed with respect thereto) imposed by any Governmental Authority or taxing authority, including: taxes or other charges on or with respect to income, franchise, windfall or other profits, gross receipts, property, sales, use, capital Share, payroll, employment, social security, workers’ compensation, unemployment compensation or net worth; taxes or other charges in the nature of excise, withholding, ad valorem, stamp, transfer, value-added or gains taxes; license, registration and documentation fees; and customers’ duties, tariffs and similar charges.

 

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(xxxvi)    “Tax Return” means any return, declaration, report, estimate, claim for refund, claim for extension, information return, or statement relating to any Tax, including any schedule or attachment thereto.

 

(xxxvii)    “Tax Liability” shall mean an amount equal to the amount of any diminution in the value of the Transfer Shares, and any and all losses, liabilities, damages, suits, obligations, judgments or settlements or any kind (including all reasonable legal costs, costs of recovery and other expenses incurred by the Purchaser) resulting from any claim of taxation (including those resulting from cancellation or reclamation of tax benefits of any kind relating to the Group Companies) arising from an event relating to tax, whether occurring before or after the Closing.

 

(xxxviii)  Transaction Documents” means this Agreement and the Ancillary Agreements, the schedules and exhibits attached to any of the foregoing and each of the agreements and other documents otherwise required in connection with implementing the transactions contemplated by any of the foregoing.

 

(xxxix)    “USD” or “U.S.$” means the dollars of the United States, the lawful currency of the United States.

 

(xl)         “U.S. GAAP” means United States generally accepted accounting principles and practices in effect from time to time applied consistently throughout the periods involved.

 

SECTION 1.2  Definitions. The following terms have the meanings set forth in the Sections set forth below:  

 

  Definition   Location  
  “Agreement”   Preamble  
  “Beijing Company”   Recitals  
  “Business”   Recitals  
  “Closing”   2.3  
  “Closing Date”   2.3  
  “Company”   Preamble  
  “Founder”   Preamble  
  “HKIAC”   10.9 (b)  
  “HK Company”   Preamble  
  “PRC”   Recitals  
  “Purchaser”   Preamble  
  “Purchase Price”   2.2 (a)  
  “Seller”   Preamble  
  “Shares”   Recitals  
  “Transfer Shares”   2.1 (a)  
  “WFOE”   Preamble  
  “Shenzhen Company”   Preamble  

 

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SECTION 1.3 Interpretation and Rules of Construction. In this Agreement, except to the extent otherwise provided or that the context otherwise requires:

 

(i)           when a reference is made in this Agreement to an Article, Section, Exhibit or Schedule, such reference is to an Article or Section of, or a Schedule or Exhibit to, this Agreement unless otherwise indicated;

 

(ii)          the table of contents and headings for this Agreement are for reference purposes only and do not affect in any way the meaning or interpretation of this Agreement;

 

(iii)         whenever the words “include,” “includes” or “including” are used in this Agreement, they are deemed to be followed by the words “without limitation”;

 

(iv)        the words “hereof,” “herein” and “hereunder” and words of similar import, when used in this Agreement, refer to this Agreement as a whole and not to any particular provision of this Agreement;

 

(v)         all terms defined in this Agreement have the defined meanings when used in any certificate or other document made or delivered pursuant hereto, unless otherwise defined therein;

 

(vi)        the definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms;

 

(vii)       any Law defined or referred to herein or in any agreement or instrument that is referred to herein means such Law or statute as from time to time amended, modified or supplemented, including by succession of comparable successor Laws;

 

(viii)references to a Person are also to its successors and permitted

 

assigns; and

 

(ix)        the use of “or” is not intended to be exclusive unless expressly indicated otherwise.

 

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ARTICLE II

 

PURCHASE AND SALE

 

SECTION 2.1 Purchase and Sale of the Shares.

 

Upon the terms and subject to the conditions of this Agreement, at the Closing, the Sellers shall sell, assign, transfer, convey and deliver, or cause to be sold, assigned, transferred, conveyed and delivered to the Purchaser, such number of Shares (“Transfer Shares”) for such a price as set forth in Section 2.2 and any and all right, title and interest of the Sellers in and to such Shares, free and clear of all Encumbrances, and the Purchaser shall purchase such Shares.

 

SECTION 2.2 Aggregate Purchase Price

 

(a) Within five (5) Business Days following the Execution Date, the Purchaser shall pay RMB100,000,000 or the equivalent amount in USD (for the purpose of this Agreement, the amount of such USD shall be calculated and determined in accordance with the foreign exchange rate as quoted by the People’s Bank of China on the day such payment is remitted) (the “Bridge Loan”) as a bridge loan to the Sellers. If the Closing have not occurred in accordance with this Agreement, each of the Sellers hereby agrees to jointly and severally repay the Bridge Loan within ten (10) Business Days following the issuance of certain notice by the Purchaser, and a penalty interest of 0.02% per day on the outstanding Bridge Loan under this Agreement shall apply to every day that such Bridge Loan remains due.

 

(b)The aggregate purchase price (the “Purchase Price”) shall consist of (i) the Cash Consideration (as defined in Section 2.2(c) below) and (ii) the Share Consideration (as defined in Section 2.2(c) below).

 

(c) Subject to Section 2.3, Section 7.3 and Section 9.7 of this Agreement and other provisions, the Purchase Price shall be paid as follows:

 

(i)at the Closing (as defined below), the Purchaser shall pay to the Seller the Cash Consideration; “Cash Consideration” means RMB100,000,000 or the equivalent amount in USD (for the purpose of this Agreement, the amount of such USD shall be calculated and determined in accordance with the foreign exchange rate as quoted by the People’s Bank of China on the day such payment is remitted); and

 

(ii)at the Closing (as defined below), the Purchaser shall pay to the Seller the Share Consideration; “Share Consideration” means certain number of the securities of the Purchaser, which equal to the ratio of RMB100,000,000 to the average of such security’s closing prices on NASDAQ over the thirty (30) day period ending May 10, 2019, namely 8,366,444 class A ordinary shares of the Purchaser.

 

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SECTION 2.3 Payment of the Purchase Price.

 

Notwithstanding anything to the contrary, (i) the Bridge Loan shall be converted into the Cash Consideration automatically; (ii) the class A ordinary shares of the Purchaser paid as the Share Consideration shall not be sold, pledged, transferred or otherwise disposed of, and shall become vested and be released from such aforementioned restrictions according to the following vesting schedule: 20% will be vested and released on January 1, 2020, 30% will be vested and released on January 1, 2021, 50% will be vested and released on January 1, 2022.

 

The Purchaser’s obligation to pay the Purchase Price will be subject to the fulfillment of continued accuracy as of the date hereof, the closing date and the payment date of the Warrantors’ (as defined below) representations and warranties made herein.

 

SECTION 2.4 Closing. Subject to the terms and conditions of this Agreement, the sale and purchase of the Shares contemplated by this Agreement shall take place at a closing (the “Closing”) to be held at the offices of the Purchaser within five (5) Business Days following the satisfaction or, if permissible, waiver of all conditions to the obligations of the parties set forth in Article VI hereof, or at such other place or at such other time or on such other date as the parties may mutually agree upon in writing. The date and time of the Closing are herein referred to as the “Closing Date”.

 

SECTION 2.5 Closing Deliveries by the Group Companies. At the Closing, the Group Companies shall deliver, and the Warrantors shall cause to be delivered to, the Purchaser:

 

(a)  a copy of (i) the board resolutions duly and validly adopted by the board of directors of each Group Company and (ii) the resolutions of the shareholders of each Group Company, evidencing their respective authorization and approval of the execution and delivery of the Transaction Documents and the consummation of the transactions contemplated hereby;

 

(b)  a copy of the director resolutions duly and validly adopted by the director and a copy of the resolutions of the shareholder of the Company approving (i) the registration of the Purchaser in the Company’s register of members as a shareholder of the Transfer Shares of the Company; (ii) approving the appointment of director(s) of the Company as designated by the Purchaser; approving the resignation of director(s) of the Company as designated by the Sellers; and (iii) cancelling all existing share certificates in respect of the Transfer Shares, and issuing a new share certificate to the Purchaser in respect of the Transfer Shares;

 

(c) a true copy of the updated register of members of the Company, certified by the registered office provider of the Company, reflecting the Purchaser as holder of the Transfer Shares at the Closing together with the relevant originals to be delivered to the Purchaser within three (3) days following the Closing;

 

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(d) the share certificates representing the Transfer Shares being purchased by the Purchaser at the Closing together with the relevant originals to be delivered to the Purchaser within three (3) days following the Closing;

 

(e) the opinion, certificates and other documents required to be delivered pursuant to Section 6.2.

 

SECTION 2.6 Closing Deliveries by the Sellers. At the Closing, the Sellers shall deliver or cause to be delivered to Purchaser:

 

(a) duly executed instrument of transfer in respect of the relevant Transfer Shares in favor of the Purchaser together with the relevant original share certificate evidencing the relevant Transfer Shares to be delivered to the Purchaser within three(3) days following the Closing;

 

(b) a letter of resignation for each of the director(s) appointed by the Sellers as director(s) of each Group Company, if applicable; and

 

(c)  the opinion, certificates and other documents required to be delivered pursuant to Section 6.2.

 

ARTICLE III

 

REPRESENTATIONS AND WARRANTIES OF THE GROUP COMPANIES AND THE SELLERS

 

SECTION 3.1 Representations and Warranties regarding the Sellers. Except as set forth in the Disclosure Schedule as attached hereto as Exhibit D, each Seller hereby represents, warrants and undertakes to the Purchaser as of the date hereof and as of Closing Date that:

 

(a)        Organization. Such Seller (if it is an entity) is validly existing and in good standing under the laws of its jurisdiction of incorporation. Such Seller has the corporate power and authority to carry on its business as it is now conducted and to own, lease and operate all of its properties and assets.

 

(b)         Authority. Such Seller has full power, authority and legal capacity to enter into the Transaction Documents to which such Seller is a party and to perform his, her or its obligations hereunder and thereunder.

 

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(c)        Execution and Delivery of Valid and Binding Agreements. Each Transaction Document to which such Seller is a party has been duly executed and delivered by such Seller, and such Transaction Document constitutes, and the other agreements contemplated hereby to which such Seller is a party, when executed and delivered by such Seller in accordance with the terms thereof shall each constitute, a valid and binding obligation of such Seller, enforceable in accordance with its terms, subject to the effect of bankruptcy, or other similar laws and to general principles of equity (whether considered in proceedings at law or in equity).

 

(d)       No Breach. The execution and delivery by such Seller of the Transaction Documents to which such Seller is a party and the other agreements contemplated hereby to which such Seller is a party, and the fulfillment of and compliance with the respective terms hereof and thereof by such Seller, does not and shall not (i) conflict with or result in a breach of the terms, conditions or provisions of, (ii)   constitute a default under (whether with or without the giving of notice, the passage of time or both), (iii) result in the creation of any Encumbrance upon the Shares pursuant to, (iv) give any third party the right to modify, terminate or accelerate any obligation under, (v) result in a violation of, or (vi) require any authorization, consent, approval, exemption or other action by or notice or declaration to, or filing with, any third party or any court or administrative or governmental body or agency, unless otherwise provided under this Agreement (if any), pursuant to, (a) any law, statute, rule or regulation to which such Seller or is subject, (b) the memorandum and articles of association of such Seller, or (c) any agreement, instrument, order, judgment or decree to which such Seller is subject.

 

(e)        Title to Transfer Shares. Such Seller is the record owner and beneficial owner of all the issued and outstanding Transfer Shares of such Seller. The Transfer Shares of such Seller were duly issued and fully paid up and non-assessable. On the Closing Date, such Seller will transfer to the Purchaser good and marketable title to the Transfer Shares of such Seller free and clear of all Encumbrances. Except for the issued and outstanding Shares indicated as held by the Sellers in Section 1.1 of the Disclosure Schedule, none of the Sellers own or have direct or indirect interest in any other Shares of any Group Company or is a party to any option, warrant, right, contract, call, put or other agreement or commitment providing for the acquisition or disposition of any Shares of any Group Company (other than this Agreement). None of the Sellers is a party to any voting trust, proxy or other agreement or understanding with respect to the voting of any Shares of any Group Company, except for the Restructuring Documents.

 

(f)        Litigation. There are no actions, suits, claims, proceedings, orders or investigations (including, without limitation, any condemnation, expropriation or similar proceedings) (collectively, “Legal Proceedings”) pending or threatened against or affecting such Seller, at law or in equity, or before or by any governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, which could adversely affect the performance of such Seller under the Transaction Documents to which such Seller is a party or the consummation of the transactions contemplated hereby or thereby.

 

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(g)Compliance with Laws.

 

(i)Such Seller has not violated any law, ordinance, code, rule or any governmental regulation or requirements relating to the Shares (including applicable laws of the United States such as the Foreign Corrupt Practices Act, 15 U.S.C. 78dd-1 et seq (the “FCPA”)), and such Seller has not received any notice of, and no claims have been filed, against such Seller alleging any such violation.

 

(ii)Such Seller has completed and will complete all necessary filings or registrations, obtained all necessary approvals, or complied with any rules or regulations of the SAFE with respect to the transaction contemplated herein in accordance with the applicable laws.

 

(iii)Such Seller has not taken any act that will cause the Purchaser (or its Affiliates, including after the Closing, the Company) to violate the FCPA or any applicable anti-corruption law. Without limiting the foregoing, such Seller has not paid or authorized the payment of any money (or other property) or corporate fraud, or offered, given a promise to give, or authorized the giving of anything of value, to any government official or agent in any country, state, province, city, region or otherwise, to any political party or official thereof or to any candidate for political office for any unlawful contribution, gift, entertainment or other unlawful expenses relating to a political activity, or for the purpose, or with the effect, of (i) (A) influencing any act or decision of such government official, political party, party official, or candidate in his or its official capacity, (B) inducing such governmental official or agent, political party, party official or candidate to do or omit to do any act in violation of the lawful duty of such government official, political party, party official or candidate, or (C) securing any improper advantage, or (ii) inducing such government official or agent, political party, party official, or candidate to use his or its influence with any Governmental Authority to affect or influence any act or decision of such Governmental Authority, in order to assist such Person in obtaining or retaining business for or with, or directing business to such Seller, the Group Companies or their respective Affiliates.

 

(iv)Such Seller is not currently a government official, officer, agent or employee of a non-U.S. government or government-owned enterprise (wholly or partially owned) or any agency, department or instrumentality thereof or political party or public international organization or a candidate for non-U.S. government or political office or is an agent, officer, or employee of any entity owned by a non-U.S. government (“Non-U.S. Official”).

 

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(v)Prior to and until the Closing Date, the Transfer Shares of such Seller were held by such Seller for its own account, not as a nominee or agent.

 

(vi)Such Seller has not, whether on its behalf or on behalf of any Group Company, at any time made any payments for political contributions or made any bribes, kickback payments or other illegal payments.

 

(h)       Brokerage. There are no claims for brokerage commissions, finders’ fees or similar compensation in connection with the transactions contemplated by this Agreement or any of the other agreements contemplated hereby based on any arrangement or agreement to which such Seller is a party or to which such Seller is subject. Such Seller shall pay, and hold the Company and the Purchaser harmless against, any liability, loss or expense (including reasonable attorneys’ fees and out-of-pocket expenses) arising in connection with any such claim.

 

(i)       Other Representations and Warranties. Each of the matters set out in Exhibit C are as of the date hereof true and correct and will be for all times after the date hereof and up to and including the Closing Date true and correct.

 

SECTION 3.2 Representations and Warranties regarding the Group Companies. Except as set forth in the Disclosure Schedule as attached hereto as Exhibit D, the Group Companies (collectively with the Sellers, the “Warrantors” and each a “Warrantor”) hereby, severally and not jointly, represent, warrant and undertake to the Purchaser that each of the matters set out in Exhibit C are as of the date hereof true and correct and will be for all times after the date hereof and up to and including the Closing Date true and correct.

 

ARTICLE IV

 

REPRESENTATIONS AND WARRANTIES OF THE PURCHASER

 

The Purchaser hereby represents and warrants to the Group Companies and the Sellers as follows:

 

SECTION 4.1 Organization and Qualification. The Purchaser is a company duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation. The Purchaser possesses all requisite power and authority necessary to carry out the transactions contemplated by the Transaction Documents.

 

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SECTION 4.2 Authorization; No Breach.

 

The execution, delivery and performance of the Transaction Documents to which the Purchaser is a party have been duly authorized by the Purchaser. The Transaction Documents to which the Purchaser is a party constitutes, and each of the other agreements contemplated hereby to which the Purchaser is a party, when executed and delivered in accordance with the terms thereof, will constitute, a valid and binding obligation of the Purchaser, enforceable in accordance with its terms. The execution and delivery by the Purchaser of the Transaction Documents to which the Purchaser is a party does not and shall not (i) conflict with or result in a breach of the terms, conditions or provisions of, (ii) constitute a default under (whether with or without the giving of notice, the passage of time or both), (iii) result in the creation of any Lien upon the Purchaser’s assets pursuant to, (iv) give any third party the right to modify, terminate or accelerate any obligation under, (v) result in a violation of, or (vi) require any authorization, consent, approval, exemption or other action by or notice or declaration to, or filing with, any court or administrative or governmental body or agency pursuant to, the organizational documents of the Purchaser, or any law, statute, rule or regulation to which the Purchaser is subject to, or any agreement, instrument, order, judgment or decree to which the Purchaser is subject to.

 

ARTICLE V

 

ADDITIONAL AGREEMENTS

 

SECTION 5.1 Conduct of Business.

 

(a) The Warrantors covenant and agree that, between the date hereof and the time of the Closing, neither any Group Company nor any Affiliate shall conduct its business other than in the Ordinary Course. Without limiting the generality of the foregoing, the Group Companies shall (i) preserve intact their business organizations and the business organization of the Business, (ii) maintain the stability of the key employees of the Group Companies, the list of which shall be agreed by the Purchaser (the “Key Employees”), (iii) preserve their current relationships with their customers, suppliers and other Persons with whom they have had significant business relationships and (iv) maintain the properties, equipment, facilities and other assets necessary for conduct of the Business in the manner consistent with its past practices and keep the same in no worse shape and conditions than they are as of the date hereof.

 

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(b) The Group Companies and the Sellers covenant and agree that, between the date hereof and the time of the Closing, without the prior written consent of the Purchaser, none of any Group Company or the Sellers will:

 

(i)  sell, transfer, lease or create any Encumbrances on or otherwise dispose of any of its assets, properties or interests or rights (including but not limited to those in Intellectual Property Rights) other than in its Ordinary Course;

 

(ii)split off or divest any assets or businesses;

 

(iii)acquire substantive assets or make equity investments;

 

(iv)   amend, terminate, cancel or compromise any material claims of, or waive any other rights of substantial value to, any Group Company;

 

(v)   sell, transfer, lease, sublease, license or otherwise dispose of any properties or assets, real, personal or mixed, with a value in excess of U.S.$10,000 individually or in the aggregate (including, without limitation, leasehold interests and intangible property);

 

(vi)   sell, transfer, lease or create any Encumbrances on or otherwise dispose of any share capital, notes, bonds or other securities, or any option, warrant or other right to acquire the same, of any Group Company;

 

(vii)   redeem any of the share capital or declare, make or pay any dividends or distributions (whether in cash, securities or other property) to the holders of share or registered capital of any Group Company or otherwise, other than dividends, distributions and redemptions declared, made or paid by any Affiliate solely to the Company;

 

(viii)   merge with, enter into a consolidation with or acquire an interest of 5% or more in any Person or acquire a substantial portion of the assets or business of any Person or any division or line of business thereof, or otherwise acquire any material assets other than in the Ordinary Course;

 

(ix)     make any capital expenditure or commitment for any capital expenditure in excess of U.S.$10,000 individually or in the aggregate in the past 12 months;

 

(x) incur any Indebtedness in excess of RMB 200,000 individually or in the aggregate except in the Ordinary Course;

 

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(xi)  fail to pay any creditor any amount owed to such creditor when due in excess of RMB 200,000 individually or in the aggregate except in the Ordinary Course;

 

(xii)   (i) grant any increase, or announce any increase, in the wages, salaries, compensation, bonuses, incentives, pension or other benefits payable by the any Group Company to any of its employees, including, without limitation, any increase or change pursuant to any plan, or (ii) establish or increase or promise to increase any benefits under any plan, in either case, except as required by Law for any severance payment, unless such benefits are reflected in the annual financial budget;

 

(xiii)   enter into any agreement, arrangement or transaction with any of its Company Affiliate in excess of RMB 100,000 individually or in the aggregate except in the Ordinary Course;

 

(xiv)   allow any License that was issued or relates to the any Group Company or otherwise relates to the Business to lapse or terminate or fail to renew License that is scheduled to terminate or expire after the Closing Date;

 

(xv)  amend, modify or consent to the termination of any Material Contract or any Group Company’s rights thereunder;

 

(xvi)   amend or restate the Memorandum of Association and Articles of Association (or other organizational documents) of any Group Company, increase or decrease its registered capital or change its share capital structure in any manner;

 

(xvii)   change any content of books of accounts and records except in the Ordinary Course; or

 

(xviii)    agree, whether in writing or otherwise, to take any of the actions specified in this Section 5.1 or grant any options to purchase, rights of first refusal, rights of first offer or any other similar rights or commitments with respect to any of the actions specified in this Section 5.1, except as expressly contemplated by this Agreement and the Ancillary Agreements.

 

In addition, each of the Sellers covenants and agrees that, between the date hereof and the time of the Closing, without the prior written consent of the Purchaser, it will not (x) sell, transfer, create any Encumbrance or otherwise dispose of any of equity securities held in any Group Company, or (y) make any approval to the actions of any Group Companies and/or the Seller stipulated in the Section 5.1(b).

 

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SECTION 5.2 Access to Information. From the date hereof until the Closing, upon reasonable notice, each Group Company shall cause its officers, directors, employees, agents, representatives, accountants and counsel and shall cause the Affiliates and each of the Affiliates’ officers, directors, employees, agents, representatives, accountants and counsel to afford the officers, employees, agents, accountants, counsel, financing sources and representatives of the Purchaser reasonable access, during normal business hours, to the offices, properties, plants, other facilities, books and records of each Group Company and to those officers, directors, employees, agents, accountants and counsel of the Group Companies who have any knowledge relating to the Group Companies or the Business.

 

SECTION 5.3 Confidentiality. The terms and conditions of the Transaction Documents, including their existence and the information exchanged by the Parties in connection with the preparation and negotiation of the Transaction Documents, shall be considered confidential information and, without the written approval of the Parties, shall not be disclosed by (a) any press release or public announcement, or (b) otherwise by any of the Parties to any other Person except that each Party, as appropriate, may disclose any of the Confidential Information to its current or bona fide prospective investors, prospective permitted transferees, employees, investment bankers, lenders, accountants and attorneys, in each case only where such Persons are under appropriate nondisclosure obligations. Upon the Closing, the Group Companies, the Sellers agree to, and shall cause their respective agents, representatives, affiliates, employees, officers and directors to: (a) treat and hold as confidential all (and not disclose or provide access to any Person to) any information relating to trade secrets, processes, patent and trademark applications, product development, price, customer and supplier lists, pricing and marketing plans, policies and strategies, details of client and consultant contracts, operations methods, product development techniques, business acquisition plans, new personnel acquisition plans and any and all other confidential or proprietary information with respect to the Business, the Group Companies, (b) in the event that any Group Company, any Seller or any such agent, representative, affiliate, employee, officer or director becomes legally compelled to disclose any such information, provide the Purchaser with prompt written notice of such requirement so that the Purchaser or any Group Company may seek a protective order or other remedy or waive compliance with this Section 5.3, (c) in the event that such protective order or other remedy is not obtained, or the Purchaser waives compliance with this Section 5.3, furnish only that portion of such confidential information which is legally required to be provided and exercise its best efforts to obtain assurances that confidential treatment will be accorded such information, and (d) promptly furnish (prior to, at, or as soon as practicable following, the Closing) to the Group Companies or the Purchaser any and all copies (in whatever form or medium) of all such confidential information (and any analysis, compilations, studies or other documents prepared in whole or in part on the basis thereof) then in the possession of the Sellers or any of their agents, representatives, affiliates, employees, officers and directors and destroy any and all additional copies then in the possession of the Sellers or any of their agents, representatives, affiliates, employees, officers and directors of such information, analyses, compilations, studies or other documents; provided, however, that this sentence shall not apply to any information that, at the time of disclosure, is available publicly and was not disclosed in breach of this Agreement or other obligation of confidentiality by the Group Companies (prior to the Closing) or the Sellers or any of their agents, representatives, affiliates, employees, officers or directors; and provided further that, with respect to Intellectual Property Rights, specific information shall not be deemed to be within the foregoing exception merely because it is embraced in general disclosures in the public domain. In addition, with respect to Intellectual Property Rights, any combination of features shall not be deemed to be within the foregoing exception merely because the individual features are in the public domain unless the combination itself and its principle of operation are in the public domain. The Group Companies, the Sellers agree and acknowledge that remedies at law for any breach of its obligations under this Section 5.3 are inadequate and that in addition thereto the Purchaser shall be entitled to seek equitable relief, including injunction and specific performance, in the event of any such breach.

 

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SECTION 5.4 Regulatory and Other Authorizations; Notices and Consents. (a) Each of the Warrantors shall use its best efforts to obtain (or cause the Affiliates to obtain) all authorizations, consents, orders and approvals of all Governmental Authorities and officials that may be or become necessary for its execution and delivery of, and the performance of its obligations pursuant to, this Agreement and the Ancillary Agreements and will cooperate fully with the Purchaser in promptly seeking to obtain all such authorizations, consents, orders and approvals.

 

(b)  The Warrantors shall, or shall cause the Affiliates to, give promptly such notices to third parties and use its or their best efforts to obtain such third party consents and estoppel certificates as the Purchaser may in its sole discretion deem necessary or desirable in connection with the transactions contemplated by the Transaction Documents.

 

(c)  The Purchaser shall cooperate and use all reasonable efforts to assist the Group Companies in giving such notices and obtaining such consents and estoppel certificates; provided, however, that the Purchaser shall have no obligation to give any guarantee or other consideration of any nature in connection with any such notice, consent or estoppel certificate or to consent to any change in the terms of any agreement or arrangement which the Purchaser in its sole discretion may deem adverse to the interests of the Purchaser, the Group Companies or the Business.

 

(d)   None of the Warrantors knows of any reason why all the consents, approvals and authorizations necessary for the consummation of the transactions contemplated by the Transaction Documents will not be received.

 

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SECTION 5.5 Notice of Developments. Prior to the Closing, the Warrantors shall promptly notify the Purchaser in writing of (a) all events, circumstances, facts and occurrences arising subsequent to the date of this Agreement which could result in any breach of a representation or warranty or covenant of the Warrantors in this Agreement, or which could have the effect of making any representation or warranty of the Warrantors in this Agreement untrue or incorrect in any respect, and (b) all other material developments affecting the Assets, Liabilities, business, condition (financial or otherwise), operations, results of operations, customer or supplier relations, employee relations, projections or prospects of the Group Companies or the Business.

 

SECTION 5.6 No Solicitation or Negotiation. Each of the Group Companies, the Sellers agrees that between the date of this Agreement and the earlier of (a) the Closing and (b) the termination of this Agreement, it will not, shall cause each of its respective Affiliates, officers, directors, representatives or agents not to (i) solicit, initiate, consider, encourage or accept any other proposals or offers from any Person (A) relating to any acquisition or purchase of all or any portion of the share or registered capital of any Group Company or of the Assets (other than inventory to be sold in the Ordinary Course), (B) to enter into any merger, consolidation or other business combination with any Group Company or (C) to enter into a recapitalization, reorganization or any other extraordinary business transaction involving or otherwise relating to any Group Company or (ii) participate in any discussions, conversations, negotiations and other communications regarding, or furnish to any other Person any information with respect to, or otherwise cooperate in any way, assist or participate in, facilitate or encourage any effort or attempt by any other Person to seek to do, any of the foregoing. Each of the Group Companies, the Sellers immediately shall cease and cause to be terminated all existing discussions, conversations, negotiations and other communications with any Persons conducted heretofore with respect to any of the foregoing. Each of the Group Companies, the Sellers shall notify the Purchaser promptly if any such proposal or offer, or any inquiry or other contact with any Person with respect thereto, is made and shall, in any such notice to the Purchaser, indicate in reasonable detail the identity of the Person making such proposal, offer, inquiry or contact and the terms and conditions of such proposal, offer, inquiry or contact. Each of the Group Companies, the Sellers agree not to, without the prior written consent of the Purchaser, release any Person from, or waive any provision of, any confidentiality or standstill agreement to which any Group Company or any Seller is a party.

 

SECTION 5.7 Further Action. Each of the parties hereto shall use all reasonable efforts to take, or cause to be taken, all appropriate action, do or cause to be done all things necessary, proper or advisable under applicable Law, and to execute and deliver such documents and other papers, as may be required to carry out the provisions of the Transaction Documents and consummate and make effective the transactions contemplated by the Transaction Documents.

 

SECTION 5.8 Waivers of Breaches. Each Seller hereby unconditionally and irrevocably shall waive, and shall procure all Affiliates of such Seller to waive, upon the Closing, any and all past and present breach and defaults by, or any past or present claim they may have against, the Company or any other Group Company under any transactions or dealings between any Group Company on one side and such Seller or any Affiliate of such Seller on the other side.

 

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ARTICLE VI

 

CONDITIONS TO THE TRANSACTIONS

 

SECTION 6.1 Conditions to Obligations of the Group Companies and the Sellers. The obligations of the Group Companies and the Sellers to consummate the transactions contemplated by this Agreement shall be subject to the fulfillment or written waiver, at or prior to the Closing, of each of the following conditions:

 

(i) Representations, Warranties and Covenants. The representations and warranties of the Purchaser contained in this Agreement shall have been true and correct when made and shall be true and correct in all material respects as of the Closing, except to the extent such representations and warranties are as of another date, in which case, such representations and warranties shall be true and correct as of that date, in each case, with the same force and effect as if made as of the Closing Date, other than such representations and warranties as are made as of another date, the covenants and agreements contained in this Agreement to be complied with by the Purchaser on or before the Closing Date shall have been complied with in all material respects; and

 

(ii) Approvals. The Purchaser shall have received all Approvals for the consummation of the transactions contemplated by the Transaction Documents.

 

SECTION 6.2 Conditions to Obligations of the Purchaser. The obligations of the Purchaser to consummate the transactions contemplated by this Agreement shall be subject to the fulfillment or written waiver, at or prior to the Closing, of each of the following conditions:

 

(i) Representations, Warranties and Covenants. The representations and warranties of the Warrantors contained in Article III of this Agreement shall have been true and correct in all material respects when made and shall be true and correct in all material respects as of the Closing Date with the same force and effect as if made as of the Closing Date, except to the extent such representations and warranties are as of another date, in which case, such representations and warranties shall be true and correct as of that date, in each case, with the same force and effect as if made as of the Closing Date, other than such representations and warranties as are made as of another date, the covenants and agreements contained in this Agreement to be complied with by the Warrantors on or before the Closing Date shall have been complied with, and the Purchaser shall have received a certificate signed by the Warrantors to such effect.

 

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(ii) No Proceeding or Litigation. No Action shall have been commenced or threatened by or before any Governmental Authority against any Warrantor, seeking to restrain or materially and adversely alter the transactions contemplated by this Agreement which is likely to render it impossible or unlawful to consummate such transactions or which could have a Material Adverse Effect or otherwise render inadvisable the consummation of the transactions contemplated by this Agreement.

 

(iii) Approvals. Each Seller and Warrantor (where applicable) shall have received all Approvals for the consummation of the transactions contemplated by the Transaction Documents.

 

(iv) Transaction Documents. Each of the parties to the Transaction Documents, other than the Purchaser, shall have executed and delivered to such Purchaser the Transaction Documents.

 

(v) Amendment to Constitutional Documents. The memorandum and articles of association of the Company (the “Restated Articles”) have been amended and restated in form and substance satisfactory to the Purchaser, and such amendment has been duly adopted by the Company by all necessary corporate actions of its directors and its shareholder.

 

(vi) Onshore Restructuring. The onshore restructuring of the Shenzhen Company has been fulfilled, all of the original onshore investors of the Shenzhen Company have withdrawn from the Shenzhen Company (“Original Investors’ Withdraw”) and no longer holds any equity securities in the Shenzhen Company and the consideration of the Original Investors’ Withdraw has been fully paid by the Warrantors, and the relevant evidence has been provided to the Purchaser to the satisfactory of the Purchaser.

 

(vii) Bank Account. The Sellers shall have opened a bank account to the satisfactory of the Purchaser.

 

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(viii) Equity Transfer. An Equity Interest Transfer Agreement shall have been executed for the transfer of 100% equity interests in Shenzhen Company, from all holders of such equity interests to the Persons designated by the Purchaser without payment of any consideration or minimum consideration as legally permissible under the PRC Law (in case such minimum consideration is required and paid by the Persons designated by the Purchaser, the Group Companies shall make full reimbursement of such consideration to the Purchaser or the Persons designated by the Purchaser). The equity transfer as specified in this section 6.2 (viii) has been approved by the indirect holders of the such equity interests of Shenzhen Company (including the partners of 深圳市驱动创业投资中心 (有限合伙), 深圳市驱动投资管理中心(有限合伙), 深圳市驱动 创业管理中心(有限合伙), 深圳市驱动团队管理中心(有限合伙)) and have been registered with the local administration for market regulation, and the evidence has been provided to the Purchaser to its satisfactory. The capitalization table of Shenzhen Company immediately after the closing of certain equity transfer as specified in this section 6.2 (viii) is enclosed hereto as Exhibit A-2.

 

An Equity Interest Transfer Agreement shall have been executed for the transfer of 100% equity interests in Beijing Company, from all holders of such equity interests to the Persons designated by the Purchaser without payment of any consideration or minimum consideration as legally permissible under the PRC Law (in case such minimum consideration is required and paid by the Persons designated by the Purchaser, the Group Companies shall make full reimbursement of such consideration to the Purchaser or the Persons designated by the Purchaser). The equity transfer as specified in this section 6.2 (viii) has been registered with the local administration for market regulation, and the evidence has been provided to the Purchaser to its satisfactory. The capitalization table of Beijing Company immediately after the closing of certain equity transfer as specified in this section 6.2 (viii) is enclosed hereto as Exhibit A-2.

 

(ix) Restructuring Documents. The Restructuring Documents have been amended and restated to reflect the transfer of equity interests specified in Section 6.2(viii).

 

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(x) Appointment of Directors and Key Officers. The Purchaser shall have received a copy of the register of directors of the Company and HK Company, certified by the registered office provider of the Company and HK Company (as applicable) as of the date of the Closing together with the relevant originals to be delivered to the Purchaser within three (3) days following the Closing, updated to show the appointment of directors of the Company and HK Company designated by the Purchaser; and the resignation of the director of the Company and HK Company designated by the Seller. The directors of Other Group Companies (than the Company and the HK Company) shall have been changed to such persons as designated by the Purchaser, and have been registered with the local administration for market regulation, and the evidence has been provided to the Purchaser to its satisfactory. Each Group Company’s legal representatives, managers and supervisors (if applicable) have been changed to such persons as designated by the Purchaser, and have been registered with the local administration for market regulation, and the evidence has been provided to the Purchaser to its satisfactory.

 

(xi) Bank Signatories. Each of the Group Companies shall have removed those Persons who were bank signatories to any and all bank and deposit accounts of the Group Companies and appoint the Persons designated by the Purchasers in their places.

 

(xii)Due Diligence. The Purchaser shall have completed their legal, financial and business due diligence investigation of the Group Companies to its satisfaction. The Warrantors have provided to the Purchaser with (a) the relevant lists as set forth on Exhibit B, and (b) the original minute books, register of members, register of directors, license, permits, certificates and all corporate seal(s) and key(s), to the satisfactory of the Purchaser;

 

(xiii) Approval of Investment. The investment committee (or similar governance body) of the Purchaser shall have approved the transactions contemplated hereunder.

 

(xiv) ESOP. All of the options granted by the Group Companies to the employees according to the ESOP (if any) shall have been terminated or fully exercised, under which, there has been no any outstanding options or other rights granted by any Group Company under the ESOP to purchase any Equity Securities.

 

(xv) Good Standing Certificates. The Purchaser shall have received a certificate of good standing issued by the Registrar of Companies of the Cayman Islands certifying that the Company was duly constituted, paid all required fees and is in good legal standing.

 

(xvi) Compliance Certificate. The Purchaser shall have received at the Closing a certificate dated as of the Closing Date and validly executed by a director or officer of the Company, certifying the fulfillment of the conditions set forth in this Section 6.02.

 

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(xvii) Resignation. The Founder shall have resigned as the director of 深 圳市车友联盟汽车服务有限公司 (the “Chezhu Zhi Jia”), and have entered into an agreement with Chezhu Zhi Jia, in form and substance satisfactory to the Purchaser, stating that (i) the Founder shall not participate in the operation of Chezhu Zhijia, (ii) the Founder shall give up any shareholder rights (excluding the economic rights) relating to the shares of Chezhu Zhi Jia held by the Founder contemplated under the Law and other documents.

 

(xviii) No Material Adverse Effect. There shall have been no Material Adverse Effect since the date of this Agreement.

 

ARTICLE VII

 

INDEMNIFICATION

 

SECTION 7.1 Indemnification Obligations.

 

(i)   General Indemnity. Each Seller hereby agrees to jointly and severally indemnify and hold harmless the Purchaser, Purchaser’s Affiliates, directors, officers, agents and assigns (each, an “Indemnified Person”), from and against any and all Indemnifiable Losses suffered by such Indemnified Person, directly or indirectly, as a result of, or based upon or arising from any inaccuracy in or breach or nonperformance of any of the representations, warranties, covenants or agreements made by any Seller in or pursuant to this Agreement or any other Transaction Document. Regardless of the foregoing, each Seller shall severally and jointly indemnify and hold harmless the Indemnified Person from and against any and all Indemnifiable Losses suffered by the Indemnified Person, directly or indirectly, as a result of, or based upon or arising from any inaccuracy in any of the representations or warranties set out in Exhibit C made by the Warrantors.

 

(ii)    Special Indemnity. Each Seller hereby agrees to, severally and jointly indemnify and hold harmless each Indemnified Person from and against any and all Indemnifiable Losses suffered by the Indemnified Person, directly or indirectly, as a result of, or based upon or arising from (a) any Tax Liability as a result of the failure by such Seller to timely pay any Taxes in connection with the transactions contemplated hereby, (b) any Tax Liability of any Group Company attributable to any breach arising from any fact that has occurred prior to the Closing, no matter if such Tax Liability has been disclosed to the Purchaser, (c) any deficiency in social insurance and housing fund contributions by any member of the Group Companies for its employees occurred prior to the Closing, no matter if such deficiency has been disclosed to the Purchaser, (d) any Liability attributable to the infringement, violation or misappropriation of any Intellectual Property Rights of any third party by any Group Company occurred prior to the Closing, no matter if such deficiency has been disclosed to the Purchaser, (e) any dispute or claim in connection with the historical equity interest transfer of any of the Group Companies, no matter if such historical equity interest transfer has been disclosed to the Purchaser; or (f) any Liability in connection with the Founder due to any reason attributable to the Founder.

 

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SECTION 7.2 Remedies. The rights contained in this Section 7.1 shall not be deemed to preclude or otherwise limit in any way the exercise of any other rights or pursuit of other remedies for the breach of the Transaction Documents or with respect to any misrepresentation. For the avoidance of doubt, each of the Warrantors hereby agrees and covenants that (i) the indemnification under Section 7.1(ii) shall not be prejudiced by or be otherwise subject to any disclosure (in the Disclosure Schedule or otherwise) and shall apply regardless of whether such Warrantor have any actual or constructive knowledge with respect thereto, (ii) it will not challenge or raise a defense to any claim against such Seller or Warrantor or the exercise of any right or remedy against such Seller or Warrantor (whether under the Section 7.1 or any other provision of this Agreement or any Ancillary Agreement) on the grounds that such claim, right or remedy is not enforceable or permitted by applicable Law, and (iii) it will do all such things and undertake all such actions, including without limitation any applications to and registrations with the Governmental Authorities and any other protective measures reasonably requested by the Purchaser, to ensure that the agreement of the parties with respect to joint and several liability of the Warrantors under the Transaction Documents (if any)is given full force and effect.

 

SECTION 7.3 Right of Offset. The Purchaser may offset any amounts to which it may be entitled pursuant to Article VII, against amounts otherwise payable by it under this Agreement and other agreements. Neither the exercise of, nor the failure to exercise, such right of offset will constitute an election of remedies or limit the Purchaser in any manner in the enforcement of any other remedies that may be available to it hereby. If any Seller fails to indemnify the Indemnified Persons within fifteen (15) days following the request of the Purchaser, the Purchaser shall be entitled, in its sole discretion, to offset any amounts to which it may be entitled pursuant to Article VII, against amounts otherwise payable by it under this Agreement and other agreements.

 

ARTICLE VIII

 

TERMINATION, AMENDMENT AND WAIVER

 

SECTION 8.1 Termination. This Agreement may be terminated at any time prior to the Closing:

 

(i)      by the Purchaser if, between the date hereof and the Closing: (a) an event or condition occurs that has resulted in a Material Adverse Effect, (b) any representations and warranties of the Warrantors contained in this Agreement shall not have been true and correct in all material respects when made, (c) the Warrantors shall not have complied with the covenants or agreements contained in this Agreement to be complied with by it which may bring Material Adverse Effect, or (d) any Group Company makes a general assignment for the benefit of creditors, or any proceeding shall be instituted by or against any Group Company seeking to adjudicate any of them a bankrupt or insolvent, or seeking liquidation, winding up or reorganization, arrangement, adjustment, protection, relief or composition of its debts under any Law relating to bankruptcy, insolvency or reorganization;

 

(ii)       by the Purchaser if the Closing shall not have occurred within three months commencing form the date hereof due to the reason of any other parties hereto; or

 

(iii)      by the mutual written consent of the Company, the Purchaser and the Sellers.

 

SECTION 8.2 Effect of Termination. (a) In the event of termination of this Agreement as provided in Section 8.1, this Agreement shall forthwith become void and there shall be no liability on the part of any party hereto except as set forth in Sections 5.3 and 10.1; and (b) that nothing herein shall relieve any party from liability for any breach of this Agreement.

 

SECTION 8.3 Amendment. This Agreement may not be amended or modified except (a) by an instrument in writing signed by, or on behalf of, the Group Companies, the Purchaser and the Sellers or (b) by a waiver in accordance with Section 8.4.

 

SECTION 8.4 Waiver. Any party to this Agreement may (a) extend the time for the performance of any of the obligations or other acts of the other parties, (b) waive any inaccuracies in the representations and warranties of the other parties contained herein or in any document delivered by the other parties pursuant hereto or

 

(c) waive compliance with any of the agreements of the other parties or conditions to such parties’ obligations contained herein. Any such extension or waiver shall be valid only if set forth in an instrument in writing signed by the party to be bound thereby. Any waiver of any term or condition shall not be construed as a waiver of any subsequent breach or a subsequent waiver of the same term or condition, or a waiver of any other term or condition of this Agreement. The failure of any party to assert any of its rights hereunder shall not constitute a waiver of any of such rights. All rights and remedies existing under this Agreement are cumulative to, and not exclusive of, any rights or remedies otherwise available.

 

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ARTICLE IX

 

POST CLOSING COVENANTS

 

SECTION 9.1 Further Assurances. At any time and from time to time, the Sellers, on the one hand, and Purchaser, on the other hand, shall promptly execute, acknowledge and deliver any other assurances or documents reasonably requested by the other, as the case may be, and necessary for it, as the case may be, to satisfy its respective obligations hereunder or obtain the benefits contemplated hereby.

 

SECTION 9.2 Corporate Governance. After the Closing, the Group Companies shall not, and the Founder shall cause the Group Companies not to, take any of the following actions, without the approval from the Purchaser or the director of the board of the Company appointed by the Purchaser:

 

a)Amend or waive any provision of the Memorandum or Articles of Association;

 

b)Alter or change the rights, preferences or privileges of the shares or authorize (by reclassification or otherwise) or issue any new class or series of shares having rights, preferences or privileges senior to or on a parity with the current shares;

 

c)Any merger, consolidation or amalgamation of the Company with any other entity or entities (including any sale of all or substantially all of any of the Company's assets) or any spin-off, sub-division, or any other transaction of a similar nature or having a similar economic effect as any of the foregoing, or other forms of restructuring of the Company;

 

d)Any consent to any proceeding seeking liquidation, winding up, dissolution, reorganization, or arrangement of any Group Company under any law relating to bankruptcy, insolvency or reorganization or relief of debtors;

 

e)Increase or decrease the authorized number of shares of the Company;

 

f)Take any action that results in the redemption or repurchase of any shares of the Company;

 

g)Authorize, declare or pay any dividend or distribution;

 

h)Any cessation to conduct or any change in the business of any Company as currently conducted;

 

i)Incur any indebtedness, including leases or bank loans, or assume any financial obligation or issue, assume, guarantee or create any liability for borrowed money in excess of RMB200,000 in aggregate at any time outstanding unless such liability is incurred pursuant to the then current business plan;

 

j)Sell, mortgage, pledge, lease, transfer or otherwise dispose of any of the Company’s Intellectual Property, or other assets not in the ordinary course of business;

 

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k)Provide any guarantee for any party other than a Group Company exceeding RMB200,000;

 

l)Make any withdrawals or payments from the Company’s bank account in an amount greater than RMB200,000 unless such withdrawals or payments are reflected in the annual financial budget of the Company which has been approved by the Board;

 

m)Create any subsidiary not wholly owned, directly or indirectly, by the Company or authorize any transfer, sale or otherwise dispose of any share or equity interest of any subsidiary of the Company;

 

n)Authorize the Company or any of its subsidiary’s acquisition of any capital stock, instruments of indebtedness, or other securities or assets of another entity;
   
o)Increase or decrease the authorized size of the Board or any committee thereof;

 

p)Adopt or change the terms of any bonus or profit sharing scheme or any employee share option or share participation schemes or plans, or otherwise adopt or approve any extraordinary incentive scheme with any employee; unless such benefits are reflected in the annual financial budget;

 

q)Engage or enter into any transaction or agreement with any of the Company’s affiliates, employees, directors, shareholders or other related parties, other than those transactions in the ordinary course of business;

 

r)Authorize or establish any committee of the Board or delegate any of the Board’s authority to such committee;

 

s)Any appointment, remuneration and other employment terms of the general manager, chief executive officer, chairman, chief financial officer or other key positions of the Company;
   
t)Any approval or amendment to the annual or quarterly budget of the Company;

 

u)Change the auditors or primary legal counsel of the Company;

 

v)any entering into, restatement, amendment or termination to, or waiver of Restructuring Documents;

 

w)the appointment (including the terms and conditions of such appointment) or removal of, and approval of the remuneration package for, any legal representative or any member of the senior management of any Group Company, including without limitation the chief executive officer, the chief operating officer, the chief financial officer, the chief technology officer, and any other management member at or above the level of vice president or comparable position, and any variations to any of such appointment (including the terms and conditions of such appointment), removal and/or remuneration package;

 

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x)enter into any transaction outside of the Group Companies’ Ordinary Course of business; or

 

y)Authorize, adopt or approve any of the foregoing actions.

 

SECTION 9.3 Non-Compete.

 

The Founder hereof undertakes to the Purchaser, and the Founder shall cause each of the Key Employees undertakes to the Purchaser that during the period commencing from the date hereof until the date he ceases to provide the Group Companies any services in connection with his employment with any of the Group Companies or the date he ceases to own any equity interest in the Group Companies, and for a further period of twenty-four (24) months thereafter, neither it nor any of its Affiliates will directly or indirectly:

 

(a)participate in the ownership, management or operation of, be concerned with, assist or engaged in or interest in, any business or entity in any manner, directly or indirectly, which is in competition with the business currently or future operated by the Group Companies, the Purchaser and/or their Affiliates (the “Competitive Business”);

 

(b)solicit in any manner any person who is or has been a customer or client of the Purchase or its Subsidiary, or any Group Company for the purpose of offering to such person any goods or services similar to or competing with any Competitive Business;

 

(c)solicit or entice away, or endeavour to solicit or entice away, any employee or officer of the Purchase or its Subsidiary, or any Group Company to participate in the ownership, management or operation of, or engaged in or interest in any Competitive Business;

 

(d)disclose to any person, or use for any purpose, any confidential information concerning the business, accounts, finance, transactions or intellectual property rights of the Purchase or its Subsidiary, or any Group Company, or any trade secrets or confidential information of or relating to any of the Purchase or its Subsidiary, or any Group Company; or

 

(e)dispose of, license, transfer or grant any intellectual property belong to the Purchase or its Subsidiary, or any Group Company, to any other Persons.

 

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SECTION 9.4 Tax Matters. The Founder shall cause the Group Companies comply with all applicable PRC Tax laws and regulations, including without limitation, laws and regulations pertaining to income tax, value added tax and business tax.

 

SECTION 9.5 Compliance. The Group Companies shall, and the Founder shall cause each of the Group Companies, comply in all respects with all applicable laws and regulations to conduct its business.

 

SECTION 9.6 PRC TAX Matters. Within three (3) months after the Closing, the Seller shall have filed any and all Tax reports required under the applicable Law ((including without limitation Bulletin on Several Issues in Enterprise Income Tax on the Indirect Transfer of Assets by Nonresident Enterprises (Guoshui Gonggao 2015 No. 7) issued by State Administration of Taxation of the PRC (国家税务总局关于非居民企业间接转让财产企业所得税若干问题的公告) and effective as of February 3, 2015 ) (the “Bulletin 7”), and timely pay any Tax due thereunder in connection with the transactions contemplated hereby. The Sellers shall provide a copy of (i) the full set of its respective application or reporting documents and materials submitted to the relevant tax authorities in connection with the transactions contemplated hereby, together with all proof or confirmation of submission or delivery and return receipts, as promptly as reasonably practicable after each relevant submission and (ii) the corresponding acknowledgements from the tax authorities as promptly as reasonably practicable after the receipt of such acknowledgements.

 

If the Seller fails to make such filing within the specified timeline, the Purchaser shall be entitled to (but not be obligated to), at the costs of such Seller, make the filing and pay any Tax due on behalf of such Seller. The Purchaser will be entitled to deduct the total amount of costs incurred and Tax paid from the Purchase Price before paying the balance of the Purchase Price to the Sellers. If the filing or the payment of Tax is not completed, the Purchase shall be entitled to deduct an amount equal to the costs and the taxes payable by the Sellers under the requirements of law with respect to the Purchase Price in the PRC (“Holdback Amount”) before paying the balance of the Purchase Price to the Seller. If the Holdback Amount is not enough to cover all of the costs incurred and Tax paid, the Purchaser shall be entitled to claim compensation/reimbursement from the Sellers. The Sellers shall provide to the Purchaser on the date hereof all the documentation necessary for the said filing.

 

SECTION 9.7 Financial Statements. From the date of the Closing, the Sellers shall procure the delivery to Purchaser of (i) each of the Quarterly Financial Statements promptly following the last day of the relevant quarter within certain periods as requested by the Purchaser, (ii) each of the annual Financial Statements audited by certain auditor appointed by the Purchaser within certain periods as requested by the Purchaser, and (iii) such other documents as reasonably required by the Purchaser, in each case, in a form reasonably satisfactory to Purchaser.in each case, in a form reasonably satisfactory to Purchaser.

 

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SECTION 9.8 Roles of Founder. Notwithstanding of the foregoing, the Parties agree that the Group Companies will become wholly-owned subsidiaries of the Purchaser and will be under the control of the Purchaser following the Closing. In light of the foregoing, the Founder shall only be responsible for the matters set forth in Section 9.6 through 9.10 in their relevant capacities of officers of the Group Companies with the necessary approval granted and assistance provided by the Purchaser and the board of directors, if applicable.

 

SECTION 9.9 Ordinary Course of Business. After the Closing, the Founder shall cause each of the Group Companies to, conduct the Business in the Ordinary Course and in a prudent manner consistent with past practice.

 

SECTION 9.10 Key Parties’ Commitments to the Company. The Founder hereby agrees to, and agrees to cause other Key Employees to, devote substantially all of his or her working time to the business and operations of the Group Companies.

 

ARTICLE X.

 

GENERAL PROVISIONS

 

SECTION 10.1 Expenses and Taxes. Except as otherwise expressly provided in this Agreement, all Taxes, costs and expenses, including, without limitation, all fees and disbursements of counsel, accountants, financial advisors, experts and consultants incurred in connection with this Agreement and the transactions contemplated by this Agreement shall be paid by the party incurring such Taxes, costs and expenses, whether or not the Closing shall have occurred. Neither the Group Company nor the Purchaser or its Affiliates shall have any obligation to withhold taxes for any payments made hereunder.

 

SECTION 10.2 Notices. Except as may be otherwise provided herein, all notices, requests, waivers and other communications made pursuant to this Agreement shall be in writing and shall be conclusively deemed to have been duly given when hand delivered to the other parties.

 

Each person making a communication hereunder by facsimile shall promptly confirm by telephone to the person to whom such communication was addressed each communication made by it by facsimile pursuant hereto but the absence of such confirmation shall not affect the validity of any such communication. A party may change or supplement the addresses given above, or designate additional addresses, for purposes of this Section 10.2 by giving, the other parties written notice of the new address in the manner set forth above.

 

SECTION 10.3 Third-Party Beneficiaries. Except for the provisions of Article VII relating to indemnified parties, this Agreement shall be binding upon and inure solely to the benefit of the parties hereto and their permitted assigns and nothing herein, express or implied, is intended to or shall confer upon any other Person, including, without limitation, any union or any employee or former employee of the Company, any legal or equitable right, benefit or remedy of any nature whatsoever, including, without limitation, any rights of employment for any specified period, under or by reason of this Agreement.

 

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SECTION 10.4 Public Announcements. No party to this Agreement shall make, or cause to be made, any press release or public announcement in respect of this Agreement or the transactions contemplated by this Agreement or otherwise communicate with any news media without prior notification to the other parties, and the parties shall cooperate as to the timing and contents of any such press release or public announcement.

 

SECTION 10.5 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of Law or public policy, all other terms, conditions and provisions of this Agreement shall nevertheless remain in full force and effect for so long as the economic or legal substance of the transactions contemplated by this Agreement is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated by this Agreement be consummated as originally contemplated to the fullest extent possible.

 

SECTION 10.6 Assignment; Binding Effect. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties; provided, that, the Purchaser may assign any of its rights, interests or obligations to any Affiliate or Affiliate of the Purchaser. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns.

 

SECTION 10.7 Incorporation of the Disclosure Schedule and the Exhibits. The Disclosure Schedule and all Exhibits attached hereto and referred to herein are hereby incorporated herein by reference and made a part of this Agreement for all purposes as if fully set forth herein.

 

SECTION 10.8 Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of Hong Kong, without regard to its laws of conflict.

 

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SECTION 10.9 Dispute Resolution. Negotiation Between Parties; Mediations.

 

(a)The parties agree to negotiate in good faith to resolve any dispute between them arising out of, relating to, or concerning any interpretation, construction, performance or breach of this Agreement (the “Dispute”). If the negotiations do not resolve the Dispute to the reasonable satisfaction of all parties within thirty (30) days, Section 10.10(b) shall apply.

 

(b)Arbitration. Each of the parties hereto irrevocably (i) agrees that any Dispute or controversy arising out of, relating to, or concerning any interpretation, construction, performance or breach of this Agreement, shall be settled by arbitration to be held in Hong Kong which shall be administered by the Hong Kong International Arbitration Centre (“HKIAC”) in accordance with the Hong Kong International Arbitration Centre Administered Arbitration Rules in force at the time of the commencement of the arbitration (the “Arbitration Rules”), (ii) waives, to the fullest extent it may effectively do so, any objection which it may now or hereafter have to the laying of venue of any such arbitration, and (iii) submits to the exclusive jurisdiction of Hong Kong in any such arbitration. There shall be three arbitrators, selected in accordance with the Arbitration Rules, and at least one arbitrator shall be qualified to practice laws of Hong Kong. The decision of the arbitration tribunal shall be final, conclusive and binding on the parties to the arbitration. Judgment may be entered on the arbitration tribunal’s decision in any court having jurisdiction. The parties to the arbitration shall each pay an equal share of the costs and expenses of such arbitration, and each party shall separately pay for its respective counsel fees and expenses; provided, however, that the prevailing party in any such arbitration shall be entitled to recover from the non-prevailing party its reasonable costs and attorney fees. The parties acknowledge and agree that, in addition to contract damages, the arbitrators may award provisional and final equitable relief, including injunctions, specific performance, and lost profits.

 

SECTION 10.10 Headings. The descriptive headings contained in this Agreement are included for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement.

 

SECTION 10.11 Counterparts. This Agreement may be executed and delivered (including by facsimile transmission) in one or more counterparts, and by the different parties hereto in separate counterparts, each of which, when executed and delivered, shall be deemed to be an original but all of which taken together shall constitute one and the same agreement.

 

SECTION 10.12 Entire Agreement. This Agreement (including the Exhibits and the Disclosure Schedule) and the Ancillary Agreements constitute the entire agreement among the parties with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof and thereof.

 

--Signatory Pages Follows--

 

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IN WITNESS WHEREOF, each of the Parties hereto has duly executed, or has caused to be duly executed by their respective officers thereunto duly authorized, this Agreement as of the date first written above.

  

 

  THE PURCHASER  
       
       
  TuanChe Limited  
       
  By: /s/ Wei Wen  
  Name: Wei Wen  
  Title: Director  

  

 

 

 

 

Signature Page of Share Purchase Agreement

  

 

 

 

IN WITNESS WHEREOF, each of the Parties hereto has duly executed, or has caused to be duly executed by their respective officers thereunto duly authorized, this Agreement as of the date first written above.

 

 

  THE GROUP COMPANIES  
     
       
  Longye International Limited  
       
  By: /s/ Li Mingyou  
  Name: Li Mingyou  
  Title: Director  
       
       
  Long Ye Information Technology Limited  
     
       
  By: /s/ Li Mingyou  
  Name: Li Mingyou  
  Title: Director  
       
       
  Beijing Sangu Maolu Information Technology Co., Ltd.  
     
       
  By: /s/ Li Mingyou  
  Name: Li Mingyou  
  Title: Legal Representative  
       
       
  Shenzhen Drive New Media Co., Ltd.  
     
       
  By: /s/ Li Mingyou  
  Name: Li Mingyou  
  Title: Legal Representative  

 

 

 

 

 

Signature Page of Share Purchase Agreement

 

 

 

 

IN WITNESS WHEREOF, each of the Parties hereto has duly executed, or has caused to be duly executed by their respective officers thereunto duly authorized, this Agreement as of the date first written above.

 

 

  THE GROUP COMPANIES  
     
       
  Beijing Internet Drive Technology Co., Ltd.  
     
       
  By: /s/ Li Mingyou  
  Name: Li Mingyou  
  Title: Legal Representative  

 

 

 

 

 

Signature Page of Share Purchase Agreement

 

 

 

 

IN WITNESS WHEREOF, each of the Parties hereto has duly executed, or has caused to be duly executed by their respective officers thereunto duly authorized, this Agreement as of the date first written above.

  

 

  THE SELLERS  
     
       
  Li Mingyou  
       
  By: /s/ Li Mingyou  
       
       
  Long Ye Group Holding Inc  
     
       
  By: /s/ Li Mingyou  
  Name: Li Mingyou  
  Title: Director  

 

 

 

 

 

Signature Page of Share Purchase Agreement

 

 

 

 

 

EXHIBIT A-1

PARTICULARS OF GROUP COMPANIES AND GROUP STRUCTURE PRIOR TO THE CLOSING

 

Longye International Limited (incorporated in Cayman Islands)
# Name of Shareholder Number of Shares/
Registered Capital
Shareholding
Percentage
1. Long Ye Group Holding Inc 1 100%
  Total 1 100%

 

Long Ye Information Technology Limited 龍業信息技術有限公司 (incorporated in Hong Kong)
# Name of Shareholder Number of Shares Shareholding
Percentage
1. Longye International Limited 1 100%
  Total 1 100%

 

Beijing Sangumaolu Information Technology Limited (北京三顾茅庐信息科技有 限公司) (incorporated in Beijing, PRC)
# Name of Shareholder Registered Capital Shareholding
Percentage
1. Long Ye Information Technology Limited 龍業信息技術有限公司 USD 1,000,000 100%
  Total USD 1,000,000 100%

 

Shenzhen Drive New Media Co. LTD (深圳市驱动新媒体有限公司) (incorporated in Beijing, PRC)  

# Name of Shareholder Registered Capital   Shareholding
Percentage
1. 李明友 RMB7,481,670 24.9389%
2. Shenzhen Drive Team Management Center (Limited Partnership) RMB2,634,150   8.7805%  
3. Shenzhen Drive Entrepreneurship Investment Center (Limited Partnership) RMB8,065,230     26.8841%    
4. Shenzhen Drive Investment Management Center (Limited Partnership) RMB9,857,520     32.8584%    
5. Shenzhen Drive Entrepreneurship Management Center (Limited Partnership) RMB1,961,430     6.5381%    
  Total RMB30,000,000 100%

 

Schedules and Exhibits

 

 

 

 

Beijing Hulian Drive Technology Co. LTD (北京互联驱动科技有限公司) (incorporated in Beijing, PRC)
# Name of Shareholder Registered Capital   Shareholding
Percentage
1. Li Mingyou RMB100,000 100%
  Total RMB100,000 100%

 

Schedules and Exhibits

 

 

 

 

EXHIBIT A-2

 

PARTICULARS OF GROUP COMPANIES AND GROUP STRUCTURE

AFTER THE CLOSING

 

Longye International Limited (incorporated in Cayman Islands)

# Name of Shareholder Number of Shares/
Registered Capital
Shareholding
Percentage
1. TuanChe Limited 1 100%
  Total 1 100%

 

Long Ye Information Technology Limited 龍業信息技術有限公司(incorporated in Hong Kong)

#   Name of Shareholder   Number of Shares   Shareholding
Percentage
1. Longye International Limited 1 100%
  Total 1 100%

 

Beijing Sangumaolu Information Technology Limited (北京三顾茅庐信息科技 有 限公司) (incorporated in Beijing, PRC)

#   Name of Shareholder   Registered Capital   Shareholding
Percentage
 
1.   Long Ye Information Technology Limited 龍業信息技術有限公司 USD 1,000,000   100%    
 
 
  Total USD 1,000,000 100%  

 

Shenzhen Drive New Media Co. LTD (深圳市驱动新媒体有限公司) (incorporatedin Beijing, PRC)

#   Name of Shareholder   Registered Capital   Shareholding
Percentage
1. Du Xingyu RMB300,000 1%
2. Lin Mingyou RMB29,700,000 99%
  Total RMB30,000,000 100%

 

Beijing Hulian Drive Technology Co. LTD (北京互联驱动科技有限公司)(incorporated in Beijing, PRC)

#   Name of Shareholder   Registered Capital   Shareholding
Percentage
1. Du Xingyu RMB1,000 1%
2. Lin Mingyou RMB99,000 99%
  Total RMB100,000 100%

 

Schedules and Exhibits

 

 

 

 

EXHIBIT B

TRANSFER LIST

 

üList of business licenses and permits

 

üList of major contracts

 

üList of major business partners

 

üList of major assets

 

üList of official seal

 

üList of bank signatory

 

Schedules and Exhibits

 

 

 

 

EXHIBIT C

REPRESENTATIONS AND WARRANTIES REGARDING THE GROUP COMPANIES

 

1.Organization and Corporate Power

 

1.1  Section 1.1 of the Disclosure Schedule contains (i) a complete and accurate list of each Person in which any Group Company owns or holds the right to acquire any Equity Security, and (ii) a complete and accurate list for each Group Company of its name, its jurisdiction of incorporation or organization and its capitalization (including the identity of each shareholder or equity holder and the number of shares or other equity interests held by each such shareholder or equity holder).

 

1.2  The Company is an exempted company duly organized, validly existing and in good standing under the laws of the Cayman Islands. Each Group Company is duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation set forth on Section 1.1 of the Disclosure Schedule. Each Group Company has full corporate power and authority to conduct its businesses as it is now being conducted, to own or use its properties and assets that each purports to own or use and to perform its obligations under the contracts to which each is a party. Each Group Company is duly qualified to do business as an organization, and is in good standing, under the laws of each jurisdiction in which either the ownership or use of the properties owned or used by it, or the nature of the activities conducted by it, requires such qualification.

 

1.3   The Company has delivered to the Purchaser correct and complete copies of the certificates of incorporation, the memorandum and articles of association (or analogous governing documents), business licenses, certificates of approval (as applicable) of each Group Company, which documents reflect all amendments made thereto at any time before the date hereof. Such documents are in full force and effect and will remain in full force and effect following the transactions contemplated by this Agreement, except as amended by the memorandum and articles of association of the Company. Correct and complete copies of the minute books containing the records of meetings of the shareholders and boards of directors (or analogous parties), the share certificate books and the share record books (or equivalent documents) of each Group Company have been furnished to the Purchaser. No Group Company is in default under or in violation of any provision of its memorandum or articles of association (or analogous governing documents) in any material respect.

 

2.Share Capital and Related Matters

 

2.1   The Company has delivered to the Purchaser a true, accurate and complete list of outstanding options issued under the Company’s existing share incentive plan(s), including the name of each person holding such options, the number of underlying shares of such options, and the exercise price and vesting periods thereof. As of the Closing, the Transfer Shares are duly issued and fully paid up and non-assessable. Immediately after the Closing, the Transfer Shares will be held beneficially and of record by the Purchaser free and clear of all Encumbrances (except as created or incurred under the Transaction Documents). Except as contemplated under the Restructuring Documents, no Group Company has outstanding any shares or securities convertible or exchangeable for any Equity Security or other ownership interest or containing any profit participation features, nor does any Group Company have outstanding any rights or options to subscribe for or to purchase its Equity Security or other ownership interest or any shares or securities convertible into or exchangeable for its Equity Security or other ownership interest or any share appreciation rights or phantom share plans. No Group Company is subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any of its Equity Security or other ownership interest or any warrants, options or other rights to acquire its Equity Security.

 

Schedules and Exhibits

 

 

 

 

2.2   There are no statutory or contractual pre-emptive rights, rights of first refusal or similar rights or restrictions with respect to the offer, sale or issuance of any Transfer Shares hereunder. The Company has not violated any applicable securities or other laws in connection with the offer, sale or issuance of any of its Equity Security, and the offer and sale of the Transfer Shares hereunder do not require any registration or any other filing under any applicable securities or other laws other than the filing to the Registrar of Cayman Islands. Except as set forth under the Transaction Documents, there are no agreements between the shareholders of the Company with respect to the voting or transfer of the Company’s Share or with respect to any other aspect of the Company’s affairs.

 

2.3   Neither any Group Company nor any Affiliate, representative, officer, employee, director or agent of any Group Company is a party to or is bound by any agreement (other than this Agreement) with respect to any Acquisition Proposal.

 

2.4   Except as set forth under the Transaction Documents, no Person who holds any Equity Security in the Company has or shall have the right, and neither the Purchaser nor any Group Company has or shall have the obligation, to convert or otherwise transfer such Equity Security in the Company into Equity Security of any Group Company or Affiliates (including, after the Closing, the Purchaser) as a result of the transactions contemplated by this Agreement.

 

2.5   All Equity Security (whether registered or otherwise) of each Group Company has been fully paid in accordance with the terms of the applicable investment documents, the articles of association (or equivalent documents) of each such Group Company and applicable law (including, if applicable, PRC law), as evidenced by true and complete copies of capital verification reports or other equivalent documents certifying to such effect issued by a certified accountant (if applicable) or by the accounting firm employing such accountant (if applicable).

 

Schedules and Exhibits

 

 

 

 

3.[Reserved]

 

4.No Breach; Authorization; Execution & Enforceability

 

4.1   The execution and delivery by the Company of this Agreement and any other Transaction Documents to which it is a party, and the fulfilment of and compliance with the respective terms thereof by the Company do not and will not, (i) conflict with or result in a breach of the terms, conditions or provisions of, (ii) constitute a default under (whether with or without the giving of notice, the passage of time or both), (iii) result in the creation of any Encumbrance upon the assets of the Company or the Company’s Shares (including any of the Company Shares) pursuant to, (iv) give any third party the right to modify, terminate or accelerate any obligation under, (v) result in a violation of, or (vi) require any permit, authorization, consent, approval, exemption or other action by or notice or declaration to, or filing with, any court or administrative or governmental body or agency pursuant to, (a) any law, statute, rule or regulation to which any Group Company is subject, (b) the memorandum and articles of association of the Company, or (c) any instrument, contract, lease, license, order, judgment, decree or other agreement to which any Group Company is subject.

 

4.2   Each Group Company possesses full power and authority to execute and deliver each Transaction Document to which it is a party and any and all instruments necessary or appropriate in order to fully effectuate the terms and conditions of each such Transaction Document and to perform and consummate the transactions contemplated hereby and thereby.

 

4.3   Each Group Company’s execution, delivery and performance of each Transaction Document to which it is a party has been duly and validly authorized by all necessary action on the part of such Group Company and such Group Company’s stockholders. Each Transaction Document to which a Group Company is a party has been duly and validly executed and delivered by such Group Company and constitutes, or upon its execution and delivery will constitute, a valid and legally binding obligation of such Group Company, enforceable against such Group Company in accordance with its terms and conditions, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors’ rights generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity).

 

4.4   There are no Legal Proceedings pending or threatened against or affecting any Group Company, at law or in equity, or before or by any governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, which could adversely affect the performance of the Company under the Transaction Documents to which any Group Company is a party or the consummation of the transactions contemplated hereby or thereby.

 

4.5   None of the Warrantors is a party to or bound by any agreement with respect to any Acquisition Proposal (other than this Agreement) and each of the Warrantors has terminated all discussions with any third party (other than the Purchaser), if any, regarding any Acquisition Proposal.

 

Schedules and Exhibits

 

 

 

 

5.Financial Statements

 

The Company has delivered to the Purchaser the unaudited consolidated balance sheets, statements of income and cash flows of the Group Companies ended as of March 31, 2019 (the “Financial Statements”, and March 31, 2019, the “Latest Balance Sheet Date”). The Financial Statements have been prepared in accordance with PRC GAAP, applied on a consistent basis, and shows a true and fair view of the state of affairs, assets and liabilities, financial position and profit or loss of the Group Companies as of March 31, 2019 and for the periods covered thereby and are not affected by any unusual or non-recurring items not covered therein. Each Group Company maintains and, for all periods covered by the Financial Statements, has maintained (i) books, records and accounts which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of such Group Company and (ii) a system of internal accounting controls sufficient to provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in conformity with PRC GAAP.

 

6.Absence of Undisclosed Liabilities

 

No Group Company has any obligation or liability (whether accrued, absolute, contingent, unliquidated or otherwise, whether or not known to the Company, whether due or to become due and regardless of when asserted) arising out of transactions entered into at or prior to the date hereof (including without limitation any indemnification obligation or liability arising out of transactions entered into at or prior to the date hereof in connection with the disposal of any assets or shares in any Subsidiary), or any action or inaction at or prior to the date hereof, or any state of facts existing at or prior to the date hereof (including any oral agreements), other than: (i) liabilities incurred in the Ordinary Course, and (ii) liabilities set forth in the Financial Statements.

 

7.Products and Services Warranty

 

All products and services licensed, sold or delivered by the Group Companies have been in conformity in all material respects with all applicable contractual commitments and all express and implied warranties, and no Group Company has any material liability (or has received written notice of any action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand against it giving rise to any such liability) for replacement thereof or other damages in connection therewith, other than replacements or damages in the Ordinary Course. No products licensed, sold or delivered and no services rendered by any Group Company are subject to any guarantee, warranty or other indemnity beyond the applicable industry standard terms and conditions of such sale or service.

 

Schedules and Exhibits

 

 

 

 

8.No Material Adverse Effect

 

Since the Latest Balance Sheet Date, there has occurred no fact, event or circumstance which has had, or could reasonably be expected to have, a Material Adverse Effect, and each of the Group Companies has conducted its business only in the Ordinary Course.

 

9.Absence of Certain Developments

 

Except as expressly contemplated by this Agreement, since the Latest Balance Sheet Date, no Group Company has:

 

(a)     issued or otherwise sold any notes, bonds or other debt securities or any share or other Equity Security;

 

(b)     borrowed any amount or incurred or become subject to any Indebtedness or other liabilities, except current liabilities incurred in the Ordinary Course and liabilities under contracts entered into in the Ordinary Course;

 

(c)     discharged or satisfied any Encumbrance or paid any obligation or liability, other than current liabilities paid in the Ordinary Course;

 

(d)    declared, set aside or made any dividend, payment or distribution of cash or other property to any of the holders of its Shares with respect to such share or purchased, redeemed or otherwise acquired, directly or indirectly, any Share or any outstanding rights or securities exercisable or exchangeable for or convertible into its Share or other equity securities (including, without limitation, any warrants, options or other rights to acquire its Share) without the Purchaser’s approval;

 

(e)     mortgaged or pledged any of its properties or assets or subjected them to any Encumbrances;

 

(f)      sold, assigned, leased, licensed or transferred any of its tangible assets, except in the Ordinary Course, or cancelled any debts or claims in aggregate exceeding RMB200,000 individually or in the aggregate;

 

(g)     sold, assigned, leased, licensed, transferred or otherwise encumbered any Intellectual Property Rights or other intangible assets other than in the Ordinary Course, or disclosed any material proprietary confidential information to any Person, or abandoned or permitted to lapse any Intellectual Property Rights or other intangible asset;

 

(h)     delayed or postponed the payment, or modified the payment terms, of any accounts or commissions payable or any other liability or obligations or agreed or negotiated with any party to extend the payment date of any accounts or commissions payable or accelerated the collection of any notes, accounts or commissions receivable other than in the Ordinary Course;

 

Schedules and Exhibits

 

 

 

 

(i)      made capital expenditures in an amount materially morethan the budgeted amount of capital expenditures for such period or made capital expenditures or commitments for capital expenditures that in excess of RMB200,000 individually or in the aggregate;

 

(j)      made any charitable contributions or pledges;

 

(k)     suffered any damage, destruction or loss or waived any rights of material value, whether or not in the Ordinary Course, exceeding in the aggregate RMB200,000 (whether or not covered by insurance);

 

(l)      made any loans or lending to, Investment in, or guarantees for the benefit of, any Person or taken steps to incorporate any Subsidiary;

 

(m)    made any change in any method of accounting or accounting policies, other than those required by US GAAP or PRC GAAP and disclosed in writing to the Purchaser;

 

(n)     without the Purchaser’s approval, entered into any employment contract (written or oral) or changed the employment terms for any director, officer or senior manager or made or granted any bonus (including any one-time bonus) or any wage, salary or compensation increase to any director, officer or senior manager, or made or granted any increase in any employee benefit plan or arrangement, or amended or terminated any existing employee benefit plan, incentive arrangement or other benefit covering any of the employees of any Group Company or adopted any new employee benefit plan, incentive arrangement or other benefit covering any of the employees of any Group Company;

 

(o)     entered into any contract, agreement or arrangement outside of the Ordinary Course;

 

(p)     amended its memorandum and articles of association or other organizational documents;

 

(q)     made or changed any Tax election, changed any annual accounting period, adopted or changed any accounting method, filed any amended Tax Return, entered into any agreement with any taxing authority, settled any Tax claim or assessment relating to any Group Company, surrendered any right to claim a refund of Taxes, consented to any extension or waiver of the limitation period applicable to any Tax claim or assessment relating to any Group Company, or took any other similar action relating to the filing of any Tax Return or the payment of any Tax, if such election, adoption, change, amendment, agreement, settlement, surrender, consent or other action would have the effect of increasing the Tax liability of any Group Company for any period ending after the Closing Date or decreasing any Tax attribute of any Group Company existing on the Closing Date;

 

Schedules and Exhibits

 

 

 

 

(r)      (i) entered into any transaction other than the transactions contemplated under the Transaction Documents or in the Ordinary Course, or (ii) materially changed any business practice;

 

(s)     suffered any material adverse change in its business, customers or customer relations, suppliers or supplier relations;

 

(t)     organized any new Subsidiary or branch, or acquired any Equity Security or equity interests in the business, of any other company;

 

(u)    adopted a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, or other reorganization; or

 

(v)     agreed, resolved or otherwise committed, whether orally or in writing, to do any of the foregoing.

 

10.Assets

 

Each Group Company has good and marketable title to, or a valid leasehold interest in, or a valid license to use, the properties and assets, tangible or intangible, used by any Group Company free and clear of all Encumbrances, except for inventory disposed of in the Ordinary Course since the Latest Balance Sheet Date. All of the equipment and other tangible assets (whether owned or leased) of any Group Company are in good condition and are fit for use in the Ordinary Course. As of the Closing, each Group Company shall own, or have a valid leasehold interest in, or a valid license to use, all the assets and rights necessary for the conduct of the Company’s and each Group Company’s respective businesses as presently conducted.

 

11.Real Property

 

11.1  Leased Properties. Section 11.1 of the Disclosure Schedule sets forth a list of all of the leases, licenses and subleases of real property to which any Group Company is a party to or bound by (each a “Lease” and, collectively, the “Leases”) and each leased, licensed and subleased parcel of real property in which any Group Company has a leasehold or subleasehold interest (the “Leased Real Property”). Each Group Company holds a valid and existing leasehold or subleasehold interest under each of the Leases. With respect to each Lease listed on Section 11.1 of the Disclosure Schedule: (a) there are no disputes, oral agreements or forbearance programs in effect as to such Lease and no Group Company has assigned, transferred, conveyed, mortgaged, deeded in trust or encumbered any interest in such Lease; (b) the Lease is legal, valid, binding, enforceable and in full force and effect and will continue to be so on substantially identical terms immediately following the Closing; (c) neither any Group Company nor any other party to any Lease is in breach or default, and no event has occurred which, with notice or lapse of time or both, would constitute a breach or default or permit termination, modification or acceleration under the Lease or sublease; (d) such Lease has not been amended or modified in any respect; (e) neither any Group Company nor the Seller has assigned, transferred, conveyed, mortgaged, deeded in trust or encumbered any interest in the leasehold, license agreement or subleasehold; (f) all buildings, improvements and other property leased, licensed or subleased thereunder are supplied with utilities and other services necessary for the operation thereof (including gas, electricity, water, telephone, sanitary and storm sewer, and access to public roads); (g) if required by applicable law or regulation, all of Leases required to be set forth on Section 11.1 of the Disclosure Schedule have been registered with the competent lease registration authority in the jurisdiction in which such Leases are entered into in accordance with applicable laws and regulations and (h) the transactions contemplated by the Transaction Documents will not require the consent of any landlord, licensor or sublandlord or the Company will provide such consent prior to the Closing.

 

Schedules and Exhibits

 

 

 

 

11.2  Owned Real Property. Section 11.2 of the Disclosure Schedule sets forth a complete and correct legal description of each parcel of real property in which any Group Company holds legal or equitable title (the “Owned Real Property”). The Group Company, as the case may be, holds good and marketable fee simple title to the Owned Real Property free and clear of any Encumbrances. The Owned Real Property and the Leased Real Property (collectively, the “Real Property”) constitutes all of the real property owned, leased, occupied or otherwise utilized by the Group. No activity of any Group Company on the Real Property encroaches upon the property of any Person or easements or rights-of-way in favor of any Person in any material respect. No Group Company has received written notice of any pending or contemplated condemnation or eminent domain proceeding affecting the Real Property and, to the knowledge of the Company, no such condemnation or eminent domain proceedings are threatened.

 

11.3  Current Use. There is no known violation of any covenant, condition, restriction, easement, agreement or order of any Governmental Authority having jurisdiction over any Real Property that affects such real property or the use or occupancy thereof. No damage or destruction has occurred with respect to any of the Real Property that, individually or in the aggregate, has had or resulted in, or will have or result in, a significant adverse effect on the operation of the business of any Group Company. No current use by any Group Company of any Real Property is dependent on a nonconforming use or other approval from a Governmental Authority, the absence of which would limit the use of any of the properties or assets in the operation of any Group Company’s business.

 

11.4  Condition and Operation of Improvements. To the knowledge of the Company, all buildings and all components of all buildings, structures and other improvements included within the Real Property are in good condition and repair and are adequate to operate such facilities as currently used; all utilities and other similar systems serving the Real Property are installed and operating and are sufficient to enable the Real Property to continue to be used and operated in the manner currently being used and operated.

 

Schedules and Exhibits

 

 

 

 

12.Tax Matters

 

12.1  Each Group Company has filed or caused to be filed on a timely basis all Tax Returns required to be filed by or with respect to such Group Company, and all such Tax Returns have been prepared in compliance with all applicable laws and regulations and are true and accurate in all material respects. No reporting position was taken on any such Tax Return which has not been disclosed to the appropriate Tax authority or in such Tax Return, as may be required by law. All records relating to such Tax Returns or to the preparation thereof required by applicable laws to be maintained by each Group Company have been duly maintained. All Taxes due and payable by any Group Company have been timely paid in full (whether or not such Taxes are shown or required to be shown on a Tax Return) and each Group Company has duly and timely withheld and fully paid over to the appropriate taxing authority all Taxes which it was required to withhold in connection with any amounts paid or owed to any employee, independent contractor, shareholder, creditor or other third party. No Group Company is currently the beneficiary of any extension of time within which to file any Tax Return. No claim has ever been made by an authority in a jurisdiction where any Group Company does not file Tax Returns that any Group Company is or may be subject to taxation by that jurisdiction. There are no Encumbrance for Taxes (other than Taxes not yet due and payable) upon any of the assets of any Group Company.

 

12.2  No PRC (including any subdivision, municipality, province or locality of the PRC), U.S. federal, state, local, or other non-U.S. Tax audits or administrative or judicial proceedings are pending or being conducted with respect to any of the Group Company. No Group Company has received from any PRC (including any subdivision, municipality, province or locality of the PRC), U.S. federal, state, local, or non-U.S. taxation authority (including jurisdictions where the Group Companies have not filed Tax Returns) any (i) written notice indicating an intent to open an audit or other review or Legal Proceeding, (ii) request for information related to Tax matters or (iii) notice of deficiency or proposed adjustment for any amount of Tax proposed, asserted, or assessed by any Taxing authority against any Group Company.

 

12.3  No Group Company has waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency.

 

12.4  No Group Company is a party to or bound by any Tax allocation or sharing agreement. No Group Company (i) has been a member of an Affiliated Group filing a consolidated Tax Return, or (ii) has any liability for the Taxes of any Person (other than any Group Company) as a result of any Group Company being part of or owned by, or ceasing to be party of or owned by, any affiliated, combined, consolidated, unitary or other similar group prior to the Closing, as a transferee or successor, by contract or otherwise.

 

Schedules and Exhibits

 

 

 

 

12.5  The unpaid Taxes of any Group Company (i) did not, as of the Latest Balance Sheet Date, exceed the reserve for Tax liability (rather than any reserve for deferred Taxes established to reflect timing differences between book and Tax income) set forth in the Financial Statements, and (ii) do not exceed that reserve as adjusted for the passage of time through the Closing Date in accordance with the past custom and practice of such Company in filing its Tax Returns. Since the Latest Balance Sheet Date, no Group Company has incurred any liability for Taxes arising from any transactions outside of the Ordinary Course.

 

12.6  No Group Company will be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing Date as a result of any (i) change in method of accounting for a taxable period ending on or prior to the Closing Date, (ii) agreement with any taxing authority executed on or prior to the Closing Date, (iii) installment sale or open transaction disposition made on or prior to the Closing Date, or (iv) prepaid amount received on or prior to the Closing Date.

 

12.7  No Group Company is resident for Tax purposes or has a branch, permanent establishment, agency of other taxable presence in any jurisdiction other than its jurisdiction of organization.

 

12.8  The prices and terms for the provision of any property or services undertaken by the Group Companies are arm’s length for purposes of the relevant transfer pricing laws, and all related material documentation required by such laws has been timely prepared or obtained and, if necessary, retained.

 

12.9  The Group Companies have complied in all material respects with all statutory provisions, rules, regulations, orders and directions in respect of any value added or similar Tax on consumption, has promptly submitted accurate returns, maintains full and accurate records, and has never been subject to any interest, forfeiture, surcharge or penalty and is not a member of a group or consolidation with any other company for the purposes of value added Taxation.

 

12.10  No Group Company has granted any power of attorney with respect to any matters related to Taxes that is currently in force.

 

12.11  Section 12.11 of the Disclosure Schedule contains details of any concession, agreements (including agreements for the deferred payment of any Tax liability) or other formal or informal arrangement with any taxation authority relating to the Group Companies.

 

12.12  All Tax credits (including without limitation Tax refunds and rebates) and Tax holidays enjoyed by any Group Companies established under the laws of the PRC under applicable laws since its establishment have been in compliance with all applicable laws and is not subject to reduction, revocation, cancellation or any other changes (including retroactive changes) in the future, except through change in applicable laws published by relevant Governmental Authority. Neither the Founder nor any Group Company has received any notice in relation to or is aware of any event that may result in repeal, cancellation, revocation, or return of any such Tax credits or Tax holidays.

 

Schedules and Exhibits

 

 

 

 

12.13  No Group Company has been a party to or otherwise knowingly involved in any transaction or series of transactions which, or any part of which, is intended to avoid, or unlawfully reduce or delay any Tax, including but not limited to using or presenting any invalid, untrue or false invoices or receipts to claim for deduction of business expenses for Tax purposes.

 

12.14  No Group Company is or ever has been a “passive foreign investment company” within the meaning of Code Section 1297(a) or a “controlled foreign corporation” within the meaning of Code Section 957(a). No Group Company holds, or at any time has held, a “United States real property interest” within the meaning of Code Section 897(c) (1). No Group Company has, or at any time has had, an investment in “United States property” within the meaning of Code Section 956(b). No Group Company is, or any time has been, engaged in the conduct of a trade or business within the United States within the meaning of Code Section 864(b), 882(a) or 887(b).

 

13.Contracts and Commitments

 

13.1  Except as expressly contemplated by the Transaction Documents, no Group Company is a party to or bound by any of the following written or oral Contracts (the “Material Contracts”) other than the Material Contracts listed in Section 13.1 of the Disclosure Schedule:

 

(a)    any Contract involving payment obligations (contingent or otherwise) in excess of RMB200,000 individually or in the aggregate per annum;

 

(b)    any Contract relating to the sale, issuance, grant, exercise, award, purchase, repurchase or redemption of any Equity Security;

 

(c)     any Contract requiring the consent of any party thereto upon a change in control of any Group Company, containing any provision which could result in a modification of any rights or obligations of any party thereunder upon a change in control of any Group Company or which would provide any party any remedy (including rescission or liquidated damages) in the event of a change in control of any Group Company;

 

(d)    any Contract involving the lease, license, sale, use, disposition or acquisition of a material amount of assets or of a material business (other than in the Ordinary Course);

 

Schedules and Exhibits

 

 

 

 

(e)    any Contract involving the waiver, compromise, or settlement of any material Legal Proceeding;

 

(f)      any Contract involving the ownership or lease of, title to, use of, or any leasehold or other interest in any real property;

 

(g)    any Contract under which such Group Company is obligated or will become obligated to make any severance payment or bonus compensation payment by reason of the Transaction Documents or the consummation of the transactions contemplated hereunder;

 

(h)    any Contract under which such Group Company has advanced or loaned monies to any other Person or otherwise agreed to advance, loan or invest any funds other than any disbursement in the Ordinary Course;

 

(i)      any Contract for Indebtedness, pledging or otherwise placing of a Lien on any asset or group of assets of the Group or any material letter of credit arrangements;

 

(j)      any Contract for the license of any Intellectual Property Rights of any Group Company;

 

(k)     any Contract pursuant to which such Group Company has granted a power of attorney, agency or similar authority to a third party other than in the Ordinary Course;

 

(l)      any Contract prohibiting such Group Company from freely engaging in any business or competing anywhere in the world;

 

(m)   any Contract involving the establishment, contribution to, or operation of a partnership, joint venture, franchise or involving a sharing of profits or losses, or any investment in, loan to or acquisition or sale of the securities, equity interests or assets of any Person;

 

(n)    any Contract with a governmental entity;

 

(o)    Contract involving any Affiliate Transactions (except for the Restructuring Documents); or

 

(p)    Contract which contains restrictions with respect to payment of dividends or any other distribution in respect of its Share Capital, partnership interests or membership interests.

 

Schedules and Exhibits

 

 

 

 

13.2  Section 13.1 of the Disclosure Schedule contains a true and complete list of all the Material Contracts. Unless otherwise specified in the Disclosure Schedule, the Material Contracts set forth on Section 13.1 of the Disclosure Schedule are valid, binding and enforceable in accordance with their respective terms and shall be in full force and effect without penalty in accordance with their terms upon consummation of the transactions contemplated hereby. Each Group Company has substantially performed all obligations required to be performed by it under such Contracts and is not in material default under or in material breach of, nor in receipt of any claim of default or breach under, any Contract to which such Group Company is subject; to the knowledge of the Company, no event has occurred which it is foreseeable with the passage of time or the giving of notice or both could result in a default, breach or event of noncompliance by any Group Company under any Contract to which any Group Company is subject; no Group Company has a present expectation or intention of not fully performing all such obligations on a timely basis; no Warrantors has any knowledge of any breach or anticipated breach by the other parties to any Contract to which any Group Company is a party; and no Group Company is a party to any Contract that might reasonably be expected to have a Material Adverse Effect.

 

13.3  The Purchaser has been supplied with or provided access to a true and correct copy of each of the written Material Contracts set forth on Section 13.1 of the Disclosure Schedule, together with all amendments, waivers or other changes thereto.

 

14.Intellectual Property Rights and IT Infrastructure

 

14.1  Section 14.1 of the Disclosure Schedule contains a true, complete and correct list of all of the following that are owned by the Group Companies: (i) patented or registered Intellectual Property Rights, (ii) pending patent applications and applications for registration of other Intellectual Property Rights, (iii) computer software material to the conduct of the business of the Group Companies, (iv) trade or corporate names and internet domain names, and (v) material unregistered trademarks and service marks (the “Company Intellectual Property Rights”).

 

14.2  The Group Companies own all right, title and interest in and to, or have the right to use pursuant to a valid and enforceable license set forth on Section 14.1 of the Disclosure Schedule, free and clear of all Encumbrance, all Intellectual Property Rights used in or held for use or necessary to operate the business of any Group Company as currently conducted and as currently proposed to be conducted. The registered Company Intellectual Property Rights owned by the Group Companies are valid, enforceable and subsisting, and no loss, other than by expiration of patents at the end of their respective statutory terms, of any of the Company Intellectual Property Rights is threatened or pending. Unless otherwise specified in the Disclosure Schedule, the licenses set forth on Section 14.1 of the Disclosure Schedule are in full force and effect and no default exists on the part of any Group Company or, to the knowledge of the Company, on the part of any other parties thereto. All commercially reasonable, customary or necessary action, including the payment of all fees and taxes (to the extent applicable), have been taken to maintain and protect the Intellectual Property Rights.

 

Schedules and Exhibits

 

 

 

 

14.3  (i) There are no claims against any Group Company that were either made or are presently pending contesting the validity, use, enforceability, ownership or registrability of any of the Company Intellectual Property Rights owned by any Group Company, and to the knowledge of the Company, there is no reasonable basis for any such claim, (ii) no Group Company has infringed, misappropriated or otherwise conflicted with, and the operation of the business of any Group Company as currently conducted does not infringe, misappropriate or otherwise conflict with, any Intellectual Property Rights of any other Persons and no Group Company has any knowledge of any facts or circumstances that indicate a likelihood of the foregoing, (iii) no Warrantors has received any notices (including cease-and-desist letters or offers to license) alleging infringement or misappropriation of, or other conflict with, any Intellectual Property Rights of any other Person, no other Person is infringing, misappropriating or otherwise conflicting with any of the Company Intellectual Property Rights. The transactions contemplated by this Agreement will not impair the right, title or interest of any Group Company in and to the Company Intellectual Property Rights, and all of the Company Intellectual Property Rights will be owned or available for use by the Group Companies immediately after the Closing on terms and conditions identical to those under which the Group Companies owned or used the Company Intellectual Property Rights immediately prior to the Closing. To the knowledge of Company, no current or former employee, consultant, director or officer of any Group Company has disclosed to any third party or otherwise used any confidential information of such Group Company except in the course of their employment or engagement with such Group Company and at the direction of such Group Company.

 

14.4  The Group Companies own all right, title and interest in and to the Intellectual Property Rights authored, developed or otherwise created by each current and former employee, consultant, director and officer of the Group Companies, without any restrictions or obligations owed to such employee, consultant or officer with respect to such Group Company’s use or ownership of such Intellectual Property Rights. Without limiting the generality of the foregoing sentence, all author’s and moral rights in any such Intellectual Property Rights have been waived.

 

14.5  The Group Companies are in compliance in all material respects with (i) all applicable data protection or privacy laws governing the collection or use of personal information and (ii) any privacy policies or related policies, programs or other notices that concern any Group Company’s collection or use of personal information.

 

Schedules and Exhibits

 

 

 

 

15.Government Licenses and Permits

 

All permits, licenses, franchises, certificates (excluding good standing certificates), approvals, registrations, accreditations and other authorizations of domestic and foreign governments or agencies or other similar rights owned, possessed or used by the Group Companies in the conduct of their business and the ownership of their properties (collectively, the “Licenses”) are in full force and effect and contain no materially burdensome restrictions or conditions and will remain in full force and effect without such restrictions or conditions following the consummation of the transactions contemplated by this Agreement. The Licenses constitute all permits, licenses, franchises, certificates, approvals, registrations, accreditations and other authorizations necessary for the conduct of the business of the Group Companies. To the knowledge of the Company, no regulatory body is considering modifying, suspending or revoking any of the Licenses. Each Group Company is in compliance with the terms and conditions of the Licenses in all material respects and has received no notices that it is in violation of any of the terms or conditions of such Licenses or alleging the failure to hold or obtain any permit, license, franchise, certificate, approval or authorization. Each Group Company has taken all necessary action to maintain valid such Licenses. No loss, termination, expiration or revocation of any License is pending or to the knowledge of the Company, threatened, other than expiration in accordance with the terms thereof and all of such Licenses shall be owned or available for use by the any Group Company on substantially identical terms immediately following the Closing.

 

16.Litigation, etc.

 

There are no Legal Proceedings pending or threatened against or affecting any Group Company or any assets any Group Company (or pending or threatened against or affecting any of the officers, directors, members, partners, managers or employees of any Group Company with respect to his, her or its business or proposed business activities), or pending or threatened by any Group Company against any third party, at law or in equity, or before or by any governmental department, commission, board, bureau, agency or instrumentality (including, without limitation, any actions, suits, proceedings or investigations with respect to the transactions contemplated by this Agreement); no Group Company is subject to any arbitration proceedings under collective bargaining agreements or otherwise or any governmental investigations or inquiries; and there is no basis for any of the foregoing. The foregoing includes, without limitation, actions pending or threatened involving the prior employment of any employee of any Group Company, the Group Companies’ use in connection with their respective businesses of any information or techniques allegedly proprietary to any such employee’s former employers or such employee’s obligations under any agreements with former employers. The Group Companies are fully insured with respect to each of the matters set forth on Section 16 of the Disclosure Schedule. No Group Company or its assets are subject to any judgment, order or decree of any court or other governmental agency, and no Warrantor has received any opinion or memorandum or legal advice from legal counsel to the effect that the any Group Company is exposed, from a legal standpoint, to any liability which may be material to any business of such Group Company.

 

17.Brokerage

 

There are no claims for brokerage commissions, finders’ fees or similar compensation in connection with the transactions contemplated by this Agreement based on any arrangement or agreement binding upon any Group Companies or Founder.

 

Schedules and Exhibits

 

 

 

 

18.Insurance

 

Section 18 of the Disclosure Schedule contains a description of all insurance policies maintained by any Group Company with respect to its properties, assets or business. Each such insurance policy (i) is legal, valid, binding and enforceable and in full force and effect and (ii) (subject to its insurance period) will continue to be legal, valid, binding, enforceable, and in full force and effect on identical terms following the consummation of the transactions contemplated by this Agreement. No Group Company is in default with respect to its obligations under any insurance policy maintained by it and has not been denied insurance coverage. Section 18 of the Disclosure Schedule also sets forth a list of all claims, if any, made by any Group Company against an insurer in respect of coverage under an insurance policy, and unless otherwise provided in the Disclosure Schedule, there have been neither denials of claims nor reservation of rights letters with regard to such claims. No Group Company has any self-insurance or co-insurance programs, and the reserves set forth in the Financial Statements are adequate to cover all of the Group Companies’ anticipated liabilities with respect to any such self-insurance or co-insurance programs.

 

19.Employees

 

19.1   To the knowledge of the Company, neither any executive nor any Key Employee or any group of employees has any plans to terminate his or her employment with such Group Company.

 

19.2   Each Group Company has complied in all material respects with all laws relating to the employment of labor (including, without limitation, provisions thereof relating to wages, hours, equal opportunity, collective bargaining and the payment of social welfare benefits and the payment or withholding of payroll or similar taxes for employees, or any other applicable law or regulation concerning the employees of any Group Company); no Group Company has failed to contribute or make payment to pension insurance, occupational injury insurance, medical insurance, maternity insurance, unemployment insurance, the social insurance premiums, housing funds or other statutory welfare funds for the benefit of each of its employees in full and on time as required by applicable law; and no Warrantor is aware of any present or threatened, or has ever experienced any historical, labor relations problems (including, without limitation, any union organization activities, threatened or actual strikes or work stoppages or material grievances).

 

19.3  Neither any Group Company nor, to the knowledge of the Company, any Employee is subject to any non-compete, nondisclosure, confidentiality, employment, consulting or similar agreements relating to, affecting or in conflict with the present or proposed business activities of any Group Company. Neither any Group Company nor the Seller has received any notice alleging that any violation of any such agreements has occurred. No current employee or consultant of any Group Company has excluded works or inventions made prior to his or her employment with such Group Company from any Inventions Agreement between such Group Company and such Person.

 

Schedules and Exhibits

 

 

 

 

20.Employee Benefits Matters

 

20.1  Section 20.1 of the Disclosure Schedule sets forth an accurate and complete list of each employee benefit plan, program or arrangement at any time maintained, sponsored or contributed to by any Group Company. Each such item listed on Section 20.1 of the Disclosure Schedule is referred to herein as a “Plan” and collectively as the “Plans”.

 

20.2  There are no pending or threatened actions, suits, investigations or claims with respect to any Plan (other than routine claims for benefits) which could result in material liability to any Group Company.

 

20.3  Each of the Plans and all related trusts, insurance contracts and funds have been maintained, funded and administered in compliance with their terms and in compliance with the applicable laws. With respect to each Plan, all required payments, premiums, contributions, distributions and reimbursements for all periods ending prior to or as of the Closing Date have been made or properly accrued.

 

20.4  Each Plan which is subject to health care continuation requirements has been administered in compliance with such requirements. No Plan provides medical or life or other welfare benefits to any current or future retired or terminated employee (or any dependent thereof) of any Group Company other than as required pursuant to applicable laws.

 

20.5  With respect to each Plan, the Warrantors has provided the Purchaser with true, complete and correct copies of (to the extent applicable) all documents pursuant to which the Plan is maintained, funded and administered (including the Plan and trust documents, any amendments thereto, the summary Plan descriptions and any insurance contracts or service provider agreements).

 

21.Compliance with Laws

 

21.1  No Group Company or the Founder has violated any law, ordinance, code, rule or any governmental regulations, rules, circulars, notices or requirements relating to the operation of its respective business, the maintenance and operation of its properties and assets and the payment of any dividend or other distribution in respect of any equity interest of any Group Company (including applicable laws of the United States such as the FCPA, U.S. Bank Secrecy Act, and applicable laws, regulations, rules, circulars or notices of the PRC such as applicable SAFE Rules and Regulations, and no Warrantor has received any notice of, and no claims have been filed, against any Group Company alleging any such violation. To the knowledge of the Company, no Group Company has sold, or facilitated the sale of, any products or goods that infringe any Person’s Intellectual Property Rights or in connection with which Tax (including custom duties) has not been paid in accordance with applicable laws.

 

Schedules and Exhibits

 

 

 

 

21.2  Neither any Group Company nor any of its respective Affiliates, directors, officers, employees, or agents has taken any act that will cause the Purchaser or any of its Affiliates (including, after the Closing, the Company) to violate the FCPA or any applicable anti-corruption law. Without limiting the generality of the foregoing, neither any Group Company nor any director, officer, agent, employee, or any other Person associated with or acting for or on behalf of the foregoing, has offered, paid, promised to pay, or authorized the payment of any money or corporate fraud, or offered, given a promise to give, or authorized the giving of anything of value, to any government official, to any political party or official thereof or to any candidate for political office for any unlawful contribution, gift, entertainment or other unlawful expenses relating to a political activity, or for the purpose of (i) (A) influencing any act or decision of such government official, political party, party official, or candidate in his or its official capacity, (B) inducing such government official, political party, party official or candidate to do or omit to do any act in violation of the lawful duty of such government official, political party, party official or candidate, or (C) securing any improper advantage, or (ii) inducing such government official, political party, party official, or candidate to use his or its influence with any Governmental Authority to affect or influence any act or decision of such Governmental Authority, in order to assist such Person in obtaining or retaining business for or with, or directing business to any Group Company.

 

21.3 Neither any Group Company nor any of its respective Affiliates, directors, officers, employees, representatives, or agents is currently a Non-U.S. Official. Further, as of the date of execution of this Agreement, no Non-U.S. Official or any agency, department, political party, public international organization, or instrumentality thereof is associated with, or presently owns an interest, whether direct or indirect, in any Group Company or has any legal or beneficial interest in any such Person or the payments to be made by the Purchaser hereunder.

 

21.4 Neither any Group Company nor any of its respective Affiliates, directors, officers, employees, representatives, or agents nor any person acting on behalf of any of the foregoing, has made a promise to make anything of value (“Payment”) (i) to or for the use or benefit of any Non-U.S. Official; (ii) to any other person either for an advance or reimbursement, if it knows or has reason to know that any part of such Payment will be directly or indirectly given or paid by such other person, or will reimburse such other person for Payments previously made, to any Non-U.S. Official; or (iii) to any other person or entity, the payment of which would violate, or implicate any of the Purchaser or its Affiliates in the violation of, the laws or regulations of the United States or any other governmental entity having jurisdiction over the activities being carried out by the Purchaser.

 

Schedules and Exhibits

 

 

 

 

21.5  Each Group Company has effective disclosure controls and procedures and an internal accounting controls system that is sufficient to provide reasonable assurances that violations of applicable anti-corruption laws have been and will be prevented, detected and deterred.

 

21.6  No Group Company (nor any Person on behalf of any Group Company) has at any time made any payments for political contributions or made any bribes, kickback payments or other illegal payments.

 

21.7   No part of the funds used by any Group Company or its Affiliates have been or will be, directly or indirectly derived from, or related to, any activity that contravenes domestic or applicable international laws and regulations, including anti money laundering laws and regulations, or would cause the Purchaser or any of its Affiliates (including, after the Closing, the Company) to be in violation of any anti-money laundering or other laws in any jurisdiction, including the United States. No payment by any of the parties hereunder (whether pursuant to their indemnification obligations or otherwise) shall cause the Purchaser or any of its Affiliates (including, after the Closing, the Company) to be in violation of any anti money laundering laws and regulations of the PRC, the United States or any other relevant jurisdiction applicable to its business or operations.

 

22.Affiliate Transactions

 

22.1  Except those between the members of the Group Companies, no employee, officer, director, or Affiliate of the Group Companies, or any Person in the Family Group of any of the foregoing (each, a “Company Affiliate”) (i) is a party to any agreement, contract, commitment, arrangement, or transaction with any Group Company or that pertains to the business of the Group Companies other than any employment, non-competition, confidentiality or other similar agreements between any Group Company and any Person who is an officer, director or employee of the Group Companies (each, an “Affiliate Agreement”); or (ii) owns, leases, or has any economic or other interest in any asset, tangible or intangible, that is used by any Group Company in carrying out its business (together with the Affiliate Agreements, collectively the “Affiliate Transactions”).

 

22.2  As of the Closing, except those between the members of the Group Companies and except as set forth under the Transaction Documents, there will be no outstanding or unsatisfied obligations of any kind (including inter-company accounts, notes, guarantees, loans, or advances) between any Group Company, on the one hand, and a Company Affiliate on the other hand, except to the extent arising out of the post-Closing performance of an Affiliate Agreement that is in writing and is set forth on Section 22.2 of the Disclosure Schedule (and a true, complete and correct copy of which has been provided to the Purchaser). With respect to any Affiliate Agreement set forth on Section 22.2 of the Disclosure Schedule, (i) the terms and conditions of any such Affiliate Agreement are no less favorable to any Group Company than could have been obtained from an unrelated third party, and (ii) such Affiliate Agreement was negotiated and entered into on an arms-length, commercially reasonable basis.

 

Schedules and Exhibits

 

 

 

 

23.Suppliers and Customers

 

Section 23 of the Disclosure Schedule accurately sets forth a list of the top ten logistics service provider of the Company by U.S.$ or RMB (or other applicable currency) volume for the past twelve months ending April 30, 2019. No material supplier, vendor or service provider of any Group Company (including, without limitation, any supplier, vendor or service provider referenced above) has given notice to the Warrantors that it intends to stop or materially decrease the rate of, or materially and adversely change the terms (whether related to payment, price or otherwise) with respect to, paying any commissions to such Group Company or supplying materials, products or services to such Group Company (whether as a result of the transactions contemplated by this Agreement or otherwise). No material customer of any Group Company (including, without limitation, any customer referenced above) has given the Warrantors notice that it intends to stop or materially decrease the rate of, buying services, materials or products from such Group Company (whether as a result of the transactions contemplated by this Agreement or otherwise).To the knowledge of the Company, the consummation by each Group Company of the transactions contemplated by this Agreement will not adversely affect the relationship of the Group Companies with any of such customers and suppliers.

 

24.Officers and Directors; Bank Accounts

 

Section 24 of the Disclosure Schedule lists all directors of the Group Companies immediately prior to the Closing.

 

25.Privacy and Security

 

25.1  Without limiting the generality of Section 25.1, each Group Company (i) has taken commercially reasonable steps to prevent the violation by any Group Company of the rights of any person or entity with respect to Personally Identifiable Information provided under applicable laws, including PRC, U.S. and state laws, rules and regulations, including all rights respecting (x) privacy generally, (y) the obtaining, storing, using or transmitting of Personally Identifiable Information of any type, whether via electronic means or otherwise, and (z) spyware and adware (clauses (x)-(z), including, without limitation, as “Privacy Rights”) and (ii) complies in all material respects with applicable governing industry standards and such Group Company’s policy in effect as of the date hereof. For purposes of this Agreement, the term “Personally Identifiable Information” means data in control of any Group Company that would enable such Group Company to identify or locate a particular person, including but not limited to name, address, telephone number, electronic mail address, personal identification number, social security number, bank account number or credit card number; provided, however, that data shall not be Personally Identifiable Information for purposes of this Agreement if no Group Company (x) intentionally collects or intentionally receives any such data or (y) actually uses any such data to identify the identity or location of, or identify or locate, a particular person as a result of any receipt of such data.

 

Schedules and Exhibits

 

 

 

 

25.2  Each Group Company: (i) takes commercially reasonable steps to protect the confidentiality, integrity and security of their software, databases, systems, networks and Internet sites and all information stored or contained therein or transmitted thereby from unauthorized or improper access, modification, transmittal or use; and (ii) does not intentionally use, collect or receive any of the following types of Personally Identifiable Information about individuals for purpose not in the Ordinary Course (other than personnel records for their own employees maintained in the Ordinary Course and in compliance with all applicable laws): social security numbers or credit card numbers.

 

26.Disclosure

 

Neither this Agreement nor any of the exhibits, schedules, attachments, written statements, documents, certificates or other items prepared and supplied to the Purchaser by or on behalf of the Group Companies with respect to the transactions contemplated hereby contain any untrue statement of a material fact or omit a material fact necessary to make any statement contained herein or therein not misleading. There is no fact which the Group Companies have not disclosed to the Purchaser in writing and of which any of the Group Companies or their respective officers, directors or executive employees is aware, which has had or could reasonably be expected to have a Material Adverse Effect.

 

Schedules and Exhibits

 

 

 

 

EXHIBIT D

DISCLOSURE SCHEDULE

 

Schedules and Exhibits

 

 

 

 

EXHIBIT E

RESTRUCTURING DOCUMENTS

 

Schedules and Exhibits

 

 

 

Exhibit 8.1

 

 

List of subsidiaries and affiliated entities of the Registrant

  

Subsidiaries

 

Place of Incorporation

 

Ownership Interest

         
TuanChe Information Limited   Hong Kong   100%
         
TuanYuan Internet Technology (Beijing) Co., Ltd.   PRC   100%
         
Longye International Limited   Cayman Islands   100%
         
Long Ye Information Technology Limited   Hong Kong   100%
         
 Beijing Sangu Maolu Information Technology Co., Ltd.   PRC   100%
         

Major VIEs

 

Place of Incorporation

 

Ownership Interest

         
TuanChe Internet Information Service (Beijing) Co., Ltd.   PRC   100%
         
Best Cars Limited   British Virgin Islands   100%
         
Shenzhen Drive New Media Co., Ltd.   PRC   100%
         
Beijing Internet Drive Technology Co., Ltd.   PRC   100%
         

Major subsidiaries of VIEs

 

Place of Incorporation

 

Ownership Interest

         
Beijing Zhongrui Guochuang Automobile Sales & Service Co., Ltd.*   PRC   100%
         
TuanChe (Beijing) Automobile Sales & Service Co., Ltd.   PRC   100
         
Beijing GuoHeng Chuangxin Automobile Sales & Service Co., Ltd.   PRC   100%
         
Tengzhou GuoChuang Automobile Sales & Service Co., Ltd.   PRC   100%
         
Tianjin Hengyuan Chuangxin Automobile Sales Co., Ltd.   PRC   100%

 

   

 

* On June 22, 2018, Zhongrui Guochuang was restructured from being a VIE of TuanYuan to a subsidiary of TuanChe Internet.

 

 

 

 

 

Exhibit 12.1

Certification by the Principal Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

I, Wei Wen, certify that:

 

1.I have reviewed this annual report on Form 20-F of TuanChe Limited;

 

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

 

4.

The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:

 

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b.

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c.Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d.Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

 

5.The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

 

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

 

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

 

Date: May 18, 2020  
     
By: /s/ Wei Wen  
Name: Wei Wen  
Title: Chief Executive Officer  

 

 

Exhibit 12.2

 

Certification by the Principal Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

I, Zhihai Mao, certify that:

 

1.I have reviewed this annual report on Form 20-F of TuanChe Limited;

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

 

4.

The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:

 

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b.

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c.Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d.Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

 

5.The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

 

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

 

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

 

Date: May 18, 2020  
     
By: /s/ Zhihai Mao  
Name: Zhihai Mao  
Title: Chief Financial Officer  

 

 

 

Exhibit 13.1

 

Certification by the Principal Executive Officer

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

In connection with the Annual Report of TuanChe Limited (the “Company”) on Form 20-F for the year ended December 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Wei Wen, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

 

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: May 18, 2020

 

By: /s/ Wei Wen  
Name: Wei Wen  
Title: Chief Executive Officer  

 

 

 

Exhibit 13.2

 

Certification by the Principal Financial Officer

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

In connection with the Annual Report of TuanChe Limited (the “Company”) on Form 20-F for the year ended December 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Zhihai Mao, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

 

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: May 18, 2020

 

By: /s/ Zhihai Mao  
Name: Zhihai Mao  
Title: Chief Financial Officer  

 

 

 

Exhibit 15.1

 

 

 

 

 

 

May 18, 2020

 

To:TuanChe Limited (the “Company”)

 

9F, Ruihai Building, No. 21 Yangfangdian Road

 

Haidian District, Beijing 100038

 

People’s Republic of China

 

 

 

Ladies and Gentlemen:

 

We hereby consent to the reference of our name under the headings “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure” and “Item 4. Information on the Company—C. Organizational Structure” in the Company’s annual report on Form 20-F for the year ended December 31, 2019 (the “Annual Report”), which will be filed with the Securities and Exchange Commission (the “SEC”) in the month of May 2020. We also consent to the filing of this consent letter with the SEC as an exhibit to the Annual Report.

 

In giving such consent, we do not thereby admit that we come within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, or under the Securities Exchange Act of 1934, in each case, as amended, or the regulations promulgated thereunder.

 

 

 

Yours faithfully,

 

 

 

 

/s/ SHIHUI PARTENRS

 

 

 

 

Exhibit 15.2

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-230433) of TuanChe Limited of our report dated May 18, 2020 relating to the financial statements, which appears in this Form 20-F.

 

 

/s/PricewaterhouseCoopers Zhong Tian LLP

Beijing, the People’s Republic of China

May 18, 2020

 

 

 

v3.20.1
Restricted Net Assets
12 Months Ended
Dec. 31, 2019
Restricted Net Assets  
Restricted Net Assets

22.  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, VIEs and subsidiaries of VIEs 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 10% of net after-tax income should be set aside prior to payment of any dividends. As a result of these and other restrictions under PRC laws and regulations, the PRC subsidiaries, VIEs and subsidiaries of VIEs are restricted in their ability to transfer a portion of their net assets to the Company either in the form of dividends, loans or advances, which restricted portion amounted to approximately RMB139.9 million and RMB 183.0 million as of December 31, 2018 and December 31, 2019 respectively. Even though the Company currently does not require any such dividends, loans or advances from the PRC subsidiaries, VIEs and subsidiaries of VIEs for working capital and other funding purposes, the Company may in the future require additional cash resources from its PRC subsidiaries, VIEs and subsidiaries of VIEs due to changes in business conditions, to fund future acquisitions and developments, or merely declare and pay dividends to or distributions to the Company’s shareholders.

 

The Company performed a test on the restricted net assets of its consolidated subsidiaries and VIEs in accordance with Securities and Exchange Commission Regulation S-X Rule 4-08 (e)(3), “General Notes to the Financial Statements” and concluded that it was applicable for the Company to disclose the condensed financial information for the parent company (Note 23) for the years ended December 31, 2017, 2018 and 2019. For the purposes of presenting parent only financial information, the Company records its investments in its subsidiaries and VIEs under the equity method of accounting. Such investments are presented on the separate condensed balance sheets of the Company as “Investments in subsidiaries, VIEs and subsidiaries of VIEs” and subsidiaries of VIEs’ loss are presented as “Equity in loss of subsidiaries, VIEs and subsidiaries of VIEs” on the Condensed statements of operations and comprehensive loss.

v3.20.1
Related party transactions
12 Months Ended
Dec. 31, 2019
Related party transactions  
Related party transactions

18.  Related party transactions

In 2017, the Group granted an interest free loan amounted to RMB1.0 million to Mr. Xingyu Du, Vice President of administration. The loan was fully repaid by Mr. Xingyu Du in July 2018.

In 2018, the Group granted an interest free loan amounted to RMB1.0 million to Mr. Wei Wen, Chairman of the Board of Directors and CEO of the Company. The loan was fully repaid by Mr. Wei Wen in August 2018.

In 2018, the Group granted an interest free loan amounted to RMB0.8 million to Mr. Xingyu Du, Vice President of administration. The loan was fully repaid by Mr. Xingyu Du in August 2018.

In 2018, the Group granted an interest free loan amounted to RMB1.0 million to Mr. Wei Wen, Chairman of the Board of Directors and CEO of the Company. The loan was fully repaid by Mr. Wei Wen in October 2018.

v3.20.1
Share-based Compensation
12 Months Ended
Dec. 31, 2019
Share-based Compensation.  
Share-based Compensation

14.  Share-based Compensation

(a)  Description of stock option plan

In July 2012, the Group permits the grant of options of the Company to relevant directors, officers, other employees and consultants of the Company. Option awards are granted with an exercise price determined by the Board of Directors. Those option awards generally vest over a period of four years.

The Group recognizes share-based compensation expenses in the consolidated statements of operations and comprehensive loss based on awards ultimately expected to vest, after considering actual forfeitures.

The Company has replaced these share options with restricted shares for all employees and non-employees on June 15, 2018 (Note 14(d)).

(b)  Valuation assumptions

The Group historically uses binomial option pricing model to determine fair value of the share-based awards. The estimated fair value of each option granted is estimated on the date of grant using the binomial option-pricing model with the following assumptions:

 

 

 

 

 

 

 

 

 

 

    

2017

    

2018

    

2019

 

Expected volatility

 

57.90%‑59.70

%  

57.30

%  

Not applicable

 

Weighted average volatility

 

58.44

%  

57.30

%  

Not applicable

 

Expected dividends

 

 -

 

 -

 

Not applicable

 

Risk-free rate

 

2.60%‑3.18

%  

3.10

%  

Not applicable

 

Contractual term (in years)

 

10

 

10

 

Not applicable

 

Enterprise value

 

US$0.32‑US$0.65

 

US$0.65

 

Not applicable

 

 

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 capital stock, and the Group does not anticipate any dividend payments in the foreseeable future. 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 Bond with maturity of ten years as of the valuation date, plus country default risk spread between United States and China.

(c)  Share options activities

The following table presents a summary of the Company’s options activities for the years ended December 31, 2017, 2018 and 2019.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

    

 

    

Weighted average

    

Remaining

    

Aggregated

 

    

Employees

    

Consultants

    

Total

    

exercise price

    

contractual life

    

intrinsic value

 

 

(in thousands)

 

(in thousands)

 

(in thousands)

 

US$

 

 

 

RMB

Outstanding at January 1, 2017

 

18,892

 

1,637

 

20,529

 

0.43

 

1.39

 

9,975

Granted

 

60

 

 -

 

60

 

0.42

 

 -

 

 -

Exercised

 

 -

 

 -

 

 -

 

 -

 

 -

 

 -

Forfeited

 

(1,877)

 

 -

 

(1,877)

 

0.94

 

 -

 

 -

Outstanding at December 31, 2017

 

17,075

 

1,637

 

18,712

 

0.37

 

0.72

 

8,951

Granted

 

205

 

 -

 

205

 

1.00

 

 -

 

 -

Exercised

 

 -

 

 -

 

 -

 

 -

 

 -

 

 -

Forfeited

 

(3,443)

 

 -

 

(3,443)

 

0.12

 

 -

 

 -

Replaced by restricted shares

 

(13,837)

 

(1,637)

 

(15,474)

 

(0.43)

 

 -

 

 -

Outstanding at December 31, 2018 and 2019

 

 -

 

 -

 

 -

 

 -

 

 -

 

 -

Exercisable as of December 31, 2017

 

10,606

 

1,424

 

12,030

 

0.28

 

0.39

 

5,293

Exercisable as of December 31, 2018 and 2019

 

 -

 

 -

 

 -

 

 -

 

 -

 

 -

 

The weighted average grant date fair value of options granted for the years ended December 31, 2017 and 2018 was RMB0.4851 and RMB1.8692 per option, respectively.

No options were exercised for the years ended December 31, 2018 and 2019.

(d)  Share option replacement

In June 2018, the directors of the Company (the “Directors”) approved the TuanChe Limited Share Incentive Plan (the “Share Incentive Plan”). Under the Share Incentive Plan, 38,723,321 ordinary shares were issued to Best Cars which is a VIE of the Company for the restricted share awards at consideration of nil. Meanwhile, the incentive share options granted to employees and non-employees of the Company shall be replaced by the restricted shares. As a result of the Share Incentive Plan, on June 15, 2018, a total of 15,473,653 share options of the Company were replaced by 13,740,480 restricted shares. 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 1) modification. The Company has recognized the portion of incremental value of RMB10.7 million as expenses immediately for those vested share options; the portion of the incremental value of RMB3.7 million as the result of the replacement for unvested share options will be recognized as expenses over the remaining vesting periods of 1 to 4 years.

For years ended December 31, 2018 and 2019, the Company has granted 24,407,184 (including the abovementioned 13,740,480 restricted shares granted to replace the 15,473,653 share options on June 15, 2018) and 11,527,950 restricted shares to its employees. The total fair value of RMB109.0 million and RMB112.6 million for those granted restricted shares will be recognized as expenses over the vesting periods of nil to 4 years.

A summary of the restricted shares activities is presented below:

 

 

 

 

 

 

 

 

Number of restricted

 

Weighted-Average 

 

    

 shares

    

Grant-Date Fair Value

 

 

 

 

US$

Outstanding as of January 1, 2018

 

 -

 

 -

Granted

 

24,407,184

 

1.595

Vested

 

(12,917,926)

 

1.595

Outstanding as of December 31, 2018

 

11,489,258

 

1.595

Granted

 

11,527,950

 

1.440

Forfeit

 

(733,764)

 

1.593

Vested

 

(13,070,570)

 

1.623

Outstanding as of December 31, 2019

 

9,212,874

 

1.364

 

For the year ended December 31, 2018, total share-based compensation expenses recognized by the Group for the share options and restricted shares granted were RMB0.6million and RMB71.2million, respectively. For the year ended December 31, 2019, total share-based compensation expenses recognized by the Group for the restricted shares granted were RMB110.0 million.

As of December 31, 2018 and 2019, there were RMB77.0 million and RMB79.5 million of unrecognized share-based compensation expenses related to the restricted shares granted. That expenses are expected to be recognized over a weighted-average period of 2.54 years.

(e)   Super voting right

On June 13, 2018, the Company changed its capital structure to re-designate its ordinary shares into Class A ordinary shares and Class B ordinary shares. The effect of this re-designation has been accounted for retroactively for all periods presented. Mr. Wei Wen, Chairman of the Board of Directors and CEO of the Company holds Class B ordinary shares through his British Virgin Islands (“BVI”) company and each Class B ordinary share carries fifteen (15) votes at meetings of shareholders. Upon further transfer of Class B ordinary shares by Mr. Wei Wen to anyone, such Class B ordinary shares will automatically convert into an equal number of Class A ordinary shares.

The grant of the super voting right was authorized by the Board of Directors on June 13, 2018. There are no additional vesting conditions attached to the grant. Accordingly, the Company recognized the incremental value of RMB4.7 million of Class B ordinary shares in general and administrative expenses as share based compensation on the grant date.

(f)  Transfer of ordinary shares

On September 29, 2018, the Class A ordinary share holder of the Company, First Aqua Inc., entered into a share transfer agreement with ACEE Capital Ltd., the Series D‑1 preferred share holder of the Company, to transfer 521,962 Class A Ordinary Shares to ACEE Capital Ltd., for an aggregate selling price of US$1.1 million. The transfer of Class A ordinary shares was authorized by the Board of Directors on September 28, 2018. Accordingly, the Company recognized the incremental value of RMB1.7 million between the consideration and the fair value of 521,962 Class A ordinary shares in general and administrative expenses as share based compensation on the transfer date.

(g) Repurchase of restricted shares from employees

On June 17, 2019, the Company repurchased and reserved 6,358,500 vested restricted shares held by certain employees at the price of US$0.75 per share (US$3.00 per ADSs). The total consideration of US$4.8 million did not exceeded the fair value of the vested restricted shares at repurchase date, the repurchase of restricted shares has been accounted for under the cost method and presented as “treasury stock” in equity on the Group’s consolidated balance sheet without any additional compensation cost incurred.

The Company concluded repurchase of restricted shares from employees was an isolated case that was not considered as frequent, and the likelihood to recur is remote. Since there is no repurchase obligation in the Company’s Share Incentive Plan, the Company’s such repurchase action does not prevent the awards from being equity-classified.

v3.20.1
Additional Information - Condensed Financial Statements of the Parent Company - Condensed statements of operations and comprehensive loss (Details)
¥ in Thousands, $ in Thousands
12 Months Ended
Dec. 31, 2019
USD ($)
Dec. 31, 2019
CNY (¥)
Dec. 31, 2018
CNY (¥)
Dec. 31, 2017
CNY (¥)
Operating Expenses [Abstract]        
Selling and marketing expenses $ 82,168 ¥ 572,040 ¥ 432,059 ¥ 223,249
General and Administrative Expense 14,923 103,890 84,360 27,491
Research and development expenses 6,225 43,339 19,262 15,925
Total operating expenses 103,316 719,269 535,681 266,665
Net loss attributable to ordinary shareholders (36,097) (251,299) (78,700) (90,671)
Accretions to preferred shares redemption value     35,066 20,945
Net loss (36,002) (250,640) (113,766) (111,616)
Foreign currency translation adjustments, net of nil tax 1,404 9,771 3,401 (1,367)
TuanChe Limited's shareholders (34,598) (240,869) (110,365) (112,983)
Reportable Legal Entities Member | Parent Company [Member]        
Operating Expenses [Abstract]        
Selling and marketing expenses (37) (256) (1,511) 0
General and Administrative Expense (2,844) (19,801) (12,936) (1,600)
Research and development expenses (61) (422) (84) 0
Total operating expenses (2,942) (20,479) (14,531) (1,600)
Interest (expenses)/income, net 883 6,142 (1,470) (657)
Change in the value of warrant 0 0 (3,843) (1,390)
Equity in loss of subsidiaries, VIEs and subsidiaries of VIEs (33,871) (235,804) (58,864) (87,023)
Others, net (72) (499) 8 (1)
Net loss attributable to ordinary shareholders (36,002) (250,640) (78,700) (90,671)
Accretions to preferred shares redemption value 0 0 (35,066) (20,945)
Net loss (36,002) (250,640) (113,766) (111,616)
Foreign currency translation adjustments, net of nil tax 1,404 9,771 3,401 (1,367)
TuanChe Limited's shareholders $ (34,598) ¥ (240,869) ¥ (110,365) ¥ (112,983)
v3.20.1
Taxation - Reconciliation of differences between statutory income tax rate (Details)
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Taxation      
Statutory income tax rate of the PRC 25.00% 25.00% 25.00%
Permanent differences (10.00%) (10.40%) (11.50%)
Change in valuation allowance (15.00%) (14.60%) (13.50%)
Effective income tax rate 0.00% 0.00% 0.00%
v3.20.1
Prepayment and other current assets (Details)
$ in Thousands
Dec. 31, 2019
USD ($)
Dec. 31, 2019
CNY (¥)
Dec. 31, 2018
CNY (¥)
Receivables due from dealerships   ¥ 0 ¥ 10,661,000
Deductible VAT   4,056,000 4,852,000
Deposits   14,496,000 8,637,000
Prepaid rental expenses   1,662,000 2,168,000
Receivables due from third-party online payment platforms   4,755,000 469,000
Staff advances   4,131,000 695,000
Prepaid promotion expenses   54,382,000 36,538,000
Prepaid service fees   4,591,000 2,574,000
Prepaid insurance fees   3,648,000  
Bridge loan receivable [1]   100,611,000  
Others   1,450,000 2,225,000
Total $ 27,835 193,782,000 ¥ 68,819,000
Longye      
Prepayment for Acquisition   200,000,000  
Bridge loan payable   ¥ 100,000,000  
[1] On May, 2019, the Company (the “Purchaser”) entered into a share purchase agreement (the “Agreement”) with, among other parties, Longye International Limited (the “Seller”), a company incorporated in the Cayman Islands, to acquire its entire entity interest for a total consideration of U.S.-dollar equivalent of RMB200,000,000 in the form of cash and the Company’s securities in aggregate. According to the Agreement, the Purchaser shall pay RMB100,000,000 equivalent in USD as a bridge loan to the Seller. Subject to the customary closing conditions, the Company will credit this bridge loan to the cash portion of the purchase price.
v3.20.1
Segment Information (Details)
¥ in Thousands, $ in Thousands
3 Months Ended 12 Months Ended
Mar. 31, 2019
CNY (¥)
Dec. 31, 2018
CNY (¥)
Sep. 30, 2018
CNY (¥)
Jun. 30, 2018
CNY (¥)
Mar. 31, 2018
CNY (¥)
Dec. 31, 2019
USD ($)
Dec. 31, 2019
CNY (¥)
Dec. 31, 2018
CNY (¥)
Dec. 31, 2017
CNY (¥)
Dec. 31, 2016
CNY (¥)
Revenue, Major Customer [Line Items]                    
Net revenue ¥ 65,000 ¥ 200,000 ¥ 150,000 ¥ 120,000 ¥ 65,000 $ 92,616 ¥ 644,773 ¥ 651,013 ¥ 280,666  
Auto shows                    
Revenue, Major Customer [Line Items]                    
Net revenue           86,674 603,407 644,252 263,927  
Group-purchase facilitation                    
Revenue, Major Customer [Line Items]                    
Net revenue                 16,739  
Special promotion events                    
Revenue, Major Customer [Line Items]                    
Net revenue           2,840 19,772      
Virtual dealership, online marketing services and others                    
Revenue, Major Customer [Line Items]                    
Net revenue           $ 3,102 21,594 6,761    
Auto shows segment | Auto shows                    
Revenue, Major Customer [Line Items]                    
Net revenue             603,407 644,252 263,927  
Auto shows segment | Group-purchase facilitation                    
Revenue, Major Customer [Line Items]                    
Net revenue             0 0 16,739  
Auto shows segment | Special promotion events                    
Revenue, Major Customer [Line Items]                    
Net revenue             19,772 0   ¥ 0
Auto shows segment | Virtual dealership, online marketing services and others                    
Revenue, Major Customer [Line Items]                    
Net revenue             ¥ 21,594 ¥ 6,761 ¥ 0  
v3.20.1
Employee Benefits (Tables)
12 Months Ended
Dec. 31, 2019
Employee Benefits  
Schedule of employee welfare benefits expenses

 

 

 

 

 

 

 

 

 

    

For the year ended 

 

 

December 31, 

 

    

2017

    

2018

    

2019

 

 

RMB

 

RMB

 

RMB

Medical and welfare defined contribution plan

 

8,504

 

21,869

 

38,183

Other employee benefits

 

2,340

 

2,741

 

969

Total

 

10,844

 

24,610

 

39,152

 

v3.20.1
Segment Information (Tables)
12 Months Ended
Dec. 31, 2019
Segment Information  
Schedule of key revenues streams of auto shows segment

 

 

 

 

 

 

 

 

 

    

December 31, 2017

    

December 31, 2018

    

December 31, 2019

 

 

RMB

 

 RMB

 

RMB

Offline Marketing Services:

 

 

 

 

 

 

Auto shows

 

263,927

 

644,252

 

603,407

Special promotion events

 

 -

 

 -

 

19,772

Group-purchase facilitation

 

16,739

 

 -

 

 -

Virtual dealership, online marketing services and others

 

 -

 

6,761

 

21,594

Total

 

280,666

 

651,013

 

644,773

 

v3.20.1
Organization and Reorganization - Balance sheet of the group's vie's (Details)
¥ in Thousands, $ in Thousands
Dec. 31, 2019
USD ($)
Dec. 31, 2019
CNY (¥)
Dec. 31, 2018
USD ($)
Dec. 31, 2018
CNY (¥)
Dec. 31, 2017
CNY (¥)
Dec. 31, 2016
CNY (¥)
Current assets:            
Cash and cash equivalents $ 27,855 ¥ 193,920 $ 83,105 ¥ 578,558 ¥ 66,695 ¥ 24,785
Prepayments and other current assets 27,835 193,782   68,819    
Total current assets 76,329 531,384   699,632    
Non-current assets:            
Property, equipment and software, net   20,360   11,636    
Long-term investments 1,131 7,874   4,390    
Total non-current assets 5,144 35,811   26,293    
TOTAL ASSETS 81,473 567,195   725,925    
Current liabilities:            
Accounts payable 837 5,825   6,996    
Advance from customers 690 4,805   14,704    
Salary and welfare benefits payable 9,771 68,025   48,835    
Other taxes payable 3,231 22,494   16,974    
Other current liabilities 5,877 40,913   36,426    
Total current liabilities 20,406 142,062   123,935    
TOTAL LIABILITIES $ 20,716 144,220   123,935    
Major VIEs            
Current assets:            
Cash and cash equivalents   13,136   25,166    
Accounts receivable, net   6,834   27,160    
Prepayments and other current assets   17,092   16,692    
Amount due from the subsidiaries of the Group   11,197   4,973    
Total current assets   48,259   73,991    
Non-current assets:            
Property, equipment and software, net   313   522    
Long-term investments   7,874   4,390    
Total non-current assets   8,187   4,912    
TOTAL ASSETS   56,446   78,903    
Current liabilities:            
Accounts payable   3,624   1,871    
Advance from customers   2,677   13,922    
Salary and welfare benefits payable   29,970   30,535    
Other taxes payable   12,412   12,651    
Other current liabilities   800   5,306    
Amount due to the subsidiaries of the Group   183,674   233,295    
Total current liabilities   233,157   297,580    
TOTAL LIABILITIES   ¥ 233,157   ¥ 297,580    
v3.20.1
Share-based Compensation - Share option replacement - (Details) - CNY (¥)
¥ in Millions
1 Months Ended 12 Months Ended
Jun. 30, 2018
Jun. 15, 2018
Dec. 31, 2019
Dec. 31, 2018
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Number of shares issued     80,000  
Unrecognized compensation expenses related to unvested awards granted     ¥ 79.5 ¥ 77.0
TuanChe Limited Share Incentive Plan (the "Plan")        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Number of restricted shares shall replaced with options   15,473,653    
Number of share options replaced with restricted shares   13,740,480    
Incremental value recognized as expenses for vested share options ¥ 10.7      
Incremental value recognized as expenses for unvested share options ¥ 3.7      
TuanChe Limited Share Incentive Plan (the "Plan") | Best Cars Limited ("Best Cars")        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Number of shares issued 38,723,321      
Restricted shares        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Total share based compensation expense     ¥ 110.0 71.2
Weighted average period     2 years 6 months 15 days  
Restricted shares | TuanChe Limited Share Incentive Plan (the "Plan") | Employees        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Number of restricted shares granted     11,527,950  
Total fair value of restricted shares granted     ¥ 112.6 109.0
Restricted shares | TuanChe Limited Share Incentive Plan (the "Plan") | Employees | Minimum        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Vesting period 1 year   0 years  
Restricted shares | TuanChe Limited Share Incentive Plan (the "Plan") | Employees | Maximum        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Vesting period 4 years   4 years  
Share options        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Total share based compensation expense       ¥ 0.6
v3.20.1
Short-term and long-term borrowings - Long-term borrowings (Details) - 7.50% SPD Silicon Valley Bank loan Revolving loan II due on June 28, 2019 - CNY (¥)
¥ in Thousands
Dec. 31, 2019
Dec. 31, 2018
Debt Instrument [Line Items]    
Principal Amount ¥ 9,945 ¥ 9,945
Interest rate per annum 7.50% 7.50%
v3.20.1
Preferred shares - Additional information (Details)
¥ in Thousands, $ in Thousands
1 Months Ended 12 Months Ended
Sep. 30, 2018
USD ($)
shares
Jun. 30, 2018
USD ($)
shares
Jun. 30, 2017
USD ($)
shares
Jun. 30, 2017
CNY (¥)
shares
Aug. 31, 2014
USD ($)
shares
Sep. 30, 2013
USD ($)
shares
Mar. 31, 2013
USD ($)
shares
Jun. 30, 2012
CNY (¥)
shares
Dec. 31, 2019
USD ($)
shares
Dec. 31, 2018
CNY (¥)
Temporary Equity [Line Items]                    
Shares Issued                 80,000  
Principal amount of convertible loans | ¥                   ¥ 930,436
Group of investors                    
Temporary Equity [Line Items]                    
Proceeds from share issued | $                 $ 125,100  
Series A financing                    
Temporary Equity [Line Items]                    
Proceeds from share issued | $             $ 700,000      
Series A financing | China Best                    
Temporary Equity [Line Items]                    
Proceeds from share issued | ¥               ¥ 1,260,000    
Shares Issued               5,660,000    
Series A financing | K2 Evergreen Partner L.P.                    
Temporary Equity [Line Items]                    
Shares Issued             2,828,393      
Series A financing | K2 Partners II L.P.                    
Temporary Equity [Line Items]                    
Shares Issued             16,970,357      
Series B financing                    
Temporary Equity [Line Items]                    
Proceeds from share issued | $           $ 5,564,856        
Series B financing | Series B-1 preferred shares | K2 Evergreen Partner L.P.                    
Temporary Equity [Line Items]                    
Shares Issued           4,142,781        
Series B financing | Series B-1 preferred shares | K2 Partners II L.P.                    
Temporary Equity [Line Items]                    
Shares Issued           8,285,562        
Series B financing | Series B-2 preferred shares | K2 Partners II L.P.                    
Temporary Equity [Line Items]                    
Shares Issued           4,548,443        
Series B financing | Series B-2 preferred shares | BAI Gmbh                    
Temporary Equity [Line Items]                    
Shares Issued           18,193,772        
Series C financing                    
Temporary Equity [Line Items]                    
Proceeds from share issued | $         $ 23,658,593          
Series C financing | Series C-1 preferred shares | BAI Gmbh                    
Temporary Equity [Line Items]                    
Shares Issued         3,427,812          
Series C financing | Series C-2 preferred shares | BAI Gmbh                    
Temporary Equity [Line Items]                    
Shares Issued         5,643,437          
Series C financing | Series C-2 preferred shares | Highland Capital Partners 9 Limited Partnership                    
Temporary Equity [Line Items]                    
Shares Issued         18,290,377          
Series C financing | Series C-2 preferred shares | Highland Capital Partners 9-B Limited Partnership                    
Temporary Equity [Line Items]                    
Shares Issued         7,878,398          
Series C financing | Series C-2 preferred shares | Highland Entrepreneurs? Fund 9 Limited Partnership                    
Temporary Equity [Line Items]                    
Shares Issued         1,596,503          
Series C+ financing                    
Temporary Equity [Line Items]                    
Proceeds from share issued | $     $ 8,682,770              
Series C+ financing | K2 Partners II L.P.                    
Temporary Equity [Line Items]                    
Shares Issued     2,175,611 2,175,611            
Series C+ financing | K2 Family Partners Limited                    
Temporary Equity [Line Items]                    
Shares Issued     725,204 725,204            
Series C+ financing | BAI Gmbh                    
Temporary Equity [Line Items]                    
Shares Issued     1,450,408 1,450,408            
Series C+ financing | Highland Capital Partners 9 Limited Partnership                    
Temporary Equity [Line Items]                    
Shares Issued     1,910,912 1,910,912            
Series C+ financing | Highland Capital Partners 9-B Limited Partnership                    
Temporary Equity [Line Items]                    
Shares Issued     823,106 823,106            
Series C+ financing | Highland Entrepreneurs? Fund 9 Limited Partnership                    
Temporary Equity [Line Items]                    
Shares Issued     166,797 166,797            
Series C+ financing | AlphaX Partners Fund I, L.P.                    
Temporary Equity [Line Items]                    
Shares Issued     5,341,517 5,341,517            
Series C+ financing | Puhua                    
Temporary Equity [Line Items]                    
Principal amount of convertible loans | ¥       ¥ 30,000            
Number of shares issued for conversion of convertible loan     6,261,743 6,261,743            
Series C-4 financing                    
Temporary Equity [Line Items]                    
Principal amount of convertible loans | $   $ 6,300                
Number of shares issued for conversion of convertible loan   7,569,628                
Series D-1 financing                    
Temporary Equity [Line Items]                    
Proceeds from share issued | $   $ 23,350,000                
Series D-1 financing | ACEE Capital Ltd.                    
Temporary Equity [Line Items]                    
Shares Issued   3,592,664                
Series D-1 financing | Honour Depot Limited                    
Temporary Equity [Line Items]                    
Shares Issued   6,453,887                
Series D-2 financing | Beijing Z-Park Fund                    
Temporary Equity [Line Items]                    
Proceeds from share issued | $ $ 50,000                  
Shares Issued 20,630,925                  
v3.20.1
Net Loss Per Share - Computation of basic and diluted net loss per share (Details)
¥ / shares in Units, $ / shares in Units, ¥ in Thousands, $ in Thousands
12 Months Ended
Dec. 31, 2019
USD ($)
$ / shares
shares
Dec. 31, 2019
CNY (¥)
¥ / shares
shares
Dec. 31, 2018
CNY (¥)
¥ / shares
shares
Dec. 31, 2017
CNY (¥)
¥ / shares
shares
Numerator :        
Net loss from continuing operations   ¥ (251,299) ¥ (75,088) ¥ (75,694)
Net loss from discontinued operations     (3,612) (14,977)
Total net loss $ (36,097) (251,299) (78,700) (90,671)
Net loss from continuing operations   (251,299) (75,088) (75,694)
Less: Accretions to pre-IPO preferred shares redemption value $ 0 0 (35,066) (20,945)
Net loss attributable to TuanChe Limited's shareholders from continuing operations   ¥ (251,299) (110,154) (96,639)
Net loss attributable to TuanChe Limited's shareholders from discontinued operations     ¥ (3,612) ¥ (14,977)
Denominator:        
Weighted average number of ordinary shares outstanding, basic | shares 294,922,074 294,922,074 121,938,427 94,870,580
Weighted average number of ordinary shares outstanding, diluted | shares 294,922,074 294,922,074 121,938,427 94,870,580
Basic net loss per share attributable to TuanChe Limited's shareholders from continuing operations | (per share) $ (0.12) ¥ (0.85) ¥ (0.90) ¥ (1.02)
Diluted net loss per share attributable to TuanChe Limited's shareholders from continuing operations | (per share) (0.12) (0.85) (0.90) (1.02)
Basic net loss per share attributable to TuanChe Limited's shareholders from discontinued operations | (per share) 0 0 (0.03) (0.16)
Diluted net loss per share attributable to TuanChe Limited's shareholders from discontinued operations | (per share) $ 0 ¥ 0 ¥ (0.03) ¥ (0.16)
v3.20.1
Discontinued operations - Cash flows of the discontinued operations (Details) - CNY (¥)
¥ in Thousands
6 Months Ended 12 Months Ended
Jun. 30, 2018
Dec. 31, 2017
Cash flows used in discontinued operations    
Net cash used in operating activities ¥ (2,817) ¥ (27,875)
Net cash used in investing activities 0 (10)
Net cash generated from/(used in) financing activities (2,513) 17,904
Net decrease in cash and cash equivalents ¥ (5,330) ¥ (9,981)
v3.20.1
Significant Accounting Policies - Treasury stock (Details )
$ / shares in Units, ¥ in Millions, $ in Millions
12 Months Ended
Dec. 31, 2019
USD ($)
$ / shares
shares
Dec. 31, 2019
CNY (¥)
shares
Jun. 17, 2019
USD ($)
Class of Stock [Line Items]      
Treasury stock, shares, acquired | shares 1,710,952 1,710,952  
Cost of repurchase | ¥   ¥ 15.1  
Price per share | $ / shares $ 1.16    
ADS      
Class of Stock [Line Items]      
Stock repurchase program, authorized amount | $     $ 20
Treasury stock, shares, acquired | shares 427,738 427,738  
Cost of repurchase | $ $ 2    
Price per share | $ / shares $ 4.65    
v3.20.1
Organization and Reorganization - Comprehensive loss of the group's vie (Details)
¥ in Thousands, $ in Thousands
3 Months Ended 12 Months Ended
Mar. 31, 2019
CNY (¥)
Dec. 31, 2018
CNY (¥)
Sep. 30, 2018
CNY (¥)
Jun. 30, 2018
CNY (¥)
Mar. 31, 2018
CNY (¥)
Dec. 31, 2019
USD ($)
Dec. 31, 2019
CNY (¥)
Dec. 31, 2018
CNY (¥)
Dec. 31, 2017
CNY (¥)
Variable Interest Entity [Line Items]                  
Net revenue ¥ 65,000 ¥ 200,000 ¥ 150,000 ¥ 120,000 ¥ 65,000 $ 92,616 ¥ 644,773 ¥ 651,013 ¥ 280,666
Net (loss)/profit from continuing operations           (36,097) (251,299) (75,088) (75,694)
Net (loss)/profit from discontinued operations           $ 0 0 (3,612) (14,977)
Major VIEs                  
Variable Interest Entity [Line Items]                  
Net revenue             144,115 329,788 280,081
Net (loss)/profit from continuing operations             7,450 (34,674) (66,300)
Net (loss)/profit from discontinued operations               (3,612) (14,977)
Net (loss)/profit             ¥ 7,450 ¥ (38,286) ¥ (81,277)
v3.20.1
Organization and Reorganization (Tables)
12 Months Ended
Dec. 31, 2019
Organization and Reorganization  
Schedule of principal subsidiaries, major VIEs and major subsidiaries of VIEs

 

 

 

 

 

 

 

 

 

Place and

 

Percentage of

 

 

 

 

year of

 

direct or indirect

 

 

Major Subsidiaries

    

incorporation

    

economic ownership

    

Principal activities

TuanChe Information Limited (“TuanChe Information”)

 

Hong Kong, PRC 2012

 

100

  

Investment holding

TuanYuan Internet Technology (Beijing) Co., Ltd. (“TuanYuan”)

 

Beijing, PRC 2013

 

100

  

Technical support and consulting services, auto shows, special promotion events, virtual dealership, online marketing services

 

 

 

 

 

 

 

 

 

 

Place and

 

 

 

 

 

 

year of

 

Percentage of

 

 

 

 

incorporation/

 

direct or indirect

 

 

Major VIEs

    

acquisition

    

economic ownership

    

Principal activities

TuanChe Internet Information Service (Beijing) Co., Ltd. (“TuanChe Internet”)

 

Beijing, PRC 2012

 

100

 

Auto shows, special promotion events, online marketing services

Best Cars Limited (“Best Cars”)

 

British Virgin Islands, 2018

 

100

 

Holding of ordinary shares for restricted share awards

 

 

 

 

 

 

 

 

 

 

Place and

 

Percentage of

 

 

 

 

year of

 

direct or indirect

 

 

Major subsidiaries of VIEs

    

incorporation

    

economic ownership

    

Principal activities

Beijing Zhongrui Guochuang Automobile Sales & Service Co., Ltd. (“Zhongrui Guochuang”)

 

Beijing, PRC 2016

 

100

 

Auto shows

TuanChe (Beijing) Automobile Sales Service Co., Ltd. (“TuanChe Automobile”)

 

Beijing, PRC 2015

 

100

 

Vehicle sales facilitation

Beijing GuoHeng Chuangxin Automobile Sales & Service Co., Ltd. (“GuoHeng Chuangxin”)

 

Beijing, PRC 2016

 

100

 

Vehicle sales facilitation

Tengzhou GuoChuang Automobile Sales & Service Co., Ltd. (“GuoChuang Automobile”)

 

Shandong, PRC 2016

 

100

 

Vehicle sales facilitation

Tianjin Hengyuan Chuangxin Automobile Sales & Service Co., Ltd. (“Tianjin Hengyuan”)

 

Tianjin, PRC 2016

 

100

 

Vehicle sales facilitation

 

Schedule of consolidated financial statements

 

 

 

 

 

 

 

As of December 31, 

 

As of December 31, 

 

    

2018

    

2019

 

 

RMB

 

RMB

ASSETS

 

 

 

 

Current assets:

 

  

 

  

Cash and cash equivalents

 

25,166

 

13,136

Accounts receivable, net

 

27,160

 

6,834

Prepayments and other current assets

 

16,692

 

17,092

Amount due from the subsidiaries of the Group

 

4,973

 

11,197

Total current assets

 

73,991

 

48,259

Non-current assets:

 

 

 

 

Property, equipment and software, net

 

522

 

313

Long-term investments

 

4,390

 

7,874

Total non-current assets

 

4,912

 

8,187

TOTAL ASSETS

 

78,903

 

56,446

Current liabilities:

 

 

 

 

Accounts payable

 

1,871

 

3,624

Advance from customers

 

13,922

 

2,677

Salary and welfare benefits payable

 

30,535

 

29,970

Other taxes payable

 

12,651

 

12,412

Other current liabilities

 

5,306

 

800

Amount due to the subsidiaries of the Group

 

233,295

 

183,674

Total current liabilities

 

297,580

 

233,157

TOTAL LIABILITIES

 

297,580

 

233,157

 

 

 

 

 

 

 

 

 

    

For the year ended

 

 

December 31, 

 

December 31, 

 

December 31, 

 

    

2017

    

2018

    

2019

 

 

RMB

 

RMB

 

RMB

Net revenues

 

280,081

 

329,788

 

144,115

Net (loss)/profit from continuing operations

 

(66,300)

 

(34,674)

 

7,450

Net (loss)/profit from discontinued operations

 

(14,977)

 

(3,612)

 

 -

Net (loss)/profit

 

(81,277)

 

(38,286)

 

7,450

 

 

 

 

 

 

 

 

 

    

For the year ended

 

 

December 31, 

 

December 31, 

 

December 31, 

 

    

2017

    

2018

    

2019

 

 

RMB

 

RMB

 

RMB

Net cash (used in)/generated from operating activities

 

(10,540)

 

24,144

 

(6,612)

Net cash used in investing activities

 

 -

 

(50)

 

(5,418)

Net cash generated from/(used in) financing activities

 

18,148

 

(31,138)

 

 -

Net increase/(decrease) in cash and cash equivalent

 

7,608

 

(7,044)

 

(12,030)

 

v3.20.1
Prepayment and other current assets (Tables)
12 Months Ended
Dec. 31, 2019
Prepayment and other current assets  
Schedule of prepayments and other current assets

The following is a summary of prepayments and other current assets:

 

 

 

 

 

 

 

    

December 31, 2018

    

December 31, 2019

 

 

RMB

 

RMB

Receivables due from dealerships

 

10,661

 

 -

Deductible VAT

 

4,852

 

4,056

Deposits

 

8,637

 

14,496

Prepaid rental expenses

 

2,168

 

1,662

Receivables due from third-party online payment platforms

 

469

 

4,755

Staff advances

 

695

 

4,131

Prepaid promotion expenses

 

36,538

 

54,382

Prepaid service fees

 

2,574

 

4,591

Prepaid insurance fees

 

 -

 

3,648

Bridge loan receivable*

 

 -

 

100,611

Others

 

2,225

 

1,450

Total

 

68,819

 

193,782


*     On May, 2019, the Company (the “Purchaser”) entered into a share purchase agreement (the “Agreement”) with, among other parties, Longye International Limited (the “Seller”), a company incorporated in the Cayman Islands, to acquire its entire entity interest for a total consideration of U.S.-dollar equivalent of RMB200,000,000 in the form of cash and the Company’s securities in aggregate. According to the Agreement, the Purchaser shall pay RMB100,000,000 equivalent in USD as a bridge loan to the Seller. Subject to the customary closing conditions, the Company will credit this bridge loan to the cash portion of the purchase price.

v3.20.1
Short-term and long-term borrowings (Tables)
12 Months Ended
Dec. 31, 2019
Short-term and long-term borrowings  
Schedule of short-term and long-term borrowings

 

 

 

 

 

 

 

 

 

 

 

 

Maturity

 

Principal

 

Interest rate

 

 

Short-term borrowings

    

date

    

amount

    

per annum

    

Name of bank

 

 

 

 

 

 

 

 

 

Term loan

 

 

 

 

 

  

 

  

Loan I(a)

 

March 30, 2018

 

9,944

 

7.25

%  

SPD Silicon
Valley Bank loan

 

 

 

 

 

 

 

 

 

Revolving loan

 

 

 

 

 

 

 

 

Loan II(a)

 

December 31, 2018 and June
28, 2019

 

9,945

 

7.50

%  

SPD Silicon
Valley Bank loan

Secured loan

 

 

 

 

 

 

 

 

Loan III(b)

 

December 28, 2018

 

10,000

 

4.35

%  

SPD Silicon
Valley Bank loan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Maturity

    

Principal

    

Interest rate

    

 

Long-term borrowings

    

date

    

amount

    

per annum

    

Type

Loan II(a)

 

June 28, 2019

 

9,945

 

7.50

%  

SPD Silicon
Valley Bank loan

 

 

 

 

 

 

 

 

 


(a)   The Group was granted an RMB20.0 million credit facility that was expired on June 30, 2019 for general corporate purposes. Thereinto, RMB10.0 million is allocated to a term loan facility and RMB10.0 million is a revolving loan credit facility. The credit facility was guaranteed by the Company.

There were two financial covenants for the credit facility as follows: (i) new equity financing round: to close a new equity financing round representing investment of no less than RMB50.0 million from the investors no later than June 30, 2017; (ii) minimum quarterly gross profit: to meet gross profit for 2017 Q1 of RMB20.0 million, 2017 Q2 of RMB28.0 million, 2017 Q3 of RMB32.0 million, 2017 Q4 of RMB35.0 million and 2018 Q1 of RMB25.0 million.

On March 30, 2018, above financial covenants for the credit facility have been amended as follows: (i) minimum monthly liquidity ratio: 2.0:1.0; liquidity ratio is defined as (unrestricted cash on the consolidated basis + accounts receivable) divided by total unsecured bank debt. (ii) minimum quarterly net revenue for 2018 Q1 of RMB65.0 million, 2018 Q2 of RMB120.0 million, 2018 Q3 of RMB150.0 million, 2018 Q4 of RMB200.0 million and 2019 Q1 of RMB65.0 million.

The Group was in compliance with the covenants of the above credit facility for the year ended December 31, 2018.

Term loan

Loan I:

Under the term loan facility, the Group drew down RMB8.0 million and RMB1.9 million on April 1, 2017 and July 21, 2017, respectively. The interest is payable on a monthly basis and the principal will be due upon maturity. These loans were repaid on March 30, 2018.

Revolving loan

Loan II:

Under the revolving loan facility, the Group drew down RMB1.6 million, RMB5.9 million and RMB2.5 million on July 31, August 7 and September 12, 2017, respectively.  The principal and interest is payable on a monthly basis. These loans will be repaid by equivalent installment of principal in each month until June 28, 2019.  These loans were repaid in the fourth quarter of 2018 in advance.

Secured loan

(b)   Loan III:

As of December 31, 2017, the outstanding balance of the loan was secured by a US$ deposit of the Group in Silicon Valley Bank located in United States of America in the equivalent amount of RMB11.1 million, which was recorded as restricted cash. SPD Silicon Valley Bank is an onshore branch of Silicon Valley Bank. The interest is payable on a monthly basis and the principal will be due upon maturity. The loan was matured and fully repaid on December 28, 2018.

In conjunction with Loan III, a warrant was granted to China Equities Hong Kong Limited (“China Equities”) on October 31, 2017 for a cash consideration of US$0.621 to purchase up to 670,814 Series C-2 convertible redeemable preferred shares of the Company at US$0.64829 per share or if the fair market value of the warrant shares exceeds the exchange price, China Equities may effect a net cashless exchange of this warrant within five years after the grant of the warrant. In accordance with ASC 480-10-55-33, the warrant shall be classified as liability, initially recorded at fair value and subsequently measure at fair value through earnings. On September 29, 2018, China Equities has effected a net cashless exchange of the warrant for 483,702 Series C-2 convertible redeemable preferred shares with a consideration of nil.

v3.20.1
Short-term and long-term borrowings
12 Months Ended
Dec. 31, 2019
Short-term and long-term borrowings  
Short-term and long-term borrowings

10.  Short-term and long-term borrowings

The following table summarizes the Group's outstanding short-term and long-term borrowings which were fully repaid as of December 31, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

Maturity

 

Principal

 

Interest rate

 

 

Short-term borrowings

    

date

    

amount

    

per annum

    

Name of bank

 

 

 

 

 

 

 

 

 

Term loan

 

 

 

 

 

  

 

  

Loan I(a)

 

March 30, 2018

 

9,944

 

7.25

%  

SPD Silicon
Valley Bank loan

 

 

 

 

 

 

 

 

 

Revolving loan

 

 

 

 

 

 

 

 

Loan II(a)

 

December 31, 2018 and June
28, 2019

 

9,945

 

7.50

%  

SPD Silicon
Valley Bank loan

Secured loan

 

 

 

 

 

 

 

 

Loan III(b)

 

December 28, 2018

 

10,000

 

4.35

%  

SPD Silicon
Valley Bank loan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Maturity

    

Principal

    

Interest rate

    

 

Long-term borrowings

    

date

    

amount

    

per annum

    

Type

Loan II(a)

 

June 28, 2019

 

9,945

 

7.50

%  

SPD Silicon
Valley Bank loan

 

 

 

 

 

 

 

 

 


(a)   The Group was granted an RMB20.0 million credit facility that was expired on June 30, 2019 for general corporate purposes. Thereinto, RMB10.0 million is allocated to a term loan facility and RMB10.0 million is a revolving loan credit facility. The credit facility was guaranteed by the Company.

There were two financial covenants for the credit facility as follows: (i) new equity financing round: to close a new equity financing round representing investment of no less than RMB50.0 million from the investors no later than June 30, 2017; (ii) minimum quarterly gross profit: to meet gross profit for 2017 Q1 of RMB20.0 million, 2017 Q2 of RMB28.0 million, 2017 Q3 of RMB32.0 million, 2017 Q4 of RMB35.0 million and 2018 Q1 of RMB25.0 million.

On March 30, 2018, above financial covenants for the credit facility have been amended as follows: (i) minimum monthly liquidity ratio: 2.0:1.0; liquidity ratio is defined as (unrestricted cash on the consolidated basis + accounts receivable) divided by total unsecured bank debt. (ii) minimum quarterly net revenue for 2018 Q1 of RMB65.0 million, 2018 Q2 of RMB120.0 million, 2018 Q3 of RMB150.0 million, 2018 Q4 of RMB200.0 million and 2019 Q1 of RMB65.0 million.

The Group was in compliance with the covenants of the above credit facility for the year ended December 31, 2018.

Term loan

Loan I:

Under the term loan facility, the Group drew down RMB8.0 million and RMB1.9 million on April 1, 2017 and July 21, 2017, respectively. The interest is payable on a monthly basis and the principal will be due upon maturity. These loans were repaid on March 30, 2018.

Revolving loan

Loan II:

Under the revolving loan facility, the Group drew down RMB1.6 million, RMB5.9 million and RMB2.5 million on July 31, August 7 and September 12, 2017, respectively.  The principal and interest is payable on a monthly basis. These loans will be repaid by equivalent installment of principal in each month until June 28, 2019.  These loans were repaid in the fourth quarter of 2018 in advance.

Secured loan

(b)   Loan III:

As of December 31, 2017, the outstanding balance of the loan was secured by a US$ deposit of the Group in Silicon Valley Bank located in United States of America in the equivalent amount of RMB11.1 million, which was recorded as restricted cash. SPD Silicon Valley Bank is an onshore branch of Silicon Valley Bank. The interest is payable on a monthly basis and the principal will be due upon maturity. The loan was matured and fully repaid on December 28, 2018.

In conjunction with Loan III, a warrant was granted to China Equities Hong Kong Limited (“China Equities”) on October 31, 2017 for a cash consideration of US$0.621 to purchase up to 670,814 Series C-2 convertible redeemable preferred shares of the Company at US$0.64829 per share or if the fair market value of the warrant shares exceeds the exchange price, China Equities may effect a net cashless exchange of this warrant within five years after the grant of the warrant. In accordance with ASC 480-10-55-33, the warrant shall be classified as liability, initially recorded at fair value and subsequently measure at fair value through earnings. On September 29, 2018, China Equities has effected a net cashless exchange of the warrant for 483,702 Series C-2 convertible redeemable preferred shares with a consideration of nil.

v3.20.1
Property, equipment and software, net
12 Months Ended
Dec. 31, 2019
Property, equipment and software, net  
Property, equipment and software, net

6.    Property, equipment and software, net

The following is a summary of property, equipment and software, net:

 

 

 

 

 

 

 

    

December 31, 2018

    

December 31, 2019

 

    

RMB

    

RMB

Furniture and electronic equipment

 

4,304

 

5,398

Vehicles

 

426

 

425

Software

 

10,850

 

18,948

Leasehold improvement

 

 -

 

2,874

Total property, equipment and software

 

15,580

 

27,645

Less:  accumulated depreciation - Furniture, electronic equipment and vehicles

 

(3,283)

 

(3,502)

 accumulated amortization - Software

 

(661)

 

(3,435)

 accumulated amortization - Leasehold improvement

 

 -

 

(348)

Property, equipment and software, net

 

11,636

 

20,360

 

Depreciation expenses of property, equipment and software were RMB1.0 million, RMB1.1 million and RMB3.5 million for the years ended December 31, 2017, 2018 and 2019, respectively. Amortization expenses of leasehold improvement were nil,  nil and RMB0.3 million for the years ended December 31, 2017, 2018 and 2019, respectively. No impairment charge was recognized for any of the periods presented.

Based on the current amount of property, equipment and software subject to amortization, the estimated amortization expenses for each of the following five years are as follows: 2020: RMB5.5 million, 2021: RMB5.3 million, 2022: RMB4.5 million, 2023: RMB3.4 million and 2024: RMB1.0 million.

v3.20.1
Organization and Reorganization
12 Months Ended
Dec. 31, 2019
Organization and Reorganization  
Organization and Reorganization

1.    Organization and Reorganization

TuanChe Limited (the “Company”) was incorporated in the Cayman Islands on September 28, 2012. The Company is a holding company and conducts its business mainly through its subsidiaries, variable interest entities ("VIEs") and subsidiaries of VIEs (collectively referred to as the "Group"). The Group is primarily engaged in the operation of providing auto shows, group-purchase facilitation, special promotion events services, virtual dealership, online marketing services and others related businesses in the People’s Republic of China (the "PRC" or "China"). The Group commenced its auto shows business from the fourth quarter of 2016. The Group decided to discontinue the electric vehicle sales facilitation business in December 2017. In June 2018, the Group commenced its virtual dealership business and online marketing services business. In January 2019, the Group commenced its special promotion events business.

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

 

 

 

 

 

 

 

 

 

 

Place and

 

Percentage of

 

 

 

 

year of

 

direct or indirect

 

 

Major Subsidiaries

    

incorporation

    

economic ownership

    

Principal activities

TuanChe Information Limited (“TuanChe Information”)

 

Hong Kong, PRC 2012

 

100

  

Investment holding

TuanYuan Internet Technology (Beijing) Co., Ltd. (“TuanYuan”)

 

Beijing, PRC 2013

 

100

  

Technical support and consulting services, auto shows, special promotion events, virtual dealership, online marketing services

 

 

 

 

 

 

 

 

 

 

Place and

 

 

 

 

 

 

year of

 

Percentage of

 

 

 

 

incorporation/

 

direct or indirect

 

 

Major VIEs

    

acquisition

    

economic ownership

    

Principal activities

TuanChe Internet Information Service (Beijing) Co., Ltd. (“TuanChe Internet”)

 

Beijing, PRC 2012

 

100

 

Auto shows, special promotion events, online marketing services

Best Cars Limited (“Best Cars”)

 

British Virgin Islands, 2018

 

100

 

Holding of ordinary shares for restricted share awards

 

 

 

 

 

 

 

 

 

 

Place and

 

Percentage of

 

 

 

 

year of

 

direct or indirect

 

 

Major subsidiaries of VIEs

    

incorporation

    

economic ownership

    

Principal activities

Beijing Zhongrui Guochuang Automobile Sales & Service Co., Ltd. (“Zhongrui Guochuang”)

 

Beijing, PRC 2016

 

100

 

Auto shows

TuanChe (Beijing) Automobile Sales Service Co., Ltd. (“TuanChe Automobile”)

 

Beijing, PRC 2015

 

100

 

Vehicle sales facilitation

Beijing GuoHeng Chuangxin Automobile Sales & Service Co., Ltd. (“GuoHeng Chuangxin”)

 

Beijing, PRC 2016

 

100

 

Vehicle sales facilitation

Tengzhou GuoChuang Automobile Sales & Service Co., Ltd. (“GuoChuang Automobile”)

 

Shandong, PRC 2016

 

100

 

Vehicle sales facilitation

Tianjin Hengyuan Chuangxin Automobile Sales & Service Co., Ltd. (“Tianjin Hengyuan”)

 

Tianjin, PRC 2016

 

100

 

Vehicle sales facilitation

 

History of the Group

Reorganization

The Group commenced operations through TuanChe Internet, a PRC company established by several PRC citizens in May 2012. TuanChe Internet holds an Internet Content Provider (“ICP”) license to operate Tuanche.com that provides internet information services to automobile manufacturers, car dealers and consumers.

The Company was incorporated in the Cayman Islands in September 2012. The Company established TuanYuan in January 2013 to control TuanChe Internet through contractual arrangements and TuanChe Internet became a VIE of the Group (the “Reorganization”). These arrangements were accounted for as a reorganization and the historical financial statements were presented on a carryover basis.

Discontinued operations

On December 10, 2017, pursuant to the resolution of the shareholders and board of directors of the Company, management decided to discontinue its electric vehicle sales facilitation business (the “Discontinued Business”). On June 30, 2018, the Company completed the disposal of the Discontinued Business. Refer to Note 3 for details of discontinued operations.

Initial Public Offering

On November 20, 2018, the Company completed its initial public offering (“IPO”) on the NASDAQ Global Market in the United States of America. In this offering, 2,600,000 American Depositary Shares (“ADSs”), representing 10,400,000 Class A ordinary shares, were issued and sold to the public at a price of US$7.80 per ADS. The net proceeds to the Company from the IPO, after deducting commissions and offering expenses, were approximately US$15.0 million (RMB103.4 million).

Contractual arrangements with VIEs

PRC laws and regulations place certain restrictions on foreign investment in value-added telecommunication service businesses. The Company conducts a portion of their operations in the PRC through TuanChe Internet, and its subsidiaries. The Company has effective control over its VIEs and subsidiaries of VIEs through a series of contractual arrangements among its wholly-owned PRC subsidiary TuanYuan, VIEs and their shareholders.

The contractual arrangements, as described in more detail below, collectively allow the Company to:

·

exercise effective control over each of its VIEs and subsidiaries of VIEs;

·

receive substantially all of the economic benefits of VIEs and subsidiaries of VIEs; and

·

have an exclusive call option to purchase all or part of the equity interests in and/or assets of each of VIEs and subsidiaries of VIEs when and to the extent permitted by PRC laws.

As a result of these contractual arrangements, the Company is the primary beneficiary of VIEs and subsidiaries of VIEs, and, therefore, has consolidated the financial results of VIEs and subsidiaries of VIEs in its consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

Below is a summary of the currently effective contractual arrangements by and among the Company’s wholly-owned subsidiary TuanYuan, TuanChe Internet and its shareholders.

Exclusive Management Services and Business Cooperation Agreement

Pursuant to the exclusive management services and business cooperation agreement among TuanYuan, TuanChe Internet and its shareholders, TuanYuan has the exclusive right to provide or designate any third party to provide, among other things, transfer of technology, technology development services, online advertising services, consulting services, technological support and business support to TuanChe Internet and its subsidiaries. In exchange, TuanChe Internet and its subsidiaries pay service fees to TuanYuan in an amount at TuanYuan’s discretion. Without the prior written consent of TuanYuan, TuanChe Internet and its subsidiaries cannot accept services provided by or establish similar cooperation relationship with any third party. TuanYuan owns the exclusive intellectual property rights created as a result of the performance of this agreement unless otherwise provided by PRC laws or regulations. This agreement was entered into on March 6, 2013 and became effective on March 6, 2013 and will remain effective unless unanimously agreed by the parties concerned or unilaterally terminated by TuanYuan with a written notice. Unless otherwise required by applicable PRC laws, TuanChe Internet and its shareholders do not have any right to terminate the exclusive service agreement.

Exclusive Call Option Agreement

Under the exclusive call option agreement among TuanYuan, TuanChe Internet and its shareholders, each of the shareholders of TuanChe Internet irrevocably granted TuanYuan a right to purchase, or designate a third party to purchase, all or any part of their equity interests in TuanChe Internet at a purchase price equal to the lowest price permissible by the then-applicable PRC laws and regulations at TuanYuan’s sole and absolute discretion to the extent permitted by PRC law. The shareholders of TuanChe Internet shall promptly give all considerations they received from the exercise of the options to TuanYuan or a designated third party of TuanYuan. Without TuanYuan’s prior written consent, TuanChe Internet and its shareholders shall not enter into any major contract to transfer any equity of TuanChe Internet. Without TuanYuan’s prior written consent, TuanChe Internet and its shareholders shall not sell, transfer, license or otherwise dispose of any TuanChe Internet’s assets or allow any encumbrance of any assets, except for the disposal or the encumbrances of the assets that are treated as necessary for their daily business operations with the value of the assets involved in a single transaction not exceeding RMB100,000. TuanChe Internet shall not be dissolved or liquidated without the written consent by TuanYuan. This agreement was entered into on March 6, 2013 and became effective on March 6, 2013 and shall remain in effect upon expiry or early termination of this agreement.

Equity Pledge Agreement

Under the Equity Pledge Agreement among TuanYuan, TuanChe Internet and its shareholders, TuanChe Internet’s shareholders pledged all of their equity of TuanChe Internet to TuanYuan as security for performance of the obligations of TuanChe Internet and its shareholders under the exclusive call option agreement, the exclusive management services and business cooperation agreement and the powers of attorney. If any of the specified events of default occurs, TuanYuan may exercise the right to enforce the pledge immediately. TuanYuan may transfer all or any of its rights and obligations under the Equity Pledge Agreement to its designee(s) at any time. The equity pledge agreement is binding on TuanChe Internet’s shareholders and their successors. This agreement was entered into on March 6, 2013 and became effective on March 6, 2013, and shall remain in effect until the fulfillment of all the obligations under the Exclusive Call Option Agreement, the Exclusive Management Services and Business Cooperation Agreement and the Powers of Attorney.

Powers of Attorney

Pursuant to the Powers of Attorney executed by TuanChe Internet and its shareholders, each of them irrevocably authorized TuanYuan to act on their respective behalf as exclusive agent and attorney, to the extent permitted by law, with respect to all rights of shareholders concerning all the equity interest and sponsor interest held by each of them in TuanChe Internet or its subsidiaries, including but not limited to proposing to convene or attend shareholder meetings, board meetings or council meetings, signing the resolutions and minutes of such meetings, exercising all the rights as shareholders or sponsors (including but not limited to voting rights, nomination rights, appointment rights, the right to receive dividends and the right to sell, transfer, pledge or dispose of all the equity or the sponsor interest held in part or in whole). This agreement was entered into on March 6, 2013 and became effective on March 6, 2013.

In August 2014, June 2017 and August 2017, the Exclusive Management Services and Business Cooperation Agreement, Exclusive Call Option Agreement, Equity Pledge Agreement and Powers of Attorney to TuanChe Internet were amended to reflect the changes of shareholders’ holding in the VIE entity. No other material terms or conditions of these agreements were changed or altered. There was no impact to the Group’s effective control over TuanChe Internet and the Group continues to consolidate TuanChe Internet.

Zhongrui Guochuang was incorporated in 2016 to carry out similar business as TuanChe Internet. The Company has effective control over Zhongrui Guochuang through a series of contractual arrangements having similar terms with that of the contractual arrangements with TuanChe Internet among TuanYuan, Zhongrui Guochuang and its shareholders (also nominee shareholders). As a result of these contractual arrangements with Zhongrui Guochuang , the Company is the primary beneficiary of Zhongrui Guochuang, and, therefore, consolidated the financial results of Zhongrui Guochuang in its consolidated financial statements in accordance with U.S. GAAP. On June 22, 2018, Zhongrui Guochuang was restructured from being a VIE of TuanYuan to a subsidiary of TuanChe Internet.

Risks in relation to the VIE structure

In May 2018, Best Cars Limited (“Best Cars”), a British Virgin Islands (“BVI”) incorporated company and a consolidated variable interest entity of the Group, was established by its shareholders to facilitate the adoption of the Company’s employee stock incentive plans. The Company entered into an agreement with Best Cars and its shareholder in which provides the Company with effective control over Best Cars and enables the Company to obtain substantially all of the economic benefits arising from Best Cars. As of December 31, 2018 and 2019, Best Cars held 38,723,321 and 38,723,321 Class A ordinary shares of the Company, respectively.

A significant part of the Company’s business is conducted through the VIEs of the Group, of which the Company is the ultimate primary beneficiary. In the opinion of management, the contractual arrangements with the VIEs and the nominee shareholders are in compliance with PRC laws and regulations and are legally binding and enforceable. The nominee shareholders are also shareholders of the Group and have indicated they will not act contrary to the contractual arrangements. However, there are substantial uncertainties regarding the interpretation and application of PRC laws and regulations including those that govern the contractual arrangements, which could limit the Group’s ability to enforce these contractual arrangements and if the nominee shareholders of the VIEs were to reduce their interests in the Group, their interest may diverge from that of the Group and that may potentially increase the risk that they would seek to act contrary to the contractual arrangements.

In January 2015, the Ministry of Commerce ("MOFCOM"), released for public comment a proposed PRC law, the Draft Foreign Investment Enterprises ("FIE") Law, that appears to include VIEs within the scope of entities that could be considered to be FIEs, that would be subject to restrictions under existing PRC law on foreign investment in certain categories of industry. Specifically, the Draft FIE Law introduces the concept of "actual control" for determining whether an entity is considered to be an FIE. In addition to control through direct or indirect ownership or equity, the Draft FIE Law includes control through contractual arrangements within the definition of "actual control".

On March 15, 2019, the National People's Congress adopted the Foreign Investment Law of the PRC, which became effective on January 1, 2020 and replaced three laws regulating foreign investment in China, namely, the Wholly Foreign-Invested Enterprise Law of the PRC, the Sino-Foreign Cooperative Joint Venture Enterprise Law of the PRC and the Sino-Foreign Equity Joint Venture Enterprise Law of the PRC, together with their implementation rules and ancillary regulations. On December 26, 2019, the State Council issued the Regulations on Implementing the Foreign Investment Law of the PRC, which came into effect on January 1, 2020, and replaced the Regulations on Implementing the Sino-Foreign Equity Joint Venture Enterprise Law, Provisional Regulations on the Duration of Sino-Foreign Equity Joint Venture Enterprise Law, the Regulations on Implementing the Wholly Foreign-Invested Enterprise Law , and the Regulations on Implementing the Sino-Foreign Cooperative Joint Venture Enterprise Law. The Foreign Investment Law of the PRC embodies an expected PRC regulatory trend to rationalize its foreign investment regulatory regime in line with prevailing international practice and the legislative efforts to unify the corporate legal requirements for both foreign and domestic investments. Under the Foreign Investment Law of the PRC, VIEs that are controlled via contractual arrangement would not be absolutely deemed as Foreign-Invested Enterprises, or FIEs. Therefore, the current legal status of Contractual Arrangement as a whole and each of the agreements comprising the Contractual Arrangement will not be materially affected by the Foreign Investment Law of the PRC and its implementing regulations. However, since it is relatively new, uncertainties still exist in relation to its interpretation and implementation. For example, the Foreign Investment Law of the PRC adds a catch-all clause to the definition of "foreign investment" so that foreign investment, by its definition, includes "investments made by foreign investors in China through other means defined by other laws or administrative regulations or provisions promulgated by the State Council" without further elaboration on the meaning of "other means." It leaves leeway for the future legislations promulgated by the State Council to provide for contractual arrangements as a form of foreign investment. It is therefore uncertain whether the Group's corporate structure will be seen as violating the foreign investment rules as the Group is currently leverage the contractual arrangement to operate certain businesses in which foreign investors are prohibited from or restricted to investing. Furthermore, if future legislations prescribed by the State Council mandate further actions to be taken by companies with respect to existing contractual arrangement, the Group may face substantial uncertainties as to whether the Group can complete such actions in a timely manner, or at all. If the Group fails to take appropriate and timely measures to comply with any of these or similar regulatory compliance requirements, the Group's current corporate structure, corporate governance and business operations could be materially and adversely affected.

The Company’s ability to control the VIEs also depends on the Power of Attorney the shareholders has to vote on all matters requiring shareholder approval in the VIEs. As noted above, the Company believes these Power of Attorney are legally enforceable but may not be as effective as direct equity ownership.

In addition, if the Group’s corporate structure or the contractual arrangements with the VIEs were found to be in violation of any existing or future PRC laws and regulations, the PRC regulatory authorities could, within their respective jurisdictions:

·

revoke the Group’s business and operating licenses

·

require the Group to discontinue or restrict its operations;

·

restrict the Group’s right to collect revenues;

·

block the Group’s websites;

·

require the Group to restructure the operations, re-apply for the necessary licenses or relocate the Group’s businesses, staff and assets;

·

impose additional conditions or requirements with which the Group may not be able to comply; or

·

take other regulatory or enforcement actions against the Group that could be harmful to the Group’s business.

The imposition of any of these restrictions or actions could result in a material adverse effect on the Group’s ability to conduct its business. In such case, the Group may not be able to operate or control the VIEs, which may result in deconsolidation of the VIEs in the Group’s consolidated financial statements. In the opinion of the Company’s management, the likelihood for the Group to lose such ability is remote based on current facts and circumstances. The Group believes that the contractual arrangements among each of the VIEs, their respective shareholders and relevant wholly foreign owned enterprise are in compliance with PRC law and are legally enforceable. The Group’s operations depend on the VIEs to honor their contractual arrangements with the Group. These contractual arrangements are governed by PRC law and disputes arising out of these agreements are expected to be decided by arbitration in the PRC. Management believes that each of the contractual arrangements constitutes valid and legally binding obligations of each party to such contractual arrangements under PRC laws. However, the interpretation and implementation of the laws and regulations in the PRC and their application 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 evolve, the interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws, regulations and rules involve uncertainties, which may limit legal protections available to the Group to enforce the contractual arrangements should the VIEs or the nominee shareholders of the VIEs fail to perform their obligations under those arrangements.

The following combined financial information of the Group’s VIEs as of December 31, 2018 and 2019 and for the years ended December 31, 2017, 2018 and 2019 were included in the accompanying consolidated financial statements of the Group as follows:

 

 

 

 

 

 

 

 

As of December 31, 

 

As of December 31, 

 

    

2018

    

2019

 

 

RMB

 

RMB

ASSETS

 

 

 

 

Current assets:

 

  

 

  

Cash and cash equivalents

 

25,166

 

13,136

Accounts receivable, net

 

27,160

 

6,834

Prepayments and other current assets

 

16,692

 

17,092

Amount due from the subsidiaries of the Group

 

4,973

 

11,197

Total current assets

 

73,991

 

48,259

Non-current assets:

 

 

 

 

Property, equipment and software, net

 

522

 

313

Long-term investments

 

4,390

 

7,874

Total non-current assets

 

4,912

 

8,187

TOTAL ASSETS

 

78,903

 

56,446

Current liabilities:

 

 

 

 

Accounts payable

 

1,871

 

3,624

Advance from customers

 

13,922

 

2,677

Salary and welfare benefits payable

 

30,535

 

29,970

Other taxes payable

 

12,651

 

12,412

Other current liabilities

 

5,306

 

800

Amount due to the subsidiaries of the Group

 

233,295

 

183,674

Total current liabilities

 

297,580

 

233,157

TOTAL LIABILITIES

 

297,580

 

233,157

 

 

 

 

 

 

 

 

 

    

For the year ended

 

 

December 31, 

 

December 31, 

 

December 31, 

 

    

2017

    

2018

    

2019

 

 

RMB

 

RMB

 

RMB

Net revenues

 

280,081

 

329,788

 

144,115

Net (loss)/profit from continuing operations

 

(66,300)

 

(34,674)

 

7,450

Net (loss)/profit from discontinued operations

 

(14,977)

 

(3,612)

 

 -

Net (loss)/profit

 

(81,277)

 

(38,286)

 

7,450

 

 

 

 

 

 

 

 

 

    

For the year ended

 

 

December 31, 

 

December 31, 

 

December 31, 

 

    

2017

    

2018

    

2019

 

 

RMB

 

RMB

 

RMB

Net cash (used in)/generated from operating activities

 

(10,540)

 

24,144

 

(6,612)

Net cash used in investing activities

 

 -

 

(50)

 

(5,418)

Net cash generated from/(used in) financing activities

 

18,148

 

(31,138)

 

 -

Net increase/(decrease) in cash and cash equivalent

 

7,608

 

(7,044)

 

(12,030)

 

In accordance with various contractual agreements, the Company has the power to direct the activities of the VIEs and subsidiaries of VIEs and can have assets transferred out of the VIEs. Therefore, the Company considers that there are no assets in the respective VIEs that can be used only to settle obligations of the respective VIEs, except for the registered capital of the VIEs amounting to approximately RMB10.0 million and RMB10.0 million, as of December 31, 2018 and 2019. As the respective VIEs are incorporated as limited liability companies under the PRC Company Law, creditors do not have recourse to the general credit of the Company for the liabilities of the respective VIEs. There is currently no contractual arrangement that would require the Company to provide additional financial support to the VIEs. As the Group is conducting certain businesses in the PRC through the VIEs, the Group may provide additional financial support on a discretionary basis in the future, which could expose the Group to a loss.

There is no VIE in the Group where the Company or any subsidiary has a variable interest but is not the primary beneficiary.

Liquidity

The Group incurred net losses of RMB90.7 million , RMB78.7 million and RMB251.3 million for the years ended December 31, 2017, 2018 and 2019, respectively. Net cash used in operating activities was RMB59.7 million, RMB53.3 million and RMB161.8 million for the years ended December 31, 2017, 2018 and 2019, respectively. Accumulated deficit was RMB468.0 million and RMB718.7 million as of December 31, 2018 and 2019, respectively. In addition, the outbreak of a novel strain of coronavirus (COVID-19) in January 2020 has materially and adversely affect the Group's business, results of operations, financial condition and cash flows in 2020 as further disclosed in Note 19. The Group assessed its liquidity by its currently available working capital and its ability to reduce cash used in operating activities, taking into consideration of the impact of COVID-19 pandemic on the Group's business and operations.

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 and responding to the material impact of the COVID-19 pandemic, which includes controlling operating expenses, as well as, to reduce cash used in operating activities. The Group has implemented measures to adjust the pace of its operation expansion, conserve resources such as furlough arrangements, scaling back the Group's recruitment budget and employee size and may resort to other costs cutting measures if the outbreak of COVID-19 and its impact persist or escalate. Based on these considerations, the Group believes the cash and cash equivalents and time deposits currently on hand are sufficient to meet the cash requirements to fund planned operations and other commitments for at least the next twelve months from the date of the issuance of the consolidated financial statements. The Group’s consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liquidation of liabilities in the normal course of business.

v3.20.1
CONSOLIDATED BALANCE SHEETS (Parentheticals)
¥ in Thousands, $ in Thousands
Dec. 31, 2019
USD ($)
$ / shares
shares
Dec. 31, 2019
CNY (¥)
shares
Dec. 31, 2018
$ / shares
Dec. 31, 2018
CNY (¥)
shares
Accounts payable $ 837 ¥ 5,825   ¥ 6,996
Advance from customers 690 4,805   14,704
Salary and welfare benefits payable 9,771 68,025   48,835
Other taxes payable 3,231 22,494   16,974
Other current liabilities $ 5,877 40,913   36,426
Major VIEs        
Accounts payable | ¥   3,624   1,871
Advance from customers | ¥   2,677   13,922
Salary and welfare benefits payable | ¥   29,970   30,535
Other taxes payable | ¥   12,412   12,651
Other current liabilities | ¥   ¥ 800   ¥ 5,306
Class A ordinary shares        
Common stock, par value per share (in dollars per share) | $ / shares $ 0.0001   $ 0.0001  
Common stock, shares authorized 800,000,000 800,000,000   800,000,000
Common stock, shares issued 259,836,223 259,836,223   259,836,223
Common stock, shares outstanding 239,031,946 239,031,946   234,030,828
Class B ordinary shares        
Common stock, par value per share (in dollars per share) | $ / shares $ 0.0001   $ 0.0001  
Common stock, shares authorized 60,000,000 60,000,000   60,000,000
Common stock, shares issued 55,260,580 55,260,580   55,260,580
Common stock, shares outstanding 55,260,580 55,260,580   55,260,580
v3.20.1
Share-based Compensation - Stock option plan - (Details) - CNY (¥)
¥ / shares in Units, ¥ in Millions
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2019
Share-based Compensation.      
Unrecognized compensation expenses related to unvested awards granted ¥ 77.0   ¥ 79.5
Weighted average grant date fair value of options granted ¥ 1.8692 ¥ 0.4851  
v3.20.1
Short-term and long-term borrowings - Short-term borrowings (Details) - CNY (¥)
¥ in Thousands
Dec. 31, 2019
Dec. 31, 2018
7.25% SPD Silicon Valley Bank loan Term loan I due on 30 March 2018    
Short-term Debt [Line Items]    
Principal Amount ¥ 9,944 ¥ 9,944
Interest rate per annum 7.25% 7.25%
7.50% SPD Silicon Valley Bank loan Revolving loan II due on December 31, 2018 and June 28, 2019    
Short-term Debt [Line Items]    
Principal Amount ¥ 9,945 ¥ 9,945
Interest rate per annum 7.50% 7.50%
4.35% SPD Silicon Valley Bank loan Secured loan III due on December 28, 2018    
Short-term Debt [Line Items]    
Principal Amount ¥ 10,000 ¥ 10,000
Interest rate per annum 4.35% 4.35%
v3.20.1
Preferred shares (Details)
Sep. 29, 2018
shares
Series C-2 convertible redeemable preferred shares  
Increase (Decrease) in Temporary Equity [Roll Forward]  
Issuance of pre-IPO preferred shares (in shares) 483,702
v3.20.1
Ordinary shares - Additional information (Details)
$ / shares in Units, ¥ in Thousands, $ in Millions
12 Months Ended
Nov. 20, 2018
USD ($)
$ / shares
shares
Nov. 20, 2018
CNY (¥)
shares
Dec. 31, 2019
shares
Dec. 31, 2018
CNY (¥)
Number of shares issued     80,000  
Proceeds from issuance of IPO,net of issuance cost | ¥       ¥ 103,372
Class A ordinary shares        
Number of initial public offering 2,600,000 2,600,000    
Number of shares issued 10,400,000 10,400,000    
Issuance Price per Share (US$) | $ / shares $ 7.80      
Proceeds from issuance of IPO,net of issuance cost $ 15.0 ¥ 103,400    
ADS        
Number of initial public offering 2,600,000 2,600,000    
Number of shares issued     20,000  
Pre-IPO China Best Redeemable and Series A to Series C        
Conversion ratio to class A ordinary shares     1  
Series D1 and Series D2 Shares        
Conversion ratio to class A ordinary shares     1.47  
v3.20.1
Significant Accounting Policies - Concentrations and Risks (Details )
12 Months Ended
Dec. 31, 2019
item
Dec. 31, 2018
item
customer
Dec. 31, 2017
item
Total number of online advertising and promotional service providers 25 32 21
Number of online service providers that accounted for 10% or more of the Group's online advertising and promotional service 2 2 2
Total percentage of the Group's online advertising and promotional service expenses that were paid to these service providers who accounted for 10% or more of the Group's online advertising and promotional service expenses. 55.00% 43.00% 50.00%
Customer A [Member]      
Concentration risk (as a percent) 5.00% 22.00%  
Credit Concentration Risk [Member] | Accounts Receivable [Member]      
Number of customers accounted for more than 10% 0 1  
Credit Concentration Risk [Member] | Accounts Receivable [Member] | Customer A [Member]      
Concentration risk (as a percent) 10.00% 10.00% 10.00%
v3.20.1
Organization and Reorganization - Cash flow of the group's vie (Details)
¥ in Thousands, $ in Thousands
12 Months Ended
Dec. 31, 2019
USD ($)
Dec. 31, 2019
CNY (¥)
Dec. 31, 2018
CNY (¥)
Dec. 31, 2017
CNY (¥)
Variable Interest Entity [Line Items]        
Net cash (used in)/generated from operating activities $ (23,241) ¥ (161,806) ¥ (53,338) ¥ (59,662)
Net cash used in investing activities (26,940) (187,548) (20,746) (4,272)
Net cash generated from/(used in) financing activities $ (5,350) (37,245) 562,126 117,954
Major VIEs        
Variable Interest Entity [Line Items]        
Net cash (used in)/generated from operating activities   (6,612) 24,144 (10,540)
Net cash used in investing activities   (5,418) (50)  
Net cash generated from/(used in) financing activities     (31,138) 18,148
Net increase/(decrease) in cash and cash equivalent   ¥ (12,030) ¥ (7,044) ¥ 7,608
v3.20.1
Discontinued operations - Additional information (Details)
¥ in Millions
1 Months Ended
Jun. 30, 2018
CNY (¥)
Discontinued operations  
Disposal of the discontinued business resulting a gain of disposal ¥ 0.8
v3.20.1
Other taxes payable (Tables)
12 Months Ended
Dec. 31, 2019
Other taxes payable  
Schedule of summary of other taxes payable

The following is a summary of other taxes payable as of December 31, 2018 and 2019:

 

 

 

 

 

 

 

    

December 31, 2018

    

December 31, 2019

 

    

RMB

    

RMB

Withholding individual income taxes for employees

 

4,268

 

9,727

VAT payables

 

11,728

 

12,105

Others

 

978

 

662

Total

 

16,974

 

22,494

 

v3.20.1
Significant Accounting Policies (Policies)
12 Months Ended
Dec. 31, 2019
Additional Information - Condensed Financial Statements of the Parent Company  
Basis of presentation

a)    Basis of presentation

The consolidated financial statements of the Group have been prepared in accordance with U.S. GAAP. Significant accounting policies followed by the Group in the preparation of the accompanying consolidated financial statements are summarized below.

Reclassifications

b)    Reclassifications

The Company changed the presentation of revenue within its consolidated statements of operations for the twelve months ended December 31, 2019. Revenue, previously reported as a single line item, has been disaggregated to present revenue by the various services the Company provides. Amounts for the comparative prior periods have been reclassified to conform to the current period presentation. These reclassifications had no impact on previously reported net income or financial position and do not represent a restatement of any previously reported financial results.

Principles of consolidation

c)    Principles of consolidation

The consolidated financial statements include the financial statements of the Company, its subsidiaries, VIEs and subsidiaries of VIEs 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, VIEs and subsidiaries of VIEs have been eliminated upon consolidation.

Discontinued operations

d)    Discontinued operations

A component of a reporting entity or a group of components of a reporting entity that are disposed or meet the criteria to be classified as held for sale, such as the management, having the authority to approve the action, commits to a plan to sell the disposal group, should be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. Discontinued operations are reported when a component of an entity comprising operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity is classified as held for disposal or has been disposed of, if the component either (1) represents a strategic shift or (2) have a major impact on an entity’s financial results and operations. In the consolidated statements of operations and comprehensive loss, result from discontinued operations is reported separately from the income and expenses from continuing operations and prior periods are presented on a comparative basis. Cash flows for discontinuing operations are presented separately in Note 3. In order to present the financial effects of the continuing operations and discontinued operations, revenues and expenses arising from intra-group transactions are eliminated except for those revenues and expenses that are considered to continue after the disposal of the discontinued operations.

Use of estimates

e)    Use of estimates

The preparation of the Group’s 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 consolidated financial statements and accompanying notes. Significant accounting estimates include, but are not limited to determining the provision for accounts receivable, assessment for valuation allowance of deferred tax assets, determination of the fair value of ordinary shares, preferred shares and warrant, and valuation and recognition of share-based compensation expenses.

Functional currency and foreign currency translation

f)    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 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 year. Translation adjustments are reported as foreign currency translation adjustments, and are shown as a component of other comprehensive loss in the 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 exchange (losses)/gains in the consolidated statements of operations and comprehensive loss.

Convenience Translation

g)    Convenience Translation

Translations of balances in the consolidated balance sheets, consolidated statements of operations and comprehensive loss and consolidated statements of cash flows from RMB into US$ as of and for the year ended December 31, 2019 are solely for the convenience of the reader and were calculated at the rate of US$1.00 = RMB6.9618 representing the noon buying rate in The City of New York for cable transfers of RMB as certified for customs purposes by the Federal Reserve Bank of New York on December 31, 2019. No representation is made that the RMB amounts represent or could have been, or could be, converted, realized or settled into US$ at that rate on December 31, 2019, or at any other rate.

Fair value measurements

h)    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, time deposits, accounts receivable, other receivables, accounts payable and other payables, of which the carrying values approximate their fair value.

See Note 21 for additional information.

Cash, cash equivalents and restricted cash

i)    Cash, cash equivalents and restricted cash

Cash and cash equivalents mainly represent cash on hand, demand deposits placed with large reputable banks in the United States of America or 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, 2018 and 2019, there were cash at bank and demand deposits with terms of less than three months denominated in US dollars amounting to approximately US$73.5 million and US$15.6 million, respectively (equivalent to approximately RMB504.2 million and RMB109.1 million, respectively).

As of December 31, 2018 and 2019, the Group had approximately RMB74.4 million and RMB91.9 million cash and cash equivalents held by its PRC subsidiaries, VIEs and subsidiaries of VIEs, representing 12.9% and 47.4% of total cash and cash equivalents of the Group, respectively.

As of December 31, 2018 and 2019, the Company had a restricted cash balance approximately nil and RMB1.5 million, respectively, which are security deposits for the referral services in collaboration with a commercial bank and ancillary services to facilitate auto loan applications.

Accounts receivable, net

j)     Accounts receivable, net

The carrying value of accounts receivable is reduced by an allowance that reflects the Group’s best estimate of the amounts that will not be collected. An allowance for doubtful accounts is recorded in the period when a loss is probable based on an assessment of specific evidence indicating collection is unlikely, historical bad debt rates, accounts aging, financial conditions of the customer and industry trends. Accounts receivable balances are written off against the allowance when they are determined to be uncollectible. Notes receivable represents notes receivable issued by reputable financial institutions that entitle the Group to receive the full face amount from the financial institutions at maturity. Refer to Note 4 for details.

Time deposits

k)    Time deposits

Time deposits mainly represent demand deposits placed with banks with original maturities of more than three months but within one year. Interest earned is recorded as interest income in the consolidated statements of operations and comprehensive loss during the periods.

Property, equipment and software, net

l)    Property, equipment and software, net

Property, equipment and software 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:

 

 

 

 

Furniture and electronic equipment

    

3 years

 

Vehicles

 

10 years

 

Software

 

5 years

 

Leasehold improvements

 

Shorter of expected lives of leasehold improvements and lease term 

 

 

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

Impairment of long-lived assets

m)  Impairment of long-lived assets

Long-lived assets 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.

Long-term investments

n)   Long-term investments

In accordance with ASU 2016-01, for investments in equity instruments which the Company does not have significant influence, and whose fair value is not readily determinable, the cost less impairment accounting is applied. Gain or losses are realized when such investment is sold or when dividends are declared or payments are received. The Company assesses its equity investments for other-than-temporary impairment by considering factors including, but not limited to, current economic and market conditions, the operating performance of the companies including current earnings trends, and other company-specific information such as financing rounds.

Investments in entities in which the Company can exercise significant influence but does not own a majority equity interest or control are accounted for using the equity method of accounting in accordance with ASC topic 323 Investments-Equity Method and Joint Ventures. The Company adjusts the carrying amount of equity method investment for its share of the income or losses of the investee and reports the recognized income or losses in the consolidated statements of operations and comprehensive loss. The Company’s share of the income or losses of an investee are based on the shares of common stock and in-substance common stock held by the Company.

Other non-current assets

o)   Other non-current assets

As of December 31, 2018 and 2019, other non-current assets comprises mainly prepayments for the purchases of softwares.

Warrant

p)   Warrant

On October 31, 2017, a warrant to purchase Series C‑2 convertible redeemable preferred shares of the Company was issued in connection with the debt financing and is classified as a liability and is treated as upfront issuance costs based on the estimated fair value of the warrant at issuance date. Subsequently, changes in the fair value of the warrant for Series C‑2 convertible redeemable preferred shares is recorded in the consolidated statements of operations and comprehensive loss. The upfront issuance costs are amortized over the term of the debt financing.

As of December 31, 2018 and 2019, upfront issuance costs of RMB0.7 million and nil were included in other non-current assets, respectively.

Revenue recognition

q)   Revenue recognition

The Group adopted ASC Topic 606, "Revenue from Contracts with Customers" for all periods presented. Consistent with the criteria of Topic 606, the Group recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to receive in exchange for those goods or services using the five steps defined under ASC Topic 606.

The Group assesses its revenue arrangements against specific criteria in order to determine if it is acting as principal or agent. Based on revenue arrangements, there are no multiple performance obligations identified. Revenue is recognized upon transfer of control of promised goods or services to a customer.

Revenue is recorded net of Value Added Tax (“VAT”) and related surcharges collected from customers, which are subsequently remitted to government authorities.

Auto shows revenue

The Group’s online website and offline infrastructure allow them to organize auto shows, which aim at facilitating transactions between consumers and auto dealers that includes auto dealers, automakers and automotive service providers. The Group charges a fixed admission fee per auto show event to its industry customers for arranging, decorating and providing booth space at auto shows. The Group has identified one performance obligation for the transaction - providing a decorated venue for auto dealers, automakers and automotive service providers, as the individual service promised in auto show contracts are not distinct individually. As the Group has control of the auto show services and discretion in establishing the price of auto show admission fee to auto dealers, automakers and other automotive service providers, it is considered to be a principal in accordance with ASC 606. The auto shows revenue is recognized over the period of the contract when the services are provided.

Special promotion events revenue

The Group provides integrated services to support auto dealers' own special promotion events during a specific period. The services include event planning and execution, marketing, training and onsite coaching, etc. The Group charges a fixed service fee per special promotion event. The Group has identified one performance obligation as the individual service promised in service contracts are not distinct individually. As the Group has control of the service and discretion in establishing the price of the fee to auto dealers, it is considered to be a principal in accordance with ASC 606. The special promotion events revenue is recognized over the period of the contract when the services are provided.

Group-purchase facilitation revenue

The Group facilitates transactions between consumers and auto dealers by organizing group-purchase events. The Group charges group-purchase facilitation revenue to the auto dealers in the form of either a fixed fee per event or a fixed fee per car sold during the group-purchase event. There is no financing component or consideration payable to any consumers. The Group has identified one performance obligation - organizing group-purchase events. As the Group has control of the group-purchase facilitation services and discretion in establishing the price of group-purchase facilitation service fee, it is considered to be a principal in accordance with ASC 606. Since the Group’s performance obligation is satisfied once the transaction is complete, the group-purchase facilitation service revenue is recognized at the point in time when the service of group-purchase facilitation is rendered, which occurs upon the closing of the group-purchase event.

Virtual dealership revenue

The Group operates a virtual dealership by connecting automakers or franchised dealerships with secondary dealers whereby the Group purchases cars on behalf of the secondary dealers from the automakers or franchised dealerships. The Group charges a commission fee at a pre-agreed percentage of the car costs to the secondary dealers. As the Group has neither inventory risk nor the discretion to establish the cost of cars to secondary dealers, it is considered to be an agent in accordance with ASC 606. The virtual dealership commission revenue is recognized upon the secondary dealers’ acceptance of the delivery of cars from automakers or franchised dealerships.

Online marketing services revenue

The Group's online marketing services revenue primarily include (i) demand-side platform services and (ii) marketing information services.

The demand-side platform services generate revenue through (1) online advertising services and (2) advertising space resale services. For the advertising services, the Group provides advertising spaces on the website to customers and recognize the service fees received as revenue on a straight-line basis over the period of the service period. Under the advertising space resale services, the Group purchases advertising spaces wholesale from suppliers such as search engines and other online advertising channels and resell those spaces to the customers. The customers pay the Group a membership fee to access these spaces. The Group recognizes the membership fee on a straight-line basis over the membership period, which is usually one year. Because the Group does not have discretion over the price of advertisement charged by suppliers, who are the primary obligors for providing the advertising services, revenue from advertising space resale services is recognized on a net basis.

For the marketing information services, the Group generates consumers’ demand information through its online channels and provides to the industry customers upon consumers' consent. The marketing information service fee is charged based on the quantity of consumers’ demand information delivered. Revenue is recognized at a point in time upon the delivery of such consumers’ demand information.

Cost of revenue

r)    Cost of revenues

Costs of revenues, consist primarily of rental costs for auto show venues, venue set-up costs, security costs, direct labor costs and other direct costs.

Research and development expenses

s)    Research and development expenses

Research and development expenses mainly consist of payroll-related expenses incurred for the employees who develop and enhance the Group’s websites and platform of applications.

Selling and marketing expenses

t)    Selling and marketing expenses

Selling and marketing expenses consist primarily of advertising and promotional expenses, salaries and other compensation-related expenses for the Group’s sales and marketing personnel. Advertising and promotional expenses consist primarily of costs for the promotion of corporate image and offline events. The Group expenses all advertising and promotional expenses as incurred and classifies them under selling and marketing expenses. For the years ended December 31, 2017, 2018 and 2019, the advertising and promotional expenses were RMB134.2 million, RMB238.0million and RMB291.2 million, respectively.

Leases

u)   Leases

Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Rental expense is recognized from the date of initial possession of the leased property on a straight-line basis over the term of the lease. Certain lease agreements contain rent holidays, which are recognized on a straight-line basis over the lease term. Lease renewal periods are considered on a lease-by-lease basis and are generally not included in the initial lease terms. Rental costs for auto show venues incurred by the Group were RMB31 million, RMB67 million and RMB77 million for the years ended December 31, 2017, 2018 and 2019, respectively. Rental expenses for office space incurred by the Group were RMB6.6 million, RMB6.6 million and RMB8.7 million for the years ended December 31, 2017, 2018 and 2019, respectively.

The Group has no capital leases for any of the periods presented.

Share-based compensation

v)    Share-based compensation

Share-based compensation expenses arise from share-based awards, including share options for the purchase of ordinary shares and restricted shares. The Company accounts for share-based awards granted to employees in accordance with ASC 718 Compensation—Stock Compensation and share-based awards granted to non-employee in accordance with ASC 505. For share options for the purchase of ordinary shares granted to employees determined to be equity classified awards, the related share-based compensation expenses are recognized in the consolidated financial statements 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 share price as well as assumptions regarding a number of complex and subjective variables, including the expected share price volatility, actual and projected employee share option exercise behavior, risk-free interest rates and expected dividends. The fair value of the ordinary shares is assessed using the income approach/discounted cash flow method, 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 actual 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.

Share-based compensation expenses for share options granted to non-employees are measured at fair value at the earlier of the performance commitment date or the date service is completed, and recognized over the period during which the service is provided. The Group applies the guidance in ASC 505‑50 to measure share options granted to non-employees based on the then-current fair value at each reporting date.

If a share-based award is modified after the grant date, the Group evaluates for such modifications in accordance with ASC 718 Compensation—Stock Compensation and if the modification is determined to be a probable-to-probable (Type 1) modification, additional compensation expenses are recognized in an amount equal to the excess of the fair value of the modified equity instrument over the fair value of the original equity instrument immediately before modification. The additional compensation expenses are recognized immediately on the date of modification or over the remaining requisite service period, depending on the vesting status of the award.

Employee benefits

w)   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, VIEs and subsidiaries of VIEs 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 amounts of such employee benefit expenses, which were expensed as incurred, were approximately RMB10.8 million, RMB24.6 million and RMB39.2 million for the years ended December 31, 2017, 2018 and 2019, respectively.

Taxation

x)    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 income 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 income 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 income tax assets and liabilities of a change in tax rates or tax laws is recognized in the 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 income tax assets if it is considered more likely than not that some portion or all of the deferred income tax assets will not be realized.

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 50% likely of being realized upon settlement. The Group recognizes interest and penalties, if any, under accrued expenses and other current liabilities on its consolidated balance sheet and under other expenses in its consolidated statements of operations and comprehensive loss. The Group did not have any significant unrecognized uncertain tax positions as of and for the years ended December 31, 2017, 2018 and 2019.

Related parties

y)    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

z)    Net loss per share

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 preferred shares, share options, convertible loan, warrant and restricted shares granted, unless they were anti-dilutive. The computation of diluted net income/(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 income/(loss) per share.

Statutory reserves

aa) Statutory reserves

In accordance with China’s Company Laws, the Company’s VIEs in PRC must make appropriations from their after-tax profit (as determined under the accounting principles generally acceptable in China ("PRC GAAP")) 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 50% of the registered capital of the respective company. Appropriation to the discretionary surplus fund is made at the discretion of the respective company.

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 50% of the registered capital of the respective company. Appropriations to the other two reserve funds are at the respective companies’ discretion.

The Company has not appropriated any amount to statutory reserves for the years ended December 31, 2017, 2018 and 2019 as its subsidiaries, VIEs and subsidiaries of VIEs in the PRC are still in accumulated deficit position.

Comprehensive loss

bb) Comprehensive loss

Comprehensive loss is defined to include all changes in equity 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 (loss)/income, as presented on the consolidated balance sheets, consists of accumulated foreign currency translation adjustments.

Non-controlling interests

cc) Non-controlling interests

Non-controlling interests are recognized to reflect the portion of the equity of majority-owned subsidiary which is not attributable, directly or indirectly, to the controlling shareholder. Non-controlling interests are classified as a separate line item in the equity section of the Group's consolidated balance sheets and have been separately disclosed in the Group's consolidated statements of operations and comprehensive loss to distinguish the interests from that of the Company.

Treasury stock

dd) Treasury stock

The Company accounts for treasury shares using the cost method. Under this method, the cost incurred to purchase the shares is recorded in the treasury shares account on the consolidated balance sheets. At retirement of the treasury shares, the ordinary shares account is charged only for the aggregate par value of the shares. The excess of the acquisition cost of treasury shares over the aggregate par value is allocated between additional paid-in capital (up to the amount credited to the additional paid-in capital upon original issuance of the shares) and retained earnings.

Segment reporting

ee) 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 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 operated its continuing operations in one segment, as that term is defined by FASB ASC Topic 280, Segment reporting.

Concentrations and Risks

ff) Concentrations and Risks

Online advertising and promotional service provider

The Group relied on online advertising and promotional service providers and their affiliates for online advertising and promotional service to support its operations during the years ended December 31, 2017, 2018 and 2019 as follows:

 

 

 

 

 

 

 

 

 

 

 

For the year ended December 31, 

 

 

     

2017

     

2018

     

2019

 

Total number of online advertising and promotional service providers

 

21

 

32

 

25

 

Number of online service providers that accounted for 10% or more of the Group’s online advertising and promotional service

 

 2

 

 2

 

 2

 

Total percentage of the Group’s online advertising and promotional service expenses that were paid to these service providers who accounted for 10% or more of the Group’s online advertising and promotional service expenses

 

50

%  

43

%  

55

%

 

Credit risk

Financial instruments that potentially subject the Group to the concentration of credit risk consist of cash and cash equivalents, restricted cash, time deposits and accounts receivable. As of December 31, 2018 and 2019, all of the Group’s cash and cash equivalents, restricted cash and time deposits were held in large reputable financial institutions located in the United States of America or China, which management consider being of high credit quality. Accounts receivable is typically unsecured and is derived from revenue earned from the Company's businesses.

Major customers

There was one customer and no customer had receivable balances exceeding l0% of the total accounts receivable balances of the Group as of December 31, 2018 and 2019, respectively, as follows:

 

 

 

 

 

 

 

 

 

    

For the year ended December 31, 

 

 

    

2018

 

    

2019

 

Customer A

 

22

%

 

 5

%

 

Recently issued accounting pronouncements

gg)   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.

In January 2016, the FASB issued ASU No. 2016‑01 Financial Instruments—Overall (Subtopic 825‑10) "Recognition and Measurement of Financial Assets and Financial Liabilities". The amendments in this ASU require all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under equity method of accounting or those that result in consolidation of the investee). The amendments in this accounting standard update also require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. In addition, the amendments in this accounting standard update eliminate the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities and the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet for public business entities. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. For all other entities including not-for-profit entities and employee benefit plans within the scope of Topics 960 through 965 on plan accounting, the amendments in this update are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. All entities that are not public business entities may adopt the amendments in this update earlier as of the fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Group adopted this new standard effective on January 1, 2019. The adoption of ASU 2016‑01 did not have a material impact on the Group’s consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases ("ASU 2016-02"). Further, as a clarification of the new guidance, the FASB issued several amendments and updates. Under the new provisions, all lessees will report a right-of-use asset and a liability for the obligation to make payments for all leases with the exception of those leases with a term of 12 months or less. All other leases will fall into one of two categories: (i) financing leases, similar to capital leases, which will require the recognition of an asset and liability, measured at the present value of the lease payments and (ii) operating leases which will require the recognition of an asset and liability measured at the present value of the lease payments. Lessor accounting remains substantially unchanged with the exception that no leases entered into after the effective date will be classified as leveraged leases. For sale leaseback transactions, the sale will only be recognized if the criteria in the new revenue recognition standard are met. The amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years for public entities. For all other entities, the amendments in this update are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. The Group will adopt the new lease guidance in its consolidated financial statements for the year ended December 31, 2020. The Group has finalized its analysis and the most significant impact will be the recognition of right-of-use assets and lease liabilities for rental of its office space.

In June 2016, the FASB amended guidance related to the impairment of financial instruments as part of ASU 2016‑13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. For public business entities that are U.S. Securities and Exchange Commission (SEC) filers, the amendments in this update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For all other public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. For all other entities, including not-for-profit entities and employee benefit plans within the scope of Topics 960 through 965 on plan accounting, the amendments in this update are effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. All entities may adopt the amendments in this update earlier as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The guidance replaces the incurred loss impairment methodology with an expected credit loss model for which the Group is required to recognize an allowance based on its estimate of expected credit loss. The Group will adopt the new credit loss guidance beginning January  1, 2021. The Group is currently evaluating the impact of this new guidance on its consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 provides guidance for targeted changes with respect to how cash receipts and cash payments are classified in the statements of cash flows, with the objective of reducing diversity in practice. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. The Group adopted ASU 2016-15 on January 1, 2019 and the adoption has no material impact on the Group's consolidated financial statements.

In June 2018, the FASB issued ASU No. 2018‑07 Compensation—Stock Compensation (Topic 718) "Improvements to Nonemployee Share-Based Payment Accounting". The amendments in this update expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period). The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. The Group will adopt the new stock compensation guidance beginning January 1, 2020 and the adoption will have no material impact on the Group's consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates, adds and modifies certain disclosure requirements for fair value measurements. Under the guidance, public companies will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The guidance is effective for all entities for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years, but entities are permitted to early adopt either the entire standard or only the provisions that eliminate or modify the requirements. The Group will adopt the new fair value measurement guidance beginning January 1, 2020 and the adoption will have no material impact on the Group's consolidated financial statements.

v3.20.1
Accounts receivable, net (Tables)
12 Months Ended
Dec. 31, 2019
Accounts receivable, net  
Schedule of accounts and notes receivables

Accounts and notes receivables are consisted of the following:

 

 

 

 

 

 

 

    

December 31, 2018

    

December 31, 2019

 

 

RMB

 

RMB

Notes receivable

 

3,625

 

12,209

Accounts receivable, gross

 

49,121

 

74,357

Less: allowance for doubtful accounts

 

(491)

 

(14,175)

Accounts receivable, net

 

52,255

 

72,391

 

Schedule of allowance for doubtful accounts

 

 

 

 

 

 

 

 

    

December 31, 2017

    

December 31, 2018

    

December 31, 2019

 

 

RMB

 

RMB

 

RMB

Balance at the beginning of the period

 

 -

 

418

 

491

Additions charged to bad debt expense

 

418

 

491

 

13,684

Write-off of bad debt allowance

 

 -

 

(418)

 

 -

Balance at the end of the period

 

418

 

491

 

14,175

 

v3.20.1
CONSOLIDATED STATEMENTS OF CASH FLOWS
¥ in Thousands, $ in Thousands
12 Months Ended
Dec. 31, 2019
USD ($)
Dec. 31, 2019
CNY (¥)
Dec. 31, 2018
CNY (¥)
Dec. 31, 2017
CNY (¥)
Cash flows from operating activities:        
Net Loss $ (36,097) ¥ (251,299) ¥ (78,700) ¥ (90,671)
Adjustment to reconcile net loss to net cash used in operating activities:        
Provisions for asset impairment 144 1,000    
Depreciation of property, equipment and software 500 3,483 1,060 965
Amortization of leasehold improvement 42 287    
Amortization of non-current assets 94 656    
Share based compensation 15,796 109,968 78,133 1,896
Allowance for doubtful accounts 1,966 13,684 491 418
Investment loss from long-term investments 132 917 660 0
Change in fair value of warrant 0 0 3,843 1,390
Interests income/(expenses) - net (36) (252) 2,083 1,147
Losses/ (Gains) on disposal of property and equipment (1) (5) 1  
Bank rebate (88) (611)    
Exchange losses 95 661    
Changes in operating assets and liabilities:        
Accounts receivable (4,385) (30,524) (44,279) (4,014)
Receivables due from related parties       (1,000)
Prepayment and other current assets (3,462) (24,100) (50,377) (1,441)
Held-for-sale assets     837 251
Accounts payable (168) (1,171) 3,656 3,153
Advance from customers (1,422) (9,899) 4,953 7,116
Salary and welfare benefits payable 2,757 19,190 7,538 5,031
Other taxes payable (149) (1,037) (4,502) 13,281
Other current liabilities 1,041 7,246 21,265 3,562
Held-for-sale liabilities       (746)
Net cash used in operating activities (23,241) (161,806) (53,338) (59,662)
Cash flows from investing activities:        
Purchase of property, equipment and software, and other non-current assets (1,902) (13,243) (20,708) (272)
Placement of time deposits (10,021) (69,762)    
Cash payment of bridge loan (14,242) (99,148)    
Cash paid for short-term investments       (4,000)
Cash paid for long-term investments (776) (5,400) (4,250)  
Cash received from disposal of property, equipment and software 1 5 12  
Cash received from disposal of short-term investments     4,200  
Net cash used in investing activities (26,940) (187,548) (20,746) (4,272)
Cash flows from financing activities:        
Cash payments for repurchase of restricted shares from employees (3,767) (26,228)    
Cash payments for repurchase of shares (1,975) (13,749)    
Cash received from convertible loans       41,165
Cash received from short-term borrowings     19,942 37,797
Cash repayments of short-term borrowings     (44,913) (17,854)
Cash received from long-term borrowings       9,945
Cash repayments of long-term borrowings     (2,932) (1,985)
Cash repayments of borrowing from a third party     (19,486) (12,991)
Cash received from loans provided by employees     11,199 3,235
Cash repayments of loans provided by employees     (14,434)  
Proceeds from issuance of Series C+ convertible redeemable preferred shares       59,091
Payment of issuance cost for Series C+ convertible redeemable preferred shares       (449)
Proceeds from issuance of Series D-1 convertible redeemable preferred shares     151,118  
Payment of issuance cost for Series D-1 convertible redeemable preferred shares     (307)  
Proceeds from issuance of Series D-2 convertible redeemable preferred shares     359,834  
Payment of issuance cost for Series D-2 convertible redeemable preferred share     (1,267)  
Proceeds of initial public offering, net of issuance costs     103,372  
Cash received from the depositary bank 392 2,732    
Net cash generated from/(used in) financing activities (5,350) (37,245) 562,126 117,954
Effect of exchange rate changes on cash, cash equivalents and restricted cash 501 3,490 12,713 (1,002)
Net increase/(decrease) in cash, cash equivalents and restricted cash (55,030) (383,109) 500,755 53,018
Cash, cash equivalents and restricted cash at beginning of the year 83,105 578,558 77,803 24,785
Including:        
Cash and cash equivalents at the beginning of the year 83,105 578,558 66,695 24,785
Restricted cash at the beginning of the year     11,108  
Cash, cash equivalents and restricted cash at end of the year 28,075 195,449 578,558 77,803
Including:        
Cash and cash equivalents at the end of the year 27,855 193,920 578,558 66,695
Restricted cash at the end of the year $ 220 ¥ 1,529   11,108
Supplemental disclosures of cash flow information:        
Cash paid for interest expense     (4,340) (1,366)
Supplemental schedule of non-cash investing and financing activities:        
Accretions to pre-IPO preferred shares redemption value     35,066 20,945
Imputed interest for borrowing from a third party     450 ¥ 1,147
Conversion and redesignation of pre-IPO preferred shares into Class A ordinary shares     ¥ 930,436  
v3.20.1
CONSOLIDATED BALANCE SHEETS
¥ in Thousands, $ in Thousands
Dec. 31, 2019
USD ($)
Dec. 31, 2019
CNY (¥)
Dec. 31, 2018
CNY (¥)
Current assets:      
Cash and cash equivalents $ 27,855 ¥ 193,920 ¥ 578,558
Restricted cash 220 1,529 0
Time deposits 10,021 69,762  
Accounts receivable, net 10,398 72,391 52,255
Prepayment and other current assets 27,835 193,782 68,819
Total current assets 76,329 531,384 699,632
Non-current assets:      
Property, equipment and software, net 2,925 20,360 11,636
Long-term investments 1,131 7,874 4,390
Other non-current assets 1,088 7,577 10,267
Total non-current assets 5,144 35,811 26,293
Total assets 81,473 567,195 725,925
Current liabilities:      
Accounts payable (including accounts payable of the consolidated variable interest entities ("VIEs") without recourse to the primary beneficiary of RMB1,871 and RMB3,624 as of December 31, 2018 and 2019, respectively) 837 5,825 6,996
Advance from customers (including advance from customers of the consolidated VIEs without recourse to the primary beneficiary of RMB13,922 and RMB2,677 as of December 31, 2018 and 2019, respectively) 690 4,805 14,704
Salary and welfare benefits payable (including salary and welfare benefits payable of the consolidated VIEs without recourse to the primary beneficiary of RMB30,535 and RMB29,970 as of December 31, 2018 and 2019, respectively) 9,771 68,025 48,835
Other taxes payable (including other taxes payable of the consolidated VIEs without recourse to the primary beneficiary of RMB12,651 and RMB12,412 as of December 31, 2018 and 2019, respectively) 3,231 22,494 16,974
Other current liabilities (including other current liabilities of the consolidated VIEs without recourse to the primary beneficiary of RMB5,306 and RMB800 as of December 31, 2018 and 2019, respectively) 5,877 40,913 36,426
Total current liabilities 20,406 142,062 123,935
Other non-current liabilities 310 2,158 0
Total non-current liabilities 310 2,158 0
Total liabilities 20,716 144,220 123,935
Shareholders' equity      
Treasury stock (6,879) (47,888) 0
Additional paid-in capital 170,585 1,187,577 1,077,183
Accumulated deficit (103,229) (718,666) (468,026)
Accumulated other comprehensive (loss)/income 345 2,403 (7,368)
Total TuanChe Limited shareholders' equity 60,852 423,634 601,990
Non-controlling interests (95) (659)  
Total shareholders' equity 60,757 422,975 601,990
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 81,473 567,195 725,925
Class A ordinary shares      
Shareholders' equity      
Ordinary shares 25 173 166
Class B ordinary shares      
Shareholders' equity      
Ordinary shares $ 5 ¥ 35 ¥ 35
v3.20.1
Other current liabilities
12 Months Ended
Dec. 31, 2019
Other current liabilities  
Other current liabilities

11.  Other current liabilities

The following is a summary of other current liabilities as of December 31, 2018 and 2019:

 

 

 

 

 

 

 

    

December 31, 2018

    

December 31, 2019

 

    

RMB

    

RMB

Professional service fee

 

10,238

 

5,741

Online promotional expense payables

 

9,554

 

28,595

Software purchases payables

 

2,760

 

 -

Tickets printing&delivery payables

 

2,450

 

1,271

Advertising expenses

 

8,611

 

1,798

Others

 

2,813

 

3,508

Total

 

36,426

 

40,913

 

v3.20.1
Long- term investments
12 Months Ended
Dec. 31, 2019
Long- term investments  
Long- term investments

7.    Long- term investments

As of December 31, 2018 and 2019, long-term investments include equity investments in privately held companies.

a)

Equity investments without readily determinable fair values

The Group carries these investments at cost less impairment as the Group does not have significant influence and the investments do not have a readily determinable fair value. As of December 31, 2019, the carrying value of equity investments at cost less impairment was RMB5.7 million.

b)

Equity investments accounted for using the equity method

On September 3, 2018, TuanChe Internet invested RMB4.0 million in cash for a 40% equity interest in Shanghai Three Drivers Culture Media Co., Limited ("STDC") that operates a car media business. TuanChe Internet applies the equity method of accounting to account for its equity investment in common stock of STDC, over which it has significant influence but does not own a majority equity interest or otherwise control. As of December 31, 2019, the carrying value of equity investment for using equity method was RMB2.2 million.

Impairment provision made for the years ended December 31, 2017 , 2018 and 2019 was nil,  nil and RMB1.0 million  respectively. For the year ended December 31, 2019, the Group made impairment provision of RMB1.0 million for one of its equity investments without readily determinable fair values.

v3.20.1
Subsequent events
12 Months Ended
Dec. 31, 2019
Subsequent events  
Subsequent events

19.   Subsequent events

COVID-19 pandemic

The outbreak of a novel strain of coronavirus (COVID-19) spread throughout China and to other countries globally. The Group, as well as its suppliers and customers, have experienced significant business disruptions due to government-mandated quarantine measures and travel restrictions to contain the spread of the pandemic. Out of public health concerns, the Group cancelled all offline events such as auto shows and special promotion events previously scheduled in February and March 2020, and held very few offline events in April 2020. The Group expects to continue to reduce the number of offline events in the coming months, as the Chinese government has issued guidelines to continue to curb indoor public gatherings. In addition, the spread of COVID-19 may continue to cause a general slowdown of the Chinese economy in 2020 and beyond, leading to a further slump in the demand for automobiles in China. The reduction in the number of auto shows and special promotion events, combined with a sustained decline in demand in the near future, could materially and adversely affect the Group’s business, results of operations, financial condition and cash flows. Furthermore, as the business operations of the industry customers have also been disrupted, the Group has experienced a delay in collecting the accounts receivable due to the COVID-19 pandemic, which could materially and adversely affect its liquidity. In response to the material impact of the COVID-19 pandemic, the Group has implemented measures to adjust the pace of its operation expansion, conserve resources such as furlough arrangements, scaling back the Group's recruitment budget and employee size and may resort to other costs cutting measures if the outbreak of COVID-19 and its impact persist or escalate, which may have a material adverse effect on the Group's business, results of operations, financial condition and cash flows. The Group is closely monitoring the development of the COVID-19 pandemic and continuously evaluating its impact on the Group's business, results of operations, financial condition and cash flows, the severity of which will depend on the duration of the pandemic and the government’s responsive measures. For the first quarter of 2020, the Company expects net revenues to range from approximately RMB9.0 million to RMB10.0 million, representing a year-over-year approximate decrease of 92.7% to 91.9%, mainly due to cancellation of offline events in February and March as a result of the COVID-19 pandemic.

Acquisition of Longye International

The closing of the acquisition transaction (the "Closing") pursuant to the share purchase agreement (the "Agreement") with, among other parties, Longye International Limited, a company incorporated in the Cayman Islands ("Longye"), took place on January 13, 2020 (the "Closing Date"). Following the Closing, the Company has acquired the entire equity interest in Longye for a consideration of RMB200 million in the form of a combination of cash and the Company's securities. The Company had extended a bridge loan of an amount of U.S. dollar equivalent to RMB100 million upon the execution of the Agreement and other related documents. On the Closing Date, the Company credited this bridge loan to the cash portion of the purchase price, and issued 8,366,444 Class A ordinary shares of the Company ("Consideration Shares") to the selling shareholders of Longye in satisfaction of the securities portion of the total consideration. The Consideration Shares are calculated by dividing a US-dollar equivalent of RMB100 million by the average closing price of the Company's Class A ordinary shares (as represented by American depositary shares) during the thirty-day period ended on May 10, 2019. As of the Closing Date, 20% of the Consideration Shares had fully vested, while the remaining Consideration Shares remain subject to contractual restrictions on transfer. On January 1, 2021, and January 1, 2022, the contractual restrictions related to 30% and 50% of the total Consideration Shares will be lifted, respectively. The above 100% equity interest acquisitions are accounted for as a business combination. The Group is in process of determining the fair value of acquired assets and liabilities, based on management’s experiences with similar assets and liabilities with the assistance from an independent valuation firm. Through the date on which the financial statements were issued, the valuation report for the acquisition is not finished and the initial accounting for the business combination were incomplete.

v3.20.1
Ordinary shares
12 Months Ended
Dec. 31, 2019
Ordinary shares  
Ordinary shares

15.  Ordinary shares

On November 20, 2018, the Company completed its initial public offering on the NASDAQ Capital Market. In this offering, the Company issued and sold to the public 2,600,000 ADS, representing 10,400,000 Class A ordinary shares, at a price of US$7.80 per ADS. The aggregate proceeds the Company received from this offering, net of issuance costs, were approximately RMB 103.4 million (US$15.0 million).

Immediately prior to the completion of this offering, all of the issued and outstanding pre-IPO preferred shares were automatically converted and pre-IPO China Best redeemable shares, pre-IPO Series A convertible redeemable preferred shares, pre-IPO Series B-1 convertible redeemable preferred shares, pre-IPO Series B-2 convertible redeemable preferred shares, pre-IPO Series C-1 convertible redeemable preferred shares, pre-IPO Series C-2 convertible redeemable preferred shares, pre-IPO Series C+ convertible redeemable preferred shares, pre-IPO Series C-4 convertible redeemable preferred shares were re-designated into Class A ordinary shares on a one-for-one basis, pre-IPO Series D-1 convertible redeemable preferred shares and pre-IPO Series D-2 convertible redeemable preferred shares were re-designated into Class A ordinary shares on a 1-for-1.47 basis.

On June 17, 2019, the Company announced that its board of directors authorized a share repurchase program of up to US$20 million of the Company's outstanding ADSs within the next twelve months. As of December 31, 2019, the Company has repurchased approximately 1,710,952 ordinary shares (equivalent to 427,738 ADSs) on the open market in a total consideration of approximately RMB15.1 million (equivalent to US$2.0 million), at an average price of US$1.16 per share (US$4.65 per ADSs).

The repurchased shares has been reserved and accounted for under the cost method and presented as “treasury stock” in equity on the Group’s consolidated balance sheet.

The Company agreed to issue 80,000 ordinary shares (20,000 ADSs) to a nonemployee for the provision of consulting services from August 2019 to August 2020 The equity award granted to the nonemployee is fully vested and non-forfeiture at the date of grant. The share-based compensation to this nonemployee was therefore accounted for based on the fair value of the equity instrument granted and recognized in the consolidated statement of comprehensive loss for the year ended December 31, 2019 at the date of grant.

v3.20.1
Additional Information - Condensed Financial Statements of the Parent Company
12 Months Ended
Dec. 31, 2019
Additional Information - Condensed Financial Statements of the Parent Company  
Additional Information - Condensed Financial Statements of the Parent Company

23.  Additional Information – Condensed Financial Information of the Parent Company

 

Condensed statements of operations and comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

For the year ended December 31,

 

    

2017

    

2018

    

2019

 

 

RMB

 

RMB

 

RMB

 

US$

Operating expenses:

 

  

 

  

 

  

 

  

Selling and marketing expenses

 

 -

 

(1,511)

 

(256)

 

(37)

General and administrative expenses

 

(1,600)

 

(12,936)

 

(19,801)

 

(2,844)

Research and development expenses

 

 -

 

(84)

 

(422)

 

(61)

Total operating expenses

 

(1,600)

 

(14,531)

 

(20,479)

 

(2,942)

Interest (expenses)/income, net

 

(657)

 

(1,470)

 

6,142

 

883

Change in fair value of warrant

 

(1,390)

 

(3,843)

 

 -

 

 -

Equity in loss of subsidiaries, VIEs and subsidiaries of VIEs

 

(87,023)

 

(58,864)

 

(235,804)

 

(33,871)

Others, net

 

(1)

 

 8

 

(499)

 

(72)

Net loss attributable to ordinary shareholders

 

(90,671)

 

(78,700)

 

(250,640)

 

(36,002)

Accretions to preferred shares redemption value

 

(20,945)

 

(35,066)

 

 -

 

 -

Net loss

 

(111,616)

 

(113,766)

 

(250,640)

 

(36,002)

Other comprehensive (loss)/income:

 

  

 

  

 

  

 

  

Foreign currency translation adjustments, net of nil tax

 

(1,367)

 

3,401

 

9,771

 

1,404

Total comprehensive loss

 

(112,983)

 

(110,365)

 

(240,869)

 

(34,598)

 

Condensed balance sheets:

 

 

 

 

 

 

 

 

 

 

As of December 31

 

    

2018

    

2019

 

 

RMB

 

RMB

 

US$

ASSETS

 

  

 

  

 

  

Current assets:

 

  

 

  

 

  

Cash and cash equivalents

 

458,936

 

102,002

 

14,652

Time deposits

 

 -

 

69,762

 

10,021

Prepayment and other current assets

 

 -

 

104,572

 

15,021

Receivables due from subsidiaries, VIEs and subsidiaries of VIEs

 

108,066

 

110,348

 

15,850

Total current assets

 

567,002

 

386,684

 

55,544

Non-current assets:

 

  

 

  

 

  

Investments in subsidiaries, VIEs and subsidiaries of VIEs

 

39,157

 

46,087

 

6,620

Other non-current assets

 

644

 

 -

 

 -

Total non-current assets

 

39,801

 

46,087

 

6,620

TOTAL ASSETS

 

606,803

 

432,771

 

62,164

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

  

 

  

 

  

Current liabilities:

 

  

 

  

 

  

Other taxs payable

 

 -

 

6,654

 

956

Other current liabilities

 

 -

 

325

 

47

Payables due to subsidiaries, VIEs and subsidiaries of VIEs

 

4,813

 

 -

 

 -

Total current liabilities

 

4,813

 

6,979

 

1,003

Non-current liabilities:

 

  

 

  

 

  

Other non-current liabilities

 

 -

 

2,158

 

309

Total non-current liabilities

 

 -

 

2,158

 

309

TOTAL LIABILITIES

 

4,813

 

9,137

 

1,312

SHAREHOLDERS’ EQUITY

 

 

 

  

 

  

Class A ordinary shares

 

166

 

173

 

25

Class B ordinary shares

 

35

 

35

 

 5

Treasury stock

 

 -

 

(47,888)

 

(6,879)

Additional paid-in capital

 

1,077,183

 

1,187,577

 

170,585

Accumulated deficit

 

(468,026)

 

(718,666)

 

(103,229)

Accumulated other comprehensive (loss)/income

 

(7,368)

 

2,403

 

345

TOTAL SHAREHOLDERS' EQUITY

 

601,990

 

423,634

 

60,852

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

 

606,803

 

432,771

 

62,164

 

Condensed statements of cash flows:

 

 

 

 

 

 

 

 

 

 

 

 

For the year ended December 31,

 

    

2017

    

2018

    

2019

 

 

RMB

 

RMB

 

RMB

 

US$

Net cash used in operating activities

 

(6,466)

 

(9,640)

 

(3,086)

 

(442)

Cash flows from investing activities:

 

  

 

  

 

  

 

  

Cash paid for investments in subsidiaries, VIEs and subsidiaries of VIEs

 

(47,002)

 

(201,744)

 

(151,006)

 

(21,691)

Cash payment of time deposits

 

 -

 

 -

 

(69,762)

 

(10,021)

Cash payment of bridge loan

 

 -

 

 -

 

(99,148)

 

(14,242)

Net cash used in investing activities

 

(47,002)

 

(201,744)

 

(319,916)

 

(45,954)

Cash flows from financing activities:

 

  

 

  

 

  

 

  

Cash payments for repurchase of restricted shares from employees

 

 -

 

 -

 

(26,228)

 

(3,767)

Cash payments for repurchase of shares

 

 -

 

 -

 

(13,749)

 

(1,975)

Cash received from convertible loans

 

41,165

 

 -

 

 -

 

 -

Proceeds from issuance of Series C+ convertible redeemable preferred shares

 

59,091

 

 -

 

 -

 

 -

Payments of issuance cost for Series C+ convertible redeemable preferred shares

 

(449)

 

 -

 

 -

 

 -

Proceeds from issuance of Series (D-1) convertible redeemable preferred shares

 

 -

 

151,118

 

 -

 

 -

Payment of issuance cost for Series  (D-1) convertible redeemable preferred shares

 

 -

 

(307)

 

 -

 

 -

Proceeds from issuance of Series (D-2) convertible redeemable preferred shares

 

 -

 

359,834

 

 -

 

 -

Payment of issuance cost for Series  (D-2) convertible redeemable preferred shares

 

 -

 

(1,267)

 

 -

 

 -

Proceeds of initial public offering, net of issuance costs

 

 -

 

103,372

 

 -

 

 -

Cash received from the depositary bank

 

 -

 

 -

 

2,732

 

392

Net cash generated from/(used in) financing activities

 

99,807

 

612,750

 

(37,245)

 

(5,350)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

(981)

 

12,134

 

3,313

 

476

Net increase/(decrease) in cash, cash equivalents and restricted cash

 

45,358

 

413,500

 

(356,934)

 

(51,270)

Cash, cash equivalents and restricted cash at the beginning of year

 

78

 

45,436

 

458,936

 

65,922

Cash, cash equivalents and restricted cash at the end of year

 

45,436

 

458,936

 

102,002

 

14,652

 

Basis of presentation

 

The Company's accounting policies are the same as the Group's accounting policies with the exception of the accounting for the investments in subsidiaries, VIEs and subsidiaries of VIEs.

 

For the Company only condensed financial information, the Company records its investments in subsidiaries, VIEs and subsidiaries of VIEs under the equity method of accounting as prescribed in ASC 323, Investments—Equity Method and Joint Ventures. Such investments are presented on the Condensed balance sheets as "Investments in subsidiaries, VIEs and subsidiaries of VIEs" and shares in the subsidiaries, VIEs and subsidiaries of VIEs' loss are presented as "Equity in loss of subsidiaries, VIEs and subsidiaries of VIEs" on the Condensed statements of operations and comprehensive loss. The parent company only condensed financial information should be read in conjunction with the Group' consolidated financial statements.

v3.20.1
Additional Information - Condensed Financial Statements of the Parent Company - Condensed balance sheets (Details)
¥ in Thousands, $ in Thousands
12 Months Ended
Dec. 31, 2019
USD ($)
Dec. 31, 2019
CNY (¥)
Dec. 31, 2018
CNY (¥)
Dec. 31, 2019
CNY (¥)
Dec. 31, 2018
USD ($)
Dec. 31, 2018
CNY (¥)
Dec. 31, 2017
CNY (¥)
Dec. 31, 2016
CNY (¥)
Current assets:                
Cash and cash equivalents $ 27,855     ¥ 193,920 $ 83,105 ¥ 578,558 ¥ 66,695 ¥ 24,785
Time deposits 10,021     69,762        
Non-current assets:                
Other non-current assets 1,088     7,577   10,267    
Current liabilities:                
Other taxes payable 3,231     22,494   16,974    
Payables due to subsidiaries, VIEs and subsidiaries of VIEs 837     5,825   6,996    
Total current liabilities 20,406     142,062   123,935    
Non-current liabilities:                
Other non-current liabilities 310     2,158   0    
Total non-current liabilities 310     2,158   0    
Stockholders' Equity Attributable to Parent [Abstract]                
Treasury stock 6,879     47,888   0    
Additional paid-in capital 170,585     1,187,577   1,077,183    
Accumulated deficit (103,229)     (718,666)   (468,026)    
Accumulated other comprehensive (loss)/income 345     2,403   (7,368)    
TOTAL SHAREHOLDERS' EQUITY 60,852     423,634   601,990    
TOTAL LIABILITIES, MEZZANINE EQUITY AND SHAREHOLDERS' EQUITY 81,473     567,195   725,925    
Reportable Legal Entities Member | Parent Company [Member]                
Current assets:                
Cash and cash equivalents 14,652     102,002   458,936    
Time deposits 10,021     69,762   0    
Prepayment and other current assets 15,021     104,572   0    
Receivables due from subsidiaries, VIEs and subsidiaries of VIEs 15,850     110,348   108,066    
Total current assets 55,544     386,684   567,002    
Non-current assets:                
Investments in subsidiaries, VIEs and subsidiaries of VIEs 6,620 ¥ 46,087 ¥ 39,157          
Other non-current assets 0         644    
Total non-current assets 6,620     46,087   39,801    
TOTAL ASSETS 62,164     432,771   606,803    
Current liabilities:                
Other taxes payable 956     6,654   0    
Other current liabilities 47     325   0    
Payables due to subsidiaries, VIEs and subsidiaries of VIEs 0         4,813    
Total current liabilities 1,003     6,979   4,813    
Non-current liabilities:                
Other non-current liabilities 309     2,158   0    
Total non-current liabilities 309     2,158   0    
TOTAL LIABILITIES 1,312     9,137   4,813    
Stockholders' Equity Attributable to Parent [Abstract]                
Treasury stock (6,879)     (47,888)   0    
Additional paid-in capital 170,585     1,187,577   1,077,183    
Accumulated deficit (103,229)     (718,666)   (468,026)    
Accumulated other comprehensive (loss)/income 345     2,403   (7,368)    
TOTAL SHAREHOLDERS' EQUITY 60,852     423,634   601,990    
TOTAL LIABILITIES, MEZZANINE EQUITY AND SHAREHOLDERS' EQUITY 62,164     432,771   606,803    
Reportable Legal Entities Member | Class A ordinary shares | Parent Company [Member]                
Stockholders' Equity Attributable to Parent [Abstract]                
Paid-in capital 25     173   166    
Reportable Legal Entities Member | Class B ordinary shares | Parent Company [Member]                
Stockholders' Equity Attributable to Parent [Abstract]                
Paid-in capital $ 5     ¥ 35   ¥ 35    
v3.20.1
Taxation - Company's net operating tax loss carry forwards (Details)
¥ in Thousands
Dec. 31, 2019
CNY (¥)
Operating Loss Carryforwards [Line Items]  
Net operating tax loss carry forwards ¥ 159,344
Loss expiring in 2020  
Operating Loss Carryforwards [Line Items]  
Net operating tax loss carry forwards 34,177
Loss expiring in 2021  
Operating Loss Carryforwards [Line Items]  
Net operating tax loss carry forwards 15,037
Loss expiring in 2022  
Operating Loss Carryforwards [Line Items]  
Net operating tax loss carry forwards 19,771
Loss Expiring In 2023  
Operating Loss Carryforwards [Line Items]  
Net operating tax loss carry forwards 61,016
Loss Expiring In 2024  
Operating Loss Carryforwards [Line Items]  
Net operating tax loss carry forwards ¥ 29,343
v3.20.1
Property, equipment and software, net - Summary of property, equipment and software, net (Details) - CNY (¥)
¥ in Thousands
Dec. 31, 2019
Dec. 31, 2018
Property, Plant and Equipment [Line Items]    
Total property, equipment and software ¥ 27,645 ¥ 15,580
Less: accumulated depreciation - Furniture, electronic equipment and vehicles (3,502) (3,283)
accumulated amortization - Software (3,435) (661)
accumulated amortization - Leasehold improvement (348)  
Property, equipment and software, net 20,360 11,636
Furniture and electronic equipment    
Property, Plant and Equipment [Line Items]    
Total property, equipment and software 5,398 4,304
Vehicles    
Property, Plant and Equipment [Line Items]    
Total property, equipment and software 425 426
Software    
Property, Plant and Equipment [Line Items]    
Total property, equipment and software 18,948 10,850
Leasehold improvement    
Property, Plant and Equipment [Line Items]    
Total property, equipment and software ¥ 2,874 ¥ 0
v3.20.1
Segment Information - Additional information (Details)
12 Months Ended
Dec. 31, 2019
segment
Segment Information  
Number of operating segments 2
v3.20.1
Organization and Reorganization - Major subsidiaries of vie's (Details)
12 Months Ended
Dec. 31, 2019
Major VIEs | Beijing Zhongrui Guochuang Automobile Sales & Service Co., Ltd. ("Zhongrui Guochuang")  
Variable Interest Entity [Line Items]  
Year of incorporation 2016
Percentage of direct or indirect economic ownership 100.00%
Principal activities Auto shows
Major VIEs | TuanChe (Beijing) Automobile Sales Service Co., Ltd. ("TuanChe Automobile"  
Variable Interest Entity [Line Items]  
Year of incorporation 2015
Percentage of direct or indirect economic ownership 100.00%
Principal activities Vehicle sales facilitation
Major VIEs | Beijing GuoHeng Chuangxin Automobile Sales & Service Co., Ltd. ("GuoHeng Chuangxin")  
Variable Interest Entity [Line Items]  
Year of incorporation 2016
Percentage of direct or indirect economic ownership 100.00%
Principal activities Vehicle sales facilitation
Major VIEs | Tengzhou GuoChuang Automobile Sales & Service Co., Ltd. ("GuoChuang Automobile")  
Variable Interest Entity [Line Items]  
Year of incorporation 2016
Percentage of direct or indirect economic ownership 100.00%
Principal activities Vehicle sales facilitation
Major VIEs | Tianjin Hengyuan Chuangxin Automobile Sales & Service Co., Ltd. ("Tianjin Hengyuan")  
Variable Interest Entity [Line Items]  
Year of incorporation 2016
Percentage of direct or indirect economic ownership 100.00%
Principal activities Vehicle sales facilitation
TuanChe Internet Information Service (Beijing) Co., Ltd. ("TuanChe Internet")  
Variable Interest Entity [Line Items]  
Year of incorporation 2012
Percentage of direct or indirect economic ownership 100.00%
Principal activities Auto shows, special promotion events, online marketing services
Best Cars Limited ("Best Cars")  
Variable Interest Entity [Line Items]  
Year of incorporation 2018
Percentage of direct or indirect economic ownership 100.00%
Principal activities Holding of ordinary shares for restricted share awards
v3.20.1
Other current liabilities (Tables)
12 Months Ended
Dec. 31, 2019
Other current liabilities  
Schedule of summary of other current liabilities

 

 

 

 

 

 

    

December 31, 2018

    

December 31, 2019

 

    

RMB

    

RMB

Professional service fee

 

10,238

 

5,741

Online promotional expense payables

 

9,554

 

28,595

Software purchases payables

 

2,760

 

 -

Tickets printing&delivery payables

 

2,450

 

1,271

Advertising expenses

 

8,611

 

1,798

Others

 

2,813

 

3,508

Total

 

36,426

 

40,913

 

v3.20.1
Commitments and Contingencies (Tables)
12 Months Ended
Dec. 31, 2019
Commitments and Contingencies  
Schedule of operating leases for minimum rentals

(i)Venue for auto shows

 

 

 

 

    

Total operating lease 

 

 

commitments

2020

 

1,224

2021

 

128

Total

 

1,352

 

(ii)Office space

 

 

 

 

    

Total operating lease 

 

 

commitments

2020

 

10,031

2021

 

5,658

2022

 

1,534

2023

 

499

2024

 

291

Total

 

18,013

 

v3.20.1
Discontinued operations - Results of discontinued operations (Details) - CNY (¥)
¥ in Thousands
6 Months Ended 12 Months Ended
Jun. 30, 2018
Dec. 31, 2017
Results of discontinued operations:    
Net revenues ¥ 4,807 ¥ 17,768
Cost of revenues (280) (627)
Gross profit 4,527 17,141
Operating expenses :    
Selling and marketing expenses (6,800) (30,065)
General and administrative expenses (1,368) (1,077)
Total operating expense (8,168) (31,142)
Loss from operations (3,641) (14,001)
Other expenses:    
Interest expenses, net (676) (924)
Gain from disposal of discontinued operations 771 0
Others, net (66) (52)
Loss from discontinued operations before income taxes (3,612) (14,977)
Income tax expense 0 0
Net loss from discontinued operations ¥ (3,612) ¥ (14,977)
v3.20.1
Significant Accounting Policies - Property, equipment and software, net (Details)
12 Months Ended
Dec. 31, 2019
Furniture and electronic equipment  
Property, Plant and Equipment [Line Items]  
Estimated useful lives 3 years
Vehicles  
Property, Plant and Equipment [Line Items]  
Estimated useful lives 10 years
Software  
Property, Plant and Equipment [Line Items]  
Estimated useful lives 5 years
Leasehold improvement  
Property, Plant and Equipment [Line Items]  
Estimated useful lives Shorter of expected lives of leasehold improvements and lease term
v3.20.1
Share-based Compensation - Share options activities (Details)
$ / shares in Units, ¥ in Thousands, $ in Thousands
12 Months Ended
Dec. 31, 2016
CNY (¥)
$ / shares
shares
Dec. 31, 2018
USD ($)
$ / shares
shares
Dec. 31, 2017
$ / shares
shares
Dec. 31, 2017
CNY (¥)
shares
Share options activities outstanding        
Outstanding Balance   18,712 20,529  
Granted   205 60  
Exercised   0 0  
Forfeited   (3,443) (1,877)  
Replaced by restricted shares   (15,474)    
Outstanding Balance 20,529   18,712  
Exercisable   0   12,030
Weighted average exercise price        
Outstanding Balance | $ / shares   $ 0.37 $ 0.43  
Granted | $ / shares   1.00 0.42  
Forfeited | $ / shares   0.12 0.94  
Replaced by restricted shares | $ / shares   $ (0.43)    
Outstanding Balance | $ / shares $ 0.43   0.37  
Exercisable | $ / shares     $ 0.28  
Remaining contractual life, Outstanding 1 year 4 months 21 days   8 months 19 days  
Remaining contractual life, Exercisable     4 months 21 days  
Aggregated intrinsic value, Outstanding | ¥ $ 9,975     ¥ 8,951
Aggregated intrinsic value, Exercisable   $ 0   ¥ 5,293
Employees        
Share options activities outstanding        
Outstanding Balance   17,075 18,892  
Granted   205 60  
Exercised   0 0  
Forfeited   (3,443) (1,877)  
Replaced by restricted shares   (13,837)    
Outstanding Balance 18,892   17,075  
Exercisable   0   10,606
Consultants        
Share options activities outstanding        
Outstanding Balance   1,637 1,637  
Granted   0 0  
Exercised   0 0  
Forfeited   0 0  
Replaced by restricted shares   (1,637)    
Outstanding Balance 1,637   1,637  
Exercisable   0   1,424
v3.20.1
Taxation - Additional information (Details) - HKD ($)
$ in Millions
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Income Tax Expense [Line Items]      
Effective income tax rate 0.00% 0.00% 0.00%
Value added tax percentage 6.00%    
Percentage withholding income tax dividends distributed by foreign-invested entity ("FIE") 10.00%    
Withholding tax rate lowered if foreign investor owns shares of FIE 5.00%    
Percentage share of FIE own directly by foreign investor 25.00%    
China | State Administration of Taxation, China      
Income Tax Expense [Line Items]      
Effective income tax rate 25.00%    
Hong Kong | Inland Revenue, Hong Kong      
Income Tax Expense [Line Items]      
Assessable profits $ 2    
First HK$2 million of profits, tax rate 8.25%    
Effective income tax rate 16.50%    
v3.20.1
Short-term and long-term borrowings - Additional information (Details)
$ / shares in Units, ¥ in Thousands, $ in Thousands
3 Months Ended 12 Months Ended
Sep. 29, 2018
shares
Mar. 31, 2019
CNY (¥)
Dec. 31, 2018
CNY (¥)
Sep. 30, 2018
CNY (¥)
Jun. 30, 2018
CNY (¥)
Mar. 31, 2018
CNY (¥)
Dec. 31, 2017
CNY (¥)
Sep. 30, 2017
CNY (¥)
Jun. 30, 2017
CNY (¥)
Mar. 31, 2017
CNY (¥)
Dec. 31, 2019
USD ($)
Dec. 31, 2019
CNY (¥)
Dec. 31, 2018
CNY (¥)
Dec. 31, 2017
CNY (¥)
Dec. 31, 2019
CNY (¥)
Dec. 31, 2017
$ / shares
Dec. 31, 2017
CNY (¥)
shares
Sep. 12, 2017
CNY (¥)
Aug. 07, 2017
CNY (¥)
Jul. 31, 2017
CNY (¥)
Jul. 21, 2017
CNY (¥)
Apr. 01, 2017
CNY (¥)
Short-term Debt [Line Items]                                            
Maximum borrowing capacity                             ¥ 20,000              
Minimum new equity financing investment round                 ¥ 50,000                          
Expected minimum quarterly gross profit           ¥ 25,000 ¥ 35,000 ¥ 32,000 ¥ 28,000 ¥ 20,000                        
Net revenue   ¥ 65,000 ¥ 200,000 ¥ 150,000 ¥ 120,000 ¥ 65,000         $ 92,616 ¥ 644,773 ¥ 651,013 ¥ 280,666                
Restricted cash     0               $ 220   0   1,529              
Term loan facility                                            
Short-term Debt [Line Items]                                            
Maximum borrowing capacity                             10,000              
Revolving loan credit facility                                            
Short-term Debt [Line Items]                                            
Maximum borrowing capacity                             10,000              
Series C-2 convertible redeemable preferred shares                                            
Short-term Debt [Line Items]                                            
Issuance of preferred shares | shares 483,702                                          
7.25% SPD Silicon Valley Bank loan Term loan I due on 30 March 2018                                            
Short-term Debt [Line Items]                                            
Debt Instrument, Face Amount     ¥ 9,944                   ¥ 9,944   ¥ 9,944              
7.25% SPD Silicon Valley Bank loan Term loan I due on 30 March 2018 | Term loan facility                                            
Short-term Debt [Line Items]                                            
Maximum borrowing capacity                                         ¥ 1,900 ¥ 8,000
7.5% SPD Silicon Valley Bank loan Revolving loan II due on 31 December 2018 | Revolving loan credit facility                                            
Short-term Debt [Line Items]                                            
Maximum borrowing capacity                                   ¥ 2,500 ¥ 5,900 ¥ 1,600    
4.35% SPD Silicon Valley Bank loan Secured loan III due on 28 December 2018                                            
Short-term Debt [Line Items]                                            
Outstanding balance of secured debt                                 ¥ 11,100          
4.35% SPD Silicon Valley Bank loan Secured loan III due on 28 December 2018 | China Equities Hong Kong Limited ("China Equities")                                            
Short-term Debt [Line Items]                                            
Amount of cash consideration a warrant granted                           ¥ 621                
Number of granted warrant | shares                                 670,814          
Exercise price of warrant | $ / shares                               $ 0.64829            
Term of warrant                           5 years                
v3.20.1
Share-based Compensation - Additional information (Details
$ / shares in Units, ¥ in Thousands, $ in Millions
1 Months Ended 12 Months Ended
Jun. 17, 2019
USD ($)
$ / shares
shares
Nov. 20, 2018
$ / shares
shares
Jun. 13, 2018
CNY (¥)
Sep. 29, 2018
USD ($)
shares
Sep. 29, 2018
CNY (¥)
shares
Dec. 31, 2019
shares
Dec. 31, 2018
CNY (¥)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]              
Number of shares issued           80,000  
Value of shares issued | ¥             ¥ 103,372
Offering 2,600,000 American Depositary Shares ("ADSs") issued and sold           80,000  
Repurchase of restricted shares from employees (in shares) 6,358,500            
Repurchase of restricted shares from employees, Share price | $ / shares $ 0.75            
Repurchase of restricted shares from employees, Consideration | $ $ 4.8            
Class B ordinary shares | Mr. Wei Wen              
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]              
Number of common stock voting right     15        
Total share based compensation expense | ¥     ¥ 4,700        
Class A ordinary shares              
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]              
Number of shares issued   10,400,000          
Offering 2,600,000 American Depositary Shares ("ADSs") issued and sold   10,400,000          
Share price per ADS | $ / shares   $ 7.80          
ADS              
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]              
Number of shares issued           20,000  
Offering 2,600,000 American Depositary Shares ("ADSs") issued and sold           20,000  
Repurchase of restricted shares from employees, Share price | $ / shares $ 3.00            
ACEE Capital Ltd. | Class A ordinary shares              
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]              
Total share based compensation expense | ¥         ¥ 1,700    
Number of shares issued       521,962 521,962    
Value of shares issued | $       $ 1.1      
Offering 2,600,000 American Depositary Shares ("ADSs") issued and sold       521,962 521,962    
v3.20.1
Commitments and Contingencies (Details)
¥ in Thousands
Dec. 31, 2019
CNY (¥)
Venue for auto shows  
Operating Leased Assets [Line Items]  
2020 ¥ 1,224
2021 128
Total 1,352
Office space  
Operating Leased Assets [Line Items]  
2020 10,031
2021 5,658
2022 1,534
2023 499
2024 291
Total ¥ 18,013
v3.20.1
Employee Benefits (Details) - CNY (¥)
¥ in Thousands
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Employee Benefits      
Medical and welfare defined contribution plan ¥ 38,183 ¥ 21,869 ¥ 8,504
Other employee benefits 969 2,741 2,340
Total ¥ 39,152 ¥ 24,610 ¥ 10,844
v3.20.1
Employee Benefits
12 Months Ended
Dec. 31, 2019
Employee Benefits  
Employee Benefits

13.  Employee Benefits

The Company’s subsidiaries, VIEs and subsidiaries of VIEs 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, VIEs and subsidiaries of VIEs 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 years ended December 31, 2017, 2018 and 2019:

 

 

 

 

 

 

 

 

 

    

For the year ended 

 

 

December 31, 

 

    

2017

    

2018

    

2019

 

 

RMB

 

RMB

 

RMB

Medical and welfare defined contribution plan

 

8,504

 

21,869

 

38,183

Other employee benefits

 

2,340

 

2,741

 

969

Total

 

10,844

 

24,610

 

39,152

 

v3.20.1
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
¥ in Thousands, $ in Thousands
12 Months Ended
Dec. 31, 2019
USD ($)
$ / shares
shares
Dec. 31, 2019
CNY (¥)
¥ / shares
shares
Dec. 31, 2018
CNY (¥)
¥ / shares
shares
Dec. 31, 2017
CNY (¥)
¥ / shares
shares
Continuing operations        
Total net revenues $ 92,616 ¥ 644,773 ¥ 651,013 ¥ 280,666
Cost of revenues (26,795) (186,541) (183,369) (85,742)
Gross profit 65,821 458,232 467,644 194,924
Operating expenses:        
Selling and marketing expenses (82,168) (572,040) (432,059) (223,249)
General and administrative expenses (14,923) (103,890) (84,360) (27,491)
Research and development expenses (6,225) (43,339) (19,262) (15,925)
Total operating expenses (103,316) (719,269) (535,681) (266,665)
Loss from continuing operations (37,495) (261,037) (68,037) (71,741)
Other income/(expenses):        
Interest (expenses)/income, net 1,008 7,020 (3,146) (2,416)
Exchange (losses)/gains, net (95) (661) 1,063 (199)
Investment loss (132) (917) (660) 0
Change in fair value of warrant 0 0 (3,843) (1,390)
Impairment of investment (144) (1,000) 0 0
Others, net 761 5,296 (465) 52
Loss from continuing operations before income taxes (36,097) (251,299) (75,088) (75,694)
Income tax expense 0 0 0 0
Net loss from continuing operations (36,097) (251,299) (75,088) (75,694)
Discontinued operations        
Gain from disposal of discontinued operations before income taxes 0 0 771 0
Loss from discontinued operations before income taxes 0 0 (4,383) (14,977)
Income tax expense, net 0 0 0 0
Net loss from discontinued operations 0 0 (3,612) (14,977)
Net loss (36,097) (251,299) (78,700) (90,671)
Accretions to pre-IPO preferred shares redemption value 0 0 (35,066) (20,945)
Net loss attributable to the TuanChe Limited's shareholders (36,002) (250,640) (113,766) (111,616)
Net loss attributable to the non-controlling interest (95) (659)    
Net loss (36,097) (251,299) (78,700) (90,671)
Other comprehensive (loss)/income:        
Foreign currency translation adjustments 1,404 9,771 3,401 (1,367)
Total other comprehensive (loss)/income 1,404 9,771 3,401 (1,367)
Total comprehensive loss (34,693) (241,528) (75,299) (92,038)
Accretions to pre-IPO preferred shares redemption value 0 0 (35,066) (20,945)
Comprehensive loss attributable to:        
TuanChe Limited's shareholders (34,598) (240,869) ¥ (110,365) ¥ (112,983)
Non-controlling interests $ (95) ¥ (659)    
Net loss attributable to the TuanChe Limited's ordinary shareholders per share from continuing operations        
Basic (in dollars per share) | (per share) $ (0.12) ¥ (0.85) ¥ (0.90) ¥ (1.02)
Diluted (in dollars per share) | (per share) (0.12) (0.85) (0.90) (1.02)
Net loss attributable to the TuanChe Limited's ordinary shareholders per share from discontinuing operations        
Basic (in dollars per share) | (per share) 0 0 (0.03) (0.16)
Diluted (in dollars per share) | (per share) $ 0 ¥ 0 ¥ (0.03) ¥ (0.16)
Weighted average number of ordinary shares        
Basic (in shares) 294,922,074 294,922,074 121,938,427 94,870,580
Diluted (in shares) 294,922,074 294,922,074 121,938,427 94,870,580
Share-based compensation expenses included in:        
Share based compensation $ 15,796 ¥ 109,968 ¥ 78,133 ¥ 1,896
Auto shows        
Continuing operations        
Total net revenues 86,674 603,407 644,252 263,927
Special promotion events        
Continuing operations        
Total net revenues 2,840 19,772    
Group-purchase facilitation        
Continuing operations        
Total net revenues | ¥       16,739
Virtual dealership, online marketing services and others        
Continuing operations        
Total net revenues 3,102 21,594 6,761  
Cost of revenues        
Share-based compensation expenses included in:        
Share based compensation 0 0 10 12
Selling and marketing expenses        
Share-based compensation expenses included in:        
Share based compensation 11,153 77,646 41,363 582
General and administrative expenses        
Share-based compensation expenses included in:        
Share based compensation 4,034 28,081 35,440 1,287
Research and development expenses        
Share-based compensation expenses included in:        
Share based compensation $ 609 ¥ 4,241 ¥ 1,320 ¥ 15
v3.20.1
Significant Accounting Policies
12 Months Ended
Dec. 31, 2019
Significant Accounting Policies  
Significant Accounting Policies

2.    Significant Accounting Policies

a)    Basis of presentation

The consolidated financial statements of the Group have been prepared in accordance with U.S. GAAP. Significant accounting policies followed by the Group in the preparation of the accompanying consolidated financial statements are summarized below.

b)    Reclassifications

The Company changed the presentation of revenue within its consolidated statements of operations for the twelve months ended December 31, 2019. Revenue, previously reported as a single line item, has been disaggregated to present revenue by the various services the Company provides. Amounts for the comparative prior periods have been reclassified to conform to the current period presentation. These reclassifications had no impact on previously reported net income or financial position and do not represent a restatement of any previously reported financial results.

c)    Principles of consolidation

The consolidated financial statements include the financial statements of the Company, its subsidiaries, VIEs and subsidiaries of VIEs 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, VIEs and subsidiaries of VIEs have been eliminated upon consolidation.

d)    Discontinued operations

A component of a reporting entity or a group of components of a reporting entity that are disposed or meet the criteria to be classified as held for sale, such as the management, having the authority to approve the action, commits to a plan to sell the disposal group, should be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. Discontinued operations are reported when a component of an entity comprising operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity is classified as held for disposal or has been disposed of, if the component either (1) represents a strategic shift or (2) have a major impact on an entity’s financial results and operations. In the consolidated statements of operations and comprehensive loss, result from discontinued operations is reported separately from the income and expenses from continuing operations and prior periods are presented on a comparative basis. Cash flows for discontinuing operations are presented separately in Note 3. In order to present the financial effects of the continuing operations and discontinued operations, revenues and expenses arising from intra-group transactions are eliminated except for those revenues and expenses that are considered to continue after the disposal of the discontinued operations.

e)    Use of estimates

The preparation of the Group’s 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 consolidated financial statements and accompanying notes. Significant accounting estimates include, but are not limited to determining the provision for accounts receivable, assessment for valuation allowance of deferred tax assets, determination of the fair value of ordinary shares, preferred shares and warrant, and valuation and recognition of share-based compensation expenses.

f)    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 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 year. Translation adjustments are reported as foreign currency translation adjustments, and are shown as a component of other comprehensive loss in the 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 exchange (losses)/gains in the consolidated statements of operations and comprehensive loss.

g)    Convenience Translation

Translations of balances in the consolidated balance sheets, consolidated statements of operations and comprehensive loss and consolidated statements of cash flows from RMB into US$ as of and for the year ended December 31, 2019 are solely for the convenience of the reader and were calculated at the rate of US$1.00 = RMB6.9618 representing the noon buying rate in The City of New York for cable transfers of RMB as certified for customs purposes by the Federal Reserve Bank of New York on December 31, 2019. No representation is made that the RMB amounts represent or could have been, or could be, converted, realized or settled into US$ at that rate on December 31, 2019, or at any other rate.

h)    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, time deposits, accounts receivable, other receivables, accounts payable and other payables, of which the carrying values approximate their fair value.

See Note 21 for additional information.

i)    Cash, cash equivalents and restricted cash

Cash and cash equivalents mainly represent cash on hand, demand deposits placed with large reputable banks in the United States of America or 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, 2018 and 2019, there were cash at bank and demand deposits with terms of less than three months denominated in US dollars amounting to approximately US$73.5 million and US$15.6 million, respectively (equivalent to approximately RMB504.2 million and RMB109.1 million, respectively).

As of December 31, 2018 and 2019, the Group had approximately RMB74.4 million and RMB91.9 million cash and cash equivalents held by its PRC subsidiaries, VIEs and subsidiaries of VIEs, representing 12.9% and 47.4% of total cash and cash equivalents of the Group, respectively.

As of December 31, 2018 and 2019, the Company had a restricted cash balance approximately nil and RMB1.5 million, respectively, which are security deposits for the referral services in collaboration with a commercial bank and ancillary services to facilitate auto loan applications.

j)     Accounts receivable, net

The carrying value of accounts receivable is reduced by an allowance that reflects the Group’s best estimate of the amounts that will not be collected. An allowance for doubtful accounts is recorded in the period when a loss is probable based on an assessment of specific evidence indicating collection is unlikely, historical bad debt rates, accounts aging, financial conditions of the customer and industry trends. Accounts receivable balances are written off against the allowance when they are determined to be uncollectible. Notes receivable represents notes receivable issued by reputable financial institutions that entitle the Group to receive the full face amount from the financial institutions at maturity. Refer to Note 4 for details.

k)    Time deposits

Time deposits mainly represent demand deposits placed with banks with original maturities of more than three months but within one year. Interest earned is recorded as interest income in the consolidated statements of operations and comprehensive loss during the periods.

l)    Property, equipment and software, net

Property, equipment and software 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:

 

 

 

 

Furniture and electronic equipment

    

3 years

 

Vehicles

 

10 years

 

Software

 

5 years

 

Leasehold improvements

 

Shorter of expected lives of leasehold improvements and lease term 

 

 

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

m)  Impairment of long-lived assets

Long-lived assets 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.

n)   Long-term investments

In accordance with ASU 2016-01, for investments in equity instruments which the Company does not have significant influence, and whose fair value is not readily determinable, the cost less impairment accounting is applied. Gain or losses are realized when such investment is sold or when dividends are declared or payments are received. The Company assesses its equity investments for other-than-temporary impairment by considering factors including, but not limited to, current economic and market conditions, the operating performance of the companies including current earnings trends, and other company-specific information such as financing rounds.

Investments in entities in which the Company can exercise significant influence but does not own a majority equity interest or control are accounted for using the equity method of accounting in accordance with ASC topic 323 Investments-Equity Method and Joint Ventures. The Company adjusts the carrying amount of equity method investment for its share of the income or losses of the investee and reports the recognized income or losses in the consolidated statements of operations and comprehensive loss. The Company’s share of the income or losses of an investee are based on the shares of common stock and in-substance common stock held by the Company.

o)   Other non-current assets

As of December 31, 2018 and 2019, other non-current assets comprises mainly prepayments for the purchases of softwares.

p)   Warrant

On October 31, 2017, a warrant to purchase Series C‑2 convertible redeemable preferred shares of the Company was issued in connection with the debt financing and is classified as a liability and is treated as upfront issuance costs based on the estimated fair value of the warrant at issuance date. Subsequently, changes in the fair value of the warrant for Series C‑2 convertible redeemable preferred shares is recorded in the consolidated statements of operations and comprehensive loss. The upfront issuance costs are amortized over the term of the debt financing.

As of December 31, 2018 and 2019, upfront issuance costs of RMB0.7 million and nil were included in other non-current assets, respectively.

q)   Revenue recognition

The Group adopted ASC Topic 606, "Revenue from Contracts with Customers" for all periods presented. Consistent with the criteria of Topic 606, the Group recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to receive in exchange for those goods or services using the five steps defined under ASC Topic 606.

The Group assesses its revenue arrangements against specific criteria in order to determine if it is acting as principal or agent. Based on revenue arrangements, there are no multiple performance obligations identified. Revenue is recognized upon transfer of control of promised goods or services to a customer.

Revenue is recorded net of Value Added Tax (“VAT”) and related surcharges collected from customers, which are subsequently remitted to government authorities.

Auto shows revenue

The Group’s online website and offline infrastructure allow them to organize auto shows, which aim at facilitating transactions between consumers and auto dealers that includes auto dealers, automakers and automotive service providers. The Group charges a fixed admission fee per auto show event to its industry customers for arranging, decorating and providing booth space at auto shows. The Group has identified one performance obligation for the transaction - providing a decorated venue for auto dealers, automakers and automotive service providers, as the individual service promised in auto show contracts are not distinct individually. As the Group has control of the auto show services and discretion in establishing the price of auto show admission fee to auto dealers, automakers and other automotive service providers, it is considered to be a principal in accordance with ASC 606. The auto shows revenue is recognized over the period of the contract when the services are provided.

Special promotion events revenue

The Group provides integrated services to support auto dealers' own special promotion events during a specific period. The services include event planning and execution, marketing, training and onsite coaching, etc. The Group charges a fixed service fee per special promotion event. The Group has identified one performance obligation as the individual service promised in service contracts are not distinct individually. As the Group has control of the service and discretion in establishing the price of the fee to auto dealers, it is considered to be a principal in accordance with ASC 606. The special promotion events revenue is recognized over the period of the contract when the services are provided.

Group-purchase facilitation revenue

The Group facilitates transactions between consumers and auto dealers by organizing group-purchase events. The Group charges group-purchase facilitation revenue to the auto dealers in the form of either a fixed fee per event or a fixed fee per car sold during the group-purchase event. There is no financing component or consideration payable to any consumers. The Group has identified one performance obligation - organizing group-purchase events. As the Group has control of the group-purchase facilitation services and discretion in establishing the price of group-purchase facilitation service fee, it is considered to be a principal in accordance with ASC 606. Since the Group’s performance obligation is satisfied once the transaction is complete, the group-purchase facilitation service revenue is recognized at the point in time when the service of group-purchase facilitation is rendered, which occurs upon the closing of the group-purchase event.

Virtual dealership revenue

The Group operates a virtual dealership by connecting automakers or franchised dealerships with secondary dealers whereby the Group purchases cars on behalf of the secondary dealers from the automakers or franchised dealerships. The Group charges a commission fee at a pre-agreed percentage of the car costs to the secondary dealers. As the Group has neither inventory risk nor the discretion to establish the cost of cars to secondary dealers, it is considered to be an agent in accordance with ASC 606. The virtual dealership commission revenue is recognized upon the secondary dealers’ acceptance of the delivery of cars from automakers or franchised dealerships.

Online marketing services revenue

The Group's online marketing services revenue primarily include (i) demand-side platform services and (ii) marketing information services.

The demand-side platform services generate revenue through (1) online advertising services and (2) advertising space resale services. For the advertising services, the Group provides advertising spaces on the website to customers and recognize the service fees received as revenue on a straight-line basis over the period of the service period. Under the advertising space resale services, the Group purchases advertising spaces wholesale from suppliers such as search engines and other online advertising channels and resell those spaces to the customers. The customers pay the Group a membership fee to access these spaces. The Group recognizes the membership fee on a straight-line basis over the membership period, which is usually one year. Because the Group does not have discretion over the price of advertisement charged by suppliers, who are the primary obligors for providing the advertising services, revenue from advertising space resale services is recognized on a net basis.

For the marketing information services, the Group generates consumers’ demand information through its online channels and provides to the industry customers upon consumers' consent. The marketing information service fee is charged based on the quantity of consumers’ demand information delivered. Revenue is recognized at a point in time upon the delivery of such consumers’ demand information.

r)    Cost of revenues

Costs of revenues, consist primarily of rental costs for auto show venues, venue set-up costs, security costs, direct labor costs and other direct costs.

s)    Research and development expenses

Research and development expenses mainly consist of payroll-related expenses incurred for the employees who develop and enhance the Group’s websites and platform of applications.

t)    Selling and marketing expenses

Selling and marketing expenses consist primarily of advertising and promotional expenses, salaries and other compensation-related expenses for the Group’s sales and marketing personnel. Advertising and promotional expenses consist primarily of costs for the promotion of corporate image and offline events. The Group expenses all advertising and promotional expenses as incurred and classifies them under selling and marketing expenses. For the years ended December 31, 2017, 2018 and 2019, the advertising and promotional expenses were RMB134.2 million, RMB238.0million and RMB291.2 million, respectively.

u)   Leases

Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Rental expense is recognized from the date of initial possession of the leased property on a straight-line basis over the term of the lease. Certain lease agreements contain rent holidays, which are recognized on a straight-line basis over the lease term. Lease renewal periods are considered on a lease-by-lease basis and are generally not included in the initial lease terms. Rental costs for auto show venues incurred by the Group were RMB31 million, RMB67 million and RMB77 million for the years ended December 31, 2017, 2018 and 2019, respectively. Rental expenses for office space incurred by the Group were RMB6.6 million, RMB6.6 million and RMB8.7 million for the years ended December 31, 2017, 2018 and 2019, respectively.

The Group has no capital leases for any of the periods presented.

v)    Share-based compensation

Share-based compensation expenses arise from share-based awards, including share options for the purchase of ordinary shares and restricted shares. The Company accounts for share-based awards granted to employees in accordance with ASC 718 Compensation—Stock Compensation and share-based awards granted to non-employee in accordance with ASC 505. For share options for the purchase of ordinary shares granted to employees determined to be equity classified awards, the related share-based compensation expenses are recognized in the consolidated financial statements 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 share price as well as assumptions regarding a number of complex and subjective variables, including the expected share price volatility, actual and projected employee share option exercise behavior, risk-free interest rates and expected dividends. The fair value of the ordinary shares is assessed using the income approach/discounted cash flow method, 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 actual 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.

Share-based compensation expenses for share options granted to non-employees are measured at fair value at the earlier of the performance commitment date or the date service is completed, and recognized over the period during which the service is provided. The Group applies the guidance in ASC 505‑50 to measure share options granted to non-employees based on the then-current fair value at each reporting date.

If a share-based award is modified after the grant date, the Group evaluates for such modifications in accordance with ASC 718 Compensation—Stock Compensation and if the modification is determined to be a probable-to-probable (Type 1) modification, additional compensation expenses are recognized in an amount equal to the excess of the fair value of the modified equity instrument over the fair value of the original equity instrument immediately before modification. The additional compensation expenses are recognized immediately on the date of modification or over the remaining requisite service period, depending on the vesting status of the award.

w)   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, VIEs and subsidiaries of VIEs 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 amounts of such employee benefit expenses, which were expensed as incurred, were approximately RMB10.8 million, RMB24.6 million and RMB39.2 million for the years ended December 31, 2017, 2018 and 2019, respectively.

x)    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 income 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 income 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 income tax assets and liabilities of a change in tax rates or tax laws is recognized in the 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 income tax assets if it is considered more likely than not that some portion or all of the deferred income tax assets will not be realized.

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 50% likely of being realized upon settlement. The Group recognizes interest and penalties, if any, under accrued expenses and other current liabilities on its consolidated balance sheet and under other expenses in its consolidated statements of operations and comprehensive loss. The Group did not have any significant unrecognized uncertain tax positions as of and for the years ended December 31, 2017, 2018 and 2019.

y)    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.

z)    Net loss per share

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 preferred shares, share options, convertible loan, warrant and restricted shares granted, unless they were anti-dilutive. The computation of diluted net income/(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 income/(loss) per share.

aa) Statutory reserves

In accordance with China’s Company Laws, the Company’s VIEs in PRC must make appropriations from their after-tax profit (as determined under the accounting principles generally acceptable in China ("PRC GAAP")) 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 50% of the registered capital of the respective company. Appropriation to the discretionary surplus fund is made at the discretion of the respective company.

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 50% of the registered capital of the respective company. Appropriations to the other two reserve funds are at the respective companies’ discretion.

The Company has not appropriated any amount to statutory reserves for the years ended December 31, 2017, 2018 and 2019 as its subsidiaries, VIEs and subsidiaries of VIEs in the PRC are still in accumulated deficit position.

bb) Comprehensive loss

Comprehensive loss is defined to include all changes in equity 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 (loss)/income, as presented on the consolidated balance sheets, consists of accumulated foreign currency translation adjustments.

cc) Non-controlling interests

Non-controlling interests are recognized to reflect the portion of the equity of majority-owned subsidiary which is not attributable, directly or indirectly, to the controlling shareholder. Non-controlling interests are classified as a separate line item in the equity section of the Group's consolidated balance sheets and have been separately disclosed in the Group's consolidated statements of operations and comprehensive loss to distinguish the interests from that of the Company.

dd) Treasury stock

The Company accounts for treasury shares using the cost method. Under this method, the cost incurred to purchase the shares is recorded in the treasury shares account on the consolidated balance sheets. At retirement of the treasury shares, the ordinary shares account is charged only for the aggregate par value of the shares. The excess of the acquisition cost of treasury shares over the aggregate par value is allocated between additional paid-in capital (up to the amount credited to the additional paid-in capital upon original issuance of the shares) and retained earnings.

ee) 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 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 operated its continuing operations in one segment, as that term is defined by FASB ASC Topic 280, Segment reporting.

ff) Concentrations and Risks

Online advertising and promotional service provider

The Group relied on online advertising and promotional service providers and their affiliates for online advertising and promotional service to support its operations during the years ended December 31, 2017, 2018 and 2019 as follows:

 

 

 

 

 

 

 

 

 

 

 

For the year ended December 31, 

 

 

     

2017

     

2018

     

2019

 

Total number of online advertising and promotional service providers

 

21

 

32

 

25

 

Number of online service providers that accounted for 10% or more of the Group’s online advertising and promotional service

 

 2

 

 2

 

 2

 

Total percentage of the Group’s online advertising and promotional service expenses that were paid to these service providers who accounted for 10% or more of the Group’s online advertising and promotional service expenses

 

50

%  

43

%  

55

%

 

Credit risk

Financial instruments that potentially subject the Group to the concentration of credit risk consist of cash and cash equivalents, restricted cash, time deposits and accounts receivable. As of December 31, 2018 and 2019, all of the Group’s cash and cash equivalents, restricted cash and time deposits were held in large reputable financial institutions located in the United States of America or China, which management consider being of high credit quality. Accounts receivable is typically unsecured and is derived from revenue earned from the Company's businesses.

Major customers

There was one customer and no customer had receivable balances exceeding l0% of the total accounts receivable balances of the Group as of December 31, 2018 and 2019, respectively, as follows:

 

 

 

 

 

 

 

 

 

    

For the year ended December 31, 

 

 

    

2018

 

    

2019

 

Customer A

 

22

%

 

 5

%

 

gg)   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.

In January 2016, the FASB issued ASU No. 2016‑01 Financial Instruments—Overall (Subtopic 825‑10) "Recognition and Measurement of Financial Assets and Financial Liabilities". The amendments in this ASU require all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under equity method of accounting or those that result in consolidation of the investee). The amendments in this accounting standard update also require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. In addition, the amendments in this accounting standard update eliminate the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities and the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet for public business entities. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. For all other entities including not-for-profit entities and employee benefit plans within the scope of Topics 960 through 965 on plan accounting, the amendments in this update are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. All entities that are not public business entities may adopt the amendments in this update earlier as of the fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Group adopted this new standard effective on January 1, 2019. The adoption of ASU 2016‑01 did not have a material impact on the Group’s consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases ("ASU 2016-02"). Further, as a clarification of the new guidance, the FASB issued several amendments and updates. Under the new provisions, all lessees will report a right-of-use asset and a liability for the obligation to make payments for all leases with the exception of those leases with a term of 12 months or less. All other leases will fall into one of two categories: (i) financing leases, similar to capital leases, which will require the recognition of an asset and liability, measured at the present value of the lease payments and (ii) operating leases which will require the recognition of an asset and liability measured at the present value of the lease payments. Lessor accounting remains substantially unchanged with the exception that no leases entered into after the effective date will be classified as leveraged leases. For sale leaseback transactions, the sale will only be recognized if the criteria in the new revenue recognition standard are met. The amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years for public entities. For all other entities, the amendments in this update are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. The Group will adopt the new lease guidance in its consolidated financial statements for the year ended December 31, 2020. The Group has finalized its analysis and the most significant impact will be the recognition of right-of-use assets and lease liabilities for rental of its office space.

In June 2016, the FASB amended guidance related to the impairment of financial instruments as part of ASU 2016‑13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. For public business entities that are U.S. Securities and Exchange Commission (SEC) filers, the amendments in this update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For all other public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. For all other entities, including not-for-profit entities and employee benefit plans within the scope of Topics 960 through 965 on plan accounting, the amendments in this update are effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. All entities may adopt the amendments in this update earlier as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The guidance replaces the incurred loss impairment methodology with an expected credit loss model for which the Group is required to recognize an allowance based on its estimate of expected credit loss. The Group will adopt the new credit loss guidance beginning January  1, 2021. The Group is currently evaluating the impact of this new guidance on its consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 provides guidance for targeted changes with respect to how cash receipts and cash payments are classified in the statements of cash flows, with the objective of reducing diversity in practice. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. The Group adopted ASU 2016-15 on January 1, 2019 and the adoption has no material impact on the Group's consolidated financial statements.

In June 2018, the FASB issued ASU No. 2018‑07 Compensation—Stock Compensation (Topic 718) "Improvements to Nonemployee Share-Based Payment Accounting". The amendments in this update expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period). The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. The Group will adopt the new stock compensation guidance beginning January 1, 2020 and the adoption will have no material impact on the Group's consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates, adds and modifies certain disclosure requirements for fair value measurements. Under the guidance, public companies will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The guidance is effective for all entities for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years, but entities are permitted to early adopt either the entire standard or only the provisions that eliminate or modify the requirements. The Group will adopt the new fair value measurement guidance beginning January 1, 2020 and the adoption will have no material impact on the Group's consolidated financial statements.

v3.20.1
Other taxes payable
12 Months Ended
Dec. 31, 2019
Other taxes payable  
Other taxes payable

9.    Other taxes payable

The following is a summary of other taxes payable as of December 31, 2018 and 2019:

 

 

 

 

 

 

 

    

December 31, 2018

    

December 31, 2019

 

    

RMB

    

RMB

Withholding individual income taxes for employees

 

4,268

 

9,727

VAT payables

 

11,728

 

12,105

Others

 

978

 

662

Total

 

16,974

 

22,494

 

v3.20.1
Prepayment and other current assets
12 Months Ended
Dec. 31, 2019
Prepayment and other current assets  
Prepayment and other current assets

5.    Prepayment and other current assets

The following is a summary of prepayments and other current assets:

 

 

 

 

 

 

 

    

December 31, 2018

    

December 31, 2019

 

 

RMB

 

RMB

Receivables due from dealerships

 

10,661

 

 -

Deductible VAT

 

4,852

 

4,056

Deposits

 

8,637

 

14,496

Prepaid rental expenses

 

2,168

 

1,662

Receivables due from third-party online payment platforms

 

469

 

4,755

Staff advances

 

695

 

4,131

Prepaid promotion expenses

 

36,538

 

54,382

Prepaid service fees

 

2,574

 

4,591

Prepaid insurance fees

 

 -

 

3,648

Bridge loan receivable*

 

 -

 

100,611

Others

 

2,225

 

1,450

Total

 

68,819

 

193,782


*     On May, 2019, the Company (the “Purchaser”) entered into a share purchase agreement (the “Agreement”) with, among other parties, Longye International Limited (the “Seller”), a company incorporated in the Cayman Islands, to acquire its entire entity interest for a total consideration of U.S.-dollar equivalent of RMB200,000,000 in the form of cash and the Company’s securities in aggregate. According to the Agreement, the Purchaser shall pay RMB100,000,000 equivalent in USD as a bridge loan to the Seller. Subject to the customary closing conditions, the Company will credit this bridge loan to the cash portion of the purchase price.

v3.20.1
Significant Accounting Policies (Tables)
12 Months Ended
Dec. 31, 2019
Significant Accounting Policies  
Schedule of estimate useful life of property, plant and equipment

 

 

 

 

Furniture and electronic equipment

    

3 years

 

Vehicles

 

10 years

 

Software

 

5 years

 

Leasehold improvements

 

Shorter of expected lives of leasehold improvements and lease term 

 

 

Schedule of online advertising and promotional service provider

 

 

 

 

 

 

 

 

 

 

For the year ended December 31, 

 

 

     

2017

     

2018

     

2019

 

Total number of online advertising and promotional service providers

 

21

 

32

 

25

 

Number of online service providers that accounted for 10% or more of the Group’s online advertising and promotional service

 

 2

 

 2

 

 2

 

Total percentage of the Group’s online advertising and promotional service expenses that were paid to these service providers who accounted for 10% or more of the Group’s online advertising and promotional service expenses

 

50

%  

43

%  

55

%

 

Schedule of credit risk related to major customers

 

 

 

 

 

 

 

 

    

For the year ended December 31, 

 

 

    

2018

 

    

2019

 

Customer A

 

22

%

 

 5

%

 

v3.20.1
Property, equipment and software, net (Tables)
12 Months Ended
Dec. 31, 2019
Property, equipment and software, net  
Schedule of property, equipment and software, net

The following is a summary of property, equipment and software, net:

 

 

 

 

 

 

 

    

December 31, 2018

    

December 31, 2019

 

    

RMB

    

RMB

Furniture and electronic equipment

 

4,304

 

5,398

Vehicles

 

426

 

425

Software

 

10,850

 

18,948

Leasehold improvement

 

 -

 

2,874

Total property, equipment and software

 

15,580

 

27,645

Less:  accumulated depreciation - Furniture, electronic equipment and vehicles

 

(3,283)

 

(3,502)

 accumulated amortization - Software

 

(661)

 

(3,435)

 accumulated amortization - Leasehold improvement

 

 -

 

(348)

Property, equipment and software, net

 

11,636

 

20,360

 

v3.20.1
Fair Value Measurement
12 Months Ended
Dec. 31, 2019
Fair Value Measurement  
Fair Value Measurement

21.  Fair Value Measurement

Assets and liabilities disclosed at fair value

The Company measures its cash and cash equivalents, restricted cash, short-term investments, short-term borrowings and convertible loans at amortized cost. The fair value was estimated by discounting the scheduled cash flows through to estimated maturity using estimated discount rates based on current offering rates of comparable institutions with similar services. The carrying value of the Company’s debt obligations approximate fair value as the borrowing rates are similar to the market rates that are currently available to the Company for financing obligations with similar terms and credit risks and represent a level 2 measurement.

Assets measured at fair value on a nonrecurring basis

The Company measured its property, equipment and software, long-term investments at fair value 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 its warrant at fair value on a recurring basis. As the Company’s warrant is not traded in an active market with readily observable prices, the Company uses significant unobservable inputs to measure the fair value of warrant. This instrument 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 years ended December 31, 2016 and 2017. In 2018, the Company transferred the warrant out of level 3 to mezzanine as China Equities has effected a net cashless exchange of the warrant for 483,702 Series C‑2 convertible redeemable preferred shares on September 29, 2018.

Warrant

The Company adopted Black Scholes model to assess the warrant’s fair value. 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 Black Scholes 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.

v3.20.1
Commitments and Contingencies
12 Months Ended
Dec. 31, 2019
Commitments and Contingencies  
Commitments and Contingencies

17.  Commitments and Contingencies

(a)  Commitments

The Group leases venue for auto shows and office space under non-cancelable operating lease agreements, which expire at various dates through December 2024. As of December 31, 2019, future minimum lease under non-cancelable operating lease agreements were as follows:

(i)Venue for auto shows

 

 

 

 

    

Total operating lease 

 

 

commitments

2020

 

1,224

2021

 

128

Total

 

1,352

 

(ii)Office space

 

 

 

 

    

Total operating lease 

 

 

commitments

2020

 

10,031

2021

 

5,658

2022

 

1,534

2023

 

499

2024

 

291

Total

 

18,013

 

(b)  Litigation

From time to time, the Group is involved in claims and legal proceedings that arise in the ordinary course of business. Based on currently available information, management does not believe that the ultimate outcome of any unresolved matters, individually and in the aggregate, is reasonably possible to have a material adverse effect on the Group’s financial position, results of operations or cash flows. However, litigation is subject to inherent uncertainties and the Group’s view of these matters may change in the future. The Group records a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. The Group reviews the need for any such liability on a regular basis. The Group has not recorded any material liabilities in this regard as of December 31, 2018 and 2019.

v3.20.1
Share-based Compensation (Tables)
12 Months Ended
Dec. 31, 2019
Share-based Compensation.  
Schedule of weighted average assumptions used

 

 

 

 

 

 

 

 

 

    

2017

    

2018

    

2019

 

Expected volatility

 

57.90%‑59.70

%  

57.30

%  

Not applicable

 

Weighted average volatility

 

58.44

%  

57.30

%  

Not applicable

 

Expected dividends

 

 -

 

 -

 

Not applicable

 

Risk-free rate

 

2.60%‑3.18

%  

3.10

%  

Not applicable

 

Contractual term (in years)

 

10

 

10

 

Not applicable

 

Enterprise value

 

US$0.32‑US$0.65

 

US$0.65

 

Not applicable

 

 

Schedule of stock option activity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

    

 

    

Weighted average

    

Remaining

    

Aggregated

 

    

Employees

    

Consultants

    

Total

    

exercise price

    

contractual life

    

intrinsic value

 

 

(in thousands)

 

(in thousands)

 

(in thousands)

 

US$

 

 

 

RMB

Outstanding at January 1, 2017

 

18,892

 

1,637

 

20,529

 

0.43

 

1.39

 

9,975

Granted

 

60

 

 -

 

60

 

0.42

 

 -

 

 -

Exercised

 

 -

 

 -

 

 -

 

 -

 

 -

 

 -

Forfeited

 

(1,877)

 

 -

 

(1,877)

 

0.94

 

 -

 

 -

Outstanding at December 31, 2017

 

17,075

 

1,637

 

18,712

 

0.37

 

0.72

 

8,951

Granted

 

205

 

 -

 

205

 

1.00

 

 -

 

 -

Exercised

 

 -

 

 -

 

 -

 

 -

 

 -

 

 -

Forfeited

 

(3,443)

 

 -

 

(3,443)

 

0.12

 

 -

 

 -

Replaced by restricted shares

 

(13,837)

 

(1,637)

 

(15,474)

 

(0.43)

 

 -

 

 -

Outstanding at December 31, 2018 and 2019

 

 -

 

 -

 

 -

 

 -

 

 -

 

 -

Exercisable as of December 31, 2017

 

10,606

 

1,424

 

12,030

 

0.28

 

0.39

 

5,293

Exercisable as of December 31, 2018 and 2019

 

 -

 

 -

 

 -

 

 -

 

 -

 

 -

 

Schedule of restricted shares

 

 

 

 

 

 

 

Number of restricted

 

Weighted-Average 

 

    

 shares

    

Grant-Date Fair Value

 

 

 

 

US$

Outstanding as of January 1, 2018

 

 -

 

 -

Granted

 

24,407,184

 

1.595

Vested

 

(12,917,926)

 

1.595

Outstanding as of December 31, 2018

 

11,489,258

 

1.595

Granted

 

11,527,950

 

1.440

Forfeit

 

(733,764)

 

1.593

Vested

 

(13,070,570)

 

1.623

Outstanding as of December 31, 2019

 

9,212,874

 

1.364

 

v3.20.1
Additional Information - Condensed Financial Statements of the Parent Company (Tables)
12 Months Ended
Dec. 31, 2019
Additional Information - Condensed Financial Statements of the Parent Company  
Schedule of condensed statements of operations and comprehensive loss

Condensed statements of operations and comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

For the year ended December 31,

 

    

2017

    

2018

    

2019

 

 

RMB

 

RMB

 

RMB

 

US$

Operating expenses:

 

  

 

  

 

  

 

  

Selling and marketing expenses

 

 -

 

(1,511)

 

(256)

 

(37)

General and administrative expenses

 

(1,600)

 

(12,936)

 

(19,801)

 

(2,844)

Research and development expenses

 

 -

 

(84)

 

(422)

 

(61)

Total operating expenses

 

(1,600)

 

(14,531)

 

(20,479)

 

(2,942)

Interest (expenses)/income, net

 

(657)

 

(1,470)

 

6,142

 

883

Change in fair value of warrant

 

(1,390)

 

(3,843)

 

 -

 

 -

Equity in loss of subsidiaries, VIEs and subsidiaries of VIEs

 

(87,023)

 

(58,864)

 

(235,804)

 

(33,871)

Others, net

 

(1)

 

 8

 

(499)

 

(72)

Net loss attributable to ordinary shareholders

 

(90,671)

 

(78,700)

 

(250,640)

 

(36,002)

Accretions to preferred shares redemption value

 

(20,945)

 

(35,066)

 

 -

 

 -

Net loss

 

(111,616)

 

(113,766)

 

(250,640)

 

(36,002)

Other comprehensive (loss)/income:

 

  

 

  

 

  

 

  

Foreign currency translation adjustments, net of nil tax

 

(1,367)

 

3,401

 

9,771

 

1,404

Total comprehensive loss

 

(112,983)

 

(110,365)

 

(240,869)

 

(34,598)

 

Schedule of condensed balance sheets

Condensed balance sheets:

 

 

 

 

 

 

 

 

 

 

As of December 31

 

    

2018

    

2019

 

 

RMB

 

RMB

 

US$

ASSETS

 

  

 

  

 

  

Current assets:

 

  

 

  

 

  

Cash and cash equivalents

 

458,936

 

102,002

 

14,652

Time deposits

 

 -

 

69,762

 

10,021

Prepayment and other current assets

 

 -

 

104,572

 

15,021

Receivables due from subsidiaries, VIEs and subsidiaries of VIEs

 

108,066

 

110,348

 

15,850

Total current assets

 

567,002

 

386,684

 

55,544

Non-current assets:

 

  

 

  

 

  

Investments in subsidiaries, VIEs and subsidiaries of VIEs

 

39,157

 

46,087

 

6,620

Other non-current assets

 

644

 

 -

 

 -

Total non-current assets

 

39,801

 

46,087

 

6,620

TOTAL ASSETS

 

606,803

 

432,771

 

62,164

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

  

 

  

 

  

Current liabilities:

 

  

 

  

 

  

Other taxs payable

 

 -

 

6,654

 

956

Other current liabilities

 

 -

 

325

 

47

Payables due to subsidiaries, VIEs and subsidiaries of VIEs

 

4,813

 

 -

 

 -

Total current liabilities

 

4,813

 

6,979

 

1,003

Non-current liabilities:

 

  

 

  

 

  

Other non-current liabilities

 

 -

 

2,158

 

309

Total non-current liabilities

 

 -

 

2,158

 

309

TOTAL LIABILITIES

 

4,813

 

9,137

 

1,312

SHAREHOLDERS’ EQUITY

 

 

 

  

 

  

Class A ordinary shares

 

166

 

173

 

25

Class B ordinary shares

 

35

 

35

 

 5

Treasury stock

 

 -

 

(47,888)

 

(6,879)

Additional paid-in capital

 

1,077,183

 

1,187,577

 

170,585

Accumulated deficit

 

(468,026)

 

(718,666)

 

(103,229)

Accumulated other comprehensive (loss)/income

 

(7,368)

 

2,403

 

345

TOTAL SHAREHOLDERS' EQUITY

 

601,990

 

423,634

 

60,852

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

 

606,803

 

432,771

 

62,164

 

Schedule of condensed statements of cash flows

Condensed statements of cash flows:

 

 

 

 

 

 

 

 

 

 

 

 

For the year ended December 31,

 

    

2017

    

2018

    

2019

 

 

RMB

 

RMB

 

RMB

 

US$

Net cash used in operating activities

 

(6,466)

 

(9,640)

 

(3,086)

 

(442)

Cash flows from investing activities:

 

  

 

  

 

  

 

  

Cash paid for investments in subsidiaries, VIEs and subsidiaries of VIEs

 

(47,002)

 

(201,744)

 

(151,006)

 

(21,691)

Cash payment of time deposits

 

 -

 

 -

 

(69,762)

 

(10,021)

Cash payment of bridge loan

 

 -

 

 -

 

(99,148)

 

(14,242)

Net cash used in investing activities

 

(47,002)

 

(201,744)

 

(319,916)

 

(45,954)

Cash flows from financing activities:

 

  

 

  

 

  

 

  

Cash payments for repurchase of restricted shares from employees

 

 -

 

 -

 

(26,228)

 

(3,767)

Cash payments for repurchase of shares

 

 -

 

 -

 

(13,749)

 

(1,975)

Cash received from convertible loans

 

41,165

 

 -

 

 -

 

 -

Proceeds from issuance of Series C+ convertible redeemable preferred shares

 

59,091

 

 -

 

 -

 

 -

Payments of issuance cost for Series C+ convertible redeemable preferred shares

 

(449)

 

 -

 

 -

 

 -

Proceeds from issuance of Series (D-1) convertible redeemable preferred shares

 

 -

 

151,118

 

 -

 

 -

Payment of issuance cost for Series  (D-1) convertible redeemable preferred shares

 

 -

 

(307)

 

 -

 

 -

Proceeds from issuance of Series (D-2) convertible redeemable preferred shares

 

 -

 

359,834

 

 -

 

 -

Payment of issuance cost for Series  (D-2) convertible redeemable preferred shares

 

 -

 

(1,267)

 

 -

 

 -

Proceeds of initial public offering, net of issuance costs

 

 -

 

103,372

 

 -

 

 -

Cash received from the depositary bank

 

 -

 

 -

 

2,732

 

392

Net cash generated from/(used in) financing activities

 

99,807

 

612,750

 

(37,245)

 

(5,350)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

(981)

 

12,134

 

3,313

 

476

Net increase/(decrease) in cash, cash equivalents and restricted cash

 

45,358

 

413,500

 

(356,934)

 

(51,270)

Cash, cash equivalents and restricted cash at the beginning of year

 

78

 

45,436

 

458,936

 

65,922

Cash, cash equivalents and restricted cash at the end of year

 

45,436

 

458,936

 

102,002

 

14,652

 

v3.20.1
Taxation - Movement of the aggregate valuation allowances for deferred tax assets (Details) - CNY (¥)
¥ in Thousands
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Deferred Tax Asset Valuation Allowance [Roll Forward]      
Balance at January 1 ¥ (62,714) ¥ (48,555) ¥ (39,613)
Addition (26,999) (14,159) (8,942)
Balance at December 31 ¥ (89,713) ¥ (62,714) ¥ (48,555)
v3.20.1
Restricted Net Assets (Details) - CNY (¥)
¥ in Millions
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Restricted Net Assets    
Percentage of funds kept aside for payment of dividends 10.00%  
Net assets transfer restricted portion ¥ 183.0 ¥ 139.9
v3.20.1
Long- term investments (Details)
¥ in Thousands, $ in Thousands
12 Months Ended
Dec. 31, 2019
USD ($)
Dec. 31, 2019
CNY (¥)
Dec. 31, 2018
CNY (¥)
Dec. 31, 2017
CNY (¥)
Sep. 03, 2018
CNY (¥)
Long Term Investment [Line Items]          
Carrying value of cost method   ¥ 5,700      
Impairment of provision $ 144 1,000 ¥ 0 ¥ 0  
Shanghai Three Drivers Culture Media Co Limited [Member]          
Long Term Investment [Line Items]          
Investment in cash         ¥ 4,000
Percentage of equity interest         40.00%
Carrying value of equity investment   ¥ 2,200      
v3.20.1
Accounts receivable, net - Movements of the allowance for doubtful accounts (Details) - CNY (¥)
¥ in Thousands
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Allowance for Doubtful Accounts Receivable [Roll Forward]      
Balance at the beginning of the period ¥ 491 ¥ 418 ¥ 0
Additions charged to bad debt expense 13,684 491 418
Write-off of bad debt allowance 0 (418) 0
Balance at the end of the period ¥ 14,175 ¥ 491 ¥ 418
v3.20.1
Subsequent events - Additional information (Details) - Subsequent events - Longye - CNY (¥)
¥ in Millions
Jan. 01, 2022
Jan. 01, 2021
Jan. 13, 2020
Subsequent Event [Line Items]      
Consideration for acquisition     ¥ 200
Bridge Loan     ¥ 100
Percentage of consideration shares fully vested     20.00%
Percentage of consideration shares subject to contractual restrictions on transfer lifted 50.00% 30.00%  
Percentage of equity interest acquired     100.00%
Class A ordinary shares      
Subsequent Event [Line Items]      
Shares issued for acquisition     8,366,444
v3.20.1
Segment Information
12 Months Ended
Dec. 31, 2019
Segment Information  
Segment Information

20.  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. Wei Wen, Chairman of the Board of Directors and CEO.

The Group’s organizational structure is based on a number of factors that the CODM uses to evaluate, view and run its business operations which include, but not limited to, customer base, homogeneity of products and technology. The Group’s operating segments are based on such organizational structure and information reviewed by the Group’s CODM to evaluate the operating segment results. The Group has internal reporting of revenue, cost and expenses by nature as a whole. Hence, the Group has two operating segments-Continuing Business and Discontinued Business in 2017 and 2018.

The Company’s one segment is auto shows, group-purchase facilitation, special promotion events and virtual dealership, online marketing services and others (the “segment”).

The Company disposed of its electric vehicle sales facilitation business in June 2018. This is the Discontinued Business and the results of this segment are included as discontinued operations for the years ended December 31, 2017 and 2018.

Key revenue streams of the segment are as below:

 

 

 

 

 

 

 

 

 

    

December 31, 2017

    

December 31, 2018

    

December 31, 2019

 

 

RMB

 

 RMB

 

RMB

Offline Marketing Services:

 

 

 

 

 

 

Auto shows

 

263,927

 

644,252

 

603,407

Special promotion events

 

 -

 

 -

 

19,772

Group-purchase facilitation

 

16,739

 

 -

 

 -

Virtual dealership, online marketing services and others

 

 -

 

6,761

 

21,594

Total

 

280,666

 

651,013

 

644,773

 

Substantially all revenues are derived from China based on the geographical locations 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.

v3.20.1
Net Loss Per Share
12 Months Ended
Dec. 31, 2019
Net Loss Per Share  
Net Loss Per Share

16.  Net Loss Per Share

As the Group incurred losses for the years ended December 31, 2017, 2018 and 2019, the potential preferred shares, share options, convertible loan, warrant and restricted shares granted were anti-dilutive and excluded from the calculation of diluted net loss per share of the Company.

Considering that the holder of preferred shares has no contractual obligation to participate in the Company’s losses, any losses from the Group should not be allocated to preferred shares.

The following table sets forth the computation of basic and diluted net loss per share for the years ended December 31, 2017, 2018 and 2019:

 

 

 

 

 

 

 

 

 

    

2017

    

2018

    

2019

Numerator :

 

 

 

 

 

 

Net loss from continuing operations

 

(75,694)

 

(75,088)

 

(251,299)

Net loss from discontinued operations

 

(14,977)

 

(3,612)

 

 -

Total net loss

 

(90,671)

 

(78,700)

 

(251,299)

Net loss from continuing operations

 

(75,694)

 

(75,088)

 

(251,299)

Less: Accretions to pre-IPO preferred shares redemption value

 

(20,945)

 

(35,066)

 

 -

Net loss attributable to TuanChe Limited’s shareholders from continuing operations

 

(96,639)

 

(110,154)

 

(251,299)

Net loss attributable to TuanChe Limited’s shareholders from discontinued operations

 

(14,977)

 

(3,612)

 

 -

Denominator:

 

  

 

  

 

 

Weighted average number of ordinary shares outstanding, basic

 

94,870,580

 

121,938,427

 

294,922,074

Weighted average number of ordinary shares outstanding, diluted

 

94,870,580

 

121,938,427

 

294,922,074

Basic net loss per share attributable to TuanChe Limited’s shareholders from continuing operations

 

(1.02)

 

(0.90)

 

(0.85)

Diluted net loss per share attributable to TuanChe Limited’s shareholders from continuing operations

 

(1.02)

 

(0.90)

 

(0.85)

Basic net loss per share attributable to TuanChe Limited’s shareholders from discontinued operations

 

(0.16)

 

(0.03)

 

 -

Diluted net loss per share attributable to TuanChe Limited’s shareholders from discontinued operations

 

(0.16)

 

(0.03)

 

 -

 

v3.20.1
Net Loss Per Share (Tables)
12 Months Ended
Dec. 31, 2019
Net Loss Per Share  
Schedule of computation of basic and diluted net loss per share

 

 

 

 

 

 

 

 

 

    

2017

    

2018

    

2019

Numerator :

 

 

 

 

 

 

Net loss from continuing operations

 

(75,694)

 

(75,088)

 

(251,299)

Net loss from discontinued operations

 

(14,977)

 

(3,612)

 

 -

Total net loss

 

(90,671)

 

(78,700)

 

(251,299)

Net loss from continuing operations

 

(75,694)

 

(75,088)

 

(251,299)

Less: Accretions to pre-IPO preferred shares redemption value

 

(20,945)

 

(35,066)

 

 -

Net loss attributable to TuanChe Limited’s shareholders from continuing operations

 

(96,639)

 

(110,154)

 

(251,299)

Net loss attributable to TuanChe Limited’s shareholders from discontinued operations

 

(14,977)

 

(3,612)

 

 -

Denominator:

 

  

 

  

 

 

Weighted average number of ordinary shares outstanding, basic

 

94,870,580

 

121,938,427

 

294,922,074

Weighted average number of ordinary shares outstanding, diluted

 

94,870,580

 

121,938,427

 

294,922,074

Basic net loss per share attributable to TuanChe Limited’s shareholders from continuing operations

 

(1.02)

 

(0.90)

 

(0.85)

Diluted net loss per share attributable to TuanChe Limited’s shareholders from continuing operations

 

(1.02)

 

(0.90)

 

(0.85)

Basic net loss per share attributable to TuanChe Limited’s shareholders from discontinued operations

 

(0.16)

 

(0.03)

 

 -

Diluted net loss per share attributable to TuanChe Limited’s shareholders from discontinued operations

 

(0.16)

 

(0.03)

 

 -

 

v3.20.1
Organization and Reorganization - Major vie's and major subsidiaries (Details)
12 Months Ended
Dec. 31, 2019
TuanChe Information Limited ("TuanChe Information")  
Consolidation, Less than Wholly Owned Subsidiary, Parent Ownership Interest, Effects of Changes, Net [Line Items]  
Year of incorporation 2012
Principal activities Investment holding
Percentage of direct or indirect economic ownership 100.00%
TuanYuan Internet Technology (Beijing) Co., Ltd. ("TuanYuan")  
Consolidation, Less than Wholly Owned Subsidiary, Parent Ownership Interest, Effects of Changes, Net [Line Items]  
Year of incorporation 2013
Principal activities Technical support and consulting services, auto shows, special promotion events, virtual dealership, online marketing services
Percentage of direct or indirect economic ownership 100.00%
v3.20.1
Fair Value Measurement (Details)
Sep. 29, 2018
shares
Series C-2 convertible redeemable preferred shares  
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]  
Issuance of preferred shares 483,702
v3.20.1
Property, equipment and software, net - Additional information (Details)
¥ in Thousands, $ in Thousands
12 Months Ended
Dec. 31, 2019
USD ($)
Dec. 31, 2019
CNY (¥)
Dec. 31, 2018
CNY (¥)
Dec. 31, 2017
CNY (¥)
Property, Plant and Equipment [Line Items]        
Depreciation expenses of property, equipment and software $ 500 ¥ 3,483 ¥ 1,060 ¥ 965
Estimated amortization expenses for 2020   5,500    
Estimated amortization expenses for 2021   5,300    
Estimated amortization expenses for 2022   4,500    
Estimated amortization expenses for 2023   3,400    
Estimated amortization expenses for 2024   1,000    
Leasehold improvement        
Property, Plant and Equipment [Line Items]        
Amortization expenses   ¥ 300 ¥ 0 ¥ 0
v3.20.1
Accounts receivable, net - Accounts receivable, net (Details)
¥ in Thousands, $ in Thousands
Dec. 31, 2019
USD ($)
Dec. 31, 2019
CNY (¥)
Dec. 31, 2018
CNY (¥)
Accounts receivable, net      
Notes receivable:   ¥ 12,209 ¥ 3,625
Accounts receivable, gross:   74,357 49,121
Less: allowance for doubtful accounts   (14,175) (491)
Accounts receivable, net $ 10,398 ¥ 72,391 ¥ 52,255
v3.20.1
Subsequent events (Details)
¥ in Thousands, $ in Thousands
3 Months Ended 12 Months Ended
Mar. 31, 2020
CNY (¥)
Mar. 31, 2019
CNY (¥)
Dec. 31, 2018
CNY (¥)
Sep. 30, 2018
CNY (¥)
Jun. 30, 2018
CNY (¥)
Mar. 31, 2018
CNY (¥)
Dec. 31, 2019
USD ($)
Dec. 31, 2019
CNY (¥)
Dec. 31, 2018
CNY (¥)
Dec. 31, 2017
CNY (¥)
Subsequent Event [Line Items]                    
Net revenue   ¥ 65,000 ¥ 200,000 ¥ 150,000 ¥ 120,000 ¥ 65,000 $ 92,616 ¥ 644,773 ¥ 651,013 ¥ 280,666
Minimum | Subsequent events                    
Subsequent Event [Line Items]                    
Net revenue ¥ 9,000                  
Percentage of revenue 92.70%                  
Maximum | Subsequent events                    
Subsequent Event [Line Items]                    
Net revenue ¥ 10,000                  
Percentage of revenue 91.90%                  
v3.20.1
Taxation - Deferred tax assets and liabilities (Details) - CNY (¥)
¥ in Thousands
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Deferred tax assets :        
Advertising expense in excess of deduction limit ¥ 43,262 ¥ 25,473    
Accrued expense and other payables 6,615 5,303    
Net operating tax loss carry forwards 39,836 31,938    
Total deferred tax assets 89,713 62,714    
Less: valuation allowance (89,713) (62,714) ¥ (48,555) ¥ (39,613)
Net deferred tax assets ¥ 0 ¥ 0    
v3.20.1
Additional Information - Condensed Financial Statements of the Parent Company - Condensed statements of cash flows (Details)
¥ in Thousands, $ in Thousands
12 Months Ended
Dec. 31, 2019
USD ($)
Dec. 31, 2019
CNY (¥)
Dec. 31, 2018
CNY (¥)
Dec. 31, 2017
CNY (¥)
Condensed statements of cash flows        
Net cash used in operating activities $ (23,241) ¥ (161,806) ¥ (53,338) ¥ (59,662)
Cash flows from investing activities:        
Cash payments of time deposits (10,021) (69,762)    
Cash payment of bridge loan (14,242) (99,148)    
Net cash used in investing activities (26,940) (187,548) (20,746) (4,272)
Cash flows from financing activities:        
Cash payments for repurchase of restricted shares from employees (3,767) (26,228)    
Cash payments for repurchase of shares (1,975) (13,749)    
Cash received from convertible loans       41,165
Proceeds from issuance of Series C+ convertible redeemable preferred shares       59,091
Payment of issuance cost for Series C+ convertible redeemable preferred shares       (449)
Proceeds from issuance of Series (D-1) convertible redeemable preferred shares     151,118  
Payment of issuance cost for Series D-1 convertible redeemable preferred shares     (307)  
Proceeds from issuance of Series (D-2) convertible redeemable preferred shares     359,834  
Payment of issuance cost for Series D-2 convertible redeemable preferred share     (1,267)  
Proceeds of initial public offering, net of issuance costs     103,372  
Cash received from the depositary bank 392 2,732    
Net cash generated from/(used in) financing activities (5,350) (37,245) 562,126 117,954
Effect of exchange rate changes on cash, cash equivalents and restricted cash 501 3,490 12,713 (1,002)
Net increase/(decrease) in cash, cash equivalents and restricted cash (55,030) (383,109) 500,755 53,018
Cash, cash equivalents and restricted cash at beginning of the year 83,105 578,558 77,803 24,785
Cash, cash equivalents and restricted cash at end of the year 28,075 195,449 578,558 77,803
Parent Company [Member] | Reportable Legal Entities Member        
Condensed statements of cash flows        
Net cash used in operating activities (442) (3,086) (9,640) (6,466)
Cash flows from investing activities:        
Cash paid for investments in subsidiaries, VIEs and subsidiaries of VIEs (21,691) (151,006) (201,744) (47,002)
Cash payments of time deposits (10,021) (69,762) 0 0
Cash payment of bridge loan (14,242) (99,148) 0 0
Net cash used in investing activities (45,954) (319,916) (201,744) (47,002)
Cash flows from financing activities:        
Cash payments for repurchase of restricted shares from employees (3,767) (26,228) 0 0
Cash payments for repurchase of shares (1,975) (13,749) 0 0
Cash received from convertible loans 0 0 0 41,165
Proceeds from issuance of Series C+ convertible redeemable preferred shares 0 0 0 (59,091)
Payment of issuance cost for Series C+ convertible redeemable preferred shares 0 0 0 (449)
Proceeds from issuance of Series (D-1) convertible redeemable preferred shares 0 0 (151,118) 0
Payment of issuance cost for Series D-1 convertible redeemable preferred shares 0 0 (307) 0
Proceeds from issuance of Series (D-2) convertible redeemable preferred shares 0 0 359,834 0
Payment of issuance cost for Series D-2 convertible redeemable preferred share 0 0 (1,267) 0
Proceeds of initial public offering, net of issuance costs 0 0 103,372 0
Cash received from the depositary bank 392 2,732 0 0
Net cash generated from/(used in) financing activities (5,350) (37,245) 612,750 99,807
Effect of exchange rate changes on cash, cash equivalents and restricted cash 476 3,313 12,134 (981)
Net increase/(decrease) in cash, cash equivalents and restricted cash (51,270) (356,934) 413,500 45,358
Cash, cash equivalents and restricted cash at beginning of the year 65,922 458,936 45,436 78
Cash, cash equivalents and restricted cash at end of the year $ 14,652 ¥ 102,002 ¥ 458,936 ¥ 45,436
v3.20.1
Significant Accounting Policies - Additional information (Details)
¥ in Thousands, $ in Thousands
12 Months Ended
Dec. 31, 2019
CNY (¥)
Dec. 31, 2018
CNY (¥)
Dec. 31, 2017
CNY (¥)
Dec. 31, 2019
USD ($)
Dec. 31, 2019
CNY (¥)
Dec. 31, 2018
USD ($)
Dec. 31, 2018
CNY (¥)
Dec. 31, 2016
CNY (¥)
Related Party Transaction [Line Items]                
Exchange rate (US$1.00)       6.9618 6.9618      
Cash at bank and demand deposits       $ 15,600 ¥ 109,100 $ 73,500 ¥ 504,200  
Cash and cash equivalents     ¥ 66,695 27,855 193,920 $ 83,105 578,558 ¥ 24,785
Restricted cash       220 1,529   0  
Restricted Cash         1,500   0  
Depreciation methods straight-line method              
Advertising and promotional expenses ¥ 291,200 ¥ 238,000 134,200          
Rental costs for auto show venues     31,000   77,000   67,000  
Rental expenses for office space 8,700 6,600 6,600          
Employee benefits ¥ 39,152 ¥ 24,610 ¥ 10,844          
Total non-current assets       $ 1,088 7,577   10,267  
Other non-current assets                
Related Party Transaction [Line Items]                
Upfront issuance costs         0   700  
PRC subsidiaries, VIEs                
Related Party Transaction [Line Items]                
Cash and cash equivalents         ¥ 91,900   ¥ 74,400  
Percentage of cash and cash equivalents held y subsidiaries 47.40% 12.90%            
v3.20.1
Organization and Reorganization - Additional information (Details)
$ / shares in Units, ¥ in Thousands, $ in Thousands
12 Months Ended
Nov. 20, 2018
USD ($)
$ / shares
shares
Nov. 20, 2018
CNY (¥)
shares
Dec. 31, 2019
USD ($)
shares
Dec. 31, 2019
CNY (¥)
shares
Dec. 31, 2018
CNY (¥)
shares
Dec. 31, 2017
CNY (¥)
Dec. 31, 2019
CNY (¥)
Subsidiary, Sale of Stock [Line Items]              
Offering 2,600,000 American Depositary Shares ("ADSs") issued and sold     80,000 80,000      
Proceeds of initial public offering, net of issuance costs | ¥         ¥ 103,372    
Threshold limit for value of asset under the agreement | ¥       ¥ 100,000      
Variable interest entity registered capital | ¥         10,000   ¥ 10,000
Net loss     $ (36,097) (251,299) (78,700) ¥ (90,671)  
Net cash used in operating activities     (23,241) ¥ (161,806) (53,338) ¥ (59,662)  
Accumulated deficit     $ 103,229   ¥ 468,026   ¥ 718,666
Class A ordinary shares              
Subsidiary, Sale of Stock [Line Items]              
Number of initial public offering 2,600,000 2,600,000          
Offering 2,600,000 American Depositary Shares ("ADSs") issued and sold 10,400,000 10,400,000          
Share price per ADS | $ / shares $ 7.80            
Proceeds of initial public offering, net of issuance costs $ 15,000 ¥ 103,400          
Best Cars Limited ("Best Cars") | Class A ordinary shares              
Subsidiary, Sale of Stock [Line Items]              
Number of ordinary shares held     38,723,321 38,723,321 38,723,321    
v3.20.1
Related party transactions (Details) - CNY (¥)
¥ in Millions
Dec. 31, 2018
Dec. 31, 2017
Mr. Wei Wen    
Related Party Transaction [Line Items]    
Receivables due from related parties ¥ 1.0  
Mr. Xingyu Du    
Related Party Transaction [Line Items]    
Receivables due from related parties ¥ 0.8 ¥ 1.0
v3.20.1
Share-based Compensation - Valuation assumptions (Details) - $ / shares
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]    
Expected volatility 57.30%  
Weighted average volatility 57.30% 58.44%
Expected dividends 0.00% 0.00%
Risk-free rate 3.10%  
Contractual term (in years) 10 years 10 years
Enterprise value $ 0.65  
Minimum    
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]    
Expected volatility   57.90%
Risk-free rate   2.60%
Enterprise value   $ 0.32
Maximum    
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]    
Expected volatility   59.70%
Risk-free rate   3.18%
Enterprise value   $ 0.65
v3.20.1
Share-based Compensation - Summary of the restricted shares activities (Details) - Restricted shares - TuanChe Limited Share Incentive Plan (the "Plan") - $ / shares
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Number of restricted shares    
Outstanding Balance 11,489,258 0
Granted 11,527,950 24,407,184
Forfeit (733,764)  
Vested (13,070,570) (12,917,926)
Outstanding Balance 9,212,874 11,489,258
Weighted-Average Grant-Date Fair Value    
Outstanding Balance $ 1.595 $ 0.000
Granted 1.440 1.595
Forfeit 1.593  
Vested 1.623 1.595
Outstanding Balance $ 1.364 $ 1.595
v3.20.1
Other taxes payable (Details)
¥ in Thousands, $ in Thousands
Dec. 31, 2019
USD ($)
Dec. 31, 2019
CNY (¥)
Dec. 31, 2018
CNY (¥)
Other taxes payable      
Withholding individual income taxes for employees   ¥ 9,727 ¥ 4,268
VAT payables   12,105 11,728
Others   662 978
Total $ 3,231 ¥ 22,494 ¥ 16,974
v3.20.1
Other current liabilities (Details)
¥ in Thousands, $ in Thousands
Dec. 31, 2019
USD ($)
Dec. 31, 2019
CNY (¥)
Dec. 31, 2018
CNY (¥)
Other current liabilities      
Professional service fee   ¥ 5,741 ¥ 10,238
Online promotional expense payables   28,595 9,554
Software purchases payables   0 2,760
Tickets printing&delivery payables   1,271 2,450
Advertising expenses   1,798 8,611
Others   3,508 2,813
Total $ 5,877 ¥ 40,913 ¥ 36,426
v3.20.1
Ordinary shares (Details)
$ / shares in Units, ¥ in Millions, $ in Millions
12 Months Ended
Dec. 31, 2019
USD ($)
$ / shares
shares
Dec. 31, 2019
CNY (¥)
shares
Jun. 17, 2019
USD ($)
Treasury stock, shares, acquired | shares 1,710,952 1,710,952  
Cost of repurchase | ¥   ¥ 15.1  
Price per share | $ / shares $ 1.16    
ADS      
Stock repurchase program, authorized amount | $     $ 20
Treasury stock, shares, acquired | shares 427,738 427,738  
Cost of repurchase | $ $ 2    
Price per share | $ / shares $ 4.65    
v3.20.1
Taxation
12 Months Ended
Dec. 31, 2019
Taxation  
Taxation

8.    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 their shareholders, no Cayman Islands withholding tax will be imposed.

Hong Kong

Commencing from the year of assessment 2018/2019, the first HK$2.0 million of profits earned by the Group’s subsidiaries incorporated in Hong Kong will be taxed at half the current tax rate (i.e., 8.25%) while the remaining profits will continue to be taxed at the existing 16.5% tax rate. Payments of dividends by the subsidiary to the Company are not subject to withholding tax in Hong Kong.

China

Under the Enterprise Income Tax Law of the PRC, the Group’s Chinese subsidiaries and VIEs are subject to an income tax of 25%.

The following table presents a reconciliation of the differences between the statutory income tax rate and the Company’s effective income tax rate for the years ended December 31, 2017, 2018 and 2019:

 

 

 

 

 

 

 

 

    

For the year ended 

 

 

December 31, 

 

    

2017

    

2018

    

2019

 

 

 %

 

%

 

%

Statutory income tax rate of the PRC

 

25.0

 

25.0

 

25.0

Permanent differences

 

(11.5)

 

(10.4)

 

(10.0)

Change in valuation allowance

 

(13.5)

 

(14.6)

 

(15.0)

Effective income tax rate

 

 -

 

 -

 

 -

 

As of December 31, 2019, certain entities of the Company had net operating tax loss carry forwards as follows:

 

 

 

 

    

RMB

Loss expiring in 2020

 

34,177

Loss expiring in 2021

 

15,037

Loss expiring in 2022

 

19,771

Loss expiring in 2023

 

61,016

Loss expiring in 2024

 

29,343

 

 

159,344

 

b)    Sales tax

The Group’s subsidiaries and VIEs incorporated in China are mainly subject to 6% VAT for services rendered.

c)    Deferred tax assets and liabilities

The following table presents the tax impact of significant temporary differences that give rise to the deferred tax assets as of December 31, 2018 and 2019:

 

 

 

 

 

 

    

December 31, 2018

    

December 31, 2019

 

 

RMB

 

RMB

Deferred tax assets:

 

  

 

  

Advertising expense in excess of deduction limit

 

25,473

 

43,262

Accrued expense and other payables

 

5,303

 

6,615

Net operating tax loss carry forwards

 

31,938

 

39,836

Total deferred tax assets

 

62,714

 

89,713

Less: valuation allowance

 

(62,714)

 

(89,713)

Net deferred tax assets

 

 -

 

 -

 

The Group does not believe that sufficient positive evidence exists to conclude that the recoverability of the above deferred tax assets of certain entities of the Group is more likely than not to be realized. Consequently, the Group has provided full valuation allowances on the related deferred tax assets. The following table sets forth the movement of the aggregate valuation allowances for deferred tax assets for the periods presented:

 

 

 

 

 

 

 

 

 

    

Balance at January 1

    

Addition

    

Balance at December 31

 

    

RMB

    

RMB

    

RMB

2017

 

(39,613)

 

(8,942)

 

(48,555)

2018

 

(48,555)

 

(14,159)

 

(62,714)

2019

 

(62,714)

 

(26,999)

 

(89,713)

 

d)    Withholding income tax

The enterprise income tax (“EIT”) Law also imposes a withholding income tax of 10% on dividends distributed by a foreign-invested entity ("FIE") to its immediate holding company outside of China, if such immediate holding company is considered as a non-resident enterprise without any establishment or place within China or if the received dividends have no connection with the establishment or place of such immediate holding company within China, unless such immediate holding company’s jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement. The Cayman Islands, where the Company incorporated, does not have such tax treaty with China. According to the arrangement between Mainland China and Hong Kong Special Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal Evasion in August 2006, dividends paid by a FIE in China to its immediate holding company in Hong Kong will be subject to withholding tax at a rate that may be lowered to 5% (if the foreign investor owns directly at least 25% of the shares of the FIE). The State Administration of Taxation ("SAT") further promulgated Circular 601 on October 27, 2009, which provides that tax treaty benefits will be denied to "conduit" or shell companies without business substance and that a beneficial ownership analysis will be used based on a "substance-over-form" principle to determine whether or not to grant the tax treaty benefits. Further, the SAT promulgated the Notice on Issues Related to the “Beneficial Owner” in Tax Treaties in February 2018, which requires the “beneficial owner” to have ownership and the right to dispose of the income or the rights and properties giving rise to the income and generally engage in substantive business activities and sets forth certain detailed factors in determining the “beneficial owner” status.

As of December 31, 2018 and 2019, the Company did not record any such withholding tax of its subsidiaries, VIEs and subsidiaries of VIEs in the PRC as they are still in accumulated deficit position.

v3.20.1
Discontinued operations
12 Months Ended
Dec. 31, 2019
Discontinued operations  
Discontinued operations

3.    Discontinued operations

On December 10, 2017, pursuant to the resolutions of the shareholders and board of directors, the Company decided to discontinue the electric vehicle sales facilitation business. The Discontinued Business represents a strategic shift that has a major effect on the Group’s operations and financial results. The assets and liabilities related to the Discontinued Business are classified as assets/liabilities held for sale as of December 31, 2017, and the results were reported as loss from discontinued operations.

Assets and liabilities related to the Discontinued Business to be transferred were reclassified as assets/liabilities held for sale as of December 31, 2017, while results of operations related to the Discontinued Business, including comparatives, were reported as loss from discontinued operations.

On June 30, 2018, the Company completed the disposal of the Discontinued Business resulting a gain of disposal of RMB0.8 million.

Results of discontinued operations:

 

 

 

 

 

 

 

 

For the year ended

 

For the period from

 

 

December 31,

 

January 1 to June 30,

 

 

2017

 

2018

 

    

RMB

    

RMB

Net revenues

 

17,768

 

4,807

Cost of revenues

 

(627)

 

(280)

Gross profit

 

17,141

 

4,527

Operating expenses:

 

  

 

  

Selling and marketing expenses

 

(30,065)

 

(6,800)

General and administrative expenses

 

(1,077)

 

(1,368)

Total operating expense

 

(31,142)

 

(8,168)

Loss from operations

 

(14,001)

 

(3,641)

Other expenses:

 

  

 

  

Interest expenses, net

 

(924)

 

(676)

Gain from disposal of discontinued operations

 

 -

 

771

Others, net

 

(52)

 

(66)

Loss from discontinued operations before income taxes

 

(14,977)

 

(3,612)

Income tax expense

 

 -

 

 -

Net loss from discontinued operations

 

(14,977)

 

(3,612)

 

Cash flows of the discontinued operations:

 

 

 

 

 

 

 

 

For the year ended

 

For the period from

 

 

December 31, 

 

January 1 to June 30,

 

    

2017

    

2018

 

 

RMB

 

RMB

Cash flows used in discontinued operations

 

 

 

 

Net cash used in operating activities

 

(27,875)

 

(2,817)

Net cash used in investing activities

 

(10)

 

 -

Net cash generated from/(used in) financing activities

 

17,904

 

(2,513)

Net decrease in cash and cash equivalents

 

(9,981)

 

(5,330)

 

v3.20.1
Accounts receivable, net
12 Months Ended
Dec. 31, 2019
Accounts receivable, net  
Accounts receivable, net

4.    Accounts receivable, net

Accounts and notes receivables are consisted of the following:

 

 

 

 

 

 

 

    

December 31, 2018

    

December 31, 2019

 

 

RMB

 

RMB

Notes receivable

 

3,625

 

12,209

Accounts receivable, gross

 

49,121

 

74,357

Less: allowance for doubtful accounts

 

(491)

 

(14,175)

Accounts receivable, net

 

52,255

 

72,391

 

The Group closely monitors the collection of its accounts receivable and records allowance for doubtful accounts against aged accounts receivable and for specifically identified non-recoverable amounts. If the economic situation and the financial condition of a customer deteriorate resulting in an impairment of the customer’s ability to make payments, additional allowances might be required. Notes receivable were 3.6 million and 12.2 million for the years ended December 31, 2018 and 2019, respectively. The prior year figures for notes receivable have been reclassified to conform to current year presentation to facilitate comparison.

Receivable balance are written off when they are determined to be uncollectable. The following table sets out movements of the allowance for doubtful accounts for the years ended December 31, 2017, 2018 and 2019:

 

 

 

 

 

 

 

 

 

    

December 31, 2017

    

December 31, 2018

    

December 31, 2019

 

 

RMB

 

RMB

 

RMB

Balance at the beginning of the period

 

 -

 

418

 

491

Additions charged to bad debt expense

 

418

 

491

 

13,684

Write-off of bad debt allowance

 

 -

 

(418)

 

 -

Balance at the end of the period

 

418

 

491

 

14,175

 

v3.20.1
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' (DEFICIT)/EQUITY
¥ in Thousands, $ in Thousands
Ordinary shares
CNY (¥)
shares
Treasury stock
CNY (¥)
shares
Additional paid-in capital
CNY (¥)
Accumulated deficit
CNY (¥)
Accumulated other comprehensive (loss) gain
CNY (¥)
Tuanche Limited shareholders' (deficit)/equity
CNY (¥)
Non-controlling interests
CNY (¥)
USD ($)
shares
CNY (¥)
shares
Balance at Dec. 31, 2016 ¥ 60     ¥ (280,753) ¥ (9,402) ¥ (290,095)     ¥ (290,095)
Balance (in shares) at Dec. 31, 2016 | shares 94,870,580                
Increase (Decrease) in Stockholders' Equity [Roll Forward]                  
Share-based compensation     ¥ 1,896     1,896     1,896
Deemed capital contribution     1,147     1,147     1,147
Accretions to pre-IPO preferred shares redemption value     (3,043) (17,902)   (20,945)     (20,945)
Net loss       (90,671)   (90,671)     (90,671)
Foreign currency translation adjustments         (1,367) (1,367)     (1,367)
Balance at Dec. 31, 2017 ¥ 60     (389,326) (10,769) (400,035)     (400,035)
Balance (in shares) at Dec. 31, 2017 | shares 94,870,580                
Increase (Decrease) in Stockholders' Equity [Roll Forward]                  
Grant of restricted shares ¥ 16   (16)            
Grant of restricted shares (in shares) | shares 24,407,184 (24,407,184)              
Share issuance upon the initial public offering, net of issuance costs ¥ 7   103,365     103,372     103,372
Share issuance upon the initial public offering, net of issuance costs (in shares) | shares 10,400,000                
Share issuance upon the conversion and redesignation of Pre-IPO preferred shares into Class A ordinary shares ¥ 118   930,318     930,436     930,436
Share issuance upon the conversion and redesignation of Pre-IPO preferred shares into Class A ordinary shares (in shares) | shares 171,102,902                
Vesting of restricted shares     71,209     71,209     71,209
Vesting of restricted shares (in shares) | shares   12,917,926              
Vesting of share options     576     576     576
Share-based compensation for super voting right     4,657     4,657     4,657
Share-based compensation for transfer of Class A ordinary shares     1,690     1,690     1,690
Deemed capital contribution     450     450     450
Accretions to pre-IPO preferred shares redemption value     (35,066)     (35,066)     (35,066)
Net loss       (78,700)   (78,700)     (78,700)
Foreign currency translation adjustments         3,401 3,401     3,401
Balance at Dec. 31, 2018 ¥ 201   1,077,183 (468,026) (7,368) 601,990     ¥ 601,990
Balance (in shares) at Dec. 31, 2018 | shares 300,780,666 (11,489,258)              
Increase (Decrease) in Stockholders' Equity [Roll Forward]                  
Grant of restricted shares ¥ 7   (7)            
Grant of restricted shares (in shares) | shares 11,527,950 (11,527,950)              
Share issuance upon the initial public offering, net of issuance costs (in shares) | shares               80,000 80,000
Forfeit of restricted shares (in shares) | shares (733,764) 733,764              
Vesting of restricted shares     109,968     109,968     ¥ 109,968
Vesting of restricted shares (in shares) | shares   13,070,570              
Share-based compensation to nonemployee     433     433     433
Repurchase of restricted shares from employees   ¥ (32,784)       (32,784)     (32,784)
Repurchase of restricted shares from employees (in shares) | shares   (6,358,500)              
Repurchase of shares   ¥ (15,104)       (15,104)     (15,104)
Repurchase of shares (in shares) | shares   (1,710,952)              
Net loss       (250,640)   (250,640) ¥ (659) $ (36,097) (251,299)
Foreign currency translation adjustments         9,771 9,771   1,404 9,771
Balance at Dec. 31, 2019 ¥ 208 ¥ (47,888) ¥ 1,187,577 ¥ (718,666) ¥ 2,403 ¥ 423,634 ¥ (659) $ 60,757 ¥ 422,975
Balance (in shares) at Dec. 31, 2019 | shares 311,574,852 (17,282,326)              
v3.20.1
Preferred shares
12 Months Ended
Dec. 31, 2019
Preferred shares  
Preferred shares

12.  Preferred shares

The China Best, Series A, B-1, B-2, C-1, C-2, C+, C-4, D-1 and D-2 convertible redeemable preferred shares are collectively referred to as the "Preferred Shares”. Since their inception in 2012, the Company have raised approximately USD$125.1 million in equity financing from a group of investors:

China Best financing

In June 2012, the Company raised an aggregate of RMB1,260,000 from the issuance of 5,660,000 preferred shares of the Company to China Best.

Series A financing

In March 2013, the Company raised an aggregate of US$700,000 from the issuance of 2,828,393 and 16,970,357 Series A preferred shares of the Company to K2 Evergreen Partner L.P. and K2 Partners II L.P., respectively.

Series B financing

In September 2013, the Company raised an aggregate of US$5,564,856 from the issuance of 4,142,781 and 8,285,562 Series B-1 preferred shares of the Company to K2 Evergreen Partners L.P. and K2 Partners II L.P., respectively, and the issuance of 18,193,772 and 4,548,443 Series B-2 preferred shares of the Company to BAI GmbH and K2 Partners II L.P., respectively.

Series C financing

In August 2014, the Company raised an aggregate of US$23,658,593 from the issuance of 3,427,812 Series C-1 preferred shares of the Company to BAI GmbH, and the issuance of 5,643,437,  18,290,377,  7,878,398 and 1,596,503 Series C-2 preferred shares of the Company to BAI GmbH, Highland Capital Partners 9 L.P., Highland Capital Partners 9-B L.P. and Highland Entrepreneurs’ Fund 9 L.P., respectively.

Series C+ financing

In June 2017, the Company raised an aggregate of US$8,682,770 from the issuance of 2,175,611,  725,204,  1,450,408,  1,910,912,  823,106,  166,797 and 5,341,517 Series C+ preferred shares of the Company to K2 Partners III Limited, K2 Family Partners Limited, BAI GmbH, Highland Capital Partners 9 Limited Partnership, Highland Capital Partners 9-B Limited Partnership, Highland Entrepreneurs’ Fund 9 Limited Partnership and AlphaX Partners Fund I, L.P., respectively. In addition, Puhua’s convertible loans of RMB30.0 million was converted into 6,261,743 Series C+ preferred shares.

Series C-4 financing

In June 2018, the August 2017 Loan of US$6.3 million plus its accrued interests were converted into 7,569,628 Series C-4 preferred shares.

Series D-1 financing

In June 2018, the Company raised an aggregate of US$23,350,000 from the issuance of 3,592,664 and 6,453,887 Series D-1 preferred shares of the Company to ACEE Capital Ltd. and Honour Depot Limited, respectively.

Series D-2 financing

In September 2018, the Company raised US$50.0 million from the issuance of 20,630,925 Series D-2 preferred shares of the Company to Beijing Z-Park Fund.

Accounting for the Preferred Shares

The Company has classified the Preferred Shares in the mezzanine equity of the consolidated balance sheets as they are contingently redeemable at the option of the holders. In addition, the Company records accretion 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 issue price at the date of issuance net of issuance costs.

The Company has determined that there was no beneficial conversion feature attributable to all preferred shares because the initial effective conversion prices of these preferred shares were higher than the fair value of the Company’s common shares determined by the Company taking into account independent valuations.

Upon the completion of the Company’s IPO in November 2018, all of the issued and outstanding pre-IPO Preferred Shares were automatically converted and redesignated into Class A ordinary shares based on the conversion rate stipulated in their Share Purchase Agreements.  

 

v3.20.1
Document and Entity Information - shares
12 Months Ended
Dec. 31, 2019
May 18, 2020
Document Type 20-F  
Document Period End Date Dec. 31, 2019  
Entity Registrant Name TuanChe Ltd  
Entity Well-known Seasoned Issuer No  
Entity Current Reporting Status Yes  
Entity Filer Category Non-accelerated Filer  
Entity Voluntary Filers No  
Entity Emerging Growth Company true  
Entity Ex Transition Period true  
Entity Shell Company false  
Entity Central Index Key 0001743340  
Current Fiscal Year End Date --12-31  
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus FY  
Amendment Flag false  
Trading Symbol tc  
Class A ordinary shares    
Entity Common Stock, Shares Outstanding   266,491,715
Class B ordinary shares    
Entity Common Stock, Shares Outstanding   55,260,580
v3.20.1
Discontinued operations (Tables)
12 Months Ended
Dec. 31, 2019
Discontinued operations  
Schedule of discontinued operation

 

 

 

 

 

 

 

For the year ended

 

For the period from

 

 

December 31,

 

January 1 to June 30,

 

 

2017

 

2018

 

    

RMB

    

RMB

Net revenues

 

17,768

 

4,807

Cost of revenues

 

(627)

 

(280)

Gross profit

 

17,141

 

4,527

Operating expenses:

 

  

 

  

Selling and marketing expenses

 

(30,065)

 

(6,800)

General and administrative expenses

 

(1,077)

 

(1,368)

Total operating expense

 

(31,142)

 

(8,168)

Loss from operations

 

(14,001)

 

(3,641)

Other expenses:

 

  

 

  

Interest expenses, net

 

(924)

 

(676)

Gain from disposal of discontinued operations

 

 -

 

771

Others, net

 

(52)

 

(66)

Loss from discontinued operations before income taxes

 

(14,977)

 

(3,612)

Income tax expense

 

 -

 

 -

Net loss from discontinued operations

 

(14,977)

 

(3,612)

 

Cash flows of the discontinued operations:

 

 

 

 

 

 

 

 

For the year ended

 

For the period from

 

 

December 31, 

 

January 1 to June 30,

 

    

2017

    

2018

 

 

RMB

 

RMB

Cash flows used in discontinued operations

 

 

 

 

Net cash used in operating activities

 

(27,875)

 

(2,817)

Net cash used in investing activities

 

(10)

 

 -

Net cash generated from/(used in) financing activities

 

17,904

 

(2,513)

Net decrease in cash and cash equivalents

 

(9,981)

 

(5,330)

 

v3.20.1
Taxation (Tables)
12 Months Ended
Dec. 31, 2019
Taxation  
Schedule of reconciliation of the differences between the statutory income tax rate

 

 

 

 

 

 

 

 

    

For the year ended 

 

 

December 31, 

 

    

2017

    

2018

    

2019

 

 

 %

 

%

 

%

Statutory income tax rate of the PRC

 

25.0

 

25.0

 

25.0

Permanent differences

 

(11.5)

 

(10.4)

 

(10.0)

Change in valuation allowance

 

(13.5)

 

(14.6)

 

(15.0)

Effective income tax rate

 

 -

 

 -

 

 -

 

Schedule of net operating tax loss carry forwards

As of December 31, 2019, certain entities of the Company had net operating tax loss carry forwards as follows:

 

 

 

 

    

RMB

Loss expiring in 2020

 

34,177

Loss expiring in 2021

 

15,037

Loss expiring in 2022

 

19,771

Loss expiring in 2023

 

61,016

Loss expiring in 2024

 

29,343

 

 

159,344

 

Schedule of temporary differences to the deferred tax assets

The following table presents the tax impact of significant temporary differences that give rise to the deferred tax assets as of December 31, 2018 and 2019:

 

 

 

 

 

 

    

December 31, 2018

    

December 31, 2019

 

 

RMB

 

RMB

Deferred tax assets:

 

  

 

  

Advertising expense in excess of deduction limit

 

25,473

 

43,262

Accrued expense and other payables

 

5,303

 

6,615

Net operating tax loss carry forwards

 

31,938

 

39,836

Total deferred tax assets

 

62,714

 

89,713

Less: valuation allowance

 

(62,714)

 

(89,713)

Net deferred tax assets

 

 -

 

 -

 

Schedule of aggregate valuation allowances for deferred tax assets

valuation allowances on the related deferred tax assets. The following table sets forth the movement of the aggregate valuation allowances for deferred tax assets for the periods presented:

 

 

 

 

 

 

 

 

 

    

Balance at January 1

    

Addition

    

Balance at December 31

 

    

RMB

    

RMB

    

RMB

2017

 

(39,613)

 

(8,942)

 

(48,555)

2018

 

(48,555)

 

(14,159)

 

(62,714)

2019

 

(62,714)

 

(26,999)

 

(89,713)