UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Date of event requiring this shell company report
For the transition period from ____________ to ____________
Commission file number:
(Exact name of Registrant as specified in its charter)
N/A
(Translation of Registrant’s name into English)
(Jurisdiction of incorporation or organization)
The People’s Republic of
+86 21 5290-7031
(Address of principal executive offices)
Telephone: +86
Email:
The People’s Republic of
(Name, Telephone, Email 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 |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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* Not for trading, but only in connection with the listing on the New York Stock Exchange of American depositary shares.
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
(Title of Class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. ☐ Yes ☒
Note — Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ |
Non-accelerated filer ☐ |
Emerging growth company |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards t provided pursuant to Section 13(a) of the Exchange Act. ☐
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
International Financial Reporting Standards as issued by the International Accounting Standards Board ☐ |
Other ☐ |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. ☐ Item 17 ☐ Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. ☐ Yes ☐ No
TABLE OF CONTENTS
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Material Modifications to the Rights of Security Holders and Use of Proceeds |
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Purchases of Equity Securities by the Issuer and Affiliated Purchasers |
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Disclosure Regarding Foreign Jurisdictions that Prevent Inspections |
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i
INTRODUCTION
Except where the context otherwise requires and for purposes of this annual report only:
Our reporting currency is the Renminbi. This annual report also contains translations of certain foreign currency amounts into U.S. dollars for the convenience of the reader. Unless otherwise stated, all translations of Renminbi into U.S. dollars were made at RMB7.0999 to US$1.00, the exchange rate set forth in the H.10 statistical release of the Federal Reserve Board on December 29, 2023. We make no representation that the Renminbi or U.S. dollars amounts referred to in this annual report could have been or could be converted into U.S. dollars or Renminbi, as the case may be, at any particular rate or at all.
Due to rounding, numbers presented throughout this annual report may not add up precisely to the totals provided and percentages may not precisely reflect the absolute figures.
1
FORWARD-LOOKING INFORMATION
This annual report contains forward-looking statements that involve risks and uncertainties. All statements other than statements of current or historical facts are forward-looking statements. These forward-looking statements are made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements.
You can identify these forward-looking statements by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “likely to” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include, but are not limited to, statements about:
You should read this annual report and the documents that we refer to in this annual report with the understanding that our actual future results may be materially different from and worse than what we expect. Other sections of this annual report include additional factors which could adversely impact our business and financial performance. Moreover, we operate in an evolving environment. New risk factors and uncertainties emerge from time to time and it is not possible for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We qualify all of our forward-looking statements by these cautionary statements.
2
PART I
Item 1. Identity of Directors, Senior Management and Advisers
Not applicable.
Item 2. Offer Statistics and Expected Timetable
Not applicable.
Item 3. Key Information
Our Holding Company Structure
We are not an operating company but a Cayman Islands holding company with operations primarily conducted by our subsidiaries in China. The following diagram illustrates our corporate structure consisting of our principal subsidiaries as of the date of this annual report:
ATRenew Inc. is a Cayman holding company and our operations are conducted primarily through subsidiaries in China. By purchasing the ADSs, you are purchasing interests in our Cayman holding company, as opposed to interests in our subsidiaries in China. Were this holding company structure to be challenged or disallowed by any regulatory authorities, our business operations would be materially and adversely affected and the value of the ADSs could significantly decline or become worthless. This holding company structure also involves certain risks in terms of dividend distribution, direct investment in entities in mainland China and obtaining benefits under the tax treaty. See “Item 3. Key Information—D.Risk Factors—Risks Related to Our Corporate Structure—If the PRC government finds that the historical contractual arrangements with the former VIE that establish the structure for operating certain of our businesses in mainland China did not comply with mainland China regulations relating to the industries, or if these regulations or the interpretation of existing regulations change in the future, our shares and/or ADSs may decline in value or become worthless if we are deemed to be unable to assert our contractual control rights over the assets of
3
the consolidated affiliated entities.” See “Item 3. Key Information—D.Risk Factors—Risks Related to Doing Business in China—We may rely on dividends and other distributions on equity paid by our subsidiaries in mainland China to fund any cash and financing requirements we may have, and any limitation on the ability of our mainland China subsidiaries to make payments to us could have a material and adverse effect on our ability to conduct our business,” “Item 3. Key Information— D. Risk Factors—Risks Related to Doing Business in China—Mainland China regulation of loans to and direct investment in mainland China entities by offshore holding companies and governmental control of currency conversion may delay or prevent us from using the proceeds of financing activities to make loans or additional capital contributions to our mainland China subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our business” and “Item 3.D. Key Information—D. Risk Factors—Risks Related to Doing Business in China— Mainland China regulations relating to offshore investment activities by mainland China residents may limit our mainland China subsidiaries’ ability to change their registered capital or distribute profits to us or otherwise expose us or our beneficial owners who are mainland China residents to liability and penalties under mainland China law.” See also “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations Relating to Foreign Exchange and Dividend Distribution.”
Historical variable interest entity structure
Prior to the unwinding of the variable interest entity structure in April 2022, Shanghai Aihui was a party to a series of contractual arrangements with Shanghai Wanwuxinsheng and the shareholders of Shanghai Wanwuxinsheng, which allowed us to (i) have the power to direct activities of Shanghai Wanwuxinsheng that most significantly affect its economic performance, (ii) receive all economic benefits of Shanghai Wanwuxinsheng; and (iii) have an exclusive option to purchase all of the equity interests in Shanghai Wanwuxinsheng when and to the extent permitted by laws and regulations in mainland China, and thus satisfying the conditions for consolidation of the former VIE under U.S. GAAP.
The Holding Foreign Companies Accountable Act
Pursuant to the Holding Foreign Companies Accountable Act, which was amended by the Consolidated Appropriations Act, 2023 in December 2022, if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspections by the PCAOB for two consecutive years, the SEC will prohibit our shares or the ADSs from being traded on a national securities exchange or in the over-the-counter trading market in the United States and the NYSE may determine to delist the ADSs. On December 16, 2021, the PCAOB issued a report to notify the SEC of its determination that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong, including our auditor, the headquarters of which is located in mainland China. In May 2022, the SEC conclusively listed us as a Commission-Identified Issuer under the HFCAA following the filing of this annual report on Form 20-F for the fiscal year ended December 31, 2021. On December 15, 2022, the PCAOB issued a report that vacated its December 16, 2021 determination and removed mainland China and Hong Kong from the list of jurisdictions where it is unable to inspect or investigate completely registered public accounting firms. For this reason, we do not expect to be identified as a Commission-Identified Issuer under the HFCAA after we file this annual report on Form 20-F. Each year, the PCAOB will determine whether it can inspect and investigate completely audit firms in mainland China and Hong Kong, among other jurisdictions. If PCAOB determines in the future that it no longer has full access to inspect and investigate completely accounting firms in mainland China and Hong Kong and we continue to use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial statements filed with the Securities and Exchange Commission, we would be identified as a Commission-Identified Issuer following the filing of the annual report on Form 20-F for the relevant fiscal year. There can be no assurance that we would not be identified as a Commission-Identified Issuer for any future fiscal year, and if we were so identified for two consecutive years, we would become subject to the prohibition on trading under the HFCAA. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China— The PCAOB had historically been unable to inspect our auditor in relation to their audit work performed for our financial statements and the inability of the PCAOB to conduct inspections of our auditor in the past has deprived our investors of the benefits of such inspections” and “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Our ADSs may be prohibited from trading in the United States under the HFCAA in the future if the PCAOB is unable to inspect or investigate completely auditors located in China. The delisting of the ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment.”
4
Doing Business in China
We face various risks and uncertainties related to doing business in China. Our business operations are primarily conducted in mainland China and we are subject to complex and evolving laws and regulations in mainland China. For example, we face risks associated with regulatory approvals on offshore offerings, anti-monopoly regulatory actions, and oversight on cybersecurity and data privacy, which may impact our ability to conduct certain businesses, accept foreign investments, or list on a United States or other foreign exchange. These risks could result in a material adverse change in our operations and the value of our ADSs, significantly limit or completely hinder our ability to continue to offer securities to investors, or cause the value of such securities to significantly decline. For a detailed description of risks related to doing business in China, please refer to risks disclosed under “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China.”
The PRC government’s significant authority in regulating our operations and its oversight and control over offerings conducted overseas by, and foreign investment in, China-based issuers could significantly limit or completely hinder our ability to offer or continue to offer securities to investors. Implementation of industry-wide regulations in this nature may cause the value of such securities to significantly decline. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—The PRC government’s significant oversight over our business operation could result in a material adverse change in our operations and the value of our ADSs.”
Risks and uncertainties arising from the legal system in China, including risks and uncertainties regarding the enforcement of laws and quickly evolving rules and regulations in China, could result in a material adverse change in our operations and the value of our ADSs. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Uncertainties with respect to the PRC legal system and changes in laws and regulations in China could adversely affect us.”
Permissions Required from the PRC Authorities for Our Operations and Securities Offerings
Our operations in mainland China are governed by laws and regulations in mainland China. Based on laws and regulations currently in effect in mainland China and the advice of our PRC counsel, Han Kun Law Offices, as of the date of this annual report, we have obtained licenses, permits and approvals from the government authorities in mainland China that are necessary for the business operations of our subsidiaries in mainland China, i.e. (i) the business license, (ii) the license for value-added telecommunications services for online data processing and transaction processing (limiting to commercial e-commerce), (iii) the food operation license for selling prepackaged food and alcoholic commodities, and (iv) the approval for enterprises implementing other work hours system for implementing flexible work hours system and comprehensive work hours system for certain employees of our headquarters, certain offline AHS stores and operation centers. Our Hong Kong intermediate holding companies have also obtained licenses, permits and approvals that are necessary for the business operations in Hong Kong. For more information, see “Item 4. Information on the Company—B. Business Overview—Regulation.” Given the uncertainties of interpretation and implementation of laws and regulations and the enforcement practice by government authorities, we may be required to obtain additional licenses, permits, filings or approvals for the functions and services of our platform in the future. If we and our subsidiaries (i) do not receive or maintain any necessary permissions or approvals from PRC authorities to operate business, (ii) inadvertently conclude that such permissions or approvals are not required, or (iii) if applicable laws, regulations, or interpretations change and we are required to obtain such permissions or approvals in the future, we cannot assure you that we will be able to obtain the necessary permissions or approvals in a timely manner, or at all, and such permissions and approvals may be rescinded even if obtained. Any such circumstance could subject us to penalties, including fines, suspension of business and revocation of required licenses, significantly limit or completely hinder our ability to continue to offer securities to investors, and cause the value of our ADSs to significantly decline or be worthless. For more detailed information, see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—Failure to obtain certain filings, approvals, licenses, permits and certificates required for our business operations may materially and adversely affect our business, financial condition and results of operations” and “—Risks Related to Doing Business in China—Uncertainties with respect to the PRC legal system and changes in laws and regulations in China could adversely affect us.”
Furthermore, in connection with our past issuance of securities to foreign investors through public offering, under current laws, regulations and regulatory rules in mainland China, based on the legal advice of our PRC counsel, Han Kun Law Offices, as of the date of this annual report, we (i) have not been required to obtain permissions from the China Securities Regulatory Commission, or the CSRC, (ii) have not been required to go through cybersecurity review by the Cyberspace Administration of China, and (iii) have not been required to obtain or denied such
5
permissions from any other government authority in mainland China. On February 17, 2023, the CSRC released several regulations regarding overseas offerings and listings by domestic companies, including the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies and five supporting guidelines and the Notice on Administrative Arrangements for the Filing of Domestic Enterprise’s Overseas Offering and Listing, collectively, the Overseas Listing Filing Rules, which took effect on March 31, 2023. The Overseas Listing Filing Rules establish new requirements and procedures, essentially filing procedures, for direct or indirect overseas issuance of listed and traded securities by “domestic enterprises.” According to the Overseas Listing Filing Rules, and as advised by our PRC counsel, issuers that had completed overseas listings before March 31, 2023, such as our company, are not required to file with the CSRC in accordance with the Overseas Listing Filing Rules immediately, but will be required to complete certain filing procedures with the CSRC in connection with future securities offerings and listings outside of mainland China, including follow-on offerings, issuance of convertible bonds, offshore relisting after going-private transactions, and other equivalent offering activities. With respect to the cybersecurity review by the Cyberspace Administration of China, our PRC counsel has consulted the government authority in mainland China, which confirmed that, under the currently effective laws and regulations in mainland China, a company already listed on a foreign stock exchange before promulgation of the latest Measures for Cybersecurity Review is not required to go through a cybersecurity review by the Cyberspace Administration of China to maintain its listing status on the foreign stock exchange on which its securities have been listed. Therefore, we believe that under the currently effective laws and regulations in mainland China, we are not required to go through a cybersecurity review by the Cyberspace Administration of China for our past issuance of securities to foreign investors through public offering and maintaining our listing status on the NYSE. For more detailed information, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—The approval of the CSRC or other PRC government authorities may be required in connection with our future offshore offerings under mainland China law, and, if required, we cannot predict whether or for how long we will be able to obtain such approval.”
Transfer of Funds and Other Assets Within Our Organization
ATRenew Inc. transfers cash to its wholly-owned subsidiaries in Hong Kong by providing loans and making capital contributions, and the Hong Kong subsidiaries transfer cash to the subsidiaries in mainland China by making capital contributions and providing loans to them. Because ATRenew Inc. and its subsidiaries did not own equity interests of the former VIE prior to unwinding of the variable interest entity structure, they were not able to make direct capital contribution to the former VIE and its subsidiaries. However, if the former VIE and its subsidiaries were ever to need financial support, ATRenew Inc. and its subsidiaries may, at its option and subject to statutory limits and restrictions, provide financial support to the former VIE through loans to the shareholders of the former VIE, who in turn inject the amount into the former VIE as capital contribution or entrustment loans to the former VIE and its subsidiaries.
Shanghai Aihui Trading Co., Ltd. and Shanghai Yueou Information Technology Co., Ltd. (the “Two Shanghai Subsidiaries”), transferred cash to the former VIE and its subsidiaries of RMB3,014.0 million in 2021 and RMB351.6 million in the period before the complete unwinding of the variable interest entity structure in 2022 by providing loans. The Two Shanghai Subsidiaries received loan repayments from the former VIE and its subsidiaries of RMB700.0 million in 2021 and RMB175.0 million in the period before the completely unwinding of the variable interest entity structure in 2022.
The Company’s intermediate holding company, i.e. AiHuiShou International Company Limited, transferred cash to the Two Shanghai Subsidiaries, including the cash transferred to the former VIE and its subsidiaries after the complete unwinding of the variable interest entity structure, of RMB3,229.9 million in 2021, RMB1,801.6 million in 2022 and nil in 2023 by providing loans. The Company’s intermediate holding company received loan repayments from the Two Shanghai Subsidiaries of RMB1,100.0 million in 2021, RMB1,785.0 million in 2022 and RMB511.5 million in 2023.
The Company transferred cash to its intermediate holding company of RMB2,589.5 million in 2021, RMB595.1 million in 2022 and RMB14.6 million in 2023 by making capital contributions, and the Company received cash from its intermediate holding company as investment returns of nil in 2021, RMB804.7 million in 2022 and RMB223.2 million in 2023.
There were no other transfer of assets, dividends or distributions made between the Company, the former VIE and the Two Shanghai Subsidiaries, and no transfer of cash or other assets, dividends or distributions made to U.S. investors for the years ended December 31, 2021, 2022 and 2023. Under the current laws of the Cayman Islands, we are not subject to tax on income or capital gains. In addition, upon payments of dividends to our shareholders, no
6
Cayman Islands withholding tax will be imposed. Our mainland China and Hong Kong subsidiaries and the former VIE have incurred cumulative losses since inception. We have no current intention to pay dividends to our shareholders.
The former VIE and its subsidiaries may transfer cash to the WFOE by service fees charged at an amount equals to all pre-tax income of the former VIE for the complete business support and technical and consulting services provided by WFOE. Due to the continuous loss generated by the former VIE, no service fees were charged by WFOE in 2021, 2022 and 2023.
Our subsidiaries in mainland China are permitted to pay dividends to us only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Under laws in mainland China, our subsidiaries in mainland China are required to allocate at least 10% of their after-tax profits each year profits on an individual company basis as determined under PRC accounting standards to the statutory reserve and has the right to discontinue allocations to the statutory reserve if such reserve has reached 50% of registered capital on an individual company basis. 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 reserve funds are not distributable as cash dividends except in the event of liquidation. As a result of these mainland China laws and regulations, our mainland China subsidiaries are restricted in their ability to transfer a portion of their net assets, including share capital and the statutory reserve, either in the form of dividends, loans or advances. Such restricted portion amounted to RMB441.0 million, RMB481.8 million and RMB3,024.9 million as of December 31, 2021, 2022 and 2023, respectively.
To the extent cash or assets in the business is in mainland China or Hong Kong or a mainland China or Hong Kong subsidiary, the funds or assets may not be available to fund operations or for other use outside of mainland China or Hong Kong due to imposition of restrictions and limitations on the ability of the Company or its subsidiaries by the PRC government to transfer cash or assets. For further details, see “Item 3. Key Information—D. Risk Factors—We may rely on dividends and other distributions on equity paid by our subsidiaries in mainland China to fund any cash and financing requirements we may have, and any limitation on the ability of our mainland China subsidiaries to make payments to us could have a material and adverse effect on our ability to conduct our business.”
Neither our subsidiaries nor the former VIE is obligated to make dividends or distributions to our company under the contractual arrangements. To date, no dividends or distributions have been made to our company by our subsidiaries or the former VIE.
We have established a centralized cash management policy to direct how funds are transferred between the Company and its subsidiaries to improve the efficiency and ensure the security of cash management. Our cash management program is centralized within our funds and payment center. Funds are deployed to each operating entity based on the budget and operating conditions of each operating entity. The funds and payment center is responsible for the centralized management of cash inflows and outflows of our operating entities. Each cash requirement, after raised by an operating entity, is required to go through a review process by our funds and payment center. We will transfer the cash to the bank account of the operating entity after the application for cash requirement is approved by the Funds and Payment Center. Furthermore, the funds will be transferred in accordance with the applicable laws and regulations discussed under “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations Relating to Foreign Exchange and Dividend Distribution.”
The following selected consolidated statements of operations and comprehensive loss data for the years ended December 31, 2021, 2022 and 2023, selected consolidated balance sheets data as of December 31, 2022 and 2023, and selected consolidated statements of cash flows data for the years ended December 31, 2021, 2022 and 2023 have been derived from our audited consolidated financial statements included in this annual report beginning on page F-1. The selected consolidated statements of operations and comprehensive loss data for the years ended December 31, 2019 and 2020, the selected consolidated balance sheets data as of December 31, 2019, 2020 and 2021, and the selected consolidated statements of cash flows data for the years ended December 31, 2019 and 2020 have been derived from our audited consolidated financial statements not included in this annual report. Our consolidated financial statements are prepared and presented in accordance with U.S. GAAP. Our historical results are not necessarily indicative of results expected for future periods. You should read this Selected Consolidated Financial Data section together with our consolidated financial statements and the related notes and “Item 5. Operating and Financial Review and Prospects” below.
7
The following table presents our selected consolidated statements of operations and comprehensive loss data for the years ended December 31, 2019, 2020, 2021, 2022 and 2023:
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For the Years Ended December 31, |
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2019 |
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2020 |
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2021 |
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2022 |
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2023 |
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RMB |
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% |
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RMB |
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% |
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RMB |
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% |
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RMB |
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% |
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RMB |
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US$ |
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% |
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(in thousands, except for percentages, share numbers and per share data) |
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Net revenues |
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Net product revenues |
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3,730,206 |
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94.9 |
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4,244,023 |
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87.4 |
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6,654,893 |
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85.5 |
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8,676,672 |
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87.9 |
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11,658,298 |
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1,642,037 |
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89.9 |
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Net service revenues |
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201,652 |
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5.1 |
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614,176 |
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12.6 |
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1,125,382 |
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14.5 |
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1,192,752 |
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12.1 |
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1,307,484 |
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184,155 |
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10.1 |
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Total net revenues |
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3,931,858 |
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100.0 |
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4,858,199 |
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100.0 |
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7,780,275 |
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|
100.0 |
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9,869,424 |
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|
100.0 |
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12,965,782 |
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1,826,192 |
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|
100.0 |
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Operating (expenses) income |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Merchandise costs |
|
|
(3,176,401 |
) |
|
|
(80.8 |
) |
|
|
(3,610,434 |
) |
|
|
(74.3 |
) |
|
|
(5,735,393 |
) |
|
|
(73.7 |
) |
|
|
(7,596,613 |
) |
|
|
(77.0 |
) |
|
|
(10,338,870 |
) |
|
|
(1,456,199 |
) |
|
|
(79.7 |
) |
Fulfillment expenses |
|
|
(658,149 |
) |
|
|
(16.7 |
) |
|
|
(666,317 |
) |
|
|
(13.7 |
) |
|
|
(1,062,066 |
) |
|
|
(13.7 |
) |
|
|
(1,123,495 |
) |
|
|
(11.4 |
) |
|
|
(1,123,994 |
) |
|
|
(158,311 |
) |
|
|
(8.7 |
) |
Selling and marketing expenses |
|
|
(566,792 |
) |
|
|
(14.4 |
) |
|
|
(740,542 |
) |
|
|
(15.2 |
) |
|
|
(1,206,649 |
) |
|
|
(15.5 |
) |
|
|
(1,536,052 |
) |
|
|
(15.6 |
) |
|
|
(1,250,860 |
) |
|
|
(176,180 |
) |
|
|
(9.6 |
) |
General and administrative expenses |
|
|
(140,874 |
) |
|
|
(3.6 |
) |
|
|
(177,542 |
) |
|
|
(3.7 |
) |
|
|
(433,629 |
) |
|
|
(5.6 |
) |
|
|
(230,421 |
) |
|
|
(2.3 |
) |
|
|
(265,981 |
) |
|
|
(37,463 |
) |
|
|
(2.1 |
) |
Technology and content expenses |
|
|
(142,858 |
) |
|
|
(3.7 |
) |
|
|
(151,536 |
) |
|
|
(3.1 |
) |
|
|
(264,560 |
) |
|
|
(3.4 |
) |
|
|
(227,812 |
) |
|
|
(2.3 |
) |
|
|
(195,679 |
) |
|
|
(27,561 |
) |
|
|
(1.5 |
) |
Goodwill impairment loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,819,926 |
) |
|
|
(18.4 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Other operating income, net |
|
|
21,410 |
|
|
|
0.6 |
|
|
|
29,395 |
|
|
|
0.6 |
|
|
|
26,950 |
|
|
|
0.3 |
|
|
|
41,238 |
|
|
|
0.4 |
|
|
|
36,264 |
|
|
|
5,108 |
|
|
|
0.3 |
|
Loss from operations |
|
|
(731,806 |
) |
|
|
(18.6 |
) |
|
|
(458,777 |
) |
|
|
(9.4 |
) |
|
|
(895,072 |
) |
|
|
(11.6 |
) |
|
|
(2,623,657 |
) |
|
|
(26.6 |
) |
|
|
(173,338 |
) |
|
|
(24,414 |
) |
|
|
(1.3 |
) |
Interest expense |
|
|
(12,397 |
) |
|
|
(0.3 |
) |
|
|
(21,090 |
) |
|
|
(0.5 |
) |
|
|
(16,778 |
) |
|
|
(0.2 |
) |
|
|
(6,163 |
) |
|
|
(0.1 |
) |
|
|
(7,056 |
) |
|
|
(994 |
) |
|
|
(0.1 |
) |
Interest income |
|
|
7,813 |
|
|
|
0.2 |
|
|
|
9,321 |
|
|
|
0.2 |
|
|
|
8,370 |
|
|
|
0.1 |
|
|
|
17,780 |
|
|
|
0.2 |
|
|
|
37,875 |
|
|
|
5,335 |
|
|
|
0.3 |
|
Other income (loss), net |
|
|
3,581 |
|
|
|
0.1 |
|
|
|
(39,866 |
) |
|
|
(0.8 |
) |
|
|
(50,367 |
) |
|
|
(0.6 |
) |
|
|
38,791 |
|
|
|
0.4 |
|
|
|
(5,887 |
) |
|
|
(829 |
) |
|
|
(0.1 |
) |
Loss before income taxes |
|
|
(732,809 |
) |
|
|
(18.6 |
) |
|
|
(510,412 |
) |
|
|
(10.5 |
) |
|
|
(953,847 |
) |
|
|
(12.3 |
) |
|
|
(2,573,249 |
) |
|
|
(26.1 |
) |
|
|
(148,406 |
) |
|
|
(20,902 |
) |
|
|
(1.2 |
) |
Income tax benefits |
|
|
30,120 |
|
|
|
0.8 |
|
|
|
47,320 |
|
|
|
1.0 |
|
|
|
143,863 |
|
|
|
1.8 |
|
|
|
111,783 |
|
|
|
1.1 |
|
|
|
42,530 |
|
|
|
5,990 |
|
|
|
0.3 |
|
Share of loss in equity method investments |
|
|
(2,199 |
) |
|
|
(0.1 |
) |
|
|
(7,526 |
) |
|
|
(0.2 |
) |
|
|
(6,563 |
) |
|
|
(0.1 |
) |
|
|
(6,471 |
) |
|
|
(0.1 |
) |
|
|
(50,374 |
) |
|
|
(7,095 |
) |
|
|
(0.4 |
) |
Net loss |
|
|
(704,888 |
) |
|
|
(17.9 |
) |
|
|
(470,618 |
) |
|
|
(9.7 |
) |
|
|
(816,547 |
) |
|
|
(10.6 |
) |
|
|
(2,467,937 |
) |
|
|
(25.1 |
) |
|
|
(156,250 |
) |
|
|
(22,007 |
) |
|
|
(1.3 |
) |
Net loss per share attributable to ordinary shareholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Basic |
|
|
(84.27 |
) |
|
|
|
|
|
(94.51 |
) |
|
|
|
|
|
(13.76 |
) |
|
|
|
|
|
(15.16 |
) |
|
|
|
|
|
(0.96 |
) |
|
|
(0.14 |
) |
|
|
|
|||||
Diluted |
|
|
(84.27 |
) |
|
|
|
|
|
(94.51 |
) |
|
|
|
|
|
(13.76 |
) |
|
|
|
|
|
(15.16 |
) |
|
|
|
|
|
(0.96 |
) |
|
|
(0.14 |
) |
|
|
|
|||||
Weighted average number of shares used in calculating net loss per ordinary share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Basic |
|
|
18,782,620 |
|
|
|
|
|
|
18,782,620 |
|
|
|
|
|
|
96,306,113 |
|
|
|
|
|
|
162,819,410 |
|
|
|
|
|
|
162,160,835 |
|
|
|
162,160,835 |
|
|
|
|
|||||
Diluted |
|
|
18,782,620 |
|
|
|
|
|
|
18,782,620 |
|
|
|
|
|
|
96,306,113 |
|
|
|
|
|
|
162,819,410 |
|
|
|
|
|
|
162,160,835 |
|
|
|
162,160,835 |
|
|
|
|
|||||
The following table presents our selected consolidated balance sheets data as of December 31, 2019, 2020, 2021, 2022 and 2023:
|
|
As of December 31, |
|
|||||||||||||||||||||
|
|
2019 |
|
|
2020 |
|
|
2021 |
|
|
2022 |
|
|
2023 |
|
|||||||||
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
US$ |
|
||||||
|
|
(in thousands) |
|
|||||||||||||||||||||
Cash and cash equivalents |
|
|
410,783 |
|
|
|
918,076 |
|
|
|
1,356,342 |
|
|
|
1,703,626 |
|
|
|
1,978,696 |
|
|
|
278,694 |
|
Restricted cash |
|
|
— |
|
|
|
— |
|
|
|
150,000 |
|
|
|
— |
|
|
|
210,000 |
|
|
|
29,578 |
|
Short term investments |
|
|
125,573 |
|
|
|
97,866 |
|
|
|
510,467 |
|
|
|
782,230 |
|
|
|
410,547 |
|
|
|
57,824 |
|
Total current assets |
|
|
1,094,908 |
|
|
|
1,874,638 |
|
|
|
4,150,845 |
|
|
|
3,890,178 |
|
|
|
4,526,719 |
|
|
|
637,575 |
|
Intangible assets, net |
|
|
1,682,963 |
|
|
|
1,367,841 |
|
|
|
1,075,811 |
|
|
|
544,650 |
|
|
|
270,631 |
|
|
|
38,118 |
|
Goodwill |
|
|
1,803,415 |
|
|
|
1,803,415 |
|
|
|
1,803,415 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Restricted cash included in the other non-current assets |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,000 |
|
|
|
281 |
|
Total non-current assets |
|
|
3,690,539 |
|
|
|
3,351,700 |
|
|
|
3,351,917 |
|
|
|
1,158,577 |
|
|
|
966,360 |
|
|
|
136,110 |
|
Total assets |
|
|
4,785,447 |
|
|
|
5,226,338 |
|
|
|
7,502,762 |
|
|
|
5,048,755 |
|
|
|
5,493,079 |
|
|
|
773,685 |
|
Total current liabilities |
|
|
755,093 |
|
|
|
1,183,539 |
|
|
|
824,664 |
|
|
|
1,022,248 |
|
|
|
1,691,465 |
|
|
|
238,239 |
|
Total non-current liabilities |
|
|
389,280 |
|
|
|
374,584 |
|
|
|
257,639 |
|
|
|
144,835 |
|
|
|
90,153 |
|
|
|
12,697 |
|
Total liabilities |
|
|
1,144,373 |
|
|
|
1,558,123 |
|
|
|
1,082,303 |
|
|
|
1,167,083 |
|
|
|
1,781,618 |
|
|
|
250,936 |
|
Total mezzanine equity |
|
|
7,080,078 |
|
|
|
8,879,894 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total shareholders' (deficit) equity |
|
|
(3,439,004 |
) |
|
|
(5,211,679 |
) |
|
|
6,420,459 |
|
|
|
3,881,672 |
|
|
|
3,711,461 |
|
|
|
522,749 |
|
8
The following table presents our selected consolidated statements of cash flows data for the years ended December 31, 2019, 2020, 2021, 2022 and 2023:
|
|
For the Years Ended December 31, |
|
|||||||||||||||||||||
|
|
2019 |
|
|
2020 |
|
|
2021 |
|
|
2022 |
|
|
2023 |
|
|||||||||
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
US$ |
|
||||||
|
|
(in thousands) |
|
|||||||||||||||||||||
Net cash (used in) provided by operating activities |
|
|
(410,794 |
) |
|
|
(412,868 |
) |
|
|
(1,017,962 |
) |
|
|
881,297 |
|
|
|
243,898 |
|
|
|
34,351 |
|
Cash (used in) provided by investing activities |
|
|
(304,349 |
) |
|
|
18,625 |
|
|
|
(670,402 |
) |
|
|
(516,683 |
) |
|
|
172,013 |
|
|
|
24,228 |
|
Cash provided by (used in) financing activities |
|
|
455,751 |
|
|
|
929,962 |
|
|
|
2,289,623 |
|
|
|
(186,043 |
) |
|
|
68,703 |
|
|
|
9,677 |
|
Effect of foreign exchange rate changes on cash and cash equivalents |
|
|
4,515 |
|
|
|
(28,426 |
) |
|
|
(12,993 |
) |
|
|
18,413 |
|
|
|
2,456 |
|
|
|
346 |
|
Net (decrease) increase in cash, cash equivalents and restricted cash |
|
|
(254,877 |
) |
|
|
507,293 |
|
|
|
588,266 |
|
|
|
196,984 |
|
|
|
487,070 |
|
|
|
68,602 |
|
Cash, cash equivalents and restricted cash at the beginning of the year |
|
|
665,960 |
|
|
|
411,083 |
|
|
|
918,376 |
|
|
|
1,506,642 |
|
|
|
1,703,626 |
|
|
|
239,951 |
|
Cash, cash equivalents and restricted cash at the end of the year |
|
|
411,083 |
|
|
|
918,376 |
|
|
|
1,506,642 |
|
|
|
1,703,626 |
|
|
|
2,190,696 |
|
|
|
308,553 |
|
Non-GAAP Financial Measures
We use adjusted (loss) income from operations and adjusted net (loss) income, non-GAAP financial measures, in evaluating our operating results and for financial and operational decision-making purposes. Adjusted (loss) income from operations represents (loss) income from operations excluding the impact of the impairment loss of deferred cost, intangible assets and goodwill, share-based compensation expenses and amortization of intangible assets and deferred cost resulting from assets and business acquisitions. Adjusted net (loss) income represents net (loss) income excluding the impact of the impairment loss of deferred cost, intangible assets and goodwill, share-based compensation expenses and amortization of intangible assets and deferred cost resulting from assets and business acquisitions, and tax effect of impairment loss of deferred cost and intangible assets and amortization of intangible assets and deferred cost resulting from assets and business acquisitions.
We present these non-GAAP financial measures because they are used by our management to evaluate our operating performance and formulate business plans. We believe that adjusted (loss) income from operations and adjusted net (loss) income help identify underlying trends in our business that could otherwise be distorted by the effect of certain transactions that are included in loss from operations and net loss. We also believe that the use of the non-GAAP financial measures facilitates investors’ assessment of our operating performance. We believe that adjusted (loss) income from operations and adjusted net (loss) income provides useful information about our operating results, enhances the overall understanding of our past performance and future prospects and allows for greater visibility with respect to key metrics used by our management in its financial and operational decision making.
Adjusted (loss) income from operations and adjusted net (loss) income should not be considered in isolation or construed as an alternative to loss from operations and net loss or any other measure of performance or as an indicator of our operating performance. Investors are encouraged to review our historical adjusted net (loss) income to the most directly comparable U.S. GAAP measures. Adjusted (loss) income from operations and adjusted net (loss) income 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.
9
The following table reconciles our adjusted (loss) income from operations and adjusted net (loss) income for the periods indicated to the most directly comparable financial measures calculated and presented in accordance with U.S. GAAP, which are loss from operations and net loss for the periods indicated:
|
|
Years ended December 31, |
|
|||||||||||||
|
|
2021 |
|
|
2022 |
|
|
2023 |
|
|||||||
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
US$ |
|
||||
|
|
(in thousands, except for share numbers and per share data) |
|
|||||||||||||
Loss from operations |
|
|
(895,072 |
) |
|
|
(2,623,657 |
) |
|
|
(173,338 |
) |
|
|
(24,414 |
) |
Add: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Share-based compensation expenses |
|
|
454,552 |
|
|
|
174,236 |
|
|
|
134,402 |
|
|
|
18,930 |
|
Amortization of intangible assets and deferred cost resulting from assets and business acquisitions |
|
|
337,075 |
|
|
|
359,068 |
|
|
|
290,677 |
|
|
|
40,941 |
|
Impairment loss of deferred cost, intangible assets and goodwill |
|
|
— |
|
|
|
2,097,257 |
|
|
|
— |
|
|
|
— |
|
Adjusted (loss) income from operations |
|
|
(103,445 |
) |
|
|
6,904 |
|
|
|
251,741 |
|
|
|
35,457 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss |
|
|
(816,547 |
) |
|
|
(2,467,937 |
) |
|
|
(156,250 |
) |
|
|
(22,007 |
) |
Add: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Share-based compensation expenses |
|
|
454,552 |
|
|
|
174,236 |
|
|
|
134,402 |
|
|
|
18,930 |
|
Amortization of intangible assets and deferred cost resulting from assets and business acquisitions |
|
|
337,075 |
|
|
|
359,068 |
|
|
|
290,677 |
|
|
|
40,941 |
|
Impairment loss of deferred cost, intangible assets and goodwill |
|
|
— |
|
|
|
2,097,257 |
|
|
|
— |
|
|
|
— |
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Tax effects of impairment loss of deferred cost and intangible assets and amortization of intangible assets and deferred cost resulting from assets and business acquisitions |
|
|
(143,863 |
) |
|
|
(111,783 |
) |
|
|
(43,654 |
) |
|
|
(6,149 |
) |
Adjusted net (loss) income |
|
|
(168,783 |
) |
|
|
50,841 |
|
|
|
225,175 |
|
|
|
31,715 |
|
Not applicable.
Not applicable.
Summary of Risk Factors
An investment in our ADSs involves significant risks. You should consider carefully all of the information in this prospectus, including the risks and uncertainties described below, before making an investment in our ADSs. Below is a summary of material risks we face, organized under relevant headings. The operational risks associated with being based in and having operations in mainland China also apply to operations in Hong Kong. While entities and businesses in Hong Kong operate under different sets of laws from mainland China, the legal risks associated with being based in and having operations in mainland China could apply to our operations in Hong Kong, if the laws applicable to mainland China become applicable to entities and businesses in Hong Kong in the future. Full-fledged discussion of these risks can be found in the section headed “Risk factors.”
Risks Related to Our Business and Industry
Risks and uncertainties relating to our business and industry include, but are not limited to, the following:
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Risks Related to Our Corporate Structure
We face risks and uncertainties related to our former corporate structure, including the following:
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Risks Related to Doing Business in China
Our business operations are primarily conducted in mainland China and we are subject to complex and evolving laws and regulations in mainland China as well as risks and uncertainties relating to doing business in mainland China in general, including, but are not limited to, the following:
As of the date of this annual report, the laws or regulations currently effective in Hong Kong regarding data security are not applicable to our business operations in Hong Kong. As such, we believe that data security laws and regulations in Hong Kong have no impact on our business operations in Hong Kong. However, new laws or regulations
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related to data security in Hong Kong may be enacted or promulgated in the future, and such laws and regulations may have a material impact on our business in Hong Kong. For a detailed description of risks related to doing business in China, please refer to risks disclosed under “Item 3. Key Information—D.Risk Factors—Risks Related to Doing Business in China.”
General Risks Related to The ADSs
In addition to the risks described above, we are subject to general risks related to the ADSs and this offering, including, without limitation, the following:
Risks Related to Our Business and Industry
Our industry is rapidly evolving and our business model may not continue to be successful or achieve wide acceptance as we anticipated.
The pre-owned consumer electronics transactions and services industry in China is still at an early stage of development and is rapidly evolving. There are few well-established and widely-accepted transactions and services platforms for pre-owned consumer electronics, nor are there any industry standards in pricing pre-owned consumer electronics and the pre-owned consumer electronics transactions and services market in general. Since the commencement of our business operations in 2011, we have also been trying different business strategies to explore the most effective business model for our operations. Although we are now the leader in the pre-owned consumer electronics transactions and services industry in China, we believe that our business model is novel and we have a limited operating history on which investors can evaluate our business and prospects. Specifically, we only began operating our merchant online marketplace, PJT, in late 2017 and our consumer online marketplace, Paipai, in 2019 and we have not yet demonstrated our ability to generate significant revenue or be profitable. There is no guarantee that our business model will continue to be successful or achieve wide acceptance as quickly or in a magnitude as we anticipated. As there are few comparable companies and established players in the market, we have to explore different business practices, formulate pricing strategies, set up procedures and standards by ourselves and learn from our own experience. Given that we have a limited history operating online marketplaces, we cannot assure you that we will be able to successfully anticipate and respond to industry trends and customer behavior, especially as we continue to broaden our customer base and diversify our product offerings. Potential investors in our ADSs should carefully consider the risks and difficulties frequently encountered by companies in an early stage of development, as well as the risks we face due to our participation in a new and rapidly evolving industry, and our attempt to execute on a new and untested business model. Our business model may not be successful, or we may not successfully overcome the risks associated with this business model.
If we fail to attract and engage consumers, third-party merchants or other participants in the pre-owned consumer electronics value chain, or provide them with superior experience, our business and reputation may be materially and adversely affected.
The success of our business hinges on our ability to engage consumers, third-party merchants or other participants in the pre-owned consumer electronics value chain and our ability to provide a superior experience to them, which in turn depends on a variety of factors. These factors include our ability to
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We cannot guarantee you that we will always be able to provide a superior experience to consumers and third-party merchants as our business continues to evolve. Failure to do so could materially and adversely affect our business, financial condition and results of operations.
If we are unable to maintain our existing customer base and attract new customers, our business, financial condition and results of operations may be materially and adversely affected.
Our future growth depends on our ability to maintain our existing customer base and attract new customers, including consumers and third-party merchants, to our platform. In order to expand our customer base, we have established our platform with both online and offline channels to maximize our access to potential consumers who intend to trade in or sell their personal electronics. We have also cooperated with well-known cell phone brands to provide potential buyers with a trade-in option. In addition, we also partnered with JD Group to acquire user traffic for our platform. However, we cannot assure you we will be successful in maintaining our existing customer base and attracting new customers. The pre-owned consumer electronics transactions and services industry in China is still at an early stage of development. Consumers may not be willing to trade in or recycle their personal electronics or purchase pre-owned consumer electronics for various reasons. Our existing consumers who are receptive to trade-in or recycling of personal electronics or purchasing pre-owned consumer electronics may find services provided by our competitors more attractive and choose to trade in, recycle or purchase on our competitors’ platforms. As a result, we may not be able to effectively maintain and grow our customer base, which would result in a lower volume of pre-owned consumer electronics traded on our platform and thus negatively and adversely affect our business, financial condition and results of operations. Furthermore, public perception that pre-owned consumer electronics sold on our platform may be counterfeit or defective, even if factually incorrect or based on isolated incidents, could damage our reputation and have a negative impact on our ability to attract new customers or retain existing customers. If we are unable to maintain or increase positive awareness of our platform and our services, it may be difficult for us to maintain and grow our customer base, and our business, growth prospects, results of operations and financial condition may be materially and adversely affected.
Any deterioration in our relationships with our major business partners, such as JD Group, may adversely affect our business prospects and business operations.
Collaboration with our business partners such as JD Group and consumer electronics brands has been our key strategy to grow our customer base and increase the supply of pre-owned consumer electronics. Our business has benefited from our collaborations with our major business partners and we expect to continue to rely on them for the foreseeable future. See “Item 4. Information on the Company— B. Business Overview—Our Strategic Partners” for more details of our collaboration with our business partners. If we are unable to maintain our cooperative relationships with any of these business partners, it may be very difficult for us to identify qualified alternative business partners, and may divert significant management attention from existing business operations and adversely impact our daily operation.
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In June 2019, we entered into a five-year framework business cooperation agreement, as amended, with JD Group covering extensive cooperation in areas such as user traffic, marketing, research and development, commission sharing, supply chain and logistics, and customer service and after-sales services. In 2023, the GMV of the pre-owned consumer electronics we collected through our AHS Recycle from JD Group’s platforms accounted for approximately 11.6% of our total GMV. If we are unable to maintain our collaboration with JD Group or if JD Group builds or invests in similar business as ours after the term of the agreement, our business, results of operations and financial condition would be materially and adversely affected. Even if we are able to maintain our relationship with JD Group, if JD Group experiences a business deterioration, a decline in market position or market share, or a damage to its brand image or reputation, our business and results of operations may also be negatively affected due to our reliance on and close relationship with JD Group and our customers’ trust on us may also diminish. In the event that we fail to maintain our relationship with JD Group, we cannot assure you that we will be able to establish a similar cooperative relationship with a comparable business partner under commercially reasonable terms in a timely manner. In addition, our business collaboration arrangement with JD Group contains certain undertakings made by JD Group that are beneficial to us. These undertakings, however, are contingent on our continuing to meet certain conditions. If we are unable to meet these requirements, the scope of our collaboration with JD Group could diminish significantly and the business collaboration arrangement with JD Group could even be terminated under certain circumstance, all of which could materially and adversely affect our business, results of operations and financial condition.
In addition to our strategic relationship with JD Group, JD Group also has a significant influence on our overall business operations. As of February 28, 2024, JD Group holds approximately 34.1% of our total issued and outstanding shares and approximately 36.2% of the total voting power of our shares. As a result, JD Group may have a conflict of interest with us and prevent us from engaging in transactions that may be beneficial to you as a holder of ADSs.
Apart from JD Group, we have also entered into business collaboration arrangements with other business partners, such as branded consumer electronics manufacturers and distributors, to expand source of supply for pre-owned consumer electronics. We cannot assure you that we are able to maintain our relationships with our major business partners in the future. We may not be able to successfully extend or renew our current business collaboration arrangements with these business partners on commercially reasonable terms, or at all, upon expiration or early termination of the current arrangements. Furthermore, we, our employees and our business partners may inadvertently breach certain provisions and therefore subject us to liabilities under these arrangements. Disputes may also arise due to reasons that we are unable to foresee. If we are unable to resolve disputes with our business partners, we may not be able to continue our cooperation with them. In addition, certain of our business partners were sanctioned by the U.S. government. It is possible that we may have to cease cooperation with these business partners so as to be compliant with the U.S. laws as a U.S. listed company. As a result, transaction volume on our platform, our results of operations and financial conditions could be materially and adversely affected.
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If we are unable to manage our growth or execute our strategies effectively, our business and prospects may be materially and adversely affected.
Our business has continued to grow in recent years, and we expect continued growth in our business and revenues. We plan to further expand our sources of supply and continue to empower industry participants. For example, we plan to further expand our AHS store network into lower-tier cities and strengthen our cooperation with JD Group to increase customer traffic on our platform. In addition, we plan to further strengthen the industry leading infrastructure and standards we established by further upgrading our operations centers to improve the accuracy, speed, and cost-effectiveness of our proprietary inspection, grading, and pricing of pre-owned devices. To support our growth, we will also continue to improve our technology capabilities, such as upgrading our operation centers with new automation technologies and further optimizing our pricing engine by continuing to leverage the data insights, and grow our international presence by collaborating with resellers in new geographic locations such as South East Asia, Latin America, and Africa to increase the global circulation of pre-owned devices from China and export our technology and service offerings to device resellers in these international markets. All these efforts will require significant managerial, financial and human resources. We cannot assure you that we will be able to effectively manage our growth or to implement all these systems, procedures and control measures successfully or that our new business initiatives will be successful. If we are not able to manage our growth or execute our strategies effectively, our expansion may not be successful and our business and prospects may be materially and adversely affected.
We incurred net losses and had negative net cash flows from operating activities in the past, which may continue or happen again in the future.
We incurred net losses of RMB816.5 million in 2021, RMB2,467.9 million in 2022 and RMB156.3 million (US$22.0 million) in 2023. In addition, our operating activities had historically generated negative net cash flows. We had started to generate net cash inflow from operating activities since 2022 and the net cash flow remains positive in 2023. We may continue to further develop and expand our business, upgrade our technologies, and these investments may not result in an increase in profit or positive net cash flows from our operations in the future.
We may continue to incur substantial losses and generate negative net cash flows again from our operations in the future for a number of reasons, including decreasing demand or slower than expected increase in demand for pre-owned consumer electronics and our services, increasing competition, as well as other risks discussed herein, and we may incur unforeseen expenses, or encounter difficulties, complications and delays in generating revenue or achieving profitability. If our revenues decrease, we may not be able to reduce our costs and expenses proportionally in a timely manner because a significant portion of our costs and expenses are fixed. In addition, if we reduce our costs and expenses, we may limit our ability to acquire consumers and third-party merchants and grow our revenues. Accordingly, we may not be able to achieve profitability and we may continue to incur net losses in the future.
The growth and profitability of our business depend on the level of consumer demand and discretionary spending. A severe or prolonged economic downturn in China or around the world could materially and adversely affect consumer discretionary spending and therefore adversely affect our business, financial condition and results of operations.
The success of our business depends, to a significant extent, on the level of consumer demand and discretionary spending both in China and in the international markets where we operate. A number of factors beyond our control may affect the level of consumer demand and discretionary spending on merchandise that we offer, including, among other things:
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Reduced consumer confidence and spending cut backs may result in reduced demand for pre-owned consumer electronics sold on our online marketplaces. Reduced demand also may require increased selling and promotional expenses. Adverse economic conditions and any related decrease in consumer demand for pre-owned consumer electronics could have a material adverse effect on our business, financial condition and results of operations. For example, COVID-19 had a severe and negative impact on the Chinese and the global economy from 2020 through 2022, and the global macroeconomic environment still faces numerous challenges. The growth rate of the Chinese economy has been slowing since 2010 and the Chinese population began to decline in 2022. The Federal Reserve and other central banks outside of China have raised interest rates. The Russia-Ukraine conflict, the Hamas-Israel conflict and the attacks on shipping in the Red Sea have heightened geopolitical tensions across the world. The impact of the Russia-Ukraine conflict on Ukraine food exports has contributed to increases in food prices and thus to inflation more generally. There have also been concerns about the relationship between China and other countries which may potentially have economic effects. In particular, there is significant uncertainty about the future relationship between the United States and China with respect to a wide range of issues including trade policies, treaties, government regulations and tariffs. Economic conditions in China are sensitive to global economic conditions, as well as changes in domestic economic and political policies and the expected or perceived overall economic growth rate in China. Any severe or prolonged slowdown in the global or Chinese economy may materially and adversely affect our business, results of operations and financial condition.
In addition, many of the factors identified above also affect commodity rates, transportation costs, interest rates, costs of labor, insurance and healthcare, lease costs, measures that create barriers to or increase the costs associated with international trade, changes in other laws and regulations and other economic factors, all of which may impact our cost of sales, our selling and distribution expenses, and general and administrative expenses, which could have a material adverse effect on our business, financial condition and results of operations.
We may not be able to effectively and accurately inspect, grade and price pre-owned goods, in particular, consumer electronics.
We provide inspection, grading and pricing services for a large portion of pre-owned consumer electronics sourced by third-party merchants and sold on our online marketplaces. We also inspect, grade and price pre-owned consumer electronics we collect before selling them on our online marketplaces. As there are no uniform or established standards or practices for inspecting, grading and pricing pre-owned consumer electronics in the market, we have developed our own inspection procedures, grading system and pricing mechanism over years of our business operations. We cannot assure you that our business practices represent the best practice in the pre-owned consumer electronics transactions and services industry or that they will yield maximum commercial benefits. We may not be able to identify all potential defects of pre-owned consumer electronics traded on our platform and grade them accurately. Even if we are able to do so, we cannot guarantee you that the prices we assign to those pre-owned consumer electronics reflect the actual or fair value of those pre-owned consumer electronics. If consumers or third-party merchants on our platform believe that the prices determined or suggested by us do not reflect the fair value or their deemed value of the pre-owned consumer electronics they are going to sell on our online marketplaces, they may choose other platforms over us, which in turn would result in our losing of customer base, a decline in transaction volume on our online marketplaces and/or a decrease in the supply of pre-owned consumer electronics, either of which could materially and adversely affect our business, results of operations and financial condition.
Starting from June 2022, we have further expanded the product categories for our recycling business to include used luxury goods, gold and vintage liquor, among other high-value consumer goods. We currently provide inspection, grading and pricing services for these new product categories mainly through cooperation with third-party service providers with extensive industry experience. If the consumers or third-party merchants on our platform are not satisfied with the services provided by these third-party service providers, their trust and confidence in our brand may be impaired, which could materially and adversely affect our business, results of operations and financial condition.
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The price differences between our collection and resale of pre-owned consumer electronics in connection with transactions we operate directly and the fees we charge from transactions on our online marketplaces may fluctuate or decline in the future. Any material decrease in such fees or price differences would harm our business, financial condition and results of operations.
We generate revenues primarily by earning the price differences between our collection and resale of pre-owned consumer electronics, and by charging fees and commissions for transactions and services we provide on our online marketplaces, such as commission fee on our merchant and consumer marketplaces and transaction service fee for value-added services on our consumer marketplace. Maintaining and growing our revenues depends on a number of factors, including:
Any failure to adequately and promptly address any of these risks and uncertainties would materially and adversely affect our business and results of operations.
If we are unable to expand our AHS store network successfully, our business or results of operations would be adversely affected
We plan to further expand our AHS store network, including automatic recycling kiosks, in lower-tier cities. However, we may not be able to expand our AHS store network as we planned. AHS store network expansion has required and will continue to require substantial investments and commitment of resources. The number and timing of the offline AHS stores actually opened and kiosks placed during any given period are subject to a number of risks and uncertainties, including our ability to:
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Particularly, we rely on business partners with local resources to join our AHS store network and open AHS stores. However, we may not be able to identify business partners with sufficient resources and strong local ties to collaborate with us. Even if we are able to attract a sufficient number of business partners to join our AHS store network, there is no assurance that they will be willing or able to renew their agreements with us, which may decrease the number of AHS stores in our AHS store network and negatively affect our store expansion plan. We will also need to carefully consider geographical locations of AHS stores in our AHS store network so as to reach consumers to the maximum extent while avoiding cannibalization resulting from geographical proximity among stores.
Any factors listed above, either individually or in aggregate, might delay or fail our plan to increase the number of AHS stores in desirable locations at manageable cost levels. Further, we may not be able to successfully operate our existing AHS stores and may choose to shut down certain AHS stores from time to time due to various reasons.
Failure to successfully operate offline AHS stores could materially and adversely harm our reputation, business and results of operations.
We rely on offline AHS stores and kiosks to collect a large portion of pre-owned consumer electronics traded on our online marketplaces. AHS stores and kiosks also serve as a complement to our online AHS operations and help us reach consumers directly. The successful operation of AHS stores hinges on the ability to provide superior experience to consumers and business partners. If we are unable to provide a superior experience, our consumers and business partners may lose confidence in us. In addition, any negative publicity or poor feedback regarding our customer service may harm our brand and reputation and thus cause us to lose customers and market share. Apart from providing superior customer experience, there are also a number of other factors that may affect the successful operation of AHS stores, including, without limitation, our ability to secure premises for AHS stores in locations that are strategically beneficial to our business; our ability to adjust AHS store operations to timely respond to changes in market demand and consumer preferences; our ability to manage costs of in operating AHS stores; our ability to handle negative publicity, allegations, and legal proceedings; our ability to ensure full compliance with the laws and regulations, and maintain adequate and effective control, supervision and risk management over AHS stores; and our ability to monitor the overall operation of AHS stores. If we are unable to operate AHS stores successfully, we and our business partners will have to shut down underperforming AHS stores. In 2023, we closed approximately 448 AHS stores and may continue to do so in the future. We may also terminate our cooperation with our AHS store partners if their business, financial conditions and operating results are below our expectation. In the past, we terminated our cooperation with certain number of AHS store partners due to the underperformance of certain AHS stores. In addition, if our AHS store partners run into financial difficulties or even become bankrupt as a result of unsuccessful operation, our business and results of operations would be adversely affected.
We rely on our AHS store partners to expand our AHS store network Failure by our AHS store partners to provide satisfactory products or services and successfully operate offline AHS stores or any illegal actions or misconduct of our AHS store partners could materially and adversely harm our reputation, business and results of operations.
In addition to our directly operated AHS stores, we also cooperate with AHS store partners to jointly operate a large number of AHS stores. As of December 31, 2023, 1,121 of all 1,819 AHS stores were either jointly operated by us or by our AHS store partners. We believe consumers expect the same quality of our products and services regardless of whether they visit a store operated directly by us or by our AHS store partners, so we provide trainings to the store operation personnel and offer other necessary supports to help with store management. Besides, we conduct regular reviews of our AHS store partners and will reduce or even terminate our cooperation with those who do not meet our standards. Successful operations of jointly-operated stores directly affect our results of operations.
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However, our AHS store partners are independent from us. Despite the fact that we have direct access to key operational data of jointly-operated stores, we do not have a complete control on every aspect of the store operation. The efficiency and effectiveness of the store operations may be compromised if we fail to effectively monitor the store operations. Even if we can effectively monitor the operation of these AHS stores, there are still a number of factors beyond our control which may result in failure by our AHS store partners to successfully operate AHS partner stores in a manner consistent with our standards and requirements. For example, despite the training and support we provide to the AHS partner stores, our AHS store partners may not be able to hire qualified clerks and other store operating personnel or provide optimal customer services, encounter financial difficulties or fail to achieve expected number of orders, which may negatively affect our results of operations. If our AHS store partners are unable to provide a superior customer experience, consumers may lose confidence in us. While we have the right to terminate our agreements with AHS store partners if they breach any material provisions of these agreements, we may not be able to identify problems and take action in a timely manner. As a result, our image and reputation may suffer, and our results of operations could be adversely affected.
Since over 61.0% of AHS stores were either jointly operated by us or by our AHS store partners as of December 31, 2023, maintaining the relationship with our AHS store partners and attracting new AHS store partners to join our store network are important to our business and results of operations. We cannot guarantee you that we are able to maintain the relationship with our AHS store partners due to a number of factors, some of which are beyond our control. For example, if our products or services fail to attract consumers, our AHS store partners may experience sales declines. As a result, they may not be able to generate investment returns as they expected, and thus choose not to renew their agreements with us. Sales declines or unsuccessful operation of AHS stores could also arise from failures by our AHS store partners to lease premises in optimal locations with large consumer traffic and commercial potentials, hire and train qualified store managers or other sales personnel, insufficient experience in operating retail stores, and lack of overall store management experience, among others. As a result, our AHS store partners may terminate their agreements with us or choose not to renew such agreements with us. In addition, we may also be unable to continuously offer attractive terms or economic benefits to our AHS store partners. As a result, our AHS store partners may not be effectively motivated to provide trade-in services or continue the cooperative relationships with us. If our AHS store partners decide to shut down the stores they opened, we will refund the corresponding deposit to them. If our AHS store partners decide to shut down a large number of AHS stores within a very short period of time, we may need a large amount of cash to refund the deposits. As a result, we may experience liquidity risks. In addition, we may not be able to attract a sufficient number of new AHS store partners to join our network and open AHS stores, which will negatively affect our future business growth. The occurrence of any of the above could have a material and adverse effect on our expansion plans, business prospects, results of operations and financial condition.
In addition, if our AHS store partners engage in any unlawful activities, fail to provide a satisfactory customer experience, or are involved in any claims, allegations, lawsuits, litigations, administrative penalties or other legal proceedings, with or without merits, no matter whether we are a party or not, we might also be subject to reputational risks. We also cannot guarantee that our AHS store partners will fully comply with the provisions in our agreements with them regarding various operational standards. If any of our AHS store partners engage in any type of illegal actions or misconducts, our business, reputation, financial condition and results of operations could be materially and adversely affected.
In the event that we become subject to claims caused by actions taken by our AHS store partners, we may seek compensation from or take other actions against the AHS store partners. However, such compensation may be limited. For example, we may not be able to get fully compensated from our AHS store partners in case that our losses attributed to their actions exceed the maximum amount of indemnification we are able to seek from them. If no claim can be asserted against our AHS store partners, or amounts that we claim cannot be fully recovered from our AHS store partners, we may be required to bear such losses and compensation at our own costs, which could have a material and adverse effect on our business, financial condition and results of operations.
The successful operations of our PJT Marketplace and Paipai Marketplace depend on our ability to maintain and attract more third-party merchants and consumers to our online marketplaces.
Third-party merchants and consumers play an important role in the successful operations of our online marketplaces. In terms of GMV, 59.8% of the pre-owned consumer products on our PJT Marketplace, and 85.1% of the pre-owned consumer products on our Paipai Marketplace, were sold by third-party merchants in 2023. As a result, attracting and maintaining our relationship with consumers and third-party merchants to our online marketplaces are critical to our business and results of operations. However, we may not be able to do so due to a number of factors, some of which are beyond our control. For example, if the transaction volume or the number of users on our
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marketplaces drop significantly, our third-party merchants may experience sales declines. As a result, they may not be able to generate profits as they expected, and thus choose not to renew their agreements with us. In addition, we may also be unable to continuously offer attractive terms or economic benefits to our third-party merchants or provide value-added services that meet the demand of third-party merchants. As a result, our third-party merchants may not be effectively motivated to sell more products or maintain the relationship with us. In addition, we may not be able to attract or maintain our existing customer base on our online marketplaces, which could result in a decline in the transaction volumes and thus negatively affect our business and results of operations.
We are subject to various risks in connection with our cooperation with third-party merchants.
Even if we are able to maintain our relationship with third-party merchants and attract more third-party merchants and consumers to our online marketplaces, we are subject to various risks in connection with third-party merchants. We do not have as much control over the quality of pre-owned products sold by third-party merchants on our online marketplaces as we do over the products that we sell directly ourselves. In particular, under POP model, we do not inspect pre-owned consumer electronics sold by them on our platform, nor do we determine the prices of those products, which makes it more difficult for us to ensure that consumers and third-party merchants get the same high-quality products and services for all products sold on our marketplaces. If any third-party merchant fails to adhere to our quality standards and requirements, fails to timely deliver the products to buyers, delivers products that are defective or materially different from description, sells counterfeit or unlicensed products, or sells products without licenses or permits as required by the laws and regulations even though we have requested such licenses or permits in our standard form contract with the third-party merchant, the reputation of our online marketplaces and our brands could be materially and adversely affected and we could face claims to hold us liable for the losses. Moreover, despite our efforts to prevent it, some products sold on our online marketplaces may compete with the products we sell directly, which may cannibalize our sales on our online marketplaces. The occurrence of any of the above could have a material and adverse effect on our expansion plans, business prospects, results of operations and financial condition.
Privacy concerns relating to pre-owned consumer electronics and the collection, storage and use of customer information could deter current and potential customers from choosing our products or services, damage our reputation, impede our business growth and thus negatively impact our business.
Concerns about mishandling personal information or other private and sensitive information stored in pre-owned consumer electronics, even if unfounded, or a general lack of confidence in the security of privacy in connection with pre-owned consumer electronics could deter current and potential consumers or third-party merchants from using our services, damage our reputation, cause us to lose consumers or third-party merchants and adversely affect our operating results. In addition, we collect, store and use personal information of our consumers or third-party merchants to provide better services. While we strive to comply with applicable data protection laws and regulations, as well as our own privacy policies and other obligations we may have with respect to privacy and data protection, failure or perceived failure to comply may result, and in some cases has resulted, in customer complaints, and may also result in inquiries and other proceedings or actions against us by government agencies or others, as well as negative publicity and damage to our reputation and brand, each of which could cause us to lose users, consumers or third-party merchants, and have an adverse effect on our business. In addition, any systems failure or compromise of our security that results in the unauthorized access to or release of our customers’ data could significantly limit the adoption of our products and services, as well as harm our reputation and brand and, therefore, our business. We strictly limit third-parties’ access to customer data, and we expend significant resources on technology and our daily operations to protect against leakage of customer information and other security breaches. Nonetheless, given its great commercial value, customer data may still be hacked and misused by third parties, which could expose us to legal and regulatory risks and seriously harm our business.
The mainland China regulatory requirements regarding cybersecurity, data protection and personal information protection are constantly evolving. On May 28, 2020, the National People’s Congress of the PRC enacted the Civil Code of the People’s Republic of China, or Civil Code, which came into effect on January 1, 2021. The Civil Code, in addition to the systematic codification of provisions from existing legislations, establishes general principles of privacy right and the protection of personal information, and provides clearer legal basis for civil actions against privacy and personal information related infringements and breaches. Before the enaction of the Civil Code, more specific provisions in relation to personal information protection are mainly set out in existing legislations including the PRC Cyber Security Law (effective from June 1, 2017), the PRC E-commerce Law (effective from January 1, 2019), and the PRC Consumer Rights Protection Law (latest revision effective from March 15, 2014). Further, the Standing Committee of the National People’s Congress of the PRC promulgated the PRC Data Security Law on June 10, 2021, which became effective from September 1, 2021. Also, the PRC Personal Information Protection Law was
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enacted on August 20, 2021, which became effective on November 1, 2021. These two laws, together with the PRC Cyber Security Law, form the over-arching framework that governs data protection and cybersecurity in mainland China. The PRC Cyber Security Law has a focus on cybersecurity and the protection of the critical information infrastructure, while the PRC Data Security Law focuses on regulating “important data” and data processing activities that would have an impact on national security. The PRC Personal Information Protection Law focuses on protecting personal information. See Item 4. Information on the Company—B. Business Overview—Regulation—Regulations Relating to Cybersecurity, Data Security, Personal Information Protection and National Security for more details.
Following the promulgation of the above two laws, the PRC governmental authorities have enacted or are in the process of formulating a series of regulations and policies to enhance the protection of cybersecurity, data security and personal information, including the following (See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations Relating to Cybersecurity, Data Security, Personal Information Protection and National Security” for more details):
The above laws, regulations and policies in mainland China can be subject to varying interpretations or significant changes, resulting in uncertainties about the scope of our responsibilities in that regard.
Despite our efforts to comply with applicable laws, regulations and other obligations relating to privacy and data protection in mainland China, we cannot assure you that we will be in full compliance with such new laws, regulations and obligations in all respects. Any failure to comply with such laws, regulations and obligations in the future may result in the suspension of our businesses, take-down of our operating apps, or subject us to other penalties, which may materially and adversely affect our business, financial condition, and results of operations.
Information and data privacy legislations have also been evolving significantly in other jurisdictions these years. For example, in the European Union, or EU, the General Data Protection Regulation, which came into effect on May 25, 2018, presents increased challenges and risks in relation to policies and procedures relating to data collection, storage, transfer, disclosure, protection and privacy, and will impose significant penalties for non-compliance, including for example, penalties calculated as a percentage of global revenue under the General Data Protection Regulation. In the United States, various federal, state and foreign legislative and regulatory bodies, or self-regulatory organizations, may expand current laws or regulations, enact new laws or regulations or issue revised rules or guidance regarding privacy, data protection, information security. For example, California enacted the California Consumer