Company Quick10K Filing
Ruhnn Holding
20-F 2020-03-31 Filed 2020-08-14
20-F 2019-03-31 Filed 2019-07-30

RUHN 20F Annual Report

Part I.
Item 1. Identity of Directors, Senior Management and Advisers
Item 2. Offer Statistics and Expected Timetable
Item 3. Key Information
Item 4. Information on The Company
Item 4A. Unresolved Staff Comments
Item 5. Operating and Financial Review and Prospects
Item 6. Directors, Senior Management and Employees
Item 7. Major Shareholders and Related Party Transactions
Item 8. Financial Information
Item 9. The Offer and Listing
Item 10. Additional Information
Item 11. Quantitative and Qualitative Disclosures About Market Risk
Item 12. Description of Securities Other Than Equity Securities
Part II.
Item 13. Defaults, Dividend Arrearages and Delinquencies
Item 14. Material Modifications To The Rights of Security Holders and Use of Proceeds
Item 15. Controls and Procedures
Item 16A. Audit Committee Financial Expert
Item 16B. Code of Ethics
Item 16C. Principal Accountant Fees and Services
Item 16D. Exemptions From The Listing Standards for Audit Committees
Item 16E. Purchases of Equity Securities By The Issuer and Affiliated Purchasers
Item 16F. Change in Registrant's Certifying Accountant
Item 16G. Corporate Governance
Item 16H. Mine Safety Disclosure
Part III.
Item 17. Financial Statements
Item 18. Financial Statements
Item 19. Exhibits
EX-2.4 ruhn-ex24_125.htm
EX-8.1 ruhn-ex81_80.htm
EX-12.1 ruhn-ex121_79.htm
EX-12.2 ruhn-ex122_78.htm
EX-13.1 ruhn-ex131_76.htm
EX-13.2 ruhn-ex132_77.htm
EX-15.1 ruhn-ex151_124.htm

Ruhnn Holding Earnings 2020-03-31

Balance SheetIncome StatementCash Flow

ruhn-20f_20200331.htm
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 20-F

 

(Mark One)

 

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

 

OR

 

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

 

 

For the fiscal year ended March 31, 2020

 

OR

 

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

 

OR

 

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

 

Date of event requiring this shell company report _________________

For the transition period from                       to

Commission file number 001-38852

 

RUHNN HOLDING LIMITED

(Exact name of Registrant as specified in its charter)

Cayman Islands

(Jurisdiction of incorporation or organization)

11F, Building 2, Lvgu Chuangzhi Development Center

788 Hong Pu Road

Jianggan District, Hangzhou 310016

People’s Republic of China

(Address of principal executive offices)

Jacky Jinbo Wang, Chief Financial Officer

Telephone: +86-571-2888-9393

Email: jacky@ruhnn.com
At the address of the Company set forth above

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

 

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

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

American Depositary Shares, each representing five Class A ordinary shares

 

RUHN

 

The Nasdaq Stock Market LLC

Class A ordinary shares, par value US$0.000000001 per share*

 

N/A

 

The Nasdaq Stock Market LLC

 

*

Not for trading, but only in connection with the listing on The Nasdaq Stock Market of American depositary shares.



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

None

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

 

 

246,122,394 Class A ordinary shares were outstanding as of March 31, 2020

174,834,250 Class B ordinary shares were outstanding as of March 31, 2020

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes No

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Emerging growth company

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark which basis of accounting the registration has used to prepare the financial statements included in this filing:

 

U.S. GAAP

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 consolidated 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 Securities Exchange Act of 1934).

Yes No

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

 


Table of Contents

TABLE OF CONTENTS

 

 

 

 

Page

 

 

 

 

PART I.

3

 

 

 

 

Item 1.

 

Identity Of Directors, Senior Management and Advisers

3

Item 2.

 

Offer Statistics and Expected Timetable

3

Item 3.

 

Key Information

3

Item 4.

 

Information on the Company

37

Item 4A.

 

Unresolved Staff Comments

59

Item 5.

 

Operating and Financial Review and Prospects

59

Item 6.

 

Directors, Senior Management and Employees

75

Item 7.

 

Major Shareholders and Related Party Transactions

83

Item 8.

 

Financial Information

84

Item 9.

 

The Offer and Listing

85

Item 10.

 

Additional Information

86

Item 11.

 

Quantitative and Qualitative Disclosures about Market Risk

92

Item 12.

 

Description of Securities other than Equity Securities

92

 

 

 

 

PART II.

95

 

 

 

 

Item 13.

 

Defaults, Dividend Arrearages and Delinquencies

95

Item 14.

 

Material Modifications to the Rights of Security Holders and Use of Proceeds

95

Item 15.

 

Controls and Procedures

95

Item 16A.

 

Audit Committee Financial Expert

96

Item 16B.

 

Code of Ethics

96

Item 16C.

 

Principal Accountant Fees and Services

96

Item 16D.

 

Exemptions from the Listing Standards for Audit Committees

96

Item 16E.

 

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

97

Item 16F.

 

Change in Registrant’s Certifying Accountant

97

Item 16G.

 

Corporate Governance

97

Item 16H.

 

Mine Safety Disclosure

97

 

 

 

 

PART III.

98

 

 

 

 

Item 17.

 

Financial Statements

98

Item 18.

 

Financial Statements

98

Item 19.

 

Exhibits

98

 

 

 

 

SIGNATURES

 

 

99

 

 

 

 

 

 

 

 


Table of Contents

CONVENTIONS THAT APPLY TO THIS ANNUAL REPORT ON FORM 20-F

Except where the context otherwise requires, references in this annual report to:

“ADRs” are to the American depositary receipts, which, if issued, evidence our ADSs;

“ADSs” are to our American depositary shares, each of which represents five Class A ordinary shares;

“AI” are to artificial intelligence;

“China” and the “PRC” are to the People’s Republic of China, excluding, for the purposes of this annual report only, Taiwan, the Hong Kong Special Administrative Region or Hong Kong, and the Macao Special Administrative Region;

“AI Data” are to an AI solution developed by one of our investee companies that improves fashion design process;

“Equity Restructuring” are to a series of equity transactions that our company, our founders and the institutional shareholders of Hangzhou Ruhnn Holdings Co., Ltd., or Hangzhou Ruhnn, effected in October 2018 to re-domicile the holding entity of our business from the PRC to the Cayman Islands as described in more detail under “Item 4. Information on the Company — A. History and Development of the Company” section of this annual report;

“fans” are to followers to KOLs on social media platforms and e-commerce platforms, and references to the number of fans in this annual report are to the simple sum of the followers of the relevant KOL(s) on different social media platforms and e-commerce platforms, and therefore, a single fan may be included multiple times if the fan follows more than one KOL, follows the same KOL across multiple platforms, or both;

“fiscal year” is to the period from April 1 of the previous calendar year to March 31 of the concerned calendar year;

“GMV” is to gross merchandize value, which represents the aggregate value of merchandize ordered in our online stores and third-party online stores to which we provide KOL sales services (but not including online stores to which we only provide KOL advertising services and other services), regardless of whether the merchandise is actually sold, delivered or returned. Our calculation of GMV includes shipping charges paid by buyers. GMV of third-party online stores to which we provide KOL sales services includes the GMV of all products ordered in such stores because we generally provide KOL sales services for all products sold in such stores; Since January 2019, we have provided KOL sales services for specified products in certain third-party online stores, and in such cases, only the GMV of such products for which we provided KOL sales services are included in our GMV for the relevant period;

“Hangzhou Dayi Minority Interest Acquisition” are to the transactions completed in March 2019, whereby we acquired the remaining 49% of equity interests in Hangzhou Dayi from Hangzhou Wunai Yidui Trade Co., Ltd., a company wholly owned by Yi Zhang, and issued 44,165,899 ordinary shares, which have been re-designated as Class A ordinary shares, to China Himalaya Investment Limited, a company wholly owned by Yi Zhang;

“Hangzhou Ruhnn” are to Hangzhou Ruhnn Holdings Co., Ltd., a joint stock limited liability company established under the laws of the PRC;

“KOLs” are to key opinion leaders, also known as influencers;

“number of our KOLs’ fans” are to the simple sum of fans of all of our KOLs on all major social media platforms and e-commerce platforms, and as a result, if an individual is a fan of more than one KOL or is a fan of a KOL on multiple social media platforms and e-commerce platforms, he or she will be counted multiple times;

“ordinary shares” are to our Class A and Class B ordinary shares, par value 0.000000001 per share;

“ordinary shares issued and outstanding” are to our ordinary shares issued and outstanding;

“our company” are to Ruhnn Holding Limited, an exempted company with limited liability incorporated under the laws of the Cayman Islands;

“our KOLs” or “our signed KOLs” are to KOLs who have entered into cooperation agreements with us;

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

“US$,” “U.S. dollars,” or “dollars” are to the legal currency of the United States;

“variable interest entity,” “VIE” or “Hanyi E-Commerce” is to Hangzhou Hanyi E-Commerce Co., Ltd., a limited liability company established under the laws of the PRC and 100% owned by PRC citizens and entities; and

“we,” “us,” “our” and “ruhnn” are to (i) prior to the consummation of the Equity Restructuring on October 4, 2018, our predecessor, Hanyi E-Commerce, and its consolidated subsidiaries, and (ii) following the consummation of the Equity Restructuring, our company and its consolidated subsidiaries and affiliated entities.

1


Table of Contents

The translations from Renminbi to U.S. dollars and from U.S. dollars to Renminbi in this annual report were made at a rate of RMB7.0808 to US$1.00, the exchange rates set forth in the H.10 statistical release of the Federal Reserve Board on March 31, 2020. We make no representation that the Renminbi or U.S. dollar 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. On August 7, 2020, the noon buying rate for Renminbi was RMB6.9670 to US$1.00.

We listed our ADSs on the Nasdaq Global Select Market under the symbol “RUHN” on April 3, 2019.

This annual report on Form 20-F contains statements of a forward-looking nature. All statements other than statements of historical facts are forward-looking statements. These forward-looking statements are made under the “safe harbor” provision under Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and as defined in the 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. In some cases, these forward-looking statements can be identified by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “potential,” “continue,” “is/are likely to” or other similar expressions. These forward-looking statements relate to, among others:

our goals and growth strategies;

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

trends in the internet KOL facilitator industry in the PRC and globally;

competition in our industry;

fluctuations in general economic and business conditions in China and other regions where we operate;

the regulatory environment in which we and companies integral to our ecosystem operate;

our proposed use of proceeds from this offering; and

assumptions underlying or related to any of the foregoing.

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.

You should read these statements in conjunction with the risks disclosed in “Item 3. Key Information—D. Risk Factors” of this annual report and other risks outlined in our other filings with the Securities and Exchange Commission, or the SEC. Moreover, we operate in an emerging and evolving environment. New risks may emerge from time to time, and it is not possible for our management to predict all risks, nor can we assess the impact of such risks on our business or the extent to which any risk, or combination of risks, may cause actual results to differ materially from those contained in any forward-looking statements. The forward-looking statements made in this annual report relate only to events or information as of the date on which the statements are made in this annual report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this annual report and the documents that we have referred to in this annual report, completely and with the understanding that our actual future results may be materially different from what we expect.

2


Table of Contents

PART I.

Item 1. Identity of Directors, Senior Management and Advisers

Not Applicable.

Item 2. Offer Statistics and Expected Timetable

Not Applicable.

Item 3. Key Information

A. Selected Financial Data

The following selected combined and consolidated statements of operations data and selected combined and consolidated statements of cash flows data for fiscal years ended March 31, 2018, 2019 and 2020, and selected combined and consolidated balance sheets data as of March 31, 2019 and 2020 have been derived from our combined and consolidated financial statements included elsewhere in this annual report. The selected combined and consolidated statements of operations data and selected combined and consolidated statements of cash flows data for the year ended December 31, 2017, and the selected combined and consolidated balance sheet data as of March 31, 2017 and 2018 have been derived from our audited combined and consolidated financial statements that are not included in this annual report.

You should read the following summary combined and consolidated financial data in conjunction with our combined and consolidated financial statements and the related notes included elsewhere in this annual report and “Item 5. Operating and Financial Review and Prospects.” Our combined and consolidated financial statements are prepared and presented in accordance with U.S. GAAP. Our historical results do not necessarily indicate our results expected for any future periods.

3


Table of Contents

Selected Combined and Consolidated Statements of Operations Data

 

 

 

Year Ended March 31,

 

 

 

2017

 

 

2018

 

 

2019

 

 

2020

 

 

 

RMB

 

 

RMB

 

 

RMB

 

 

RMB

 

 

US$

 

 

 

(Amounts in thousands, except share data)

 

Net revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product sales

 

 

572,445

 

 

 

912,512

 

 

 

942,781

 

 

 

992,603

 

 

 

140,182

 

Services

 

 

5,458

 

 

 

35,068

 

 

 

150,657

 

 

 

303,247

 

 

 

42,827

 

Total net revenue

 

 

577,903

 

 

 

947,580

 

 

 

1,093,438

 

 

 

1,295,850

 

 

 

183,009

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of product sales

 

 

362,609

 

 

 

625,263

 

 

 

683,057

 

 

 

675,494

 

 

 

95,398

 

Cost of services

 

 

2,619

 

 

 

18,122

 

 

 

68,336

 

 

 

130,647

 

 

 

18,451

 

Total cost of revenue

 

 

365,228

 

 

 

643,385

 

 

 

751,393

 

 

 

806,141

 

 

 

113,849

 

Gross profit

 

 

212,675

 

 

 

304,195

 

 

 

342,045

 

 

 

489,709

 

 

 

69,160

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fulfillment

 

 

69,412

 

 

 

100,071

 

 

 

126,850

 

 

 

134,852

 

 

 

19,045

 

Sales and marketing

 

 

97,814

 

 

 

146,207

 

 

 

205,660

 

 

 

305,157

 

 

 

43,096

 

General and administrative

 

 

67,106

 

 

 

130,977

 

 

 

92,004

 

 

 

167,786

 

 

 

23,696

 

Other operating loss (income), net

 

 

168

 

 

 

(709

)

 

 

(927

)

 

 

(627

)

 

 

(89

)

Total operating expenses

 

 

234,500

 

 

 

376,546

 

 

 

423,587

 

 

 

607,168

 

 

 

85,748

 

Loss from operations

 

 

(21,825

)

 

 

(72,351

)

 

 

(81,542

)

 

 

(117,459

)

 

 

(16,588

)

Other income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

42

 

 

 

88

 

 

 

595

 

 

 

21,912

 

 

 

3,095

 

Interest expense

 

 

(1,574

)

 

 

-

 

 

 

(107

)

 

 

(58

)

 

 

(8

)

Other income, net

 

 

-

 

 

 

-

 

 

 

7,600

 

 

 

3,145

 

 

 

444

 

Foreign exchange gain (loss)

 

 

56

 

 

 

(241

)

 

 

34

 

 

 

3,391

 

 

 

479

 

Loss before income taxes

 

 

(23,301

)

 

 

(72,504

)

 

 

(73,420

)

 

 

(89,069

)

 

 

(12,578

)

Income tax expense

 

 

15,243

 

 

 

15,843

 

 

 

10,413

 

 

 

8,724

 

 

 

1,232

 

Share of loss in equity method investments

 

 

(1,593

)

 

 

(1,607

)

 

 

(1,090

)

 

 

-

 

 

 

-

 

Net loss

 

 

(40,137

)

 

 

(89,954

)

 

 

(84,923

)

 

 

(97,793

)

 

 

(13,810

)

Less: Net income (loss) attributable to non-controlling

interest

 

 

15,246

 

 

 

14,051

 

 

 

(11,677

)

 

 

(5,302

)

 

 

(749

)

Net loss attributable to ruhnn

 

 

(55,383

)

 

 

(104,005

)

 

 

(73,246

)

 

 

(92,491

)

 

 

(13,061

)

Net loss per ADS, basic and diluted (each ADS represents five ordinary shares)

 

 

(0.87

)

 

 

(1.63

)

 

 

(1.14

)

 

 

(1.11

)

 

 

(0.16

)

Weighted average shares used in in calculating

net loss per ordinary share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

 

319,406,760

 

 

 

319,406,760

 

 

 

321,584,804

 

 

 

415,523,933

 

 

 

415,523,933

 

Weighted average shares used in in calculating

net loss per ADS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

 

63,881,352

 

 

 

63,881,352

 

 

 

64,316,961

 

 

 

83,104,787

 

 

 

83,104,787

 

Supplemental non-GAAP information:(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted net loss attributable to ruhnn

 

 

(55,383

)

 

 

(104,005

)

 

 

(73,246

)

 

 

(13,554

)

 

 

(1,914

)

Adjusted net loss per ADS, basic and diluted

 

 

(0.87

)

 

 

(1.63

)

 

 

(1.14

)

 

 

(0.16

)

 

 

(0.02

)

 

(1)

See “Non-GAAP Financial Measures” below.

4


Table of Contents

Non-GAAP Financial Measures

We use non-GAAP measures, such as adjusted net loss attributable to ruhnn and adjusted basic and diluted net loss per ADS, in evaluating our operating results and for financial and operational decision-making purposes. We believe that the non-GAAP financial measures help identify underlying trends in our business by excluding the impact of noncash charges of amortization expense of intangible assets in relation to exclusive cooperation rights and share-based compensation expense, and litigation costs incurred in relation to the class action. We believe that the non-GAAP financial measures provide useful information about our results of operations, enhance the overall understanding of our past performance and future prospects and allow for greater visibility with respect to key metrics used by our management in our financial and operational decision-making.

The non-GAAP financial measures are not defined under U.S. GAAP and are not presented in accordance with U.S. GAAP. The non-GAAP financial measures have limitations as analytical tools, and when assessing our performance, investors should not consider them in isolation, or as a substitute for financial information prepared in accordance with U.S. GAAP.

We mitigate these limitations by reconciling the non-GAAP financial measures to the most comparable U.S. GAAP performance measures, all of which should be considered when evaluating our performance.

A reconciliation of these non-GAAP financial measures in fiscal years 2017, 2018, 2019 and 2020 to the nearest U.S. GAAP performance measures is provided below:

 

 

 

Year Ended March 31,

 

 

 

2017

 

 

2018

 

 

2019

 

 

2020

 

 

 

RMB

 

 

RMB

 

 

RMB

 

 

RMB

 

 

US$

 

 

 

(Amounts in thousands, except share data)

 

Net loss attributable to ruhnn

 

 

(55,383

)

 

 

(104,005

)

 

 

(73,246

)

 

 

(92,491

)

 

 

(13,061

)

Amortization expense of intangible assets

   in relation to exclusive cooperation rights

 

 

-

 

 

 

-

 

 

 

-

 

 

 

20,600

 

 

 

2,909

 

Share-based compensation expense

 

 

-

 

 

 

-

 

 

 

-

 

 

 

55,351

 

 

 

7,817

 

Litigation costs

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,986

 

 

 

422

 

Adjusted net loss attributable to ruhnn

 

 

(55,383

)

 

 

(104,005

)

 

 

(73,246

)

 

 

(13,554

)

 

 

(1,913

)

Adjusted net loss per ADS (each ADS represents five ordinary shares):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

 

(0.87

)

 

 

(1.63

)

 

 

(1.14

)

 

 

(0.16

)

 

 

(0.02

)

Weighted average shares used in calculating

   adjusted net loss per ordinary share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

 

319,406,760

 

 

 

319,406,760

 

 

 

321,584,804

 

 

 

415,523,933

 

 

 

415,523,933

 

Selected Combined and Consolidated Balance Sheets Data

 

 

 

As of March 31,

 

 

 

2017

 

 

2018

 

 

2019

 

 

2020

 

 

 

RMB

 

 

RMB

 

 

RMB

 

 

RMB

 

 

US$

 

 

 

(Amounts in thousands)

 

Cash and cash equivalents

 

 

21,369

 

 

 

9,713

 

 

 

89,960

 

 

 

718,478

 

 

 

101,468

 

Restricted cash

 

 

-

 

 

 

21,208

 

 

 

13,861

 

 

 

5,673

 

 

 

801

 

Short-term investments

 

 

-

 

 

 

-

 

 

 

-

 

 

 

76,450

 

 

 

10,797

 

Accounts receivable, net

 

 

219

 

 

 

6,240

 

 

 

29,372

 

 

 

60,370

 

 

 

8,526

 

Inventories

 

 

234,579

 

 

 

320,383

 

 

 

220,151

 

 

 

145,553

 

 

 

20,556

 

Advances to suppliers

 

 

40,977

 

 

 

24,695

 

 

 

42,145

 

 

 

32,628

 

 

 

4,608

 

Total current assets

 

 

333,031

 

 

 

412,829

 

 

 

428,458

 

 

 

1,076,464

 

 

 

152,025

 

Property and equipment, net

 

 

5,282

 

 

 

5,145

 

 

 

146,071

 

 

 

183,404

 

 

 

25,902

 

Intangible assets, net

 

 

-

 

 

 

3,740

 

 

 

104,457

 

 

 

82,567

 

 

 

11,661

 

Total assets

 

 

342,292

 

 

 

424,643

 

 

 

689,290

 

 

 

1,434,051

 

 

 

202,528

 

Accounts payable

 

 

68,697

 

 

 

72,890

 

 

 

78,061

 

 

 

104,822

 

 

 

14,804

 

Amounts due to related parties

 

 

285,570

 

 

 

374,558

 

 

 

574,859

 

 

 

18,097

 

 

 

2,556

 

Total liabilities

 

 

385,509

 

 

 

558,668

 

 

 

781,136

 

 

 

256,289

 

 

 

36,195

 

Total shareholders’ (deficit) equity

 

 

(43,217

)

 

 

(134,025

)

 

 

(91,846

)

 

 

1,177,762

 

 

 

166,332

 

5


Table of Contents

 

Selected Combined and Consolidated Statements of Cash Flows Data

 

 

 

Year Ended March 31,

 

 

 

2017

 

 

2018

 

 

2019

 

 

2020

 

 

 

RMB

 

 

RMB

 

 

RMB

 

 

RMB

 

 

US$

 

 

 

(Amounts in thousands)

 

Net cash (used in) provided by operating activities

 

 

(240,532

)

 

 

(27,575

)

 

 

(9,385

)

 

 

50,566

 

 

 

7,142

 

Net cash used in investing activities

 

 

(10,133

)

 

 

(1,949

)

 

 

(6,702

)

 

 

(320,249

)

 

 

(45,228

)

Net cash provided by financing activities

 

 

272,034

 

 

 

39,076

 

 

 

88,987

 

 

 

885,475

 

 

 

125,052

 

Effect of exchange rate changes on cash,

   cash equivalents and restricted cash

 

 

-

 

 

-

 

 

-

 

 

 

4,538

 

 

 

641

 

Net increase in cash, cash equivalents and restricted cash

 

 

21,369

 

 

 

9,552

 

 

 

72,900

 

 

 

620,330

 

 

 

87,607

 

Cash, cash equivalents and restricted cash

   at beginning of the year

 

 

-

 

 

 

21,369

 

 

 

30,921

 

 

 

103,821

 

 

 

14,662

 

Cash, cash equivalents and restricted cash

   at end of the year

 

 

21,369

 

 

 

30,921

 

 

 

103,821

 

 

 

724,151

 

 

 

102,269

 

Exchange Rate Information

Substantially all of our operations are conducted in China and all of our revenue is denominated in Renminbi. This annual report contains translations of Renminbi amounts into U.S. dollars at specific rates solely for the convenience of the reader. Unless otherwise noted, all translations from Renminbi to U.S. dollars and from U.S. dollars to Renminbi in this annual report were made at a rate of RMB7.0808 to US$1.00, the exchange rate set forth in the H.10 statistical release of the Federal Reserve Board on March 31, 2020. We make no representation that the Renminbi or U.S. dollar 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. The PRC government imposes control over its foreign currency reserves in part through direct regulation of the conversion of Renminbi into foreign exchange and through restrictions on foreign trade. On August 7, 2020, the noon buying rate for Renminbi was RMB6.9670 to US$1.00.

B. Capitalization and Indebtedness

Not Applicable.

C. Reasons for the Offer and Use of Proceeds

Not Applicable.

D. Risk Factors

Risks Relating to Our Business and Industry

We may not be able to maintain and optimize our KOL ecosystem.

Our ability to maintain our KOL ecosystem which creates strong network effects among our ecosystem participants is critical to our success. The extent to which we are able to maintain and strengthen the attractiveness of our ecosystem depends on our ability to offer a mutually beneficial platform for all participants, including our KOLs, their fans who are potential buyers in our online stores, designers, brands and online retailers, manufacturers and suppliers. To this end, we need to maintain the quality of our products and services, develop attractive opportunities and create profits for our ecosystem participants, expand the scope and scale of our ecosystem, and retain our participants. We must also continue utilizing data to enhance our KOL selection and cultivation, increase fan engagement, develop our product design and merchandising, improve operational efficiency and upgrade our technology infrastructure.

Changes made to enhance our ecosystem or balance the interests of participants may be viewed positively by one participant but may have negative effects upon another. If we fail to balance the interests of all participants in our ecosystem, we may fail to attract and retain additional ecosystem participants, which could adversely impact our business, financial condition and results of operations.

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Our limited operating history makes it difficult to evaluate our business and prospects. We cannot guarantee that we will be able to maintain the growth rate that we have experienced to date.

We have a limited operating history. Our founders started to explore the commercialization of KOLs through e-commerce in 2014, and the first company in our current corporate structure commenced operations in 2016. Revenue from our product sales through full-service model increased by 59% from RMB572.4 million for fiscal year 2017 to RMB912.5 million for fiscal year 2018, increased by 3% to RMB942.8 million for fiscal year 2019 and increased by 5% to RMB992.6 million (US$140.2 million) for fiscal year 2020. Revenue from our services through platform model increased by approximately 5.4 times from RMB5.5 million for fiscal year 2017 to RMB35.1 million for fiscal year 2018, increased by approximately 3.3 times to RMB150.7 million for fiscal year 2019 and increased by 101% to RMB303.2 million (US$42.8 million) for fiscal year 2020. However, our historical performance may not be indicative of our future growth or financial results. We cannot assure you that we will grow at the same rate as we did in the past or avoid any decline in the future. Our growth may slow down or become negative, and revenue may decline for a number of possible reasons, some of which are beyond our control, including decreasing consumer spending, increasing competition, declining growth of our overall market or industry, unexpected pandemic, the emergence of alternative business models, changes in rules, regulations, government policies or general economic conditions. It is difficult to evaluate our prospects, as we may not have sufficient experience in addressing the risks to which companies operating in rapidly evolving markets may be exposed. If our growth rate declines, investors’ perceptions of our business and prospects may be materially and adversely affected and the market price of our ADSs could decline. You should consider our prospects in light of the risks and uncertainties that companies with a limited operating history may encounter.

A substantial portion of our revenue is generated from online stores opened in the names of a limited number of KOLs under the full-service model. We may experience a decrease in purchases on our online stores.

Product sales revenue through full-service model accounted for 96%, 86% and 77% of total net revenue, while the number of KOLs serving the full-service model through online stores opened in their names was 33, 14 and 3, for fiscal years 2018, 2019 and 2020, respectively, following the transition of certain online stores from full-service model to platform model. Online stores opened in the names of our top-tier KOLs classified based on GMV facilitated accounted for 69%, 68% and 73% of our total net revenue for fiscal years 2018, 2019 and 2020, respectively. In particular, online stores opened in the name of Dayi Zhang, accounted for 52%, 55% and 58% of our total net revenue for fiscal years 2018, 2019 and 2020, respectively. The success of our online stores is largely determined by the popularity of the KOLs in whose names such stores are opened. KOLs with more fans are able to reach a wider audience when they promote our products on their social media pages and to direct more potential customers to our online stores to purchase such products. As of March 31, 2020, our top-tier KOLs classified based on GMV faciliatated had approximately 37.9 million fans and Dayi Zhang had approximately 26.5 million fans on various social media platforms, representing 18% and 13%, respectively, of the total number of fans of our KOLs.

Our concentration on online stores opened in the names of a few KOLs exposes us to the risk of substantial decreases in, or impediments to the growth of, our revenue if the number of fans or the popularity of any of such KOLs is reduced or fails to grow. We anticipate that a limited number of KOLs under the full-service model will continue to contribute to the majority of our total net revenue in the near future, as it will take time for other KOLs to develop their fan bases and thus our customer base. We cannot assure you that our top-tier KOLs will be able to retain their popularity, or our other KOLs will be able to increase their number of fans. See also “- Negative publicity about our KOLs or our products may materially and adversely affect our reputation, our business and the trading price of our ADSs.” Any failure to do so will materially and adversely affect our business, prospects, financial performance and results of operations.

We have incurred net losses in the past, and we may continue to incur losses in the future.

We have incurred net losses in our history. For fiscal years 2018, 2019 and 2020, we incurred net losses of RMB90.0 million, RMB84.9 million and RMB97.8 million (US$13.8 million), respectively. We also had negative cash flows from operations of RMB27.6 million and RMB9.4 million for fiscal years 2018 and 2019, respectively. While we had positive cash flows from operations of RMB50.6 million for fiscal year 2020, we cannot assure you that we will be able to maintain a positive operating cash flow for any future period. We expect our operating expenses to increase in absolute amounts in the future due to (i) the continued expansion of our business, and (ii) the continued identification and cultivation of KOLs, which will affect our ability to achieve profitability.

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Our ability to achieve profitability depends on our ability to, among other things, increase the number of fans and consumers, grow and diversify our product and service offerings and optimize our cost structure. However, we may not be able to achieve any of the above. In particular, our sales and marketing expenses increased by 41% to RMB205.7 million for fiscal year 2019, primarily due to the increased expenses of KOL incubation, cultivation and training in order to support increased activities in the Company’s KOL sales and advertising businesses. Our sales and marketing expense further increased by 48% to RMB305.2 million (US$43.1 million) for fiscal year 2020, primarily due to (i) the expansion of our KOL pool, which caused related expenses for KOL incubation, cultivation and personnel of related support teams to increase, and (ii) non-cash amortization expense of intangible assets in relation to exclusive cooperation rights of RMB20.6 million (US$2.9 million) and the noncash amortization of share-based compensation expense of RMB10.2 million (US$1.4 million). If we continue to incur substantial sales and marketing expenses without being able to achieve the anticipated consumer and revenue growth, our operating results may be materially and adversely affected. As a result, we may fail to improve our operating margin and may continue to incur net losses in the future.

The Covid-19 pandemic has adversely affected, and may continue to adversely affect, our results of operations.

The Covid-19 pandemic has adversely impacted our business since the fourth quarter of fiscal year 2020. Among other things, the product manufacturing, logistics and fulfillment of us and certain third-party merchants and brands that cooperated with us were adversely affected due to various travel restrictions and quarantine measures imposed in China. We have implemented preventative measures to protect the health and safety of our employees and made appropriate adjustments to our business operations in response to the pandemic’s impact.

While we have seen gradual recovery of our overall business resulting from improving health statistics in China since March 2020, the pandemic continued to have an adverse effect on our business and results of operations for the past few months and we anticipate the negative impact of the pandemic may continue. As a result, our results of operations for fiscal year 2021 and any period thereof could be worse than our results of operations for fiscal year 2020 and corresponding periods thereof.

The duration and magnitude of the impact from the pandemic on our business will depend on numerous evolving factors that cannot be accurately predicted or assessed, including the duration and scope of the pandemic, the negative impact it has on the Chinese and global economy, its impact on unemployment and consumer confidence, our ability to successfully navigate the impact of the pandemic, as well as actions governments, businesses and individuals take in response to the pandemic.

We and our KOLs may fail to anticipate or influence changes in fans’ buying preferences and develop our product offering and merchandising.

The success of our business depends on our and our KOLs’ ability to anticipate and influence the purchase decisions of our KOLs’ fans. The market for products sold in our online stores, in particular women’s apparel, changes rapidly in ways that are often difficult to predict. Consequently, we must stay abreast of emerging consumer preferences, anticipate product trends that will appeal to our KOLs’ existing and potential fans and take them into account during our product design and manufacturing process. This requires a combination of various elements, including but not limited to accurate analysis and prediction of market trends, timely collection of fans’ feedback, strong research and development capability, and access to flexible product production. If we are unable to accurately predict or timely react to evolving preferences or trends, or if we misjudge the market for our products, the continued success and future growth of our business could be materially and adversely affected, potentially resulting in significant decreases in revenue.

We may not be able to attract new KOLs or retain our existing KOLs.

We rely on our KOLs to promote our products and to drive traffic to our online stores. See “Item 4. Information on the Company — B. Business Overview — Our KOLs — Key Information of Our Selected KOLs.” We enter into cooperation agreements with our KOLs. The term of the cooperation agreements typically ranges from three to five years. If any of our KOLs cease to cooperate with us during the term of the cooperation agreement or employment agreement, sales and marketing efforts of that KOL will reduce. If we are unable to enforce our rights against him or her, there may be less or no traffic to our online stores opened in his or her name and we may generate less revenue from such online stores. Even if we are able to enforce our rights against the relevant KOL, the gross compensation that we receive through enforcement may be substantially less than the revenue we would have earned were the cooperation agreement performed in full by the relevant KOL.

Starting from 2017, the cooperation agreements we entered into with our KOLs normally provide that, if the KOL’s revenue or number of new fans reaches a certain threshold during the initial contract term, it will automatically renew for a period of three years upon expiration of the original term. However, the cooperation agreements entered into before 2017 do not have such provision. If, after the term, any of our KOLs is able to sustain his or her popularity and decides to open his or her own online store or to cooperate with other KOL sales and marketing platforms, he or she may compete with our KOLs and our online stores and our ability to generate revenue could be reduced.

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We may not be successful in cultivating KOLs and may be unable to recoup the costs incurred in cultivating our KOLs.

We incurred a significant amount of operating expenses in training and providing professional support to our KOLs for fiscal years 2018, 2019 and 2020. A significant portion of such expenses in respect of each KOL are incurred before the KOL has developed a sufficiently large fan base to generate any revenue for us.

The cultivation of successful KOLs is subject to many uncertainties, including their personal style, charisma, attitude and professionalism, the receptiveness of social media users to our KOLs and other circumstances beyond our control. If any of our KOLs fails to develop a fan base to our expectations, we may not open any online store in his or her name or such online store may not be successful, and in such case, we may fail to receive the expected revenue from online stores or fail to recoup the costs incurred in training and supporting such KOL, which may adversely impact our business, financial condition and results of operations.

Negative publicity about our KOLs or our products may materially and adversely affect our reputation, our business and the trading price of our ADSs.

Negative publicity about our KOLs or our products may arise and appear on the internet and other media from time to time. There has been negative publicity about our KOLs in the past including recent negative publicity about one of our top KOLs, and negative publicity of a similar or more serious nature may arise in the future. For example, we do not interfere with our KOLs’ personal lives and we respect our KOLs’ privacy and other personal rights. Partly due to the popularity of our KOLs, however, one or more aspects of their personal lives may be exposed to the public and related information and rumors may widely spread on the internet and other media, which may in certain cases signficantly harm our KOLs’ reputation, reduce their fans’ loyalty and adversely affect their ability to advertise, promote and sell products of us and our business partners. Our KOLs may also post unlawful, false, offensive or controversial content on their social media pages, notwithstanding any terms of use of the social media platforms and our guidelines, which may result in negative comments and complaints or even cause their accounts to be closed by social media platforms. In addition, they may also receive negative publicity if they are involved in any illegal activities, scandals or rumors. Such negative publicity may lead to an impairment of the intangible assets on our combined and consolidated balance sheets.

Our products may also be subject to negative publicity for various reasons, such as complaints about the quality of our and their products and related services or other public relation incidents of us, which may adversely affect our reputation and the sales of our products of those of third-party online retailers in our online stores. Any such negative publicity, regardless of veracity, could result in the expenditure of funds and management time and may have a material and adverse effect on our reputation, our business and the trading price of our ADSs.

We have experienced rapid growth since our inception, but we may fail to adequately manage our expansion.

Our rapid growth has placed, and continues to place, significant strain on our management and our technology infrastructure, as well as our operational, financial and administrative systems. To accommodate our growth, we anticipate that we will need to implement a variety of new and upgraded systems, procedures and controls. We will also need to continue expanding, training, managing and motivating our KOLs and employees and manage our relationships with our customers, suppliers and other service providers. All of these endeavors involve risks and will require substantial management effort and additional expenditures. We cannot assure you that we will be able to manage our growth or execute our strategies effectively, and any failure to do so may have a material adverse effect on our business, financial condition and results of operations.

We face challenges and risks associated with diversifying our monetization channels.

We have in the past generated most of our revenue from our full-service model. In the future, revenue from our platform model is expected to grow more rapidly, and under our platform model, we plan to diversify our service offerings to include more KOL services such as additional forms of advertising and casting. Such plans may require us to devote significant financial and managerial resources and may not perform as expected. In addition, we may not be able to successfully anticipate and address customer demands and preferences in connection with new product offerings and our existing network may not be adaptable to the new product offerings.

We also expect to explore new monetization opportunities and expand our revenue sources, and to adjust the proportion of our revenue from different revenue sources in response to changes in market conditions. This may make predicting our future results of operations more difficult than it otherwise would be. Therefore, our past results of operations should not be taken as indicative of our future performance. We may also be inexperienced with the operations associated with new monetization opportunities.

If we cannot successfully address challenges, we may not be able to recoup our investments with respect to any new initiatives, in which case our business, financial condition and results of operations could be materially and adversely affected.

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We may fail to manage our inventories effectively.

To operate our business successfully and meet our consumers’ demands and expectations, we must maintain a certain level of finished goods inventory to ensure immediate delivery when required. However, forecasts are inherently uncertain. For example, as we allow consumers to cancel their pre-orders, we may not be able to make accurate forecasts and actual orders may be lower than our forecasted orders, and therefore, we may not be able to maintain an appropriate level of inventory of fabrics and raw materials for production. In addition, if our forecasted demands are lower than actual demand, we may not be able to maintain an adequate inventory level of our finished goods or produce our products in a timely manner and may lose sales and market share to our competitors. On the other hand, if our forecasted demand is higher than actual demand, we may be exposed to increased inventory risks due to accumulated excess inventory of our finished products, fabrics or raw materials. Excess inventory levels may lead to increases in inventory holding costs, risk of inventory obsolescence, increases in markdown allowances and write-offs.

Our return and exchange policies may adversely affect our results of operations.

We have adopted consumer-friendly return and exchange policies that make it convenient for consumers to change their minds after completing purchases. We may also be required by law to adopt new or amend existing return and exchange policies from time to time. For example, pursuant to the amended Consumer Protection Law, which became effective in March 2014, consumers are generally entitled to return the products purchased within seven days upon receipt without giving any reasons when they purchase the products from business operators on the internet. See “Item 4. Information on the Company — B. Business Overview — Regulation — Regulations Relating to Tort Liability, Product Quality and Consumer Protection.” These policies subject us to additional costs and expenses, which we may not recoup through increased revenue. Our ability to handle a large volume of returns is unproven. If our return and exchange policy is misused by a significant number of consumers, our costs may increase significantly, and our results of operations may be materially and adversely affected.

Our results of operations are subject to fluctuations due to the seasonality of our business and other events.

We have experienced, and we expect to continue to experience, seasonal fluctuations in our revenue, which have caused, and will continue to cause, fluctuations in our results of operations. We generally experience a lower level of sales in the fourth quarter of each fiscal year due to the Chinese New Year holiday, during which consumers generally spend less time on our KOLs’ social media spaces and on online shopping, while we usually have higher sales in the third quarter of each fiscal year due to sales on Singles Day in November, Double Twelve in December and sales of fall and winter apparel, which typically have a higher average selling price than spring and summer apparel. In addition, our logistics and fulfillment service hours will be impacted by holidays.

We make planning, inventory and personnel decisions based on our estimates of demand. If we fail to adequately increase inventory levels for popular products or do not have sufficient staff to handle purchase orders in a timely manner, we may fail to meet consumer demand, which may reduce the volume of transactions in our online stores as well as the attractiveness or such online stores. On the other hand, if we overstock products or if we hire more staff than required, we may be required to take inventory markdowns or write-offs or we may incur unnecessary costs, which could reduce our profits.

We may be subject to product liability claims that could be costly and time-consuming.

We sell our products and promote third-party merchants’ products on our KOL sales and marketing platform; some of the products may be defective. If any product that we sell were to cause personal injury or injury to property, the injured party or parties could bring claims against us. We could also be subject to claims that consumers were harmed due to their reliance on our KOLs’ promotion of third-party brands’ products. If a successful claim were brought against us, it could adversely affect our business. We may have the right under applicable laws, rules and regulations to recover from the relevant manufacturers or third-party merchants compensation that we are required to make to consumers in connection with a product liability, personal injury or a similar claim, if such relevant party is found responsible. However, there can be no assurance that we will be able to recover all or any amounts from these parties. Any product liability claim, regardless of its merit or success, could result in the expenditure of funds and management time and adverse publicity and could have a negative impact on our reputation, business, financial condition and results of operations.

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We may incur liability for counterfeit, unauthorized, illegal, or infringing products sold or misleading information available on our KOL sales and marketing platform.

Under our platform model, our KOLs represent reputable brands and online retailers on our KOL sales and marketing