Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
FORM 20-F
☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE
ACT OF 1934
⌧ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
For the fiscal year ended December 31, 2020.
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OR
OF 1934
Date of event requiring this shell company report. . . . . . . . . . . . . . . . . . .
Commission file number: 001-39025
For the transition period from to
9F Inc.
(Exact Name of Registrant as Specified in Its Charter)
N/A
(Translation of Registrant’s Name into English)
Cayman Islands
(Jurisdiction of Incorporation or Organization)
Room 1607, Building No. 5, 5 West Laiguangying Road
Chaoyang District, Beijing 100012
People’s Republic of China
(Address of Principal Executive Offices)
Yanjun Lin, Chief Financial Officer
Room 1607, Building No. 5, 5 West Laiguangying Road
Chaoyang District, Beijing 100012
People’s Republic of China
Tel: +86 (10) 8527-6996
Email: linyanjun@9Fbank.com.cn
(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
American depositary shares, each representing one
Class A ordinary share
Class A ordinary shares, par value US$0.00001 per
share*
Trading Symbol(s)
JFU
Name of Each Exchange On Which Registered
The Nasdaq Global Market
The Nasdaq Global Market*
*Not for trading, but only in connection with the listing on The Nasdaq Global Market of American depositary shares.
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Table of Contents
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
(Title of Class)
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:
As of December 31, 2020, there were 203,510,681 ordinary shares outstanding, par value $0.00001 per share, being the sum of 142,348,281 Class A ordinary shares and
61,162,400 Class B ordinary shares.
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
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. ⌧ 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 whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ⌧
International Financial Reporting Standards as issued
by the International Accounting Standards Board ☐
Other ☐
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. ☐ Item 17 ☐
Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ⌧ No
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934
subsequent to the distribution of securities under a plan confirmed by a court. ☐ Yes ☐ No
Table of Contents
TABLE OF CONTENTS
INTRODUCTION
FORWARD-LOOKING STATEMENTS
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
Index to Consolidated Financial Statements
i
1
2
3
3
3
3
53
86
86
104
113
115
117
117
133
134
137
137
137
137
139
139
139
140
140
140
142
142
143
143
143
143
F-1
Table of Contents
INTRODUCTION
Unless otherwise indicated and except where the context otherwise requires, references in this annual report to:
● “9F,” “us,” “our company,” “our” and “we” are to 9F Inc., its subsidiaries and its consolidated affiliated entities and their
respective subsidiaries, as the context requires;
● “active borrowers” are to, for a specified period, borrowers who made at least one borrowing transaction with us during
that period;
● “ADSs” are to our American depositary shares, each of which represents one class A ordinary share;
● “China” or the “PRC” are to the People’s Republic of China, excluding, for the purposes of this annual report only, Hong
Kong, Macau and Taiwan;
● “class A ordinary shares” are to our class A ordinary shares, par value US$0.00001 per share;
● “class B ordinary shares” are to our class B ordinary shares, par value US$0.00001 per share;
● “financial institution partners” are to financial institutions that provide insurance and guarantee services, as well as the
institutional funding partners;
● “fixed income products” are to investments in the loans facilitated through online lending information intermediary
services for peer-to-peer lending and borrowing that are subject to the applicable PRC laws and regulations;
● “institutional funding partners” are to banks and other institutions which have partnered with us on our direct lending
program to fund loans originated to our borrowers;
● “loan origination volume” are to the total amount of loans originated to our borrowers, including the loan origination
volume under our revolving loan products, non-revolving loan products and direct lending program during a given period.
Loan origination volume for loans funded by institutional funding partners, regardless of its nature of revolving or non-
revolving loans, are counted towards loan origination volume under our direct lending program;
● “merchant partners” are to the online merchants and offline merchants connected by our online platforms including the
merchants connected through our One Card-linked China UnionPay payment channels;
● “ordinary shares” or “Ordinary Shares” are to our class A ordinary shares and class B ordinary shares, par value
US$0.00001 per share;
● “RMB” and “Renminbi” are to the legal currency of China;
● “US$,” “U.S. dollars,” “$” and “dollars” are to the legal currency of the United States; and
● “VIEs” or “consolidated affiliated entities” are to Jiufu Shuke Technology Group Co., Ltd. (“Jiufu Shuke,” formerly known
as Beijing Jiufu Times Investment Consulting Co., Ltd., Jiufu Internet Finance Holdings Group Co., Ltd. and Jiufu Jinke
Holdings Group Co., Ltd., successively), Beijing Puhui Lianyin Information Technology Co., Ltd. (“Beijing Puhui”),
Zhuhai Huike Lianyin Technology Co., Ltd. (“Zhuhai Lianyin”), Beijing Yi Qi Mai Technology Co., Ltd. (“Yi Qi Mai,”
formerly known as Beijing Wu Kong Mao Technology Co., Ltd. and Beijing Chaoka Internet Technology Co., Ltd.) and
Shenzhen Fuyuan Network Technology Co., Ltd. (“Shenzhen Fuyuan”).
1
Table of Contents
FORWARD-LOOKING STATEMENTS
This annual report contains forward-looking statements that relate to our current expectations and views of future events. 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. These statements are made
under the “safe harbor” provisions of the U.S. Private Securities Litigations Reform Act of 1995.
You can identify some of these forward-looking statements by words or phrases such as “may,” “will,” “expect,” “anticipate,”
“aim,” “estimate,” “intend,” “plan,” “believe,” “is/are likely to,” “potential,” “continue” or other similar expressions. We have based
these forward-looking statements largely on our current expectations and projections about future events that we believe may affect our
financial condition, results of operations, business strategy and financial needs. These forward-looking statements include statements
relating to:
● our goals and strategies;
● our expectations regarding demand for and market acceptance of our products and services;
● our expectations regarding our relationships with users and other partners we collaborate with;
● our future business development, results of operations and financial condition;
● competition in our industries;
● relevant government policies and regulations governing our corporate structure, business and industries;
● general economic and business condition in China and elsewhere;
● the impact of the public health events (including COVID-19 pandemic) on our business operations, the industries we are
operating in and the economy of China and elsewhere generally; and
● assumptions underlying or related to any of the foregoing.
You should read this annual report and the documents that we refer to in this annual report and have filed as exhibits to this
annual report completely and with the understanding that our actual future results may be materially different from what we expect.
Other sections of this annual report discuss factors which could adversely impact our business and financial performance. Moreover, we
operate in an evolving environment. New risk factors emerge from time to time and it is not possible for our management to predict all
risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may
cause actual results to differ materially from those contained in any forward-looking statements. We qualify all of our forward-looking
statements by these cautionary statements.
You should not rely upon forward-looking statements as predictions of future events. The forward-looking statements made in
this annual report relate only to events or information as of the date on which the statements are made in this annual report. Except as
required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new
information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated
events.
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
Our Selected Consolidated Financial Data
The following selected consolidated statements of operations data for the years ended December 31, 2018, 2019 and 2020,
selected consolidated balance sheet data as of December 31, 2019 and 2020 and selected consolidated cash flow data for the years ended
December 31, 2018, 2019 and 2020 have been derived from our audited consolidated financial statements included elsewhere in this
annual report. Our selected consolidated statements of operations data for the years ended December 31, 2016 and 2017, selected
consolidated balance sheets data as of December 31, 2016, 2017 and 2018 and selected consolidated cash flow data for the years ended
December 31, 2016 and 2017 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.
3
Table of Contents
You should read the selected consolidated financial information in conjunction with our consolidated financial statements and
related notes and “Item 5. Operating and Financial Review and Prospects” included elsewhere in this annual report. Our historical results
are not necessarily indicative of our results expected for future periods.
Years Ended December 31,
2016
RMB
2017
RMB
2018
RMB
2019
RMB
(in thousands, except for per share data)
RMB
2020
US$
Selected Consolidated Statements of Operations Data:
Net revenues(4)
Loan facilitation services
Post-origination services
Others
Total net revenues
Operating costs and expenses:
Sales and marketing(1)
Origination and servicing(2)
General and administrative(3)
Reversal of (provision for) doubtful contract assets and
receivables(4)
Total operating costs and expenses
Interest income
Impairment loss of investments
Impairment loss of goodwill
Impairment loss of intangible assets and property, equipment and
software
Gain recognized on remeasurement of previously held equity
interest in acquire
Net loss from disposal of subsidiaries
Other income net
Income (loss) before income tax expense and earnings (loss) in
equity method investments
Income tax (expense) benefit
Earnings (loss) in equity method investments
Net Income (loss)
Net income (loss) attributable to the non-controlling interest
shareholders
Net income (loss) attributable to 9F Inc.
Change in redemption value of preferred shares
Deemed dividend to preferred shareholders
Net income (loss) attributable to ordinary shareholders
Net income (loss) per ordinary shares
Basic
Diluted
Weighted average number of ordinary shares used in computing
net income (loss) per share
Basic
Diluted
Net income (loss)
Other comprehensive income (loss)
2,157,782
41,313
61,557
2,260,652
(1,168,416)
(168,024)
(494,902)
(32,740)
(1,864,082)
13,422
—
—
—
—
—
7,719
417,711
(271,132)
15,047
161,626
(5,588)
156,038
—
—
156,038
27,149
131,663
33,679
192,491
(52,576)
(83,293)
(199,821)
(53,303)
(388,993)
15,697
(70,880)
(7,707)
6,272,796
256,916
212,068
6,741,780
4,960,671
367,439
228,372
5,556,482
3,477,897
604,732
342,334
4,424,963
177,147
859,102
219,756
1,256,005
(2,243,723)
(502,050)
(3,073,575)
(1,746,375)
(444,830)
(1,159,746)
(2,343,428)
(1,137,451)
(1,155,747)
(343,056)
(543,487)
(1,303,833)
(1,881)
(5,821,229)
73,639
—
—
—
—
(8,135)
25,429
1,011,484
(352,432)
64,701
723,753
(126,049)
597,704
(47,759)
(103,550)
446,395
2,637
(3,348,314)
208,350
(23,140)
(2,148,638)
(6,785,264)
225,751
(154,898)
(347,803)
(2,538,179)
102,425
(462,490)
(50,291)
—
—
—
(257)
25,608
2,418,729
(402,403)
(41,143)
1,975,183
6,621
1,981,804
(17,225)
—
1,964,579
—
—
(38,145)
(5,846)
16,272
—
52,852
—
—
39,112
(2,220,324)
174,597
(107,918)
(2,153,645)
(5,931)
(2,159,576)
(10,711)
—
(2,170,287)
(1,691,563)
(538,322)
(21,317)
(2,251,202)
(7,693)
(2,258,895)
—
—
(2,258,895)
—
—
5,994
(259,244)
(82,501)
(3,267)
(345,012)
(1,179)
(346,191)
—
—
(346,191)
1.15
1.07
3.23
2.93
10.57
9.41
(12.43)
(12.43)
(11.37)
(11.37)
(1.74)
(1.74)
123,901,800
134,305,200
161,626
124,413,700
138,465,500
723,753
162,672,800
185,735,200
1,975,183
174,552,468
174,552,468
(2,153,645)
198,596,879
198,596,879
(2,251,202)
198,596,879
198,596,879
(345,012)
Foreign currency translation adjustment
Unrealized gains (losses) on available for sale investments, net of
tax of nil
Total comprehensive income (loss)
Total comprehensive income (loss) attributable to the non-
controlling interest shareholders
Total comprehensive income (loss) attributable to 9F Inc.
17,372
(33,065)
84,430
12,126
(99,173)
(15,199)
194
179,192
(5,588)
173,604
1,071
691,759
(1,146)
2,058,467
(99)
(2,141,618)
—
(2,350,375)
(126,049)
565,710
6,621
2,065,088
(5,931)
(2,147,549)
(7,693)
(2,358,068)
—
(360,211)
(1,179)
(361,390)
Notes:
(1) Sales and marketing expenses include services provided by related parties of RMB168.3 million, RMB417.1 million, RMB37.8
million, RMB42.8 million and RMB901 thousand (US$138 thousand) in 2016, 2017, 2018, 2019 and 2020, respectively.
4
Table of Contents
(2) Origination and servicing expenses include services provided by related parties of RMB11.6 million, RMB81.8 million, RMB39.0
million, RMB15.1 million and RMB358 thousand (US$55 thousand) in 2016, 2017, 2018, 2019 and 2020, respectively.
(3) General and administrative expenses include share-based compensation of RMB110.4 million, RMB2,180.5 million, RMB508.2
million, RMB353.2 million and RMB290.6 million (US$44.5 million) in 2016, 2017, 2018, 2019 and 2020, respectively.
(4) The amount of total net revenues and reversal of (provision for) doubtful contract assets and receivables in 2019, as derived from our
audited consolidated financial statements included in this annual report, reflect the impact of legal proceedings discussed in “Item 3.
Key Information—D. Risk Factors” and “Item 8. Financial Information—A. Consolidated Statements and Other Financial
Information —Legal Proceedings.”
The following table presents our selected consolidated balance sheet data as of the dates indicated.
Selected Consolidated Balance Sheets Data:
Assets
Cash and cash equivalents
Restricted cash
Term deposits
Accounts receivable, net of allowance for doubtful accounts of RMB27,730,
RMB29,611, RMB1,053, RMB1,433,449 and RMB1,446,994 (US$221,762) as of
December 31, 2019 and 2020, respectively
Other receivables, net of allowance for doubtful accounts of RMB5,010, RMB5,010,
RMB5,010, RMB36,773 and RMB17,396 (US$2,666) as of December 31, 2016,
2017, 2018, 2019 and 2020, respectively
Loan receivables, net of allowance for doubtful accounts of nil, nil, nil, RMB615,592
and RMB320,364 (US$49,098) as of December 2016, 2017, 2018, 2019 and 2020,
respectively
Prepaid expenses and other assets
Long-term investments
Total Assets
Liabilities
Deferred revenue
Income tax payable
Accrued expenses and other liabilities
Total Liabilities
Total Shareholders’ Equity
2016
2017
As of December 31,
2019
2018
2020
RMB RMB RMB RMB RMB US$
(in thousands)
1,238,490
146,129
-
3,778,115
671
700,000
5,469,077
—
833,478
4,684,003
125,437
24,000
2,726,712
390,702
133,761
417,887
59,878
20,500
81,048
300,058
180,141
280,995
40,862
6,262
184,029
91,428
146,438
117,340
126,745
19,425
84,770
139,518
152,028
2,153,661
126,200
524,321
509,736
6,275,783
593,943
543,088
954,158
9,107,961
778,480
1,137,787
775,644
8,880,364
267,383
793,092
738,272
5,386,501
40,978
121,547
113,145
825,519
94,176
301,219
500,600
939,709
998,635
384,070
463,977
795,447
1,750,732
3,704,641
346,847
315,868
745,307
1,470,621
6,254,920
788,906
320,350
1,229,110
2,552,536
6,327,828
82,643
255,244
726,686
1,163,185
4,223,010
12,666
39,118
111,370
178,267
647,205
The following table presents our selected consolidated cash flow data for the periods indicated:
Selected Consolidated Cash Flow Data:
Net cash provided by (used in) operating activities
Net cash (used in) provided by investing activities
Net cash provided by financing activities
Net increase (decrease) in cash, cash equivalents and
2016
RMB
2017
RMB
Year Ended December 31,
2018
RMB
2019
RMB
2020
RMB
US$
413,972
(222,910)
701
2,865,590
(1,011,683)
563,360
2,345,892
(1,236,820)
545,886
(429,047)
(707,611)
471,978
(1,744,599)
39,466
12,896
(267,370)
6,048
1,976
restricted cash
204,499
2,394,167
1,690,291
(659,637)
1,692,026
(259,314)
Cash, cash equivalents and restricted cash at
beginning of the year
Cash, cash equivalents and restricted cash at end of
1,180,120
1,384,619
3,778,786
5,469,077
4,809,440
737,079
the year
1,384,619
3,778,786
5,469,077
4,809,440
3,117,414
477,765
5
Table of Contents
We present our financial results in RMB. We make no representation that any RMB or U.S. dollar amounts could have been, or
could be, converted into U.S. dollars or RMB, 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 RMB into foreign exchange and through
restrictions on foreign trade. 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 RMB6.5250 to US$1.00, the noon buying rate as of December 31, 2020.
B.
Capitalization and Indebtedness
Not applicable.
C.
Reasons for the Offer and Use of Proceeds
Not applicable.
D.
Risk Factors
Risks Related to Our Business and Industry
We operate in emerging and evolving industries, and our operations and products have been and may need to be modified in
answering to the latest market trends, which makes it difficult to evaluate our future prospects.
The industries we are operating in are emerging and in general remain at relatively preliminary stages of development and may
not continue to develop as rapidly as expected. The regulatory framework for the industries we operate in is also evolving and may
remain uncertain for the foreseeable future. For example, we ceased the operation of our online lending information intermediary
platform, Jiufu Puhui, partially because the developments in the overall online lending information intermediary industry. Furthermore,
there are few established players with business models similar to ours in these industries. Potential users, financial institution partners
and other partners we collaborate with may not be familiar with the industries we are operating in, and may not fully appreciate the value
we add and may have difficulty distinguishing our products and services from those of our competitors.
Furthermore, our past growth rates may not be indicative of our future growth. For example, we ceased the operations of our
online lending information intermediary business, and thus the historical growth we have achieved in such business may not be relied
upon for evaluation of our future developments.
We are subject to risks in relation to our transition into an internet technology company that focuses on providing
technology empowerment services to financing and consumption industries in China and overseas.
We are transitioning into an internet technology company that focuses on providing technology empowerment services to
financing and consumption industries in China and overseas, which may consume huge resources of ours. The execution of our strategy
for such transition may not be as smooth as we expect, and we may incur additional costs overcoming hurdles that may arise.
We may continue to introduce new products and services and make modifications to existing ones in response to or in
anticipation of changes our industries’ landscape, user needs or regulatory scheme. We may lack experiences on operating the business
relating to new products and services. We also face competition from existing market players, which could result in low price
competition. In addition, each of these new products and services, or modifications to existing ones calls for significant time and resource
devotion of our management, which may have an adverse impact on our financial condition, while we cannot assure you that our
attempts to make such new products and services, or modifications to existing ones will be successful, profitable or widely accepted by
customers. Furthermore, as new products and services, or modifications to existing ones may materially change the way we conduct our
business, they may render the projection of our future operations obsolete, and therefore our future prospects may be difficult to evaluate.
6
Table of Contents
In addition, in connection with the introduction of new products and services or in response to general economic conditions, the
performance of our existing business may be impacted by changes to the policies and qualifications made by us or our partners that are
applicable to our existing products and services. It is therefore difficult to effectively assess our future prospects. You should consider our
business and prospects in light of the risks and challenges we encounter or may encounter in this developing and rapidly evolving
market. These risks and challenges include our ability to, among other things:
·
·
·
·
·
·
navigate an evolving regulatory environment;
expand the base of our users and partners we collaborate with;
improve our operational efficiency;
continue to scale our technology infrastructure to support the growth of our business;
broaden our product and service offerings;
operate without being adversely affected by the negative publicity about the industries in general and our company in
particular, if any;
· maintain the security of our platform and the confidentiality of the information provided and utilized across
our platforms;
·
·
·
·
attract, retain and motivate talented employees to support our business growth;
navigate economic condition and fluctuation;
seek new business opportunities for future growth; and
defend ourselves in litigation, and against regulatory, intellectual property, privacy or other claims.
We are subject to all risks and challenges inherent in developing business enterprises in emerging and evolving industries. If the
industries do not develop as we expect, if we fail to educate users and partners about the value of our products and services, or if we fail
to address the needs of our users and partners, or other risks and challenges, our business and results of operations will be materially and
adversely affected.
In addition, there may exist uncertainty on the regulatory requirements in relation to the industries we operate in or plan to
operate in and we cannot assure you that all of our business offerings will continue to be deemed in compliance with applicable laws and
regulations in a fast-changing regulatory environment. For example, we are providing technology empowerment services to our partners
operating in highly-regulated industries, which may subject us to additional regulatory compliance requirements. If any of our business
offerings is deemed to be in violation of relevant applicable laws and regulations, our business, financial condition and prospects would
be materially and adversely affected.
We changed our business operations, which may not be successful ultimately.
We ceased publishing information relating to new offering of investment opportunities in fixed income products for investors on our
online lending information intermediary platform, Jiufu Puhui. We have entered into collaboration arrangements with certain licensed
asset management companies, pursuant to which the investors’ rights to existing loans will be transferred to those companies, with
relevant repayment of the principals and investment income, as applicable, in relation to the fixed income products expected to be made
by such asset management companies to the investors within 36 months in ways chosen by investors subject to terms and on the
conditions set forth in the platform notice to the investors. After the change of business operations, Jiufu Puhui will no longer provide
loan facilitation service, and licensed asset management companies and other third-party service providers will provide existing investors
with services in relation to the return of their remaining investment in loans.
7
Table of Contents
In connection with such efforts, we may experience a loss of continuity, loss of accumulated knowledge or loss of efficiency
during the transitional period. Additionally, it is uncertain whether these efforts will eventually bring us benefits as we anticipated. If we
fail to achieve some or all of the expected benefits of this business transformation, our competitive position, business, financial condition
and results of operations could be materially and adversely affected.
Even if our business model transformation is implemented successfully as we planned, the actual costs incurred in this process
may be substantially higher than we anticipated. There might also be other issues and negative consequences arising from our business
transformation such as loss of user base, additional regulatory requirements, internal control issues, changes in employee structure as
well as other unexpected consequences, any of which may have a material adverse effect on our competitive position, business, financial
condition and results of operations.
We have incurred net losses and negative cash flow from operating activities, and may incur net losses and experience
negative cash flow from operating activities in the future.
We incurred net losses of RMB2,153.6 million and RMB2,251.2 million (US$345.0 million) in 2019 and 2020, respectively, as
compared to a net income of RMB1,975.2 million in 2018. The net cash used in operating activities was RMB429.0 million and
RMB1,967.8 million (US$301.6 million) in 2019 and 2020, respectively, and the net cash provided by operating activities was
RMB2,345.9 million in 2018.
Our future financial performance depends on, among other factors, our ability to continue to attract and retain users, our user
acquisition cost, market competition, and our ability to provide technology empowerment services to better serve our partners.
Accordingly, you should not rely on the revenues of any past interim period or annual period as an indication of our future performance.
We may not be able to maintain the current fee rates due to more intense competition in the future. We also expect our costs to increase in
future periods as we continue to develop new business, acquire new users and expand our business and operations. In addition, we will
continue to incur substantial costs and expenses as a result of being a public company. If we are unable to generate adequate revenues
and to manage our expenses, we may not be able to recover from net losses in the future.
In addition, we may not be able to achieve profitability or generate positive cash flow from operating activities and, even if we
achieve positive operating cash flows, it may not be sufficient to satisfy our anticipated capital expenditures and other cash needs.
Further, we may not be able to fund our operating expenses and expenditures and may be unable to fulfill our financial obligations as
they become due, which may result in voluntary or involuntary dissolution or liquidation proceedings and a total loss of your investment.
We do not hold any license or permit for providing securities brokerage business in China. Although we do not believe we
engage in securities brokerage business in China, there remain uncertainties to the interpretation and implementation of relevant
PRC laws and regulations.
Pursuant to the relevant PRC laws and regulations, no entity or individual shall engage in securities business without the
approval of the securities regulatory authority of the State Council. See “Item 4. Information on the Company—B. Business Overview—
Regulations—Regulations Related to the Engagement of Securities Business within the Territory of the PRC by Foreign-Invested
Securities Companies.” We do not hold any license or permit in relation to providing securities brokerage business in China. A
significant portion of our technology, research and development, management, supporting and other teams are based in China and a large
number of our clients are PRC citizens. However, we do not believe the stock investment service offered by us is securities brokerage
business in China. As of the date of this annual report, we have not received any inquiry relating to our stock investment services from
regulatory authorities in China. However, there remain some uncertainties as to how the current and any future PRC laws and regulations
will be interpreted or implemented in the context of operating securities related businesses in China. We cannot assure you that our
current operations model will not be deemed as operating securities brokerage business in China, which may subject us to further
inquiries or rectifications. If certain of our activities in China were deemed by relevant regulators as provision of securities brokerage
services and investment consulting services in China, we will be required to obtain relevant licenses or permits from relevant regulatory
bodies, including the China Securities Regulatory Commission, or the CSRC, and failure of obtaining such licenses or permits may
subject us to regulatory actions and penalties, including fines, suspension of parts or all of our relevant offerings in the PRC. In such
cases, our business, financial condition, results of operations and prospects may be materially and adversely affected.
8
Table of Contents
PRC governmental control of currency conversion, cross-border remittance and offshore investment could have a direct
impact on the trading volume achieved on our platform. If the government further tightens restrictions on converting Renminbi to
foreign currencies, including Hong Kong dollars and U.S. dollars, and/or deems our practice as in violation of PRC laws and
regulations, our business will be materially and adversely affected.
A significant portion of our clients are Chinese nationals. We do not provide cross-border currency conversion services related
to Renminbi to our clients, and we require those who would like to trade securities listed on the Hong Kong Stock Exchange or any
major stock exchanges in the United States or purchase any wealth management products through our platform to deposit funding into
their respective offshore trading accounts.
In addition, the PRC government imposes controls on the convertibility of Renminbi into foreign currencies and, in certain
cases, currency remittance out of the PRC. Since 2016, the PRC government has tightened its foreign exchange policies and stepped up
its scrutiny of outbound capital movement. Under the current regulatory framework, Chinese nationals are limited to a foreign exchange
quota of US$50,000 per year for approved uses only, such as tourism and education purposes, and Chinese nationals can only engage in
offshore investments under capital items through provided methods such as Qualified Domestic Institutional Investors. See “Item 4.
Information on the Company—B. Business Overview—Regulations—Regulations on Offshore Stocks Investment.” If the government
further tightens the amount of currency exchange allowed for Chinese nationals, increases the control over remittance of currency out of
the PRC, and/or specifically prohibits any exchanges for securities-related investment, the trading activities of Chinese nationals on our
platform could be restricted, which would significantly reduce the trading volume on our platform. As our revenues from brokerage
commission income depends heavily on the total trading volume facilitated on our digital securities investment platform, the occurrence
of any of the above regulatory changes may have a material and adverse impact on our brokerage and wealth management business.
In addition, under the existing regulations on offshore investment, approval from or registration with appropriate government
authorities is required when Renminbi is to be converted into foreign currency for the purpose of offshore investment. As we do not
provide cross-border currency conversion services related to Renminbi to our Chinese national clients, we do not require our clients to
submit evidence of approval or registration from relevant authorities with respect to the foreign currency used for offshore investments.
However, since the PRC authorities and the commercial banks designated by the SAFE to conduct foreign exchange services have
significant amount of discretion in interpreting, implementing and enforcing the relevant foreign exchange rules and regulations, and for
many other factors that are beyond our control and anticipation, we cannot assure you that our operations will not be deemed by relevant
authorities as providing currency conversion service or otherwise violating relevant foreign exchange laws and regulations. In such cases,
we may be asked to take additional and burdensome measures to monitor the source and use of the foreign currency funds in the accounts
of our clients and verify evidence of approval obtained by our clients from relevant authorities, and we may also be subject to regular
inspections from relevant authorities from time to time, warnings, correction orders, condemnation and fines, suspension or termination
of certain of our operations. If such situations occur, our business, financial condition, results of operations and prospects may be
materially and adversely affected.
Any future change in the regulatory and legal regime for the securities brokerage and wealth management industries may
have a significant impact on our business model.
Securities brokerage and wealth management industries have been subject to an increasingly regulated environment over recent
years, and penalties and fines sought by regulatory authorities have also increased. This regulatory and enforcement environment has
created uncertainties with respect to various types of products and services that historically had been offered by us and that were
generally believed to be permissible and appropriate. Legislative changes in rules promulgated by government agencies and self-
regulatory organizations in various jurisdictions that oversee our businesses and changes in the interpretation or enforcement of existing
laws and rules, such as the potential imposition of transaction taxes, may directly affect our model of operation and profitability.
9
Table of Contents
We may from time to time be subject to claims, controversies, lawsuits and legal proceedings, which could have a material
adverse effect on our results of operations, financial condition, liquidity, cash flows and reputation.
We may from time to time become subject to or involved in various claims, controversies, lawsuits, and legal proceedings.
However, claims, lawsuits, and litigations are subject to inherent uncertainties, and we are uncertain whether the foregoing claim would
develop into a lawsuit. Lawsuits and litigation may cause us to incur litigation costs, utilize a significant portion of our resources and
divert management’s attention from our day-to-day operations, any of which could harm our business. Any unfavorable settlements or
judgments against us could have a material adverse impact on our results of operations, financial condition, liquidity and cash flows. In
addition, negative publicity regarding claims or judgments made against us may damage our reputation and may result in a material
adverse impact on us.
We and PICC Property and Casualty Company Limited Guangdong Branch (the “PICC”) are pursuing legal actions against each
other. In May 2020, we commenced a legal proceeding against PICC by submitting a complaint with a local court in Beijing for contract
non-performance under a cooperation agreement, as amended (the “Cooperation Agreement.”) We, together with our legal counsel of the
case has determined that PICC has breached its contractual obligations under the Cooperation Agreement for not paying service fees that
were due to us. We are seeking payments of approximately RMB2.3 billion from PICC to cover the outstanding service fees and related
late payment losses. After our legal action was filed against PICC, PICC filed a civil lawsuit against us at a local court in Guangzhou
claiming that the second amendment under the Cooperation Agreement is invalid, and therefore PICC is not obligated to pay any
outstanding service fees and that a portion of the service fees paid to us under the Cooperation Agreement plus accrued interest should be
returned back to PICC. We will vigorously assert our rights against PICC and defend ourselves against any claims brought against us by
PICC in these legal proceedings. However, both actions remain at the preliminary stage, and it is not possible at this stage to ascertain the
outcome of either of the lawsuits. If we do not prevail in either of the lawsuits completely or in part, or fail to reach a favorable
settlement with PICC, our results of operations, financial condition, liquidity and prospects would be materially and adversely affected.
See “—Loss of or failure to maintain relationship with our partners or implement our strategy to develop new relationships with other
potential partners may materially and adversely affect our business and results of operations.” for other negative impacts.
Our business, financial condition and results of operations have been and are likely to continue to be materially and
adversely affected by the outbreak of COVID-19.
The COVID-19 pandemic has resulted in, and may continue to result in, quarantines, travel restrictions, and the temporary
closure of facilities in China and worldwide.
In connection with intensifying efforts to contain the spread of COVID-19, government authorities have taken a number of
measures, which included quarantining individuals infected with or suspected of having COVID-19, restricting residents from travel,
encouraging employees of enterprises to work remotely from home and cancelling public activities, among others. Consequently, our
business, financial condition and results of operations have been and are likely to continue to be materially and adversely affected by the
COVID-19 pandemic. For example, as a result of the slowdown in consumption activities, especially in leisure spending or outdoor
entertainment, the demand for our services or services of our partners may in turn slowdown. The other effects include the temporary
closure of our offices, quarantine of certain of our employees and restrictions on our employees’ ability to travel. All of these would
negatively affect our business operation, financial condition and results of operations. We have taken, and may continue to take,
measures in response to the pandemic, including the adoption of modified operating hours, restrictions on the number of on-site
employees, remote working arrangements and more stringent workplace sanitation measures, which may also have negative impact on
our business operations. Even though China has made significant achievements in control and prevention of the COVID-19 pandemic,
we cannot assure you that there will not be an outbreak in China again, and there is significant uncertainty relating to the severity of the
near-term or long-term impact of the global COVID-19 pandemic on the demand of our products and services. The extent to which this
pandemic impacts our business and financial performance will depend on future developments, which are highly uncertain and cannot be
predicted, including new information which may emerge concerning the duration and severity of this outbreak and the actions taken by
authorities and other entities to contain this outbreak or treat its impact, among others, all of which are beyond our control. In addition,
we have established, and are actively expanding our operation in Southeast Asian countries. COVID-19 has caused significant
disruptions to the economic development in Southeast Asian countries, which may weaken the debt repayment ability of borrowers of
our lending business in these countries. Although our business operations in these countries are relatively small, and we have been
actively pursuing technology empowerment strategies to enable our business partners and financial institutions in Southeast Asia, the
developments surrounding COVID-19 could still negatively affect our future development in this region.
10
Table of Contents
If we are not able to respond to changes in user preferences for our products and services and provide a satisfactory user
experience, or our existing and new products and services do not maintain or achieve sufficient market acceptance, we will not be
able to maintain and expand our user base and increase user activities, and our financial results and competitive position will be
harmed.
We believe that our user base and partners network are the cornerstone of our business. Attracting new users and partners is
critical to the continued success of our business. We strategically focus on serving the young generation and seek to cultivate user
loyalty. Our ability to attract and retain users and partners largely depends on whether we can effectively address their needs. Moreover,
we depend on our existing user base to cultivate user loyalty, grow with our users and offer them better products and services. Our ability
to maintain and expand our user base depends on a number of factors, including our ability to develop other products and services, and
our ability to provide relevant and timely products and services to meet changing user needs. We have devoted significant resources to,
and will continue to emphasize on, upgrading and marketing our products and services. We also incur expenses and expend resources
upfront to develop, acquire and market new products and services that incorporate additional features, improve functionality or otherwise
make our products more desirable to our users and partners. New products must achieve high levels of market acceptance in order for us
to recoup our investment in developing, acquiring and bringing them to market. If we fail to retain our existing users by offering products
and services that cater to their evolving consumption needs, we may not be able to capture their long-term growth potential, and our
business and results of operations may be adversely affected.
Furthermore, prior to the discontinuation of our online lending information intermediary business, our fixed income products
constituted a significant portion of the online wealth management products we offered. Although we have been developing other online
wealth management products and services, we cannot guarantee that they will, and will continuously, maintain and attract new investors.
If the market acceptance of the online wealth management products offered by us, or such products in general, declines, and we fail to
retain our investors by developing and promoting our other wealth management products as alternative investment portfolio options for
investors, we may suffer a loss of our investor base, and our business, operating results and financial status will be adversely impacted.
Loss of or failure to maintain relationships with our partners or implement our strategy to develop new relationships with
other potential partners may materially and adversely affect our business and results of operations.
We anticipate that we will continue to leverage relationships with existing partners to grow our business while pursuing new
relationships with additional partners. For example, the success of our transition into an internet technology company depends on our
ability to provide our partners with desirable and competitive technology empowerment services that captures both the core demand of
our partners and the development directions of the industries they operate in. If we fail to cater to our partners’ evolving needs, or fail to
offer competitive services in a timely manner in answer to competition, we may not be able to retain our partners, and as a result our
results of operations will be negatively and materially impacted.
Pursuing, establishing and maintaining relationships with partners require significant time and resources. Our current
agreements with partners generally do not prohibit them from working with our competitors or from offering competing services. Our
competitors may be more effective in providing incentives to our partners to favor their products or services, which may in turn make our
products and services less attractive to our partners. In addition, certain partners may suspend or terminate its cooperation with us.
Furthermore, certain types of partners may build their in-house solutions and devote more resources to support their own competing
businesses. In addition, these partners may not perform as expected under our agreements with them, and we may have disagreements or
disputes with them, which could adversely affect our brand and reputation. If we cannot successfully enter into and maintain effective
relationships with partners, our business will be harmed.
In addition, if any of our partners decides to suspend or terminate its cooperation with us, or fails to perform properly, we cannot
assure you that we will be able to find an alternative in a timely and cost-efficient manner or at all. Any of these occurrences could result
in our diminished ability to operate our business, potential liability to our users and partners, inability to attract users and partners,
reputational damage, regulatory intervention and financial harm, which could negatively impact our business, financial condition and
results of operations and could negatively affect the value of your investment.
11
Table of Contents
We may not be able to ensure the accuracy of the third-party product information and the authenticity of third-party wealth
management products on our platform, and we have limited control over performance of investment products we market.
We offer other onshore and offshore investment products such as stock investments, insurance, bank wealth management
products and fund investment products. Certain underlying wealth management products are offered by third-parties. The acceptance and
popularity of our platform is partially premised on the reliability of the relevant underlying wealth management products and information
on our platform. We rely on the relevant third-party providers of the relevant wealth management products for the authenticity of their
underlying products and the comprehensiveness, accuracy and timeliness of the related financial information. While the products and
information from these third-party providers have been generally reliable, there can be no assurance that the reliability can be maintained
in the future. If these third-party providers or their agents provide inauthentic financial products or incomplete, misleading, inaccurate or
fraudulent information, we may lose the trust of existing and prospective investors. In addition, if our investors purchase the underlying
wealth management products that they find on our platform and they suffer losses, they may blame us and attempt to hold us responsible
for their losses, even though we have made risk disclosures before they invest. Our reputation could be harmed and we could experience
reduced user traffic to our platform, which would adversely affect our business and financial performance.
Furthermore, as investors access the underlying wealth management products through our platform, they may have the
impression that we are at least partially responsible for the quality of these products. Although we have established standards to screen
products providers before selling their products on our platform, we have limited control over performance of the investment products
we distribute. In the event that an investor is dissatisfied with underlying products or the services of a product’s provider, we do not have
any means to directly make improvements in response to user complaints. If investors become dissatisfied with the underlying wealth
management products available on our platform, our business, reputation, financial performance and prospects could be materially and
adversely affected.
Fraudulent or illegal activities associated with our users and business partners could negatively impact our brand and
reputation and cause the loss of users. As a result, our business may be materially and adversely affected.
We remain subject to the risk of fraudulent or illegal activities associated with our users and business partners. Our resources,
technologies and fraud detection tools may be insufficient to accurately detect and prevent fraudulent or illegal activities. Significant
increases in fraudulent or illegal activities could negatively impact our brand and reputation and therefore harm our operating and
financial results. Any misbehavior of or violation by our users of applicable laws and regulations could lead to regulatory inquiries and
investigations that involve us, which may affect our business operations and prospects. We might also incur higher costs than expected in
order to take additional steps to reduce risks related to fraudulent and illegal activities. High-profile fraudulent or illegal activities could
also lead to regulatory intervention, and may divert our management’s attention and cause us to incur additional regulatory and litigation
expenses and costs. Although we have not experienced any material business or reputational harm as a result of fraudulent or illegal
activities in the past, we cannot rule out the possibility that any of the foregoing may occur causing harm to our business or reputation in
the future. If any of the foregoing were to occur, our results of operations and financial conditions could be materially and adversely
affected.
We face risks related to our “know-your-client” procedures when our clients provide outdated, inaccurate, false or
misleading information.
We collect personal information during the account opening and registration process for our investment business. Although we
require our clients to submit documents for proof of their identity and address for completing the account registration and to update such
information from time to time, we face the risks that as the information provided by our clients may be outdated, inaccurate, false or
misleading. Although we have appropriate ongoing monitoring procedures in place to keep customer information up to date pursuant to
applicable regulatory requirements, we cannot fully verify the accuracy, currency and completeness of such information beyond
reasonable effort. For example, a large number of our clients are holders of the PRC identity cards. As the PRC identity cards are usually
effective for more than ten years or some may have no expiration term, some clients may have changed their domicile or citizenship
during the terms of their PRC identity cards and therefore be subject to applicable laws and regulations of jurisdictions other than the
PRC. In this situation, our provision of products and services to such clients could be in violation of the applicable laws and regulations
in the jurisdictions where those clients reside, of which we may have no awareness until we are warned by the relevant supervising
authorities. We could still be subject to certain legal or regulatory sanctions, fines or penalties, financial loss, or damage to our reputation
resulting from such violations.
12
Table of Contents
Misconduct, errors and failure to function by our employees and third-party service providers could harm our business
and reputation.
We are exposed to many types of operational risks, including the risk of misconduct and errors by our employees and third-party
service providers. Our business depends on our employees and third-party service providers to interact with our users and partners we
collaborate with and process large numbers of transactions, both of which involve the use and disclosure of personal information. We
could be materially adversely affected if transactions were redirected, misappropriated or otherwise improperly executed, if personal
information was disclosed to unintended recipients or if an operational breakdown or failure in the processing of transactions occurred,
whether as a result of human error, purposeful sabotage or fraudulent manipulation of our operations or systems. It is not always possible
to identify and deter misconduct or errors by employees or third-party service providers, and the precautions we take to detect and
prevent this activity may not be effective in controlling unknown or unmanaged risks or losses. If any of our employees or third-party
service providers take, convert or misuse funds, documents or data or fail to follow protocol when interacting with users, we could be
liable for damages and subject to regulatory actions and penalties. We could also be perceived to have facilitated or participated in the
illegal misappropriation of funds, documents or data, or the failure to follow protocol, and therefore be subject to civil or criminal
liability.
Any failure by our third-party service providers to comply with applicable anti-money laundering and anti-terrorism
financing laws and regulations could damage our reputation.
Currently, we rely on our third-party service providers to have their own appropriate anti-money laundering policies and
procedures. If any of our third-party service providers fails to comply with applicable anti-money laundering laws and regulations, our
reputation could suffer and we could become subject to regulatory intervention, which could have a material adverse effect on our
business, financial condition and results of operations.
In addition, the Administrative Measures for Anti-money Laundering and Counter-terrorism Financing by Internet Finance
Service Agencies (for Trial Implementation) promulgated by relevant government authorities have imposed on us the obligation of anti-
money laundering and anti-terrorism financing, including the verification of customer identification, the reporting of suspicious
transactions, and the preservation of customer identification information and transaction records. While we have formulated and adopted
policies and procedures, including internal controls and “know-your-customer” procedures, aimed at preventing money laundering and
terrorism financing, we cannot assure you that the anti-money laundering and anti-terrorism financing policies and procedures we have
adopted will be effective in protecting our platform from being exploited for money laundering or terrorism financing purposes or will be
deemed to be in compliance with applicable anti-money laundering and anti-terrorism financing laws and regulations.
Any negative publicity with respect to us, the industries we are operating in in general and our partners may materially and
adversely affect our business and results of operations.
Reputation of our brand is critical to our business and competitiveness. Factors that are vital to our reputation include but are
not limited to our ability to:
● maintain the quality and reliability of our services;
● provide our users and partners with a superior experience;
● effectively manage and resolve user complaints; and
● effectively protect personal information and privacy of users.
Any malicious or negative allegation made by the media or other parties about the foregoing or other aspects of our company,
including but not limited to our management, business, compliance with laws, financial condition or prospects, whether with merit or
not, could severely compromise our reputation and harm our business and operating results.
13
Table of Contents
As the industries we are operating in are new and the regulatory framework for these industries is also evolving, negative
publicity about these industries may arise from time to time. Negative publicity about the industries we are operating in in general may
also have a negative impact on our reputation, regardless of whether we have engaged in any inappropriate activities. Any players in the
industries we are operating in who are not in compliance with applicable regulations may adversely impact the reputation of the
industries as a whole.
In addition, negative publicity about our partners, outsourced service providers or other counterparties, such as any failure by
them to adequately protect the information of our users, to comply with applicable laws and regulations or to otherwise meet required
quality and service standards could harm our reputation. If any of the foregoing takes place, our business and results of operations could
be materially and adversely affected.
Our failure to compete effectively could adversely affect our results of operations and market share.
The industries we are operating in are competitive and evolving.
Our competitors may operate with different business models, have different cost structures or participate selectively in different
market segments. They may ultimately prove more successful or more adaptable to new regulatory, technological and other
developments. Some of our current and potential competitors have significantly more financial, technical, marketing and other resources
than we do and may be able to devote greater resources to the development, promotion, sale and support of their development. Our
competitors may also have more extensive user bases, greater brand recognition and brand loyalty and broader partner relationships than
us. Additionally, a current or potential competitor may acquire one or more of our existing competitors or form a strategic alliance with
one or more of our competitors. Any of the foregoing could adversely affect our business, results of operations, financial condition and
future growth. In addition, our competitors may be better at developing new products, responding faster to new technologies and
undertaking more extensive marketing campaigns. When new competitors seek to enter our target market, or when existing market
participants seek to increase their market share, they sometimes undercut the pricing and/or terms prevalent in that market, which could
adversely affect our market share or ability to exploit new market opportunities. Our pricing and terms could deteriorate if we fail to act
to meet these competitive challenges. Furthermore, to the extent that our competitors are able to offer more attractive terms to our
partners, such partners may choose to terminate their relationships with us.
In addition, the industries we are operating in are subject to rapid and significant technological changes. In order to compete in
our industries and pursue our technology empowerment strategies, we need to continue to make significant investments in developing
technologies across all areas of our business, such as artificial intelligence, information privacy security, and other emerging new
technologies. Incorporating new technologies into our products and services may require substantial expenditures and take considerable
time, and ultimately may not be successful. If we are unable to compete effectively and meet the need for innovation in the industries we
are operating in, the demand for our products and services could stagnate or substantially decline, we could experience reduced revenues
or our platform could fail to achieve or maintain more widespread market acceptance, any of which could harm our business and results
of operations.
If we fail to promote and maintain our brand in a cost-efficient way, we may lose market share and our revenue
may decrease.
We believe that developing and maintaining the awareness of our brand is critical to achieving widespread acceptance of our
products and services, gaining trust in our brand and attracting new users and partners. Successful promotion of our brand will depend
largely on the effectiveness of our marketing efforts, the success of the channels we use to promote our platform, and the user experience
we provide on our platform. Historically, our efforts to build our brand have incurred significant expense, and it is likely that our future
marketing efforts will require us to incur significant additional marketing expenses. In 2018, 2019 and 2020, our sales and marketing
expenses were RMB1,746.4 million, RMB2,278.3 million and RMB415.2 million (US$63.6 million), respectively. These brand
promotion activities may not increase our revenues immediately or at all, and, even if they do, any revenue increases may not offset the
expenses we incur to promote our brand. If we fail to successfully promote and maintain our brand, or if we incur substantial expenses in
an unsuccessful attempt to promote and maintain our brand image, we may lose our existing users to our competitors or be unable to
attract new users, which may cause our revenue to decrease and negatively impact our business and results of operations.
14
Table of Contents
If we fail to manage our growth effectively, our business may be materially and adversely affected.
Our growth has placed, and will continue to place, a significant strain on our management, personnel, systems and resources.
Our success will depend in part on our ability to manage the growth we achieve effectively. To accommodate our growth, we will need to
implement a variety of new and upgraded operational and financial systems, procedures and controls, including the improvement of our
accounting and other internal management systems. To accommodate our growth, we also need to continue to hire, train and manage new
employees as needed. If our new hires perform poorly, or if we are unsuccessful in hiring, training, managing and integrating these new
employees, or if we are not successful in retaining our existing employees, our business may be harmed. The addition of new employees
and the system development that we anticipate will be necessary to manage our growth will increase our cost base, which will make it
more difficult for us to offset any future revenue shortfalls by reducing expenses in the short term. If we fail to successfully manage our
growth, we will be unable to execute our business plan.
Our ability to protect the confidential information of our users and our ability to conduct our business may be adversely
affected by cyber-attacks, computer viruses, physical or electronic break-ins or similar disruptions and we may be subject to liabilities
imposed by the relevant government regulations.
Our platform collects, stores and processes certain personal and other sensitive data from our users and partners. There are
numerous laws governing privacy and the storage, sharing, use, disclosure and protection of personally identifiable information and user
data. Specifically, personally identifiable and other confidential information is increasingly subject to legislation and regulations in
numerous domestic and international jurisdictions. The regulatory framework for privacy protection in China, Hong Kong and
worldwide is currently evolving and is likely to remain uncertain for the foreseeable future. We could be adversely affected if legislation
or regulations in China, Hong Kong and elsewhere in the world where we have business operations are expanded to require changes in
business practices or privacy policies, or if the relevant governmental authorities in China, Hong Kong and elsewhere in the world where
we have business operations interpret or implement their legislation or regulations in ways that negatively affect our business, financial
condition and results of operations. For example, in November 2016, the Standing Committee of the National People’s Congress released
the Cyber Security Law, which took effect in June 2017. The Cyber Security Law requires network operators to perform certain functions
related to internet security protection and the strengthening of network information management. For instance, under the Cyber Security
Law, network operators of key information infrastructure, including network operators of key information infrastructures in the finance
industry, generally shall, during their operations in the PRC, store the personal information and important data collected and produced
within the territory of the PRC and their purchase of network products and services that may affect national securities shall be subject to
national cybersecurity review. Furthermore, the PRC governmental authorities issued a series of administrative rules and regulations to
enhance the security of information collected and used by mobile apps. For instance, such rules and regulations provide, among others,
that (i) app operators should collect and use personal information in compliance with the Cyber Security Law and should not collect and
use personal information in violation of laws, regulations or breach of user agreements, (ii) app operators should be responsible for the
security of personal information obtained from users and take effective measures to strengthen the personal information protection, and
(iii) app operators should not force their users to make authorization by means of bundling, suspending installation or in other default
forms. The Civil Code promulgated in 2020 also provides specific provisions regarding the protection of personal information. See
“Item 4. Information on the Company—B. Business Overview—Regulations— Regulations Related to Information Security, Censorship
and Privacy — Regulations related to privacy protection.” We are constantly in the process of evaluating the potential impact of the
Cyber Security Law, the Civil Code, and other relevant laws and regulations on our current business practices. We plan to further
strengthen our cyber-security measures with respect to information management and privacy protection of the user data stored in our
system. We have not been subject to any material breaches of any of our cyber-security measures. However, we cannot assure you that
the measures we have taken or will take are adequate under the Cyber Security Law, the Civil Code and other relevant laws and
regulations. If further changes in our business practices are required under China’s evolving regulatory framework for privacy protection,
our business, financial condition and results of operations may be adversely affected. Furthermore, we use certain data collected from
external data sources to verify the users’ information in compliance with industry practice. In the event that the data collection and
provision by any of our external data sources is considered in violation of the Cyber Security Law, the Civil Code or other relevant laws
and regulations, we may not be able to use relevant data for our credit assessment and our business may be materially and adversely
affected.
15
Table of Contents
In addition to laws, regulations and other applicable rules regarding privacy and privacy advocacy, industry associations or other
private parties may propose new and different privacy standards. Because the interpretation and application of privacy and data
protection laws and privacy standards are still uncertain, it is possible that these laws or privacy standards may be interpreted and applied
in a manner that is inconsistent with our practices. Any inability to adequately address privacy concerns, even if unfounded, or to comply
with applicable privacy or data protection laws, regulations and privacy standards, could result in additional cost and liability to us,
damage our reputation, inhibit the use of our platform and harm our business.
The massive data that we have processed and stored makes us or the third-party service providers who host our servers a target
and potentially vulnerable to cyber-attacks, computer viruses, physical or electronic break-ins, or similar disruptions. While we have
taken steps to protect the confidential information that we have access to, our security measures could be breached. Because techniques
used to sabotage or obtain unauthorized access to systems change frequently and generally are not recognized until they are launched
against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. Any accidental or
willful security breaches or other unauthorized access to our platform could cause, among other things, confidential user information to
be stolen and used for criminal purposes, and could even result in misappropriation of funds of our users. Security breaches or
unauthorized access to confidential information could also expose us to liability related to the loss of the information and losses suffered
by our users from the misappropriation of funds, time-consuming and expensive litigation and negative publicity. If security measures are
breached because of any third-party action, employee error, malfeasance or otherwise, or if design flaws in our technology infrastructure
are exposed and exploited, our relationships with users could be severely damaged, we could incur significant liability and our business
and operations could be adversely affected.
In addition, we rely on the massive amount of data and user information that we have accumulated over time to conduct our
business. If these data are lost due to cyber-attacks, computer viruses, physical or electronic break-ins, or similar disruptions, our
business could be adversely affected.
Any significant disruption in our information technology systems, including events beyond our control, could prevent us
from offering our products and services, thereby reducing the availability of our products and services and result in a loss of users.
In the event of a system outage and physical data loss, our ability to provide our products and services would be materially and
adversely affected. The satisfactory performance, reliability and availability of our technology and our underlying network infrastructure
are critical to our operations, user service, reputation and our ability to attract new and retain existing users. Our information technology
systems infrastructure is currently deployed and our data is currently mainly maintained through third-party cloud computing services in
China. Our operations depend on the service provider’s ability to protect its and our systems in its facilities against damage or
interruption from natural disasters, power or telecommunications failures, air quality issues, environmental conditions, computer viruses
or attempts to harm our systems, criminal acts and similar events. Although historically we have not experienced any system outages
resulting in material interruption to our services, we cannot assure you that such incidents will not occur in the future. Moreover, if our
arrangement with the service provider is terminated or if there is a lapse of service or damage to their facilities, we could experience
interruptions in our service as well as delays and additional expense in arranging service to users.
Any interruptions or delays in our service, whether as a result of third-party error, our error, natural disasters or security
breaches, whether accidental or willful, could harm our relationships with our users and our reputation. We also may not have sufficient
capacity to recover all data and services in the event of an outage. These factors could prevent us from processing business operations,
damage our brands and reputation, divert our employees’ attention, reduce our revenue, subject us to liability and cause users to abandon
our products and services, any of which could adversely affect our business, financial condition and results of operations.
16
Table of Contents
The offering of our products and services depends on the effective use of mobile operating systems and the efficient
distribution through mobile app stores, which we do not control.
Our products and services are mainly offered through mobile apps. It is difficult to predict the problems we may encounter in
developing applications for newly released devices and platforms, and we may need to devote significant resources to the development,
support and maintenance of such applications. We are dependent on the interoperability of providing our products and services on
popular mobile operating systems that we do not control, such as Android and iOS, and any changes in such systems that degrade the
accessibility of our products and services or give preferential treatment to competing products and services could adversely affect the
usability of our products and services on mobile devices. In addition, we rely upon third-party mobile app stores for users to download
our mobile apps. As such, the promotion, distribution and operation of our mobile apps are subject to app stores’ standard terms and
policies for app developers.
Our future growth and results of operations could suffer if we experience difficulties in the future in offering our products and
services through our apps in mobile devices or if problems arise with respect to our relationships with providers of mobile operating
systems or mobile app stores, or if we have to incur increased costs to distribute or to have users access our apps on mobile devices. In
the event that it is more difficult for our users to access and utilize our products and services on their mobile devices, or if our users
choose not to access or use our products and services on their mobile devices or to use mobile operating systems that do not offer access
to our products and services, our user growth could be harmed and our business and financial condition and operating results may be
adversely affected.
Our operations depend on the performance of the internet infrastructure and telecommunications networks in China.
Almost all access to the internet in China is maintained through state-owned telecommunication operators under the
administrative control and regulatory supervision of the Ministry of Industry and Information Technology, or the MIIT. Our system’s
infrastructure is currently deployed and our data is currently mainly maintained on third-party cloud computing services platform. Our
cloud computing service provider may rely on a limited number of telecommunication service providers to provide it with data
communications capacity through local telecommunications lines and internet data centers to host its servers. Such service provider may
have limited access to alternative networks or services in the event of disruptions, failures or other problems with China’s internet
infrastructure or the fixed telecommunication networks provided by telecommunication service providers. With the expansion of our
business, we may be required to upgrade our technology and infrastructure to keep up with increasing traffic. We cannot assure you that
our cloud computing service provider and the underlying internet infrastructure and the fixed telecommunication networks in China will
be able to support the demands associated with the continued growth in internet usage.
In addition, we have no control over the costs of the services provided by telecommunication service providers which in turn,
may affect our costs of utilizing customized cloud computing services. If the prices we pay for third-party cloud computing services rise
significantly, our results of operations may be adversely affected. Furthermore, if internet access fees or other charges to internet users
increase, our user traffic may decline and our business may be harmed.
Our platform and internal systems rely on software that is highly technical, and if it contains undetected errors, our business
could be adversely affected.
Our platform and internal systems rely on software that is highly technical and complex. In addition, our platform and internal
systems depend on the ability of such software to store, retrieve, process and manage immense amounts of data. The software on which
we rely has contained, and may now or in the future contain, undetected errors or bugs. Some errors may only be discovered after the
code has been released for external or internal use. Errors or other design defects within the software on which we rely may result in a
negative experience for users using our platform, delay introductions of new features or enhancements, result in errors or compromise
our ability to protect user data or our intellectual property. Any errors, bugs or defects discovered in the software on which we rely could
result in harm to our reputation, loss of users or liability for damages, any of which could adversely affect our business, results of
operations and financial condition.
17
Table of Contents
Our products and services contain open-source software, which may pose particular risks to our proprietary software,
products and services in a manner that negatively affect our business.
We use open-source software in our products and services and will use open-source software in the future. There is a risk that
open-source software licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to
provide or distribute our products or services. Additionally, we may face claims from third parties claiming ownership of, or demanding
release of, the open-source software or derivative works that we developed using such software. These claims could result in litigation
and could require us to make our software source code freely available, purchase a costly license or cease offering our products or
services unless and until we can re-engineer them to avoid infringement. This re-engineering process could require significant additional
research and development resources, and we may not be able to complete it successfully.
Furthermore, because any software source code we contribute to open-source projects is publicly available, our ability to protect
our intellectual property rights with respect to such software source code may be limited or lost entirely. As a result, we may be unable to
prevent our competitors or others from using such software source code contributed by us.
We may not be able to prevent unauthorized use of our intellectual property and may be subject to intellectual property
infringement claims, which could reduce demand for our services, adversely affect our revenues and harm our competitive position.
We rely primarily on a combination of copyright, trademark and trade secret laws and contractual rights to establish and protect
our intellectual property rights in our services, credit risk management procedures and policies and other aspects of our business. The
steps we have taken or will take in the future to protect our intellectual property from infringement, misappropriation or piracy may be
insufficient. Implementation of intellectual property-related laws in China has historically been lacking, primarily due to ambiguity in the
PRC laws and enforcement difficulties. Accordingly, intellectual property rights and confidentiality protection in China may not be as
effective as in the United States or other countries. As of the date of this annual report, we have registered a series of trademarks material
to our business under our name in the PRC, including “
trademark registrations in Indonesia, Thailand and Vietnam. Current or potential competitors may use our intellectual property without
our authorization in the development and marketing of services that are substantially equivalent or superior to ours, which could reduce
demand for our services, adversely affect our revenues and harm our competitive position.
.” In addition, we are in the process of applying for
“and “
Even if we were to discover evidence of infringement or misappropriation, our recourse against such competitors may be
limited or could require us to pursue litigation, which could involve substantial costs and diversion of management’s attention from the
operation of our business.
We may be subject to intellectual property infringement claims, which may be expensive to defend and may disrupt our
business and operations.
We cannot be certain that our operations or any aspects of our business do not or will not infringe upon or otherwise violate
trademarks, patents, copyrights, know-how or other intellectual property rights held by third parties. We may be from time to time in the
future subject to legal proceedings and claims relating to the intellectual property rights of others. In addition, there may be third-party
trademarks, patents, copyrights, know-how or other intellectual property rights that are infringed by our products, services or other
aspects of our business without our awareness. Holders of such intellectual property rights may seek to enforce such intellectual property
rights against us in China, the United States or other jurisdictions. If any third-party infringement claims are brought against us, we may
be forced to divert management’s time and other resources from our business and operations to defend against these claims, regardless of
their merits.
Additionally, the application and interpretation of China’s intellectual property right laws and the procedures and standards for
granting trademarks, patents, copyrights, know-how or other intellectual property rights in China are still evolving and are uncertain, and
we cannot assure you that PRC courts or regulatory authorities would agree with our analysis. If we were found to have violated the
intellectual property rights of others, we may be subject to liability for our infringement activities or may be prohibited from using such
intellectual property, and we may incur licensing fees or be forced to develop alternatives of our own. As a result, our business and
results of operations may be materially and adversely affected.
18
Table of Contents
We may be held liable for information or content displayed on, retrieved from or linked to our websites and mobile
applications, which may materially and adversely affect our business and operating results.
The PRC government has adopted regulations governing the distribution of content over the internet. Under these regulations,
internet content providers are prohibited from posting or displaying over the internet any content that, among other things, violates PRC
laws and regulations, impairs the national dignity of China or the public interest, or is obscene, superstitious, frightening, gruesome,
offensive, fraudulent or defamatory. In addition to our website, we also offer our products and services through our mobile applications,
which are regulated by the Administrative Provisions on Mobile Internet Applications Information Services, or the APP Provisions,
promulgated by the Cyberspace Administration of China, or the CAC, on June 28, 2016 and effective on August 1, 2016. According to
the APP Provisions, the providers of mobile applications shall not create, copy, publish or distribute information and content that is
prohibited by laws and regulations. See “Item 4. Information on the Company—B. Business Overview—Regulations—Regulations
Related to Value-added Telecommunication Services—Regulations related to mobile internet applications information services.” At the
end of 2019, the CAC issued the Provisions on the Management of Network Information Content Ecology, or the CAC Order No.5,
which became effective on March 1, 2020, to further strengthen the regulation and management of network information content. See
“Item 4. Information on the Company—B. Business Overview—Regulations—Regulations Related to Information Security, Censorship
and Privacy—Regulations related to internet security.” “We have implemented internal control procedures screening the information and
content on our websites and mobile applications to ensure their compliance with the APP Provisions and CAC Order No. 5. However, we
cannot assure that all the information or content displayed on, retrieved from or linked to our websites and mobile applications complies
with the requirements of the PRC laws and regulations at all times. If our websites or mobile applications were found to be violating the
PRC laws and regulations, we may be subject to administrative penalties, including warning, service suspension or removal of our
mobile applications from the relevant mobile application store, which may materially and adversely affect our business and operating
results.
From time to time, we may evaluate and potentially consummate strategic investments or acquisitions, which could require
significant management attention, disrupt our business and adversely affect our financial results.
We may evaluate and consider strategic investments, combinations, acquisitions or alliances to further increase the value of our
platform and better serve our users. These transactions could be material to our financial condition and results of operations if
consummated. If we are able to identify an appropriate business opportunity, we may not be able to successfully consummate the
transaction and, even if we do consummate such a transaction, we may be unable to obtain the benefits or avoid the difficulties and risks
of such transaction.
Strategic investments or acquisitions will involve risks commonly encountered in business relationships, including:
● difficulties in assimilating and integrating the operations, personnel, systems, data, technologies, rights, platform,
products and services of the acquired business;
● inability of the acquired technologies, products or businesses to achieve expected levels of revenue, profitability,
productivity or other benefits;
● difficulties in retaining, training, motivating and integrating key personnel;
● diversion of management’s time and resources from our daily operations;
● difficulties in maintaining uniform standards, controls, procedures and policies within the combined organizations;
● difficulties in retaining relationships with customers, employees and suppliers of the acquired business;
● risks of entering markets in which we have limited or no prior experience;
● regulatory risks, including remaining in good standing with existing regulatory bodies or receiving any necessary pre-
closing or post-closing approvals, as well as being subject to new regulators with oversight over an acquired business
both domestically and overseas;
19
Table of Contents
● assumption of contractual obligations that contain terms that are not beneficial to us, require us to license or waive
intellectual property rights or increase our risk for liability;
● failure to successfully further develop the acquired technology;
● liability for activities of the acquired business before the acquisition, including intellectual property infringement
claims, violations of laws, commercial disputes, tax liabilities and other known and unknown liabilities;
● lack of sufficient influential power over the business we invest;
● potential disruptions to our ongoing businesses; and
● unexpected costs and unknown risks and liabilities associated with strategic investments or acquisitions.
We may not make any investments or acquisitions, or any future investments or acquisitions may not be successful, may not
benefit our business strategy, may not generate sufficient revenues to offset the associated acquisition costs or may not otherwise result in
the intended benefits. For example, in 2016, we acquired a majority of equity interest in Fuyuan Securities Limited (formerly known as
9F Primasia Securities Limited), a company incorporated in Hong Kong, to offer stock investment products. In 2019, we made
prepayments to acquire the equity interest in Hubei Consumer Finance Company, and completed the acquisition of 24.47% equity
interest in Hubei Consumer Finance Company in 2020. There is no assurance that these new investments or acquisitions will prove to be
successful and we are subject to government rules and regulations which are evolving and subject to uncertainty. In addition, we cannot
assure you that any future investment in or acquisition of new businesses or technology will lead to the successful development of new or
enhanced products and services or that any new or enhanced products and services, if developed, will achieve market acceptance or
prove to be profitable.
Our planned expansion into more overseas markets and our operations in the existing overseas markets could fail, reduce
operating results and expose us to increased risks associated with different market dynamics and competition in the overseas markets.
We may face many new obstacles in our planned expansion into more overseas markets and our operations in the existing
overseas markets. For example, we started to offer offshore stock investments and insurance brokerage services in Hong Kong in 2016.
We have established, and are actively expanding our businesses overseas especially in Southeast Asian countries, and have obtained a
few key financial services licenses in Southeast Asia. These markets are untested for our products and services, and we face risks in
expanding our businesses overseas or operating in the existing overseas markets, which include economic, regulatory, legal and political
risks inherent in doing businesses overseas, operations and sales in other jurisdictions, including challenges caused by distance and
linguistic and cultural differences, the potential for longer collection periods and for difficulty in collecting accounts receivable and
enforcing contractual obligations, fluctuations in currency exchange rates, unanticipated changes in laws or regulatory requirements,
including tariffs or other barriers to trade, and the potential for political, legal and economic instability. For example, the COVID-19
pandemic has caused significant disruptions to the economic development in Southeast Asian countries, which could negatively affect
our business operation and future development in this region. See “—Our business, financial condition and results of operations have
been and are likely to continue to be materially and adversely affected by the outbreak of COVID-19.” We may not be as successful as
our competitors in generating revenues in overseas markets due to the lack of recognition of our products and services or other factors.
Developing product recognition overseas is expensive and time-consuming and our international expansion efforts may be more costly
and less profitable than we expect. If we are not successful in our existing or target overseas markets, our sales could decline, our
margins could be negatively impacted and we could lose market share, any of which could materially harm our business, results of
operations and profitability.
20
Table of Contents
For example, we started to offer offshore stock investments and insurance brokerage services in Hong Kong in 2016. We are
licensed or registered with the Securities and Futures Commission of Hong Kong, or the SFC, to carry out Type 1 (dealing in securities),
Type 4 (advising on securities), Type 5 (advising on corporate finance) and Type 9 (asset management) regulated activities under the
Securities and Futures Ordinance (Cap. 571) of Hong Kong, or the SFO. There are already established players in these industries. These
entities are in direct competition with us and include not only the multi-national financial institutions but also local firms. Our directors
believe that competition in the industry rests on (i) the quality of services and advice provided to clients; (ii) the expertise and reputation
of the licensed corporation; and (iii) business network and connections of the licensed corporation. There is no assurance that we will be
able to uphold our competitive strengths. Any intensified competition may result in our loss of market share, and could materially harm
our business, results of operations and profitability.
We are subject to potential exposure to allegations of professional misconduct liability with respect to our business
operations in Hong Kong.
Our business operations in Hong Kong involves the provision of professional advice to clients on stock investments by
professional staff. A client who suffers loss due to such client’s reliance on the advice given by our subsidiary, Fuyuan Securities Limited
may have a legal cause of action against Fuyuan Securities Limited or us for damages, compensation and/or other relief.
Although we have adopted certain relevant internal control measures to minimize the risk of professional negligence and/or
employee infidelity with respect to our operation in Hong Kong, there is no assurance that these risks can be completely eliminated with
respect to our operation in Hong Kong. Furthermore, as we do not maintain any insurance for allegations relating to professional
negligence or employee infidelity, we are exposed to potential liabilities resulting from these allegations.
If there is any allegation of professional negligence and/or employee infidelity brought against us, we may be exposed to legal
and/or other proceedings in Hong Kong which may result in substantial costs and diversion of resources and management’s attention. It
may also have an adverse impact on our profitability, financial position and reputation.
We are subject to extensive regulatory requirements with respect to our business operations in Hong Kong and Southeast
Asia countries, non-compliance with which, or changes in these regulatory requirements, may affect our business operations and
financial results.
The Hong Kong financial market in which we operate is highly regulated. There are changes in rules and regulations from time
to time in relation to the regulatory regime for the financial service industry, including, but not limited to, the SFO, the Companies
Ordinance (prior to its repeal and replacement on March 3, 2014 by the Companies Ordinance and the Companies (WUMP) Ordinance),
the Securities and Futures (Financial Resources) Rules, the Rules Governing the Listing of Securities and The Hong Kong Codes on
Takeovers and Mergers and Share Buy-backs issued by the SFC, all as amended, supplemented or otherwise modified from time to time.
Any such changes in the relevant rules and regulations may result in an increase in our cost of compliance, or might restrict our business
activities. If we fail to comply with these applicable rules and regulations from time to time, we may face fines or restrictions on our
business activities or even suspension or revocation of some or all of our licenses for carrying on our business activities.
Furthermore, we are required to be licensed with the relevant regulatory authorities including without limitation, as licensed
corporations under the SFO. In this respect, we have to ensure continuous compliance with all applicable laws, regulations and
guidelines, and satisfy the SFC, the Hong Kong Stock Exchange and/or other regulatory authorities that we remain fit and proper to be
licensed. If there is any change or tightening of the relevant laws, regulations and guidelines, it may materially and adversely affect our
business operations.
21
Table of Contents
We may be subject to regulatory inspection and investigations from time to time. With respect to SFC investigations, we may be
subject to secrecy obligations under the SFO whereby we are not permitted to disclose certain information relating to the SFC
investigations. In addition, unless we are specifically named as the party that is being investigated under the SFO investigation, we
generally do not know whether we, any member of our staff, or any of our respective directors, our responsible officers, our licensed
representatives or our staff is the subject of SFC investigations. If the results of the inspections or investigations reveal misconduct, the
SFC may take disciplinary actions such as revocation or suspension of licenses, public or private reprimand or imposition of pecuniary
penalties against us, our responsible officers or licensed representative and/or any of our staff. Any disciplinary actions taken against us
or penalties imposed on us, our directors, responsible officers, licensed representatives or relevant staff could have an adverse impact on
our business operations and financial results.
In addition, our operations in Southeast Asia countries are subject to licensing and other regulatory requirements as well, the
compliance of which will incur additional costs. For example, we have obtained the P2P license in Indonesia approved by OJK, and our
Indonesian joint venture company has had its Multi-Finance license conditionally approved by OJK pending completion of the joint
venture shareholding structure change and operational readiness assessment; further, we have cooperated with our partners to hold a
personal loan license (unsecured personal loan), Nano loan license (unsecured business owner loan) approved by Bank of Thailand and
e-commerce license (e-commerce retail business) in Thailand. However, we cannot assure you that we can successfully maintain such
licenses or continue to obtain licenses necessary to satisfy the needs of our business operations in those countries. If we fail to maintain
our current licenses or continue to obtain new licenses as required, our business operations and developments in Southeast Asian
countries may be negatively impacted, so does our results of operations and financial status.
We have granted share options, and may continue to grant share options and other types of awards under our equity
incentive plans, which may result in increased share-based compensation expenses.
As of April 30, 2021, options to purchase a total of 33,626,808 Class A ordinary shares of our company were granted to our
managements and employees and are outstanding. We recorded RMB508.2 million, RMB353.2 million and RMB290.6 million (US$44.5
million) in 2018, 2019 and 2020, respectively, in share-based compensation expenses. We believe the grant of share options and other
types of awards is of significant importance to our ability to attract and retain key personnel and employees, and we will continue to
grant share options and other types of awards to employees in the future. As a result, our expenses associated with share-based
compensation may increase, which may have an adverse effect on our results of operations.
We may not be able to obtain additional capital on favorable terms or at all.
We anticipate that our current cash, cash provided by operating activities and funds available through our bank loans and credit
facilities, will be sufficient to meet our current and anticipated needs for general corporate purposes for at least the next 12 months.
However, we need to make continued investments in facilities, hardware, software, technological systems and to retain talent to remain
competitive. Due to the unpredictable nature of the capital markets and the industries we are operating in, we cannot assure you that we
will be able to raise additional capital on terms favorable to us, or at all, if and when required, especially if we experience disappointing
operating results. If adequate capital is not available to us as required, our ability to fund our operations, take advantage of unanticipated
opportunities, develop or enhance our infrastructure or respond to competitive pressures could be significantly limited, which would
adversely affect our business, financial condition and results of operations. If we do raise additional funds through the issuance of equity
or convertible debt securities, the ownership interests of our shareholders could be significantly diluted. These newly issued securities
may have rights, preferences or privileges senior to those of existing shareholders.
Our quarterly results may fluctuate significantly and may not fully reflect the underlying performance of our business.
Our quarterly results of operations, including the levels of our net revenues, expenses, net (loss)/income and other key metrics,
may vary significantly in the future due to a variety of factors, some of which are outside of our control, and period-to-period
comparisons of our operating results may not be meaningful. Accordingly, the results for any one quarter are not necessarily an
indication of future performance. Fluctuations in quarterly results may adversely affect the market price of our ADSs. Factors that may
cause fluctuations in our quarterly financial results include but not limited to the following:
● our ability to attract new users and partners and maintain relationships with existing ones;
22
Table of Contents
● the amount and timing of operating expenses related to acquiring users and the maintenance and expansion of our
business, operations and infrastructure;
● network outages or security breaches;
● general economic, regulatory, industry and market conditions;
● our emphasis on user experience instead of near-term growth; and
● the timing of expenses related to the development or acquisition of technologies or businesses.
In addition, we may experience seasonality in our business, reflecting seasonal fluctuations in internet usage and traditional
personal consumption patterns. While our rapid growth has somewhat masked this seasonality, our results of operations could be affected
by such seasonality in the future.
Our business depends on the continued efforts of our senior management. If one or more of our key executives were unable
or unwilling to continue in their present positions, our business may be severely disrupted.
Our business operations depend on the continued services of our senior management, particularly the executive officers named
in this annual report. While we have provided different incentives to our management, we cannot assure you that we can continue to
retain their services. If one or more of our key executives were unable or unwilling to continue in their present positions, we may not be
able to replace them easily or at all and we may incur additional expenses to recruit, train and retain qualified personnel, our future
growth may be constrained, our business may be severely disrupted and our financial condition and results of operations may be
materially and adversely affected.
Furthermore, we started to offer offshore stock investments and insurance brokerage services in Hong Kong in 2016. Under the
licensing requirements of the SFO, our licensed corporation, Fuyuan Securities Limited, is required to maintain at least two responsible
officers to supervise one or more regulated activities as required under the SFO for each type of regulated activities. As of March 31,
2021, we have six responsible officers to supervise Type 1 (dealing in securities) activities, five responsible officers for Type 4 (advising
on securities) and Type 9 (asset Management) activities, and three responsible officers to supervise Type 5 (advising on futures contracts)
activities under the SFO, and are in compliance with the relevant laws and regulations in Hong Kong. In the event that such responsible
officers resign, become disqualified or otherwise ineligible to continue their role as responsible officers, and if there is no immediate and
adequate replacement, this may result in a situation where one or more of the four regulated activities have fewer than two responsible
officers. In this case, we will be in breach of the relevant licensing requirements which could adversely affect our licensed corporations’
status, and our business and financial performance will be negatively impacted.
In addition, there is no assurance that any member of our management team will not join our competitors or form a competing
business. If any dispute arises between our current or former officers and us, we may have to incur substantial costs and expenses in
order to enforce such agreements in China and Hong Kong or we may be unable to enforce them at all.
Competition for employees is intense, and we may not be able to attract and retain the qualified and skilled employees needed
to support our business.
We believe our success depends on the efforts and talent of our employees, including software engineering, financial and
marketing personnel. Our future success depends on our continued ability to attract, develop, motivate and retain qualified and skilled
employees. Competition for highly skilled technical and financial personnel is extremely intense. We may not be able to hire and retain
these personnel at compensation levels consistent with our existing compensation and salary structure. Some of the companies with
which we compete for experienced employees have greater resources than we have and may be able to offer more attractive terms
of employment.
23
Table of Contents
In addition, we invest significant time and expenses in training our employees, which increases their value to competitors who
may seek to recruit them. If we fail to retain our employees, we could incur significant expenses in hiring and training new employees,
and the quality of our services and our ability to serve users could diminish, resulting in a material adverse effect to our business.
Increases in labor costs in the PRC, Hong Kong and elsewhere in the world where we have operations may adversely affect
our business and results of operations.
The economy in China has experienced increases in inflation and labor costs in recent years. As a result, average wages in the
PRC are expected to continue to increase. In addition, we are required by PRC laws and regulations to pay various statutory employee
benefits, including pension, housing fund, medical insurance, work-related injury insurance, unemployment insurance and maternity
insurance to designated government agencies for the benefit of our employees. The requirement of employee benefit plans has not been
implemented consistently by the local governments in the PRC given the different levels of economic development in different locations.
We have not made adequate employee benefit payments for some of our employees, and we may be required to make up the
contributions for these plans as well as to pay late fees and fines. If we are subject to late fees or fines in relation to the underpaid
employee benefits, our financial condition and results of operations may be adversely affected. We expect that our labor costs, including
wages and employee benefits, will continue to increase. Unless we are able to control our labor costs or pass on these increased labor
costs to our users by increasing the fees of our services, our financial condition and results of operations may be adversely affected.
In addition, increases in labor costs in Hong Kong and elsewhere in the world where we have operations may also have a
negative impact on our business and results of operations. For example, our licensed staff is essential to the Hong Kong business
operations as we rely on their expertise to provide the relevant services. If competition for these licensed professionals intensifies, the
costs to retain and recruit them may increase. Furthermore, our business expansion in Hong Kong, Southeast Asia and elsewhere in the
world is also expected to increase our labor costs in the future, which may adversely affect our business and results of operations.
If we cannot maintain our corporate culture as we grow, our capabilities of innovation, collaboration and focus that
contribute to our business may be compromised.
We believe that a critical component of our success is our corporate culture, which we believe fosters innovation, encourages
teamwork and cultivates creativity. As we develop the infrastructure of a public company and grow, we may find it difficult to maintain
these valuable aspects of our corporate culture. Any failure to preserve our culture could negatively impact our future success, including
our ability to attract and retain employees, encourage innovation and teamwork and effectively focus on and pursue our corporate
objectives.
We may not have enough business insurance coverage.
Insurance companies in China currently do not offer as extensive an array of insurance products as insurance companies in more
developed economies. Currently, we do not have any business liability or disruption insurance to cover our operations. We have
determined that the costs of insuring for these risks and the difficulties associated with acquiring such insurance on commercially
reasonable terms make it impractical for us to have such insurance. Any uninsured business disruptions may result in our incurring
substantial costs and the diversion of resources, which could have an adverse effect on our results of operations and financial condition.
Our use of some leased properties could be challenged by third parties or government authorities, which may cause
interruptions to our business operations.
As of the date of this annual report, we leased properties for most of our offices and branch offices. The lessors of some leased
properties have not been able to provide proper ownership certificates for the properties we lease or prove their rights to sublease the
properties to us. If our lessors are not the owners of the properties and they have not obtained consents from the owners or their lessors or
permits from the relevant government authorities, our leases could be invalidated. We may have to renegotiate the leases with the owners
or the parties who have the right to lease the properties, and the terms of the new leases may be less favorable to us. In addition, our
leasehold interests in leased properties have not been registered with relevant PRC government authorities as required by PRC law,
which may expose us to potential fines of up to RMB10,000 per unit leasehold.
24
Table of Contents
As of the date of this annual report, we are not aware of any claims or actions being contemplated or initiated by government
authorities, property owners or any other third parties with respect to our leasehold interests in or use of such properties. However, we
cannot assure you that our use of such leased properties will not be challenged. In the event that our use of properties is successfully
challenged, we may be subject to fines and forced to relocate the affected operations. In addition, we may become involved in disputes
with the property owners or third parties who otherwise have rights to or interests in our leased properties. We can provide no assurance
that we will be able to find suitable replacement sites on terms acceptable to us on a timely basis, or at all, or that we will not be subject
to material liability resulting from third parties’ challenges on our use of such properties. As a result, our business, financial condition
and results of operations may be materially and adversely affected.
If our preferential tax treatments are revoked, become unavailable or if the calculation of our tax liability is successfully
challenged by the PRC tax authorities, we may be required to pay tax, interest and penalties in excess of our tax provisions, and our
results of operations could be materially and adversely affected.
The PRC government has provided various tax incentives to our subsidiaries, variable interest entities and their respective
subsidiaries. These incentives include reduced enterprise income tax rates and exemptions from enterprise income tax. For example,
under the relevant PRC tax laws, the statutory enterprise income tax rate is 25%. However, the income tax rate of an enterprise that has
been determined to be a “high and new technology enterprise” can be reduced to a favorable rate of 15%. In addition, the income tax rate
of enterprises of encouraged industries in certain regions or enterprises qualified as “small enterprises with low profits” can be reduced to
a favorable rate of 20%. Several of our subsidiaries, variable interest entities and their respective subsidiaries are either subject to the
favorable income tax rate of 15%, 20% or have been exempted from the enterprise income tax for a certain period. For details, please
refer to “Item 5. Operating and Financial Review and Prospects—Taxation—China.” Any increase in the enterprise income tax rate
applicable to our subsidiaries, variable interest entities and their respective subsidiaries, or any discontinuation or retroactive or future
reduction of any of the favorable tax treatments currently enjoyed by our subsidiaries, variable interest entities and their respective
subsidiaries, could materially and adversely affect our business, financial condition and results of operations. In addition, in the ordinary
course of our business, we are subject to complex income tax and other tax regulations and significant judgment is required in the
determination of a provision for income taxes. Furthermore, competent PRC tax authorities may conduct tax audits on our subsidiaries,
variable interest entities and their respective subsidiaries, and may also challenge our calculation of tax liability. Although we believe our
tax provisions are reasonable, if the PRC tax authorities successfully challenge our position and we are required to pay tax, interest and
penalties in excess of our tax provisions, our financial condition and results of operations would be materially and adversely affected.
In connection with the audit of our consolidated financial statements included in this annual report, we and our independent
registered public accounting firm identified three material weaknesses in our internal control over financial reporting. If we fail to
develop and maintain an effective system of internal control over financial reporting, we may be unable to accurately report our
financial results or prevent fraud.
Our independent registered public accounting firm has not conducted an audit of our internal control over financial reporting.
However, in connection with the audit of our consolidated financial statements as of December 31, 2020 and for the year ended
December 31, 2020, we and our independent registered public accounting firms identified three material weaknesses in our internal
control over financial reporting. As defined in the standards established by the U.S. Public Company Accounting Oversight Board, or
PCAOB, a “material weakness” is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that
there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or
detected on a timely basis.
25
Table of Contents
One material weakness that has been identified related to the lack of sufficient financial reporting and accounting personnel with
appropriate U.S. GAAP knowledge and SEC reporting requirements to properly address complex U.S. GAAP technical accounting
issues and to prepare and review financial statements and related disclosures in accordance with U.S. GAAP and financial reporting
requirements set forth by the SEC. The other two material weaknesses that have been identified related to the lack of timely and
appropriate detailed account analysis and related account reconciliation in the Company’s close process, and the lack of documentation in
support of the Company’s key process flows and related key internal control policies and procedures as well as documentation of the
Company’s critical accounting estimates and the procedures it has completed to ensure compliance with U.S. GAAP. Either of these
material weaknesses, if not timely remedied, may lead to significant misstatements in our consolidated financial statements in the future.
Neither we nor our independent registered public accounting firm undertook a comprehensive assessment of our internal control under
the Sarbanes-Oxley Act for purpose of identifying and reporting any material weaknesses in our internal control over financial reporting.
Had we performed a formal assessment of our internal control over financial reporting or had our independent registered public
accounting firm performed an audit of our internal control over financial reporting, additional deficiencies may have been identified.
Following the identification of the material weaknesses, we have taken measures and plan to continue to take measures to
remedy these material weaknesses. See “Item 15. Controls and Procedures—Internal Control over Financial Reporting.” However, we
cannot assure you that the implementation of these measures will be sufficient to eliminate such material weaknesses, or that material
weaknesses or significant deficiencies in our internal control over financial reporting will not be identified in the future. Our failure to
correct these material weaknesses or our failure to discover and address any other material weaknesses or significant deficiencies could
result in inaccuracies in our financial statements and impair our ability to comply with applicable financial reporting requirements and
related regulatory filings on a timely basis. Moreover, ineffective internal control over financial reporting could significantly hinder our
ability to prevent fraud.
Furthermore, it is possible that, had our independent registered public accounting firm conducted an audit of our internal control
over financial reporting, it may have identified additional material weaknesses and significant deficiencies. We are subject to the
Sarbanes-Oxley Act of 2002. Section 404 of the Sarbanes-Oxley Act, or Section 404, requires that we include a report from management
on the effectiveness of our internal control over financial reporting in our annual report on Form 20-F. In addition, once we cease to be an
“emerging growth company” as such term is defined in the JOBS Act, our independent registered public accounting firm must attest to
and report on the effectiveness of our internal control over financial reporting. Our management may conclude that our internal control
over financial reporting is not effective. Moreover, even if our management concludes that our internal control over financial reporting is
effective, our independent registered public accounting firm, after conducting its own independent testing, may issue a report that is
qualified if it is not satisfied with our internal controls or the level at which our controls are documented, designed, operated or reviewed,
or if it interprets the relevant requirements differently from us. In addition, as we are now a public company, our reporting obligations
have required additional attention from our management, operational and financial resources and systems. We may be unable to timely
complete our evaluation testing and any required remediation.
During the course of documenting and testing our internal control procedures, in order to satisfy the requirements of
Section 404, we may identify other material weaknesses and significant deficiencies in our internal control over financial reporting. In
addition, if we fail to maintain the adequacy of our internal control over financial reporting, as these standards are modified,
supplemented or amended from time to time, we may not be able to conclude on an ongoing basis that we have effective internal control
over financial reporting in accordance with Section 404. If we fail to achieve and maintain an effective internal control environment, we
could suffer material misstatements in our consolidated financial statements and fail to meet our reporting obligations, which would
likely cause investors to lose confidence in our reported financial information. This could in turn limit our access to capital markets,
harm our results of operations, and lead to a decline in the trading price of the ADSs. Additionally, ineffective internal control over
financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the
stock exchange on which we list, regulatory investigations and civil or criminal sanctions. We may also be required to restate our
consolidated financial statements for prior periods.
26
Table of Contents
We face risks related to natural disasters, health epidemics and other calamities, which could significantly disrupt our
operations.
In addition to COVID-19, our business could be materially and adversely affected by natural disasters, other health epidemics or
other calamities. Fire, floods, typhoons, earthquakes, power loss, telecommunications failures, break-ins, hacking, war, riots, terrorist
attacks or similar events may give rise to server interruptions, breakdowns, system failures, technology platform failures or internet
failures, which could cause the loss or corruption of data or malfunctions of software or hardware as well as adversely affect our ability
to provide products and services on our platform.
Our business could also be adversely affected by the effects of epidemics. In recent years, there have been breakouts of
epidemics in and outside China, such as the Ebola virus disease, H1N1 flu, avian flu and the recent COVID-19 pandemic. Our business
operations could be disrupted if any of our employees is suspected of having such epidemic, since it could require our employees to be
quarantined and/or our offices to be disinfected. In addition, our results of operations could be adversely affected to the extent that any of
these epidemics harms the Chinese economy in general.
Our headquarters are located in Beijing, where most of our directors and management and a large majority of our employees
currently reside. In addition, most of our system hardware and back-up systems are hosted in Beijing and Hangzhou. We also conduct our
online wealth management products related business from our Beijing headquarters and Hong Kong branches. We conduct our stock
investment businesses in Hong Kong with support provided by a research and development center in Shenzhen. Consequently, we are
highly susceptible to factors adversely affecting Beijing, Hangzhou, Shenzhen and Hong Kong. If any of the abovementioned natural
disasters, health epidemics or other calamities were to occur in such cities or other cities where we may have material operations, our
operations may experience material disruptions, such as temporary closure of our offices and suspension of services, which may
materially and adversely affect our business, financial condition and results of operations.
Risks Related to Our Corporate Structure
If the PRC government deems that the contractual arrangements in relation to our consolidated affiliated entities do not
comply with PRC regulatory restrictions on foreign investment in the relevant industries, or if these regulations or the interpretation
of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those
operations.
Foreign ownership of value-added telecommunication businesses, such as online data processing and transaction processing
services and internet information services, is subject to restrictions under current PRC laws and regulations. For example, foreign
investors are generally not allowed to own more than 50% of the equity interests in a value-added telecommunication service provider
except for those engaged in e-commerce businesses, domestic multi-party communications services businesses, store-and-forward
businesses and call center businesses, which may be 100% owned by foreign investors, and any such foreign investor must have
experience in providing value-added telecommunications services overseas and maintain a good track record in accordance with the
Special Administrative Measures for Entry of Foreign Investment (Negative List) (2020 Version), or the Negative List, which became
effective on July 23, 2020 and replaced the previous negative list, and other applicable laws and regulations.
We are a Cayman Islands exempted company and our PRC subsidiaries are considered foreign invested enterprises. Our wholly
foreign-owned PRC subsidiaries are currently not eligible to apply for the required licenses for providing value-added
telecommunication services that foreign ownership and investment is restricted in China. The online services offered by us in China
constitute a type of value-added telecommunication service that foreign ownership and investment is restricted and therefore we should
provide these services through a variable interest entity to ensure compliance with the relevant PRC laws and regulations. We set up a
series of contractual arrangements entered into among our certain PRC Subsidiaries, each of Jiufu Shuke, Beijing Puhui, Zhuhai Lianyin,
Yi Qi Mai and Shenzhen Fuyuan (collectively, the “consolidated affiliated entities” or “VIEs”), and the shareholders of each consolidated
affiliated entity to conduct our principal operations in China. For a detailed description of these contractual arrangements, see “Corporate
History and Structure.” As a result of these contractual arrangements, we exert control over our consolidated affiliated entities and their
subsidiaries and consolidate their operating results in our financial statements under U.S. GAAP.
27
Table of Contents
In the opinion of our PRC counsel, Han Kun Law Offices, our current ownership structure, the ownership structure of our
consolidated affiliated entities and their subsidiaries, and the contractual arrangements among certain of our PRC Subsidiaries, our
consolidated affiliated entities and the shareholders of our consolidated affiliated entities are not in violation of any explicit provisions of
the existing PRC laws, regulations and rules; and these contractual arrangements are valid, binding and enforceable in accordance with
their terms and applicable PRC laws and regulations currently in effect. However, Han Kun Law Offices has also advised us that there
are substantial uncertainties regarding the interpretation and application of current or future PRC laws and regulations and there can be
no assurance that the PRC government will ultimately take a view that is consistent with the opinion of our PRC counsel.
It is uncertain whether any new PRC laws, regulations or rules relating to the “variable interest entity” structure will be adopted
and if adopted, what they would provide. In particular, on January 1, 2020, the PRC Foreign Investment Law and the Regulations for
Implementation of the Foreign Investment Law of the People’s Republic of China, or the Implementation Regulations, came into effect.
Although the PRC Foreign Investment Law and the Implementation Regulations do not explicitly classify contractual arrangements as a
form of foreign investment, the definition of the “foreign investment” under the PRC Foreign Investment Law contains a catch-all
provision providing that investments made by foreign investors through other methods specified in laws or administrative regulations or
other methods prescribed by the State Council, which leaves leeway for future laws, administrative regulations or provisions
promulgated by the Stale Council to provide for contractual arrangements as a method of foreign investment. On December 26, 2019, the
Supreme People’s Court issued the Interpretations on Certain Issues Regarding the Applicable of Foreign Investment Law, or the FIL
Interpretations, which came into effect on January 1, 2020. In accordance with the FIL Interpretations, where a party concerned claims an
investment agreement to be invalid on the basis that it is for investment in prohibited or restricted industries under the negative list and
violates the restrictions set out therein, the courts should support such claim. Therefore, there is no assurance that foreign investment via
contractual arrangement would not be interpreted as a type of indirect foreign investment activities in the future. If the ownership
structure, contractual arrangements and business of our company, our PRC subsidiaries or our consolidated affiliated entities are found to
be in violation of any existing or future PRC laws or regulations, or we fail to obtain or maintain any of the required permits or
approvals, the relevant governmental authorities would have broad discretion in dealing with such violation, including levying fines,
confiscating our income or the income of our consolidated affiliated entities and their subsidiaries, revoking the business licenses or
operating licenses of our consolidated affiliated entities and their subsidiaries, shutting down our servers, websites or apps, discontinuing
or placing restrictions or onerous conditions on our operations, requiring us to undergo a costly and disruptive restructuring, restricting or
prohibiting our use of proceeds from our offerings to finance our business and operations in China, and taking other regulatory or
enforcement actions that could be harmful to our business. Any of these actions could cause significant disruption to our business
operations and severely damage our reputation, which would in turn materially and adversely affect our business, financial condition and
results of operations. If any of these occurrences results in our inability to direct the activities of our consolidated affiliated entities and
their subsidiaries, and/or our failure to receive economic benefits from our consolidated affiliated entities and their subsidiaries, we may
not be able to consolidate their results into our consolidated financial statements in accordance with U.S. GAAP.
We rely on contractual arrangements with our consolidated affiliated entities and shareholders of our consolidated affiliated
entities for a significant portion of our business operations, which may not be as effective as direct ownership in providing
operational control.
We have relied and expect to continue to rely on contractual arrangements with our consolidated affiliated entities and
shareholders of our consolidated affiliated entities, to operate our online business in PRC. These contractual arrangements may not be as
effective as direct ownership in providing us with control over our consolidated affiliated entities and their subsidiaries. For example, our
consolidated affiliated entities and shareholders of our consolidated affiliated entities may fail to fulfill their contractual obligations with
us, such as failure to operate our websites and apps effectively and use the domain names and trademarks in a manner as stipulated in the
contractual arrangements, or taking other actions that are detrimental to our interests.
28
Table of Contents
If we had direct ownership of our consolidated affiliated entities, we would be able to exercise our rights as a shareholder to
effect changes in the board of directors of our consolidated affiliated entities, which in turn could implement changes, subject to any
applicable fiduciary obligations, at the management and operational level. However, under the current contractual arrangements, we rely
on the performance by our consolidated affiliated entities and shareholders of our consolidated affiliated entities of their obligations
under the contractual arrangements to exercise control over our consolidated affiliated entities and their subsidiaries. The shareholders of
our consolidated affiliated entities may not act in the best interests of our company or may not perform their obligations under these
contracts. Such risks exist throughout the period in which we operate our business through the contractual arrangements with our
consolidated affiliated entities and shareholders of our consolidated affiliated entities. Although we have the right to replace any
shareholder of our consolidated affiliated entities under the contractual arrangements, if any of these shareholders is uncooperative or any
dispute relating to these contracts remains unresolved, we will have to enforce our rights under these contracts through the operations of
PRC laws and arbitration, litigation and other legal proceedings, the outcome of which will be subject to uncertainties. See “—Any
failure by our consolidated affiliated entities or shareholders of our consolidated affiliated entities to perform their obligations under our
contractual arrangements with them would have a material adverse effect on our business.” Therefore, our contractual arrangements with
our consolidated affiliated entities and shareholders of our consolidated affiliated entities may not be as effective in ensuring our control
over the relevant portion of our business operations as direct ownership would be.
Any failure by our consolidated affiliated entities or shareholders of our consolidated affiliated entities to perform their
obligations under our contractual arrangements would have a material adverse effect on our business.
If our consolidated affiliated entities or the shareholders of our consolidated affiliated entities fail to perform their respective
obligations under the contractual arrangements, we may incur substantial costs and expend additional resources to enforce such
arrangements. We may also have to rely on legal remedies under PRC laws, including seeking specific performance or injunctive relief,
and claiming damages, which we cannot assure you will be effective under PRC laws. For example, if the shareholders of our
consolidated affiliated entities were to refuse to transfer their equity interests in our consolidated affiliated entities to us or our designee
when we exercise the purchase option pursuant to these contractual arrangements, or if they were otherwise to act in bad faith toward us,
then we may have to take legal actions to compel them to perform their contractual obligations.
All the agreements under our contractual arrangements are governed by PRC laws and provide for the resolution of disputes
through arbitration in China. Accordingly, these contracts would be interpreted in accordance with PRC laws and any disputes would be
resolved in accordance with PRC legal procedures. These arbitration provisions relate to claims arising from the contractual relationship
created by the VIE agreements, rather than claims under US federal securities laws, and they do not prevent our shareholders or ADS
holders from pursuing claims under US federal securities laws in the United States. The legal system in the PRC is not as developed as in
some other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could limit our ability to enforce
these contractual arrangements. Meanwhile, there are very few precedents and little formal guidance as to how contractual arrangements
in the context of a variable interest entity should be interpreted or enforced under PRC laws. There remain significant uncertainties
regarding the ultimate outcome of such arbitration should legal action become necessary. In addition, under PRC laws, rulings by
arbitrators are final and parties cannot appeal arbitration results in court unless such rulings are revoked or determined unenforceable by
a competent court. If the losing parties fail to carry out the arbitration awards within a prescribed time limit, the prevailing parties may
only enforce the arbitration awards in PRC courts through arbitration award recognition proceedings, which would require additional
expenses and delay. In the event that we are unable to enforce these contractual arrangements, or if we suffer significant delay or other
obstacles in the process of enforcing these contractual arrangements, we may not be able to exert effective control over our consolidated
affiliated entities and their subsidiaries, and our ability to conduct our business may be negatively affected. See “—Risks Related to
Doing Business in China and Hong Kong—Uncertainties in the interpretation and enforcement of PRC laws and regulations could limit
the legal protections available to us.”
29
Table of Contents
The shareholders of our consolidated affiliated entities may have potential conflicts of interest with us, which may materially
and adversely affect our business, financial condition and the value of your investment in our shares.
The equity interests of our consolidated affiliated entities are held by certain individual shareholders. See “Item 4. Information
on the Company—C. Organizational Structure.” Their interests in our consolidated affiliated entities may differ from the interests of our
company as a whole. These shareholders may breach, or cause our consolidated affiliated entities to breach, the existing contractual
arrangements we have with them and our consolidated affiliated entities, which would have a material adverse effect on our ability to
effectively control our consolidated affiliated entities and their subsidiaries and receive economic benefits from them. For example, the
shareholders of our consolidated affiliated entities may be able to cause our agreements with our consolidated affiliated entities to be
performed in a manner adverse to us by, among other things, failing to remit payments due under the contractual arrangements to us on a
timely basis. We cannot assure you that when conflicts of interest arise, any or all of these shareholders will act in the best interests of
our company or such conflicts will be resolved in our favor.
Currently, we do not have any arrangements to address potential conflicts of interest between these shareholders and our
company, except that we could exercise our purchase option under the exclusive option agreement with these shareholders to request
them to transfer all of their equity interests in our consolidated affiliated entities to us or our designee, to the extent permitted by PRC
laws. If we cannot resolve any conflict of interest or dispute between us and the shareholders of our consolidated affiliated entities, we
would have to rely on legal proceedings, which could result in the disruption of our business and subject us to substantial uncertainty as
to the outcome of any such legal proceedings.
Contractual arrangements in relation to our consolidated affiliated entities may be subject to scrutiny by the PRC tax
authorities and they may determine that we or our consolidated affiliated entities owe additional taxes, which could negatively affect
our financial condition and the value of your investment.
Under applicable PRC laws and regulations, arrangements and transactions among related parties may be subject to audit or
challenge by the PRC tax authorities. The PRC Enterprise Income Tax Law and other applicable laws and regulations require every
enterprise in China to submit its annual enterprise income tax return together with a report on transactions with its related parties to the
relevant tax authorities. The tax authorities may impose reasonable adjustments on taxation if they have identified any related party
transactions that are inconsistent with arm’s length principles. We may face material and adverse tax consequences if the PRC tax
authorities determine that the contractual arrangements among certain of our PRC Subsidiaries, each of our consolidated affiliated
entities, and the shareholders of such consolidated affiliated entity were not entered into on an arm’s length basis in such a way as to
result in an impermissible reduction in taxes under applicable PRC laws, regulations and rules, and adjust our consolidated affiliated
entities income subject to tax in the form of a transfer pricing adjustment. A transfer pricing adjustment could, among other things, result
in a reduction of expense deductions recorded by our consolidated affiliated entities for PRC tax purposes, which could in turn increase
their tax liabilities. In addition, if we request the shareholders of our consolidated affiliated entities to transfer their equity interests in our
consolidated affiliated entities at nominal or no value pursuant to these contractual arrangements, such transfer could be viewed as a gift
and subject our designees to PRC income tax; and the taxable income of a transferring shareholder may be adjusted by the PRC tax
authorities to an amount higher than the transfer price set forth under these contractual arrangements and thus the transferring
shareholder may be subject to PRC income tax. The tax incurred during the equity interest transfer may be undertaken by us.
Furthermore, the PRC tax authorities may impose late payment fees and other penalties on our consolidated affiliated entities for the
adjusted but unpaid taxes according to the applicable laws and regulations. Our financial position could be materially and adversely
affected if our consolidated affiliated entities’ tax liabilities increase or if they are required to pay late payment fees and other penalties.
30
Table of Contents
We may lose the ability to use and enjoy assets and licenses held by our consolidated affiliated entities that are material to the
operation of our business if such entities go bankrupt or become subject to a dissolution or liquidation proceedings.
Our consolidated affiliated entities hold certain assets and licenses that are material to the operation of our business, including,
among others, intellectual properties and value-added telecommunication licenses. Under the contractual arrangements, our consolidated
affiliated entities may not, and the shareholders of our consolidated affiliated entities may not cause them to, in any manner, sell, transfer,
mortgage or dispose of their assets or their legal or beneficial interests in the business without our prior consent. However, in the event
our consolidated affiliated entities’ shareholders breach the these contractual arrangements and voluntarily liquidate our consolidated
affiliated entities, or our consolidated affiliated entities declare bankruptcy and all or part of their assets become subject to liens or rights
of third-party creditors, or are otherwise disposed of without our consent, we may be unable to continue some or all of our business
activities, which could materially and adversely affect our business, financial condition and results of operations. If our consolidated
affiliated entities undergo a voluntary or involuntary liquidation proceeding, independent third-party creditors may claim rights to some
or all of these assets, thereby hindering our ability to operate our business, which could materially and adversely affect our business,
financial condition and results of operations.
If the chops of our PRC subsidiaries, our consolidated affiliated entities and their subsidiaries, are not kept safely, are stolen
or are used by unauthorized persons or for unauthorized purposes, the corporate governance of these entities could be severely and
adversely compromised.
In China, a company chop or seal serves as the legal representation of the company towards third parties even when
unaccompanied by a signature. Each legally registered company in China is required to maintain a company chop, which must be
registered with the local Public Security Bureau. In addition to this mandatory company chop, companies may have several other chops
which can be used for specific purposes. The chops of our PRC subsidiaries, our consolidated affiliated entities and their subsidiaries are
generally held securely by personnel designated or approved by us in accordance with our internal control procedures. To the extent
those chops are not kept safe, are stolen or are used by unauthorized persons or for unauthorized purposes, the corporate governance of
these entities could be severely and adversely compromised and those corporate entities may be bound to abide by the terms of any
documents so chopped, even if they were chopped by an individual who lacked the requisite power and authority to do so.
Risks Related to Doing Business in China and Hong Kong
Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on
our business, financial conditions and results of operations.
Our business, prospects, financial condition and results of operations may be influenced to a significant degree by political,
economic and social conditions in China generally and by continued economic growth in China as a whole.
The Chinese economy differs from the economies of most developed countries in many respects, including the amount of
government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. Although the
Chinese government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state
ownership of productive assets and the establishment of improved corporate governance in business enterprises, a substantial portion of
productive assets in China is still owned by the government. In addition, the Chinese government continues to play a significant role in
regulating industry development by imposing industrial policies. The Chinese government also exercises significant control over China’s
economic growth through allocating resources, controlling payment of foreign currency-denominated obligations, setting the monetary
policy and providing preferential treatment to particular industries or companies.
While the Chinese economy has experienced significant growth over the past decades, growth has been uneven, both
geographically and among various sectors of the economy. The Chinese government has implemented various measures to encourage
economic growth and guide the allocation of resources. Some of these measures may benefit the overall Chinese economy, but may have
a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government control
over capital investments, banking and shadow banking, or changes in tax regulations. The growth rate of the Chinese economy has
gradually slowed since 2010, and the impact of COVID-19 on the Chinese economy in 2020 was severe. Any prolonged slowdown in the
Chinese economy may reduce the demand for our products and services and materially and adversely affect our business and results of
operations.
31
Table of Contents
A severe or prolonged downturn in the Chinese or global economy could materially and adversely affect our business and
financial condition.
The COVID-19 pandemic had a severe and negative impact on the Chinese and the global economy in 2020. Whether this will
lead to a prolonged downturn in the economy is still unknown. Even before the outbreak of COVID-19, the global macroeconomic
environment was facing numerous challenges. The growth rate of the Chinese economy had already been slowing since 2010. There is
considerable uncertainty over the long-term effects of the expansionary monetary and fiscal policies which had been adopted by the
central banks and financial authorities of some of the world’s leading economies, including the United States and China, even before
2020. Unrest, terrorist threats and the potential for war in the Middle East and elsewhere may increase market volatility across the globe.
There have also been concerns about the relationship between China and other countries, including the surrounding Asian countries,
which may potentially have economic effects. In particular, there is significant uncertainty about the future relationship between the
United States and China with respect to trade policies, treaties, government regulations and tariffs. Economic conditions in China are
sensitive to global economic conditions, as well as changes in domestic economic and political policies and the expected or perceived
overall economic growth rate in China. Any severe or prolonged slowdown in the global or Chinese economy may materially and
adversely affect our business, results of operations and financial condition.
Volatility of the stock market in Hong Kong could materially and adversely affect our business and financial condition.
As we have stock business operations in Hong Kong, we are subject to the volatility of the stock market in Hong Kong. The
Hong Kong stock market is directly affected by the local and international economic and socio-political environments. Any downturn in
the stock market in Hong Kong will directly and adversely affect the number of active corporate finance projects in the market and
therefore our performance. Historically, the local and international economic and socio-political environments fluctuated from time to
time and the Hong Kong stock market was volatile due to the fluctuations. Severe fluctuations in market and economic sentiments may
also result in a prolonged period of sluggish market activities which would in turn could have material adverse impact on our business
and financial condition.
Uncertainties in the interpretation and enforcement of PRC laws and regulations could limit the legal protections available
to us.
The PRC legal system is based on written statutes, and prior court decisions have limited value as precedents. Since these laws
and regulations are relatively new and the PRC legal system continues to rapidly evolve, the interpretations of many laws, regulations
and rules are not always uniform and enforcement of these laws, regulations and rules involves uncertainties.
In particular, PRC laws and regulations concerning our industries are developing and evolving. Although we have taken
measures to comply with the laws and regulations that are applicable to our business operations and avoid conducting any non-compliant
activities under the applicable laws and regulations. The PRC government authority may further promulgate new laws and regulations
regulating our industries and other businesses we have already engaged in and may further expand in the future. We cannot assure you
that our practice would not be deemed to violate any new PRC laws or regulations. Moreover, developments in the internet industry may
lead to changes in PRC laws, regulations and policies or in the interpretation and application of existing laws, regulations and policies
that may limit or restrict internet technology companies like us, which could materially and adversely affect our business and operations.
From time to time, we may have to resort to administrative and court proceedings to enforce our legal rights. However, since
PRC administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it
may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy than in
more developed legal systems. Furthermore, the PRC legal system is based in part on government policies and internal rules (some of
which are not published in a timely manner or at all) that may have retroactive effect. As a result, we may not be aware of our violation
of these policies and rules until sometime after the violation. Such uncertainties, including uncertainty over the scope and effect of our
contractual, property (including intellectual property) and procedural rights, could materially and adversely affect our business and
impede our ability to continue our operations.
32
Table of Contents
Uncertainties exist with respect to the interpretation and implementation of the new PRC Foreign Investment Law and its
Implementation Regulation and how it may impact the viability of our current corporate structure, corporate governance and
business operations.
On January 1, 2020, the Foreign Investment Law and the Implementation Regulations came into effect and replace the trio of
existing laws regulating foreign investment in China, namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign
Cooperative Joint Venture Enterprise Law and the Wholly Foreign-invested Enterprise Law, together with their implementation rules and
ancillary regulations. The PRC Foreign Investment Law and the Implementation Regulation embody an expected PRC regulatory trend
to rationalize its foreign investment regulatory regime in line with prevailing international practice and the legislative efforts to unify the
corporate legal requirements for both foreign and domestic investments. However, since they are relatively new, uncertainties still exist
in relation to their interpretation and implementation. For instance, under the PRC Foreign Investment Law, “foreign investment” refers
to the investment activities directly or indirectly conducted by foreign individuals, enterprises or other entities in China. Although it does
not explicitly classify contractual arrangements as a form of foreign investment, there is no assurance that foreign investment via
contractual arrangement would not be interpreted as a type of indirect foreign investment activities in the future. In addition, the
definition contains a catch-all provision providing that investments made by foreign investors through other methods specified in laws or
administrative regulations or other methods prescribed by the State Council, which leaves leeway for future laws, administrative
regulations or provisions promulgated by the Stale Council to provide for contractual arrangements as a method of foreign investment.
Furthermore, in accordance with the FIL Interpretations which came into effect on January 1, 2020, where a party concerned claims an
investment agreement to be invalid on the basis that it is for investment in prohibited or restricted industries under the negative list and
violates the restrictions set out therein, the courts should support such claim. Given the foregoing, it is uncertain whether our contractual
arrangements will be deemed to be in violation of the market entry clearance requirements for foreign investment under the PRC laws
and regulations.
The “variable interest entity” structure, or VIE structure, has been adopted by many PRC-based companies, including us, to
obtain necessary licenses and permits in the industries that are currently subject to foreign investment restrictions or prohibitions in
China. See “—Risks Related to Our Corporate Structure” and “Corporate History and Structure.” There are uncertainties as to how the
PRC Foreign Investment Law and its Implementation Regulations would be further interpreted and implemented. We cannot assure you
that their interpretation and implementation made by the relevant governmental authorities in the future will not materially impact the
viability of our current corporate structure, corporate governance and business operations in any aspect.
Furthermore, if future laws, administrative regulations or provisions prescribed by the State Council mandate further actions to
be taken by companies with respect to existing VIE structure, we may face substantial uncertainties as to whether we can complete such
actions in a timely manner, or at all. If we fail to take timely and appropriate measures to cope with any of these or similar regulatory
compliance challenges, we would not be able to (i) continue our business in China through our contractual arrangements with our
consolidated affiliated entities and shareholders of our consolidated affiliated entities, (ii) exert control over our consolidated affiliated
entities and their subsidiaries, (iii) receive the economic benefits of our consolidated affiliated entities and their subsidiaries under such
contractual arrangements, or (iv) consolidate the financial results of our consolidated affiliated entities and their subsidiaries. Were this to
occur, our results of operations and financial condition would be materially and adversely affected and the market price of our ADSs may
decline.
We may be adversely affected by the complexity, uncertainties and changes in PRC regulation of internet-related or fintech-
related businesses and companies, and any lack of requisite approvals, licenses, permits or filings applicable to our business may
have a material adverse effect on our business and results of operations.
The PRC government extensively regulates the internet industry and fintech industry, including foreign ownership of, and the
licensing and permit requirements pertaining to, companies in the internet industry and fintech industry. These internet-related or fintech-
related laws and regulations are relatively new and evolving, and their interpretation and enforcement involve significant uncertainties.
As a result, in certain circumstances it may be difficult to determine what actions or omissions may be deemed to be in violation of
applicable laws and regulations.
33
Table of Contents
For example, PRC regulations impose sanctions for engaging in disseminating analysis, forecasting, advisory or other
information related to securities and securities markets without having obtained the securities investment consultancy qualifications in
China. See “Item 4. Information on the Company-B. Business Overview-Regulations-Regulations Related to Securities Investment
Consulting Business.” We have not obtained the securities investment consultancy qualifications in China. Without the required
qualifications, we should refrain from as well as explicitly prohibit our users from sharing information related to securities analysis,
forecasting or advisory on our stock investment platform. However, we cannot assure you that our users will not post articles or share
videos that contain analysis, forecasting or advisory content related to securities on our stock investment platform. If any of the
information or content displayed on our stock investment platform is deemed as analysis, forecasting, advisory or other information
related to securities or securities markets, or any of our business in the PRC is deemed to be a service providing such information, we
may be subject to regulatory measures including warnings, public condemnation, suspension of relevant business and other measures in
accordance with applicable laws and regulations. Any such penalties may disrupt our business operations or materially and adversely
affect our business, financial condition and results of operations.
In addition, we offer a suite of wealth management products to investors. In 2017, we expanded our product suite to include
onshore and offshore investment options including stock, insurance, bank wealth management products and mutual funds. According to
the Securities Investment Funds Law, any entity that engages in the fund services, including but not limited to sales, investment
consulting, information technology system services, shall register or file with the securities regulatory authority of the State Council. See
“Item 4. Information on the Company-B. Business Overview-Regulations-Regulations Related to Online Sales of Securities Investment
Funds.” We do not hold any license or permit in the promotion of, sales of, purchase of or redemption of funds in China. We do not
believe the wealth management business we are conducting now in China should be deemed as fund services in China. However, we
cannot assure you that relevant regulatory authorities will take the same view as ours. If certain of our activities in China were deemed
by relevant regulators as provision of fund services in China, we may be subject to penalties including imposition of fines and suspension
of such fund sales business.
The interpretation and application of existing PRC laws, regulations and policies and possible new laws, regulations or policies
relating to the internet industry and fintech-related have created substantial uncertainties regarding the legality of existing and future
foreign investments in, and the businesses and activities of, internet and fintech businesses in China, including our business. We cannot
assure you that we have obtained all the permits or licenses and completed all the record-filing procedures required for conducting our
business in China or will be able to maintain our existing licenses or obtain new ones. If the PRC government considers that we were
operating without the proper approvals, licenses, permits or filings or promulgates new laws and regulations that require additional
approvals, licenses, permits or filings or imposes additional restrictions on the operation of any part of our business, it has the power,
among other things, to levy fines, confiscate our income, revoke our business licenses, and require us to discontinue our relevant
business or impose restrictions on the affected portion of our business. Any of these actions by the PRC government may have a material
adverse effect on our business and results of operations.
We rely on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing
requirements we may have, and any limitation on the ability of our PRC subsidiaries to make payments to us could have a material
adverse effect on our ability to conduct our business.
We are a holding company, and we rely on dividends and other distributions on equity paid by our PRC subsidiaries for our cash
and financing requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders and service
any debt we may incur. If our PRC subsidiaries incur debt on their own behalf in the future, the instruments governing the debt may
restrict their ability to pay dividends or make other distributions to us. In addition, the PRC tax authorities may require our PRC
subsidiaries to adjust its taxable income under the contractual arrangements it currently has in place with our consolidated affiliated
entities and their shareholders in a manner that would materially and adversely affect their ability to pay dividends and other distributions
to us. See “—Risks Related to Our Corporate Structure—Contractual arrangements in relation to our consolidated affiliated entities may
be subject to scrutiny by the PRC tax authorities and they may determine that we or our consolidated affiliated entities owe additional
taxes, which could negatively affect our financial condition and the value of your investment.”
34
Table of Contents
Under PRC laws and regulations, our PRC subsidiaries, as wholly foreign-owned enterprises in China, may pay dividends only
out of their respective accumulated after-tax profits as determined in accordance with PRC accounting standards and regulations. In
addition, a wholly foreign-owned enterprise is required to set aside at least 10% of its accumulated after-tax profits each year, if any, to
fund certain statutory reserve funds, until the aggregate amount of such funds reaches 50% of its registered capital. At its discretion, a
wholly foreign-owned enterprise may allocate a portion of its after-tax profits based on PRC accounting standards to discretional funds.
These reserve funds and discretional funds are not distributable as cash dividends.
Under existing PRC foreign exchange regulations, payments of current account items, such as profit distributions and trade and
service-related foreign exchange transactions, can be made in foreign currencies without prior approval from the State Administration of
Foreign Exchange, or the SAFE, by complying with certain procedural requirements. Therefore, our PRC subsidiaries directly held by
our non-PRC subsidiaries are able to pay dividends in foreign currencies to their non-PRC shareholders without prior approval from the
SAFE, subject to the condition that the remittance of such dividends outside of the PRC complies with certain procedures under PRC
foreign exchange regulation, such as the overseas investment registrations by the beneficial owners of our company who are PRC
residents. However, approval from or registration with appropriate government authorities is required where RMB is to be converted into
foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies.
In response to the persistent capital outflow and RMB’s depreciation against the U.S. dollar in the fourth quarter of 2016, the
PBOC and the SAFE have implemented a series of capital control measures, including stricter vetting procedures for China-based
companies to remit foreign currency for overseas acquisitions, dividend payments and shareholder loan repayments. The PRC
government may continue to strengthen its capital controls and our PRC subsidiaries’ dividends and other distributions may be subjected
to tighter scrutiny in the future. Any limitation on the ability of our PRC subsidiaries to pay dividends or make other distributions to us
could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay
dividends, or otherwise fund and conduct our business. See also “—If we are classified as a PRC resident enterprise for PRC income tax
purposes, such classification could result in unfavorable tax consequences to us and our non-PRC shareholders or ADS holders.”
PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control
of currency conversion may delay or prevent us from using the proceeds of our offerings to make loans to or make additional capital
contributions to our PRC subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand
our business.
Any funds we transfer to our PRC subsidiaries, either as a shareholder loan or as an increase in registered capital, are subject to
approval by or registration or filing with relevant governmental authorities in China. According to the relevant PRC regulations on
foreign-invested enterprises in China, capital contributions to our PRC subsidiaries are subject to registration with the State
Administration for Market Regulation, or the SAMR or its local branches, the information reporting in the online enterprise registration
system, and foreign exchange registration with qualified banks. In addition, (a) any foreign loan procured by our PRC subsidiaries,
consolidated affiliated entities and their subsidiaries is required to be filed with SAFE through the online filing system of SAFE, and
(b) each of our PRC subsidiaries, consolidated affiliated entities and their subsidiaries may not procure loans which exceed a statutory
upper limit. Any loan to be provided by us to our PRC subsidiaries, consolidated affiliated entities and their subsidiaries with a term of
more than one year must be recorded and registered by the NDRC or its local branches. We may not complete such approval, recording,
filings or registrations on a timely basis, if at all, with respect to future capital contributions or foreign loans by us to our PRC
subsidiaries, consolidated affiliated entities and their subsidiaries. If we fail to complete such approval, recording, filings or registrations,
our ability to use the proceeds of our offerings and to capitalize our PRC operations may be negatively affected, which could adversely
affect our liquidity and our ability to fund and expand our business.
35
Table of Contents
On March 30, 2015, the SAFE promulgated the Circular on Reforming the Management Approach Regarding the Foreign
Exchange Capital Settlement of Foreign-Invested Enterprises, or SAFE Circular 19, which took effect as of June 1, 2015. SAFE
Circular 19 launched a nationwide reform of the administration of the settlement of the foreign exchange capitals of foreign-invested
enterprises and allows foreign-invested enterprises to settle their foreign exchange capital at their discretion, but continues to prohibit
foreign-invested enterprises from using the Renminbi fund converted from their foreign exchange capitals for expenditures beyond their
business scopes. On June 9, 2016, the SAFE promulgated the Circular on Reforming and Standardizing the Administrative Provisions on
Capital Account Foreign Exchange, or SAFE Circular 16. SAFE Circular 19 and SAFE Circular 16 continue to prohibit foreign-invested
enterprises from, among other things, using RMB funds converted from its foreign exchange capital for expenditure beyond its business
scope, securities investment or other financial investment except for guaranteed financial products issued by banks, providing loans to
non-affiliated enterprises unless otherwise permitted under its business scope or constructing or purchasing real estate not for self-use.
On October 23, 2019, the SAFE issued the Circular on Further Promoting Cross-border Trade and Investment Facilitation, or SAFE
Circular 28, which expressly allows foreign-invested enterprises that do not have equity investments in their approved business scope to
use their capital obtained from foreign exchange settlements to make domestic equity investments as long as the investments are real and
in compliance with the foreign investment-related laws and regulations. See “Item 4. Information on the Company—B. Business
Overview—Regulations—Regulations on Foreign Exchange—General administration of foreign exchange.” The applicable foreign
exchange circulars and rules may significantly limit our ability to transfer to and use in China the net proceeds from our offerings, which
may adversely affect our business, financial condition and results of operations.
Fluctuations in exchange rates could have a material adverse effect on our results of operations and the price of our ADSs.
The conversion of Renminbi into foreign currencies, including U.S. dollars, is based on rates set by the People’s Bank of China.
The Renminbi has fluctuated against the U.S. dollar, at times significantly and unpredictably. The value of Renminbi against the U.S.
dollar and other currencies is affected by changes in China’s political and economic conditions and by China’s foreign exchange policies,
among other things. We cannot assure you that Renminbi will not appreciate or depreciate significantly in value against the U.S. dollar in
the future. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between
Renminbi and the U.S. dollar in the future.
Any significant appreciation or depreciation of the Renminbi may materially and adversely affect our revenues, earnings and
financial position, and the value of, and any dividends payable on, our ADSs in U.S. dollars. For example, a significant depreciation of
Renminbi against the U.S. dollar may significantly reduce the U.S. dollar equivalent of our earnings, which in turn could adversely affect
the price of our ADSs.
Very limited hedging options are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not
entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to
enter into hedging transactions in the future, the availability and effectiveness of these hedges may be limited and we may not be able to
adequately hedge our exposure or at all. In addition, our currency exchange losses may be magnified by PRC exchange control
regulations that restrict our ability to convert Renminbi into foreign currency. As a result, fluctuations in exchange rates may have a
material adverse effect on your investment.
Governmental control of currency conversion may limit our ability to utilize our net revenues effectively and affect the value
of your investment.
The PRC government imposes controls on the convertibility of the RMB into foreign currencies and, in certain cases, the
remittance of currency out of China. We receive substantially all of our net revenues in RMB. Under our current corporate structure, our
company in the Cayman Islands relies on dividend payments from our PRC subsidiaries to fund any cash and financing requirements we
may have. Under existing PRC foreign exchange regulations, payments of current account items, such as profit distributions and trade
and service-related foreign exchange transactions, can be made in foreign currencies without prior approval from SAFE by complying
with certain procedural requirements. Therefore, our PRC subsidiaries are able to pay dividends in foreign currencies to us without prior
approval from SAFE, subject to the condition that the remittance of such dividends outside of the PRC complies with certain procedures
under PRC foreign exchange regulation, such as the overseas investment registrations by the beneficial owners of our company who are
PRC residents. But approval from, registration or filing with appropriate government authorities is required where RMB is to be
converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign
currencies.
36
Table of Contents
In light of the flood of capital outflows of China in 2016 due to the weakening RMB, the PRC government has imposed more
restrictive foreign exchange policies and stepped up scrutiny of major outbound capital movement. More restrictions and substantial
vetting process are put in place by SAFE to regulate cross-border transactions falling under the capital account. The PRC government
may at its discretion further restrict access in the future to foreign currencies for current account transactions. If the foreign exchange
control system prevents us from obtaining sufficient foreign currencies to satisfy our foreign currency demands, we may not be able to
pay dividends in foreign currencies to our shareholders, including holders of our ADSs.
Failure to make adequate contributions to various employee benefit plans and withhold individual income tax on employees’
salaries as required by PRC regulations may subject us to penalties.
Companies operating in China are required to participate in various government sponsored employee benefit plans, including
certain social insurance, housing funds and other welfare-oriented payment obligations, and contribute to the plans in amounts equal to
certain percentages of salaries, including bonuses and allowances, of our employees up to a maximum amount specified by the local
government from time to time at locations where we operate our businesses. The requirement of employee benefit plans has not been
implemented consistently by the local governments in China given the different levels of economic development in different locations.
Companies operating in China are also required to withhold individual income tax on employees’ salaries based on the actual salary of
each employee upon payment. We have not made adequate employee benefit payments. Neither have we fully withheld the individual
income tax in accordance with the relevant PRC laws and regulations.
With respect to the underpaid employee benefits, we may be required to make up the contributions for these plans as well as to
pay late fees and fines; with respect to the underwithheld individual income tax, we may be required to make up sufficient withholding
and pay late fees and fines. If we are subject to late fees or fines in relation to the underpaid employee benefits and underwithheld
individual income tax, our financial condition and results of operations may be adversely affected.
The M&A Rules and certain other PRC regulations establish complex procedures for some acquisitions of Chinese
companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China.
The Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors, or the M&A Rules, adopted by six
PRC regulatory agencies in 2006 and amended in 2009, and some other regulations and rules concerning mergers and acquisitions
established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time
consuming and complex, including requirements that the approval from MOFCOM be obtained in circumstances where overseas
companies established or controlled by PRC enterprises or natural persons acquire an affiliated PRC domestic enterprise. After the PRC
Foreign Investment Law and its Implementation Regulations became effective on January 1, 2020, the provisions of the M&A
Rules remain effective to the extent they are not inconsistent with the PRC Foreign Investment Law and its Implementation Regulations.
Moreover, the Anti-Monopoly Law requires that the State Administration for Market Regulation, or the SAMR, shall be notified in
advance of any concentration of undertaking if certain thresholds are triggered. In the future, we may grow our business by acquiring
complementary businesses. Complying with the requirements of the above-mentioned regulations and other relevant rules to complete
such transactions could be time consuming, and any required approval processes, including obtaining approval from the MOFCOM, the
SAMR or other PRC government authorities may delay or inhibit our ability to complete such transactions, which could affect our ability
to expand our business or maintain our market share.
In addition, the security review rules issued by the PRC government authorities that became effective in September 2011 specify
that mergers and acquisitions by foreign investors that raise “national defense and security” concerns and mergers and acquisitions
through which foreign investors may acquire de facto control over domestic enterprises that raise “national security” concerns are subject
to strict review by the PRC government authorities, and the rules prohibit any activities attempting to bypass a security review, including
by structuring the transaction through a proxy or contractual control arrangement.
37
Table of Contents
In December 2020, the NDRC and MOFCOM jointly promulgated the Measures for the Security Review of Foreign Investment,
which came into effect on January 18, 2021. The NDRC and MOFCOM will establish a working mechanism office in charge of the
security review of foreign investment. Such measures define foreign investment as direct or indirect investment by foreign investors in
the PRC, which includes (i) investment in new onshore projects or establishment of wholly foreign owned onshore companies or joint
ventures with foreign investors; (ii) acquiring equity or asset of onshore companies by merger and acquisition; and (iii) onshore
investment by and through any other means. Investment in certain key areas with bearing on national security, such as important cultural
products and services, important information technology and internet services and products, key technologies and other important areas
with bearing on national security which results in the acquisition of de facto control of investee companies, shall be filed with a
specifically established office before such investment is carried out. What may constitute “onshore investment by and through any other
means” or “de facto control” is not clearly defined under such measures, and could be broadly interpreted. It is likely that control through
contractual arrangement be regarded as de facto control based on provisions applied to security review of foreign investment. Failure to
make such filing may subject such foreign investor to rectification within prescribed period, and will be recorded as negative credit
information of such foreign investor in the relevant national credit information system, which would then subject such investors to joint
punishment as provided by relevant rules. If such investor fails to or refuses to undertake such rectification, it would be ordered to
dispose of the equity or asset and to take any other necessary measures so as to return to the status quo and to erase the impact to national
security. As these measures were recently promulgated, official guidance has not been issued by the designated office in charge of such
security review yet. At this stage, the interpretation of those measures remains unclear in many aspects such as what would constitute
“important information technology and internet services and products” and whether these measures may apply to foreign investment that
is implemented or completed before the enactment of these new measures. As our business may be deemed to constitute the foregoing
circumstances, we cannot assure you that our current business operations will remain fully compliant, or we can adapt our business
operations to new regulatory requirements on a timely basis, or at all.
PRC regulations relating to offshore investment activities by PRC residents may limit our PRC subsidiaries’ ability to
increase their registered capital or distribute profits to us or otherwise expose us or our PRC resident beneficial owners to liability
and penalties under PRC law.
The SAFE promulgated the Circular on Relevant Issues Relating to PRC Resident’s Investment and Financing and Roundtrip
Investment through Special Purpose Vehicles, or SAFE Circular 37, in July 2014, which replaced the previous Circular on Relevant
Issues Concerning Foreign Exchange Administration for PRC Residents Engaging in Financing and Roundtrip Investments through
Overseas Special Purpose Vehicles, or SAFE Circular 75. SAFE Circular 37 requires PRC residents, including PRC resident individuals
and PRC entities, to register with SAFE or its local branch in connection with their establishment or control of an offshore entity
established for the purpose of overseas investment or financing. In addition, such PRC resident individuals must update their SAFE
registrations when the offshore special purpose vehicle that such PRC resident individuals directly own the equity interests in undergoes
material events relating to any change of basic information (including change of such PRC residents or entities, name and operation
term), increases or decreases in investment amount, transfers or exchanges of shares, or mergers or divisions. SAFE Circular 37 also
requires a PRC entity to undergo the foreign exchange registration and updating procedure in accordance with the Provisions on Foreign
Exchange Administration of the Outbound Direct Investment of Domestic Institutions, issued by the SAFE in July 2009 and other
relevant regulations.
On February 28, 2015, SAFE promulgated a Notice on Further Simplifying and Improving Foreign Exchange Administration
Policy on Direct Investment, or SAFE Notice 13, which became effective on June 1, 2015. In accordance with SAFE Notice 13, PRC
residents are required to apply for foreign exchange registration of foreign direct investment and outbound direct investment, including
those required under SAFE Circular 37, with qualified banks, instead of SAFE. The qualified banks, under the supervision of SAFE,
directly examine the applications and conduct the registration.
In addition, pursuant to the Measures for the Administration of Outbound Investment promulgated by the MOFCOM in
August 2014, and the Administrative Measures of Outbound Investment of Enterprises promulgated by NDRC in December 2017, both
of which replaced previous rules regarding outbound direct investment by PRC entities, any outbound investment of PRC enterprises is
required to be approved by or filed with MOFCOM, NDRC or their local branches. Certain state-owned enterprises may also be required
to complete approval or filing procedures with state-owned assets supervision and administration authorities for some of their outbound
direct investment.
38
Table of Contents
If our direct or indirect shareholders who are PRC residents do not complete their registration with the local SAFE branches or
qualified banks, our PRC subsidiaries may be prohibited from distributing their profits and proceeds from any reduction in capital, share
transfer or liquidation to us, and we may be restricted in our ability to contribute additional capital to our PRC subsidiaries. Moreover,
failure to comply with the SAFE registration described above could result in liability under PRC laws for evasion of applicable foreign
exchange restrictions.
Our founders and a number of our directors, officers and individual shareholders who indirectly hold shares in our Cayman
Islands holding company and who are known to us as being PRC residents, including Yifan Ren, Lei Sun, Changxing Xiao, Dongcheng
Zhang, Lei Liu, Lixing Chen, Jiachun Qu and Zhijun Li, have completed the foreign exchange registrations in accordance with SAFE
Circular 37 or SAFE Circular 75 then in effect. In October 2018, Lei Sun established a trust, of which he and his family members are
beneficiaries, and transferred all shares of our company he beneficially owned to this trust. Each of the four other directors and officers
of our company established a trust, of which he and his family members are beneficiaries, and transferred all shares of our company he
beneficially owned to such trust, respectively. See “Item 7. Major Shareholders and Related Party Transactions—A. Major
Shareholders.” All beneficiaries of such trusts who are PRC residents are required to complete relevant registrations pursuant to SAFE
Circular 37. We have notified the beneficiaries of the trusts who we know are PRC residents of their filing obligation, including the
obligation to make initial registration or updates under SAFE Circular 37, and such beneficiaries have undertaken to complete relevant
registrations as soon as such registration is practical with the local SAFE branches or qualified banks.
However, we may not be informed of the identities of all the PRC residents holding direct or indirect interest in our company,
nor can we compel our beneficial owners to comply with the requirements of SAFE Circular 37 and other outbound investment related
regulations. As a result, we cannot assure you that all of our shareholders or beneficial owners who are PRC residents have complied
with, and will in the future make or obtain any applicable registrations or approvals required by, SAFE Circular 37 and other outbound
investment related regulations. Failure by such shareholders or beneficial owners to comply with SAFE Circular 37 and other outbound
investment related regulations, or failure by us to amend the foreign exchange registrations of our PRC subsidiaries, could subject us or
our shareholders to fines or legal sanctions, restrict our overseas or cross-border investment activities, limit our PRC subsidiaries’ ability
to make distributions or pay dividends to us or affect our ownership structure, which could adversely affect our business and prospects.
Any failure to comply with PRC regulations regarding the registration requirements for employee stock incentive plans may
subject the PRC plan participants or us to fines and other legal or administrative sanctions.
Pursuant to SAFE Circular 37, PRC residents who participate in stock incentive plans in overseas non-publicly-listed companies
may submit applications to SAFE or its local branches for the foreign exchange registration with respect to offshore special purpose
vehicles. In the meantime, our directors, executive officers and other employees who are PRC residents and who have been granted stock
options by us, may follow the Notices on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating
in Stock Incentive Plan of Overseas Publicly-Listed Company, promulgated by the SAFE in 2012, or 2012 SAFE Notices. Pursuant to
the 2012 SAFE Notices, PRC citizens and non-PRC citizens who reside in China for a continuous period of not less than one year who
participate in any stock incentive plan of an overseas publicly listed company are required to register with SAFE through a domestic
qualified agent, which could be the PRC subsidiaries of such overseas listed company, and complete certain other procedures. In
addition, an overseas entrusted institution must be retained to handle matters in connection with the exercise or sale of stock options and
the purchase or sale of shares and interests. We and our directors, executive officers and other employees who are PRC citizens or who
reside in the PRC for a continuous period of not less than one year and who have been granted stock options will be subject to these
regulations. Failure to complete the SAFE registrations may subject them to fines and legal sanctions, and may also limit our ability to
contribute additional capital into our PRC subsidiaries and limit our PRC subsidiaries’ ability to distribute dividends to us. We also face
regulatory uncertainties that could restrict our ability to adopt additional incentive plans for our directors, executive officers and
employees under PRC law. See “ Item 4. Information on the Company—B. Business Overview—Regulation—Regulations Related to
Our Business Operation in China—Regulations Related to Employee Stock Incentive Plan.”
39
Table of Contents
The State Administration of Taxation, or SAT, has issued certain circulars concerning employee stock options and restricted
shares. Under these circulars, our employees working in China who exercise stock options or are granted restricted shares will be subject
to PRC individual income tax. Our PRC subsidiaries have obligations to file documents related to employee stock options or restricted
shares with relevant tax authorities and to withhold individual income taxes of those employees who exercise their share options. If our
employees fail to pay or we fail to withhold their income taxes according to relevant laws and regulations, we may face sanctions
imposed by the tax authorities or other PRC governmental authorities. See “ Item 4. Information on the Company—B. Business
Overview—Regulation—Regulations Related to Our Business Operation in China—Regulations Related to Employee Stock Incentive
Plan.”
If we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in
unfavorable tax consequences to us and our non-PRC shareholders or ADS holders.
Under the PRC Enterprise Income Tax Law and its implementation rules, an enterprise established outside of the PRC with a
“de facto management body” within the PRC is considered a resident enterprise and will be subject to the enterprise income tax on its
global income at the rate of 25%. The implementation rules define the term “de facto management body” as the body that exercises full
and substantial control over and overall management of the business, productions, personnel, accounts and properties of an enterprise.
Circular 82, issued by the SAT in April 2009 and amended in December 2017, provides certain specific criteria for determining whether
the “de facto management body” of a PRC-controlled enterprise that is incorporated offshore is located in China. Although this circular
only applies to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or
foreigners like us, the criteria set forth in the circular may reflect the SAT’s general position on how the “de facto management body” test
should be applied in determining the tax resident status of all offshore enterprises. According to Circular 82, an offshore incorporated
enterprise controlled by a PRC enterprise or a PRC enterprise group will be regarded as a PRC tax resident by virtue of having its “de
facto management body” in China and will be subject to PRC enterprise income tax on its global income only if all of the following
conditions are met: (i) the primary location of the day-to-day operational management is in the PRC; (ii) decisions relating to the
enterprise’s financial and human resource matters are made or are subject to approval by organizations or personnel in the PRC; (iii) the
enterprise’s primary assets, accounting books and records, company seals, and board and shareholder resolutions, are located or
maintained in the PRC; and (iv) at least 50% of voting board members or senior executives habitually reside in the PRC.
We believe none of our entities outside of China is a PRC resident enterprise for PRC tax purposes. See “Item. 10 Additional
Information—Taxation—People’s Republic of China Taxation.” However, the tax resident status of an enterprise is subject to
determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management
body.” As substantially all of our management members are based in China, it remains unclear how the tax residency rule will apply to
our case. If the PRC tax authorities determine that 9F Inc. or any of our subsidiaries outside of China is a PRC resident enterprise for
PRC enterprise income tax purposes, then 9F Inc. or such subsidiary could be subject to PRC tax at a rate of 25% on its world-wide
income, which could materially reduce our net income. In addition, we will also be subject to PRC enterprise income tax reporting
obligations. Furthermore, if the PRC tax authorities determine that we are a PRC resident enterprise for enterprise income tax purposes,
gains realized on the sale or other disposition of our ADSs or Class A ordinary shares may be subject to PRC tax, and dividends we pay
may be subject to PRC withholding tax, at a rate of 10% in the case of non-PRC enterprises or 20% in the case of non-PRC individuals
(in each case, subject to the provisions of any applicable tax treaty), if such gains or dividends are deemed to be from PRC sources. It is
unclear whether non-PRC shareholders of our company would be able to claim the benefits of any tax treaties between their country of
tax residence and the PRC in the event that we are treated as a PRC resident enterprise. Any such tax may reduce the returns on your
investment in the ADSs or Class A ordinary shares.
40
Table of Contents
We may not be able to obtain certain benefits under the relevant tax treaty on dividends paid by our PRC subsidiaries to us
through our Hong Kong subsidiary.
We are a holding company incorporated under the laws of the Cayman Islands and as such rely on dividends and other
distributions on equity from our PRC subsidiaries to satisfy part of our liquidity requirements. Pursuant to the PRC Enterprise Income
Tax Law, a withholding tax rate of 10% currently applies to dividends paid by a PRC “resident enterprise” to a foreign enterprise
investor, unless any such foreign investor’s jurisdiction of incorporation has a tax treaty with China that provides for preferential tax
treatment. Pursuant to the Arrangement between the Mainland China and the Hong Kong Special Administrative Region for the
Avoidance of Double Taxation and Tax Evasion on Income, or the Double Tax Avoidance Arrangement, and the Notice on Certain Issues
with Respect to the Enforcement of Dividend Provisions in Tax Treaties, or the Circular 81, issued by the SAT, such withholding tax rate
may be lowered to 5% if the PRC enterprise is at least 25% held by a Hong Kong enterprise for at least 12 consecutive months prior to
distribution of the dividends and is determined by the relevant PRC tax authority to have satisfied other conditions and requirements
under the Double Tax Avoidance Arrangement and other applicable PRC laws. However, based on the Circular 81, if the relevant PRC
tax authority determines, in its discretion, that a company benefits from such reduced income tax rate due to a structure or arrangement
that is primarily tax-driven, such PRC tax authority may adjust the preferential tax treatment. Furthermore, in October 2019, the SAT
promulgated the Administrative Measures for Non-Resident Taxpayers to Enjoy Treaty Treatments, or Circular 35, which became
effective on January 1, 2020 and superseded the Administrative Measures for Non-Resident Enterprises to Enjoy Treatments under Tax
Treaties. The Circular 35 abolished the record-filing procedure for justifying the tax treaty eligibility of taxpayers, and stipulates that
non-resident taxpayers can enjoy tax treaty benefits via the “self-assessment of eligibility, claiming treaty benefits, retaining documents
for inspection” mechanism. Non-resident taxpayers can claim tax treaty benefits after self-assessment provided that relevant supporting
documents shall be collected and retained for post-filing inspection by the tax authorities. In addition, based on the Notice on Issues
concerning Beneficial Owner in Tax Treaties, or Circular 9, issued on February 3, 2018 by the SAT, which became effective from
April 1, 2018, when determining the applicant’s status of the “beneficial owner” regarding tax treatments in connection with dividends,
interests or royalties in the tax treaties, several factors, including without limitation, whether the applicant is obligated to pay more than
50% of the applicant’s income in twelve months to residents in third country or region, whether the business operated by the applicant
constitutes the actual business activities, and whether the counterparty country or region to the tax treaties does not levy any tax or grant
tax exemption on relevant incomes or levy tax at an extremely low rate, will be taken into account, and it will be analyzed according to
the actual circumstances of the specific cases. There are also other conditions for enjoying the reduced withholding tax rate according to
other relevant tax rules and regulations. See “Item 10. Additional Information—Taxation—People’s Republic of China Taxation.” We
cannot assure you that our determination regarding our qualification to enjoy the preferential tax treatment will not be challenged by the
relevant PRC tax authority or we will be able to complete the necessary filings with the relevant PRC tax authority and enjoy the
preferential withholding tax rate of 5% under the Double Taxation Arrangement with respect to dividends to be paid by our PRC
subsidiaries to 9F HK, our Hong Kong subsidiary.
We face uncertainty with respect to indirect transfers of equity interests in PRC resident enterprises by their non-PRC
holding companies.
Pursuant to the Circular on Strengthening Administration of Enterprise Income Tax for Share Transfers by Non-PRC Resident
Enterprises, or SAT Circular 698, issued by the SAT in 2009 with retroactive effect from January 1, 2008, where a non-resident
enterprise transfers the equity interests of a PRC resident enterprise indirectly by disposition of the equity interests of an overseas
holding company, or an Indirect Transfer, and such overseas holding company is located in a tax jurisdiction that: (a) has an effective tax
rate less than 12.5% or (b) does not tax foreign income of its residents, the non-resident enterprise, being the transferor, shall report to the
competent tax authority of the PRC resident enterprise this Indirect Transfer.
41
Table of Contents
On February 3, 2015, the SAT issued a Public Notice Regarding Certain Corporate Income Tax Matters on Indirect Transfer of
Properties by Non-Resident Enterprises, or SAT Public Notice 7. SAT Public Notice 7 supersedes certain rules with respect to the
Indirect Transfer under SAT Circular 698, but does not touch upon the other provisions of SAT Circular 698, which remain in force. SAT
Public Notice 7 has introduced a new tax regime that is significantly different from the previous one under SAT Circular 698. SAT Public
Notice 7 extends its tax jurisdiction to not only Indirect Transfers set forth under SAT Circular 698 but also transactions involving
transfer of other taxable assets through offshore transfer of a foreign intermediate holding company. In addition, SAT Public Notice
7 provides clearer criteria than SAT Circular 698 for assessment of reasonable commercial purposes and has introduced safe harbors for
internal group restructurings and the purchase and sale of equity through a public securities market. SAT Public Notice 7 also brings
challenges to both foreign transferor and transferee (or other person who is obligated to pay for the transfer) of taxable assets. Where a
non-resident enterprise transfers taxable assets indirectly by disposing of the equity interests of an overseas holding company, which is an
Indirect Transfer, the non-resident enterprise as either transferor or transferee, or the PRC entity that directly owns the taxable assets,
may report such Indirect Transfer to the relevant tax authority. Using a “substance over form” principle, the PRC tax authority may
disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose
of reducing, avoiding or deferring PRC tax. As a result, gains derived from such Indirect Transfer may be subject to PRC enterprise
income tax, and the transferor shall be subject to withholding of applicable taxes, currently at a rate of 10%. On October 17, 2017, SAT
issued the Announcement of the State Administration of Taxation on Issues Concerning the Withholding of Non-resident Enterprise
Income Tax at Source, or SAT Bulletin 37, which became effective on December 1, 2017 and abolished SAT Circular 698 as well as
certain provisions in SAT Circular 7. The SAT Bulletin 37 further clarifies the practice and procedure of the withholding of non-resident
enterprise income tax. Pursuant to SAT Bulletin 37, where the party responsible to withhold such income tax did not or was unable to
withhold, and the non-resident enterprise receiving such income failed to declare and pay the taxes that should have been withheld to the
relevant tax authority, both of such parties may be subject to penalties.
We face uncertainties as to the reporting and other implications of certain past and future transactions where PRC taxable assets
are involved, such as offshore restructuring, sale of the shares in our offshore subsidiaries or investments. Our company may be subject
to filing obligations or taxed or subject to withholding obligations in such transactions, under SAT Public Notice 7 and SAT Bulletin 37.
For transfer of shares in our company by investors that are non-PRC resident enterprises, our PRC subsidiaries may be requested to assist
in the filing under SAT Public Notice 7 and SAT Bulletin 37. As a result, we may be required to expend valuable resources to comply
with SAT Public Notice 7 and SAT Bulletin 37 or to request the relevant transferors from whom we purchase taxable assets to comply
with these circulars, or to establish that our company should not be taxed under these circulars, which may have a material adverse effect
on our financial condition and results of operations.
Uncertainties exist with respect to the enforcement of Anti-Monopoly Guidelines for Internet Platforms and how it may
impact our business operations.
In February 2021, the Anti-monopoly Commission of the State Council promulgated the Guidelines to Anti-Monopoly in the
Field of Internet Platforms, or the Anti-Monopoly Guidelines for Internet Platforms. The Anti-Monopoly Guidelines for Internet
Platforms is consistent with the Anti-Monopoly Law and prohibits monopoly agreements, abuse of a dominant position and
concentration of undertakings that may have the effect to eliminate or restrict competition in the field of platform economy. More
specifically, the Anti-Monopoly Guidelines for Internet Platforms outlines certain practices that may, if without justifiable reasons,
constitute abuse of a dominant position, including without limitation, tailored pricing using big data and analytics, actions or
arrangements deemed as exclusivity arrangements, using technological means to block competitors’ interface, using bundle services to
sell services or products, and compulsory collection of user data. In addition, the Anti-Monopoly Guidelines for Internet Platforms
expressly provides that concentrations involving VIEs will also be subject to antitrust filing requirements. The Anti-Monopoly
Guidelines for Internet Platforms became effective on February 7, 2021, but uncertainties exist with respect to its enforcement. Although
we believe we do not engage in any of the foregoing situations, we cannot assure you that the regulators will take the same view as ours.
If certain of our activities in China were deemed by relevant regulators as violations of the Anti-Monopoly Guidelines for Internet
Platforms, it may result in governmental investigations, fines and/or other sanctions against us.
42
Table of Contents
Our ADSs may be delisted under the Holding Foreign Companies Accountable Act if the PCAOB is unable to inspect
auditors who are located in China. The delisting of our ADSs, or the threat of their being delisted, may materially and adversely
affect the value of your investment. Additionally, the inability of the PCAOB to conduct inspections deprives our investors with
the benefits of such inspections.
The Holding Foreign Companies Accountable Act, or the HFCA Act, was enacted on December 18, 2020. The HFCA Act states
if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to
inspection by the PCAOB for three consecutive years beginning in 2021, the SEC shall prohibit our shares or ADSs from being traded on
a national securities exchange or in the over the counter trading market in the U.S.
Our auditor, the independent registered public accounting firm that issues the audit report included elsewhere in this annual
report, as an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, is subject to laws
in the United States pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional
standards. Our auditor is currently not inspected by the PCAOB.
On March 24, 2021, the SEC adopted interim final rules relating to the implementation of certain disclosure and documentation
requirements of the HFCA Act. We will be required to comply with these rules if the SEC identifies us as having a “non-inspection” year
under a process to be subsequently established by the SEC. The SEC is assessing how to implement other requirements of the HFCA
Act, including the listing and trading prohibition requirements described above.
The SEC may propose additional rules or guidance that could impact us if our auditor is not subject to PCAOB inspection. For
example, on August 6, 2020, the President’s Working Group on Financial Markets, or the PWG, issued the Report on Protecting United
States Investors from Significant Risks from Chinese Companies to the then President of the United States. This report recommended the
SEC implement five recommendations to address companies from jurisdictions that do not provide the PCAOB with sufficient access to
fulfil its statutory mandate. Some of the concepts of these recommendations were implemented with the enactment of the HFCA Act.
However, some of the recommendations were more stringent than the HFCA Act. For example, if a company was not subject to PCAOB
inspection, the report recommended that the transition period before a company would be delisted would end on January 1, 2022.
The SEC has announced that the SEC staff is preparing a consolidated proposal for the rules regarding the implementation of
the HFCA Act and to address the recommendations in the PWG report. It is unclear when the SEC will complete its rulemaking and
when such rules will become effective and what, if any, of the PWG recommendations will be adopted. The implications of this possible
regulation in addition the requirements of the HFCA Act are uncertain. Such uncertainty could cause the market price of our ADSs to be
materially and adversely affected, and our securities could be delisted or prohibited from being traded “over-the-counter” earlier than
would be required by the HFCA Act. If our securities are unable to be listed on another securities exchange by then, such a delisting
would substantially impair your ability to sell or purchase our ADSs when you wish to do so, and the risk and uncertainty associated with
a potential delisting would have a negative impact on the price of our ADSs.
The PCAOB’s inability to conduct inspections in China prevents it from fully evaluating the audits and quality control
procedures of our independent registered public accounting firm. As a result, we and investors in our ordinary shares are deprived of the
benefits of such PCAOB inspections. The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to
evaluate the effectiveness of our independent registered public accounting firm’s audit procedures or quality control procedures as
compared to auditors outside of China that are subject to the PCAOB inspections, which could cause investors and potential investors in
our stock to lose confidence in our audit procedures and reported financial information and the quality of our financial statements.
In May 2013, the PCAOB announced that it had entered into a Memorandum of Understanding on Enforcement Cooperation
with the CSRC and the PRC Ministry of Finance, which establishes a cooperative framework between the parties for the production and
exchange of audit documents relevant to investigations undertaken by the PCAOB in the PRC or by the CSRC or the PRC Ministry of
Finance in the United States. The PCAOB continues to be in discussions with the CSRC and the PRC Ministry of Finance to permit joint
inspections in the PRC of audit firms that are registered with the PCAOB and audit Chinese companies that trade on U.S. exchanges.
43
Table of Contents
Risks Related to Our American Depositary Shares
The market price for our ADSs may be volatile.
The trading prices of our ADSs are likely to be volatile and could fluctuate widely due to factors beyond our control. This may
happen because of broad market and industry factors, like the performance and fluctuation in the market prices or the underperformance
or deteriorating financial results of other listed companies based in China that have listed their securities in the United States in
recent years. The securities of some of these companies have experienced significant volatility since their initial public offerings,
including, in some cases, substantial price declines in their trading prices. The trading performance of other Chinese companies’
securities after their offerings may affect the attitudes of investors toward Chinese companies listed in the United States, which
consequently may impact the trading performance of our ADSs, regardless of our actual operating performance. In addition, any negative
news or perceptions about inadequate corporate governance practices or fraudulent accounting, corporate structure or other matters of
other Chinese companies may also negatively affect the attitudes of investors towards Chinese companies in general, including us,
regardless of whether we have conducted any inappropriate activities. In addition, securities markets may from time to time experience
significant price and volume fluctuations that are not related to our operating performance, such as the large decline in share prices in the
United States, China and other jurisdictions in late 2008, early 2009 and the second half of 2011, which may have a material adverse
effect on the market price of our ADSs.
In addition to the above factors, the price and trading volume of our ADSs may be highly volatile due to multiple factors,
including the following:
● regulatory developments affecting us, our users, or our industries;
● conditions in our industries;
● announcements of studies and reports relating to the quality of our product and service offerings or those of our
competitors;
● actual or anticipated fluctuations in our interim results of operations and changes or revisions of our expected results;
● changes in financial estimates by securities research analysts;
● announcements by us or our competitors of new product and service offerings, acquisitions, strategic relationships,
joint ventures or capital commitments;
● additions to or departures of our senior management;
● detrimental negative publicity about us, our management or our industry;
● fluctuations of exchange rates between the Renminbi and the U.S. dollars; and
● sales or perceived potential sales of additional Class A ordinary shares or ADSs.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business,
the market price for our ADSs and trading volume could decline.
The trading market for our ADSs will depend in part on the research and reports that securities or industry analysts publish
about us or our business. If research analysts do not establish and maintain adequate research coverage or if one or more of the analysts
who cover us downgrade our ADSs or publish inaccurate or unfavorable research about our business, the market price for our ADSs
would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could
lose visibility in the financial markets, which, in turn, could cause the market price or trading volume for our ADSs to decline.
44
Table of Contents
Because we do not expect to pay dividends in the foreseeable future, you must rely on price appreciation of our ADSs for
return on your investment.
We currently intend to retain most, if not all, of our available funds and any future earnings to fund the development and growth
of our business. As a result, we do not expect to pay any cash dividends in the foreseeable future. Therefore, you should not rely on an
investment in our ADSs as a source for any future dividend income.
Our board of directors has discretion as to whether to distribute dividends, subject to certain restrictions under the Cayman
Islands law, namely that our company may only pay dividends out of profits or share premium, and provided always that in no
circumstances may a dividend be paid if this would result in our company being unable to pay its debts as they fall due in the ordinary
course of business. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount
recommended by our board of directors. Even if our board of directors decides to declare and pay dividends, the timing, amount and
form of future dividends, if any, will depend on, among other things, our future results of operations and cash flow, our capital
requirements and surplus, the amount of distributions, if any, received by us from our subsidiary, our financial condition, contractual
restrictions and other factors deemed relevant by our board of directors. Accordingly, the return on your investment in our ADSs will
likely depend entirely upon any future price appreciation of our ADSs. There is no guarantee that our ADSs will appreciate in value or
even maintain the price at which you purchased the ADSs. You may not realize a return on your investment in our ADSs and you may
even lose your entire investment in our ADSs.
Our dual-class share structure with different voting rights and the restriction on transfer of Class B ordinary shares will
limit your ability to influence corporate matters and could discourage others from pursuing any change of control transactions that
holders of our Class A ordinary shares and ADSs may view as beneficial.
Our authorized share capital is divided into Class A ordinary shares and Class B ordinary shares (with certain shares remaining
undesignated, with power for our directors to designate and issue such classes of shares as they think fit). In respect of matters requiring
the votes of shareholders, holders of Class A ordinary shares and Class B ordinary shares vote together as a single class except as may
otherwise be required by law, holders of Class A ordinary shares will be entitled to one vote per share, while holders of Class B ordinary
shares will be entitled to five votes per share. Each Class B ordinary share is convertible into one Class A ordinary share at any time by
the holder thereof, while Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances. Upon any
sale, transfer, assignment or disposition of any Class B ordinary share by a holder thereof to any non-affiliate to such holder, or upon a
change of control of any Class B ordinary share to any person who is not an affiliate of the registered holder of such Class B ordinary
share, each of such Class B ordinary shares will be automatically and immediately converted into one Class A ordinary share.
Mr. Lei Sun, the chairman of our board of directors, beneficially owns an aggregate of 64,433,465 ordinary shares, representing
in aggregate 65.6% of our total voting power as of April 30, 2021. Consequently, Mr. Sun will be able to significantly influence matters
requiring shareholders’ approval such as electing directors and approving material mergers, acquisitions or other business combination
transactions. The dual-class share structure will also allow Mr. Sun to have significant influence on requisition of extraordinary general
meeting of shareholders and quorum required for general meeting of shareholders. See “Item 10. Additional Information—Our
Memorandum and Articles of Association—”Voting Rights” and “General Meetings of Shareholders and Shareholders Proposals” for
details. Mr. Sun may take actions that are not in the best interest of us or our other shareholders. This concentration of voting power and
the restriction on transfer of Class B ordinary share may also discourage, delay or prevent a change in control of our company, which
could have the dual effect of depriving our other shareholders of an opportunity to receive a premium for their shares as part of a sale of
our company and reducing the price of our ADSs. These actions may be taken even if they are opposed by our other shareholders. In
addition, Mr. Sun could divert business opportunities away from us to himself or others. For more information regarding our principal
shareholders and their affiliated entities, see “Item 6. Directors, Senior Management and Employees — E. Share Ownership.”
45
Table of Contents
The dual-class structure of our ordinary shares may adversely affect the trading market for the ADSs.
S&P Dow Jones and FTSE Russell have changed their eligibility criteria for inclusion of shares of public companies on certain
indices, including the S&P 500, to exclude companies with multiple classes of shares and companies whose public shareholders hold no
more than 5% of total voting power from being added to such indices. In addition, several shareholder advisory firms have announced
their opposition to the use of multiple class structures. As a result, the dual-class structure of our ordinary shares may prevent the
inclusion of the ADSs representing our Class A ordinary shares in such indices and may cause shareholder advisory firms to publish
negative commentary about our corporate governance practices or otherwise seek to cause us to change our capital structure. Any such
exclusion from indices could result in a less active trading market for the ADSs representing our Class A ordinary shares. Any actions or
publications by shareholder advisory firms critical of our corporate governance practices or capital structure could also adversely affect
the value of the ADSs.
Substantial future sales or perceived potential sales of our ADSs in the public market could cause the price of our ADSs
to decline.
Sales of our ADSs in the public market after our initial public offering, or the perception that these sales could occur, could
cause the market price of our ADSs to decline. All ADSs sold in the initial public offering are freely transferable without restriction or
additional registration under the Securities Act. Our Class A Ordinary Shares outstanding are also available for sale subject to volume
and other restrictions as applicable under Rules 144 and 701 under the Securities Act. To the extent these shares are sold into the market,
the market price of our ADSs could decline.
Certain holders of our ordinary shares may cause us to register under the Securities Act the sale of their shares. Registration of
these shares under the Securities Act would result in ADSs representing these shares becoming freely tradable without restriction under
the Securities Act immediately upon the effectiveness of the registration. Sales of these registered shares in the form of ADSs in the
public market could cause the price of our ADSs to decline.
46
Table of Contents
The voting rights of holders of ADSs are limited by the terms of the deposit agreement, and you may not be able to exercise
your right to direct the voting of the underlying Class A ordinary shares which are represented by your ADSs.
As a holder of our ADSs, you will not have any direct right to attend general meetings of our shareholders or to cast any votes at
such meetings. You will only be able to exercise the voting rights which attach to the underlying Class A ordinary shares which are
represented by your ADSs indirectly by giving voting instructions to the depositary in accordance with the provisions of the deposit
agreement. Under the deposit agreement, you may vote only by giving voting instructions to the depositary, as the holder of the
underlying Class A ordinary shares which are represented by your ADSs. Upon receipt of your voting instructions, the depositary will
endeavor to vote the Class A underlying Class A ordinary shares in accordance with your instructions in the event voting is by poll, and
in accordance with instructions received from a majority of holders of ADSs who provide instructions in the event voting is by show of
hands. The depositary will not join in demanding a vote by poll. You will not be able to directly exercise any right to vote with respect to
the underlying Class A ordinary shares unless you withdraw the shares and become the registered holder of such shares prior to the
record date for the general meeting. Under our sixth amended and restated memorandum and articles of association, the minimum notice
period required to be given by our company to our registered shareholders for convening a general meeting is seven days. When a
general meeting is convened, you may not receive sufficient advance notice to enable you to withdraw the underlying Class A ordinary
shares which are represented by your ADSs and become the registered holder of such shares prior to the record date for the general
meeting to allow you to attend the general meeting or to vote directly with respect to any specific matter or resolution which is to be
considered and voted upon at the general meeting. In addition, under our sixth amended and restated memorandum and articles of
association, for the purposes of determining those shareholders who are entitled to attend and vote at any general meeting, our directors
may close our register of members and/or fix in advance a record date for such meeting, and such closure of our register of members or
the setting of such a record date may prevent you from withdrawing the underlying Class A ordinary shares which are represented by
your ADSs and becoming the registered holder of such shares prior to the record date, so that you would not be able to attend the general
meeting or to vote directly. Where any matter is to be put to a vote at a general meeting, the depositary will, if we request, and subject to
the terms of the deposit agreement, endeavor to notify you of the upcoming vote and to deliver our voting materials to you. We cannot
assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote the underlying shares
which are represented by your ADSs. In addition, the depositary and its agents are not responsible for failing to carry out voting
instructions or for their manner of carrying out your voting instructions. This means that you may not be able to exercise your right to
direct the voting of the underlying Class A ordinary shares which are represented by your ADSs, and you may have no legal remedy if
the underlying Class A ordinary shares are not voted as you requested.
Except in limited circumstances, the depositary for our ADSs will give us a discretionary proxy to vote our Class A ordinary
shares underlying your ADSs if you do not instruct the depositary how to vote such shares, which could adversely affect
your interests.
Under the deposit agreement for our ADSs, the depositary will give us (or our nominee) a discretionary proxy to vote our
Class A ordinary shares represented by your ADSs at shareholders’ meetings if you do not give voting instructions to the depositary as to
how to vote the Class A ordinary shares represented by your ADSs at any particular shareholders’ meeting, unless:
● we have failed to timely provide the depositary with our notice of meeting and related voting materials;
● we have instructed the depositary that we do not wish a discretionary proxy to be given;
● we have informed the depositary that there is substantial opposition as to a matter to be voted on at the meeting;
● a matter to be voted by the discretionary proxy on at the meeting may have an adverse impact on shareholders; or
● voting at the meeting is made on a show of hands.
The effect of this discretionary proxy is that, if you fail to give voting instructions to the depositary as to how to vote the
Class A ordinary shares represented by your ADSs at any particular shareholders’ meeting, you cannot prevent our Class A ordinary
shares represented by your ADSs from being voted at that meeting, absent the situations described above, and it may make it more
difficult for shareholders to influence our management. Holders of our ordinary shares are not subject to this discretionary proxy.
47
Table of Contents
Your rights to pursue claims against the depositary as a holder of ADSs are limited by the terms of the deposit agreement and
the deposit agreement may be amended or terminated without your consent.
Under the deposit agreement, any action or proceeding against or involving the depositary, arising out of or based upon the
deposit agreement or the transactions contemplated thereby or by virtue of owning the ADSs may only be instituted by you in a state or
federal court in New York, New York, and you, as a holder of our ADSs, will have irrevocably waived any objection which you may
have to the laying of venue of any such proceeding, and irrevocably submitted to the exclusive jurisdiction of such courts in any such
action or proceeding instituted by any person. Also, we may amend or terminate the deposit agreement without your consent. If you
continue to hold your ADSs after an amendment to the deposit agreement, you agree to be bound by the deposit agreement as amended.
See “Item 12. Description of Securities Other than Equity Securities—D. American Depositary Shares” for more information.
Your right to participate in any future rights offerings may be limited, which may cause dilution to your holdings.
We may from time to time distribute rights to our shareholders, including rights to acquire our securities. However, we cannot
make such rights available to you in the United States unless we register both the rights and the securities to which the rights relate under
the Securities Act or an exemption from the registration requirements is available. Under the deposit agreement, the depositary will not
make rights available to you unless both the rights and the underlying securities to be distributed to ADS holders are either registered
under the Securities Act or exempt from registration under the Securities Act. We are under no obligation to file a registration statement
with respect to any such rights or securities or to endeavor to cause such a registration statement to be declared effective and we may not
be able to establish a necessary exemption from registration under the Securities Act. Accordingly, you may be unable to participate in
our rights offerings in the future and may experience dilution in your holdings.
You may not receive dividends or other distributions on our Class A ordinary shares and you may not receive any value for
them, if it is illegal or impractical to make them available to you.
The depositary of our ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on our
Class A ordinary shares or other deposited securities underlying our ADSs, after deducting its fees and expenses. You will receive these
distributions in proportion to the number of Class A ordinary shares your ADSs represent. However, the depositary is not responsible if it
decides that it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to
make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act but that are not
properly registered or distributed under an applicable exemption from registration. The depositary may also determine that it is not
feasible to distribute certain property through the mail. Additionally, the value of certain distributions may be less than the cost of
mailing them. In these cases, the depositary may determine not to distribute such property. We have no obligation to register under
U.S. securities laws any ADSs, Class A ordinary shares, rights or other securities received through such distributions. We also have no
obligation to take any other action to permit the distribution of ADSs, Class A ordinary shares, rights or anything else to holders of
ADSs. This means that you may not receive distributions we make on our Class A ordinary shares or any value for them if it is illegal or
impractical for us to make them available to you. These restrictions may cause a material decline in the value of our ADSs.
You may be subject to limitations on transfer of your ADSs.
Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or
from time to time when it deems expedient in connection with the performance of its duties. In addition, the depositary may refuse to
deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or
the depositary deems it advisable to do so because of any requirement of law or of any government or governmental body, or under any
provision of the deposit agreement, or for any other reason.
48
Table of Contents
Certain judgments obtained against us by our shareholders may not be enforceable.
We are an exempted company limited by shares incorporated under the laws of the Cayman Islands. We conduct substantially
all of our operations in China and substantially all of our assets are located in China. In addition, a majority of our directors and
executive officers reside within China, and most of the assets of these persons are located within China. As a result, it may be difficult or
impossible for you to effect service of process within the United States upon these individuals, or to bring an action against us or against
these individuals in the United States in the event that you believe your rights have been infringed under the U.S. federal securities laws
or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of the PRC may render
you unable to enforce a judgment against our assets or the assets of our directors and officers.
It may be difficult for overseas regulators to conduct investigation or collect evidence within China.
Shareholder claims or regulatory investigation that are common in the United States generally are difficult to pursue as a matter
of law or practicality in China. For example, in China, there are significant legal and other obstacles to providing information needed for
regulatory investigations or litigation initiated outside China. Although the authorities in China may establish a regulatory cooperation
mechanism with the securities regulatory authorities of another country or region to implement cross-border supervision and
administration, such cooperation with the securities regulatory authorities in the Unities States may not be efficient in the absence of
mutual and practical cooperation mechanism. Furthermore, according to Article 177 of the PRC Securities Law, or Article 177, which
became effective in March 2020, no overseas securities regulator is allowed to directly conduct investigation or evidence collection
activities within the territory of the PRC. While detailed interpretation of or implementation rules under Article 177 have yet to be
promulgated, the inability for an overseas securities regulator to directly conduct investigation or evidence collection activities within
China may further increase difficulties faced by you in protecting your interests. See also “ —You may face difficulties in protecting your
interests, and your ability to protect your rights through U.S. courts may be limited, because we are incorporated under the Cayman
Islands law” for risks associated with investing in us as a Cayman Islands company.
ADSs holders may not be entitled to a jury trial with respect to claims arising under the deposit agreement, which could
result in less favorable outcomes to the plaintiff(s) in any such action.
The deposit agreement governing the ADSs representing our Class A ordinary shares provides that, to the fullest extent
permitted by law, ADS holders waive the right to a jury trial of any claim they may have against us or the depositary arising out of or
relating to our shares, the ADSs or the deposit agreement, including any claim under the U.S. federal securities laws.
If we or the depositary opposed a jury trial demand based on the waiver, the court would determine whether the waiver was
enforceable based on the facts and circumstances of that case in accordance with the applicable state and federal laws. To our knowledge,
the enforceability of a contractual pre-dispute jury trial waiver in connection with claims arising under the federal securities laws has not
been finally adjudicated by the United States Supreme Court. However, we believe that a contractual pre-dispute jury trial waiver
provision is generally enforceable, including under the laws of the State of New York, which govern the deposit agreement, by a federal
or state court in the City of New York, which has non-exclusive jurisdiction over matters arising under the deposit agreement. In
determining whether to enforce a contractual pre-dispute jury trial waiver provision, courts will generally consider whether a party
knowingly, intelligently and voluntarily waived the right to a jury trial. We believe that this is the case with respect to the deposit
agreement and the ADSs. It is advisable that you consult legal counsel regarding the jury waiver provision before entering into the
deposit agreement.
If you or any other holders or beneficial owners of ADSs bring a claim against us or the depositary in connection with matters
arising under the deposit agreement or the ADSs, including claims under federal securities laws, you or such other holder or beneficial
owner may not be entitled to a jury trial with respect to such claims, which may have the effect of limiting and discouraging lawsuits
against us or the depositary. If a lawsuit is brought against us or the depositary under the deposit agreement, it may be heard only by a
judge or justice of the applicable trial court, which would be conducted according to different civil procedures and may result in different
outcomes than a trial by jury would have had, including results that could be less favorable to the plaintiff(s) in any such action.
49
Table of Contents
Nevertheless, if this jury trial waiver provision is not permitted by applicable law, an action could proceed under the terms of
the deposit agreement with a jury trial. No condition, stipulation or provision of the deposit agreement or ADSs serves as a waiver by any
holder or beneficial owner of ADSs or by us or the depositary of compliance with any substantive provision of the U.S. federal securities
laws and the rules and regulations promulgated thereunder.
You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be
limited, because we are incorporated under the Cayman Islands law.
We are an exempted company limited by shares incorporated under the laws of the Cayman Islands. Our corporate affairs are
governed by our memorandum and articles of association, the Companies Act (2021 Revision) of the Cayman Islands and the common
law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by minority shareholders and the
fiduciary duties of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman
Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands
as well as from the common law of England, the decisions of whose courts are of persuasive authority, but are not binding, on a court in
the Cayman Islands. The rights of our shareholders and the fiduciary duties of our directors under Cayman Islands law are not as clearly
established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman
Islands has a less developed body of securities laws than the United States. Some U.S. states, such as Delaware, have more fully
developed and judicially interpreted bodies of corporate law than the Cayman Islands. In addition, Cayman Islands companies may not
have standing to initiate a shareholder derivative action in a federal court of the United States.
Shareholders of Cayman Islands exempted companies like us have no general rights under Cayman Islands law to inspect
corporate records (other than copies of the memorandum and articles of association, the register of mortgages and charges, and any
special resolutions passed by the shareholders) or to obtain copies of lists of shareholders of these companies. Under Cayman Islands
law, the names of our current directors can be obtained from a search conducted at the Registrar of Companies. Our directors will have
discretion under the memorandum and articles of association to determine whether or not, and under what conditions, our corporate
records may be inspected by our shareholders, but are not obliged to make them available to our shareholders. This may make it more
difficult for you to obtain the information needed to establish any facts necessary for a shareholder resolution or to solicit proxies from
other shareholders in connection with a proxy contest.
As a result of all of the above, our public shareholders may have more difficulty in protecting their interests in the face of
actions taken by management, members of the board of directors or controlling shareholders than they would as public shareholders of a
company incorporated in the United States.
Our memorandum and articles of association contains anti-takeover provisions that could discourage a third party from
acquiring us and adversely affect the rights of holders of our Class A ordinary shares and ADSs.
Our memorandum and articles of association contain certain provisions that could limit the ability of others to acquire control of
our company, including a provision that grants authority to our board of directors to establish and issue from time to time one or more
series of preferred shares without action by our shareholders and to determine, with respect to any series of preferred shares, the terms
and rights of that series. These provisions could have the effect of depriving our shareholders and ADS holders of the opportunity to sell
their shares or ADSs at a premium over the prevailing market price by discouraging third parties from seeking to obtain control of our
company in a tender offer or similar transactions.
Our directors and officers have substantial influence over our company and their interests may not be aligned with the
interests of our other shareholders.
Our directors and officers collectively own an aggregate of 83.3% of our total voting power as of April 30, 2021. See “Item 6.
Directors, Senior Management and Employees — E. Share Ownership.” As a result, they have substantial influence over our business,
including significant corporate actions such as mergers, consolidations, election of directors and other significant corporate actions.
50
Table of Contents
They may take actions that are not in the best interest of us or our other shareholders. This concentration of voting power may
discourage, delay or prevent a change in control of our company, which could deprive our shareholders of an opportunity to receive a
premium for their shares as part of a sale of our company and may reduce the price of the ADSs. These actions may be taken even if they
are opposed by our other shareholders. In addition, the significant concentration of share ownership may adversely affect the trading
price of the ADSs due to investors’ perception that conflicts of interest may exist or arise.
We are an emerging growth company and may take advantage of certain reduced reporting requirements.
We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from
various requirements applicable to other public companies that are not emerging growth companies including, most significantly, not
being required to comply with the auditor attestation requirements of Section 404 of Sarbanes-Oxley Act of 2002 for so long as we are an
emerging growth company. As a result, if we elect not to comply with such auditor attestation requirements, our investors may not have
access to certain information they may deem important.
The JOBS Act also provides that an emerging growth company does not need to comply with any new or revised financial
accounting standards until such date that a private company is otherwise required to comply with such new or revised accounting
standards. However, we have elected to “opt out” of this provision and, as a result, we will comply with new or revised financial
accounting standards as required when they are adopted for public companies. This decision to opt out of the extended transition period
under the JOBS Act is irrevocable.
We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from
certain provisions applicable to U.S. domestic public companies.
Because we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the securities
rules and regulations in the United States that are applicable to U.S. domestic issuers, including:
● the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q or current
reports on Form 8-K;
● the sections of the Exchange Act regulating the solicitation of proxies, consents, or authorizations in respect of a
security registered under the Exchange Act;
● the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities
and liability for insiders who profit from trades made in a short period of time; and
● the selective disclosure rules by issuers of material nonpublic information under Regulation FD.
We are required to file an annual report on Form 20-F within four months of the end of each fiscal year. In addition, we intend
to publish our results on a quarterly basis as press releases, distributed pursuant to the rules and regulations of the Nasdaq Stock Market.
Press releases relating to financial results and material events will also be furnished to the SEC on Form 6-K. However, the information
we are required to file with or furnish to the SEC will be less extensive and less timely compared to that required to be filed with the SEC
by U.S. domestic issuers. As a result, you may not be afforded the same protections or information that would be made available to you
were you investing in a U.S. domestic issuer.
51
Table of Contents
As an exempted company incorporated in the Cayman Islands, we have adopted certain home country practices in relation to
corporate governance matters that differ significantly from the Nasdaq’s corporate governance requirements; these practices may
afford less protection to shareholders than they would enjoy if we complied fully with the Nasdaq’s corporate governance
requirements.
As a Cayman Islands exempted company listed on the Nasdaq Global Market, we are subject to the Nasdaq listing standards.
Section 5605(b)(1), Section 5605(c)(2) and Section 5635(c) of the Nasdaq Listing Rules requires listed companies to have, among other
things, a majority of its board members to be independent, an audit committee of at least three members and shareholders’ approval on
adoption of equity incentive awards plans. However, the Nasdaq Stock Market Rules permit a foreign private issuer like us to follow the
corporate governance practices of its home country. We follow home country practices with respect to the requirements for the majority
of the board being independent and maintaining an audit committee of at least three members. We have also adopted a new share
incentive awards plan without shareholders’ approval.
Our shareholders may be afforded less protection than they would otherwise enjoy under the Nasdaq listing standards applicable
to U.S. domestic issuers given our reliance on the home country practice exception.
We are a “controlled company” within the meaning of the Nasdaq Stock Market Rules and, as a result, can rely on
exemptions from certain corporate governance requirements that provide protection to shareholders of other companies.
We are a “controlled company” within the meaning of the Nasdaq Stock Market Rules because Mr. Lei Sun, the chairman of our
board of directors, owns more than 50% of our total voting power as of April 30, 2021. For so long as we remain a controlled company
under that definition, we are permitted to elect to rely, and may rely, on certain exemptions from corporate governance rules. As a result,
you may not have the same protection afforded to shareholders of companies that are subject to these corporate governance requirements.
We believe that we were a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for our
taxable year ended December 31, 2020, which could result in adverse U.S. federal income tax consequences to U.S. holders of our
ADSs or ordinary shares.
Based on the market price of our ADSs and composition of our assets (in particular the retention of a substantial amount of
cash), we believe that we were a “passive foreign investment company,” or “PFIC,” for U.S. federal income tax purposes for our
taxable year ended December 31, 2020, and we will likely be a PFIC for our current taxable year ending December 31, 2021 unless the
market price of our ADSs increases and/or we invest a substantial amount of cash and other passive assets we hold in assets that produce
or are held for the production of non-passive income. A non-U.S. corporation will be considered a PFIC for any taxable year if either
(1) 75% or more of its gross income for such year consists of certain types of “passive” income or (2) 50% or more of the value of its
assets (as generally determined on the basis of a quarterly average) during such year is attributable to assets that produce or are held for
the production of passive income.
If we were to be classified as a PFIC in any taxable year, a U.S. Holder (as defined in Item 10. Additional Information—E. —
Taxation—United States Federal Income Taxation) may incur significantly increased United States income tax on gain recognized on the
sale or other disposition of the ADSs or ordinary shares and on the receipt of distributions on the ADSs or ordinary shares to the extent
such gain or distribution is treated as an “excess distribution” under the U.S. federal income tax rules. Furthermore, a U.S. Holder will
generally be treated as holding an equity interest in a PFIC in the first taxable year of the U.S. Holder’s holding period in which we
become a PFIC and subsequent taxable years even if, we, in fact, cease to be a PFIC in subsequent taxable years. Accordingly, a U.S.
Holder of our ADSs or ordinary shares is urged to consult its tax advisor concerning the U.S. federal income tax consequences of an
investment in our ADSs or ordinary shares, including the possibility of making a “mark-to-market” election. For more information, see
“Item 10. Additional Information — E. Taxation — United States Federal Income Taxation.
52
Table of Contents
We will incur increased costs as a result of being a public company, particularly after we cease to qualify as an “emerging
growth company.”
We are a public company and expect to incur significant legal, accounting and other expenses that we did not incur as a private
company. The Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the SEC and the Nasdaq Stock Market,
impose various requirements on the corporate governance practices of public companies. As a company with less than US$1.07 billion in
net revenues for our last fiscal year, we qualify as an “emerging growth company” pursuant to the JOBS Act. An emerging growth
company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public
companies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of
2002 in the assessment of the emerging growth company’s internal control over financial reporting and permission to delay adopting new
or revised accounting standards until such time as those standards apply to private companies. However, we have elected to “opt out” of
the provision that allow us to delay adopting new or revised financial accounting standards and, as a result, we will comply with new or
revised financial accounting standards as required when they are adopted for public companies. This decision to opt out of the extended
transition period under the JOBS Act is irrevocable.
We expect these rules and regulations to increase our legal and financial compliance costs and to make some corporate activities
more time-consuming and costly. After we are no longer an “emerging growth company,” we expect to incur significant expenses and
devote substantial management effort toward ensuring compliance with the requirements of Section 404 of the Sarbanes-Oxley Act of
2002 and the other rules and regulations of the SEC. For example, as a result of becoming a public company, we will need to increase the
number of independent directors and adopt policies regarding internal controls and disclosure controls and procedures. We also expect
that operating as a public company will make it more difficult and more expensive for us to obtain director and officer liability insurance,
and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar
coverage. In addition, we will incur additional costs associated with our public company reporting requirements. It may also be more
difficult for us to find qualified persons to serve on our board of directors or as executive officers. We are currently evaluating and
monitoring developments with respect to these rules and regulations, and we cannot predict or estimate with any degree of certainty the
amount of additional costs we may incur or the timing of such costs.
In the past, shareholders of a public company often brought securities class action suits against the company following periods
of instability in the market price of that company’s securities. If we were involved in a class action suit, it could divert a significant
amount of our management’s attention and other resources from our business and operations, which could harm our results of operations
and require us to incur significant expenses to defend the suit. Any such class action suit, whether or not successful, could harm our
reputation and restrict our ability to raise capital in the future. In addition, if a claim is successfully made against us, we may be required
to pay significant damages, which could have a material adverse effect on our financial condition and results of operations.
ITEM 4. INFORMATION ON THE COMPANY
A.
History and Development of the Company
We initially conducted our business through Jiufu Shuke Technology Group Co., Ltd. (“Jiufu Shuke,” formerly known as
Beijing Jiufu Times Investment Consulting Co., Ltd., Jiufu Internet Finance Holdings Group Co., Ltd. and Jiufu Jinke Holdings
Group Co., Ltd., successively), a PRC company incorporated in December 2006.
We restructured our corporate organization in 2014. In January 2014, we incorporated our current holding company in the
Cayman Islands under the name of JIUFU Financial Technology Service Limited, which was later changed to 9F Inc. in June 2014. In
February 2014, we incorporated Moore Digital Technology Information Service Limited (formerly known as JIUFU Financial
Information Service Limited, “9F HK”) in Hong Kong, as a wholly-owned subsidiary of 9F Inc. We incorporated Beijing Shuzhi Lianyin
Technology Co., Ltd. (“Shuzhi Lianyin,” formerly known as Beijing Jiufu Lianyin Technology Co., Ltd.), in June 2014 and Shanghai
Shuzhi Lianyin Network Co., Ltd. (formerly known as Shanghai Jiufu Network Co., Ltd.), in August 2014 in China as wholly owned
subsidiaries of 9F HK.
53
Table of Contents
In August 2014, Shuzhi Lianyin obtained effective control over Jiufu Shuke and Beijing Puhui through a series of contractual
arrangements. In July 2015, August 2015, June 2019, May 2020 and August 2020, we amended and restated some of the
abovementioned contracts with then existing shareholders of Jiufu Shuke and Beijing Puhui. In April 2020, Zhuhai Xiaojin Hulian
Technology Co., Ltd. (“Xiaojin Hulian”) and Zhuhai Wukong Youpin Technology Co., Ltd. (“Wukong Youpin”), each a wholly-owned
subsidiary of us in China, obtained effective control over Zhuhai Lianyin and Yi Qi Mai respectively through a series of new contractual
arrangements (as amended). We terminated contractual agreements with respect to Beijing Jiufu Meihao Technology Co., Ltd. (currently
known as Beijing Jinniu Zhixuan Technology Co., Ltd., or “Jinniu Zhixuan”) in September 2020 when acquiring 100% equity interest in
it. In March 2021, Qianhai Fuyuan Network Technology (Shenzhen) Co., Ltd. (“Qianhai Fuyuan,” together with Shuzhi Lianyin, Xiaojin
Hulian and Wukong Youpin, the “WFOEs”), a wholly-owned subsidiary of us in China, obtained effective control over Shenzhen Fuyuan
through a series of new contractual arrangements. As a result of our direct ownership in our WFOEs and the contractual arrangements
with Beijing Puhui, Jiufu Shuke, Zhuhai Lianyin, Yi Qi Mai and Shenzhen Fuyuan, which are our VIEs, we will be regarded as the
primary beneficiary of our VIEs, and may treat them as our consolidated affiliated entities under U.S. GAAP. Accordingly, we will be
able to consolidate the financial results of our VIEs in our consolidated financial statements in accordance with U.S. GAAP.
We currently conduct substantially all of our operations through our PRC and Hong Kong subsidiaries and our consolidated
affiliated entities and their subsidiaries. We established three new VIEs, Yi Qi Mai, Zhuhai Lianyin and Shenzhen Fuyuan. The online
lending platform business, which was a major part of our business, was mainly conducted by Beijing Jiufu, a wholly owned subsidiary of
Jiufu Shuke. The loan products related business was mainly conducted by Xinjiang Teyi Shuke Information Technology Co., Ltd.
(“Xinjiang Shuke,” formerly known as Xinjiang Jiufu Onecard Information Technology Co., Ltd.), a wholly owned subsidiary of Yi Qi
Mai through Beijing Lirongxing Commercial Trading Co., Ltd., (“Beijing Lirongxing”), and Zhuhai Onecard Xiaojin Technology Co.,
Ltd. (“Zhuhai Xiaojin,” formerly known as Zhuhai Jiufu Xiaojin Technology Co., Ltd.), a wholly owned subsidiary of Zhuhai Lianyin.
Shuzhi Lianyin provides technical support to our operations.
We started to offer offshore stock investment products to provide investors with access to stock trading opportunities in Hong
Kong and the U.S. through Fuyuan Securities Limited, after we acquired the majority of its equity interest in August 2016. In 2018, we
started to engage in the stock distribution business and provide investors with access to stock subscription opportunities in Hong Kong
through Fuyuan Securities Limited. We provide insurance brokerage business in Hong Kong through Fuyuan Wealth Management
Limited (formerly known as 9F Wealth Management Limited), a company we acquired in July 2017.
On August 15, 2019, our ADSs commenced trading on the Nasdaq Global Market under the symbol “JFU.” We raised from our
initial public offering approximately US$57.7 million in net proceeds after deducting underwriting commissions and discounts and the
offering expenses payable by us.
In December 2020, we ceased publishing information relating to new offering of investment opportunities in fixed income
products for investors on our online lending information intermediary platform, Jiufu Puhui. Pursuant to certain collaboration
arrangements entered into by the Company and certain licensed asset management companies, the rights of investors in existing loans
underlying our fixed income products will be transferred to such companies, with relevant repayment of the principals and investment
income, as applicable, in relation to the fixed income products expected to be made by such asset management companies to the
investors within 36 months in ways chosen by investors subject to terms and on the conditions set forth in the platform notice to the
investors. After the change of business operations, Jiufu Puhui will no longer provide loan facilitation service, and licensed asset
management companies and other third-party service providers will provide existing investors with services in relation to the return of
their remaining investment in loans.
Our principal executive offices are located at Room 1607, Building No. 5, 5 West Laiguangying Road, Chaoyang District,
Beijing 100012, People’s Republic of China. Our telephone number at this address is +86 +86 (10) 8527-6996. Our registered office in
the Cayman Islands is located at Maples Corporate Services Limited, P.O. Box 309, Ugland House Grand Cayman, KY1-1104, Cayman
Islands. Our agent for service of process in the United States is Cogency Global Inc., located at 122 East 42nd Street, 18th Floor, New
York, NY 10168.
The SEC maintains an Internet website that contains reports, proxy and information statements, and other information regarding
us that filed electronically with the SEC, which can be accessed at http://www.sec.gov. Our annual reports, quarterly results, press release
and other SEC filings can also be accessed via our investor relationship website at http://ir.9fgroup.com/.
54
Table of Contents
B.
Business Overview
We once operated a leading digital financial account platform integrating and personalizing financial services and provided a
comprehensive range of financial products and services across loan products, online wealth management products, and payment
facilitation. After ceasing operation of our online lending information intermediary business, we are dedicated to a transformation into an
internet technology company that focuses on fintech services, online wealth management technology services serving mid- and high-net-
worth clients, online stock investment services in Hong Kong and consumer financing technology services in Southeast Asian countries.
Our Previous Products and Services
Digital Financial Account
We offered a single digital financial account for each user on our digital financial account platform, providing a comprehensive
range of financial products and services. Our digital financial account provided a one-stop digital solution for users to address many of
their financial needs including online lending, online wealth management and payment facilitation.
Loan Products
We offered loan products to borrowers. The loan products we offered to borrowers were funded by investors and institutional
funding partners. Our loan products were generally unsecured. For revolving loan products and non-revolving loan products, our credit
decisions were typically made within three minutes for first-time applicants and in real-time for repeat borrower drawdowns within the
approved credit limits. Loan disbursements generally occurred on the business day after the loan application was approved. For our
revolving loan products, borrowers could take out multiple loans within their approved credit limits. These features were essential to
meet the borrowers’ time-sensitive and recurring financial needs.
Revolving Loan Products
We offered a revolving loan product through One Card. In approving a One Card user, we made the credit decision regarding
whether to extend credit, how much credit to extend (the credit limit) and the borrowing cost based on our review of the user’s credit
profile. We conducted credit re-assessment for each drawdown of the revolving loan products and charged a service fee for each
drawdown.
Our One Card users drew upon approved credit limits to make online and offline transactions with our merchant partners. The
approved credit limits could also be drawn to meet the users’ other financial needs.
● Online: Users could draw upon approved credit limits to purchase goods on the 9F One Mall, our proprietary online
shopping platform providing products from third-party e-commerce platforms. Users could also withdraw cash from
the approved credit limits to meet other financial needs.
● Offline: We partnered with China UnionPay, China’s largest card payment organization, as well as commercial banks
to offer virtual credit solutions through which our users could draw upon approved credit limits for general offline
payments to merchants connected by China UnionPay.
The approved credit limits of our revolving loan products did not exceed RMB200,000. The applicable terms of our revolving
loan products were 1 to 48 months.
We set user borrowing costs for our revolving loan products based on a proprietary, tiered credit pricing model. Key factors
included the borrowers’ credit history, transactional behaviors and other underwriting factors.
55
Table of Contents
Non-revolving loan products
We offered fixed-term loan products that covered key consumption verticals such as home improvement, education, elective
medical care services and consumer electronics. These loan products were often offered by us in collaboration with leading consumption-
based lending platforms, including home improvement, education and elective medical care services.
The terms of our non-revolving loan products did not exceed 48 months. The applicable terms of our non-revolving loan for
products were 1 to 48 months.
We priced our non-revolving products under our online lending information intermediary services similarly to how we priced
our revolving loan products. In addition, the repayment of loan principal and interests, and the payment of prepayment fees and penalty
fees, if applicable, were similar to the same under our revolving loan products.
Direct lending program
Loan products funded by institutional funding partners counted towards loan products under our direct lending program.
Online Wealth Management Products
We offered a suite of online wealth management products to investors across our online platforms, including Wukong Licai, 9F
Wallet (formerly known as Jiufu Jinrong) and 9F Puhui. Our original online wealth management product was a fixed income product
representing the loans we facilitated. In 2017, we expanded our product suite to include onshore and offshore investment options
including stock, insurance, bank wealth management products and mutual funds.
Fixed income products
Our fixed income products represented investments in the loans we facilitated primarily through One Card. An investor could
individually invest in the loans through our self-directed investing tool, or they could invest by leveraging our automated investing tool.
We charge investors service fees. The minimum investment amount of our fixed income products is RMB100.0.
Investing Tools—Automated
Our investors could leverage our automated investing tools to invest in fixed income products. With our automated investing
tools, an investor agreed to invest a specified amount of money (investment balance) to borrowers through our platform for a specified
period of time (investment commitment period) with an expected rate of return. Once an investor committed funds using the tool, his or
her funds were automatically allocated among approved borrowers. As an underlying loan was repaid within the investment commitment
period, the realized funds would be automatically reinvested according to the investors’ preset investing criteria. If an investment
commitment period ended during the term of an underlying loan, we would facilitate the investor’s exit on the investor’s behalf by
transferring his or her rights with respect to the underlying loans. Our automated investors tools would then arrange such loans to be
funded by new investors making investments in our fixed income products, whom we matched to the underlying borrower. There was no
guarantee that the transfer of the underlying loans at the end of the investment commitment period would be arranged successfully.
We offered fixed-income products with investment commitment periods mainly ranging from three months to four years with
expected rates of return ranging from 6.0% to 12.0% per annum and a minimum commitment amount of RMB100. An investor would be
repaid the principal and interest at the end of the investment commitment period which was non-extendable. However, an investor may
elect to reinvest his or her funds in the form of subscription for a new fixed-income product before or upon the end of the current
investment commitment period.
56
Table of Contents
If a cash-out request was made by an investor within the investment commitment period, we had discretion to handle the
transfer request on a case-by-case basis. Before October 2019, if the transfer was arranged successfully, the investor would receive the
principal and the accrued interest as determined by the actual investment period, and we would charge an investor service fee for early
termination. Since October 2019, if a cash-out request made by an investor within the investment commitment period met our pre-set
conditions, such as human or system failure, and the loan transfer was arranged successfully, the investor would only receive the
principal, while we would not charge service fees for early termination. There was no guarantee that the reinvestment and the transfer
request of a loan made within the investment commitment period would be arranged successfully.
Investing Tools—Self-directed
Our investors could also leverage our self-directed investing tool to invest in fixed income products. Our self-directed investing
tool enabled investors to manually select investment opportunities among approved borrowers posted on our platform. After selecting a
desired loan, the investor then agreed to commit a certain amount of funds to a specific borrower through our platform until the maturity
of the loan. Funds were transferred through the custodian bank from an investor’s account to a borrower’s account once the loan was
fully subscribed. Any investor who wanted to withdraw committed funds prior to the maturity of the loan may transfer his or her rights in
the loan on his or her own initiative. There was no guarantee that the transfer requests made prior to the maturity of the loans would be
arranged successfully.
Payment facilitation and other products and services
We helped our One Card users pay credit card bills and household bills such as utilities bills using approved credit limits under
One Card. In addition, we provided other value-added services including credit history search, debt consolidation and user referral
services.
Our Business and Services
Digital Securities Service
We currently hold SFO Type 1, Type 4, Type 5 and Type 9 Licenses in Hong Kong through our subsidiary, Fuyuan Securities
Limited. Benefiting from our technology capability, we aim to establish a new type of internet-based securities investment platform that
offers convenient and effective global asset allocation services, especially offshore securities investment services, to individual investors
so as to connect them with Hong Kong and U.S. stock market. Fuyuan Securities Limited is a licensed entity that provides through its
“Fuyuan Global” App and PC software securities investment and related services such as:
● real time trading information and professional news push notification services in relation to Hong Kong- and U.S.-
listed securities;
● online whole-process account opening service that satisfies Hong Kong SFC requirements using facial recognition and
e-signatures;
● convenient transfer, FPS and EDDA deposit and withdrawal service;
● multi-category trading services that help investors’ to seize market opportunities;
● comprehensive account design services that afford investment opportunities in a wide array of securities and securities
markets; and
● 24/7 investment consulting services based on artificial intelligence technologies.
We aim to provide a richer investment portfolio to investors through applications for more licenses and expansion of service
offerings, and more effective and powerful “one account, global investment” one-stop service offerings.
In addition, we hold a Hong Kong insurance brokerage license through our subsidiary Fuyuan Wealth Management Co., Ltd.
(formerly known as Jiufu Wealth Management Co., Ltd.), an insurance brokerage license through our subsidiary Jiuxing Insurance
Brokers Co., Ltd., and a fund sales license through CSJ Golden Bull (Beijing) Investment Consulting Co., Ltd. Relying on existing
licenses, we cooperate with fund managers, asset management companies, trust companies, securities companies, insurance companies,
commercial banks, policy banks and other financial institutions and service institutions to provide Chinese high-net-worth individuals,
family and institutional investors global wealth management and investment advisory services.
57
Table of Contents
Technology Empowerment Services
By deploying our accumulated financial technologies, especially the advanced artificial intelligence algorithms such as machine
learning, community discovery, NLP voice recognition, and enhanced ML automation model training etc., we provide our partners with
technology empowerment services with respect to user acquisition, risk management, consumption scenario perception and
comprehension and data modeling. With such technologies rendered to our partners, we expect to help them improve their ability for user
acquisition, user filtering, user operation management and risk management, and reduce their user acquisition costs, promote their user
conversion and enhance their profitability.
In 2019, we officially launched our proprietary platform that integrates our core artificial intelligence, cloud and blockchain
technologies. Such platform provides our financial institution partners and merchant partners with highly customized modularized
service packages. We have also launched a SaaS version of this platform to drive our expansion into Southeast Asia and other
international markets. We have also been working closely with licensed financial institutions, such as Hubei Consumption Financial
Company, by providing them with user acquisition and credit assessment assistance, as well as consultation services. Benefiting from our
well-developed risk management and data analysis technology, we are in a superior position to help financial institutions to acquire
potential borrowers that may fit their client profile, and our deep insight on the financial industry as a long-standing provider of digital
finance solutions enable us to provide high quality consultation and integrated technology solutions to financial institutions. Since our
inception, we have served over 70 commercial banks with relevant services purchased by nearly ten thousand of their local branches, and
are actively seeking opportunities to collaborate with well-known banks overseas. In addition, the risk management system developed by
us has been widely used in banking, automobile, securities investment and insurance industries.
We have carried out compliance efforts that affords wide coverage in Southeast Asia. For example, we have obtained the P2P
license in Indonesia approved by OJK, and our Indonesian joint venture company has had its Multi-Finance license conditionally
approved by OJK pending completion of the joint venture shareholding structure change and operational readiness assessment; further,
we have cooperated with our partners to hold a personal loan license (unsecured personal loan), Nano loan license (unsecured business
owner loan) approved by Bank of Thailand and e-commerce license (e-commerce retail business) in Thailand. We also cooperate with
well-known local financial institutions in Southeast Asia to provide technical and operational-related services for the consumer finance
and e-commerce industries.
We have been actively involved in development of our technologies such as blockchain technologies, through in-house research
& development and investment in other emerging technology companies.
Information Technology and Data Protection
Our success is, in part, dependent upon our strong, secure and scalable technology capabilities across data science, artificial
intelligence and cloud computing. Principal components of our advanced information technology include:
● Data science. Data science is at the heart of our business:
● We have massive data sets. As of December 31, 2020, we have accumulated nearly 6 petabytes of data.
● We leverage advanced analytical methods such as artificial intelligence specifically machine learning around data analysis.
Critical applications include fraud detection, optimization of resource allocation and improvement of operational
efficiency.
● Security. We are committed to maintaining a secure online platform:
● We carefully protect user information. For any transmission of user information, we use data encryption to ensure
confidentiality. We employ data slicing and distribute the storage of a user’s data points across several servers. The
encryption of our applications is reinforced to prevent any attempt of de-coding or counterfeiting.
58
Table of Contents
● We have built a firewall that monitors and controls incoming and outgoing platform traffic and defends against distributed
denial-of-service attacks. Once any abnormal activity is detected, our system will immediately notify our IT team while
automatically activating our third-party traffic control service to prevent any harm to our platform.
● We have adopted a series of policies on internal controls over information systems, including physical security measures,
such as entry and equipment control, and network access management, such as identification, authentication and remote
access control.
● We conduct periodic reviews of our technology platform, identifying and correcting problems that may undermine our
system security.
● Cloud-based services and computing capabilities. We employ cloud-based computing for our user-facing systems and services.
This ensures our systems can scale with our growth, that we can remain flexible with limited maintenance and that we can
customize certain applications where necessary. As of December 31, 2020, we have deployed 2,442 servers with 6,458
terabytes of storage space, supported by an optimized algorithm of border gateway protocol, which enables us to quickly adjust
resources to meet fluctuating or unpredictable system demands.
● Artificial intelligence. We have invested considerably in the research and development of artificial intelligence. We established
an in-house artificial intelligence institute bringing together more than fifty experts recruited from both leading technology
companies and academia. We have commercially applied artificial intelligence technology not only in fraud detection but also
in smart customer service and automatic product recommendations. For example, we have successfully deployed customer
service robots to answer questions from our users.
● System stability. We maintain redundancy through a real-time multi-layer data backup system to ensure the reliability of our
network. Our platform adopts modular architecture that consists of multiple connected components, each of which can be
separately upgraded and replaced without compromising the functionality of other components. This makes our platform both
highly reliable and scalable, and prevents potential system failures caused by system error of a single component.
● Scalability. With modular architecture, our platform can be easily expanded as data storage requirements and user visits
increase. In addition, load balancing technology helps us improve distribution of workloads across multiple computing
components, optimizing resource utilization and minimizing response time.
● Automation and blockchain technology. Our analyzing tool is highly automated. We leverage over one thousand attribute-based
rules, with real time model sample updates based on automatic pattern recognition.
In addition to the foregoing technologies we employ to support our highly automated platform, we have taken various measures
to ensure uninterrupted operation of our platform. For example, we adopt self-healing technology enabling our system to perceive
malfunctions and make necessary adjustments to restore normal operational capacity without human intervention. Also, our system
integrates with systems of the multiple data providers who serve as backups for each other. If services provided by one data provider are
suspended, our system will shift to the backup sources automatically to ensure no interruption to our operation.
We have invested in the commercialization and application of emerging new technologies such as blockchain technology,
including payment processing and infrastructure provision.
Sales and Marketing
We benefit from a large user base and strong brand recognition in China, helping to drive word-of-mouth marketing. As a
supplement to word-of-mouth marketing, we also employ advertising campaigns through online marketing channels, including:
● General online marketing. Our general online marketing relies mainly on data driven search engine marketing and
displaying advertisements on portal websites. In addition, we promote our brand and software through our corporate
pages on popular interactive social media platforms.
59
Table of Contents
● Online video platforms. We collaborate with a number of major television producers and online video platforms to conduct
brand promotion, often targeting where we can match our target demographics with the audiences of television and video
audiences.
● User referrals. We acquire users through user referrals by giving certain benefits to existing users if they can successfully
invite others to become our active users.
● Partner referrals. We acquire certain users through partner referrals.
Internationalization
We have established operations in Hong Kong and Southeast Asia and established deeper cooperation with local financial
institutions where we see meaningful opportunities relating to the export of our advanced and robust technology capabilities. We are
expanding our footprint overseas and have acquired businesses and established operations in countries in Southeast Asia covering
Indonesia, Thailand, Vietnam and Singapore. In particular, starting from 2019, driven by our strategy focusing on technology
empowerment, we have enhanced our business development in Indonesia and Thailand, which allow us to cross sell more products and
services and monetize our advanced and robust technology capabilities. Furthermore, in 2019, we established cooperation with the
Thailand branch of Commerce International Merchant Bank, a major bank in Southeast Asia with headquarter in Kuala Lumpur, to
provide our proprietary risk management technologies in tiered pricing and anti-fraud modeling. We have obtained a few key financial
service licenses in Hong Kong, Indonesia and Thailand, and we plan to apply for additional licenses that are critical for executing our
business strategies. We established a research and development center in Shenzhen during the third quarter of 2019 to build an artificial
intelligence and risk management team that is dedicated to streamlining our support for overseas markets, strengthening our risk
management capabilities, and developing new and innovative modules and applications for our overall business development.
Competition
The industries we are operating in are competitive and evolving. For example, with respect to online wealth management
products, we compete with market players such as internet ecosystem owners providing cash management and quasi fixed income
products, online third-party financial brokers and information providers, and marketplace lending platforms. Some of our larger
competitors have significantly more financial, technical, marketing and other resources than we do and may be able to devote greater
resources to the development, promotion, sale and support of their development. Our competitors may also have more extensive user
bases, greater brand recognition and brand loyalty and broader partner relationships than us. We believe that our ability to compete
effectively for users and other partners depend on many factors, including the variety of our products and services, user experience on
our platform, our technological capabilities, the risk-adjusted returns offered to investors, our partnership with third parties, our
marketing and selling efforts and the strength and reputation of our brand.
Furthermore, as our business grows, we face significant competition for highly skilled personnel, including management,
engineers, product managers and risk management personnel. The success of our growth strategies depends in part on our ability to retain
existing personnel and add additional highly skilled employees.
Intellectual Property
We rely on a combination of copyright, trademark and trade secret laws and restrictions on disclosure to protect our intellectual
property rights. As of December 31, 2020, we have registered 551 trademarks with the Trademark Office of the PRC National
Intellectual Property Administration, or the Trademark Office, 386 software copyrights with the PRC National Copyright Administration,
and 168 domain names. Furthermore, we are in the process of applying for trademark registrations in Hong Kong, Indonesia, Thailand
and Vietnam.
Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy or otherwise obtain and use
our technology.
60
Table of Contents
In addition, third parties may initiate litigation against us alleging infringement of their proprietary rights or declaring their non-
infringement of our intellectual property rights. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and
Industry— We may not be able to prevent unauthorized use of our intellectual property and may be subject to intellectual property
infringement claims, which could reduce demand for our services, adversely affect our revenues and harm our competitive position.” and
“ Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—We may be subject to intellectual property
infringement claims, which may be expensive to defend and may disrupt our business and operations.”
Seasonality
We may experience seasonality in our business, reflecting seasonal fluctuations in internet usage and traditional personal
consumption patterns. While our rapid growth has somewhat masked this seasonality, our results of operations could be affected by such
seasonality in the future.
Regulation
This section sets forth a summary of the most significant rules and regulations that affect our business activities in China or our
shareholders’ rights to receive dividends and other distributions from us.
Regulations Related to Our Business Operation in China
Regulations Related to Foreign Investment
On January 1, 2020, the PRC Foreign Investment Law and the Regulations for Implementation of the PRC Foreign Investment
Law, or the Implementation Regulations, came into effect and became the principal laws and regulations governing foreign investment in
the PRC, replacing the trio of prior laws regulating foreign investment in China, namely, the Sino-foreign Equity Joint Venture Enterprise
Law, the Sino-foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-invested Enterprise Law, together with their
implementation rules and ancillary regulations.
According to the PRC Foreign Investment Law, “foreign investment” refers to the investment activities conducted directly or
indirectly by foreign individuals, enterprises or other entities in the PRC, including the following circumstances: (i) the establishment of
foreign-invested enterprises in the PRC by foreign investors solely or jointly with other investors, (ii) a foreign investors’ acquisition of
shares, equity interests, property portions or other similar rights and interests of enterprises in the PRC, (iii) investment in new projects in
the PRC by foreign investors solely or jointly with other investors, and (iv) investments made by foreign investors through means
stipulated in laws or administrative regulations or other methods prescribed by the State Council. Pursuant to the PRC Foreign
Investment Law, China has adopted a system of national treatment which includes a negative list with respect to foreign investment
administration. The negative list will be issued by, amended or released upon approval by the State Council, from time to time. The
negative list will consist of a list of industries in which foreign investments are prohibited and a list of industries in which foreign
investments are restricted. Foreign investment in prohibited industries is not allowed, while foreign investment in restricted industries
must satisfy certain conditions stipulated in the negative list. Foreign investments and domestic investments in industries outside the
scope of the prohibited industries and restricted industries stipulated in the negative list will be treated equally. The most recent version
of the negative list was issued in July 2020.
PRC Foreign Investment Law and the Implementation Regulations allow foreign-invested enterprises established prior to
January 1, 2020 and having corporate structure and governance inconsistent with the PRC Company Law or the PRC Partnership
Enterprise Law, as applicable, to maintain their corporate structure and governance within a five-year transition period, but require
adjustment for compliance with the PRC Company Law or the PRC Partnership Enterprise Law, as applicable, shall be completed prior
to the expiration of such transition period.
Foreign investors and foreign investment enterprise are also required to submit information reporting in accordance with the
PRC Foreign Investment Law and the Implementation Regulations and will be imposed legal liabilities for failure to comply with such
requirements.
61
Table of Contents
The NDRC and MOFCOM jointly promulgated the Measures for the Security Review of Foreign Investment on December 19,
2020, which became effective on since January 18, 2021. Pursuant to the Measures for the Security Review of Foreign Investment, the
NDRC and MOFCOM will establish a working mechanism office in charge of the security review of foreign investment, and any foreign
investment which has or could have an impact on national security shall be subject to security review by such working mechanism office.
The Measures for the Security Review of Foreign Investment further requires that a foreign investor or its domestic affiliate shall apply
for clearance of national security review with the working mechanism office before they conduct any investment into any of the
following fields: (i) investment in the military industry or military-related industry, and investment in areas in proximity of defense
facilities or military establishment; and (ii) investment in any important agricultural product, important energy and resources, critical
equipment manufacturing, important infrastructure, important transportation services, important cultural products and services, important
information technologies and internet products and services, important financial services, critical technologies and other important fields
which concern the national security where actual control over the invested enterprise is obtained.
Regulations Related to Insurance Brokerage and Internet Insurance
The primary regulation governing the insurance intermediaries is the Insurance Law of the PRC, or the Insurance Law, as
amended on April 24, 2015. According to the Insurance Law, the China Insurance Regulatory Commission, or the CIRC (currently
known as the China Banking and Insurance Regulatory Commission, or CBIRC), is the regulatory authority responsible for the
supervision and administration of the PRC insurance companies and the intermediaries in the insurance sector, including insurance
agencies and brokers.
On February 1, 2018, the CIRC promulgated the Provisions on the Regulation of Insurance Brokers, which became effective on
May 1, 2018 and replaced the Provisions on the Supervision and Administration of Insurance Brokerages promulgated by the CIRC in
September 2009 and amended in October 2015. “Insurance brokers,” as defined by the Provision on the Regulation of Insurance Brokers,
cover such institutions (including insurance brokerage companies and their branches) that tender intermediary services to insurance
policyholders in consideration of commissions in the process of insurance contract formation with insurance companies. Pursuant to the
Provisions on the Regulation of Insurance Brokers, the establishment and operation of an insurance broker must meet the qualification
requirements specified by the CIRC, obtain approval from the CIRC and be licensed by the CIRC. Specifically, the paid-in registered
capital of a cross-province insurance brokerage company at least must be RMB50 million and that for an intra-province insurance
brokerage company (the one only operates within the province in which it is registered) at least must be RMB10 million.
In addition, as an operation requirement, an insurance broker has to register the practice of its insurance brokerage practitioners
as required. An “insurance brokerage practitioner” is defined by the Provisions on the Regulation of Insurance Brokers as such person
within an insurance broker (i) who is to draft insurance plans for policyholders or the insured, to handle the insurance procedures and to
assist in the claims for compensation, or (ii) who is to provide the clients with consultation services regarding disaster and loss
prevention, risk assessment and risk management, and to engage in reinsurance brokerage and other business.
According to the administrative guidelines published by the CIRC on its official website and other relevant PRC regulations, a
foreign investor must satisfy the following requirements before it can invest in the insurance brokerage industry: (i) it should be a foreign
insurance broker with more than thirty years of experience in operation of commercial institutions within the territories of World Trade
Organization members; and (ii) its total assets shall be no less than US$200 million as of the end of the year prior to its application.
62
Table of Contents
On December 14, 2020, the CBIRC promulgated the Regulatory Measures for Online Insurance Business, or the Regulatory
Measures, which became effective on February 1, 2021 and supersedes the Interim Regulatory Measures for Internet Insurance Business
promulgated by the CIRC on July 22, 2015. The Regulatory Measures stipulates that only insurance companies and professional
insurance intermediaries established upon approval by insurance regulatory authorities and registered could provide internet insurance
services, such as providing insurance products consultation services, assisting policyholders with selecting insurance products,
calculating insurance premiums, drafting insurance plans for policyholders and processing insurance application formalities. It also
provides that insurance intermediaries are required to manage their marketing activities and retain records of online insurance
transactions. In addition, it sets a higher standard for insurance intermediaries that conduct online insurance business to improve IT
infrastructure and cybersecurity protection. The Regulatory Measures sets out a ramp-up process allowing the insurance institutions to
achieve full compliance in phases until February 1, 2022. Pursuant to the Regulatory Measures, the insurance institutions shall (i)
complete the rectification of the issues on internal protocols, marketing activities, sales management and information disclosure within
three months from the effective date of the Regulatory Measure; (ii) complete the rectification of other issues on business and operation
within six months from the effective date thereof; and (iii) complete the authentication of classified cybersecurity protection of its self-
operated online platform within twelve months from the effective date of the Regulatory Measure.
On June 22, 2020, the CBIRC published the Notice on Regulating the Backtracking Management of Online Insurance Sales
Behavior, or Online Insurance Sales Notice, with effect from October 1, 2020. The Online Insurance Sales Notice sets out requirements
on various aspects of online sales by insurance institutions, including sales practices, record-keeping for backtracking sales, and
disclosure requirements. For example, the Online Insurance Sales Notice requires that online sales pages should be displayed only on
insurance institutions’ self-operated online platforms and should be separated from non-sales pages. Insurance institutions should keep
records for five years after the expiry of the policy for policies with a term of one year or less and for ten years for policies with a term
longer than one year for purposes of backtracking sales. It also requires that important insurance clauses should be presented on a
separate page and be confirmed by policyholders or the insured.
Jiuxing Insurance Brokerage Co., Ltd. (formerly known as Ruifeng Insurance Brokerage Co., Ltd.), or Jiuxing Insurance, which
is a subsidiary of one of our variable interest entities, holds a license to conduct insurance brokerage business. Jiuxing Insurance started
to sell onshore insurance products in the fourth quarter of 2019 and suspended the sales due to our business adjustment in 2020.
Regulations Related to Online Sales of Securities Investment Funds
The Securities Investment Fund Law of the PRC, or Securities Investment Fund Law, which was promulgated by the Standing
Committee of the National People’s Congress on December 28, 2012 and amended with immediate effect on April 24, 2015, provides the
legal framework for regulating securities investment funds. The Securities Investment Fund Law sets out the eligibility requirements and
responsibilities of publicly-offered funds’ managers and of their directors, supervisors and senior management. It also regulates various
aspects of publicly-offered funds’ operations and organization, including offering process, trading of fund units, subscription and
redemption. For example, the Securities Investment Fund Law requires that any agencies that engages in the fund services, including but
not limited to sales, investment consulting, information technology system services, shall be registered or filed with the provisions of the
securities regulatory authority of the State Council.
63
Table of Contents
On December 17, 2015, CSRC and PBOC promulgated the Measures for the Supervision and Administration of Money Market
Funds, or the Money Market Funds Measures, which became effective on February 1, 2016. Pursuant to the Money Market Funds
Measures, money market fund, or MMF, refers to a fund invested in money market instruments and authorized to subscribe for and
redeem fund shares on each trading day. Pursuant to the Money Market Funds Measures provides as a general rule that no person may
engage in the fund sales promotion, share offering, subscription, redemption or other related activities without relevant fund sales
business qualifications granted by CSRC. In addition, several disclosure rules must be observed during the fund sales business. When
fund managers, fund sales agencies and internet companies cooperate to conduct online sales of MMFs, certain information (e.g., the
providers of fund sale services, potential investment risks and the names of MMFs being sold) shall be disclosed in a conspicuous way to
the investors. And for fund managers, fund sales agencies, fund sales payment institutions and internet companies which provide to
investors quick redemption or other value-added services, they must fully disclose the rules of such services such as those regarding the
expenses and restrictions, and shall not exaggerate the convenience of such services, Further, the fund managers, fund sales agencies and
internet companies shall explicitly agree on certain terms, which include the scope of cooperation, the legal relationships, information
security, client information protection, legal compliance, emergency response mechanisms, prevention of illegal securities activities,
post-termination operation schemes, delinquency liabilities and the protection of investors’ rights and interests. The Measures for
Supervision and Administration of Sales Agencies for Publicly-offered Securities Investment Funds, which was promulgated by the
CSRC on August 28, 2020 and became effective on October 1, 2020, further regulates that securities companies and other institutions,
subject to satisfaction of the relevant requirements, may apply for business qualification for sales of funds from the local branches of the
CSRC.
We have taken and will continue to take proper measures to ensure compliance with applicable laws rules and regulations,
including those on disclosure and information filing. We cannot assure you that our current operation model will not be deemed as
operating fund sales business in China, which may subject us to further inquiries or rectifications. See “Risk Factors—Risks Related to
Our Business and Industry—We may be adversely affected by the complexity, uncertainties and changes in PRC regulation of internet-
related or fintech-related businesses and companies, and any lack of requisite approvals, licenses, permits or filings applicable to our
business may have a material adverse effect on our business and results of operations.
Regulations Related to the Engagement of Securities Business within the Territory of the PRC by Foreign-Invested
Securities Companies
On December 29, 1998, the Standing Committee of the National People’s Congress, or the SCNPC, promulgated the Securities
Law of the PRC, or the Securities Law, and most recently amended on December 28, 2019 and became effective on March 1, 2020,
governs all the issuance or trading of shares, corporate bonds or any other securities approved by the State Council within China. No
entities or individuals shall engage in securities business in the name of a securities company without the approval by the securities
regulatory authority of the State Council.
The State Council promulgated the Regulations on the Supervision and Administration of Securities Companies on April 23,
2008 and most recently amended on July 29, 2014, which clarifies that the operation of securities businesses or establishment of
representative agencies in China by foreign-invested securities companies shall be subject to the approval of the securities regulatory
authority of the State Council.
We redirect our users and clients to open accounts and make transactions outside China, which may be considered as “engaging
in securities business within the territory of the People’s Republic of China” and an approval from State Council securities regulatory
authority may be required. See “Risk Factors—Risks Related to Our Business and Industry—We do not hold any license or permit for
providing securities brokerage business in China. Although we do not believe we engage in securities brokerage business in China, there
remain uncertainties to the interpretation and implementation of relevant PRC laws and regulations.”
64
Table of Contents
Regulations Related to Securities Investment Consulting Business
On December 25, 1997, the CSRC issued the Interim Measures for the Administration of Securities or Futures Investment
Consulting, or the Interim Measures for Securities Investment Consulting, which became effective on April 1, 1998. According to the
Interim Measures for Securities Investment Consulting, the securities investment consulting service means any analysis, prediction,
recommendations or other directly or indirectly charged consulting services provided by securities investment consulting institutions and
their investment consultants to securities investors or clients, including: (i) to accept any entrustment from any investor or client to
provide securities or futures investment consulting services; (ii) to hold any consulting seminar, lecture or analysis related to securities or
futures investment; (iii) to write any article, commentary or report on securities or futures investment consultancy in any newspaper or
periodical, or to provide securities or futures investment consulting services through media such as radio or television; (iv) to provide
securities or futures investment consulting services through telecommunications facilities such as telephone, fax, computer network; and
(v) other forms recognized by the CSRC. In addition, all institutions shall obtain the operation permits issued by the CSRC and all person
must obtain professional qualification as a securities investment consultant and joining a qualified securities investment consulting
institution before engaged in securities investment consulting service.
On October 11, 2001, the CSRC promulgated the Notice with Respect to Certain Issues on Regulating the Securities Investment
Consulting Services Provided for the Public, which became effective on the same day and was amended on October 30, 2020, stipulates
that media which disseminate securities-related information shall not publish or broadcast any analysis, prediction or recommendation in
respect of the trends of securities markets and securities products, as well as the feasibility of the securities investment made by any
institution which does not obtain the operation permits for securities investment consulting services from CSRC or any individual who is
not employed by a qualified securities investment consulting services institution and who does not satisfy the relevant professional
requirements. Any media in violation of the foregoing stipulation will be subject to reprimand or exposure by the CSRC, or be
transferred to competent department or judicial organ for further handling.
On December 5, 2012, the CSRC published the Interim Provisions on Strengthening the Regulation over Securities Investment
Consulting Services by Using “Stock Recommendation Software” Products, or the Interim Provisions, which came into effect on January
1, 2013 and was amended on October 30, 2020. Pursuant to the Interim Provisions, “stock recommendation software” are defined as any
software products, software tools or terminal devices with one or more of the following securities investment consulting services: (i)
providing investment analysis on specific securities investment products or predicting the price trends of specific securities investment
products; (ii) recommending the selection of specific securities investments products; (iii) recommending the timing for trading specific
securities investments products; and/or (iv) providing other securities investment analysis, prediction or recommendations. Therefore,
selling or providing “stock recommendation software” products to investors and directly or indirectly obtain economic benefits therefrom
shall be considered as engaging in securities investment consulting business and the operation permits for securities investment
consulting services from CSRC shall be obtained.
We cannot assure that any information or content provided on our website and mobile application in China will not be
considered as engaging in investment consulting business for providing the public with securities analysis, forecast or recommendations
through the forum or broadcasting of pre-recorded videos. See “Risk Factors—Risks Related to Our Business and Industry—We may be
adversely affected by the complexity, uncertainties and changes in PRC regulation of internet-related or fintech-related businesses and
companies, and any lack of requisite approvals, licenses, permits or filings applicable to our business may have a material adverse effect
on our business and results of operations.”
65
Table of Contents
Regulations Related to Anti-money Laundering
The PRC Anti-money Laundering Law, or the AML Law, promulgated by the Standing Committee of the National People’s
Congress on October 31, 2006 and effective since January 1, 2007, sets forth the principal anti-money laundering requirements
applicable to financial institutions as well as non-financial institutions with anti-money laundering obligations, including the adoption of
precautionary and supervisory measures, establishment of various systems for client identification, retention of clients’ identification
information and transactions records, and reports on large transactions and suspicious transactions. Pursuant to the PRC Anti-money
Laundering Law, financial institutions subject to the PRC Anti-money Laundering Law include banks, credit unions, trust investment
companies, stock brokerage companies, futures brokerage companies, insurance companies and other financial institutions specified by
the State Council, while the list of the non-financial institutions with anti-money laundering obligations will be published by the State
Council. The PBOC and other governmental authorities issued a series of administrative rules and regulations to specify the anti-money
laundering obligations of financial institutions and certain non-financial institutions, such as insurance brokerage companies, insurance
agencies and payment institutions. However, the State Council has not promulgated a list of the non-financial institutions subject to anti-
money laundering obligations.
CIRC promulgated the Administrative Measures for the Anti-money Laundering Work in the Insurance Industry, or the
Insurance AML Measures, on September 13, 2011, to set forth anti-money laundering requirements applicable to insurance companies,
insurance assets management companies, insurance agencies and insurance brokerage companies. Insurance brokerage companies are
required to provide insurance companies with customer identification information, and if necessary, copies of identification cards or
other identification documents of customers, establish an internal control system for anti-money laundering, conduct anti-money
laundering training, properly deal with major money-laundering cases involving them, cooperate during anti-money laundering
supervision, inspections, administrative investigations, and criminal investigations, and keep confidential information related to anti-
money laundering investigations. The senior management officers of insurance brokerage companies are also required to be familiar with
anti-money laundering laws and regulations.
On October 10, 2018, the PBOC, the CIRC and the CSRC jointly promulgated the Administrative Measures for Anti-money
Laundering and Counter-terrorism Financing by Internet Finance Service Agencies (for Trial Implementation), effective as of January 1,
2019, which specify the anti-money laundering obligations of internet finance service agencies and regulate that the internet finance
service agencies shall (i) adopt continuous customer identification measures; (ii) implement the system for reporting large-value or
suspicious transactions; (iii) conduct real-time monitoring of the lists of terrorist organizations and terrorists; and (iv) properly keep the
information, data and materials such as customer identification and transaction reports etc.
We have formulated and adopted certain policies and procedures, including internal controls and “know-your-customer”
procedures, aimed at preventing money laundering and terrorism financing. See “Item 3. Key Information—D. Risk Factors—Risks
Related to Our Business and Industry—Any failure by our third-party service providers to comply with applicable anti-money laundering
and anti-terrorism financing laws and regulations could damage our reputation.”
Regulations Related to Value-added Telecommunication Services
General administration of value-added telecommunication services
On September 25, 2000, the State Council promulgated the Telecommunication Regulation of the People’s Republic of China,
or the Telecom Regulation, which was amended on July 29, 2014 and February 6, 2016 respectively. The Telecom Regulation is the
primary PRC regulation governing telecommunication services and sets out the general regulatory framework for telecommunication
services provided by PRC companies. The Telecom Regulation requires telecommunication service providers to obtain from the MIIT or
its provincial level counterparts an operating license prior to the commencement of their operations. The Telecom Regulation categorizes
telecommunication services into basic telecommunication services and value-added telecommunication services. Pursuant to the Telecom
Regulation, value-added telecommunication services are defined as telecommunication and information services provided through public
networks.
The Catalogue of Telecommunication Business, or the Telecom Catalogue, which was issued as an attachment to the Telecom
Regulation and updated in February 21, 2003, December 28, 2015 and June 6, 2019, respectively, further categorizes value-added
telecommunication services into Class 1 value-added telecommunication services and Class 2 value-added telecommunication services.
66
Table of Contents
On July 3, 2017, MIIT issued the Administration Measures for the Licensing of Telecommunication Business, or the Telecom
License Measures, which became effective on September 1, 2017 and replaced and repealed the administrative measures for
telecommunication business operating permit promulgated on March 1, 2009. Pursuant to the Telecom License Measures, a commercial
operator of value-added telecommunication services must first obtain an operating license for value-added telecommunication business,
or the VATS License. The Telecom License Measures also provides that an operator providing value-added services in multiple provinces
is required to obtain an inter-regional VATS License, whereas an operator providing value-added services in one province is required to
obtain an intra-provincial VATS License. The Telecom License Measures further sets forth the qualifications and procedures for
obtaining VATS License. Pursuant to the Telecom License Measures, any telecommunication services operator must conduct
telecommunication business pursuant to the type and within the scope of business as specified in its VATS License.
Regulations related to internet information services and online data processing and transaction processing services
Pursuant to the Telecom Catalogue, both online data processing and transaction processing services and internet information
services fall within Class 2 value-added telecommunication services.
The “online data processing and transaction processing services” mean the online data processing and transaction/affair
processing services provided for users through public communication networks or the internet, using various kinds of data and
affair/transaction processing application platforms connected to various kinds of public communication networks or the internet. Online
data processing and transaction processing services include transaction processing services, electronic data interchange services and
network/electronic equipment data processing services. A telecommunication services operator engaged in online data processing and
transaction processing services shall obtain a VATS License for “online data processing and transaction processing services,” or the
EDI License.
The “information services” refer to the information services provided for users via the public communication network or the
internet and by the information collection, development, processing and construction of information platforms. By technical service
methods of information organization, transmission, etc., the “information services” are classified into information release platforms and
transmission services, information retrieval and inquiry services, information community platform services, instant information
interaction services as well as information protection and processing services. The Administrative Measures on Internet Information
Services, or the Internet Content Measures, which was promulgated by the State Council on September 25, 2000 and amended on
January 8, 2011, sets out guidelines on the provision of internet information services. The Internet Content Measures classifies internet
information services into commercial internet information services and non-commercial internet information services. Pursuant to the
Internet Content Measures, commercial internet information services refer to the service activities of compensated provision to online
subscribers through the internet of information or website production; non-commercial internet information services refer to the service
activities of non-compensated provision to online subscribers through the internet of information that is in the public domain and openly
accessible. The Internet Content Measures requires that a provider of commercial internet information services shall obtain a VATS
License for internet information services, or the ICP License. The Internet Content Measures further requires that a provider of non-
commercial internet information services shall carry out record-filing procedures with the provincial level counterparts of the MIIT.
Moreover, pursuant to the Internet Content Measures, internet information service providers shall post their ICP License numbers or
record-filing numbers in a prominent place on the homepage of their websites. In addition, the Internet Content Measures specifies a list
of prohibited content. Internet information service providers are prohibited from producing, copying, publishing or distributing
information that is humiliating or defamatory to others or that infringes the legal rights of others. Internet information service providers
must monitor and control the information posted on their websites. If any prohibited content is found by an internet information service
provider, it must immediately stop the transmission thereof, save the relevant records and make a report thereon to the relevant authority
of the State. Pursuant to the Internet Content Measures, internet information service providers that violate such prohibition may face
criminal charges or administrative sanctions.
A subsidiary of our variable interest entities, Jiufu Puhui, which previously operated our online lending information
intermediary services platform, Jiufu Puhui, has obtained an ICP License which will remain effective until January 10, 2022. Jiufu
Shuke, one of our variable interest entities, has also obtained an ICP License which will remain effective until March 9, 2022. Beijing
Jiufu Meihao Technology Co., Ltd. and Shenzhen Premium Quality Mall Technology & Trade Co., Ltd., two subsidiaries of our variable
interest entities, have obtained the EDI License.
67
Table of Contents
Regulations related to E-commerce
On January 26, 2014, SAIC adopted the Administrative Measures for Online Trading, or the Online Trading Measures, which
took effective on March 15, 2014. Under the Online Trading Measures, enterprises or other operators which engage in online
commodities trading and other services and have been registered with SAIC must make available to the public the information stated in
their business licenses directly or through a hyper-link on their websites which link to their business licenses online. The online
commodities operators must adopt measures to ensure safe online transactions and shall fully and accurately disclose information of the
business operator and the commodities, including contact information, quantity and quality of commodities and services, price and
payment, return and replacement of commodities, and safety precautions. At any time within seven days from the date after receipt of the
commodities purchased online, a consumer is entitled to refund at will the commodities except for those that by nature are not suitable
for return, which include customized commodities, fresh and perishable commodities; computer software, audiovisual products
downloaded online or the ones purchased offline but already unpackaged by consumers and other digital commodities; and newspapers
and journals that have been delivered. The online commodity business operator shall, within seven days upon receipt of the returned
commodities, refund the price paid by consumers. In addition, an online commodities business operator shall not, by virtue of contract
terms, technical measures or other means, force consumers to enter into transactions with them, or during transactions set out provisions
that are not fair to consumers, such as those to exclude or limit consumers’ rights, to relieve or exempt the operators from
responsibilities, and to increase the consumers’ responsibilities. Moreover, online shopping platform operators are required to examine
and verify the identifications of the online commodities operators and set up and keep relevant records for at least two years. Any online
shopping platform operator that simultaneously engages in online trading for products and services should clearly distinguish itself from
other online commodities operators on the shopping platform. In addition, on March 15, 2021, the SAMR promulgated the Measures for
the Supervision and Administration of Online Transactions, or Online Transactions Measures, which will take effect from May 1, 2021,
simultaneously repealed the Online Trading Measures, providing more detailed requirements for the operators and platforms, such as
clarifying the specific acts infringing consumers’ personal information in online transactions and the prohibited contents contained in the
standard terms used by the operators, and elaborating the measures shall be applicable to the operating activities of selling goods or
providing services through social network and network live-streaming. In particular, the Online Transaction Measures require that online
transaction operators shall not force customers, whether or not in a disguised manner, to consent to the collection and use of information
not directly related to their business activities by means of one-off general authorization, default authorization, bundling with other
authorizations, or the suspension of installation and use. Otherwise, such online transaction operator may be subject to fines and
consequences under related laws and regulations, including without limitation, suspension of business for rectification and revocation of
permits and licenses.
In addition, the National People’s Congress promulgated the E-commerce Law of the People’s Republic of China, or the E-
commerce Law on August 31, 2018, which took effect on January 1, 2019. The E-commerce Law clarifies some obligations for the E-
commerce operators. For example, among other things, an E-commerce operator shall (i) disclose its business license and other
administrative licenses related to its business or a link to the above information at a prominent place on the homepage of the platform;
(ii) fully and accurately disclose information related to commodities and services offered on its platform in a timely manner; (iii) inform
the users in a clear, comprehensive and explicit manner of the steps to conclude a contract, cautions, how to download the contract, etc.,
and ensure that users are able to read and download them conveniently; (iv) enable the users to make any corrections before orders are
submitted; (v) disclose the methods and procedures for inquiring, correcting and deleting users’ information and deregistering users’
accounts, and not set unreasonable for such inquiry, correction, deletion and de-registration; and (vi) provide relevant e-commerce data to
competent authorities as required by such authorities pursuant to laws and administrative regulations. The E-Commerce Law also
specifically provides certain obligations for operators of e-commerce platform like us. Pursuant to the E-Commerce Law, e-commerce
platform operators are required to (i) take necessary actions or report to relevant competent government authorities when such operators
notice any illegal production or services provided by merchants on the e-commerce platforms; (ii) verify the identity of the business
operators on the platforms; (iii) provide identity and tax related information of merchants to local branches of State Administration of
Market Regulation and tax bureaus; or (iv) record and preserve goods and service information and transaction information on the e-
commerce platform. If we fail to perform above obligations as the operator of e-commerce platform from time to time, we may be
required to make corrections within the certain time limits and face fines or even restrictions on our business activities. In addition, for
goods and services provided via e-commerce platforms that are pertinent to the life and health of consumers, e-commerce platform
operators shall bear relevant responsibilities, which may give rise to civil or criminal liabilities if the consumers suffered damages due to
the e-commerce platform operators’ failure to duly verify the qualifications or the licenses of the business operators on the platforms or
to duly perform their safety protection obligations as required by the E-Commerce Law.
68
Table of Contents
Regulation related to mobile internet applications information services
In addition to the Telecom Regulation and other regulations above, mobile applications are also regulated by the APP
Provisions, which was promulgated by the CAC on June 28, 2016 and became effective on August 1, 2016. Pursuant to the APP
Provisions, CAC and local offices of cyberspace administration shall be responsible for the supervision and administration of mobile
application information services.
Under the APP Provisions, mobile application information service providers are required to obtain relevant qualifications
prescribed by laws and regulations and shall be responsible for the supervision and administration of mobile application information
required by laws and regulations and implement the information security management responsibilities strictly, including but not limited
to (i) to authenticate the identity information of the registered users; (ii) to protect user information, and to obtain the consent of users
while collecting and using users’ personal information in a lawful and proper manner; (iii) to establish information content audit and
management mechanism, and to take against any information content in violation of laws or regulations depending on circumstances;
(iv) to safeguard users’ right to know and to make choices when users are installing or using such applications, and shall neither start any
function irrelevant to the services, nor forcefully install any other irrelevant application without the users’ consent; (v) to respect and
protect the intellectual properties and shall neither produce nor release any application that infringes others’ intellectual properties; and
(vi) to record users’ login information and keep the same for sixty days.
In addition, in December 2016, MIIT promulgated the Interim Measures on the Administration of Pre-Installation and
Distribution of Applications for Mobile Smart Terminals, which came into effect on July 1, 2017. This interim measure aims to enhance
the administration of mobile applications, and require, among others, that mobile phone manufacturers and internet information service
providers must ensure that a mobile app, as well as its ancillary resource files, configuration files and user data can be uninstalled by a
user on a convenient basis, unless it is a basic function software, which refers to a software that supports the normal functioning of the
hardware and operating system of a mobile smart device.
We have implemented internal control procedures screening the information and content on our websites and mobile
applications to ensure compliance with the APP Provisions. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our
Business and Industry—We may be held liable for information or content displayed on, retrieved from or linked to our websites and
mobile applications, which may materially and adversely affect our business and operating results.”
Regulations related to foreign direct investment in value-added telecommunication enterprises
On January 1, 2020, the PRC Foreign Investment Law and the Implementation Regulations, came into effect and replaced the
trio of existing laws regulating foreign investment in China. The PRC Foreign Investment Law and its Implementation Regulations are
formulated to further expand the opening-up policy, vigorously promote foreign investment and protect the legitimate rights and interests
of foreign investors. The PRC Foreign Investment Law does not specify the detailed regulatory regime for VIE structures, please refer to
“Item 3. Key Information—D. Risk Factors— Uncertainties exist with respect to the interpretation and implementation of the new PRC
Foreign Investment Law and its Implementation Regulation and how it may impact the viability of our current corporate structure,
corporate governance and business operations.”
Pursuant to the Provisions on Administration of Foreign Invested Telecommunications Enterprises, or the FITE Regulation,
promulgated by the State Council on December 11, 2001 and amended on September 10, 2008 and February 6, 2016, and the Negative
List, the ultimate foreign equity ownership in a value-added telecommunications services provider shall not exceed 50%, except for e-
commerce business, domestic multi-party communications services business, store-and-forward business and call center business which
may be 100% owned by foreign investors. In order to acquire any equity interest in a value-added telecommunication business in China,
a foreign investor must satisfy a number of stringent performance and operational experience requirements, including demonstrating a
good track record and experience in operating a value-added telecommunication business overseas. Foreign investors that meet these
requirements must obtain approvals from MIIT and the MOFCOM or its authorized local counterparts, which retain considerable
discretion in granting approvals. Pursuant to publicly available information, the PRC government has issued telecommunication business
operating licenses to only a limited number of foreign-invested companies.
69
Table of Contents
A Notice on Intensifying the Administration of Foreign Investment in Value-Added Telecommunications Services, issued by
MIIT in July 2006, prohibits domestic telecommunication service providers from leasing, transferring or selling VATS Licenses to any
foreign investor in any form, or providing any resources, sites or facilities to any foreign investor for their illegal operation of
telecommunication businesses in China. Pursuant to this notice, either the holder of a VATS License or its shareholders must directly own
the domain names and trademarks used by such license holder in its provision of value-added telecommunications services. The notice
further requires each license holder to have the necessary facilities, including servers, for its approved business operations and to
maintain the facilities in the regions covered by its license. If a license holder fails to comply with the requirements in the notice or cure
any non-compliance, MIIT or its local counterparts have the discretion to take measures against the license holder, including revoking its
VATS License.
In view of these restrictions on foreign direct investment in value-added telecommunication services under which our business
falls into, we have established various variable interest entities and their subsidiaries to engage in value-added telecommunication
services, including operation of our websites and mobile applications. We have contractual relationships with these variable interest
entities but we do not have actual ownership interests in. See “ Item 3. Key Information—D. Risk Factors—Risks Related to Our
Corporate Structure—If the PRC government deems that the contractual arrangements in relation to our consolidated affiliated entities do
not comply with PRC regulatory restrictions on foreign investment in the relevant industries, or if these regulations or the interpretation
of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those
operations.”
Regulations Related to Information Security, Censorship and Privacy
We are in the process of evaluating the potential impact of the Cyber Security Law on our current business practices. We plan to
further strengthen our information management and privacy protection systems to better secure the user data stored in our system. See
“Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—Our ability to protect the confidential
information of our users and funding sources and our ability to conduct our business may be adversely affected by cyber-attacks,
computer viruses, physical or electronic break-ins or similar disruptions and we may be subject to liabilities imposed by the relevant
government regulations.”
Regulations related to internet security
The Standing Committee of the National People’s Congress, China’s national legislative body, enacted the Decisions on the
Maintenance of Internet Security on December 28, 2000 and further amended on August 27, 2009, which may subject persons to
criminal liabilities in China for any attempt to use the internet to (i) gain improper entry to a computer or system of strategic importance;
(ii) disseminate politically disruptive information; (iii) leak state secrets; (iv) spread false commercial information; or (v) infringe upon
intellectual property rights. In 1997, the Ministry of Public Security issued the Administration Measures on the Security Protection of
Computer Information Network with International Connections which prohibits using the internet to leak state secrets or to spread
socially destabilizing materials. If an ICP License holder violates these measures, the PRC government may revoke its ICP License and
shut down its websites.
70
Table of Contents
The Cyber Security Law of the PRC, or the Cyber Security Law, which was promulgated on November 7, 2016 by the Standing
Committee of the National People’s Congress and came into effect on June 1, 2017, provides that network operators shall perform their
cyber security obligations and shall take technical measures and other necessary measures to protect the safety and stability of their
networks. Under the Cyber Security Law, network operators are subject to various security protection-related obligations, including,
among others, (i) network operators shall comply with certain obligations regarding maintenance of the security of internet systems;
(ii) network operators shall verify users’ identities before signing agreements or providing certain services such as information
publishing or real-time communication services; (iii) when collecting or using personal information, network operators shall clearly
indicate the purposes, methods and scope of the information collection, the use of information collection, and obtain the consent of those
from whom the information is collected; (iv) network operators shall strictly preserve the privacy of user information they collect, and
establish and maintain systems to protect user privacy; (v) network operators shall strengthen management of information published by
users, and when they discover information prohibited by laws and regulations from publication or dissemination, they shall immediately
stop dissemination of that information, including taking measures such as deleting the information, preventing the information from
spreading, saving relevant records, and reporting to the relevant governmental agencies. In addition, on July 22, 2020, the Ministry of
Public Security issued the Guiding Opinions on Implementing the Cyber Security Protection System and Critical Information
Infrastructure Security Protection System to further improve the national cyber security prevention and control system.
At the end of 2019, the Cyberspace Administration of China, or the CAC, issued the Provisions on the Management of Network
Information Content Ecology, or the CAC Order No.5, which became effective on March 1, 2020, to further strengthen the regulation
and management of network information content. Pursuant to the CAC Order No.5, each network information content service platform is
required, among others, (i) not to disseminate any information prohibited by laws and regulations, such as information jeopardizing
national security; (ii) to strengthen the examination of advertisements published on such network information content service platform;
(iii) to promulgate management rules and platform convention and improve user agreement, such that such network information content
service platform could clarify users’ rights and obligations and perform management responsibilities required by laws, regulations,
rules and convention; (iv) to establish convenient means for complaints and reports; and (v) to prepare annual work report regarding its
management of network information content ecology. In addition, a network information content service platform must not, among
others, (i) utilize new technologies such as deep-learning and virtual reality to engage in activities prohibited by laws and regulations;
(ii) engage in online traffic fraud, malicious traffic rerouting and other activities related to fraudulent account, illegal transaction account
or maneuver of users’ account; and (iii) infringe a third party’s legitimate rights or seek illegal interests by way of interfering with
information display.
Regulations related to privacy protection
The PRC Constitution states that PRC law protects the freedom and privacy of communications of citizens and prohibits
infringement of these rights. In recent years, PRC government authorities have enacted legislation on internet use to protect personal
information from any unauthorized disclosure. On May 28, 2020, the National People’s Congress adopted the Civil Code, which came
into effect on January 1, 2021. The Civil Code provides in a stand-alone chapter of right of personality and reiterates that the personal
information of a natural person shall be protected by the law. Any organization or individual shall legitimately obtain such personal
information of others in due course on a need-to-know basis and ensure the safety and privacy of such information, and refrain from
excessively handling or using such information. In the event that any personal information is or may be leaked, falsified or lost, the
information processor shall take immediate remedial measures, inform the natural person concerned and escalate such situation to the
competent department as required.
On December 7, 2011, MIIT issued the Several Provisions on Regulating the Market Order of Internet Information Services,
pursuant to which an internet information service provider may not collect any user personal information or provide any such
information to third parties without the consent of a user. In addition, an internet information service provider must expressly inform the
users of the method, content and purpose of the collection and processing of such user personal information and may only collect such
information necessary for the provision of its services. An internet information service provider is also required to properly maintain the
user personal information, and in case of any leak or likely leak of the user personal information, online lending service providers must
take immediate remedial measures and, in severe circumstances, make an immediate report to the telecommunications regulatory
authority.
71
Table of Contents
In addition, pursuant to the Decision on Strengthening the Protection of Online Information issued by the Standing Committee
of the National People’s Congress on December 28, 2012 and the Order for the Protection of Telecommunication and Internet User
Personal Information issued by MIIT on July 16, 2013, any collection and use of users’ personal information must be subject to the
consent of the users, abide by the principles of legality, rationality and necessity and be within the specified purposes, methods
and scopes.
With respect to the security of information collected and used by mobile apps, pursuant to the Announcement of Conducting
Special Supervision against the Illegal Collection and Use of Personal Information by Apps, which was issued on January 23, 2019, app
operators should collect and use personal information in compliance with the Cyber Security Law and should be responsible for the
security of personal information obtained from users and take effective measures to strengthen the personal information protection.
Furthermore, app operators should not force their users to make authorization by means of bundling, suspending installation or in other
default forms and should not collect personal information in violation of laws, regulations or breach of user agreements. Such regulatory
requirements were emphasized by the Notice on the Special Rectification of Apps Infringing upon User’s Personal Rights and Interests,
which was issued by MIIT on October 31, 2019. On November 28, 2019, the CAC, the MIIT, the Ministry of Public Security and the
State Administration for Market Regulation jointly issued the Methods of Identifying Illegal Acts of Apps to Collect and Use Personal
Information. This regulation further illustrates certain commonly-seen illegal behaviors of apps operators in terms of collection and use
of personal information, including “failure to publicize rules for collecting and using personal information,” “failure to expressly state
the purpose, manner and scope of collecting and using personal information,” “collection and use of personal information without
consent of users of such App,” “collecting personal information irrelevant to the services provided by such app in violation of the
principle of necessity,” “providing users’ personal information to others without users’ consent,” “failure to provide the function of
deleting or correcting personal information as required by laws” and “failure to publish information such as methods for complaints and
reporting.” Among others, any of the following acts of an app operator will constitute “collection and use of personal information
without consent of users”: (i) collecting an user’s personal information or activating the permission for collecting any user’s personal
information without obtaining such user’s consent; (ii) collecting personal information or activating the permission for collecting
personal information of any user who explicitly refuses such collection, or repeatedly seeking for user’s consent such that the user’s
normal use of such app is disturbed; (iii) any user’s personal information which has been actually collected by the app operator or the
permission for collecting any user’s personal information activated by the app operator is beyond the scope of personal information
which such user authorizes the app operator to collect; (iv) seeking for any user’s consent in a non-explicit manner; (v) modifying any
user’s settings for activating the permission for collecting any personal information without such user’s consent; (vi) using users’
personal information and any algorithms to directionally push any information, without providing the option of non-directed pushing
such information; (vii) misleading users to permit collecting their personal information or activating the permission for collecting such
users’ personal information by improper methods such as fraud and deception; (viii) failing to provide users with the means and methods
to withdraw their permission of collecting personal information; and (ix) collecting and using personal information in violation of the
rules for collecting and using personal information promulgated by such app operator.
Furthermore, in order to improve the protection of personal information, the National Information Security Standardization
Technical Committee also issued the Guide to Self-evaluation of Collection and Use of Personal Information by Mobile Internet
Applications (Apps) on July 22, 2020 regarding the security of information collected and used by operators of mobile apps. In addition,
pursuant to the Notice on Promulgation of the Rules on the Scope of Necessary Personal Information for Common Types of Mobile
Internet Applications jointly promulgated by the CAC, the MIIT and certain other government authorities on March 12, 2021, and which
took effect on May 1, 2021, “necessary personal information” refers to the personal information necessary for ensuring the normal
operation of a mobile app’s basic function services, without which the mobile app cannot achieve its function services. For online
lending mobile apps, the basic function services are “personal loan application services through the Internet platform for consumption,
daily production and operation turnover, etc.,” and the necessary personal information includes (i) mobile phone numbers of registered
users, and (ii) name, the type, number and validity period of the ID documentation, and bank card number of the borrower. For
investment and financial management mobile apps, the basic function services are “stocks, futures, funds, securities or other related
investment and financial services,” and the necessary personal information includes (i) mobile phone numbers of registered users, (ii)
name, the type, number and validly period of the ID documentation, and bank account number or payment account number of users, and
(iii) capital account, bank account number or payment account number of users.
72
Table of Contents
Pursuant to the Ninth Amendment to the Criminal Law issued by the Standing Committee of the National People’s Congress on
August 29, 2015 and becoming effective on November 1, 2015, any ICP License holder that fails to fulfill the obligations related to
internet information security administration as required by applicable laws and refuses to rectify upon orders, will be subject to criminal
liability for (i) any dissemination of illegal information in large scale; (ii) any severe effect due to the leakage of the client’s information;
(iii) any serious loss of evidence of criminal activities; or (iv) other severe situations. In addition, any individual or entity that (i) sells or
provides personal information to others unlawfully, or (ii) steals or illegally obtains any personal information, will be subject to criminal
liability in severe situations.
On May 8, 2017, the Supreme People’s Court and the Supreme People’s Procuratorate released the Interpretations of the
Supreme People’s Court and the Supreme People’s Procuratorate on Several Issues Concerning the Application of Law in the Handling
of Criminal Cases Involving Infringement of Citizens’ Personal Information, or the Personal Information Interpretations, which became
effective on June 1, 2017. The Personal Information Interpretations provides more practical conviction and sentencing criteria for the
infringement of citizens’ personal information and mark a milestone for the criminal protection of citizens’ personal information.
Moreover, on October 21, 2019, the Supreme People’s Court and the Supreme People’s Procuratorate of the PRC jointly issued the
Interpretations on Certain Issues Regarding the Applicable of Law in the Handling of Criminal Case Involving Illegal Use of Information
Networks and Assisting Committing Internet Crimes, which came into effect on November 1, 2019, and further clarifies the meaning of
Internet service operators and the severe situations of the relevant crimes.
On October 21, 2020, the Standing Committee of the National People’s Congress issued a Draft Personal Information Protection
Law, or the Draft Personal Information Protection Law, which integrates the scattered rules with respect to personal information rights
and privacy protection. The Draft Personal Information Protection Law aims at protecting the personal information rights and interests,
regulating the processing of personal information, ensuring the orderly and free flow of personal information in accordance with the law
and promoting the reasonable use of personal information. Personal information, as defined in the Draft Personal Information Protection
Law, refers to information related to identified or identifiable natural persons and is recorded by electronic or other means but excluding
the anonymized information. The Draft Persona Information Protection Law provides the circumstances under which a personal
information processor could process personal information, which include but not limited to, where the consent of the individual
concerned is obtained and where it is necessary for the conclusion or performance of a contract to which the individual is a contractual
party. It also stipulates certain specific rules with respect to the obligations of a personal information processor, such as to inform the
purpose and method of processing to the individuals, and the obligation of the third party who has access to the personal information by
way of co-processing or delegation etc. Furthermore, the Draft Personal Information Protection Law also provides for the rights of
natural persons whose personal information is processed, and takes special care of the personal information of children under 14 and
sensitive personal information.
Regulations Related to Intellectual Property Rights
Regulations related to copyrights
The Copyright Law of the PRC (Revised in 2010), the Copyright Law, which was further amended in November 2020 and will
take effect in June 2021, provides that Chinese citizens, legal persons, or other organizations shall, whether published or not, own
copyright in their copyrightable works, which include, among others, works of literature, art, natural science, social science, engineering
technology and computer software. Copyright owners enjoy certain legal rights, including right of publication, right of authorship and
right of reproduction.
The Computer Software Copyright Registration Measures, or the Software Copyright Measures, regulates registrations of
software copyright, exclusive licensing contracts for software copyright and assignment agreements. The National Copyright
Administration of China administers software copyright registration and China Copyright Protection Center, or the CPCC, is designated
as the software registration authority. The CPCC shall grant registration certificates to the computer software copyrights applicants which
meet the requirements of both the Software Copyright Measures and the Computer Software Protection Regulations (Revised in 2013).
As of December 31, 2020, we had registered 386 software copyrights in the PRC.
73
Table of Contents
Regulations related to trademarks
Trademarks are protected by the Trademark Law of the PRC (Revised in 2019) which was adopted in 1982 and subsequently
amended in 1993, 2001, 2013 and 2019 respectively as well as by the Implementation Regulations of the PRC Trademark Law adopted
by the State Council in 2002 and as most recently amended on April 29, 2014. The Trademark Office handles trademark registrations.
The Trademark Office grants a ten-year term to registered trademarks and the term may be renewed for another ten-year period upon
request by the trademark owner. A trademark registrant may license its registered trademarks to another party by entering into trademark
license agreements, which must be filed with the Trademark Office for its record. As with trademarks, the Trademark Law has adopted a
first-to-file principle with respect to trademark registration. If a trademark applied for is identical or similar to another trademark which
has already been registered or subject to a preliminary examination and approval for use on the same or similar kinds of products or
services, such trademark application may be rejected. Any person applying for the registration of a trademark may not injure existing
trademark rights first obtained by others, nor may any person register in advance a trademark that has already been used by another party
and has already gained a sufficient degree of reputation through such party’s use.
As of December 31, 2020, we have registered 551 trademarks in the PRC.
Regulations related to domain names
MIIT promulgated the Measures on Administration of Internet Domain Names, or the Domain Name Measures, on August 24,
2017, which became effective on November 1, 2017 and replaced the Administrative Measures on China Internet Domain Name
promulgated by MII on November 5, 2004. Pursuant to the Domain Name Measures, MIIT is in charge of the administration of PRC
internet domain names. China Internet Network Information Center, or CNNIC, under the supervision of MIIT, is responsible for the
daily administration of domain names and Chinese domain names. The domain name registration follows a first-to-file principle.
Applicants for registration of domain names shall provide the true, accurate and complete information of their identifications to domain
name registration service institutions. The applicants will become the holder of such domain names upon the completion of the
registration procedure.
As of December 31, 2020, we have registered 168 domain names in the PRC (.cn country and regional code top-level domain
names and Chinese domain names).
Regulations Related to Foreign Exchange
General administration of foreign exchange
Under the PRC Foreign Currency Administration Rules promulgated on January 29, 1996 and most recently amended on
August 5, 2008 and various regulations issued by the State Administration of Foreign Exchange, or SAFE and other relevant PRC
government authorities, RMB is convertible into other currencies for current account items, such as trade-related receipts and payments
and payment of interest and dividends. The conversion of RMB into other currencies and remittance of the converted foreign currency
outside the PRC for of capital account items, such as direct equity investments, loans and repatriation of investment, requires the prior
approval from SAFE or its local office. Payments for transactions that take place within the PRC must be made in RMB.
The Circular of SAFE on Further Improving and Adjusting Foreign Exchange Administration Policies for Direct Investment, or
the SAFE Circular 59 promulgated by SAFE on November 19, 2012, which became effective on December 17, 2012 and was further
amended on May 4, 2015 and October 10, 2018, respectively, amends and simplifies the foreign exchange procedures related to direct
investment. Pursuant to the SAFE Circular 59, the opening of various special purpose foreign exchange accounts, the reinvestment of
RMB proceeds by foreign investors in the PRC and remittance of foreign exchange profits and dividends by a foreign-invested enterprise
to its foreign shareholders no longer require the approval or verification of SAFE. In addition, domestic companies are allowed to
provide cross-border loans not only to their offshore subsidiaries, but also to their offshore parents.
74
Table of Contents
In May 2013, SAFE also promulgated the Circular on Printing and Distributing the Provisions on Foreign Exchange
Administration over Domestic Direct Investment by Foreign Investors and the Supporting Document, as amended on October 10, 2018,
which specifies that the administration by SAFE or its local branches over direct investment by foreign investors in the PRC shall be
conducted by way of registration and banks shall process foreign exchange business relating to the direct investment in the PRC based on
the registration information provided by SAFE and its branches. In February 2015, SAFE promulgated the Notice on Further Simplifying
and Improving the Foreign Exchange Management Policies for Direct Investment, or the SAFE Circular 13, which took effect on June 1,
2015. SAFE Circular 13 delegates the power to enforce the foreign exchange registration in connection with inbound and outbound
direct investments under relevant SAFE rules from local branches of SAFE to banks, thereby further simplifying the foreign exchange
registration procedures for inbound and outbound direct investments.
On March 30, 2015, SAFE promulgated the Notice of the State Administration of Foreign Exchange on Reforming the
Administration of Foreign Exchange Settlement of Capital of Foreign invested Enterprises, or SAFE Circular 19, which took effective on
June 1, 2015. On June 9, 2016, SAFE further promulgated the Notice of the State Administration of Foreign Exchange on Reforming and
Standardizing the Foreign Exchange Settlement Management Policy of Capital Account, or SAFE Circular 16, which, among other
things, amends certain provisions of SAFE Circular 19. Pursuant to SAFE Circular 19 and SAFE Circular 16, the flow and use of the
Renminbi capital converted from foreign currency denominated registered capital of a foreign-invested company is regulated such that
Renminbi capital may not be used for business beyond its business scope or to provide loans to persons other than affiliates unless
otherwise permitted under its business scope.
On January 26, 2017, SAFE issued the Notice on Improving the Check of Authenticity and Compliance to Further Promote
Foreign Exchange Control, or SAFE Circular 3, which stipulates several capital control measures with respect to the outbound remittance
of profit from domestic entities to offshore entities, including (i) under the principle of genuine transaction, banks shall check board
resolutions regarding profit distribution, the original version of tax filing records and audited financial statements; and (ii) domestic
entities shall hold income to account for previous years’ losses before remitting the profits. Moreover, pursuant to SAFE Circular 3,
domestic entities shall make detailed explanations of the sources of capital and utilization arrangements, and provide board resolutions,
contracts and other proof when completing the registration procedures in connection with an outbound investment.
On October 23, 2019, the SAFE issued the Circular on Further Promoting Cross-border Trade and Investment Facilitation, or
SAFE Circular 28, which expressly allows foreign-invested enterprises that do not have equity investments in their approved business
scope to use their capital obtained from foreign exchange settlement to make domestic equity investments as long as the investments are
real and in compliance with the foreign investment-related laws and regulations. In addition, SAFE Circular 28 stipulates that qualified
enterprises in certain pilot areas may use their capital income from registered capital, foreign debt and overseas listing, for the purpose of
domestic payments without providing authenticity certifications to the relevant banks in advance for those domestic payments.
On April 10, 2020, the SAFE issued the Circular of SAFE on Optimizing Foreign Exchange Administration to Support the
Development of Foreign-related Business or the SAFE Circular 8, pursuant to which the reform of facilitating the payments of incomes
under the capital accounts shall be promoted nationwide. Under the prerequisite of ensuring true and compliant use of funds and
complying with the prevailing administrative provisions on use of income from capital projects, enterprises which satisfy the criteria are
allowed to use income under the capital account, such as capital funds, foreign debt and overseas listing, etc., for domestic payment,
without the need to provide proof materials for veracity to the bank beforehand for each transaction.
75
Table of Contents
Regulations related to foreign exchange registration of offshore investment by PRC residents
SAFE promulgated the Circular on Relevant Issues Relating to Domestic Resident’s Investment and Financing and Roundtrip
Investment through Special Purpose Vehicles, or SAFE Circular 37, in July 2014 that requires PRC residents, including PRC resident
natural persons or PRC entities, to register with SAFE or its local branch in connection with their establishment or control of an offshore
entity established for the purpose of overseas investment or financing. The term “control” under SAFE Circular 37 is broadly defined as
the operation rights, beneficiary rights or decision-making rights acquired by the PRC residents in the offshore special purpose vehicles
by such means as acquisition, trust, proxy, voting rights, repurchase, convertible bonds or other arrangements. In addition, such PRC
residents must update their SAFE registrations when the offshore special purpose vehicle undergoes material events relating to any
change of basic information (including change of such PRC citizens or residents, name and operation term), increases or decreases in
investment amount, transfers or exchanges of shares, or mergers or divisions. SAFE further enacted SAFE Circular 13, which allows
PRC residents to register with qualified banks in connection with their establishment or control of an offshore entity established for the
purpose of overseas investment or financing. However, remedial registration applications made by PRC residents that previously failed to
comply with the SAFE Circular 37 continue to fall under the jurisdiction of the relevant local branch of SAFE.
In the event that a PRC resident holding interests in a special purpose vehicle fails to fulfill the required SAFE registration, the
PRC subsidiaries of that special purpose vehicle may be prohibited from distributing profits to the offshore parent and from carrying out
subsequent cross-border foreign exchange activities, and the special purpose vehicle may be restricted in its ability to contribute
additional capital into its PRC subsidiary. Moreover, failure to comply with the various SAFE registration requirements described above
could result in liability under PRC law for evasion of foreign exchange controls.
Regulations related to Offshore Stocks Investment
On January 29, 1996, the State Council promulgated the Foreign Exchange Administration Regulations of the PRC, which was
last amended and such amendment became effective on August 5, 2008. Pursuant to the Foreign Exchange Administration Regulations of
the PRC, Chinese nationals shall register with the foreign exchange administration department of the State Council for any foreign direct
investment or engagement in any issuance or transaction of offshore valuable securities or derivative products. On December 25, 2006,
the People’s Bank of China promulgated the Administrative Measures for Personal Foreign Exchange, which further clarifies that any
offshore equity, fixed-income or other approved financial investments by Chinese nationals, shall be conducted through a qualified
domestic financial institution. On January 5, 2007, the SAFE published the Implementation of the Administrative Measures for Personal
Foreign Exchange and last amended on May 29, 2016, under which Chinese nationals are limited to a foreign exchange quota of
US$50,000 per year for approved uses only.
In addition, pursuant to the SAFE Officials Interview on Improving the Management of Declarations of Individual Foreign
Exchange Information on December 31, 2016, Chinese nationals can only engage in offshore investments under capital items only
provided methods such as Qualified Domestic Institutional Investors, otherwise Chinese nationals can only purchase foreign currency for
the purpose of external payments within the scope of current items, including private travel, overseas study, business trips, family visits,
overseas medical treatment, trade in goods, purchase of non-investment insurance and consulting services. Furthermore, in 2016, CSRC
published a response letter to investors on its website to remind domestic investors that any offshore investments conducted by ways
which are not explicitly specified under applicable PRC Laws, may not be adequately protected by the PRC Laws.
We do not convert Renminbi into Hong Kong dollars or U.S. dollars for our clients, and require those who would like to trade
securities listed on the Hong Kong Stock Exchange or any major stock exchange in the United States through our platform to inject
funding into their respective trading accounts in Hong Kong in either Hong Kong dollars or U.S. dollars. See “Risk Factors-Risks
Related to Our Business and Industry-PRC governmental control of currency conversion, cross-border remittance and offshore
investment could have a direct impact on the trading volume achieved on our platform. If the government further tightens restrictions on
converting Renminbi to foreign currencies, including Hong Kong dollars and U.S. dollars, and/or deems our practice as in violation of
PRC laws and regulations, our business will be materially and adversely affected.” If the government further tightens restrictions on
converting Renminbi to foreign currencies, including Hong Kong dollars and U.S. dollars, and/or deems our practice as in violation of
PRC laws and regulations, our business will be materially and adversely affected.”
76
Table of Contents
Regulations Related to Dividend Distributions
Under the current regulatory regime in the PRC, foreign-invested enterprises in the PRC may pay dividends only out of their
retained earnings, if any, determined in accordance with PRC accounting standards and regulations. A PRC company is required to set
aside as statutory reserve funds of at least 10% of its after-tax profit, until the cumulative amount of such reserve funds reaches 50% of
its registered capital unless laws regarding foreign investment provide otherwise. A PRC company may, at its discretion, allocate a
portion of its after-tax profits based on PRC accounting standards to other reserve funds. These reserves are not distributable as cash
dividends. A PRC company shall not distribute any profits until any losses from prior fiscal years have been offset. Profits retained from
prior fiscal years may be distributed together with distributable profits from the current fiscal year.
Regulations Related to Taxation
Regulations related to enterprise income tax
On March 16, 2007, the Standing Committee of the National People’s Congress promulgated the Law of the PRC on Enterprise
Income Tax which was amended on February 24, 2017 and December 29, 2018, respectively, and on December 6, 2007, the State
Council enacted the Regulations for the Implementation of the Law on Enterprise Income Tax which was amended on April 23, 2019.
Under these laws and regulations, or the EIT Law, both resident enterprises and non-resident enterprises are subject to enterprise income
tax in the PRC. Resident enterprises are defined as enterprises that are established in China in accordance with PRC laws, or that are
established in accordance with the laws of foreign countries but are actually or in effect controlled from within the PRC. Non-resident
enterprises are defined as enterprises that are organized under the laws of foreign countries and whose actual management is conducted
outside the PRC, but have established institutions or premises in the PRC, or have no such established institutions or premises but have
income generated from inside the PRC. Under the EIT Law and relevant implementing regulations, a uniform corporate income tax rate
of 25% is applied, unless they qualify for certain exceptions. Pursuant to the EIT Law and its implementation rules, the income tax rate
of an enterprise that has been determined to be a high and new technology enterprise may be reduced to 15% with the approval of
relevant tax authorities. If non-resident enterprises have not formed permanent establishments or premises in the PRC, or if they have
formed permanent establishment or premises in the PRC but there is no actual relationship between the relevant income derived in the
PRC and the established institutions or premises set up by them, enterprise income tax is set at the rate of 10% with respect to their
income sourced from inside the PRC.
Under the EIT Law and its implementation rules, an enterprise established outside of the PRC with “de facto management
body” within the PRC is considered a resident enterprise and will be subject to the EIT at the rate of 25% on its worldwide income. The
term “de facto management body” refers to “the establishment that exercises substantial and overall management and control over the
production, business, personnel, accounts and properties of an enterprise.” Pursuant to SAT Circular 82 issued by the SAT in April 2009
and amended in December 2017, an overseas registered enterprise controlled by a PRC company or a PRC company group will be
classified as a “resident enterprise” with its “de facto management body” located within China if the following requirements are satisfied:
(i) the senior management and core management departments in charge of its daily operations are mainly located in the PRC; (ii) its
financial and human resources decisions are subject to determination or approval by persons or bodies located in the PRC; (iii) its major
assets, accounting books, company seals, and minutes and files of its board and shareholders’ meetings are located or kept in the PRC;
and (iv) no less than half of the enterprise’s directors or senior management with voting rights reside in the PRC. SAT issued additional
rules to provide more guidance on the implementation of SAT Circular 82 in July 2011, and issued an amendment to SAT Circular 82
delegating the authority to its provincial branches to determine whether a Chinese-controlled overseas-incorporated enterprise should be
considered a PRC resident enterprise, in January 2014. Although the SAT Circular 82, the additional guidance and its amendment only
apply to overseas registered enterprises controlled by PRC enterprises and not those controlled by PRC individuals or foreigners, the
determining criteria set forth in the circular may reflect SAT’s general position on how the “de facto management body” test should be
applied in determining the tax resident status of offshore enterprises, regardless of whether they are controlled by PRC enterprises,
individuals or foreigners. If our offshore entities are deemed PRC resident enterprises, these entities may be subject to the EIT at the rate
of 25% on their global incomes, except that the dividends distributed by our PRC subsidiaries may be exempt from the EIT to the extent
such dividends are deemed “dividends among qualified resident enterprises.”
77
Table of Contents
Regulations related to value-added tax and business tax
The Provisional Regulations of the PRC on Value-added Tax were promulgated by the State Council on December 13, 1993 and
came into effect on January 1, 1994, which was subsequently amended in 2008, 2016 and 2017. The Detailed Rules for the
Implementation of the Provisional Regulations of the PRC on Value-added Tax (Revised in 2011) was promulgated by the Ministry of
Finance, or the MOF, on December 25, 1993, which was subsequently amended in 2008 and 2011. Pursuant to these regulations, or the
VAT Law, all enterprises and individuals selling goods, services, intangible assets or real properties, providing processing, repair and
replacement services, and importing goods in or to the PRC must pay value-added tax, or VAT, and entities or individuals providing
services are subject to the VAT at a rate of 6% unless otherwise provided under relevant laws and regulations.
Pursuant to the Provisional Regulations of the PRC on Business Tax, which became effective on January 1, 1994, or the
Business Tax Regulation, and its implementation rules, all enterprises and individuals providing taxable services, transferring intangible
assets or selling real estate within the PRC must pay business tax. In November 2011, the MOF and the SAT jointly issued two circulars
setting forth the details of the pilot VAT reform program, which change the charge of sales tax from business tax to VAT for certain pilot
industries. The VAT reform program initially applied only to pilot industries in Shanghai, and was expanded to eight additional regions,
including, among others, Beijing and Guangdong province, in 2012. In August 2013, the program was further expanded nationwide. In
May 2016, the pilot program was extended to cover additional industry sectors such as construction, real estate, finance and consumer
services. On November 19, 2017, the Business Tax Regulation was abolished. On March 20, 2019, the MOF, the SAT and the General
Administration of Customs jointly issued the Notice of Strengthening Reform of VAT Policies, which provides certain VAT reduction
arrangements.
As of the date of this annual report, all our PRC subsidiaries and variable interest entities are subject to the VAT at rates ranging
from 3% to 13%.
Regulations related to dividend withholding tax
The EIT Law provides that since January 1, 2008, an income tax rate of 10% will normally be applicable to dividends declared
to non-PRC resident investors which do not have an establishment or place of business in the PRC, or which have such establishment or
place of business but the relevant income is not effectively connected with the establishment or place of business, to the extent such
dividends are derived from sources within the PRC.
Pursuant to an Arrangement Between the Mainland of China and the Hong Kong Special Administrative Region for the
Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Incomes, or the Double Tax Avoidance
Arrangement, and other applicable PRC laws, if a Hong Kong resident enterprise is determined by the competent PRC tax authority to
have satisfied the relevant conditions and requirements under such Double Tax Avoidance Arrangement and other applicable laws, the
10% withholding tax on the dividends the Hong Kong resident enterprise receives from a PRC resident enterprise may be reduced to 5%.
However, based on the Circular on Certain Issues with Respect to the Enforcement of Dividend Provisions in Tax Treaties, or SAT
Circular 81, issued on February 20, 2009 by SAT, if the relevant PRC tax authorities determine, in their discretion, that a company
benefits from such reduced income tax rate due to a structure or arrangement that is primarily tax-driven, such PRC tax authorities may
adjust the preferential tax treatment. Furthermore, in October 2019, the SAT promulgated the Administrative Measures for Non-Resident
Taxpayers to Enjoy Treaty Treatments, or Circular 35, which became effective on January 1, 2020 and superseded the Administrative
Measures for Non-Resident Enterprises to Enjoy Treatments under Tax Treaties. The Circular 35 abolished the record-filing procedure
for justifying the tax treaty eligibility of taxpayers, and stipulates that non-resident taxpayers can enjoy tax treaty benefits via the “self-
assessment of eligibility, claiming treaty benefits, retaining documents for inspection” mechanism. Non-resident taxpayers can claim tax
treaty benefits after self-assessment provided that relevant supporting documents shall be collected and retained for post-filing inspection
by the tax authorities. Moreover, pursuant to a SAT Circular 9 issued by the State Administration of Taxation in February 2018, which
became effective on April 1, 2018, a resident of a contracting state will not qualify for the benefits under the tax treaties or arrangements,
if it is not the “beneficial owner” of the dividend, interest and royalty income. Pursuant to SAT Circular 9, a “beneficial owner” is
required to have ownership and the right to dispose of the income or the rights and properties giving rise to the income, and generally
engage in substantive business activities. An agent or conduit company will not be regarded as a “beneficial owner” and, therefore, will
not qualify for treaty benefits. A conduit company normally refers to a company that is set up primarily for the purpose of evading or
reducing taxes or transferring or accumulating profits.
78
Table of Contents
Regulations related to income tax for share transfer
On February 3, 2015, SAT issued SAT Notice 7, which partially replaced and supplemented previous rules under SAT
Circular 698. On October 17, 2017, SAT issued SAT Bulletin 37, which came into effect on December 1, 2017 and concurrently
abolished SAT Circular 698. The SAT Bulletin 37 further clarifies the practice and procedure of the withholding of non-resident
enterprise income tax. By promulgating and implementing these circulars, the PRC tax authorities have enhanced their scrutiny over the
direct or indirect transfer of equity interests or other taxable assets in a PRC resident enterprise by a non-resident enterprise. Under SAT
Notice 7 and SAT Bulletin 37, where a non-resident enterprise transfers the equity interests or other taxable assets of a PRC “resident
enterprise” indirectly by disposition of the equity interests of an overseas holding company, the non-resident enterprise, being the
transferor, or the transferee, or the PRC entity which directly owned the taxable assets may report to the relevant tax authority this
“indirect transfer.” Using a “substance over form” principle, the PRC tax authority may re-characterize such indirect transfer as a direct
transfer of the equity interests in the PRC tax resident enterprise and other properties in China. As a result, gains derived from such
indirect transfer may be subject to PRC tax at a rate of up to 10%. We face uncertainties on the reporting and consequences on private
equity financing transactions, share transfers or other transactions involving the transfer of shares in our company by investors that are
non-PRC resident enterprises, or sale or purchase of shares in other non-PRC resident companies or other taxable assets by us. We and
our non-resident investors, may be at risk of being required to file a return and being taxed under SAT Notice 7 and SAT Bulletin 37, and
we may be required to expend valuable resources to comply with SAT Notice 7 and SAT Bulletin 37 or to establish that we should not be
taxed under these circulars.
Regulations Related to Employee Stock Incentive Plans
Pursuant to the Notice of Issues Related to the Foreign Exchange Administration for Domestic Individuals Participating in
Stock Incentive Plan of Overseas Listed Company, or Circular 7, which was issued by SAFE on February 15, 2012, employees, directors,
supervisors, and other senior management who participate in any stock incentive plan of an publicly-listed overseas company and who
are PRC citizens or non-PRC citizens residing in China for a continuous period of no less than one year, subject to a few exceptions, are
required to register with SAFE through a qualified domestic agent, which may be a PRC subsidiary of such overseas listed company, and
complete certain other procedures. In addition, SAFE Circular 37 provides that PRC residents who participate in a share incentive plan of
an overseas private special purpose company may register with SAFE or its local branches before exercising rights.
In addition, SAT has issued certain circulars concerning employee stock options and restricted shares. Under these circulars,
employees working in the PRC who exercise stock options or are granted restricted shares will be subject to PRC individual income tax.
The PRC subsidiaries of an overseas listed company are required to file documents related to employee stock options and restricted
shares with relevant tax authorities and to withhold individual income taxes of employees who exercise their stock option or purchase
restricted shares. If the employees fail to pay or the PRC subsidiaries fail to withhold income tax in accordance with relevant laws and
regulations, the PRC subsidiaries may face sanctions imposed by the tax authorities or other PRC governmental authorities.
Regulations Related to Employment and Social Welfare
Regulations related to labor contract
The Labor Contract Law of the PRC, the Labor Contract Law, which was promulgated on January 1, 2008 and amended on
December 28, 2012, is primarily aimed at regulating rights and obligations of employer and employee relationships, including the
establishment, performance and termination of labor contracts. Pursuant to the Labor Contract Law, labor contracts shall be concluded in
writing if labor relationships are to be or have been established between employers and the employees. Employers are prohibited from
forcing employees to work over certain time limit and employers shall pay employees for overtime work in accordance with national
regulations. In addition, employee wages shall be no lower than local standards on minimum wages and shall be paid to employees
timely.
79
Table of Contents
Regulations related to social insurance and housing fund
Enterprises in China are required by the Social Insurance Law of the PRC promulgated by the Standing Committee of the
National People’s Congress in October 2010 which became effective in July 2011 and was amended in December 2018, or the Social
Insurance Law, the Regulations on Management of Housing Provident Fund released by the State Council in March 2002 which was
amended in March 2019, and other related rules and regulations, to participate in certain employee benefit plans, including social
insurance funds, namely a pension plan, a medical insurance plan, an unemployment insurance plan, an occupational injury insurance
plan and a maternity insurance plan, and a housing provident fund, and contribute to the plans or funds in amounts equal to
certain percentages of salaries, including bonuses and allowances, of the employees as specified by the local government. Failure to
make adequate contributions to various employee benefit plans may be subject to fines and other administrative sanctions. Pursuant to
the Social Insurance Law, an employer that fails to make social insurance contributions may be ordered to rectify the non-compliance
and pay the required contributions within a stipulated deadline and be subject to a late fee of 0.05% per day, as the case may be. If the
employer still fails to rectify the failure to make social insurance contributions within the deadline, it may be subject to a fine ranging
from one to three times the amount overdue. Pursuant to the Regulations on Management of Housing Fund, an enterprise that fails to
make housing fund contributions may be ordered to rectify the noncompliance and pay the required contributions within a stipulated
deadline.
Regulations Related to M&A Rules and Overseas Listing
On August 8, 2006, six PRC governmental and regulatory agencies, including MOFCOM and CSRC, promulgated the Rules on
Mergers and Acquisition of Domestic Enterprises by Foreign Investors, or the M&A Rules, effective as of September 8, 2006 and later
revised on June 22, 2009, which governs the mergers and acquisitions of domestic enterprises by foreign investors. The M&A Rules,
among other things, requires that if an overseas company established or controlled by PRC companies or individuals intends to acquire
equity interests or assets of any other PRC domestic company affiliated with such PRC companies or individuals, such acquisition must
be submitted to MOFCOM for approval. The M&A Rules also requires that an offshore special purpose vehicle formed for overseas
listing purposes and controlled directly or indirectly by the PRC individuals or companies shall obtain the approval of the CSRC prior to
overseas listing and trading of such special purpose vehicle’s securities on an overseas stock exchange. After the PRC Foreign
Investment Law and its Implementation Regulations became effective on January 1, 2020, the provisions of the M&A Rules remain
effective to the extent they are not inconsistent with the PRC Foreign Investment Law and its Implementation Regulations.
Regulations Related to our Business Operation in Hong Kong
Regulations related to the Stock Business
The SFC authorizes corporations and individuals through licenses to act as financial intermediaries. Under the SFO, a
corporation which is not an authorized financial institution but carries out the following activities must be licensed by the SFC: (i)
carrying on a business in a regulated activity (or holding itself out as carrying on a business in a regulated activity) in Hong Kong; or (ii)
actively marketing, whether in Hong Kong or from a place outside Hong Kong, to the public any services it provides, which would
constitute a regulated activity if provided in Hong Kong.
According to the SFO, a licensed corporation must maintain a minimum level of paid-up share capital and liquid capital not less
than the amounts specified under the Securities and Futures (Financial Resources) Rules. If the licensed corporation applies for more
than one type of regulated activity, the minimum paid-up share capital and liquid capital shall be the higher or the highest amount
individually required amongst those regulated activities.
80
Table of Contents
In addition, each licensed corporation should appoint at least two responsible officers to directly supervise the conduct of each
regulated activity for which the licensed corporation operates and at least one of the proposed responsible officers must be an executive
director of the licensed corporation as defined under the SFO. As defined by the SFO, an “executive director” refers to a director of the
corporation who actively participates in or is responsible for directly supervising the business of the regulated activity. All executive
directors must seek SFC’s prior approval as responsible officers accredited to the licensed corporation. Further, for each regulated
activity, the licensed corporation should have at least one responsible officer available at all times to supervise the business. The same
individual may be appointed to be a responsible officer for more than one regulated activity, as long as he/she is fit and proper to be so
appointed and there is no conflict in the roles assumed. A person who intends to apply to be a responsible officer must demonstrate that
he/she fulfills the criteria of competence relating to academic/ industry qualification, relevant industry experience, management
experience, and local regulatory framework paper, and have sufficient authority to supervise the business of regulated activity within the
licensed corporation.
As of December 31, 2020, through Fuyuan Securities Limited, we have registered and maintained the following licenses from
SFC: (i) SFO Type 1 License, effective since December 17, 2010, for conducting regulated activities related to dealing in securities; (ii)
SFO Type 4 License, effective since April 1, 2003, for conducting regulated activities related to advising on securities; (iii) SFO Type 5
License, effective since April 1, 2003, for conducting regulated activities related to advising on futures contracts; and (iv) SFO Type 9
License, effective since April 1, 2003, for conducting regulated activities related to asset management.
Also, we have eight representatives licensed with the SFC and eligible to carry out different types of regulated activities for our
Hong Kong business under the supervision of our responsible officers.
Ongoing obligations for compliance by licensed corporations and intermediaries
In April 2017, the SFC issued the Licensing Handbook, which provides the ongoing obligations for compliance of a licensed
corporation. In general, licensed corporations and licensed representatives must remain fit and proper at all times and must comply with
all applicable provisions of the SFO and its subsidiary legislation as well as the codes and guidelines issued by the SFC. There must also
be at least one responsible officer available at all times to supervise the licensed corporation’s business of carrying on a regulated
activity.
Also, a licensed corporation is required by the Securities and Futures (Licensing and Registration) (Information) Rules to notify
the SFC of certain changes and events, which include, among others, changes in the basic information of the licensed corporation, its
controlling persons and responsible officers, or subsidiaries that carry on a business in a regulated activity; changes in the capital and
shareholding structure of the licensed corporation; and significant changes in business plan.
Furthermore, according to SFO, the related licenses in related to all or certain regulated activity of such corporation may be
suspended or revoked by the SFC if the licensed corporation does not carry on all or some of the regulated activity for which it
is licensed.
Regulations related to the Hong Kong Insurance Brokerage Business
The Insurance Companies Ordinance, as amended and supplemented from time to time, or the ICO, supports a self-regulatory
regime for insurance intermediaries, i.e., insurance agents and brokers. The ICO defines the distinct roles of insurance brokers and
require them to be appointed or authorized respectively in accordance with the relevant provisions of the ICO.
Types of insurance business
The ICO requirements vary depending on the type of insurance business being undertaken by an insurer. The ICO defines two
main types of business as follows: (i) general business, which covers all business other than long-term business, including but not limited
to accident and sickness, fire, property, motor vehicle, general liability, financial loss and legal expenses insurance; and (ii) long-term
business, which covers those types of insurance business in which policies are typically in place for long periods and includes but not
limited to, life and annuity, linked long-term, permanent health and retirement scheme management policies.
81
Table of Contents
An insurer that undertakes both long-term and general business is referred to by the Insurance Authority, or the IA, as a
composite insurer. In addition to these main types of business, the IA imposes further requirements on insurers conducting insurance
business (not being reinsurance business) relating to liabilities or risks in respect of which persons are required by any Ordinance to be
insured, including employees’ compensation insurance, third-party insurance in respect of motor vehicles and local vessels, and building
owners’ corporation third-party risks insurance.
Insurance broker appointment
Under ICO, a person is prohibited from holding himself out as an insurance broker unless he is properly appointed or
authorized. A person is also prohibited from holding himself out as an appointed insurance agent and an authorized insurance broker at
the same time. It is an offense under the ICO for an insurer to effect a contract of insurance through, or accept insurance business referred
to it by, an insurance intermediary who has not been properly appointed or authorized.
A person intending to act as an insurance broker shall either seek authorization from the public officer appointed as the IA,
pursuant to the ICO, or apply to become a member of a body of insurance brokers approved by the IA. In either way the insurance broker
is subject to the same statutory requirements. For an insurance broker who is a member of an approved body of insurance brokers, he is
also subject to the membership regulation of his own professional body which is approved by the IA.
The IA is required to maintain a register of authorized insurance brokers as well as a register of approved bodies of insurance
brokers. The registers are open for public inspection. An approved body of insurance brokers is required to maintain a register of its
members which contains the information required by the IA in respect of each member for public inspection.
We, through 9F Wealth Management Limited, is approved as an insurance broker by Professional Insurance Brokers
Association, or the PIBA, which is in turn approved by the IA as a body of insurance brokers, to carry out both long-term (include linked
long-term) and general business. Its chief executive is registered to carry out the relevant lines of business.
Acting as mandatory provident fund intermediary
We also through 9F Wealth Management Limited carry on business as an intermediary for Mandatory Provident Fund, or the
MPF. MPF is regulated by the Mandatory Provident Fund Schemes Authority, or the MPFA. Conducting business as an MPF
intermediary also requires licenses. According to Mandatory Provident Fund Schemes Ordinance, the MPFA relies on the existing
regulatory regimes including the IA (including the self-regulated organizations such as PIBA) to license and supervise MPF
intermediaries.
To meet basic registration requirements, an applicant must be supervised by one or more of the three financial regulatory
regimes, namely, the MPFA, the IA and/or the SFC. An individual applicant must pass an MPF intermediaries examination recognized
by the MPFA. In addition, the applicant must satisfy the MPFA that he/she is fit and proper to be registered as an MPF intermediary.
A register bearing particulars of registered MPF intermediaries is available for inspection at the office of the MPFA.
82
Table of Contents
C.
Organizational Structure
The following diagram illustrates our corporate structure, including our subsidiaries and our VIEs as of the date of this annual
report:
Note:
1. Each of our VIEs has entered into an Exclusive Option Agreement, as amended, if applicable, with 9F Inc as a part of VIE agreements.
2. Jinniu Zhixuan is indirectly wholly-owned by Jiufu Shuke through Zhuhai Jiuxin Asset Management Co., Ltd.
83
Table of Contents
Contractual Arrangements with our VIEs and Their Shareholder
The registered shareholders of Jiufu Shuke include Yifan Ren, Zhuhai Hengqin Zhilue Investment Partnership (Limited
Partnership), Zhuhai Hengqin Saixing Investment Partnership (Limited Partnership) and Lijun Zhang, who holds 48%, 33.2%, 10% and
8.8% equity interests in Jiufu Shuke, respectively. The registered shareholders of Beijing Puhui include Lei Sun, Changxing Xiao, Lixing
Chen, Lei Liu and Dongcheng Zhang, who holds 23.17%, 20.83%, 27.67%, 27.50% and 0.83% equity interests in Beijing Puhui,
respectively. The registered shareholders of Zhuhai Lianyin include Yu Han and Cen Chen, who holds 90% and 10% equity interests in
Zhuhai Lianyin, respectively. The registered shareholders of Yi Qi Mai include Tianjin Yuying Enterprise Management Consulting
Partnership (Limited Partnership) and Zhuhai Hengqin Yunchuang Investment Partnership (Limited Partnership), who holds 55% and
45% equity interests in Yi Qi Mai, respectively. The registered shareholders of Shenzhen Fuyuan include Haigen Zhou and Jianbo Cai,
who holds 60% and 40% equity interests in Shenzhen Fuyuan, respectively.
The following is a summary of the currently effective contractual arrangements among 9F Inc., Shuzhi Lianyin, Jiufu Shuke and
Jiufu Shuke’ shareholders. The contractual arrangements among 9F Inc., our WFOEs, and other consolidated affiliated entities, including
Beijing Puhui, Zhuhai Lianyin, Yi Qi Mai and Shenzhen Fuyuan, and the shareholders of such consolidated affiliated entities are
substantially the same. As a result of these contractual arrangements, we have the power to direct activities of our consolidated affiliated
entities that most significantly impact the economic performance of these consolidated affiliated entities. We are also entitled to receive
substantially all of the economic benefits as primary beneficiary and we bear the obligation to absorb any and all economic losses
incurred by our consolidated affiliated entities. In addition, we have an exclusive option to purchase all or part of the equity interests in
each of our consolidated affiliated entities when and to the extent permitted by the PRC law. Therefore, we are able to consolidate the
financial results of our consolidated affiliated entities into our financial statements in accordance with U.S. GAAP.
Master Exclusive Service Agreement
Under the master exclusive service agreement between Jiufu Shuke and Shuzhi Lianyin, Shuzhi Lianyin has the exclusive right
to provide, among other things, technical support and consulting services to Jiufu Shuke and Jiufu Shuke agrees to accept all the
consultation and services provided by Shuzhi Lianyin. Without Shuzhi Lianyin’s prior written consent, Jiufu Shuke agrees not to accept
the same or any similar services provided by any third party. In addition, Jiufu Shuke irrevocably grants Shuzhi Lianyin an exclusive and
irrevocable option to purchase any or all of the assets and business of Jiufu Shuke at the lowest price permitted under PRC law. Shuzhi
Lianyin exclusively owns all intellectual property rights arising out of or created during the performance of this agreement. Jiufu Shuke
agrees to pay Shuzhi Lianyin a monthly service fee, which percentage may be determined and adjusted at the sole discretion of Shuzhi
Lianyin after taking into account factors including the complexity and difficulty of the services provided, the time consumed, the
seniority of the Shuzhi Lianyin employees providing services to Jiufu Shuke, the value of services provided, the market price of
comparable services and the operating conditions of Jiufu Shuke. Furthermore, to the extent permitted under the PRC law, Shuzhi
Lianyin agrees to provide financial support to Jiufu Shuke if Jiufu Shuke has any operating loss or suffered any critical operation
adversity. The agreement will remain effective unless Shuzhi Lianyin terminates the agreement in writing or a relevant governmental
authority rejects the renewal applications by either Jiufu Shuke or Shuzhi Lianyin to renew their respective operation term provided in
the business licenses upon expiration.
Proxy Agreements and Powers of Attorney, including Amended and Restated Proxy Agreements and Powers of Attorney
Under the proxy agreement and power of attorney, or amended and restated proxy agreement and power of attorney if
applicable, by and among Shuzhi Lianyin, Jiufu Shuke and each shareholder of Jiufu Shuke, each of Jiufu Shuke’ shareholders
irrevocably nominates, appoints and constitutes Shuzhi Lianyin and its successors as its attorney-in-fact to exercise any and all of his
rights as a shareholder of Jiufu Shuke, including but not limited to the right to call, attend and vote at shareholders’ meetings and the
right to appoint and remove directors and senior management. Each shareholder of Jiufu Shuke further covenants that, without the prior
written consent of Shuzhi Lianyin, such shareholder shall not exercise any shareholder’s right, and if the shareholder receives any
dividends, interest, any other forms of capital distributions, residual assets upon liquidation, or proceeds or consideration from the
transfer of equity interest as a result of, or in connection with, such shareholder’s equity interests in Jiufu Shuke, the shareholder shall, to
the extent permitted by applicable laws, pass them all on to Shuzhi Lianyin or its designee at no consideration. The proxy agreements
and powers of attorney will remain effective as long as Jiufu Shuke exists. The shareholders of Jiufu Shuke do not have the right to
terminate this agreement or revoke the appointment of the attorney-in-fact without the prior written consent of Shuzhi Lianyin.
84
Table of Contents
Exclusive Option Agreements, including Amended and Restated Exclusive Option Agreements
Under the exclusive option agreements, or amended and restated exclusive option agreements if applicable, by and among 9F
Inc., Shuzhi Lianyin, Jiufu Shuke and each of the shareholders of Jiufu Shuke, each shareholder of Jiufu Shuke irrevocably grants 9F Inc.
or its designated person(s) an exclusive option to purchase, at any time and to the extent permitted under PRC law, all or part of his
equity interests in Jiufu Shuke at a price equal to the actual capital contribution paid in the registered capital of Jiufu Shuke by such
shareholder. If the above price is lower than the lowest price permitted by the PRC law, the lowest price permitted under the PRC law
will apply. As agreed in the loan agreements between Shuzhi Lianyin and such shareholder, if 9F Inc. designates Shuzhi Lianyin as its
designated person to exercise the option to purchase the equity interests in Jiufu Shuke, Shuzhi Lianyin may elect to pay for the purchase
by canceling the outstanding amount of loans owed by such shareholder to Shuzhi Lianyin. Without 9F Inc.’s prior written consent, Jiufu
Shuke and its shareholders will not sell, transfer, mortgage or otherwise dispose of Jiufu Shuke’s legal or beneficial interests in its assets,
business or revenues, or allow the creation of any encumbrance on such interests. To the extent permitted under applicable PRC laws, the
shareholders of Jiufu Shuke also agree to timely donate to 9F Inc. or its designee any profits, interests, dividends or proceeds of
liquidation received from Jiufu Shuke or proceeds received from the transfer of equity interests in Jiufu Shuke. These agreements will
remain effective until all equity interests held in Jiufu Shuke by its shareholders are transferred or assigned to 9F Inc. or its designated
person(s).
Loan Agreements
Pursuant to the loan agreements between Shuzhi Lianyin and each of the shareholders of Jiufu Shuke, Shuzhi Lianyin extended
loans to the shareholders of Jiufu Shuke, who had contributed the loan principal to Jiufu Shuke as registered capital. The shareholders of
Jiufu Shuke may repay the loans only by transferring their respective equity interests in Jiufu Shuke to 9F Inc. or its designated person(s)
pursuant to the exclusive option agreements. Each loan shall be interest-free unless, in the event of a transfer of equity interests by a
shareholder of Jiufu Shuke to 9F Inc. or its designated person(s) pursuant to the exclusive option agreement, the transfer price exceeds
the loan principal. The excess over the loan principal shall be deemed the interest of the loan to the extent permitted under PRC law.
These loan agreements will remain effective until the date of full performance by the parties of their respective obligations thereunder.
Equity Interest Pledge Agreements, including Amended and Restated Equity Interest Pledge Agreements
Under the equity interest pledge agreements, or amended and restated equity interest pledge agreements if applicable, among
Shuzhi Lianyin, Jiufu Shuke and each of the shareholders of Jiufu Shuke, the shareholders of Jiufu Shuke pledge all of their equity
interests in Jiufu Shuke, including any equity interest subsequently acquired, to Shuzhi Lianyin to secure the performance by Jiufu Shuke
and its shareholders of their respective obligations under the contractual arrangements, including the payments due to Shuzhi Lianyin for
services provided. If Jiufu Shuke or the pledger breach their obligations under these contractual arrangements, Shuzhi Lianyin, as the
pledgee, will be entitled to certain rights and remedies including priority in receiving the proceeds from the auction or disposal of the
pledged equity interests in Jiufu Shuke. Shuzhi Lianyin has the right to receive dividends distributed on the pledged equity interests
during the term of the pledge. The pledge becomes effective on the date when the pledge of equity interests contemplated under the
agreement has been registered with the relevant local administration for industry and commerce (currently known as the administration
for market regulation) and will remain valid until the master exclusive service agreement and the relevant exclusive option agreements
and proxy agreement and power of attorney, expire or terminate. We have registered the equity interest pledge with the Chaoyang Branch
of Beijing Administration for Industry and Commerce in Beijing.
Spousal Consent Letters
Pursuant to spousal consent letters, the spouse of each of the shareholders, if applicable, of Jiufu Shuke acknowledges that the
equity interests in Jiufu Shuke held by and registered in the name of his spouse will be disposed of pursuant to the equity interest pledge
agreement, the exclusive option agreement, the proxy agreement and power of attorney, and the loan agreement by and among 9F Inc.,
Shuzhi Lianyin, Jiufu Shuke, the shareholders of Jiufu Shuke and his spouse. The spouses undertake not to make any assertions in
connection with the equity interests in Jiufu Shuke, and agree to be bound by the afore-mentioned agreements if they receive any equity
interests in Jiufu Shuke.
85
Table of Contents
In the opinion of Han Kun Law Offices, our PRC legal counsel:
● the ownership structures of our PRC subsidiaries and consolidated affiliated entities do not and will not result in violation
of any explicit provisions of PRC laws, rules or regulations currently in effect; and
● the contractual arrangements among our PRC subsidiaries, our consolidated affiliated entities (VIEs) and the shareholders
of such consolidated affiliated entities governed by PRC laws, rules and regulations are valid, binding and enforceable, and
will not result in violation of any explicit provisions of PRC laws, rules or regulations currently in effect.
However, we have been further advised by our PRC legal counsel that there are substantial uncertainties regarding the
interpretation and application of current and future PRC laws, rules and regulations. Accordingly, the PRC regulatory authorities may in
the future take a view that is contrary to the above opinion of our PRC legal counsel. We have been further advised by our PRC counsel
that if the PRC government finds that the agreements that establish the structure for operating our business do not comply with PRC
government restrictions on foreign investment in telecommunications businesses, we could be subject to severe penalties including being
prohibited from continuing operations. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure.”
D.
Property, Plant and Equipment
As of December 31, 2020, our principal executive offices are located on leased premises comprising approximately 22,547
square meters in Beijing, China. Our principal executive offices serve as our management headquarters and center of research and
development, human resources and administrative activities. In addition to our headquarters in Beijing, we also have material branches in
Shenzhen and Hong Kong for online wealth management, risk management operations, stock investment and research and development,
respectively. All those material branches are based on leased properties and these leases together comprise approximately 25,151 square
meters in China, and 864 square meters in Hong Kong and 1,089 square meters in Thailand and Indonesia. All our branch offices are
leased from independent third parties, and we plan to renew these leases from time to time as needed. We own a building of
approximately 2,486 square meters in Xinjiang, China, to operate our fintech empowerment services and a building of approximately
1,707 square meters in Beijing, China as our principal office premises.
Our servers are mainly hosted in leased internet data centers in different geographic regions in China. The majority of these data
centers are owned and maintained by internet data center providers. We typically enter into leasing and hosting service agreements that
are renewed periodically with these internet data center providers. We believe that our existing facilities are sufficient for our current
needs and we will obtain additional facilities, principally through leasing, to accommodate our future expansion plans.
ITEM 4A. UNRESOLVED STAFF COMMENTS
None.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with
our consolidated financial statements and the related notes included elsewhere in this annual report on Form 20-F. This discussion may
contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ
materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under
“Item 3. Key Information—D. Risk Factors” or in other parts of this annual report on Form 20-F.
A.
Operating Results
General Factors Affecting Our Results of Operations
Our business and operating results are affected by general factors affecting our industries, which include:
● development of the regulatory environment for our industries;
86
Table of Contents
● economic and market conditions; and
● growth of mobile internet penetration, in particular the availability of internet infrastructure.
Unfavorable changes in any of these general industry conditions could negatively affect demand for our services and our results
of operations. Our business operations in 2019 and 2020 were negatively impacted by the tightened regulatory framework in China and
the COVID-19 outbreak.
Specific Factors Affecting Our Results of Operations
Ability to Maintain and Expand our User Base in a Cost-Effective Manner
Our revenues, to a large extent, are dependent on the growth of our user base. We are constantly seeking to improve and
optimize user experience to achieve a high level of user satisfaction, which in turn helps us retain existing users and attract new users
through word-of-mouth referrals. Our results of operations will depend, in part, on the effectiveness of our sales and marketing efforts in
user acquisition. We intend to continue to dedicate significant resources to our sales and marketing efforts and continually seek to
improve the effectiveness of these efforts, in particular with regards to new user acquisition.
Ability to Advance our Technologies on a Continuing Basis
Our success to date is largely attributable to our ability to seamlessly integrate the use of technologies into provision of financial
services. We have been focusing on leveraging our advanced technology capabilities such as data collection and artificial intelligence
capabilities to increase the automation level of our platform and optimize our operational efficiency. Our highly advanced technology
infrastructure enables us to facilitate a large number of transactions simultaneously. We also plan to invest in emerging new technologies
such as blockchain technology. As our business grows, and backed by our strategy focusing on technology empowerment, we will
continue to invest in strengthening our technology infrastructure, which may increase our expenses in the short term.
Ability to Broaden our Product Offerings
Our growth to date has depended on, and our future success will in part depend on, successfully meeting user demand for new
products and services. With our footprint expanding overseas, we have made and will continue to make substantial investments to
develop and offer new products, both domestically and internationally to our users. For example. we aim to offer a more diversified array
of investment products and to leverage our securities and insurance licenses to seek additional cross-selling opportunities in our online
wealth management product lines including insurance brokerage services and overseas stock investment products. Failure to continue to
successfully broaden our product offerings could adversely affect our operating results and we may not be able to recoup the costs of
developing and launching new products.
87
Table of Contents
Key Line Items and Specific Factors Affecting Our Results of Operations
Net revenues
In the reporting period, we generated revenue from the provision of financial services. The following table sets forth the
breakdown of our net revenues, both in absolute amount and as a percentage of our total net revenues, for the periods indicated.
Net revenues:
Loan facilitation services
Post-origination services
Others
Total net revenues
2018
RMB
%
Years Ended December 31,
2019
RMB
RMB
%
(in thousands, except for percentages)
2020
US$
%
4,960,671
367,439
228,372
5,556,482
89.3
6.6
4.1
100.0
3,477,897
604,732
342,334
4,424,963
78.6
13.7
7.7
100.0
177,147
859,102
219,756
1,256,005
27,149
131,663
33,679
192,491
14.1
68.4
17.5
100.0
Revenue from loan facilitation services. For each loan facilitated on our platform for our online lending information
intermediary services, we charge a service fee to the borrower and the investor each at certain percentage of the loan principal and
allocate such fee between loan facilitation services and post-origination services that we provide. The rate of such service fees varies
depending on the type, pricing and term of underlying loans. Loan facilitation services fees for our online lending information
intermediary services were the portion of service fees we charge to borrowers and investors in relation to the work we perform through
our platform by matching them with each other and facilitating the origination of loan transactions. We ceased offering online lending
information intermediary services by the end of 2020.
For each loan referred by us to our institutional funding partners under our direct lending program, we charged a service fee to
either the borrower with whom we have stopped directly charging service fees since April 2019 or the financial institution partner each at
certain percentage of the loan principal and allocated such fee between loan facilitation services and post-origination services that we
provide. Loan facilitation services fees were the portion of service fees we charged to borrowers with whom we had stopped directly
charging service fees since April 2019 or financial institution partners in relation to the services we provided such as traffic referral
services and credit assessment.
Revenue from post-origination services. For our online lending information intermediary services, post-origination services fees
were the portion of service fees charged to borrowers and investors in relation to services we provided after loan origination, such as
repayment facilitation and loan collection. We ceased offering online lending information intermediary services by the end of 2020.
Under our direct lending program, post-origination service fees were the portion of service fees charged to either the borrowers with
whom we had stopped directly charging service fees since April 2019 or the financial institution partners in relation to services we
provided after loan origination, such as repayment facilitation and loan collection.
Others. Other revenues mainly included product sales revenues from online sales of goods and penalty fees we charged to
borrowers for late payment for our online lending information intermediary services prior to 2020. Starting from early 2018, penalty fees
under our online lending information intermediary services have been paid to the depository account and were no longer included in our
revenues thereafter. In 2020, our other revenues mainly included penalty fee charged to borrowers for late payment, product sales
revenues from online sales of goods, and other service revenues. Other revenues also include revenue of services such as insurance
agency, securities brokerage, consulting and user referral.
88
Table of Contents
Operating Cost and Expenses
The table below sets forth the breakdown of our operating costs and expenses, both in absolute amount and as a percentage of
our net revenues, for the periods indicated.
Operating costs and expenses:
Sales and marketing
Origination and servicing
General and administrative
Reversal of (provision for) doubtful contract assets
2018
RMB
%
Years Ended December 31,
2019
RMB
RMB
%
(in thousands, except for percentages)
2020
US$
%
1,746,375
444,830
1,159,746
31.4
8.0
20.9
2,343,428
1,137,451
1,155,747
53.0
25.7
26.1
343,056
543,487
1,303,833
52,576
83,293
199,821
27.3
43.3
103.8
and receivables
Total operating cost of revenues
(2,637)
3,348,314
0.0
60.3
2,148,638
6,785,264
48.6
153.4
347,803
2,538,179
53,303
388,993
27.7
202.1
Sales and marketing. Sales and marketing expenses consist primarily of various marketing expenses, including those related to
borrower and investor acquisition and retention and general brand and awareness building.
Origination and servicing. Origination and servicing expenses consist primarily of variable expenses and vendor costs,
including costs related to credit assessment, customer and system support, payment processing services and collection associated with
facilitating and servicing loans.
General and administrative. General and administrative expenses consist primarily of salaries, share-based compensation and
other benefits granted primarily to our management, research and development personnel and finance and administrative personnel,
rental, professional service fees and other expenses.
Reversal of (provision for) doubtful contract assets and receivables. Reversal of (provision for) doubtful contract assets and
receivables consist primarily of allowance for account receivable, loan receivables, other receivables and contract assets.
Taxation
Cayman Islands
We are an exempted company incorporated in the Cayman Islands. The Cayman Islands currently levy no taxes on individuals
or corporations based upon profits, income, gains or appreciations and there is no taxation in the nature of inheritance tax or estate duty.
There are no other taxes likely to be material to our company levied by the government of the Cayman Islands save certain stamp duties
which may be applicable, from time to time, on certain instruments executed in or brought within the jurisdiction of the Cayman Islands.
The Cayman Islands are not party to any double tax treaties that are applicable to any payments made by or to our company. There are no
exchange control regulations or currency restrictions in the Cayman Islands. In addition, the Cayman Islands does not impose
withholding tax on dividend payments.
Hong Kong
According to the Hong Kong regulations, our subsidiaries incorporated in Hong Kong are subject to a two-tiered profits tax rate
for assessable profits earned in Hong Kong with effect from April 1, 2018. The first HK$2 million of assessable profits will be taxed at
8.25%, and any part of assessable profits over HK$2 million will be taxed at 16.5%. In addition, to avoid abuse of the two-tiered tax
regime, each group of connected entities can nominate only one entity to benefit from the two-tiered tax rate.
89
Table of Contents
China
Generally, our PRC subsidiaries, variable interest entities and their respective subsidiaries, which are considered PRC resident
enterprises under PRC tax law, are subject to enterprise income tax on their worldwide taxable income as determined under PRC tax laws
and accounting standards at a rate of 25%. A “high and new technology enterprise” is entitled to a favorable income tax rate of 15% and
such qualification is reassessed by relevant governmental authorities every three years. For details of our subsidiaries, variable interest
entities and their respective subsidiaries qualified as “high and new technology enterprises,” please refer to Note 12 to our consolidated
financial statements included elsewhere in this annual report. In addition, enterprises of encouraged industries are subject to preferential
tax treatment or tax exemption for certain period in certain areas of China. For details of our subsidiaries, variable interest entities and
their respective subsidiaries that are subject to such preferential tax treatment or exemptions, please refer to Note 12 to our consolidated
financial statements included elsewhere in this annual report.
We are subject to value added tax, or VAT, at a rate of 17% prior to May 1, 2018, 16% from May 1, 2018 to March 31, 2019 and
13% thereafter on the sales of products, at a rate of 6% on the services rendered by us, less any deductible VAT we have already paid or
borne, except for entities qualified as small-scale taxpayers at a VAT rate of 3% without any deduction. Since April 1, 2019, we have
been subject to an additional 10% deductible VAT. We are also subject to surcharges on VAT payments in accordance with PRC law.
During the periods presented, we were not subject to business tax on the services we provide.
Dividends paid by our wholly foreign-owned subsidiaries in China to our intermediary holding company in Hong Kong will be
subject to a withholding tax rate of 10%, unless they qualify for a special exemption. If our Hong Kong subsidiaries satisfy all the
requirements under the Arrangement between the Mainland China and the Hong Kong Special Administrative Region for the Avoidance
of Double Taxation and Tax Evasion on Income and receives approval from the relevant tax authority, then dividends paid by our wholly
foreign-owned subsidiary in China will be subject to a withholding tax rate of 5% instead. See “Item 3. Key Information—D. Risk
Factors—Risks Related to Doing Business in China and Hong Kong—We may not be able to obtain certain benefits under relevant tax
treaty on dividends paid by our PRC subsidiaries to us through our Hong Kong subsidiary.”
If our holding company in the Cayman Islands or any of our subsidiaries outside of China were deemed to be a “resident
enterprise” under the PRC Enterprise Income Tax Law, it would be subject to enterprise income tax on its worldwide income at a rate of
25%. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China and Hong Kong—If we are classified
as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable tax consequences to us and our
non-PRC shareholders or ADS holders.”
Critical Accounting Policies
Revenue recognition
We have early adopted the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (“ASU”) 2014-
09, Revenue from Contracts with Customers (Topic 606) and all subsequent ASUs that modified Topic 606 on January 1, 2017.
The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services
to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or
services.
Online lending information intermediary services revenue
Through our online platform, we provided intermediary services on personal financing product, One Card, under which the
holders of One Card could apply for loans on a revolving basis (“revolving loan products”). We also provided one-time loan facilitation
services to meet various consumption needs (“non-revolving loan products”). For revolving loan products, and non-revolving loan
products, our services provided consisted of:
a) Matching marketplace investors to potential qualified borrowers and facilitating the execution of loan agreements
between the parties (referred to as “loan facilitation service”); and
b) Providing repayment processing services for the marketplace investors and borrowers over the loan term, including
repayment reminders and following up on late repayments (referred to as “post origination services”).
90
Table of Contents
We have determined that we were not the legal lender or borrower in the loan origination and repayment process, but acting as
an intermediary to bring the lender and the borrower together. Therefore, we do not record the loans receivable or payable arising from
the loans facilitated between the investors and borrowers on our platform.
We consider our customers to be both the investors and borrowers. We consider the loan facilitation services and post
origination services as two separate services, which represent two separate performance obligations under Topic 606, as these two
deliverables are distinct in that customers can benefit from each service on its own and our promises to deliver the services are separately
identifiable from each other in the contract.
We determine the total transaction price to be the service fees chargeable from the borrowers and investors. The transaction
price is allocated to the loan facilitation services and post origination services using their relative standalone selling prices consistent
with the guidance in Topic 606. We do not have observable standalone selling price information for the loan facilitation services or post
origination services because we did not provide loan facilitation services or post origination services on a standalone basis. There is no
direct observable standalone selling price for similar services in the market that is reasonably available to us. As a result, we use an
expected cost plus margin approach to estimate the standalone selling prices of loan facilitation services and post origination services as
the basis of revenue allocation, which involves significant judgements. In estimating its standalone selling price for the loan facilitation
services and post origination services, we consider the cost incurred to deliver such services, profit margin for similar arrangements,
customer demand, effect of competitors on our services, and other market factors.
For each type of service, we recognized revenue when (or as) the entity satisfies the service/performance obligation by
transferring a promised good or service (that is, an asset) to a customer. Revenues from loan facilitation are recognized at the time a loan
is originated between the investor and the borrower and the principal loan balance is transferred to the borrower, at which time the loan
facilitation service is considered completed. Revenues from post origination services are recognized on a straight-line basis over the term
of the underlying loans as the services are provided ratably on a monthly basis. A majority of the service fee is charged to the borrowers,
which is collected upfront upon loan inception or collected over the loan term. Investors pay service fees to us either at the beginning and
at the end of the investment commitment period (in terms of automated investing tools) or over the terms of the loan (in terms of self-
directing investing tools). In 2018, 2019 and 2020, service fees charged at the beginning or at the end of the investment commitment
period or over the terms of the loans in the periods presented were calculated to be equal to an annualized interest rate ranging from 0.5%
to 1.5% based on the investment amount and the investment term. Service fees charged to borrowers and investors, including the service
fees charged to investors collected at the end of the investment commitment period or over the terms of the loans in the periods
presented, were combined as the contract price to be allocated to the two performance obligations relating to loan facilitation services
and post-origination services, and recognized as revenue when the relevant services are delivered. Revenue recognized related to service
fees not yet received from investors that will be collected at the end of the investment commitment period and over the commitment
period are recorded as accounts receivable. All service fees are fixed and not refundable. Revenue recognized is recorded net of value
added tax (“VAT”). Remaining performance obligations represent the amount of the transaction price for which service has not been
performed under post-origination services.
In December 2020, we ceased publishing information relating to new offering of investment opportunities in fixed income
products for investors on our online lending information intermediary platform. Pursuant to certain collaboration arrangements entered
into by us and a licensed asset management company, the rights of investors in existing loans underlying the fixed income products will
be transferred to the asset management company. After such transfer, the outstanding balance of loans facilitated shall become nil, and
the asset management company will provide existing investors with services in relation to the return of their remaining investment in
loans.
Direct lending program revenue
Through our direct lending program, we provided traffic referral services to financial institution partners, allowing the financial
institution partners to gain access to borrowers who passed our risk assessment. Our services provided consist of:
a) Matching financial institution partners to potential qualified borrowers, and facilitating the execution of loan agreements
between the parties (also referred to as “loan facilitation service”); and
b) Providing repayment processing services for the financial institution partners and borrowers over the loan term, including
repayment reminders and loan collection (also referred to as “post origination services”).
91
Table of Contents
Consistent with the revenue recognition policy under the online lending information intermediary services model, we have
determined that we were not the legal lender or borrower in the loan origination and repayment process, but acting as an intermediary to
bring the lender and the borrower together. Therefore, we did not record the loans receivable or payable arising from the loans facilitated
between the financial institution partners and borrowers. We consider our customers to be both the financial institution partners and
borrowers.
We consider the loan facilitation services and post origination services as two separate performance obligations. We determine
the total transaction price to be the service fees chargeable to the borrowers or the financial institution partners, which is the contracted
price adjusted for variable consideration such as potential loan prepayment by the borrows that could reduce the total transaction price,
which is estimated using the expected value approach based on historical data and current trends of prepayments of the borrowers. Then
the transaction price is allocated to the loan facilitation services and post origination services using their relative standalone selling prices
consistent with the guidance in Topic 606, similar to online lending information intermediary services revenue.
For each type of service, we recognized revenue when (or as) satisfy the service/performance obligation(s) by transferring the
promised service to our customers. Revenues from loan facilitation services are recognized at the time a loan is originated between the
financial institution partners and the borrowers and the principal loan balance is transferred to the borrowers, at which time the
facilitation service is considered completed. Revenues from post origination services are recognized on a straight-line basis over the term
of the underlying loans as the services are provided ratably on a monthly basis.
Since April 2019, we had stopped charging service fees directly to the borrowers under our direct lending program. Instead, we
started to charge service fees either directly to the institutional funding partners, or indirectly through third-party guarantee companies
who provide guarantee services, or insurance companies who provided credit insurance to the institutional funding partners on their loans
to the borrowers. We concluded this change did not alter the substance of the services we provided to borrowers and financial institution
partners under the direct lending program, and therefore would not impact how revenue was recognized. In 2019, under a cooperation
agreement, as amended (the “Cooperation Agreement”), we predominantly partnered with PICC Property and Casualty Company
Limited Guangdong Branch (“PICC”) who provided the credit insurance service to institutional funding partners on the loan origination,
PICC collected all of the loan facilitation service fees and remitted the our portion of our service fees to us. We recorded an account
receivable for the service fees confirmed and to be remitted by PICC. We suspended our cooperation with PICC on new loans under our
direct lending program since December 2019 and commenced a legal proceeding against PICC in May 2020. See “Item 8. Financial
Information—A. Consolidated Statements and Other Financial Information—Legal Proceedings.”
Other revenues
Other revenues mainly include product sales revenues from online sales of goods, penalty fee for late payments, and other
service revenues.
We generate product sales revenues primarily through selling of merchandise via our online shopping platform, 9F One Mall
(“online agent model”), and through selling of upscale products via third party platforms (“online direct sales model”). Under the online
agent model, customers can buy merchandise provided by third-party merchandise suppliers on the 9F One Mall. We do not control the
merchandise, but rather acting as an agent for the suppliers. Revenue was recognized for the net amount of consideration we are entitled
to retain in exchange for the agent service. We commenced the operations of the online direct sales model in the first quarter of 2019 and
terminated the operations in the third quarter of 2019. Under the online direct sales model, revenue was recognized on a gross basis as we
control the merchandise before it is transferred to the customers, which is indicated by (i) we are primarily responsible for fulfilling the
promise to provide the specified upscale products to the customers; (ii) we bear inventory risk; and (iii) we have discretion in
establishing price.
Other revenues also include revenue of services such as insurance agency, securities brokerage, and customer referral.
92
Table of Contents
Share-Based Compensation
Share-based payment transactions with employees and managements, such as share options, are measured based on the grant
date fair value of the equity instrument. We have elected to recognize compensation expenses using the straight-line method for all
employee equity awards granted with graded vesting provided that the amount of compensation cost recognized at any date is at least
equal to the portion of the grant-date value of the options that are vested at that date, over the requisite service period of the award, which
is generally the vesting period of the award. Compensation expenses for awards with performance conditions is recognized when it is
probable that the performance condition will be achieved. We elect to recognize forfeitures when they occur.
The following table sets forth our share-based compensation expenses in 2018, 2019 and 2020:
Share-based compensation expenses
508,162
353,151
290,630
For the Year Ended December 31,
2020
2018
RMB
2019
RMB
RMB
US$
44,541
The following table sets forth certain information regarding the share options granted to our employees at different dates in
2018, 2019 and 2020, taking into the consideration of our 1 to 100 share split immediately before our initial public offering in 2019:
Grant Date
January 19, 2018
March 7, 2018
March 27, 2018
April 27, 2018
September 1, 2018
September 29, 2018
December 24, 2018
January 7, 2019
January 7, 2019
January 7, 2019
April 21, 2019
June 13, 2019
June 14, 2019
July 1, 2019
February 16, 2020
February 21, 2020
February 28, 2020
April 1, 2020
July 1, 2020
Number of
Weighted
Average Fair
Value per Option
Options
Granted
Exercise Price
per Option
RMB
at the Grant
Dates
RMB
Aggregate Intrinsic
Value at the Grant Dates
RMB
Type of
Valuation
603,300
178,900
178,900
433,000
100,000
467,700
117,700
21,500
78,600
34,600
111,200
23,600
10,000
2,100,000
680,300
2,853,911
3,345,098
178,900
445,280
14.32
14.32
14.32
24.06
24.06
24.06
24.06
14.32
49.85
24.06
24.06
24.06
24.06
24.06
24.10
0
24.11
13.83
24.11
70.57
71.48
71.44
63.02
58.05
56.89
53.40
61.64
37.48
53.60
37.82
37.41
37.42
37.80
6.56
5.59
5.53
7.24
2.36
42,231,003.66 Retrospective
12,585,321.89 Retrospective
12,585,321.89 Retrospective
26,018,608.28 Retrospective
5,478,441.02 Retrospective
25,622,668.86 Retrospective
5,824,844.69 Retrospective
1,314,304.18 Retrospective
2,010,725.37 Retrospective
1,747,466.34 Retrospective
3,648,960.06 Retrospective
774,419.58 Retrospective
328,143.89 Retrospective
68,910,217.02 Retrospective
4,462,768.00 Retrospective
15,953,362.49 Retrospective
18,498,391.94 Retrospective
1,295,236.00 Retrospective
1,050,860.80 Retrospective
The valuation was performed on a retrospective basis, instead of contemporaneous valuations because, at that time of valuation,
our limited financial and limited human resources were principally focused on business development efforts.
In determining the value of share options, we have used the binomial option pricing model, with assistance from an independent
third-party valuation firm. Under this option pricing model, certain assumptions, including the risk-free interest rate, the expected
dividends on the underlying ordinary shares, and the expected volatility of the price of the underlying shares for the contractual term of
the options are required in order to determine the fair value of our options.
93
Table of Contents
The fair value of an option award is estimated on the date of grant using the binomial option pricing model that uses the
following assumptions:
Risk-free rate of interest(1)
Volatility(2)
Dividend yield(3)
Exercise multiples(4)
Life of options (years)(5)
2018
Grant Date
2019
2.45% ‑ 2.98 % 1.79%-2.53 % 0.27%-1.47 %
43.5% ‑ 48.3 % 43.4%-55.3 % 48.8%-59.5 %
2020
—
2.2 / 2.8
4.0 ‑ 6.0
—
2.2 / 2.8
4.0 - 6.0
—
2.2 / 2.8
2.5 - 6.0
(1) We estimate risk-free interest rate based on the daily treasury long term rate of U.S. Department of the Treasury with a maturity
period close to the expected term of the options.
(2) We estimated expected volatility based on the annualized standard deviation of the daily return embedded in historical share prices
of the selected guideline companies with a time horizon close to the expected expiry of the term.
(3) We have never declared or paid any cash dividends on our capital stock, and we do not anticipate any dividend payments on our
ordinary shares in the foreseeable future.
(4) The expected exercise multiple was estimated as the average ratio of the stock price to the exercise price as at the time when
employees would decide to voluntarily exercise their vested options. As we did not have sufficient information of past employee
exercise history, it was estimated by referencing to academic research publication. For key management grantee and non-key
management grantee, the exercise multiple was estimated to be 2.8 and 2.2 respectively.
(5) Extracted from option agreements.
Recent Accounting Pronouncements
A list of recently issued accounting pronouncements that are relevant to us is included in Note 2 “Summary of Significant
Accounting Policies—Recent accounting pronouncements adopted” and Note 2 “Summary of Significant Accounting Policies—Recent
accounting pronouncements not yet adopted” to our consolidated financial statements included elsewhere in this annual report.
94
Table of Contents
Results of Operations
The following table sets forth a summary of our consolidated results of operations for the periods presented, both in absolute
amount and as a percentage of our total net revenue for the periods presented. This information should be read together with our
consolidated financial statements and related notes included elsewhere in this annual report.
2018
RMB
%
Years Ended December 31,
2019
RMB
%
(in thousands, except for percentages)
RMB
2020
US$
%
Net revenues
Loan facilitation services
Post-origination services
Others
Total net revenues
Operating costs and expenses
Sales and marketing (1)
Origination and servicing(2)
General and administrative(3)
Reversal of (provision for) doubtful contract
assets and receivables
Total operating costs and expenses
Interest income
Impairment loss of investments
Gain recognized on remeasurement of previously
held equity interest in acquiree
Net loss from disposal of subsidiaries
Other income, net
Income (loss) before income tax expense and
earnings (loss) in equity method investments
Income tax (expense) benefit
Earnings (loss) in equity method investments
Net Income (loss)
Notes:
4,960,671
367,439
228,372
5,556,482
89.3
6.6
4.1
100.0
3,477,897
604,732
342,334
4,424,963
78.6
13.7
7.7
100.0
177,147
859,102
219,756
1,256,005
27,149
131,663
33,679
192,491
14.1
68.4
17.5
100.0
(1,746,375)
(444,830)
(1,159,746)
(31.4)
(8.0)
(20.9)
(2,343,428)
(1,137,451)
(1,155,747)
(53.0)
(25.7)
(26.1)
(343,056)
(543,487)
(1,303,833)
(52,576)
(83,293)
(199,821)
(27.3)
(43.3)
(103.8)
2,637
(3,348,314)
208,350
(23,140)
0.0
(60.3)
3.7
(0.4)
(2,148,638)
(6,785,264)
225,751
(154,898)
(48.6)
(153.4)
5.1
(3.5)
(347,803)
(2,538,179)
102,425
(462,490)
(53,303)
(388,993)
15,697
(70,880)
(27.7)
(202.1)
8.2
(36.8)
—
(257)
25,608
—
(0.0)
0.5
16,272
—
52,852
0.4
—
1.2
—
—
39,112
—
—
5,994
—
—
3.1
2,418,729
(402,403)
(41,143)
1,975,183
43.5
(7.2)
(0.7)
35.6
(2,220,324)
174,597
(107,918)
(2,153,645)
(50.2)
3.9
(2.4)
(48.7)
(1,691,563)
(538,322)
(21,317)
(2,251,202)
(259,244)
(82,501)
(3,267)
(345,012)
(135.2)
(42.1)
(1.7)
(179.2)
(1) Sales and marketing expenses include services provided by related parties of RMB168.3 million, RMB417.1 million, RMB37.8
million, RMB42.8 million and RMB901 thousand (US$138 thousand) in 2016, 2017, 2018, 2019 and 2020, respectively.
(2) Origination and servicing expenses include services provided by related parties of RMB11.6 million, RMB81.8 million, RMB39.0
million, RMB15.1 million and RMB358 thousand (US$55 thousand) in 2016, 2017, 2018, 2019 and 2020, respectively.
(3) General and administrative expenses include share-based compensation of RMB110.4 million, RMB2,180.5 million, RMB508.2
million, RMB353.2 million and RMB290.6 million (US$44.5 million) in 2016, 2017, 2018, 2019 and 2020, respectively.
Net revenues
Loan facilitation services revenue
2020 Compared to 2019. Our loan facilitation services revenue decreased by 94.9% from RMB3,477.9 million in 2019 to
RMB177.1 million (US$27.1 million) in 2020. The decrease of loan facilitation services revenue was primarily because a decrease in
loan origination volume which was affected by COVID-19, tight regulatory environment and our dispute with PICC.
95
Table of Contents
2019 Compared to 2018. Our loan facilitation services revenue decreased by 29.9% from RMB4,960.7 million in 2018 to
RMB3,477.9 million in 2019. The decrease of loan facilitation services revenue was primarily because the loan facilitation services
revenue under our direct lending program in the fourth quarter of 2019 was not recognized due to our dispute with PICC.
Post-origination services revenue
2020 Compared to 2019. Our post-origination services revenue increased by 42.1% from RMB604.7 million in 2019 to
RMB859.1 million (US$131.7 million) in 2020. The increase was primarily due to an increasing portion of service revenue allocated to
post-origination services especially, as a result of our termination of loan facilitation service, certain deferred revenue was recognized as
post-origination services.
2019 Compared to 2018. Our post-origination services revenue increased by 64.6% from RMB367.4 million in 2018 to
RMB604.7 million in 2019. The increase was primarily due to the increase in the loan origination volume, and an increasing portion of
service revenue allocated to post-origination services in 2019. Our loan origination volume increased from RMB45.6 billion in 2018 to
RMB55.1 billion in 2019, which was primarily driven by the increase in the number of active borrowers from approximately 2.3 million
in 2018 to approximately 2.8 million in 2019.
Others
2020 Compared to 2019. Our other revenue decreased by 35.8% from RMB342.3 million in 2019 to RMB219.8 million
(US$33.7 million) in 2020. The decrease was primarily due to the referral revenue, commission revenue and revenues of our overseas
business operations of the Company decreased due to the epidemic of COVID-19.
2019 Compared to 2018. Our other revenue increased by 49.9% from RMB228.4 million in 2018 to RMB342.3 million in
2019. The increase was primarily due to the increase in revenues from our online direct sales model.
Operating Costs and Expenses
Sales and marketing expenses
2020 Compared to 2019. Our sales and marketing expenses decreased by 85.4% from RMB2,343.4 million in 2019 to
RMB343.1 million (US$52.6 million) in 2020. The decrease was primarily due to the volume of loan origination was reduced due to
COVID-19, so the Company reduced its efforts in marketing promotion accordingly.
2019 Compared to 2018. Our sales and marketing expenses increased by 34.2% from RMB1,746.4 million in 2018 to
RMB2,343.4 million in 2019. The increase was primarily due to the increase in user acquisition expenses from RMB1,395.5 million in
2018 to RMB1,788.8 million in 2019 and increase in advertising expenses from RMB54 million in 2018 to RMB 115.7 million in 2019,
as we take more efforts to expand user acquisition channels.
Origination and servicing expenses
2020 Compared to 2019. Our origination and servicing expenses decreased by 52.2% from RMB1,137.5 million in 2019 to
RMB543.5 million (US$83.3 million) in 2020. The increase was primarily due to the decreases of third-party loan collection expense as
a result of the decrease of loan facilitation services.
2019 Compared to 2018. Our origination and servicing expenses increased by 155.7% from RMB444.8 million in 2018 to
RMB1,137.5 million in 2019. The increase was primarily due to the increase in loan collection expenses from RMB109.2 million in
2018 to RMB740.5 million in 2019.
General and administrative expenses
2020 Compared to 2019. Our general and administrative expenses increased by 12.8% from RMB1,155.7 million in 2019 to
RMB1,303.8 million (US$199.8 million) in 2020.
96
Table of Contents
2019 Compared to 2018. Our general and administrative expenses decreased by 0.3% from RMB1,159.7 million in 2018 to
RMB1,155.7 million in 2019, primarily resulting from the decrease of share-based compensation expense from the RMB508.2 million in
2018 to RMB353.2 million in 2019, partially offset by the increase in research and development expenses from RMB24.1 million in
2018 to RMB92.6 million in 2019.
Reversal of (provision for) doubtful contract assets and receivables
2020 Compared to 2019. Our reversal of (provision for) doubtful contract assets and receivables decrease from provision
RMB2,148.6 million in 2019 to provision RMB347.8 million (US$53.3 million) in 2020, primarily because as compared to 2019, we
recognized less allowance as a result of decrease in contract assets and accounts receivables, which was in turn caused by the decrease of
our loan facilitation service.
2019 Compared to 2018. Our reversal of (provision for) doubtful contract assets and receivables increased from reversed
RMB2.6 million in 2018 to provision RMB2,148.6 million (US$308.6 million) in 2019, primarily because we recognized a full valuation
allowance for accounts receivable from PICC amounting to RMB1,432.3 million and valuation allowance for loan receivables amounting
to RMB649.8 million.
Interest Income
Interest income represents interest earned on cash deposits in financial institutions, our loan receivables from third-party
borrowers, and our investment in wealth management financial products.
2020 Compared to 2019. Our interest income decreased by 54.6% from RMB225.8 million in 2019 to RMB102.4 million
(US$15.7 million) in 2020 because we purchased less investment products.
2019 Compared to 2018. Our interest income increased by 8.4% from RMB208.4 million in 2018 to RMB225.8 million in
2019 because we purchased more investment products.
Impairment loss of Investments
2020 Compared to 2019. In 2020, we incurred impairment loss of investments of RMB462.5 million (US$70.9 million). Due
to continuing deterioration of operating result of Nanjing Lefang, we conducted an impairment assessment and recorded an impairment
of RMB181.4 million (US$27.8 million). We also impaired our investment of RMB132.9 million (US$20.4 million) in Cornerstone
Unicorn No.3 Private Equity Investment Fund given it had encountered going concern issues.
2019 Compared to 2018. In 2019, we incurred impairment loss of investments of RMB154.9 million. Due to continuing
deterioration of operating result of Nanjing Lefang, we conducted an impairment assessment and recorded an impairment loss of
RMB100 million for Nanjing Lefang in 2019. In addition, we fully impaired the investments in Dawanjia Inc. and Orange Island
Technology Inc. in 2019 since we determined that they had encountered going-concern issues due to their working capital deficiencies
and poor operating results.
Gain Recognized on Remeasurement of Previously Held Equity Interest in Acquiree
We did not record any gain on remeasurement of previously held equity interest in acquiree.
We recorded gain on remeasurement of previously held equity interest in acquiree of RMB16.3 million in 2019 since we
acquired control of Beijing Jiufu Weiban Technology Limited and Yoquant Technology (Beijing) Limited in 2019. Our existing equity
interests in these entities previously accounted for under equity method were remeasured to a fair value, with the excess over the carrying
value recognized as gain.
Net Loss from Disposal of Subsidiaries
We did not incur any net loss or gain from disposal of subsidiaries in 2020.
97
Table of Contents
We did not incur any net loss or gain from disposal of subsidiaries in 2019.
2018 Compared to 2017. Our net loss from disposal of subsidiaries decreased from RMB8.1 million in 2017 to
RMB0.3 million in 2018. The decrease was primarily because we incurred a disposal loss of RMB23.2 million in 2017 with respect to
our disposal of Shenzhen Boya Chengxin Financial Service Limited (“Shenzhen Boya”), one of our then subsidiaries, offset by a disposal
gain of RMB15.0 million with respect to our disposal of Shenzhen Chaoneng Information Technology Co., Ltd. (“Shenzhen Chaoneng”),
one of our then subsidiaries.
Other Income, Net
Our other income, net, represents the differences between the income from government subsidies and the donations we made.
2020 Compared to 2019. Our other income, net, decreased by 26.0% from RMB52.9 million in 2019 to RMB39.1 million
(US$6.0 million) in 2020, which was primarily due to a decrease of VAT reduction and an increase of non-operating expenses in relation
to assets disposal and write-off of accounts receivables in the amount of RMB26.9 million (US$4.1 million).
2019 Compared to 2018. Our other income, net, increased by 106.4% from RMB25.6 million in 2018 to RMB52.9 million in
2019, which was primarily due to an increase of VAT reduction amount of RMB25.8 million in 2019 compared to 2018.
Income Tax (Expense) Benefit
2020 Compared to 2019. We had an income tax expense of RMB538.3 million (US$82.5 million) in 2020, compared to an
income tax expense of RMB174.6 million in 2019, primarily because the increase in the deferred tax assets.
2019 Compared to 2018. We had an income tax benefit of RMB174.6 million in 2019, compared to an income tax expense of
RMB402.4 million in 2018, primarily because we recorded net losses in 2019. The income tax benefit recognized in 2019 can be carried
forward to offset future tax payable.
Earnings (Loss) in Equity Method Investments
2020 Compared to 2019. Our loss in equity method investments decreased from RMB107.9 million in 2019 to RMB21.3
million (US$3.3 million) in 2020. The decrease is mainly due to the improved operating results of the entities we invested in, partially
offset by tax in the amount of RMB10.7 million (US$1.6 million).
2019 Compared to 2018. Our loss in equity method investments increased from RMB41.1 million to RMB107.9 million in
2019. The increase is mainly due to that we incurred a disposal loss of RMB63.4 million in 2019 with respect to our disposal of
Shenzhen Boya Chengxin Financial Service Limited.
Net Income (loss)
As a result of the foregoing, we recorded net income of RMB1,975.2 million in 2018, and recorded a net loss of RMB2,153.6
million and RMB2,251.2 million (US$345.0 million) in 2019 and 2020, respectively.
98
Table of Contents
Changes in Financial Position
The following table sets forth selected information from our consolidated balance sheets as of December 31, 2019 and 2020.
This information should be read together with our consolidated financial statements and related notes included elsewhere in this annual
report.
Assets:
Cash and cash equivalents
Restricted cash
Term deposits
Accounts receivable, net of allowance for doubtful accounts of RMB1,053, RMB1,433,449 and
2019
RMB
As of December 31,
2020
RMB
(in thousands)
US$
4,684,003
125,437
24,000
2,726,712
390,702
133,761
417,887
59,878
20,500
RMB17,396 (US$2,666) as of December 31, 2018, 2019 and 2020, respectively
280,995
40,862
6,262
Other receivables, net of allowance for doubtful accounts of RMB5,010, RMB36,773 and
RMB14,279 (US$2,188) as of December 31, 2018, 2019 and 2020, respectively
Loan receivables, net of allowance for doubtful accounts of nil, RMB 615,592 and
RMB320,364 (US$49,098) as of December 31, 2018, 2019 and 2020, respectively
Prepaid expenses and other assets
Long-term investments
Liabilities:
Deferred revenue
Income tax payable
Accrued expenses and other liabilities
Cash and Cash Equivalents
117,340
126,745
19,425
778,480
1,137,787
775,644
267,383
793,092
738,272
40,978
121,547
113,145
788,906
320,350
1,229,110
82,643
255,244
726,686
12,666
39,118
111,370
Cash and cash equivalents represent cash on hand, demand deposits and highly liquid investments placed with banks or other
financial institutions, which have original maturities less than three months. We consider all highly liquid investments with stated
maturity dates of three months or less from the date of purchase to be cash equivalents.
Our cash and cash equivalents decreased by 41.8% from RMB4,684.0 million as of December 31, 2019 to RMB2,726.7 million
(US$417.9 million) as of December 31, 2020, primarily because the outflow of cash as a result of the decrease in cash generated from
our loan facilitation service, which we ceased to operate in 2020.
Restricted Cash
Our restricted cash mainly consists of cash we received from investors for their investment in securities.
Our restricted cash increased by 211.5% from RMB125.4 million as of December 31, 2019 to RMB390.7 million (US$59.9
million) as of December 31, 2020, primarily because the increase of cash received by Fuyuan Securities from investors for their
investment in securities.
Term Deposits
Our term deposits consist of deposits placed with financial institutions with an original maturity of greater than three months
and less than one year.
Our term deposit increased by 457.3% from RMB24.0 million as of December 31, 2019 to RMB133.8 million (US$20.5
million) as of December 31, 2020, which was primarily due to the purchase of a term investment product in the amount of RMB129
million (US$20 million).
99
Table of Contents
Accounts Receivable, net
Our accounts receivable, net of allowance for doubtful accounts, primarily includes the service fees receivable from investors
and accounts receivable from financial institution partners.
Our accounts receivable, net of allowance for doubtful accounts decreased by 85.5% from RMB281.0 million as of December
31, 2019 to RMB40.9 million (US$6.3 million) as of December 31, 2020, primarily due to the decrease in revenue as a result of decrease
of loan facilitation service, as well as the collection of accounts receivables in the amount of RMB10.6 million (US$2 million) and the
provision of certain doubtful accounts in the amount of RMB4.5 million (US$1 million).
Other Receivables, net
Our other receivable, primarily includes the funds receivable from external payment network providers and accrued interest
receivable. Our other receivables, net of allowance for doubtful accounts increased by 8.0% from RMB117.3 million as of December 31,
2019 to RMB126.7 million (US$19.4 million) as of December 31, 2020.
Loan Receivables, net
Our loan receivables, net of allowance for doubtful accounts, mainly represent loans to third-party borrowers.
Our loan receivables decreased by 65.7% from RMB778.5 million, net of allowance for doubtful accounts of RMB615.6
million, as of December 31, 2019 to RMB267.4 million (US$41.0 million) net of allowance for doubtful accounts of RMB320.4 million,
(US$49.1 million), as of December 31, 2020, primarily due to reclassification of certain loans as operating expenses in the amount of
RMB382 million (US$59 million), as well as the collections of loan receivables in the amount of RMB36 million (US$6 million) and the
provision of certain doubtful accounts in the amount of RMB144 million (US$22 million).
Prepaid Expenses and Other Assets
Our prepaid expenses and other assets include deposits, advance to suppliers, prepaid taxes, prepaid service fee, prepaid
investment and others.
Our prepaid expenses and other assets decreased by 30.3% from RMB1,137.8 million as of December 31, 2019 to RMB793.1
million (US$121.5 million) as of December 31, 2020, primarily due to decrease in prepaid expenses made to Hubei Consumer Finance
Company as a result of investment in Hubei Consumer Finance Company in the amount of RMB361 million (US$55 million), as well as
reclassification of certain prepaid expenses as operating expenses in the amount of RMB182 million (US$28 million).
Long-term Investments, net
Our long-term investments consist of equity securities without readily determinable fair value, equity method investments and
held-to-maturity and available-for-sale investments.
Our long-term investments decreased by 4.9% from RMB775.6 million as of December 31, 2019 to RMB738.0 million
(US$113.1 million) as of December 31, 2020.
Deferred Revenue
Deferred revenue consists of post origination service fees received or receivable from borrowers, investors and financial
institution partners for which services have not yet been provided. Deferred revenue is recognized ratably as revenue when the post-
origination services are delivered during the loan period.
Our deferred revenue decreased by 89.5% from RMB788.9 million as of December 31, 2019 to RMB82.6 million (US$12.7
million) as of December 31, 2020 primarily due to the decrease of loan facilitation service as well as the recognition of revenue upon
completion of service.
100
Table of Contents
Income Tax Payable
Our income tax payable slightly decreased by 20.3% from RMB320.4 million as of December 31, 2019 to RMB255.2 million
(US$39.1 million) as of December 31, 2020, primarily due to reclassification of certain tax item as other assets in the amount of
RMB40.7 million (US$6.2 million).
Accrued Expenses and Other Liabilities
Our accrued expenses and other liabilities decreased by 40.9% from RMB1,229.1 million as of December 31, 2019 to
RMB726.7 million (US$111.4 million) as of December 31, 2020, primarily due to decrease in services fees, which was in turn resulting
from the decrease of our loan facilitation service.
B.
Liquidity and Capital Resources
Our principal sources of liquidity have been cash generated from operating activities and proceeds from the issuance and sale of
our shares. Our cash consists of cash on hand and cash in bank, which are unrestricted as to withdrawal. Cash equivalents consist of
interest-bearing certificates of deposit with initial term of no more than three months when purchased.
We believe that our current cash, cash equivalents and anticipated cash flow from operations will be sufficient to meet our
anticipated cash needs, including our cash needs for working capital and capital expenditures, for at least the next 12 months. We may,
however, need additional capital in the future to fund our continued operations. If we determine that our cash requirements exceed the
amount of cash and cash equivalents we have on hand at the time, we may seek to issue equity or debt securities or obtain credit
facilities. The issuance and sale of additional equity would result in further dilution to our shareholders. The incurrence of indebtedness
would result in increased fixed obligations and could result in operating covenants that might restrict our operations. We cannot assure
you that financing will be available in amounts or on terms acceptable to us, if at all.
The following table sets forth a summary of our cash flows for the periods indicated:
Summary Consolidated Cash Flow Data
Net cash provided by (used in) operating activities
Net cash (used in) provided by investing activities
Net cash provided by financing activities
Net increase (decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of the year
Cash, cash equivalents and restricted cash at end of the year
Operating activities
Years Ended December 31,
2019
RMB
2020
RMB
(in thousands)
US$
(429,047)
(707,611)
471,978
(659,637)
5,469,077
4,809,440
(1,744,599)
39,466
12,896
(1,692,026)
4,809,440
3,117,414
(267,370)
6,048
1,976
(259,314)
737,079
477,765
Our net cash used in operating activities was RMB1,744.6 million (US$267.4 million) in 2020. In 2020, the principal items
accounting for the difference between our net cash used in operating activities and our net loss of RMB2,251 million (US$345.0 million),
primarily resulted from (i) adjustment of adding back non-cash and non-operating items, mainly including provision for (reversal of)
allowance for doubtful accounts of RMB340.3 million (US$52.1 million), share-based compensation of RMB290.6 million (US$44.5
million) and impairment loss of equity securities without readily determinable fair value of RMB340.3 million (US$52.2 million), and
(ii) changes in operating assets and liabilities, mainly including prepaid expenses and other assets of RMB570.4 million (US$87.4
million) and deferred tax assets of RMB504.0 million (US$77.2 million), partially offset by accrued expenses and other liabilities of
RMB807.1 million (US$123.7 million), deferred revenue of RMB706.3 million (US$108.2 million), and contract assets of RMB335.1
million (US$51.4 million).
101
Table of Contents
Our net cash used in operating activities was RMB429.0 million in 2019. In 2019, the principal items accounting for the
difference between our net cash used in operating activities and our net loss of RMB2,153.6 million primarily resulted from the increase
in our provision for allowance for doubtful accounts of RMB2,133.8 million, the increase in our accrued expenses and other liabilities of
RMB479.3 million and the increase in our deferred revenue of RMB442.1 million, partially offset by the increase in accounts receivable
of RMB1,539.9 million. The increase in our provision for allowance for doubtful accounts was primarily because we recognized full
valuation allowance for accounts receivables from PICC amounting to RMB1,432.3 million and valuation allowance for loan receivables
amounting to RMB649.8 million. The increase in our accrued expenses and other liabilities was primarily due to the increases in each of
the accrued advertising and marketing fee, payable related to service fee and others, and amounts due to customers for the segregated
bank balances held on their behalf. Our deferred revenue increased because the service fees charged to borrowers, investors and financial
institution partners that were allocated to post-origination service fees increased. The increase in accounts receivable was primarily due
to the increase in receivables due from PICC.
Our net cash provided by operating activities was RMB2,345.9 million in 2018. In 2018, the principal items accounting for the
difference between our net cash provided by operating activities and our net income of RMB1,975.2 million primarily resulted from the
share-based compensation of RMB508.2 million, partially offset by a decrease in taxes payable of RMB148.1 million. The share-based
compensation was primarily due to our recognition of the compensation costs of the share options granted. The decrease in the tax
payable was due to the increase of our payment of income tax.
Investing activities
Net cash provided in investing activities was RMB39.5 million (US$6.0 million) in 2020, which was primarily attributable to
our proceeds from collection of loan receivable of RMB534.0 million (US$81.8 million) partially offset by our purchase of long-term
investment of RMB469.6 million (US$72.0 million) and our purchase of term deposits of RMB109.8 million (US$16.8 million).
Net cash used in investing activities was RMB707.6 million in 2019, which was primarily attributable to our payment for the
origination of loan receivables of RMB756.1 million, our prepayment of investment of RMB632.1 million, our purchase of term deposits
of RMB232.3 million and our purchases of long-term investment of RMB192.7 million, partially offset by redemption of term deposits
of RMB1,048.8 million.
Net cash used in investing activities was RMB1,236.8 million in 2018, which was primarily attributable to the payment for the
origination of loan receivables of RMB1,712.0 million and purchase of term deposits of RMB1,651.0 million, partially offset by
redemption of term deposits of RMB1,549.6 million.
Financing activities
Net cash provided by financing activities was RMB12.9 million (US$2.0 million) in 2020, which was attributable to capital
contribution by non-controlling shareholders of RMB12.9 million (US$2.0 million).
Net cash provided by financing activities was RMB472.0 million in 2019, which was attributable to the net proceeds of
RMB463.1 million from initial public offering and from exercising the over-allotment option by the underwriters, net of issuance cost of
RMB31.8 million, and capital contribution by non-controlling shareholders of RMB8.9 million.
Net cash provided by financing activities was RMB545.9 million in 2018, which was primarily attributable to our preferred
share issuance in 2018, net of issuance cost of RMB0.5 million.
Capital Expenditures
We had capital expenditures of RMB48.6 million, RMB56.7 million and RMBnil in 2018, 2019 and 2020, respectively. In these
periods, our capital expenditures were mainly used for leasehold improvements and purchases of property, equipment and software. Our
capital expenditures for 2021 are expected to be approximately RMB20.0 million (US$3.1 million), consisting primarily of expenditures
related to our efforts with respect to obtaining operating license and proposed inverstments. We will continue to make capital
expenditures to meet the expected growth of our business.
102
Table of Contents
Holding Company Structure
9F Inc. is a holding company with no material operations of its own. We conduct our operations primarily through our
subsidiaries, our consolidated variable interest entities and their subsidiaries in China. As a result, 9F Inc.’s ability to pay dividends
depends upon dividends paid by our PRC subsidiaries. If our existing PRC subsidiaries or any newly formed ones incur debt on their
own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us. In addition, each of our
wholly foreign-owned subsidiaries in China is permitted to pay dividends to us only out of its retained earnings, if any, as determined in
accordance with PRC accounting standards and regulations. Under PRC law, each of our subsidiaries and our consolidated variable
interest entities in China is required to set aside at least 10% of its after-tax profits each year, if any, to fund certain statutory reserve
funds until such reserve funds reach 50% of its registered capital. In addition, each of our wholly foreign-owned subsidiaries,
consolidated variable interest entities and their subsidiaries may allocate a portion of its after-tax profits based on PRC accounting
standards to a discretionary surplus fund at its discretion. The statutory reserve funds and the discretionary funds are not distributable as
cash dividends. Remittance of dividends by a wholly foreign-owned company out of China is subject to examination by the banks
designated by SAFE. Our PRC subsidiaries have not paid dividends and will not be able to pay dividends until they generate
accumulated profits and meet the requirements for statutory reserve funds.
C.
Research and Development, Patents and Licenses, Etc.
See “Item 4. Information on the Company—B. Business Overview—Intellectual Property.”
D.
Trend Information
Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or
events since January 1, 2020 that are reasonably likely to have a material adverse effect on our net revenues, income, profitability,
liquidity or capital resources, or that caused the disclosed financial information to be not necessarily indicative of future operating results
or financial conditions.
E.
Off-balance Sheet Arrangements
We have not entered into any material financial guarantees or other commitments to guarantee the payment obligations of any
third parties and do not assume credit risk in loans facilitated through our platform. We have not entered into any derivative contracts that
are indexed to our shares and classified as shareholder’s equity or that are not reflected in our consolidated financial statements.
Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit,
liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing,
liquidity, market risk or credit support to us or engages in leasing, hedging or product development services with us.
F.
Tabular Disclosure of Contractual Obligations
The following table sets forth our contractual obligations as of December 31, 2020:
Contractual Obligations:
Operating Leases Obligations
Total
Total
2021
2022
2023
2024
Thereafter
Payments Due by Period
20,078
20,078
18,789
18,789
2,931
2,931
—
—
—
—
—
—
Our operating lease obligations relate to our leases of office premises and cloud infrastructure to support our core business
system. We lease certain office premises and such cloud infrastructure under non-cancelable operating lease arrangements.
Other than those shown above, we did not have any significant capital and other commitments, long-term obligations, or
guarantees as of December 31, 2020.
103
Table of Contents
G.
Safe Harbor
See “Forward-Looking Statements” on page 1 of this annual report.
H.
Recent Development
We early terminated an office lease contract with terms from October 1, 2018 to September 30, 2021 in Beijing on March
3,2021 due to our decision to exit our loan facilitation business operation. According to the termination agreement, we were required to
pay RMB10 million (US$1.5 million) for the default and restoration, which we have made in full on March 26, 2021.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A.
Directors and Senior Management
The following table sets forth information regarding our directors and executive officers as of the date of this annual report.
Directors and Executive Officers
Lei Sun
Yifan Ren
Changxing Xiao
Fangxiong Gong
Haitian Lu
Lei Liu
Lixing Chen
Yanjun Lin
Xiaojun Yang
Age
41
38
48
57
41
39
39
42
46
Chairman of the Board of Directors
Vice chairman of the Board of Directors
Position/Title
Director
Independent Director
Independent Director
Chief Executive Officer and Chief Risk Officer and Director
Vice President and Chief Operating Officer
Chief Financial Officer and Director, Chief Executive Officer of Our
International Businesses and Fuyuan Securities Limited
Director of International Business
Lei Sun has been our director since January 2014, and our chairman of the board of directors since November 2017. Mr. Sun has
over fifteen years of experience in financial services industry and is a recipient of numerous prestigious national awards. Prior to
founding our company in August 2006, Mr. Sun was a senior manager at the head office of China Minsheng Bank (HKEX: 1988) from
September 2005 to August 2006. From August 2005 to September 2005, Mr. Sun served as a department head with Digital China
Group Co., Ltd. (SZ: 000034) in charge of the development of internet financing products. Prior to that, Mr. Sun served as a director of
banking service department with Taihe Chengxin Investment Co., Ltd. from August 2004. From March 2003 to August 2004, Mr. Sun
served as the department head of financial services department of Hi Sun Technology (China) Limited (HKEX: 0818). Mr. Sun received
his bachelor’s degree in finance and EMBA from Peking University in 2003 and 2013, respectively.
Yifan Ren has been a director of our company since January 2014, and our vice chairman of the board of directors since
June 2020. Mr. Ren has been serving as the general manager of Beijing Aidi Telecommunication Co., Ltd. since June 2012. From
January 2009 to June 2012, Mr. Ren worked with Beijing Tiantianfeidu Information Technology Co., Ltd. as the general manager.
Between June 2005 and June 2006, Mr. Ren worked as a producer with Beijing News Radio. Mr. Ren received his bachelor’s degree in
journalism from Peking University in 2005 and his master’s degree in media & communications from Fordham University in 2009.
Changxing Xiao has been a director of our company since January 2014. Mr. Xiao founded Will Hunting Capital in 2014 and
has been serving as a partner since its inception. From 2001 to 2013, Mr. Xiao served as the chief executive officer and chairman of the
board of Beijing Hi Sun Advanced Business Solutions Information Technology Limited. From 1995 to 2000, Mr. Xiao served as a
department head with Beijing Founder Order Computer System Co., Ltd. Mr. Xiao received his bachelor’s degree in international finance
from Peking University in 1995.
104
Table of Contents
Fangxiong Gong has served as our independent director since August 2019. Dr. Gong has been in the financial industry for
more than 23 years and is widely recognized in both the research and investment banking fields. Dr. Gong is currently a responsible
officer of First Seafront Financial Limited, in respect of Type 1 (Dealing in Securities), 4 (Advising on Securities) and 9 (Asset
Management) regulated activities since November 2016 and a responsible officer of First Seafront International Capital Limited, in
respect of Type 1 (Dealing in Securities) and 6 (Corporate Finance) regulated activities since September 2018. Dr. Gong currently serves
as an independent non-executive director of Bank of Shanghai Co., Ltd. (SSE:601229), a company listed on the Shanghai Stock
Exchange. From September 2009 to April 2015, Dr. Gong served as a Managing Director of JPMorgan Securities (Asia Pacific) Ltd and
Chairman of JPM China Investment Banking, and led JPMorgan China investment banking business. From June 2004 to August 2009,
Dr. Gong acted as Head of JPMorgan China Research / Strategy and Chief Economist, leading JPMorgan’s China research team covering
equity research, market strategy, macro and foreign exchange rates. Dr. Gong also co-headed JPMorgan EM Asia market research and
strategy. Before his career at JPMorgan, Dr. Gong was the Chief Strategist and Co-Head of Global Currency and Rates Research at Bank
of America from September 1997 to May 2004. Dr. Gong was an economist at the Federal Reserve Bank of New York from 1995 to
1997, where his duties included research and policy submissions to the Federal Open Market Committee. Dr. Gong holds a Ph.D. in
Financial Economics from the University of Pennsylvania, with the Ph.D. thesis jointly done in the Wharton School of University of
Pennsylvania and the Economics Department of the University of Pennsylvania, an M.S. in Physics from Temple University in
Philadelphia, an M.A. in Operation Research and Economics and a B.S. in Physics from Peking University.
Haitian Lu is currently a professor in law at the School of Accounting and Finance and the director of Chinese Mainland Affairs
at The Hong Kong Polytechnic University. Dr. Lu is currently serving as an independent non-executive director of K. H. Group Holdings
Limited (HKEX: 1557), an independent non-executive director of Loto Interactive Limited (HKEX: 8198), and an independent non-
executive director of China Life Trustees Limited. Dr. Lu served at the School of Accounting and Finance in The Hong Kong
Polytechnic University first as a visiting lecturer in law from September 2005 to June 2007 and later as an assistant professor in law from
June 2007 to June 2012, associate professor in law from July 2012 to June 2018, and full professor in law and finance from July 2018.
He also served as associate head of School of Accounting and Finance from July 2012 to December 2017, and associate dean in the
Faculty of Business from January 2018 to January 2020. Dr. Lu has more than 15 years of experience in accounting, finance and law. Dr.
Lu obtained his bachelor’s degree in international economic law from Nanjing University in 2001, his master of laws degree from The
University of Liverpool in 2002, and a Ph.D. degree in law from National University of Singapore in 2007.
Lei Liu is our co-founder and has served as our director since August 2019, our president since April 2020, our chief risk officer
since June 2020, and our chief executive officer since August 2020. Previously, Mr. Liu served as our executive president and chief risk
officer. Prior to founding our business, Mr. Liu worked as the senior product manager of the retail banking department of the head office
of China Minsheng Bank (HKEX: 1988) from 2006 through 2007, responsible for developing personal loan products. Prior to that,
Mr. Liu served as a supervisor of personal finance business with the Shenzhen branch of China Minsheng Bank, responsible for business
development and product design since 2003. Mr. Liu received his bachelor’s degree in economics from Shanghai University of Finance
and Economics in 2003, and his EMBA degree from Peking University in 2018.
Lixing Chen is our co-founder and has served as our vice president since August 2006, our chief operating officer since
April 2020. Previously, Mr. Chen served as chief executive officer of Jiufu Puhui. Prior to founding our business, Mr. Chen worked as a
project manager with Regal Lloyds International Real Estate Consultants Beijing Co., Ltd from January 2005 to July 2006 and an analyst
at China Economic Information Network Co., Ltd from July 2003 to December 2004. Mr. Chen received his bachelor’s degree in finance
from Peking University in 2003 and his master’s degree in finance from the Institute of Finance & Banking of the Chinese Academy of
Social Sciences in 2014.
105
Table of Contents
Yanjun Lin joined us in April 2015, and has been our chief financial officer since April 2016, chief executive officer of Fuyuan
Securities Limited since August 2016, and chief executive officer of our international businesses since September 2017, and our director
since November 2017. Mr. Lin has worked in the banking and finance industry for more than 15 years. Mr. Lin served as the director of
Barclays Capital Asia Limited from August 2012 to April 2015. Prior to that, Mr. Lin served as an associate, vice president and director
at Credit Suisse (Hong Kong) Limited from June 2008 to August 2012. Mr. Lin was an investment banker with BOC International
Holdings Limited, Cazenove (Asia) Limited and Bear Stearns Asia Limited before joining Credit Suisse (Hong Kong) Limited. Mr. Lin
also currently serves as the director of Asian Youth Orchestra, the director of Smart Finance Research Center of Financial Science and
Technology Institute at Tsinghua University, and is a Fellow of Aspen Institute’s China Fellowship Program. Mr. Lin received his
bachelor’s degree in money and banking from Peking University in 2001 and is an EMBA candidate of PBC School of Finance of
Tsinghua University.
Xiaojun Yang has been the director of our international business since April 2020. Previously, Mr. Yang served as our president
and chairman of Jiufu Puhui. Immediately prior to joining us in March 2016, Mr. Yang served as the vice chairman of Lufax (Shanghai
Lujiazui International Financial Asset Exchange Co., Ltd.), the largest P2P and financial asset trading platform in China, from
February 2015 to March 2016. Between May 2009 and February 2015, Mr. Yang worked as the deputy general director of the Financial
Innovation Supervision Department of the CBRC. From October 2005 to May 2009, Mr. Yang served as the division director of fund
investment of Mutual Fund Supervision of the CSRC. From September 2004 to October 2005, Mr. Yang served as the depute general
secretary of the Government of Mianyang City, Sichuan Province. From November 2001 to September 2004, Mr. Yang worked as an
assistant in market surveillance division of Market Supervision Department of the CSRC. Mr. Yang received his bachelor’s degree in
applied mathematics from Xi’an Jiaotong University in 1996, his master’s degree in international economics and Ph.D degree in
accounting from Xiamen University in 2002, and his MBA degree from the University of Cambridge in 2007.
B.
Compensation of Directors and Executive Officers
For the fiscal year ended December 31, 2020, we paid an aggregate of approximately RMB29.3 million (US$4.5 million) in
cash to our executive officers and directors. We have not set aside or accrue any amount to provide pension, retirement or other similar
benefits to our executive officers and directors. Our PRC subsidiaries and variable interest entities are required by law to make
contributions equal to certain percentages of each employee’s salary for his or her pension insurance, medical insurance, unemployment
insurance and other statutory benefits and a housing provident fund.
Share Incentive Plans
Our board of directors approved, in June 2015, June 2016 and March 2021, the 2015 Share Incentive Plan, the 2016 Share
Incentive Plan and 2021 Share Incentive Plan, respectively, (as amended and collectively, the “Share Incentive Plans”). The Share
Incentive Plans are adopted to attract and retain the best available personnel, provide additional incentives to employees, directors,
officers, and consultants and promote the success of our business. The maximum aggregate number of ordinary shares under the Share
Incentive Plans is 9,1603,068 Class A ordinary shares, and an annual increase on the first day of each of the five consecutive fiscal years
of the Company commencing with the fiscal year beginning January 1, 2022, by (i) an amount equal to 1.0% of the total number of the
then issued and outstanding ordinary shares or (ii) such fewer number of shares as may be determined by our board of directors, subject
to amendment. As of the date of this annual report, awards to purchase 33,626,808 Class A ordinary shares under the Share Incentive
Plans have been granted to our directors, executive officers and employees and outstanding, excluding awards that were forfeited or
cancelled after the relevant grant dates.
The following paragraphs describe the principal terms of the Share Incentive Plans.
Types of awards. The Share Incentive Plans permit the awards of options, restricted shares, or restricted share units.
Plan administration. Our board of directors or a committee of one or more members of the board of directors will administer
the Share Incentive Plans. The board or the committee, as applicable, will determine the participants to receive awards, the type and
number of awards to be granted to each participant, and the terms and conditions of each award grant. Any grant or amendment of
awards to any committee member shall then require an affirmative vote of a majority of the members of the board of directors who are
not on the committee.
106
Table of Contents
Award agreement. Awards granted under the Share Incentive Plans are evidenced by an award agreement that sets forth terms,
conditions and limitations for each award, which may include the term of the award, the provisions applicable in the event of the
grantee’s employment or service terminates, and our authority to unilaterally or bilaterally amend, modify, suspend, cancel or rescind
the award.
Eligibility. We may grant awards to our employees, directors and consultants of our company, and other individuals, as
determined, authorized and approved by the committee.
Vesting schedule. In general, the committee determines the vesting schedule, which is specified in the relevant award
agreement.
Exercise of options. The committee determines the exercise price for each award, which is stated in the award agreement.
However, the maximum exercisable term is ten years from the date of a grant.
Transfer restrictions. Awards may not be transferred in any manner by the participant other than in accordance with the
exceptions provided in applicable law, the Share Incentive Plans or the relevant award agreement, such as transfers by will or the laws of
descent and distribution.
Termination and amendment of the Share Incentive Plans. Unless terminated earlier, each of the 2015 Share Incentive Plan and
2016 Share Incentive Plan has a term of ten years. With the approval of the board of directors, the committee may terminate, amend or
modify the Share Incentive Plans; provided, however, that (a) to the extent necessary and desirable to comply with applicable laws, we
shall obtain shareholder approval of any Share Incentive Plans amendment in such a manner and to such a degree as required, unless we
decide to follow home country practice, and (b) unless we decide to follow home country practice, shareholder approval is required for
any amendment to the Share Incentive Plans that (i) increases the number of shares available under the plan (other than any adjustment
because of the changes in capital structure of us), or (ii) permits the committee to extend the term of the Share Incentive Plans or the
exercise period for an option beyond ten years from the date of grant.
The following table summarizes, as of March 31, 2021, the options granted under the Share Incentive Plans to our current
directors, executive officers and other grantees, excluding awards that were forfeited or cancelled after the relevant grant dates.
Name
Lei Sun
Lei Liu
Lixing Chen
Yanjun Lin
Xiaojun Yang
All Directors and Executive Officers as a Group
*
Less than one percent of our total outstanding shares.
Class A Ordinary Shares
Underlying Options
Exercise Price
(US$/Share)
Date of Grant
6,227,900
9,600,000
24,958,000 (1)
3,000,000
1,800,000
1,086,900
483,100
2,000,000
4,082,700
53,238,600
0-2.34
0-2.34
2.12
0-2.34
0-2.34
0-2.34
1.17
3.70
1.17
7/10/2015
7/1/2016
10/20/2017
7/10/2015
7/10/2015
7/10/2015
8/23/2016
7/1/2019
7/1/2016
Date of Expiration
7/9/2020
7/1/2021
10/19/2022
7/9/2022
7/9/2022
7/9/2022
8/22/2021
6/30/2024
7/1/2021
(1) Options to purchase 7,737,735 Class A ordinary shares of our company have been transferred to other employees of our company.
As of March 31, 2021, other employees as a group hold options to purchase 17,636,643 ordinary shares of our company, with
exercise prices ranging from nil to US$7.39 per share.
107
Table of Contents
C.
Board Practices
Board of Directors
Our board of directors consists of seven directors. A director is not required to hold any shares in our company to qualify to
serve as a director. A director may vote with respect to any contract, proposed contract or arrangement notwithstanding that he may be
interested therein, and if he does so his vote shall be counted and he may be counted in the quorum at any meeting of our directors at
which any such contract or proposed contract or arrangement is considered, provided (a) such director has declared the nature of his
interest (whether directly or indirectly) interested in a contract, proposed contract or arrangement with our company, either specifically or
by way of a general notice, (b) such director has not been disqualified by the chairman of the relevant board meeting, and (c) if such
contract or arrangement is a transaction with a related party, such transaction has been approved by the audit committee. The directors
may exercise all the powers of our company to borrow money, to mortgage or charge its undertaking, property and uncalled capital, and
to issue debentures or other securities whenever money is borrowed or as security for any debt, liability or obligation of our company or
of any third party. None of our non-executive directors has a service contract with us that provides for benefits upon termination of
service.
Committees of the Board of Directors
We have established three committees under the board of directors: an audit committee, a compensation committee and a
nominating and corporate governance committee. We have adopted a charter for each of the three committees. Each committee’s
members and functions are described below.
Audit Committee. Our audit committee consists of Haitian Lu and Fangxiong Gong. Haitian Lu is the chairman of our audit
committee. We have determined that Haitian Lu and Fangxiong Gong each satisfies the “independence” requirements of Rule 5605(a)(2)
of the Nasdaq Stock Market Rules and meet the independence standards under Rule 10A-3 under the Exchange Act. We rely on Rule
5615(a)(3) to follow our home country governance requirements of having an audit committee of two members, instead of three. In
addition, we have determined that Haitian Lu qualifies as an “audit committee financial expert.” The audit committee oversees our
accounting and financial reporting processes and the audits of the financial statements of our company. The audit committee is
responsible for, among other things:
● appointing the independent auditors and pre-approving all auditing and non-auditing services permitted to be
performed by the independent auditors;
● reviewing with the independent auditors any audit problems or difficulties and management’s response;
● discussing the annual audited financial statements with management and the independent auditors;
● reviewing the adequacy and effectiveness of our accounting and internal control policies and procedures and any steps
taken to monitor and control major financial risk exposures;
● reviewing and approving all proposed related party transactions;
● meeting separately and periodically with management and the independent auditors; and
● monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and
effectiveness of our procedures to ensure proper compliance.
108
Table of Contents
Compensation Committee. Our compensation committee consists of Fangxiong Gong and Haitian Lu. Fangxiong Gong is the
chairman of our compensation committee. We have determined that Fangxiong Gong and Haitian Lu each satisfies the “independence”
requirements of Rule 5605(a)(2) of the Nasdaq Stock Market Rules. The compensation committee assists the board in reviewing and
approving the compensation structure, including all forms of compensation, relating to our directors and executive officers. The
compensation committee is responsible for, among other things:
● reviewing and approving, or recommending to the board for its approval, the compensation for our chief executive
officer and other executive officers;
● reviewing and recommending to the board for determination with respect to the compensation of our non-employee
directors;
● reviewing periodically and approving any incentive compensation or equity plans, programs or similar arrangements;
and
● selecting compensation consultant, legal counsel or other adviser only after taking into consideration all factors
relevant to that person’s independence from management.
Nominating and Corporate Governance Committee. Our nominating and corporate governance committee consists of Haitian
Lu and Fangxiong Gong. Haitian Lu is the chairperson of our nominating and corporate governance committee. We have determined that
Haitian Lu and Fangxiong Gong each satisfies the “independence” requirements of Rule 5605(a)(2) of the Nasdaq Stock Market Rules.
The nominating and corporate governance committee assists the board of directors in selecting individuals qualified to become our
directors and in determining the composition of the board and its committees. The nominating and corporate governance committee is
responsible for, among other things:
● selecting and recommending to the board nominees for election by the shareholders or appointment by the board;
● reviewing annually with the board the current composition of the board with regards to characteristics such as
independence, knowledge, skills, experience and diversity;
● making recommendations on the frequency and structure of board meetings and monitoring the functioning of the
committees of the board; and
● advising the board periodically with regards to significant developments in the law and practice of corporate
governance as well as our compliance with applicable laws and regulations, and making recommendations to the board
on all matters of corporate governance and on any remedial action to be taken.
Duties of Directors
Under Cayman Islands law, our directors have a duty to act honestly, in good faith and with a view to our best interests. Our
directors also have a duty to exercise the care, diligence and skills that a reasonably prudent person would exercise in comparable
circumstances. In fulfilling their duty of care to us, our directors must ensure compliance with our memorandum and articles of
association and the class rights vested thereunder in the holders of the shares. A shareholder may in certain circumstances have rights to
damages if a duty owed by the directors is breached.
Our board of directors has all the powers necessary for managing, and for directing and supervising, our business affairs. The
functions and powers of our board of directors include, among others:
● convening shareholders’ annual general meetings and reporting its work to shareholders at such meetings;
● declaring dividends and distributions;
● appointing officers and determining the term of office of the officers;
109
Table of Contents
● exercising the borrowing powers of our company and mortgaging the property of our company; and
● approving the transfer of shares in our company, including the registration of such shares in our share register.
Terms of Directors and Officers
Our directors may be elected by a resolution of our board of directors, or by an ordinary resolution of our shareholders. A
director may be appointed on terms that the director shall automatically retire from office (unless he has sooner vacated office) at the
next or a subsequent annual general meeting or upon any specified event or after any specified period in a written agreement between our
company and the director, if any; but no such term shall be implied in the absence of express provision. Each director whose term of
office expires shall be eligible for re-election at a meeting of the shareholders or re-appointment by the board of directors. A director may
be removed from office by an ordinary resolution of the shareholders. A director will cease to be a director if, among other things, the
director (i) becomes bankrupt or makes any arrangement or composition with his creditors; (ii) dies or is found by our company to be or
becomes of unsound mind, (iii) resigns his office by notice in writing to our company, or (iv) without special leave of absence from our
board, is absent from three consecutive board meetings and our directors resolve that his office be vacated. Our officers are elected by
and serve at the discretion of our board of directors.
Employment Agreements and Indemnification Agreements
We have entered into employment agreements with each of our executive officers. Under these agreements, each of our
executive officers is employed for a specified time period. We may terminate employment for cause, for certain acts of the executive
officer, such as continued failure to satisfactorily perform his or her duties, willful misconduct or gross negligence in the performance of
his or her duties, conviction or entry of a guilty or nolo contendere plea of any felony or any misdemeanor involving moral turpitude, or
dishonest acts to our detriment. We may also terminate an executive officer’s employment without cause upon 30-day advance written
notice. In such case of termination by us, we will provide severance payments to the executive officer as may be agreed between the
executive officers and us. The executive officer may resign at any time with a 30-day advance written notice.
Each executive officer has agreed to hold, both during and after the termination or expiry of his or her employment agreement,
in strict confidence and not to use, except as required in the performance of his or her duties in connection with the employment or
pursuant to applicable law, any of our confidential information or trade secrets, any confidential information or trade secrets of our
clients or prospective clients, or the confidential or proprietary information of any third party received by us and for which we have
confidential obligations. The executive officers have also agreed to disclose in confidence to us all inventions, designs and trade secrets
which they conceive, develop or reduce to practice during the executive officer’s employment with us and to assign all right, title and
interest in them to us, and assist us in obtaining and enforcing patents, copyrights and other legal rights for these inventions, designs and
trade secrets.
In addition, each executive officer has agreed to be bound by non-competition and non-solicitation restrictions during the term
of his or her employment and typically for one year following the last date of employment. Specifically, each executive officer has
agreed not to (i) approach our suppliers, clients, customers or contacts or other persons or entities introduced to the executive officer in
his or her capacity as a representative of us for the purpose of doing business with such persons or entities that will harm our business
relationships with these persons or entities; (ii) assume employment with or provide services to any of our competitors, or engage,
whether as principal, partner, licensor or otherwise, any of our competitors, without our express consent; (iii) seek, directly or indirectly,
to solicit the services of, or hire or engage, any person who is known to be employed or engaged by us; or (iv) otherwise interfere with
our business or accounts.
We have also entered into indemnification agreements with each of our directors and executive officers. Under these
agreements, we agree to indemnify our directors and executive officers against certain liabilities and expenses incurred by such persons
in connection with claims made by reason of their being a director or officer of our company.
110
Table of Contents
D.
Employees
We had 1,649, 1,946 and 1,091 employees as of December 31, 2018, 2019 and 2020, respectively. The Company made active
efforts on workforce optimization in 2020 in answer to the adverse impact brought by COVID-19 pandemic and economic slowdown.
Almost all our employees are located in China. The following table sets forth the numbers of our employees categorized by function as
of December 31, 2020.
Function:
Product and technology
Risk management
Business operation
Sales and marketing
General administration
Total
As of December 31, 2020
447
76
226
167
175
1,091
As required by laws and regulations in China, we participate in various employee benefits plans that are organized by municipal
and provincial governments, including, among other things, housing fund, pension, medical insurance and unemployment insurance. We
are required under PRC law to make contributions to employee benefit plans at specified percentages of the salaries, bonuses and certain
allowances of our employees, up to a maximum amount specified by the local government from time to time.
We typically enter into standard employment, confidentiality and non-compete agreements with our senior management and
core personnel. These contracts include a standard non-compete covenant that prohibits the employee from competing with us, directly
or indirectly, during his or her employment and for two years after the termination of his or her employment, provided that we pay
compensation equal to 50% of the employee’s salary during the restriction period.
We believe that we maintain a good working relationship with our employees, and we have not experienced any labor disputes.
None of our employees are represented by labor unions.
E.
Share Ownership
Except as specifically noted, the following table sets forth information with respect to the beneficial ownership of our ordinary
shares as of March 31, 2021 by:
● each of our directors and executive officers; and
● each of our principal shareholders who beneficially own 5% or more of our total outstanding shares.
The calculations in the table below are based on 203,510,681 ordinary shares as of April 30, 2021.
111
Table of Contents
Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person, we have included shares that the person has the right to
acquire within 60 days, including through the exercise of any option, warrant or other right or the conversion of any other security. These
shares, however, are not included in the computation of the percentage ownership of any other person.
Ordinary Shares Beneficially Owned
Class A
ordinary shares
Class B
ordinary shares
Total ordinary
shares
Percentage
Percentage of
total ordinary
shares
of
aggregate
voting
power†
6,085,465
43,583,400
13,920,300
—
—
4,500,000
4,600,000
2,911,500
4,082,700
58,348,000
—
—
—
—
1,347,600
1,466,800
—
64,433,465
43,583,400
13,920,300
—
—
5,847,600
6,066,800
2,911,500
4,082,700
30.7 %
21.4 %
6.8 %
—
—
2.9 %
3.0 %
1.4 %
2.0 %
64.5 %
65.5 %
9.7 %
3.1 %
—
—
2.5 %
2.7 %
0.6 %
0.9 %
83.3 %
6,085,465
45,583,400
13,920,300
10,635,400
58,348,000
—
—
—
64,433,465
43,583,400
13,920,300
10,635,400
30.7 %
21.4 %
6.8 %
5.2 %
65.6 %
9.7 %
3.1 %
2.4 %
Directors and Executive Officers:**
Lei Sun(1)
Yifan Ren(2)
Changxing Xiao(3)
Fangxiong Gong
Haitian Lu
Lei Liu(4)
Lixing Chen(5)
Yanjun Lin(6)
Xiaojun Yang (7)
All Directors and Executive Officers as a Group
Principal Shareholders:
Nine F Capital Limited(1)
Nine Fortune Limited(2)
DFM Capital Ltd.(3)
JAS Investment Group Limited(8)
Notes:
*
Less than 1% of our total outstanding shares.
** Messrs. Lei Sun, Yanjun Lin, Lei Liu, Lixing Chen and Xiaojun Yang’s business address is Room 1607, Building No. 5, 5 West
Laiguangying Road, Chaoyang District, Beijing 100012, People’s Republic of China. Mr. Fangxiong Gong’s business address is
3603 Central Plaza, Wan Chai, Hong Kong. Mr. Haitian Lu’s business address is Flat B, G/F, Block 5, Parc Inverness, 38 Inverness
Road, Kowloon Tong, Kowloon, Hong Kong. Mr. Yifan Ren’s business address is Room 550, Sunflower Tower, No. 37 Maizidian
Street, Chaoyang District, Beijing, People’s Republic of China. Mr. Changxing Xiao’s business address is 2/F, Building B, B36 BOE
Universal Business Park, No. 10 Jiuxianqiao Road, Chaoyang District, Beijing, People’s Republic of China.
†
For each person or group included in this column, percentage of total voting power represents voting power based on both Class A
and Class B ordinary shares held by such person or group with respect to all outstanding shares of our Class A and Class B ordinary
shares as a single class. Each holder of our Class A ordinary shares is entitled to one vote per share. Each holder of our Class B
ordinary shares is entitled to five votes per share. Our Class B ordinary shares are convertible at any time by the holder into Class A
ordinary shares on a one-for-one basis, while Class A ordinary shares are not convertible into Class B ordinary shares under any
circumstances.
(1) Represents (i) 58,348,000 Class B ordinary shares held by Nine F Capital Limited, a British Virgin Islands company controlled by
The Nine F Trust; and (ii) 6,085,465 Class A ordinary shares that Nine F Capital Limited may purchase upon exercise of options
within 60 days. The registered address of Nine F Capital Limited is Sertus Chambers, P.O. Box 905, Quastisky Building, Road
Town, Tortola, British Virgin Islands. The Nine F Trust is a trust established under the laws of Guernsey and managed by Credit
Suisse Trust Limited as the trustee. Mr. Lei Sun is the settlor of the trust and Mr. Lei Sun and his family members are the trust’s
beneficiaries. Under the terms of this trust, Mr. Lei Sun has the power to direct the trustee with respect to the retention or disposal of,
and the exercise of any voting and other rights attached to, the shares held by Nine F Capital Limited in our Company.
112
Table of Contents
(2) Represents 43,583,400 Class A ordinary shares held by Nine Fortune Limited, a British Virgin Islands company. Nine Fortune
Limited is controlled by Mr. Yifan Ren. The registered address of Nine Fortune Limited is Sertus Chambers, P.O. Box 905,
Quastisky Building, Road Town, Tortola, British Virgin Islands.
(3) Represents 13,920,300 Class A ordinary shares held by DFM Capital Ltd., a British Virgin Islands company controlled by DTFM
Capital Trust. The registered address of DFM Capital Ltd. is Sertus Chambers, P.O. Box 905, Quastisky Building, Road Town,
Tortola, British Virgin Islands. DTFM Capital Trust is a trust established under the laws of Guernsey and managed by DTFM (PTC)
Ltd, a private trust company incorporated in British Virgin Islands, as the trustee. Mr. Changxing Xiao is the settlor of the trust and
Mr. Changxing Xiao and his family members are the trusts’ beneficiaries. Under the terms of this trust, Mr. Changxing Xiao has the
power to direct the trustee with respect to the retention or disposal of, and the exercise of any voting and other rights attached to the
shares held by DFM Capital Ltd. in our company.
(4) Represents (i) 1,347,600 Class B ordinary shares held by Stone Cube Capital Ltd. a British Virgin Islands company; (ii) 3,000,000
Class A ordinary shares held by Stone Cube Capital Ltd; and (iii) 1,500,000 Class A ordinary shares that Stone Cube Capital Ltd.
may purchase upon exercise of options within 60 days. The registered address of Stone Cube Capital Ltd. is Sertus Chambers, P.O.
Box 905, Quastisky Building, Road Town, Tortola, British Virgin Islands. Stone Cube Capital Ltd is wholly-owned by Stone LL
(PTC) Ltd., a private company incorporated in British Virgin Islands, which is in turn wholly-owned by Mr. Liu.
(5) Represents (i) 1,466,800 Class B ordinary shares held by Xing Technology Inc., a British Virgin Islands company; (ii) 3,700,000
Class A ordinary shares held by Xing Technology Inc.; and (iii) 900,000 Class A ordinary shares that Xing Technology Inc. may
purchase upon exercise of options within 60 days. The registered address of Xing Technology Inc. is Sertus Chambers, P.O. Box
905, Quastisky Building, Road Town, Tortola, British Virgin Islands. Xing Technology Inc. is wholly-owned by Xing Forever (PTC)
Ltd., a private company incorporated in British Virgin Islands, which is in turn wholly-owned by Mr. Chen.
(6) Represents (i) 785,000 Class A ordinary shares held by L Investment Holding Limited, a British Virgin Islands company; (ii)
1,026,500 Class A ordinary shares that Mr. Yanjun Lin may purchase upon exercise of options within 60 days; and (iii) 1,100,000
Class A ordinary shares that L Investment Holding Limited may purchase upon exercise of options within 60 days. L Investment
Holding Limited is wholly owned by Mr. Yanjun Lin. The registered address of L Investment Holding Limited is Sertus Chambers,
P.O. Box 905, Quastisky Building, Road Town, Tortola, British Virgin Islands.
(7) Represents 4,082,700 Class A ordinary shares that Mr. Xiaojun Yang may purchase upon exercise of options within 60 days.
(8) Represents 10,635,400 Class A ordinary shares held by JAS Investment Group Limited, a British Virgin Islands company. JAS
Investment Group Limited is wholly owned by Mr. Nanchun Jiang. The registered address of JAS Investment Group Limited is
OMC Chambers, Wickhams Cay 1, Road Town, Tortola, British Virgin Islands. Such shareholding information is based on the
information set forth in the Schedule 13G filed by Mr. Nanchun Jiang and JAS Investment Group Limited jointly on February 12,
2020. As of June 15, 2020, JAS Investment Group Limited was not a record holder of the Company’s Class A ordinary shares.
To our knowledge, as of March 31, 2021, a total of 59,308,511 Class A ordinary shares were held by one record holder in the
United States, which is the depositary of our ADS program. As of March 31, 2021, none of our Class B ordinary shares are held by U.S.
record holders. The number of beneficial owners of our ADSs in the United States is likely to be much larger than the number of record
holders of our ordinary shares in the United States. We are not aware of any arrangement that may, at a subsequent date, result in a
change of control of our company.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A.
Major Shareholders
Please refer to “Item 6. Directors, Senior Management and Employees—E. Share Ownership.”
113
Table of Contents
B.
Related Party Transactions
Contractual Arrangements with our Variable Interest Entity and its Shareholders
See “Item 4. Information on the Company—C. Organizational Structure.”
Shareholders Agreement
We entered into our fourth amended and restated shareholders agreement on September 20, 2018 with our shareholders, which
consists of holders of ordinary shares, series A preferred shares, series B preferred shares, series C preferred shares, series D preferred
shares and series E preferred shares.
The shareholders agreement provides that our board of directors should consist of nine directors, including five directors
designated by the holders of ordinary shares, one director being designated by Famous Voyage Group Limited, one director being
designated by series JAS Investment Group Limited, one director being designated jointly by SINOMAP INVESTMENTS LIMITED
and TREASURE KNIGHT INVESTMENTS LIMITED, and one director being designated by NOVEL LEAD LIMITED. The
shareholders agreement also provides for certain special rights, including right of first refusal, co-sale rights, and contains provisions
governing other corporate governance matters. Those special rights, as well as the corporate governance provisions, have been
terminated upon the completion of our initial public offering.
Registration rights
Pursuant to our current shareholders agreement, we have granted certain registration rights to our shareholders. Set forth below
is a description of the registration rights granted under the agreement.
Demand Registration Rights. Holders holding at least 30% of the registrable securities (on a as converted basis) held by the
preferred shareholders have the right to demand in writing that we file a registration statement covering the registration of at least 20% of
their registrable securities or any lesser percentage if the anticipated gross proceeds from the offering exceed US$5.0 million. We have
the right to defer filing of a registration statement for a period of not more than 90 days after the receipt of the request of the initiating
holders under certain conditions, but we cannot exercise the deferral right more than once in any twelve-month period, and cannot
register any other securities during such period. We are not obligated to effect more than three demand registrations.
Piggyback Registration Rights. If we propose to file a registration statement for a public offering of our securities, we must
offer holders of our registrable securities an opportunity to include in such registration. If the managing underwriter(s) of any
underwritten offering determine(s) in good faith that marketing factors require a limitation of the number of shares to be underwritten,
then the managing underwriter(s) may exclude shares from the registration and the underwriting, and the number of shares that may be
included in the registration and the underwriting shall be allocated, first to us, second to each of the holders requesting inclusion of their
registrable securities in such registration statement on a pro rata basis based on the total number of shares of registrable securities then
held by each such holder, and third to holders of other securities.
Form F-3 Registration Rights. Any holder of our registrable securities may request us to file an unlimited number of
registration statements on Form F-3. We shall effect the registration of the securities on Form F-3 as soon as practicable. We have the
right to defer filing of a registration statement for a period of not more than 60 days after receipt of the request under certain conditions,
but we cannot exercise the deferral right for more than once during any twelve-month period and cannot register any other securities
during such 60-day period. We are not obligated to effect more than two F-3 registrations within a twelve-month period.
Expenses of Registration. We will bear all registration expenses, other than underwriting discounts, selling commissions or
special counsel of the selling holders applicable, incurred in connection with any demand, piggyback or F-3 registration.
Termination of Obligations. Our obligation to effect any demand, piggyback or Form F-3 registration shall terminate on the
fifth anniversary of the closing of the initial public offering, or, if, in the opinion of counsel to our company, all such registrable securities
proposed to be sold by a holder of registrable securities may then be sold without registration in any ninety day period pursuant to
Rule 144 promulgated under the Securities Act.
114
Table of Contents
Employment Agreements and Indemnification Agreements
See “Item 6. Directors, Senior Management and Employees — C. Board Practice — Employment Agreements and
Indemnification Agreements.”
Share Incentive Plan
See “Item 6. Directors, Senior Management and Employees—B. Compensation of Directors and Executive Officers—Share
Incentive Plans.”
Option grants
See “Item 6. Directors, Senior Management and Employees—B. Compensation of Directors and Executive Officers—Share
Incentive Plans.”
Other Transactions with our Investee Companies
In 2019, Nanjing Lefang Intelligent Lite Technology Development Co., Ltd (“Nanjing Lefang”) provided us with borrower
acquisition and referral services in the amount of RMB29.5 million. We provided consulting services to Nanjing Lefang in the amount of
RMB2.0 millionin 2019. We also provided loans to Nanjing Lefang. As of December 31, 2019 and 2020, we had amounts of RMB50.0
million and nil, respectively, due from Nanjing Lefang, and RMB18.5 million and RMB18.8 million, respectively, due to Nanjing
Lefang.
In 2019, Zhuhai Hengqin Flash Cloud Payment Information Technology Limited (“Zhuhai Hengqin Payment”), an entity
controlled by Mr. Lei Sun, our chairman of the board of directors, provided us with payment processing service in the amount of
RMB9.2 million. As of December 31, 2019 and 2020, we had amounts of RMB3.1 million and 4.7 million, respectively, due to Zhuhai
Hengqin Payment.
In 2019 and 2020, we received borrower acquisition and referral services from Beijing Jiuzao Technology Limited (“Beijing
Jiuzao”), an entity controlled by Mr. Lei Sun, our chairman of the board of directors since December 2019, in the amount of RMB7.3
million and RMB0.9 million (US$0.1 million). As of December 31, 2019 and 2020, we had RMB7.3 million and RMB0.2 million
(US$27.4 thousands) due to Beijing Jiuzao.
In 2019 and 2020, we received credit inquiry services from Hangzhou Shuyun Gongjin Technology Limited (“Hangzhou
Shuyun”), an entity controlled by Mr. Lei Sun, our chairman of the board of directors, in the amount of RMB5.9 million and RMB0.4
million (US$0.5 million). As of December 31, 2019 and 2020, we had RMB0.9 million and RMB18 thousand (US$2.7 thousand) due to
Hangzhou Shuyun.
As of December 31, 2020, we had RMB43.8 million (US$6.7 million) due to Niche Global Fintech Corporation Limited, an
equity investee, which represented unpaid investment commitment.
C.
Interests of Experts and Counsel
Not applicable.
ITEM 8. FINANCIAL INFORMATION
A.
Consolidated Statements and Other Financial Information
We have appended consolidated financial statements filed as part of this annual report.
115
Table of Contents
Legal Proceedings
In 2019, we partnered with PICC under our direct lending program. In November 2019, PICC stopped paying service fees as
agreed in the Cooperation Agreement. PICC further disputed with us regarding payments of the service fees under the Cooperation
Agreement.
In May 2020, we commenced a legal proceeding against PICC by submitting a complaint with a local court in Beijing for
contract non-performance under the Cooperation Agreement. We, together with our legal counsel of the case has determined that PICC
has breached its contractual obligation under the Cooperation Agreement for not paying service fees that were due to us under our direct
lending program. We are seeking payments of approximately RMB2.3 billion from PICC to cover the outstanding service fees and
related late payment losses. After our legal action was filed against PICC, PICC filed a civil lawsuit against us at a local court in
Guangzhou claiming that the second amendment under the Cooperation Agreement is invalid, and therefore PICC is not obligated to pay
any outstanding service fees and that a portion of the service fees paid to us under the Cooperation Agreement plus accrued interest
should be refunded to PICC. We will vigorously assert our rights against PICC and defend ourselves against any claims brought against
us by PICC in these legal proceedings. However, both actions remain at the preliminary stage, and it is not possible at this stage to
ascertain the outcome of either of the lawsuits. If we do not prevail in either of the lawsuits completely or in part, or fails to reach a
favorable settlement with PICC, our results of operations, financial condition, liquidity and prospects would be materially and adversely
affected.
We suspended our cooperation with PICC on new loans under our direct lending program since December 2019 and entered into
agreements with other financing guarantee companies in providing guarantee services to the institutional funding partners.
Beginning in September 2020, we and certain of our current and former officers, directors and others were named as defendants
in various putative securities class actions captioned In re 9F Inc. Securities Litigation, Index No. 654654/2020 (Supreme Court of the
State of New York County of New York, Amended Complaint filed Dec. 7, 2020) (the “State Court Action”) and Holland v. 9F Inc. et
al., No. 2:21-cv-00948 (United States District Court for the District of New Jersey, filed Jan. 20, 2021) (the “Federal Court Action”).
Both actions allege that defendants made misstatements and omissions in connection with our initial public offering in August 2019 in
violation of the federal securities laws. On April 21, 2021, we have completed briefing on Defendants’ Motion to Dismiss the State Court
Action, and a decision is currently pending. Both cases remain in their preliminary stages.
Dividend Policy
Our board of directors has complete discretion on whether to distribute dividends, subject to the requirements of Cayman
Islands law that our company may only pay dividends out of profits or share premium, and provided always that in no circumstances may
a dividend be paid if this would result in our company being unable to pay its debts as they fall due in the ordinary course of business. In
addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our
board of directors. Even if our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future
operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the
board of directors may deem relevant.
We do not have any present plan to pay cash dividends on our ordinary shares in the foreseeable future. We currently intend to
retain most, if not all, of our available funds and any future earnings to operate and expand our business.
We are a holding company incorporated in the Cayman Islands. We may rely on dividends from our subsidiaries in China for
our cash requirements, including any payment of dividends to our shareholders. PRC regulations may restrict the ability of our PRC
subsidiaries to pay dividends to us. See “Item 4. Information on the Company—B. Business Overview—Regulations—Regulations on
Foreign Exchange—Regulations on dividend distribution.”
If we pay any dividends on our class A ordinary shares, we will pay those dividends which are payable in respect of the class A
ordinary shares represented by our ADSs to the depositary, as the registered holder of such class A ordinary shares, and the depositary
then will pay such amounts to our ADS holders in proportion to class A ordinary shares represented by the ADSs held by such ADS
holders, subject to the terms of the deposit agreement, including the fees and expenses payable thereunder. See “Item 12. Description of
Securities other than Equity Securities—Description of American Depositary Shares.” Cash dividends on our class A ordinary shares, if
any, will be paid in U.S. dollars.
116
Table of Contents
B.
Significant Changes
Except as disclosed elsewhere in this annual report, we have not experienced any significant changes since the date of our
audited consolidated financial statements included in this annual report.
ITEM 9. THE OFFER AND LISTING
A.
Offering and Listing Details
See “—C. Markets.”
B.
Plan of Distribution
Not applicable.
C.
Markets
Our ADSs, each representing one Class A ordinary shares of ours, have been listed on the Nasdaq Global Market since
August 15, 2019. Our ADSs trade under the symbol “JFU.”
D.
Selling Shareholders
Not applicable.
E.
Dilution
Not applicable.
F.
Expenses of the Issue
Not applicable.
ITEM 10. ADDITIONAL INFORMATION
A.
Share Capital
Not applicable.
B.
Memorandum and Articles of Association
The following are summaries of material provisions of our sixth amended and restated memorandum and articles of association
and of the Companies Act (2021 Revision), insofar as they relate to the material terms of our ordinary shares.
Objects of Our Company. Under our sixth amended and restated memorandum and articles of association, the objects of our
company are unrestricted and we have the full power and authority to carry out any object not prohibited by the law of the Cayman
Islands.
117
Table of Contents
Ordinary Shares. Our ordinary shares are divided into Class A ordinary shares and Class B ordinary shares. Holders of Class A
ordinary shares and Class B ordinary shares have the same rights except for voting and conversion rights. Our ordinary shares are issued
in registered form and are issued when registered in our register of members. Our shareholders who are non-residents of the Cayman
Islands may freely hold and vote their shares. We may not issue bearer shares. Each Class A ordinary share is entitled to one vote, and
each Class B ordinary share is entitled to five votes and is convertible into one Class A ordinary share at the option of the holder thereof.
Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances. Upon any sale, transfer, assignment or
disposition of any Class B ordinary share by a holder thereof to any non-affiliate to such holder, or upon a change of control of any
Class B ordinary share to any person who is not an affiliate of the registered holder of such Class B ordinary share, each of such Class B
ordinary shares will be automatically and immediately converted into one Class A ordinary share.
Dividends. The holders of our ordinary shares are entitled to such dividends as may be declared by our board of directors. In
addition, our shareholders may by an ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by
our directors. Our sixth amended and restated memorandum and articles of association provides that our directors may, before
recommending or declaring any dividend, set aside out of the funds legally available for distribution such sums as they think proper as a
reserve or reserves which shall, in the absolute discretion of our directors, be applicable for meeting contingencies or for equalizing
dividends or for any other purpose to which those funds may be properly applied. Under Cayman Islands law, our company may declare
and pay a dividend only out of funds legally available therefor, namely out of either profit or our share premium account, provided that in
no circumstances may we pay a dividend if this would result in our company being unable to pay its debts as they fall due in the ordinary
course of business.
Voting Rights. Voting at any shareholders’ meeting is by show of hands unless a poll is demanded. A poll may be demanded by
the chairman of such meeting or any one or more shareholders who together hold not less than 10% of the votes attaching to the total
ordinary shares present in person or by proxy. In respect of all matters subject to a shareholders’ vote on a poll, each Class A ordinary
share is entitled to one vote and each Class B ordinary share is entitled to five votes.
A quorum required for a meeting of shareholders consists of one or more shareholders present or by proxy, holding shares
which represent, in aggregate, not less than one-third of the votes attaching to the issued and outstanding voting shares in our company
entitled to vote at general meetings. Shareholders may be present in person or by proxy or, if the shareholder is a legal entity, by its duly
authorized representative. Shareholders’ meetings may be convened by our board of directors on its own initiative or upon a request to
the directors by shareholders holding shares which represent, in aggregate, no less than one-third of the votes attaching to the issued and
outstanding shares in our company entitled to vote at general meetings; however, our sixth amended and restated memorandum and
articles of association does not provide our shareholders with any right to put any proposals before annual general meetings or
extraordinary general meetings not called by such shareholders. Advance notice of at least seven calendar days is required for the
convening of our annual general shareholders’ meeting and any other general shareholders’ meeting.
An ordinary resolution to be passed at a meeting by the shareholders requires the affirmative vote of a simple majority of the
votes attached to the ordinary shares cast by those shareholders entitled to vote who are present in person or by proxy at a general
meeting, while a special resolution requires the affirmative vote of no less than two-thirds of the votes attached to the ordinary shares
cast by those shareholders entitled to vote who are present in person or by proxy at a general meeting. Both ordinary resolutions and
special resolutions may also be passed by a unanimous written resolution signed by all the shareholders of our company, as permitted by
the Companies Act and our sixth amended and restated memorandum and articles of association. A special resolution will be required for
important matters such as a change of name or making changes to our sixth amended and restated memorandum and articles of
association. Holders of the ordinary shares may, among other things, divide or combine their shares by ordinary resolution.
Transfer of Ordinary Shares. Subject to the restrictions set out below, any of our shareholders may transfer all or any of his or
her ordinary shares by an instrument of transfer in the usual or common form or any other form approved by our board of directors.
Our board of directors may, in its absolute discretion, decline to register any transfer of any ordinary share which is not fully
paid up or on which we have a lien. Our board of directors may also decline to register any transfer of any ordinary share unless:
● the instrument of transfer is lodged with us, accompanied by the certificate for the ordinary shares to which it relates
and such other evidence as our board of directors may reasonably require to show the right of the transferor to make
the transfer;
118
Table of Contents
● the instrument of transfer is in respect of only one class of shares;
● the instrument of transfer is properly stamped, if required;
● in the case of a transfer to joint holders, the number of joint holders to whom the ordinary share is to be transferred
does not exceed four; and
● a fee of such maximum sum as the Nasdaq Stock Market may determine to be payable or such lesser sum as our
directors may from time to time require is paid to us in respect thereof.
If our directors refuse to register a transfer they shall, within three calendar months after the date on which the instrument of
transfer was lodged, send to each of the transferor and the transferee notice of such refusal.
The registration of transfers may, after compliance with any notice required of the Nasdaq Stock Market, be suspended and the
register closed at such times and for such periods as our board of directors may from time to time determine, provided, however, that the
registration of transfers shall not be suspended nor the register closed for more than 30 calendar days in any calendar year as our board
may determine from time to time.
Liquidation. On a winding up of our company, if the assets available for distribution among our shareholders shall be more
than sufficient to repay the whole of the share capital at the commencement of the winding up, the surplus will be distributed among our
shareholders in proportion to the par value of the shares held by them at the commencement of the winding up, subject to a deduction
from those shares in respect of which there are monies due, of all monies payable to our company for unpaid calls or otherwise. If our
assets available for distribution are insufficient to repay all of the paid-up capital, the assets will be distributed so that the losses are borne
by our shareholders in proportion to the par value of the shares held by them. We are a “limited liability” company incorporated under
the Companies Act, and under the Companies Act, the liability of our members is limited to the amount, if any, unpaid on the shares
respectively held by them. Our sixth amended and restated memorandum of association contains a declaration that the liability of our
members is so limited.
Calls on Shares and Forfeiture of Shares. Our board of directors may from time to time make calls upon shareholders for any
amounts unpaid on their shares in a notice served to such shareholders at least 14 calendar days prior to the specified time or times of
payment. The shares that have been called upon and remain unpaid are subject to forfeiture.
Redemption, Repurchase and Surrender of Ordinary Shares. We may issue shares on terms that such shares are subject to
redemption, at our option or at the option of the holders thereof, on such terms and in such manner as may be determined, before the
issue of such shares, by our board of directors or by a special resolution of our shareholders. Our company may also repurchase any of
our shares provided that the manner and terms of such purchase have been approved by our board of directors or by ordinary resolution
of our shareholders, or are otherwise authorized by our sixth amended and restated memorandum and articles of association. Under the
Companies Act, the redemption or repurchase of any share may be paid out of the company’s profits or out of the proceeds of a fresh
issue of shares made for the purpose of such redemption or repurchase, or out of capital (including share premium account and capital
redemption reserve) if the company can, immediately following such payment, pay its debts as they fall due in the ordinary course of
business. In addition, under the Companies Act no such share may be redeemed or repurchased (a) unless it is fully paid up, (b) if such
redemption or repurchase would result in there being no shares outstanding, or (c) if the company has commenced liquidation. In
addition, our company may accept the surrender of any fully paid share for no consideration.
Variations of Rights of Shares. If at any time, our share capital is divided into different classes of shares, all or any of the
special rights attached to any class of shares may be varied with the consent in writing of the holders of all of the holders of the issued
shares of that class or with the sanction of an ordinary resolution passed at a separate meeting of the holders of the shares of that class.
The rights conferred upon the holders of the shares of any class issued with preferred or other rights shall not, unless otherwise expressly
provided by the terms of issue of the shares of that class, be deemed to be varied by the creation or issue of further shares ranking pari
passu with such existing class of shares
Issuance of Additional Shares. Our sixth amended and restated memorandum and articles of association authorizes our board
of directors to issue additional ordinary shares from time to time as our board of directors shall determine, to the extent of available
authorized but unissued shares.
119
Table of Contents
Our sixth amended and restated memorandum and articles of association also authorizes our board of directors to establish from
time to time one or more series of preferred shares and to determine, with respect to any series of preferred shares, the terms and rights of
that series, including:
● the designation of the series;
● the number of preferred shares to constitute the series and the subscription price thereof if different from the par value
thereof;
● the dividend rights, dividend rates, conversion rights, voting rights; and
● the rights and terms of redemption and liquidation preferences.
Our board of directors may issue preferred shares without action by our shareholders to the extent authorized but unissued.
Issuance of these shares may dilute the voting power of holders of ordinary shares.
Inspection of Books and Records. Holders of our ordinary shares will have no general right under Cayman Islands law to
inspect or obtain copies of our list of shareholders or our corporate records. (other than copies of the memorandum and articles of
association, the register of mortgages and charges, and any special resolutions passed by the shareholders). Under Cayman Islands law,
the names of our current directors can be obtained from a search conducted at the Registrar of Companies. However, we will provide our
shareholders with annual audited financial statements. See “Where You Can Find Additional Information.”
Anti-Takeover Provisions. Some provisions of our sixth amended and restated memorandum and articles of association may
discourage, delay or prevent a change of control of our company or management that shareholders may consider favorable, including
provisions that:
● authorize our board of directors to issue preferred shares in one or more series and to designate the price, rights,
preferences, privileges and restrictions of such preferred shares without any further vote or action by our shareholders;
and
● limit the ability of shareholders to requisition and convene general meetings of shareholders.
However, under Cayman Islands law, our directors may only exercise the rights and powers granted to them under our sixth
amended and restated memorandum and articles of association for a proper purpose and for what they believe in good faith to be in the
best interests of our company.
General Meetings of Shareholders and Shareholder Proposals. Our shareholders’ general meetings may be held in such place
within or outside the Cayman Islands as our board of directors considers appropriate.
As a Cayman Islands exempted company, we are not obliged by the Companies Act to call shareholders’ annual general
meetings. Our sixth amended and restated memorandum and articles of association provide that we may (but are not obliged to) in
each year hold a general meeting as our annual general meeting.
Shareholders’ annual general meetings and any other general meetings of our shareholders may be convened by a majority of
our board of directors or our chairman. Advance notice of at least seven days is required for the convening of our annual general
shareholders’ meeting and any other general meeting of our shareholders. A quorum required for a general meeting of shareholders
consists of at least one shareholder present or by proxy, representing not less than one-third of the votes attaching to the issued and
outstanding shares in our company entitled to vote at general meetings.
Cayman Islands law provides shareholders with only limited rights to requisition a general meeting, and does not provide
shareholders with any right to put any proposal before a general meeting.
120
Table of Contents
However, these rights may be provided in a company’s articles of association. Our sixth amended and restated memorandum
and articles of association allow our shareholders holding shares representing in aggregate not less than one-third of the votes attaching
to the issued and outstanding shares of our company entitled to vote at general meetings, to requisition an extraordinary general meeting
of our shareholders, in which case our directors are obliged to call such meeting and to put the resolutions so requisitioned to a vote at
such meeting; however, our sixth amended and restated memorandum and articles of association do not provide our shareholders with
any right to put any proposals before annual general meetings or extraordinary general meetings not called by such shareholders.
Election and Removal of Directors
Unless otherwise determined by our company in general meeting, our sixth amended and restated articles of association provide
that our board will consist of not less than three directors. There are no provisions relating to retirement of directors upon reaching any
age limit.
The directors have the power to appoint any person as a director either to fill a casual vacancy on the board or as an addition to
the existing board. Our shareholders may also appoint any person to be a director by way of ordinary resolution.
A director may be removed with or without cause by ordinary resolution.
In addition, the office of any director shall be vacated if the director (i) becomes bankrupt or makes any arrangement or
composition with his creditors, (ii) dies or is found to be or becomes of unsound mind, (iii) resigns his office by notice in writing to our
company, or (iv) without special leave of absence from our board, is absent from three consecutive board meetings and our board
resolves that his office be vacated.
Proceedings of Board of Directors
Our sixth amended and restated memorandum and articles of association provide that our business is to be managed and
conducted by our board of directors. The quorum necessary for board meetings may be fixed by the board and, unless so fixed at another
number, will be a majority of the directors.
Our sixth amended and restated memorandum and articles of association provide that the board may exercise all the powers of
our company to borrow money, to mortgage or charge all or any part of the undertaking, property and uncalled capital of our company
and to issue debentures and other securities whenever money is borrowed, or as security for any debt, liability or obligation of our
company or of any third party.
Changes in Capital
Our shareholders may from time to time by ordinary resolution:
● increase our share capital by such sum, to be divided into shares of such classes and amount, as the resolution shall
prescribe;
● consolidate and divide all or any of our share capital into shares of a larger amount than our existing shares;
● sub-divide our existing shares, or any of them into shares of a smaller amount, provided that in the subdivision the
proportion between the amount paid and the amount, if any, unpaid on each reduced share shall be the same as it was
in case of the share from which the reduced share is derived; or
● cancel any shares which, at the date of the passing of the resolution, have not been taken or agreed to be taken by any
person and diminish the amount of our share capital by the amount of the shares so canceled.
121
Table of Contents
Our shareholders may by special resolution, subject to confirmation by the Grand Court of the Cayman Islands on an
application by our company for an order confirming such reduction, reduce our share capital or any capital redemption reserve in any
manner permitted by law.
Exempted Company. We are an exempted company with limited liability under the Companies Act. The Companies Act
distinguishes between ordinary resident companies and exempted companies. Any company that is incorporated in the Cayman Islands
but conducts business mainly outside of the Cayman Islands may apply to be incorporated as an exempted company. The requirements
for an exempted company are essentially the same as for an ordinary company except that an exempted company:
● does not have to file an annual return of its shareholders with the Registrar of Companies;
● is not required to open its register of members for inspection;
● does not have to hold an annual general meeting;
● may issue negotiable or bearer shares or shares with no par value;
● may obtain an undertaking against the imposition of any future taxation (such undertakings are usually given for
20 years in the first instance);
● may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands;
● may register as a limited duration company; and
● may register as a segregated portfolio company.
“Limited liability” means that the liability of each shareholder is limited to the amount unpaid by the shareholder on that
shareholder’s shares of the company (except in exceptional circumstances, such as involving fraud, the establishment of an agency
relationship or an illegal or improper purpose or other circumstances in which a court may be prepared to pierce or lift the corporate
veil).
Register of Members. Under Cayman Islands law, we must keep a register of members and there should be entered therein:
● (i) the names and addresses of the members, together with a statement of the shares held by each member, and of the
amount paid or agreed to be considered as paid, on the shares of each member, (ii) the number and category of shares
held by each member, and (iii) whether each relevant category of shares held by a member carries voting rights under
the articles of association of the company, and if so, whether such voting rights are conditional;
● the date on which the name of any person was entered on the register as a member; and
● the date on which any person ceased to be a member.
Under Cayman Islands law, the register of members of our company is prima facie evidence of the matters set out therein (i.e.
the register of members will raise a presumption of fact on the matters referred to above unless rebutted) and a member registered in the
register of members should be deemed as a matter of Cayman Islands law to have legal title to the shares as set against its name in the
register of members. Upon the closing of the initial public offering, our company’s register of members will be immediately updated to
record and give effect to the issue of Class A ordinary shares by us to the Depositary (or its nominee) as the depositary. Once our register
of members has been updated, the shareholders recorded in the register of members will be deemed to have legal title to the shares set
against their name in the register of members.
122
Table of Contents
If the name of any person is incorrectly entered in or omitted from our register of members, or if there is any delinquent or
unnecessary delay in entering on the register the fact of any person having ceased to be a member of our company, the person or member
aggrieved (or any member of our company or our company itself) may apply to the Grand Court of the Cayman Islands for an order that
the register be rectified, and the Court may either refuse such application or it may, if satisfied of the justice of the case, make an order
for the rectification of the register.
Differences in Corporate Law
The Companies Act is derived, to a large extent, from the older Companies Acts of England but does not follow recent United Kingdom
statutory enactments, and accordingly there are significant differences between the Companies Act and the current Companies Act of
England. In addition, the Companies Act differs from laws applicable to United States corporations and their shareholders. Set forth
below is a summary of certain significant differences between the provisions of the Companies Act applicable to us and the comparable
provisions of the laws applicable to companies incorporated in the United States and their shareholders.
Mergers and Similar Arrangements. The Companies Act permits mergers and consolidations between Cayman Islands companies and
between Cayman Islands companies and non-Cayman Islands companies. For these purposes, (a) ”merger” means the merging of two or
more constituent companies and the vesting of their undertaking, property and liabilities in one of such companies as the surviving
company and (b) a “consolidation” means the combination of two or more constituent companies into a combined company and the
vesting of the undertaking, property and liabilities of such companies to the consolidated company. In order to effect such a merger or
consolidation, the directors of each constituent company must approve a written plan of merger or consolidation, which must then be
authorized by (a) a special resolution of the shareholders of each constituent company, and (b) such other authorization, if any, as may be
specified in such constituent company’s articles of association. The written plan of merger or consolidation must be filed with the
Registrar of Companies together with a declaration as to the solvency of the consolidated or surviving company, a declaration as to the
assets and liabilities of each constituent company and an undertaking that a copy of the certificate of merger or consolidation will be
given to the members and creditors of each constituent company and that notification of the merger or consolidation will be published in
the Cayman Islands Gazette. Dissenting shareholders have the right to be paid the fair value of their shares (which, if not agreed between
the parties, will be determined by the Cayman Islands court) if they follow the required procedures, subject to certain exceptions. Court
approval is not required for a merger or consolidation which is effected in compliance with these statutory procedures.
Separate from the statutory provisions relating to mergers and consolidations, the Companies Act also contains, there are statutory
provisions that facilitate the reconstruction and amalgamation of companies by way of schemes of arrangement, provided that the
arrangement is approved by a majority in number of each class of shareholders or creditors with whom the arrangement is to be made,
and who must in addition represent three-fourths in value of each such class of shareholders or creditors, as the case may be, that are
present and voting either in person or by proxy at a meeting, or meetings, convened for that purpose. The convening of the meetings and
subsequently the arrangement must be sanctioned by the Grand Court of the Cayman Islands. While a dissenting shareholder has the
right to express to the court the view that the transaction ought not to be approved, the Grand Court of the Cayman Islands can be
expected to approve the arrangement if it determines that:
● the statutory provisions as to the required majority vote have been met;
● the shareholders have been fairly represented at the meeting in question and the statutory majority are acting bona fide
without coercion of the minority to promote interests adverse to those of the class;
● the arrangement is such that may be reasonably approved by an intelligent and honest man of that class acting in
respect of his interest; and
● the arrangement is not one that would more properly be sanctioned under some other provision of the Companies Act.
The Companies Act also contains a statutory power of compulsory acquisition which may facilitate the “squeeze out” of dissentient
minority shareholder upon a tender offer. When a tender offer is made and accepted by holders of 90% of the shares affected within
four months, the offeror may, within a two-month period commencing on the expiration of such four month period, require the holders of
the remaining shares to transfer such shares to the offeror on the terms of the offer. An objection can be made to the Grand Court of the
Cayman Islands but this is unlikely to succeed in the case of an offer which has been so approved unless there is evidence of fraud, bad
faith or collusion.
123
Table of Contents
If an arrangement and reconstruction is thus approved, or if a tender offer is made and accepted, a dissenting shareholder would have no
rights comparable to appraisal rights, which would otherwise ordinarily be available to dissenting shareholders of Delaware corporations,
providing rights to receive payment in cash for the judicially determined value of the shares.
Shareholders’ Suits. In principle, we will normally be the proper plaintiff to sue for a wrong done to us as a company, and as a general
rule, a derivative action may ordinarily not be brought by a minority shareholder. However, based on English authority, which would in
all likelihood be of persuasive authority in the Cayman Islands, the Cayman Islands courts can be expected (and have had occasion) to
follow and apply the common law principles (namely the rule in Foss v. Harbottle and the exceptions thereto) so that a minority
shareholder may be permitted to commence a class action against, or derivative actions in the name of, our company to challenge:
(a)
(b)
(c)
an act which is ultra vires or illegal and is therefore incapable of ratification by the shareholders,
act which constitutes a fraud against the minority where the wrongdoers are themselves in control of our
company, and
an act which requires a resolution with a qualified (or special) majority (i.e. more than a simple majority) which
has not been obtained.
Indemnification of Directors and Executive Officers and Limitation of Liability. Cayman Islands law does not limit the extent to which a
company’s memorandum and articles of association may provide for indemnification of officers and directors, except to the extent any
such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil
fraud or the consequences of committing a crime. Our sixth amended and restated memorandum and articles of association require us to
indemnify our officers and directors for losses, damages, costs and expenses incurred in their capacities as such unless such losses or
damages arise from dishonesty, willful default or fraud of such directors or officers. This standard of conduct is generally the same as
permitted under the Delaware General Corporation Law for a Delaware corporation.
In addition, we have entered into indemnification agreements with our directors and executive officers that provide such persons with
additional indemnification beyond that provided in our sixth amended and restated memorandum and articles of association.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or persons controlling
us under the foregoing provisions, we have been informed that in the opinion of the SEC, such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
Directors’ Fiduciary Duties. Under Delaware corporate law, a director of a Delaware corporation has a fiduciary duty to the corporation
and its shareholders. This duty has two components: the duty of care and the duty of loyalty. The duty of care requires that a director act
in good faith, with the care that an ordinarily prudent person would exercise under similar circumstances. Under this duty, a director must
inform himself of, and disclose to shareholders, all material information reasonably available regarding a significant transaction. The
duty of loyalty requires that a director acts in a manner he reasonably believes to be in the best interests of the corporation. He must not
use his corporate position for personal gain or advantage. This duty prohibits self-dealing by a director and mandates that the best interest
of the corporation and its shareholders take precedence over any interest possessed by a director, officer or controlling shareholder and
not shared by the shareholders generally. In general, actions of a director are presumed to have been made on an informed basis, in good
faith and in the honest belief that the action taken was in the best interests of the corporation. However, this presumption may be rebutted
by evidence of a breach of one of the fiduciary duties. Should such evidence be presented concerning a transaction by a director, the
director must prove the procedural fairness of the transaction, and that the transaction was of fair value to the corporation.
As a matter of Cayman Islands law, a director of a Cayman Islands company is in the position of a fiduciary with respect to the company
and therefore he owes the following duties to the company—a duty to act in good faith in the best interests of the company, a duty not to
make a personal profit based on his position as director (unless the company permits him to do so), a duty not to put himself in a position
where the interests of the company conflict with his personal interest or his duty to a third party and a duty to exercise powers for the
purpose for which such powers were intended. A director of a Cayman Islands company owes to the company a duty to act with skill and
care. It was previously considered that a director need not exhibit in the performance of his duties a greater degree of skill than may
reasonably be expected from a person of his knowledge and experience. However, English and Commonwealth courts have moved
towards an objective standard with regard to the required skill and care and these authorities are likely to be followed in the Cayman
Islands.
124
Table of Contents
Shareholder Action by Written Consent. Under the Delaware General Corporation Law, a corporation may eliminate the right of
shareholders to act by written consent by amendment to its certificate of incorporation. Cayman Islands law and our sixth amended and
restated memorandum and articles of association provide that shareholders may approve corporate matters by way of a unanimous
written resolution signed by or on behalf of each shareholder who would have been entitled to vote on such matter at a general meeting
without a meeting being held.
Shareholder Proposals. Under the Delaware General Corporation Law, a shareholder has the right to put any proposal before the annual
meeting of shareholders, provided it complies with the notice provisions in the governing documents. A special meeting may be called
by the board of directors or any other person authorized to do so in the governing documents, but shareholders may be precluded from
calling special meetings.
Cayman Islands law provides shareholders with only limited rights to requisition a general meeting, and does not provide shareholders
with any right to put any proposal before a general meeting. However, these rights may be provided in a company’s articles of
association. Our sixth amended and restated memorandum and articles of association allow our shareholders holding shares representing
in aggregate not less than one-third of the votes attaching to the issued and outstanding shares of our company entitled to vote at general
meetings to requisition a shareholder’s meeting, in which case our directors shall convene an extraordinary general meeting. Other than
this right to requisition a shareholders’ meeting, our sixth amended and restated articles of association do not provide our shareholders
with other right to put proposal before annual general meetings or extraordinary general meetings not called by such shareholders. As an
exempted Cayman Islands company, we are not obliged by law to call shareholders’ annual general meetings.
Cumulative Voting. Under the Delaware General Corporation Law, cumulative voting for elections of directors is not permitted unless
the corporation’s certificate of incorporation specifically provides for it. Cumulative voting potentially facilitates the representation of
minority shareholders on a board of directors since it permits the minority shareholder to cast all the votes to which the shareholder is
entitled on a single director, which increases the shareholder’s voting power with respect to electing such director. There are no
prohibitions in relation to cumulative voting under the laws of the Cayman Islands but our sixth amended and restated memorandum and
articles of association do not provide for cumulative voting. As a result, our shareholders are not afforded any less protections or rights
on this issue than shareholders of a Delaware corporation.
Removal of Directors. Under the Delaware General Corporation Law, a director of a corporation with a classified board may be
removed only for cause with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation
provides otherwise. Under our sixth amended and restated memorandum and articles of association, directors may be removed with or
without cause, by an ordinary resolution of our shareholders.
Transactions with Interested Shareholders. The Delaware General Corporation Law contains a business combination statute applicable
to Delaware corporations whereby, unless the corporation has specifically elected not to be governed by such statute by amendment to its
certificate of incorporation, it is prohibited from engaging in certain business combinations with an “interested shareholder” for
three years following the date that such person becomes an interested shareholder. An interested shareholder generally is a person or a
group who or which owns or owned 15% or more of the target’s outstanding voting share within the past three years. This has the effect
of limiting the ability of a potential acquirer to make a two-tiered bid for the target in which all shareholders would not be treated
equally. The statute does not apply if, among other things, prior to the date on which such shareholder becomes an interested shareholder,
the board of directors approves either the business combination or the transaction which resulted in the person becoming an interested
shareholder. This encourages any potential acquirer of a Delaware corporation to negotiate the terms of any acquisition transaction with
the target’s board of directors.
Cayman Islands law has no comparable statute. As a result, we cannot avail ourselves of the types of protections afforded by the
Delaware business combination statute. However, although Cayman Islands law does not regulate transactions between a company and
its significant shareholders, the directors of the company are required to comply with the fiduciary duties which they owe to the company
under Cayman Islands law, including the duty to ensure that, in their opinion, any such transactions are bona fide in the best interests of
the company and are entered into for a proper purpose and not with the effect of constituting a fraud on the minority shareholders.
125
Table of Contents
Dissolution; Winding up. Under the Delaware General Corporation Law, unless the board of directors approves the proposal to dissolve,
dissolution must be approved by shareholders holding 100% of the total voting power of the corporation. Only if the dissolution is
initiated by the board of directors may it be approved by a simple majority of the corporation’s outstanding shares. Delaware law allows
a Delaware corporation to include in its certificate of incorporation a supermajority voting requirement in connection with dissolutions
initiated by the board.
Under Cayman Islands law, a company may be wound up by either an order of the courts of the Cayman Islands or by a special
resolution of its members or, if the company is unable to pay its debts as they fall due, by an ordinary resolution of its members. The
court has authority to order winding up in a number of specified circumstances including where it is, in the opinion of the court, just and
equitable to do so. Under the Companies Act and our sixth amended and restated articles of association, our company may be dissolved,
liquidated or wound up by a special resolution of our shareholders, or by an ordinary resolution on the basis that our company is unable
to pay its debts as they fall due.
Variation of Rights of Shares. Under the Delaware General Corporation Law, a corporation may vary the rights of a class of shares with
the approval of a majority of the outstanding shares of such class, unless the certificate of incorporation provides otherwise. Under
Cayman Islands law and our sixth amended and restated articles of association, if our share capital is divided into more than one class of
shares, we may vary the rights attached to any class with the written consent of all the holders of the issued shares of that class or with
the sanction of an ordinary resolution passed at a separate meeting of the holders of the shares of that class.
Amendment of Governing Documents. Under the Delaware General Corporation Law, a corporation’s governing documents may be
amended with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides
otherwise. Under the Companies Act, our sixth amended and restated memorandum and articles of association may only be amended by
a special resolution of our shareholders.
Rights of Non-resident or Foreign Shareholders. There are no limitations imposed by our sixth amended and restated memorandum and
articles of association on the rights of non-resident or foreign shareholders to hold or exercise voting rights on our shares. In addition,
there are no provisions in our sixth amended and restated memorandum and articles of association governing the ownership threshold
above which shareholder ownership must be disclosed.
C.
Material Contracts
We have not entered into any material contracts other than in the ordinary course of business and other than those described in
“Item 4. Information on the Company,” “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions,” or
elsewhere in this annual report on Form 20-F.
D.
Exchange Controls
See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations Related to Foreign Exchange,
Regulations Related to Dividend Distribution, and Regulations Related to Employee Stock Incentive Plan.”
E.
Taxation
The following summary of the material Cayman Islands, PRC and U.S. federal income tax consequences of an investment in
our ADSs or ordinary shares is based upon laws and relevant interpretations thereof in effect as of the date of this annual report, all of
which are subject to change. This summary does not deal with all possible tax consequences relating to an investment in our ADSs or
ordinary shares, such as the tax consequences under U.S. state and local tax laws or under the tax laws of jurisdictions other than the
Cayman Islands, the People’s Republic of China and the United States.
126
Table of Contents
Cayman Islands Taxation
The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation
and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us levied by the
government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or after execution
brought within the jurisdiction of the Cayman Islands. The Cayman Islands is not party to any double tax treaties that are applicable to
any payments made to or by our company. There are no exchange control regulations or currency restrictions in the Cayman Islands.
Payments of dividends and capital in respect of our ordinary shares and ADSs will not be subject to taxation in the Cayman
Islands and no withholding tax will be required on the payment of a dividend or capital to any holder of our ordinary shares or the ADSs,
nor will gains derived from the disposal of our ordinary shares or the ADSs be subject to Cayman Islands income or corporation tax.
People’s Republic of China Taxation
Under the PRC Enterprise Income Tax Law and its implementation rules, an enterprise established outside of the PRC with “de
facto management body” within the PRC is considered a resident enterprise. The implementation rules define the term “de facto
management body” as the body that exercises full and substantial control and overall management over the business, productions,
personnel, accounts and properties of an enterprise. In April 2009, the SAT issued Circular 82, which provides certain specific criteria for
determining whether the “de facto management body” of a PRC-controlled enterprise that is incorporated offshore is located in China.
Although this circular only applies to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled
by PRC individuals or foreigners, the criteria set forth in the circular may reflect the State Administration of Taxation’s general position
on how the “de facto management body” text should be applied in determining the tax resident status of all offshore enterprises.
According to Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be regarded
as a PRC tax resident by virtue of having its “de facto management body” in China only if all of the following conditions are met: (i) the
primary location of the day-to-day operational management is in the PRC; (ii) decisions relating to the enterprise’s financial and human
resource matters are made or are subject to approval by organizations or personnel in the PRC; (iii) the enterprise’s primary assets,
accounting books and records, company seals, and board and shareholder resolutions, are located or maintained in the PRC; and (iv) at
least 50% of voting board members or senior executives habitually reside in the PRC.
We believe that 9F Inc. is not a PRC resident enterprise for PRC tax purposes. 9F Inc. is not controlled by a PRC enterprise or
PRC enterprise group and we do not believe that 9F Inc. meets all of the conditions above. 9F Inc. is a company incorporated outside the
PRC. As a holding company, its key assets are its ownership interests in its subsidiaries, and its key assets are located, and its records
(including the resolutions of its board of directors and the resolutions of its shareholders) are maintained, outside the PRC. In addition,
we are not aware of any offshore holding companies with a similar corporate structure as ours ever having been deemed a PRC “resident
enterprise” by the PRC tax authorities. However, the tax resident status of an enterprise is subject to determination by the PRC tax
authorities and uncertainties remain with respect to the interpretation of the term “de facto management body.”
If the PRC tax authorities determine that 9F Inc. is a PRC resident enterprise for enterprise income tax purposes, we may be
required to withhold a 10% withholding tax from dividends we pay to our shareholders that are non-resident enterprises, including the
holders of our ADSs. In addition, non-resident enterprise shareholders (including our ADS holders) may be subject to a 10% PRC tax on
gains realized on the sale or other disposition of ADSs or ordinary shares, if such income is treated as sourced from within the PRC. It is
unclear whether our non-PRC individual shareholders (including our ADS holders) would be subject to any PRC tax on dividends or
gains obtained by such non-PRC individual shareholders in the event we are determined to be a PRC resident enterprise. If any PRC tax
were to apply to such dividends or gains, it would generally apply at a rate of 20% unless a reduced rate is available under an applicable
tax treaty. However, it is also unclear whether non-PRC shareholders of 9F Inc. would be able to claim the benefits of any tax treaties
between their country of tax residence and the PRC in the event that 9F Inc. is treated as a PRC resident enterprise. See “Risk Factors—
Risks Related to Doing Business in China and Hong Kong—If we are classified as a PRC resident enterprise for PRC income tax
purposes, such classification could result in unfavorable tax consequences to us and our non-PRC shareholders or ADS holders.”
127
Table of Contents
Provided that our Cayman Islands holding company, 9F Inc., is not deemed to be a PRC resident enterprise, holders of our
ADSs and ordinary shares who are not PRC residents will not be subject to PRC income tax on dividends distributed by us or gains
realized from the sale or other disposition of our shares or ADSs. However, under SAT Public Notice 7 and SAT Bulletin 37, where a
non-resident enterprise conducts an “indirect transfer” by transferring taxable assets, including, in particular, equity interests in a PRC
resident enterprise, indirectly by disposing of the equity interests of an overseas holding company, the non-resident enterprise, being the
transferor, or the transferee or the PRC entity which directly owned such taxable assets may report to the relevant tax authority such
indirect transfer. Using a “substance over form” principle, the PRC tax authority may disregard the existence of the overseas holding
company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding or deferring PRC tax. As
a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax, and the transferor obligated to withhold
the applicable taxes, currently at a rate of 10% for the transfer of equity interests in a PRC resident enterprise. However, SAT Public
Notice 7 also includes safe harbors for internal group restructurings and purchase and sales of shares through a public securities market.
We and our non-PRC resident investors may be at risk of being required to file a return and being taxed under SAT Public Notice 7 and
SAT Bulletin 37, and we may be required to expend valuable resources to comply with SAT Public Notice 7 and SAT Bulletin 37, or to
establish that we should not be taxed under these circulars. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing
Business in China— We face uncertainty with respect to indirect transfers of equity interests in PRC resident enterprises by their non-
PRC holding companies.”
United States Federal Income Tax Considerations
The following discussion is a summary of U.S. federal income tax considerations generally applicable to the ownership and
disposition of our ADSs or ordinary shares by a U.S. Holder (as defined below) that holds our ADSs or ordinary shares as “capital
assets” (generally, property held for investment) under the U.S. Internal Revenue Code of 1986, as amended (the “Code”). This
discussion is based upon existing U.S. federal tax law, which is subject to differing interpretations or change, possibly with retroactive
effect. There can be no assurances that the Internal Revenue Service (the “IRS”) or a court will not take a contrary position. This
discussion, moreover, does not address the U.S. federal estate, gift, Medicare, and alternative minimum tax considerations, any
withholding or information reporting requirements, including pursuant to sections 1471 through 1474 of the Code, or any state, local and
non-U.S. tax considerations, relating to the ownership or disposition of our ADSs or ordinary shares).
The following summary does not address all aspects of U.S. federal income taxation that may be important to particular
investors in light of their individual circumstances or to persons in special tax situations such as:
● banks and other financial institutions;
● insurance companies;
● pension plans;
● cooperatives;
● regulated investment companies;
● real estate investment trusts;
● broker-dealers;
● traders that elect to use a mark-to-market method of accounting;
● certain former U.S. citizens or long-term residents;
● tax-exempt entities (including private foundations);
● persons who acquire their ADSs or ordinary shares pursuant to any employee share option or otherwise as compensation;
● investors that will hold their ADSs or ordinary shares as part of a straddle, hedge, conversion, constructive sale or other
integrated transaction for U.S. federal income tax purposes;
● persons holding their ADSs or ordinary shares in connection with a trade or business outside the United States;
● persons that actually or constructively own 10% or more of our stock (by vote or value);
● investors that have a functional currency other than the U.S. dollar;
● partnerships or other entities taxable as partnerships for U.S. federal income tax purposes, or persons holding ADSs or
ordinary shares through such entities,
all of whom may be subject to tax rules that differ significantly from those discussed below.
128
Table of Contents
Each U.S. Holder is urged to consult its tax advisor regarding the application of U.S. federal taxation to its particular
circumstances, and the state, local, non-U.S. and other tax considerations of the ownership and disposition of our ADSs or ordinary
shares.
General
For purposes of this discussion, a “U.S. Holder” is a beneficial owner of our ADSs or ordinary shares that is, for U.S. federal
income tax purposes:
● an individual who is a citizen or resident of the United States;
● a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created in, or organized under
the laws of the United States or any state thereof or the District of Columbia;
● an estate the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source; or
● a trust (A) the administration of which is subject to the primary supervision of a U.S. court and which has one or more U.S.
persons who have the authority to control all substantial decisions of the trust or (B) that has otherwise validly elected to be
treated as a U.S. person under the Code.
If a partnership (or other entity treated as a partnership for U.S. federal income tax purposes) is a beneficial owner of our ADSs
or ordinary shares, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities
of the partnership. Partnerships holding our ADSs or ordinary shares and their partners are urged to consult their tax advisors regarding
an investment in our ADSs or ordinary shares.
For U.S. federal income tax purposes, a U.S. Holder of ADSs will generally be treated as the beneficial owner of the underlying
shares represented by the ADSs. The remainder of this discussion assumes that a U.S. Holder of our ADSs will be treated in this manner.
Accordingly, deposits or withdrawals of ordinary shares for ADSs will generally not be subject to U.S. federal income tax.
Passive foreign investment company considerations
A non-U.S. corporation, such as our company, will be a PFIC for U.S. federal income tax purposes for any taxable year, if either
(i) 75% or more of its gross income for such year consists of certain types of “passive” income or (ii) 50% or more of the value of its
assets (generally determined on the basis of a quarterly average) during such year is attributable to assets that produce or are held for the
production of passive income. For this purpose, cash and assets readily convertible into cash are categorized as passive assets and our
goodwill and other unbooked intangibles will generally be taken into account in determining our asset value. Passive income generally
includes, among other things, dividends, interest and income equivalent to interest, rents, royalties, and gains from the disposition of
passive assets. We will be treated as owning a proportionate share of the assets and earning a proportionate share of the income of any
other corporation in which we own, directly or indirectly, 25% or more (by value) of the stock.
Although the law in this regard is not entirely clear, we treat our variable interest entities and their subsidiaries as being owned
by us for U.S. federal income tax purposes because we control their management decisions and are entitled to substantially all of the
economic benefits associated with these entities. As a result, we consolidate their results of operations in our consolidated U.S. GAAP
financial statements.
Based on the market price of our ADSs and composition of our assets (in particular the retention of a substantial amount of
cash), we believe that we were a “passive foreign investment company,” or “PFIC,” for U.S. federal income tax purposes for our
taxable year ended December 31, 202, and we will likely be a PFIC for our current taxable year ending December 31, 2021 unless the
market price of our ADSs increases and/or we invest a substantial amount of cash and other passive assets we hold in assets that produce
or are held for the production of non-passive income.
129
Table of Contents
If we are a PFIC for any year during which a U.S. Holder holds our ADSs or ordinary shares, we generally would continue to be
treated as a PFIC for all succeeding years during which such U.S. Holder holds our ADSs or ordinary shares. The discussion below under
“Dividends” and “Sale or Other Disposition” is written on the basis that we will not be classified as a PFIC for United States federal
income tax purposes. The United States federal income tax rules that apply if we are classified as a PFIC for the current taxable year or
any subsequent taxable year are discussed below under “Passive Foreign Investment Company Rules.”
Dividends
Subject to the discussion below under “Passive Foreign Investment Company Rules,” any cash distributions (including the
amount of any PRC tax withheld) paid on our ADSs or ordinary shares out of our current or accumulated earnings and profits, as
determined under U.S. federal income tax principles, will generally be includible in the gross income of a U.S. Holder as dividend
income on the day actually or constructively received by the U.S. Holder, in the case of ordinary shares, or by the depositary bank, in the
case of ADSs. Because we do not intend to determine our earnings and profits on the basis of U.S. federal income tax principles, any
distribution we pay will generally be treated as a “dividend” for U.S. federal income tax purposes. Dividends received on our ADSs or
ordinary shares will not be eligible for the dividends received deduction allowed to corporations in respect of dividends received from
U.S. corporations.
Individuals and other non-corporate U.S. Holders may be subject to tax at the lower capital gains tax rate applicable to
“qualified dividend income,” provided that certain conditions are satisfied, including that (1) the ADSs or ordinary shares on which the
dividends are paid are readily tradable on an established securities market in the United States, or, in the event that we are deemed to be a
PRC resident enterprise under the PRC tax law, we are eligible for the benefit of the United States-PRC income tax treaty, (2) we are
neither a PFIC nor treated as such with respect to a U.S. Holder (as discussed above and below) for the taxable year in which the
dividend is paid or the preceding taxable year, and (3) certain holding period and other requirements are met. The ADSs are listed on the
Nasdaq Global Market, which is an established securities market in the United States, and will be considered readily tradable on an
established securities market for as long as the ADSs continue to be listed on the Nasdaq Global Market. There can be no assurance that
the ADSs will continue to be considered readily tradable on an established securities market in later years. Because the ordinary shares
will not be listed on a U.S. exchange, we do not believe that dividends received with respect to ordinary shares that are not represented
by ADSs will be treated as qualified dividends. Furthermore, as described above under “Passive Foreign Investment Company
Considerations,” we believe that we were a PFIC for United States federal income tax purposes for the taxable year ended December 31,
2020, and that we will likely be a PFIC for our current taxable year ending December 31, 2021. Holders are urged to consult their tax
advisors regarding the availability of the lower tax rate for dividends paid with respect to our ADSs or ordinary shares in their particular
circumstances.
For U.S. foreign tax credit purposes, dividends paid on our ADSs or ordinary shares generally will be treated as income from
foreign sources and generally will constitute passive category income. In the event that we are deemed to be a PRC resident enterprise
under the PRC Enterprise Income Tax Law, a U.S. Holder may be subject to PRC withholding taxes on dividends paid on the ADSs or
ordinary shares (see “—People’s Republic of China Taxation”). Depending on the U.S. Holder’s particular facts and circumstances and
subject to a number of complex conditions and limitations, PRC withholding taxes on dividends not in excess of any applicable rate
under the income tax treaty between the United States and the PRC may be treated as foreign taxes eligible for credit against a U.S.
Holder’s U.S. federal income tax liability. A U.S. Holder who does not elect to claim a foreign tax credit for foreign tax withheld may
instead claim a deduction for U.S. federal income tax purposes in respect of such withholding, but only for a year in which such holder
elects to do so for all creditable foreign income taxes. The rules governing the foreign tax credit are complex and each U.S. Holder is
urged to consult its tax advisor regarding the availability of the foreign tax credit under its particular circumstances.
130
Table of Contents
Sale or other disposition
A U.S. Holder will generally recognize gain or loss upon the sale or other disposition of our ADSs or ordinary shares in an
amount equal to the difference between the amount realized upon the disposition and the U.S. Holder’s adjusted tax basis in such ADSs
or ordinary shares. Subject to the discussion under “Passive Foreign Investment Company Rules,” the gain or loss will generally be
capital gain or loss and individuals and other non-corporate U.S. Holders who have held the ADS or ordinary shares for more than
one year will generally be eligible for reduced tax rates. However, as described above under “Passive Foreign Investment Company
Considerations,” we believe that we were a PFIC for United States federal income tax purposes for the taxable year ended December 31,
2020, and we will likely be a PFIC for our current taxable year ending December 31, 2021, in which case gains will be taxed as
described in “Passive Foreign Investment Company Rules.” The deductibility of a capital loss may be subject to limitations. Any such
gain or loss that the U.S. Holder recognizes will generally be treated as U.S. source income or loss for foreign tax credit limitation
purposes, which will generally limit the availability of foreign tax credits. However, in the event that we are deemed to be a PRC resident
enterprise and gain from the disposition of the ADSs or ordinary shares is subject to PRC taxation, a U.S. Holder that is eligible for the
benefits of the United States-PRC income tax treaty may be able to elect to treat such gain as PRC source income. If a U.S. Holder is not
eligible for the benefits of the United States-PRC income tax treaty, or fails to make the election to treat any gain as foreign source, then
such U.S. Holder may not be able to use the foreign tax credit arising from any PRC tax imposed on the disposition of the ADSs or
ordinary shares unless such credit can be applied (subject to applicable limitations) against United States federal income tax due on other
income derived from foreign sources in the same income category (generally, the passive category). Each U.S. Holder is advised to
consult its tax advisor regarding the tax consequences if a foreign tax is imposed on a disposition of the ADSs or ordinary shares,
including the availability of the foreign tax credit under its particular circumstances.
Passive foreign investment company rules
If we are a PFIC for any taxable year during which a U.S. Holder holds our ADSs or ordinary shares, and unless the U.S. Holder
makes a mark-to-market election (as described below), the U.S. Holder will generally be subject to special tax rules on (i) any excess
distribution that we make to the U.S. Holder (which generally means any distribution paid during a taxable year to a U.S. Holder that is
greater than 125 percent of the average annual distributions paid in the three preceding taxable years or, if shorter, the U.S. Holder’s
holding period for the ADSs or ordinary shares), and (ii) any gain realized on the sale or other disposition of ADSs or ordinary shares.
Under the PFIC rules:
● the excess distribution or gain will be allocated ratably over the U.S. Holder’s holding period for the ADSs or ordinary
shares;
● the amount allocated to the current taxable year and any taxable years in the U.S. Holder’s holding period prior to the first
taxable year in which we are a PFIC (each, a “pre-PFIC year”), will be taxable as ordinary income;
● the amount allocated to each prior taxable year, other than a pre-PFIC year, will be subject to tax at the highest tax rate in
effect for individuals or corporations, as appropriate, for that year; and
● the interest charge generally applicable to underpayments of tax will be imposed on the tax attributable to each prior
taxable year, other than a pre-PFIC year.
If we are a PFIC for any year during which a U.S. Holder holds our ADSs or ordinary shares, we will generally continue to be
treated as a PFIC with respect to the U.S. Holder for all succeeding years during which the U.S. Holder owns the ADSs or ordinary
shares even if we cease to meet the threshold requirements for PFIC status unless the U.S. Holder makes a “deemed sale” election, in
which case any gain on the deemed sale will be taxed under the PFIC rules described above.
If we are a PFIC for any taxable year during which a U.S. Holder holds our ADSs or ordinary shares and any of our
subsidiaries, our variable interest entity or any of the subsidiaries of our variable interest entity is also a PFIC, such U.S. Holder would be
treated as owning a proportionate amount (by value) of the shares of the lower-tier PFIC for purposes of the application of these rules.
U.S. Holders are urged to consult their tax advisors regarding the application of the PFIC rules to any of our subsidiaries, our variable
interest entity or any of the subsidiaries of our variable interest entity.
131
Table of Contents
As an alternative to the foregoing rules, a U.S. Holder of “marketable stock” (as defined below) in a PFIC may make a mark-to-
market election with respect to such stock. If a U.S. Holder makes this election with respect to our ADSs, the holder will generally
(i) include as ordinary income for each taxable year that we are a PFIC the excess, if any, of the fair market value of ADSs held at the
end of the taxable year over the adjusted tax basis of such ADSs and (ii) deduct as an ordinary loss in each such taxable year the excess,
if any, of the adjusted tax basis of the ADSs over the fair market value of such ADSs held at the end of the taxable year, but such
deduction will only be allowed to the extent of the amount previously included in income as a result of the mark-to-market election. The
U.S. Holder’s adjusted tax basis in the ADSs would be adjusted to reflect any income or loss resulting from the mark-to-market election.
If a U.S. Holder makes a mark-to-market election in respect of our ADSs and we cease to be a PFIC, the holder will not be required to
take into account the gain or loss described above during any period that we are not a PFIC. If a U.S. Holder makes a mark-to-market
election, any gain such U.S. Holder recognizes upon the sale or other disposition of our ADSs in a year when we are a PFIC will be
treated as ordinary income and any loss will be treated as ordinary loss, but such loss will only be treated as ordinary loss to the extent of
the net amount previously included in income as a result of the mark-to-market election.
The mark-to-market election is available only for “marketable stock,” which is stock that is regularly traded on a qualified
exchange or other market, as defined in applicable United States Treasury regulations. Our ADSs, but not our ordinary shares, are traded
on a qualified exchange or other market. We anticipate that our ADSs should qualify as being regularly traded, but no assurances may be
given in this regard.
Because a mark-to-market election cannot technically be made for any lower-tier PFICs that we may own, a U.S. Holder may
continue to be subject to the PFIC rules with respect to such U.S. Holder’s indirect interest in any investments held by us that are treated
as an equity interest in a PFIC for U.S. federal income tax purposes.
We do not intend to provide information necessary for U.S. Holders to make qualified electing fund elections, which, if
available, would result in tax treatment different from (and generally less adverse than) the general tax treatment for PFICs described
above.
If a U.S. Holder owns our ADSs or ordinary shares during any taxable year that we are a PFIC, the holder must generally file an
annual IRS Form 8621. You should consult your tax advisor regarding our PFIC status and the U.S. federal income tax consequences of
owning and disposing of our ADSs or ordinary shares if we are or become a PFIC.
F.
Dividends and Paying Agents
Not applicable.
G.
Statement by Experts
Not applicable.
H.
Documents on Display
We are subject to the periodic reporting and other informational requirements of the Exchange Act. Under the Exchange Act, we
are required to file reports and other information with the SEC. Specifically, we are required to file annually a Form 20-F no later than
four months after the close of each fiscal year. Copies of reports and other information, when so filed, may be inspected without charge
and may be obtained at prescribed rates at the public reference facilities maintained by the SEC at 100 F Street, N.E., Room 1580,
Washington, D.C. 20549. The public may obtain information regarding the Washington, D.C. Public Reference Room by calling the SEC
at 1-800-SEC-0330. The SEC also maintains a web site at www.sec.gov that contains reports, proxy and information statements, and
other information regarding registrants that make electronic filings with the SEC using its EDGAR system. As a foreign private issuer,
we are exempt from the rules under the Exchange Act prescribing the furnishing and content of quarterly reports and proxy statements,
and officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in
Section 16 of the Exchange Act.
132
Table of Contents
We will furnish Citibank, N.A., the depositary of our ADSs, with our annual reports, which will include a review of operations
and annual audited consolidated financial statements prepared in conformity with U.S. GAAP, and all notices of shareholders’ meetings
and other reports and communications that are made generally available to our shareholders. The depositary will make such notices,
reports and communications available to holders of ADSs and, upon our request, will mail to all record holders of ADSs the information
contained in any notice of a shareholders’ meeting received by the depositary from us.
I.
Subsidiary Information
Not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Inflation
To date, inflation in China has not materially impacted our results of operations. According to the National Bureau of Statistics
of China, the year-over-year percent changes in the consumer price index for December 2018, 2019 and 2020 were increases of 1.9%,
2.9% and 2.5%, respectively. Although we have not been materially affected by inflation in the past, we can provide no assurance that we
will not be affected by higher rates of inflation in China in the future.
Market Risks
Foreign Exchange Risk
Substantially all of our revenues and expenses are denominated in RMB. We do not believe that we currently have any
significant direct foreign exchange risk and have not used any derivative financial instruments to hedge exposure to such risk. Although
our exposure to foreign exchange risks should be limited in general, the value of your investment in our ADSs will be affected by the
exchange rate between U.S. dollar and Renminbi because the value of our business is effectively denominated in RMB, while our ADSs
will be traded in U.S. dollars.
The conversion of Renminbi into foreign currencies, including U.S. dollars, is based on rates set by the People’s Bank of China.
The Renminbi has fluctuated against the U.S. dollar, at times significantly and unpredictably. It is difficult to predict how market forces
or PRC or U.S. government policy may impact the exchange rate between Renminbi and the U.S. dollar in the future.
To the extent that we need to convert U.S. dollars into Renminbi for our operations, appreciation of the Renminbi against the
U.S. dollar would have an adverse effect on the RMB amount we receive from the conversion. Conversely, if we decide to convert
Renminbi into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or ADSs or for other business
purposes, appreciation of the U.S. dollar against the Renminbi would have a negative effect on the U.S. dollar amounts available to us.
Interest rate risk
We have not been exposed to material risks due to changes in market interest rates, and we have not used any derivative
financial instruments to manage our interest risk exposure.
We do not expect that the fluctuation of interest rates will have a material impact on our financial condition. However, we
cannot provide assurance that we will not be exposed to material risks due to changes in market interest rate in the future.
We may invest our cash in interest-earning instruments. Investments in both fixed rate and floating rate interest earning
instruments carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in
interest rates, while floating rate securities may produce less income than expected if interest rates fall.
133
Table of Contents
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
A.
Debt Securities
Not applicable.
B.
Warrants and Rights
Not applicable.
C.
Other Securities
Not applicable.
D.
American Depositary Shares
Charges and Charges Our ADS Holders May Have to Pay
Citibank, N.A. acts as the depositary bank for the American Depositary Shares. Citibank’s depositary offices are located at 388
Greenwich Street, New York, New York 10013. American Depositary Shares are frequently referred to as “ADSs” and represent
ownership interests in securities that are on deposit with the depositary bank. ADSs may be represented by certificates that are commonly
known as “American Depositary Receipts” or “ADRs.” The depositary bank typically appoints a custodian to safekeep the securities on
deposit. In this case, the custodian is Citibank, N.A.—Hong Kong, located at 9/F, Citi Tower, One Bay East, 83 Hoi Bun Road, Kwun
Tong, Kowloon, Hong Kong.
134
Table of Contents
An ADS holder will be required to pay the following fees under the terms of the deposit agreement:
· Issuance of ADSs (e.g., an issuance upon a deposit of Shares,
Up to U.S.$5.00 per 100 ADS (or fraction thereof) issued
Service
Fees
upon a change in the ADS(s)-to-Share(s) ratio, or for any other
reason), excluding issuances as a result of distributions
described in paragraph (4) below
·(2) Cancellation of ADSs (e.g., a cancellation of ADSs for
Up to U.S.$5.00 per 100 ADS (or fraction thereof) cancelled
delivery of deposited shares, upon a change in the ADS(s)-to
share(s) ratio, or for any other reason)
·(3) Distribution of cash dividends or other cash distributions
Up to U.S.$5.00 per 100 ADS (or fraction thereof) held
(e.g., upon a sale of rights and other entitlements)
·(4) Distribution of ADSs pursuant to (i) stock dividends or other
free stock distributions, or (ii) exercise of rights to purchase
additional ADSs
Up to U.S.$5.00 per 100 ADS (or fraction thereof) held
·(5) Distribution of securities other than ADSs or rights to
Up to U.S.$5.00 per 100 ADS (or fraction thereof) held
purchase additional ADSs (e.g., spin-off shares)
·(6) ADS Services
(7) Registration of ADS Transfers (e.g., upon a registration of the
transfer of registered ownership of ADSs, upon a transfer of
ADSs into DTC and vice versa, or for any other reason).
(8) Conversion of ADSs of one series for ADSs of another series
(e.g., upon conversion of Partial Entitlement ADSs for Full
Entitlement ADSs, or upon conversion of Restricted ADSs into
freely transferable ADSs, and vice versa).
Up to U.S.$5.00 per 100 ADS (or fraction thereof) held on the
applicable record date(s) established by the depositary bank
Up to U.S.$5.00 per 100 ADS (or fraction thereof) held
Up to U.S.$5.00 per 100 ADS (or fraction thereof) converted
An ADS holder will also be responsible to pay certain charges such as:
● taxes (including applicable interest and penalties) and other governmental charges;
● the registration fees as may from time to time be in effect for the registration of Class A ordinary shares on the share register and
applicable to transfers of Class A ordinary shares to or from the name of the custodian, the depositary bank or any nominees upon
the making of deposits and withdrawals, respectively;
● certain cable, telex and facsimile transmission and delivery expenses;
● in connection with the conversion of foreign currency, the fees, expenses, spreads, taxes and other charges of the depositary and/or
conversion service providers (which may be a division, branch or affiliate of the depositary);
● any reasonable and customary out-of-pocket expenses incurred in such conversion and/or on behalf of the holders and beneficial
owners in complying with currency exchange control or other governmental requirements; and
● the fees, charges, costs and expenses incurred by the depositary, the custodian, or any nominee in connection with the ADR program.
135
Table of Contents
ADS fees and charges for (i) the issuance of ADSs, and (ii) the cancellation of ADSs are charged to the person for whom the
ADSs are issued (in the case of ADS issuances) and to the person for whom ADSs are cancelled (in the case of ADS cancellations). In
the case of ADSs issued by the depositary into DTC, the ADS issuance and cancellation fees and charges may be deducted from
distributions made through DTC, and may be charged to the DTC participant(s) receiving the ADSs being issued or the DTC
participant(s) holding the ADSs being cancelled, as the case may be, on behalf of the beneficial owner(s) and will be charged by the DTC
participant(s) to the account of the applicable beneficial owner(s) in accordance with the procedures and practices of the DTC
participants as in effect at the time. ADS fees and charges in respect of distributions and the ADS service fee are charged to the holders
as of the applicable ADS record date. In the case of distributions of cash, the amount of the applicable ADS fees and charges is deducted
from the funds being distributed. In the case of (i) distributions other than cash and (ii) the ADS service fee, holders as of the ADS record
date will be invoiced for the amount of the ADS fees and charges and such ADS fees and charges may be deducted from distributions
made to holders of ADSs. For ADSs held through DTC, the ADS fees and charges for distributions other than cash and the ADS service
fee may be deducted from distributions made through DTC, and may be charged to the DTC participants in accordance with the
procedures and practices prescribed by DTC and the DTC participants in turn charge the amount of such ADS fees and charges to the
beneficial owners for whom they hold ADSs. In the case of (i) registration of ADS transfers, the ADS transfer fee will be payable by the
ADS Holder whose ADSs are being transferred or by the person to whom the ADSs are transferred, and (ii) conversion of ADSs of one
series for ADSs of another series, the ADS conversion fee will be payable by the Holder whose ADSs are converted or by the person to
whom the converted ADSs are delivered.
In the event of refusal to pay the depositary fees, the depositary may, under the terms of the deposit agreement, refuse the
requested service until payment is received or may set off the amount of the depositary fees from any distribution to be made to the ADS
holder. Certain depositary fees and charges (such as the ADS services fee) may become payable shortly after the closing of the ADS
offering. Note that the fees and charges you may be required to pay may vary over time and may be changed by us and by the depositary.
You will receive prior notice of such changes. The depositary may reimburse us for certain expenses incurred by us in respect of the
ADR program, by making available a portion of the ADS fees charged in respect of the ADR program or otherwise, upon such terms and
conditions as we and the depositary agree from time to time.
Fees and Other Payments Made by the Depositary to Us
The depositary bank may reimburse us for certain expenses incurred by us in respect of the ADR program, by making available
a portion of the ADS fees charged in respect of the ADR program or otherwise, upon such terms and conditions as we and the depositary
bank agree from time to time. In 2020, we received approximately US$2.2 million, net of applicable taxes as reimbursement from the
depositary.
136
Table of Contents
PART II.
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
Material Modifications to the Rights of Security Holders
See “Item 10. Additional Information—B. Memorandum and Articles of Association—Ordinary Shares” for a description of the
rights of securities holders, which remain unchanged.
Use of Proceeds
The following “Use of Proceeds” information relates to the registration statement on Form F-1, as amended (File Number 333-
232802 ) (the “F-1 Registration Statement”) in relation to our initial public offering of 8,900,000 ADSs representing 8,900,000 Class A
ordinary shares, at an initial offering price of US$9.5 per ADS. We offered and sold 6,750,000 ADSs and the selling shareholders offered
and sold 2,150,000 ADSs in our initial public offering. Our initial public offering closed in August 2019. Credit Suisse Securities (USA)
LLC was the representatives of the underwriters for our initial public offering.
The F-1 Registration Statement was declared effective by the SEC on August 14, 2019. The total expenses incurred for our
company’s account in connection with our initial public offering was approximately US$13.0 million, which included approximately
US$6.7 million in underwriting discounts and commissions for the initial public offering and approximately US$6.3 million in other
costs and expenses for our initial public offering. Counting in the ADSs sold upon the exercise of the over-allotment option by our
underwriters which was closed in September 2019, we offered and sold an aggregate of 8,085,000 ADSs at an initial public offering
price of US$9.5 per ADS, and received approximately US$66.8 million in net proceeds after deducting underwriting commissions and
discounts and the offering expenses payable by us. None of the transaction expenses included payments to directors or officers of our
company or their associates, persons owning more than 10% or more of our equity securities or our affiliates. None of the net proceeds
from the initial public offering were paid, directly or indirectly, to any of our directors or officers or their associates, persons owning 10%
or more of our equity securities or our affiliates.
For the period from August 14, 2019, the date that the F-1 registration statement was declared effective by the SEC, to the date
of this annual report, we have used approximately US$21.3 million of the net proceeds from our initial public offering, including
US$18.1 million in investment in Fuyuan Securities for its current and future operations, and US$3.2 million in investment in Southeast
Asia. We still intend to use the proceeds from our initial public offering, as disclosed in our registration statements on Form F-1, to the
extent the referrences to our product offerings will reflect our transitioning into a technology company.
ITEM 15. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, under the supervision and with the participation of our chief executive officer and chief financial officer,
carried out an evaluation of the effectiveness of our disclosure controls and procedures, which is defined in Rules 13a-15(e) of the
Exchange Act.
Based upon that evaluation, our management, with the participation of our chief executive officer and chief financial officer, has
concluded that, as of December 31, 2020, our disclosure controls and procedures were not effective because of the material weaknesses
in our internal control over financial reporting described below. Notwithstanding thereof, we believe that our consolidated financial
statements included in this annual report fairly present our financial position, results of operations and cash flows for the fiscal years
covered thereby in all material respects.
137
Table of Contents
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements in
accordance with U.S. GAAP and includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of a company’s assets, (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted
accounting principles, and that a company’s receipts and expenditures are being made only in accordance with authorizations of a
company’s management and directors, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of a company’s assets that could have a material effect on the consolidated financial statements.
Our management, with the participation of our chief executive officer and chief financial officer, conducted an evaluation of the
effectiveness of our company’s internal control over financial reporting as of December 31, 2020 based on criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO 2013
Framework). Based on this evaluation, we noted the following deficiencies that we believe to be material weaknesses: (i) one material
weakness that has been identified related to the lack of sufficient financial reporting and accounting personnel with appropriate U.S.
GAAP knowledge and SEC reporting requirements to properly address complex U.S. GAAP technical accounting issues and to prepare
and review financial statements and related disclosures in accordance with U.S. GAAP and financial reporting requirements set forth by
the SEC, and (ii) the other two material weaknesses that have been identified related to the lack of appropriate detailed account analysis
and related account reconciliation in the Company’s book close process, and the lack of documentation in support of the Company’s key
process flows and related key internal control policies and procedures as well as documentation of the Company’s critical accounting
estimates and the procedures it has completed to ensure compliance with U.S. GAAP. Either of these material weaknesses, if not timely
remedied, may lead to significant misstatements in our consolidated financial statements in the future
As a result of the above material weaknesses, management has concluded that our internal control over financial reporting was
ineffective as of December 31, 2020.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition,
projections of any evaluation of effectiveness of our internal control over financial reporting to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures
may deteriorate. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business— In connection with the audit of our
consolidated financial statements included in this annual report, we and our independent registered public accounting firm identified
three material weaknesses in our internal control over financial reporting. If we fail to develop and maintain an effective system of
internal control over financial reporting, we may be unable to accurately report our financial results or prevent fraud.”
Management’s Plan for Remediation of Material Weaknesses
Our management has been engaged in and continues to be engaged in making necessary changes and improvements to the
overall design of the Company’s control environment to address the material weaknesses in internal control over financial reporting and
the ineffectiveness of our disclosure controls and procedures and of internal control over financial reporting described above.
To remediate the material weaknesses described above, we plan to (i) enhance the effectiveness of our financial reporting
process by placing additional focus on the timeliness and quality of our detailed account analyses, and (ii) strengthen the integrity of our
disclosure controls by developing a formal process to ensure that all significant transactions will be thoroughly evaluated for disclosure
during the financial reporting process
138
Table of Contents
We have implemented the following measures to address the material weaknesses identified. We have engaged a qualified
financial consulting firm with extensive experience in U.S. GAAP and SEC reporting to assist us in the preparation of our consolidated
financial statements and related notes to the financial statements; completion of related account analyses and reconciliations; and
development of relevant accounting policy and procedures that are designed to ensure compliance with compliance with U.S. GAAP.
However, the implementation of these measures is still at an early stage and we need more time to fully implement these measures to
remediate the materials weaknesses. Therefore, we cannot assure you that the implementation of these measures will be sufficient to
eliminate such material weaknesses, or that material weaknesses or significant deficiencies in our internal control over financial reporting
will not be identified in the future. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry— In
connection with the audit of our consolidated financial statements included in this annual report, we and our independent registered
public accounting firm identified three material weaknesses in our internal control over financial reporting. If we fail to develop and
maintain an effective system of internal control over financial reporting, we may be unable to accurately report our financial results or
prevent fraud.”
As a company with less than US$1.07 billion in revenue for our last fiscal year, we qualify as an “emerging growth company”
pursuant to the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other requirements that
are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement
under Section 404 of the Sarbanes-Oxley Act of 2002, in the assessment of the emerging growth company’s internal control over
financial reporting.
Changes in Internal Control over Financial Reporting
Other than as described above, there were no changes in our internal controls over financial reporting that occurred during the
period covered by this annual report that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
Our board of directors has determined that Haitian Lu, member of our audit committee and independent directors (under the
standards set forth in Rule 5605(c)(2) of the Nasdaq Stock Market Rules and Rule 10A-3 under the Exchange Act, is an audit committee
financial expert.
ITEM 16B. CODE OF ETHICS
Our board of directors adopted a code of business conduct and ethics that applies to our directors, officers and employees,
effective in August 2019. We have posted a copy of our code of business conduct and ethics on our website at
http://ir.9fgroup.com/corporate/governance-overview.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table sets forth the aggregate fees by categories specified below in connection with certain professional services
rendered by Deloitte Touche Tohmatsu Certified Public Accountants LLP Marcum Bernstein & Pinchuk LLP and Wei, Wei & Co., LLP,
our principal external auditor, for the periods indicated. We did not pay any other fees to our auditor during the periods indicated below.
The table below set forth information about fees payable by us to Wei, Wei & Co., LLP for the fiscal year ended December 31,
2020.
Audit fees(1)
Tax fees(2)
For the Year Ended December 31, 2020
(in thousands of RMB)
8,273
129
139
Table of Contents
The table below set forth information about fees payable by us to Marcum Bernstein & Pinchuk LLP for the fiscal year ended
December 31, 2020.
Audit fees(3)
Tax fees
For the Year Ended December 31, 2020
(in thousands of RMB)
1,566
—
The table below set forth information about fees payable by us to Deloitte Touche Tohmatsu Certified Public Accountants LLP
for the fiscal year ended December 31, 2019.
Audit fees(4)
Tax fees(2)
Notes:
For the Year Ended December 31, 2019
(in thousands of RMB)
22,090
550
(1) “Audit fees” represents the aggregate fees billed for professional services rendered by our principal auditor for the audit of our
annual financial statements.
(2) “Tax fees” represents the aggregate fees billed for professional services rendered by our principal accounting firm for tax
compliance, tax advice and tax planning.
(3) “Audit fees” represents the aggregate fees billed for professional services rendered by our principal auditor for the audit of our
annual financial statements, for which no report has been issued to us.
(4) “Audit fees” represents the aggregate fees billed for professional services rendered by our principal auditor for the audit of our
annual financial statements.
(5) “Audit fees” represents the aggregate fees billed for professional services rendered by our principal auditor for the audit of our
annual financial statements and the review of our comparative interim financial statements, including audit fees relating to our initial
public offering in 2019.
The policy of our audit committee is to pre-approve all audit and other service provided by Deloitte Touche Tohmatsu Certified
Public Accountants LLP for the year ended December 31, 2019 and Marcum Bernstein & Pinchuk LLP Wei, Wei & Co., LLP for the
year ended December 31, 2020 as described above, other than those for de minimis services which are approved by the Audit Committee
prior to the completion of the audit.
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
See “Item 16G. Corporate Governance.”
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Not applicable.
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
On February 9, 2021, our audit committee approved the replacement of Deloitte Touche Tohmatsu Certified Public Accountants
LLP, or Deloitte, as our independent registered public accounting firm. We engaged Marcum Bernstein & Pinchuk LLP (“MarcumBP”),
as our independent registered public accounting firm. The change of our independent registered public accounting firm was approved by
the audit committee of our board. The decision was not made due to any disagreements between us and Deloitte.
140
Table of Contents
The reports of Deloitte on our consolidated financial statements for the fiscal years ended December 31, 2018 and 2019 did not
contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting
principle.
During the fiscal years ended December 31, 2019 and 2020 and the subsequent interim period through February 9, 2021, there
have been no (i) disagreements between us and Deloitte on any matter of accounting principles or practices, financial statement
disclosure, or audit scope or procedure, which disagreements if not resolved to the satisfaction of Deloitte would have caused it to make
reference to the subject matter of the disagreement(s) in connection with its report, or (ii) “reportable events”, as defined in item 16F(a)
(1)(v) of the instructions to 20-F, that would be required to be described this annual report other than the material weaknesses as of
December 31, 2018 and 2019 of lack of sufficient financial reporting and accounting personnel with appropriate U.S. GAAP knowledge
and SEC reporting requirements to properly address complex U.S. GAAP technical accounting issues and to prepare and review financial
statements and related disclosures in accordance with U.S. GAAP and financial reporting requirements set forth by the SEC and lack of
comprehensive accounting policies and procedures manual in accordance with U.S. GAAP disclosed in our current report on Form 20-F
filed with the SEC on June 24, 2020.
We have provided Deloitte with a copy of the disclosures hereunder and required under Item 16F of Form 20-F and requested
from Deloitte a letter addressed to the SEC indicating whether it agrees with such disclosures. A copy of Deloitte’s letter dated May 17,
2021 is attached as Exhibit 16.1.
During each of the fiscal years ended December 31, 2019 and 2020 and the subsequent interim period through February 9, 2021,
neither we nor anyone on behalf of us has consulted with MarcumBP regarding (i) the application of accounting principles to a specific
transaction, either completed or proposed, or the type of audit opinion that might be rendered on our consolidated financial statements,
and neither a written report nor oral advice was provided to us that MarcumBP concluded was an important factor considered by us in
reaching a decision as to any accounting, audit, or financial reporting issue, (ii) any matter that was the subject of a disagreement
pursuant to Item 16F(a)(1)(iv) of the instructions to Form 20-F, or (iii) any reportable event pursuant to Item 16F(a)(1)(v) of the
instructions to Form 20-F.
On May 16, 2021, our audit committee approved the previous appointment of Wei, Wei & Co., LLP (“WWC”) as our
independent registered public accounting firm to replace MarcumBP. The change of our independent registered public accounting firm
had been approved by the audit committee of our board, and the decision was not made due to any disagreements between us and
MarcumBP.
During the fiscal years ended December 31, 2019 and 2020 and the subsequent interim period through May 16, 2021, there have
been no (i) disagreements between us and MarcumBP on any matter of accounting principles or practices, financial statement disclosure,
or audit scope or procedure, which disagreements if not resolved to the satisfaction of MarcumBP would have caused them to make
reference thereto in their reports on the consolidated financial statements for such years, or (ii) reportable events as defined in Item
16F(a)(1)(v) of the instructions to Form 20-F.
We have provided MarcumBP with a copy of the disclosures hereunder and required under Item 16F of Form 20-F and
requested from MarcumBP a letter addressed to the SEC indicating whether it agrees with such disclosures. A copy of MarcumBP’s
letter dated May 16, 2021 is attached as Exhibit 16.2.
During each of the fiscal years ended December 31, 2019 and 2020 and the subsequent interim period through May 16, 2021,
neither we nor anyone on behalf of us has consulted with WWC regarding (i) the application of accounting principles to a specific
transaction, either completed or proposed, or the type of audit opinion that might be rendered on our consolidated financial statements,
and neither a written report nor oral advice was provided to us that W&W concluded was an important factor considered by us in
reaching a decision as to any accounting, audit, or financial reporting issue, (ii) any matter that was the subject of a disagreement
pursuant to Item 16F(a)(1)(iv) of the instructions to Form 20-F, or (iii) any reportable event pursuant to Item 16F(a)(1)(v) of the
instructions to Form 20-F.
141
Table of Contents
ITEM 16G. CORPORATE GOVERNANCE
As a Cayman Islands exempted company listed on the Nasdaq Global Market, we are subject to the Nasdaq listing standards.
Section 5605(b)(1), Section 5605(c)(2) and Section 5635(c) of the Nasdaq Listing Rules requires listed companies to have, among other
things, a majority of its board members to be independent, an audit committee of at least three members and shareholders’ approval on
adoption of equity incentive awards plans. However, the Nasdaq Stock Market Rules permit a foreign private issuer like us to follow the
corporate governance practices of its home country. We followed home country practice with respect to the requirements for the majority
of the board being independent and maintaining an audit committee of at least three members. We have also adopted a new equity
incentive award plan without shareholders’ approval.
Our shareholders may be afforded less protection than they would otherwise enjoy under the Nasdaq listing standards applicable
to U.S. domestic issuers given our reliance on the home country practice exception.
See “Item 3. Key Information—D. Risk Factors—Risks Related to Our ADSs—We are a foreign private issuer within the
meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to United States domestic
public companies.”
ITEM 16H. MINE SAFETY DISCLOSURE
Not applicable.
142
Table of Contents
PART III.
ITEM 17. FINANCIAL STATEMENTS
We have elected to provide consolidated financial statements pursuant to Item 18.
ITEM 18. FINANCIAL STATEMENTS
The consolidated financial statements of 9F Inc. are included at the end of this annual report.
ITEM 19. EXHIBITS
Exhibit
Number
1.1
2.1
2.2
2.3
2.4
2.5
4.1
4.2
4.3
4.4
4.5*
4.6*
4.7*
4.8*
4.9*
Description of Document
Form of Sixth Amended and Restated Memorandum and Articles of Association of the Registrant, effective August 15,
2019 (incorporated herein by reference to Exhibit 3.2 to the Form F-1 filed on July 25, 2019 (File No. 333-232802))
Registrant’s Specimen American Depositary Receipt (included in Exhibit 2.3) (incorporated herein by reference to
Exhibit 4.3 to the Form S-8 filed on May 19, 2020 (File No. 333-238489))
Registrant’s Specimen Certificate for Class A Ordinary Shares (incorporated herein by reference to Exhibit 4.2 to the
Form F-1/A filed on August 8, 2019 (File No. 333-232802))
Deposit Agreement dated August 19, 2019, among the Registrant, the depositary and the holders and beneficial owners
of the American Depositary Shares issued thereunder (incorporated herein by reference to Exhibit 4.3 to the Form S-8
filed on May 19, 2020 (File No. 333-238489))
Shareholders Agreement between the Registrant and other parties thereto dated September 20, 2018 (incorporated
herein by reference to Exhibit 4.4 to the Form F-1 filed on July 25, 2019 (File No. 333-232802))
Description of rights of each class of securities registered under Section 12 of the Securities Exchange Act of 1934
(incorporated herein by reference to Exhibit 2.5 to the annual report on Form 20-F for the year ended December 31,
2019 filed on June 24, 2020 (File No. 001-39025))
2015 Share Incentive Plan (incorporated herein by reference to Exhibit 10.1 to the Form F-1 filed on July 25, 2019
(File No. 333-232802))
2016 Share Incentive Plan (incorporated herein by reference to Exhibit 10.2 to the Form F-1 filed on July 25, 2019
(File No. 333-232802))
Form of Indemnification Agreement between the Registrant and its directors and executive officers (incorporated
herein by reference to Exhibit 10.4 to the Form F-1 filed on July 25, 2019 (File No. 333-232802))
Form of Employment Agreement between the Registrant and its executive officers (incorporated herein by reference to
Exhibit 10.3 to the Form F-1 filed on July 25, 2019 (File No. 333-232802))
English version of executed form of master exclusive service agreement between a VIE and the WFOE of the
Registrant, as currently in effect, and a schedule of all executed master exclusive service agreements adopting the same
form in respect of each of the VIEs of the Registrant
English version of executed form of exclusive option agreement among a VIE of the Registrant, its shareholder, the
WFOE of the Registrant, and the Registrant, as currently in effect, and a schedule of all executed exclusive option
agreements adopting the same form in respect of each of the VIEs of the Registrant
English version of executed form of equity interest pledge agreement among a VIE of the Registrant, its shareholder,
and the WFOE of the Registrant, as currently in effect, and a schedule of all executed equity interest pledge agreements
adopting the same form in respect of each of the VIEs of the Registrant
English version of executed form of proxy agreement and power of attorney among a VIE of the Registrant, its
shareholder, and the WFOE of the Registrant, as currently in effect, and a schedule of all executed proxy agreements
and powers of attorney adopting the same form in respect of each of the VIEs of the Registrant
English version of executed form of loan agreement between the shareholder of a VIE and the WFOE of the
Registrant, as currently in effect, and a schedule of all executed loan agreements adopting the same form in respect of
each of the VIEs of the Registrant
143
Table of Contents
Exhibit
Number
4.10*
4.11*
8.1*
11.1
12.1*
12.2*
13.1**
13.2**
15.1*
15.2*
15.3*
16.1*
16.2*
101.INS*
101.SCH*
101.CAL*
101.DEF*
101.LAB*
101.PRE*
104*
Description of Document
English version of executed form of spousal consent letter of the spouse of an individual shareholder of Jiufu Shuke as
currently in effect, and a schedule of all executed spousal consent letters adopting the same form in respect of each
shareholder, if applicable, of Jiufu Shuke
2021 Share Incentive Plan
Significant subsidiaries and consolidated affiliated entities of the Registrant
Code of Business Conduct and Ethics of the Registrant (incorporated herein by reference to Exhibit 99.1 to the
Form F-1 filed on July 25, 2019 (File No. 333-232802))
CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Consent of Han Kun Law Offices
Consent of Wei, Wei & Co., LLP
Consent of Deloitte Touche Tohmatsu Certified Public Accountants LLP
Letter from Deloitte Touche Tohmatsu Certified Public Accountants LLP regarding Item 16F of this annual report.
Letter from Marcum Bernstein & Pinchuk LLP regarding Item 16F of this annual report.
Inline XBRL Instance Document - The instance document does not appear in the Interactive Data File because its
XBRL tags are embedded within the Inline XBRL Document
Inline XBRL Taxonomy Extension Scheme Document
Inline XBRL Taxonomy Extension Calculation Linkbase Document
Inline XBRL Taxonomy Extension Definition Linkbase Document
Inline XBRL Taxonomy Extension Label Linkbase Document
Inline XBRL Taxonomy Extension Presentation Linkbase Document
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
*
Filed with this Annual Report on Form 20-F.
** Furnished with this Annual Report on Form 20-F.
144
Table of Contents
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and
authorized the undersigned to sign this annual report on its behalf.
SIGNATURES
Date: May 17, 2021
9F Inc.
By:
/s/ Lei Liu
Name: Lei Liu
Title:
Chief Executive Officer
145
Table of Contents
9F Inc.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2019 AND 2020
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) FOR THE YEARS ENDED DECEMBER 31,
PAGE(S)
F-2
F-4
F-5
F-6
2018, 2019 AND 2020
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2019 AND
2020
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS SCHEDULE 1 — FINANCIAL INFORMATION OF PARENT COMPANY
F-7
F-8
F-9
F-55
F-1
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of 9F Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheet of 9F Inc. and subsidiaries (the “Company”) as of December 31, 2020,
and the related consolidated statements of operations, comprehensive income (loss), changes in shareholders’ equity, and cash flows for
the year then ended, and the related notes and Schedule I (collectively referred to as the “financial statements”). In our opinion, the
financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the
results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the
United States of America.
Convenience Translation
Our audit also comprehended the translation of Renminbi amounts into United States dollar amounts and, in our opinion, such translation
has been made in conformity with the basis stated in Note 2 to the financial statements. Such United States dollar amounts are presented
solely for the convenience of readers outside the People’s Republic of China.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our
audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit
provides a reasonable basis for our opinion.
/s/ Wei, Wei & Co., LLP
Flushing, New York
May 17, 2021
We have served as the Company’s auditors since 2021.
F-2
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of 9F Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of 9F Inc., and its subsidiaries (the “Company”) as of December
31, 2019, the related consolidated statements of operations, comprehensive (loss) income, changes in equity, and cash flows, for each of
the two years in the period ended December 31, 2019, and the related notes and the schedule listed in Schedule I (collectively referred to
as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the
Company as of December 31, 2019, and the results of its operations and its cash flows for each of the two years in the period ended
December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or
fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As
part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such
opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due
to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our
audits provide a reasonable basis for our opinion.
Emphasis of Matter
As discussed in Note 21 and 22 to the financial statements, subsequent to December 31, 2019, the Company experienced
significant disruption to its operations resulting from the outbreak of COVID-19 epidemic, and in addition, has initiated legal action
against PICC Property and Casualty Company Limited Guangdong Branch, which the Company had contracted with under the direct
lending model. The Company has taken various measures to counter such disruptions. Our opinion is not modified with respect to these
matters.
/s/ Deloitte Touche Tohmatsu Certified Public Accountants LLP
Beijing, the People’s Republic of China
June 24, 2020
We have served as the Company’s auditor since 2018. In 2021, we became the predecessor auditor.
F-3
Table of Contents
9F Inc.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except for number of shares)
ASSETS:
Cash and cash equivalents
Restricted cash
Term deposits
Accounts receivable, net of allowance for doubtful accounts of RMB1,433,449 and RMB1,446,994 as of December 31, 2019
and 2020, respectively
Other receivables, net of allowance for doubtful accounts of RMB36,773 and RMB17,396 as of December 31, 2019 and 2020,
respectively
Loan receivables, net of allowance for doubtful accounts of RMB615,592 and RMB320,364 as of December 31, 2019 and
2020, respectively
Amounts due from related parties
Prepaid expenses and other assets
Contract assets, net of allowance for losses of RMB2,255 and RMB14,749 as of December 31, 2019 and 2020, respectively
Long-term investments,net
Operating lease right-of-use assets, net
Property, equipment and software, net
Goodwill, net
Intangible assets, net
Deferred tax assets, net
TOTAL ASSETS
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deferred revenue (including deferred revenue of the consolidated VIEs and VIEs’ subsidiaries without recourse to the Group
of RMB772,340 and RMB81,246 as of December 31, 2019 and 2020, respectively)
Payroll and welfare payable (including payroll and welfare payable of the consolidated VIEs and VIEs’ subsidiaries without
recourse to the Group of RMB35,958 and RMB29,152 as of December 31, 2019 and 2020, respectively)
Income tax payable (including income taxes payable of the consolidated VIEs and VIEs’ subsidiaries without recourse to the
Group of RMB303,684 and RMB224,533 as of December 31, 2019 and 2020, respectively)
Accrued expenses and other liabilities (including accrued expenses and other liabilities of the consolidated VIEs and VIEs’
subsidiaries without recourse to the Group of RMB1,056,128 and RMB238,170 as of December 31, 2019 and 2020,
respectively)
Operating lease liabilities (including operating lease liabilities of the consolidated VIEs and VIEs’ subsidiaries without
resource to the Group of RMB119,005 and RMB19,100 as of December 31, 2019 and 2020, respectively)
Amounts due to related parties (including amounts due to related parties of the consolidated VIEs and VIEs’ subsidiaries
without recourse to the Group of RMB29,902 and RMB24,146 as of December 31, 2019 and 2020, respectively)
Deferred tax liabilities (including deferred tax liabilities of the consolidated VIEs and VIEs’ subsidiaries without recourse to
the Group of RMB13,200 and RMB5,742 as of December 31, 2019 and 2020, respectively)
TOTAL LIABILITIES
Commitments and Contingencies (Note 21)
Shareholders’ equity:
Class A ordinary shares (US$0.00001 par value; 4,600,000,000 shares authorized as of December 31, 2019 and 2020;
128,228,600 and 142,348,281 shares issued and outstanding as of December 31, 2019 and 2020, respectively)
Class B ordinary shares (US$0.00001 par value; 200,000,000 shares authorized as of December 31, 2019 and 2020;
66,962,400 and 61,162,400 shares issued and outstanding as of December 31, 2019 and 2020)
Additional paid-in capital
Statutory reserves
Retained earnings (deficit)
Accumulated other comprehensive income
Total 9F Inc. shareholders’ equity
Non‑controlling interest
Total shareholders’ equity
TOTAL LIABILITIES AND SHAREHOLERS’ EQUITY
December 31,
2019
RMB
December 31,
2020
RMB
December 31,
2020
US$
(Note 2)
4,684,003
125,437
24,000
280,995
117,340
778,480
50,000
1,137,787
24,824
775,644
121,791
110,376
72,224
73,476
503,987
8,880,364
788,906
41,646
320,350
2,726,712
390,702
133,761
40,862
126,745
267,383
—
793,092
10,374
738,272
28,668
63,396
22,121
44,413
—
5,386,501
82,643
34,540
255,244
417,887
59,878
20,500
6,262
19,425
40,978
—
121,547
1,590
113,145
4,394
9,716
3,390
6,807
—
825,519
12,666
5,293
39,118
1,229,110
726,686
111,370
125,407
29,902
17,215
2,552,536
29,503
25,289
9,280
1,163,185
1
1
1
5,241,296
459,029
488,236
92,220
6,280,783
47,045
6,327,828
8,880,364
1
5,531,926
466,352
(1,822,749)
(6,953)
4,168,578
54,738
4,223,316
5,386,501
4,522
3,876
1,422
178,267
—
—
847,805
71,472
(279,349)
(1,066)
638,862
8,390
647,252
825,519
The accompanying notes are an integral part of these consolidated financial statements.
F-4
Table of Contents
9F Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands except for number of shares and per share data, or otherwise noted)
Year ended
Year ended
December 31, December 31, December 31,
2019
RMB
2020
RMB
2018
RMB
Year ended
Year ended
December 31,
2020
US$
(Note 2)
Net revenues:
Loan facilitation services
Post‑origination services
Others
Total net revenues
Operating costs and expenses:
4,960,671
367,439
228,372
5,556,482
3,477,897
604,732
342,334
4,424,963
177,147
859,102
219,756
1,256,005
27,149
131,663
33,679
192,491
Sales and marketing (including services provided by related parties of RMB37,769
in 2018,RMB42,770 in 2019 and RMB901 in 2020)
(1,746,375)
(2,343,428)
(343,056)
(52,576)
Origination and servicing (including services provided by related parties of
RMB39,000 in 2018,RMB15,120 in 2019 and RMB358 in 2020)
(444,830)
(1,137,451)
(543,487)
(83,293)
General and administrative (including share-based compensation of RMB508,162
in 2018,RMB353,151 in 2019 and RMB290,630 in 2020)
Reversal of (provision for) doubtful contract assets and receivables
Total operating costs and expenses
Interest income
Impairment loss of investments
Impairment loss of goodwill
Impairment loss of intangible assets and property, equipment and software
Gain recognized on remeasurement of previously held equity interest in acquiree
Net loss from disposal of subsidiaries
Other income, net
Income (loss) before income tax expense and earnings (loss) in equity method
investments
Income tax (expense) benefit
Earnings (loss) in equity method investments, net of tax of nil, RMB3,425 and
RMB10,669 in 2018, 2019 and 2020
Net income (loss)
Net income (loss) attributable to the non-controlling interest shareholders
Net income (loss) attributable to 9F Inc.
Change in redemption value of preferred shares
Net income (loss) attributable to ordinary shareholders
Net income (loss) per ordinary share
Basic
Diluted
Weighted average number of ordinary shares ordinary share
Basic
Diluted
(1,159,746)
2,637
(3,348,314)
208,350
(23,140)
(1,155,747)
(2,148,638)
(6,785,264)
225,751
(154,898)
—
—
—
(257)
25,608
—
—
16,272
—
52,852
(1,303,833)
(347,803)
(2,538,179)
102,425
(462,490)
(50,291)
(38,145)
—
—
39,112
2,418,729
(402,403)
(2,220,324)
174,597
(1,691,563)
(538,322)
(41,143)
1,975,183
6,621
1,981,804
(17,225)
1,964,579
(107,918)
(2,153,645)
(5,931)
(2,159,576)
(10,711)
(2,170,287)
(21,317)
(2,251,202)
(7,693)
(2,258,895)
—
(2,258,895)
(199,821)
(53,303)
(388,993)
15,697
(70,880)
(7,707)
(5,846)
—
—
5,994
(259,244)
(82,501)
(3,267)
(345,012)
(1,179)
(346,191)
—
(346,191)
10.57
9.41
(12.43)
(12.43)
(11.37)
(11.37)
(1.74)
(1.74)
162,672,800
185,735,200
174,552,468
174,552,468
198,596,879
198,596,879
198,596,879
198,596,879
The accompanying notes are an integral part of these consolidated financial statements.
F-5
Table of Contents
9F Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Amounts in thousands except for number of shares and per share data, or otherwise noted)
Net income (loss)
Other comprehensive income (loss):
Foreign currency translation adjustment
Unrealized gains (losses) on available for sale investments, net of tax of nil
Total comprehensive income (loss)
Total comprehensive income (loss) attributable to the non-controlling interest
shareholders
Total comprehensive income (loss) attributable to 9F Inc.
Year ended
Year ended
Year ended Year ended
December 31, December 31, December 31, December 31,
2018
RMB
1,975,183
2019
RMB
(2,153,645)
2020
RMB
(2,251,202)
2020
US$
(345,012)
84,430
(1,146)
2,058,467
12,126
(99)
(2,141,618)
(99,173)
—
(2,350,375)
(15,199)
—
(360,211)
6,621
2,065,088
(5,931)
(2,147,549)
(7,693)
(2,358,068)
(1,179)
(361,390)
The accompanying notes are an integral part of these consolidated financial statements
F-6
Table of Contents
9F Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Amounts in thousands except for number of shares)
Ordinary shares
9F Inc. Shareholders’ Equity
Number
of shares
Amount
Additional
paid‑in
capital
Statutory
reserve
RMB RMB RMB RMB
162,672,800
— 3,046,725
446,277
2,671,275
80,193
Accumulated
other
Total
9F Inc.
Non‑
Retained comprehensive
income (loss)
earnings
RMB
shareholders’ controlling
equity
RMB
6,244,470
interest
RMB
10,450
Balance as of December 31, 2018
Issuance of ordinary shares upon Initial
Public Offering (“IPO”) net of
issuance cost of RMB31,776 (Note
15)
Conversion of convertible preferred
shares to ordinary shares
Change in redemption value of
preferred shares (Note 14)
Share-based compensation
Net income (loss)
Provision of statutory reserve
Capital contribution from a non-
controlling shareholder
24,433,200
—
—
—
—
—
Non-controlling interest arising from an
acquisition
Purchase of non-controlling interests
Other comprehensive income
Balance as of December 31, 2019
Adoption of new accounting standard
Exercise of share options
Share-based compensation
Net income (loss)
Provision of statutory reserve
Other comprehensive income (loss)
Balance as of December 31, 2020
—
—
—
195,191,000
—
8,319,681
—
—
—
—
203,510,681
8,085,000
—
463,065
1,393,131
—
353,151
—
—
—
—
—
—
12,752
—
—
(10,711)
—
(2,159,576)
(12,752)
—
—
—
—
(14,776)
—
5,241,296
—
—
290,630
—
—
—
5,531,926
—
—
—
—
—
—
488,236
459,029
(44,767)
—
—
—
—
—
— (2,258,895)
(7,323)
—
(1,822,749)
7,323
—
466,352
2
—
—
—
—
—
—
—
—
2
—
—
—
—
—
—
2
—
—
—
—
—
—
—
—
—
12,027
92,220
—
—
—
—
—
(99,173)
(6,953)
463,065
1,393,133
(10,711)
353,151
(2,159,576)
—
—
—
(14,776)
12,027
6,280,783
(44,767)
—
290,630
(2,258,895)
—
(99,173)
4,168,578
—
—
—
—
5,931
—
8,913
15,862
5,889
—
47,045
—
—
—
7,693
—
—
54,738
Total
shareholders’
equity
RMB
6,254,920
463,065
1,393,133
(10,711)
353,151
(2,153,645)
—
8,913
15,862
(8,887)
12,027
6,327,828
(44,767)
—
290,630
(2,251,202)
—
(99,173)
4,223,316
The accompanying notes are an integral part of these consolidated financial statements.
F-7
Table of Contents
9F Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands except for number of shares and per share data, or otherwise noted)
Cash Flows from Operating Activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation
Amortization
Share-based compensation
Loss from disposal of property and equipment
Share of loss in equity method investments
Gain recognized on remeasurement of previously held equity interest in acquiree
Loss from disposals of subsidiaries
Change in fair value of a long‑term investment
Impairment loss of equity securities without readily determinable fair value
Impairment loss of equity method investment
Impairment loss of held-to-maturity investment
Impairment loss of intangible asset
Impairment loss of property, equipment and software
Loss from disposal of equity method investments
Gain from disposal of equity securities without readily determinable fair value
Provision for (reversal of) allowance for doubtful accounts
Provision for doubtful contract assets
Impairment of goodwill
Changes in operating assets and liabilities
Accounts receivable
Other receivables
Loan receivables
Contract assets
Prepaid expenses and other assets
Operating lease right-of-use assets
Deferred tax assets
Amount due from/to related parties
Accrued expenses and other liabilities
Income tax payable
Payroll and welfare payable
Deferred revenue
Deferred tax liabilities
Operating lease liabilities
Net cash provided by (used in) operating activities
Cash Flows from Investing Activities:
Purchases of property, equipment and software and intangible assets
Disposals of property and equipment
Purchase of term deposits
Redemptions of term deposits
Acquisitions of subsidiaries, net of cash acquired
Purchases of long‑term investments
Disposal of long-term investments
Prepayment of investments
Payments for origination of loans receivable
Proceeds from collection of loans receivable
Loans to related parties
Repayment of loans to related parties
Capital paid for acquiring non-controlling interest
Net cash (used in) provided by investing activities
Cash Flows from Financing Activities:
Net proceeds from initial public offering and from exercising the over-allotment option by the underwriters (net of issuance cost
of RMB31,776)
Capital contribution by non‑controlling shareholders
Proceeds from issuance of convertible redeemable preferred shares, net of issuance cost of RMB519 and nil for the years ended
December 31, 2018 and 2019, respectively.
Net cash provided by financing activities
Effect of foreign exchange rate changes on cash, cash equivalent and restricted cash
Net increase (decrease) in cash, cash equivalent, and restricted cash
Cash, cash equivalent, and restricted cash at the beginning of the year
Cash, cash equivalent, and restricted cash at the end of the year
Supplemental disclosures of cash flow information:
Cash paid for income taxes
Reconciliation to amounts on consolidated balance sheets:
Cash and cash equivalents
Restricted cash
Total cash, cash equivalents, and restricted cash
Year ended
December 31,
2018
RMB
Year ended
December 31,
2019
RMB
Year ended
December 31,
2020
RMB
Year ended
December 31,
2020
US$
(Note 2)
1,975,183
(2,153,645)
(2,251,202)
(345,012)
16,123
2,640
508,162
175
41,143
—
257
(1,500)
23,140
—
—
—
—
2,035
—
(2,966)
329
—
122,956
(53,806)
—
(12,971)
(16,015)
—
26,776
(20,852)
(53,050)
(148,109)
(25,985)
(37,223)
(550)
—
2,345,892
(48,575)
56
(1,650,986)
1,549,617
—
(501,091)
—
—
(1,712,025)
1,244,282
(142,181)
24,083
—
(1,236,820)
—
1,101
544,785
545,886
35,333
1,690,291
3,778,786
5,469,077
28,071
9,398
353,151
1,123
29,455
(16,272)
—
—
154,898
22,830
—
—
—
59,058
(6,057)
2,133,827
14,811
6,191
(1,539,946)
38,462
(127,518)
(26,993)
56,586
54,108
(419,648)
21,768
479,303
4,068
2,704
442,059
(346)
(50,493)
(429,047)
(56,690)
81
(232,325)
1,048,830
(49,411)
(192,684)
50,887
(632,096)
(756,068)
30,400
(50,884)
141,236
(8,887)
(707,611)
463,065
8,913
—
471,978
5,043
(659,637)
5,469,077
4,809,440
14,500
9,717
290,630
2,534
21,317
—
—
—
282,076
179,193
1,221
17,220
20,925
—
—
340,287
18,605
50,291
234,860
(55,605)
(22,862)
(335,105)
570,392
93,123
503,987
(41,323)
(807,117)
(65,056)
(7,106)
(706,263)
(7,934)
(95,905)
(1,744,599)
—
43,674
(109,761)
9,675
(469,578)
31,497
—
—
533,959
—
—
—
39,466
—
12,896
—
12,896
212
(1,692,026)
4,809,440
3,117,414
522,286
327,234
163,000
5,469,077
—
5,469,077
4,684,003
125,437
4,809,440
2,726,712
390,702
3,117,414
2,222
1,489
44,541
388
3,268
—
—
—
43,230
27,463
187
2,639
3,207
—
—
52,151
2,851
7,707
35,994
(8,520)
(3,506)
(51,357)
87,416
14,272
77,239
(6,331)
(123,695)
(9,970)
(1,089)
(108,240)
(1,216)
(14,698)
(267,370)
—
6,693
(16,822)
1,483
(71,966)
4,827
—
—
81,833
—
—
—
6,048
—
1,976
—
1,976
32
(259,314)
737,079
477,765
24,981
417,887
59,878
477,765
Supplemental disclosure of non-cash investing and financing activities:
In 2019, the Group completed several business combinations. Details of non-cash activities arising from these acquisitions are set out in Note 3.
The accompanying notes are an integral part of these consolidated financial statements.
F-8
Table of Contents
9F Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020
(Amounts in thousands except for number of shares and per share data, or otherwise noted)
1. ORGANIZATION AND PRINCIPAL ACTIVITIES
9F Inc. (the “Company” or “9F”) was incorporated under the laws of the Cayman Islands on January 24, 2014. The Company,
its subsidiaries, its consolidated variable interest entities (“VIEs”) and VIEs’ subsidiaries (collectively referred to as the “Group”) are
digital platform integrating and personalizing financial services in the People’s Republic of China (“PRC”). The Group provides a
comprehensive range of financial products and services across online lending, wealth management, and payment facilitation, all
integrated under a single digital financial account. In light of the tightening of the RPC regulatory environment, the Group significantly
decreased its online lending information intermediary services in 2020 in the PRC and are planning to replace the lost business by
developing markets outside the PRC.
Prior to the incorporation of the Company, the Group operated its business in China through Jiufu Shuke Technology Group
Co, Ltd (“Jiufu Shuke”), formerly known as Jiufu Jinke Holding Group Co, Ltd., as a limited liability company owned by the original
shareholders (the “Founders”), Zhenxiang Zhong, Guangwu Gao, and Yifan Ren. On August 25, 2014, Jiufu Shuke became the Group’s
consolidated VIEs through the contractual arrangements described below in “Basis of consolidation” in Note 2.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The accompanying consolidated financial statements of the Group have been prepared in conformity with accounting principles
generally accepted in the United States of America (“US GAAP”).
Basis of consolidation
The consolidated financial statements include the financial statements of the Company, its subsidiaries and consolidated VIEs,
including the VIEs’ subsidiaries, for which the Group is the primary beneficiary.
All transactions and balances among the Company, its subsidiaries, the VIEs and the VIEs’ subsidiaries have been eliminated
upon consolidation.
As PRC laws and regulations prohibit and restrict foreign ownership of internet value-added businesses, the Group operates its
internet related business in the PRC through two PRC domestic companies, Jiufu Shuke and Beijing Puhui Lianyin Information
Technology Limited (“Beijing Puhui”), whose equity interests are held by certain management members and the Founders of the Group.
The Group established four wholly-owned foreign invested subsidiaries in the PRC, Beijing Shuzhi Lianyin Technology Co., Ltd
(“Shunzhi Lianyin”), Zhuhai Xiaojin Hulian Technology Co., Ltd (“Xiaojin Hulian”), Zhuhai Wukong Youpin Technology Co., Ltd
(“Wukong Youpin”), and Qinghai Fuyuan Network Technology (Shenzhen) Co., Ltd (“Qinghai Fuyuan”, together with Shunzhi Lianyin,
Xiaojin Hulian, and Wukong Youpin collectively referred as the “WFOEs”).
By entering into a series of agreements (the “VIE Agreements”), the Group, through WFOEs, obtained control over Jiufu Shuke
and Beijing Puhui (collectively referred as “VIEs”). The VIE Agreements enable the Group to (1) have power to direct the activities that
most significantly affect the economic performance of the VIEs, and (2) receive the economic benefits of the VIEs that could be
significant to the VIEs. Accordingly, the Group is considered the primary beneficiary of the VIEs and has consolidated the VIEs’
financial results of operations, assets and liabilities in the Group’s consolidated financial statements. In making the conclusion that the
Group is the primary beneficiary of the VIEs, the Group’s rights under the Power of Attorney also provide the Group’s abilities to direct
the activities that most significantly impact the VIEs’ economic performance. The Group also believes that this ability to exercise control
ensures that the VIEs will continue to execute and renew the Master Exclusive Service Agreement and pay service fees to the Group. By
charging service fees to be determined and adjusted at the sole discretion of the Group, and by ensuring that the Master Exclusive
Service Agreement is executed and remains effective, the Group has the rights to receive substantially all of the economic benefits from
the VIEs.
F-9
Table of Contents
Details of the VIE Agreements, are set forth below:
VIE Agreements that were entered to give the Group effective control over the VIEs include:
Voting Rights Proxy Agreement and Irrevocable Power of Attorney
Under which each shareholder of the VIEs grant to any person designated by WFOEs to act as its attorney-in-fact to exercise all
shareholder rights under PRC law and the relevant articles of association, including but not limited to, appointing directors, supervisors
and officers of the VIEs as well as the right to sell, transfer, pledge and dispose all or a portion of the equity interest held by such
shareholders of the VIEs. The proxy and power of attorney agreements will remain effective as long as WFOEs exist. The shareholders
of the VIEs do not have the right to terminate the proxy agreements or revoke the appointment of the attorney-in-fact without written
consent of the WFOEs.
Exclusive Option Agreement
Under which each shareholder of the VIEs granted 9F or any third party designated by 9F the exclusive and irrevocable right to
purchase from such shareholders of the VIEs, to the extent permitted by PRC law and regulations, all or part of their respective equity
interests in the VIEs for a purchase price equal to the registered capital. The shareholders of the VIEs will then return the purchase price
to 9F or any third party designated by 9F after the option is exercised. 9F may transfer all or part of its option to a third party at its own
option. The VIEs and its shareholders agree that without prior written consent of 9F, they may not transfer or otherwise dispose the
equity interests or declare any dividends. The restated option agreement will remain effective until 9F or any third party designated by 9F
acquires all equity interest of the VIEs.
Spousal Consent
The spouse of each shareholder of the VIEs has entered into a spousal consent letter to acknowledge that he or she consents to
the disposition of the equity interests held by his or her spouse in the VIEs in accordance with the exclusive option agreement, the power
of attorney and the equity pledge agreement regarding VIE structure described above, and any other supplemental agreement(s) may be
consented by his or her spouse from time to time. Each such spouse further agrees that he or she will not take any action or raise any
claim to interfere with the arrangements contemplated under the mentioned agreements. In addition, each such spouse further
acknowledges that any right or interest in the equity interests held by his or her spouse in the VIEs do not constitute property jointly
owned with his or her spouse and each such spouse unconditionally and irrevocably waives any right or interest in such equity interests.
Loan Agreement
Pursuant to the loan agreements between WFOEs and each shareholder of the VIEs, WFOEs extended loans to the shareholders
of the VIEs, who had contributed the loan principal to the VIEs as registered capital. The shareholders of VIEs may repay the loans only
by transferring their respective equity interests in VIEs to 9F Inc. or its designated person(s) pursuant to the exclusive option agreements.
These loan agreements will remain effective until the date of full performance by the parties of their respective obligations thereunder.
VIE Agreements that enables the Group to receive substantially all of the economic benefits from the VIEs include:
Equity Interest Pledge Agreement
Pursuant to equity interest pledge agreement, each shareholder of the VIEs has pledged all of his or her equity interest held in
the VIEs to WFOEs to secure the performance by VIEs and their shareholders of their respective obligations under the contractual
arrangements, including the payments due to WFOEs for services provided. In the event that the VIEs breach any obligations under these
agreements, WFOEs as the pledgees, will be entitled to request immediate disposal of the pledged equity interests and have priority to be
compensated by the proceeds from the disposal of the pledged equity interests. The shareholders of the VIEs shall not transfer their
equity interests or create or permit to be created any pledges without the prior written consent of WFOEs. The equity interest pledge
agreement will remain valid until the master exclusive service agreement and the relevant exclusive option agreements and proxy and
power of attorney agreements, expire or terminate.
F-10
Table of Contents
Master Exclusive Service Agreement
Pursuant to exclusive service agreement, WFOEs have the exclusive right to provide the VIEs with technical support, consulting
services and other services. WFOEs shall exclusively own any intellectual property arising from the performance of the agreement.
During the term of this agreement, the VIEs may not accept any services covered by this agreement provided by any third party. The
VIEs agree to pay service fees to be determined and adjusted at the sole discretion of the WFOEs. The agreement will remain effective
unless WFOEs terminate the agreement in writing.
Risks in relation to the VIE structure
The Group believes that the contractual arrangements with the VIEs and their current shareholders are in compliance with PRC
laws and regulations and are legally enforceable. However, uncertainties in the PRC legal system could limit the Group’s ability to
enforce the contractual arrangements. If the legal structure and contractual arrangements were found to be in violation of PRC laws and
regulations, the PRC government could:
● Revoke the business and operating licenses of the Group’s PRC subsidiaries or consolidated affiliated entities;
● Discontinue or restrict the operations of any related-party transactions among the Group’s PRC subsidiaries or consolidated
affiliated entities;
● Impose fines or other requirements on the Group’s PRC subsidiaries or consolidated affiliated entities;
● Require the Group’s PRC subsidiaries or consolidated affiliated entities to revise the relevant ownership structure or
restructure operations; and/or;
● Restrict or prohibit the Group’s use of the proceeds of the additional public offering to finance the Group’s business and
operations in China;
● Shut down the Group’s servers or blocking the Group’s online platform;
● Discontinue or place restrictions or onerous conditions on the Group’s operations; and/or
● Require the Group to undergo a costly and disruptive restructuring.
The Group’s ability to conduct its business may be negatively affected if the PRC government were to carry out any of the
aforementioned actions. As a result, the Group may not be able to consolidate the VIEs in its consolidated financial statements as it may
lose the ability to exert effective control over the VIEs and its shareholders, and it may lose the ability to receive economic benefits from
the VIEs. The Group currently does not believe that any penalties imposed or actions taken by the PRC government would result in the
liquidation of the Company, WFOEs, or the VIEs.
F-11
Table of Contents
The following table sets forth the assets, liabilities, results of operations and cash flows of the VIEs and their subsidiaries, which
are included in the Group’s consolidated financial statements after the elimination of intercompany balances and transactions:
Assets:
Cash and cash equivalents
Term deposits
Accounts receivable, net
Other receivables, net
Loan receivables, net
Amounts due from related parties
Prepaid expenses and other assets
Contracts assets, net
Long‑term investments, net
Operating lease right-of-use assets, net
Property, equipment and software, net
Goodwill, net
Intangible assets, net
Deferred tax assets, net
Total assets
Liabilities:
Deferred revenue
Payroll and welfare payable
Income taxes payable
Accrued expenses and other liabilities
Operating lease liabilities
Amounts due to related parties
Deferred tax liabilities
Total liabilities
Net revenues
Net income (loss)
Net cash provided by (used in) operating activities
Net cash used in investing activities
Net cash provided by (used in) financing activities
As of December 31,
2020
2019
RMB
RMB
2,766,981
24,000
267,277
81,525
729,798
50,000
1,085,197
24,814
293,441
113,606
95,783
72,224
45,362
503,078
6,153,086
772,340
35,958
303,684
1,056,128
119,005
29,902
13,200
2,330,217
1,501,733
135,000
9,888
68,742
221,200
—
740,959
10,374
491,510
18,611
51,701
72,304
40,187
—
3,362,209
81,246
29,152
224,533
238,170
19,100
24,146
5,742
622,089
For the years ended
December 31,
2019
RMB
4,305,272
2020
2018
RMB
RMB
5,270,948
1,145,210
2,702,469 (1,551,509) (1,479,883)
For the years ended
December 31,
2019
RMB
2020
RMB
2018
RMB
2,906,094
(803,155) (1,315,875)
(5,188)
(439,357) (753,416)
(511,832)
—
1,000
Under the VIE Arrangements, the Group has the power to direct activities of the VIEs and can have assets transferred out of the
VIEs. Therefore, the Group considers that there is no asset in the VIEs that can be used only to settle obligations of the VIEs, except for
assets that correspond to the amount of the registered capital and PRC statutory reserves, if any. As the VIEs are incorporated as limited
liability companies under the Company Law of the PRC, creditors of the VIEs do not have recourse to the general credit of the Group for
any of the liabilities of the VIEs.
Currently there is no contractual arrangement which requires the Group to provide additional financial support to the VIEs.
However, as the Group conducts its businesses primarily based on the licenses held by the VIEs, the Group has provided and will
continue to provide financial support to the VIEs.
F-12
Table of Contents
Revenue-producing assets held by the VIEs include certain internet content provision (“ICP”) licenses and other licenses,
domain names and trademarks. The ICP licenses and other licenses are required under relevant PRC laws, rules and regulations for the
operation of internet businesses in the PRC, and therefore are integral to the Group’s operations. The ICP licenses require that core PRC
trademark registrations and domain names are held by the VIEs that provide the relevant services.
The VIE contributed an aggregate of 94.86%, 97.30% and 91.18% of the consolidated net revenues for the year ended
December 31, 2018, 2019 and 2020, respectively. As of December 31, 2019 and 2020, the VIE accounted for an aggregate of 69.29%
and 62.42% respectively, of the consolidated total assets, and 91.29% and 53.48%, respectively, of the consolidated total liabilities. The
assets that were not associated with the VIE primarily consist of cash and cash equivalents.
Use of estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions
that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from such
estimates. Significant accounting estimates reflected in the Group’s financial statements are estimates and judgments applied in revenue
recognition, allowance for receivables, impairment loss of investments, share-based compensation and realization of deferred tax assets.
Actual results may differ materially from these estimates.
Revenue recognition
The Group follows the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (“ASU”) 2014-09,
Revenue from Contracts with Customers (Topic 606) and all subsequent ASUs that modified Topic 606 to account for its revenues.
The core principle of Topic 606 is that an entity should recognize revenue to depict the transfer of promised goods or services to
customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
Online Lending Information Intermediary Services revenue
Through its online platform, the Group provides intermediary services on the personal financing product, One Card, under
which the holders of One Card can apply for loans on a revolving basis (“revolving loan products”). The Group also provides one-time
loan facilitation services to meet various consumption needs (“non-revolving loan product”). For revolving loan products and non-
revolving loan products, the Group’s services provided consist of:
a)
b)
Matching marketplace investors to potential qualified borrowers and facilitating the execution of loan agreements
between the parties (referred to as “loan facilitation service”); and
Providing repayment processing services for the marketplace investors and borrowers over the loan term, including
repayment reminders and following up on late repayments (referred to as “post origination services”).
The Group has determined that it is not the legal lender or borrower in the loan origination and repayment process, but acting as
an intermediary to bring the lender and the borrower together. Therefore, the Group does not record the loans receivable or payable
arising from the loans facilitated between the investors and borrowers on its platform.
The Group considers its customers to be both the investors and borrowers. The Group considers the loan facilitation service and
post origination services as two separate services, which represent two separate performance obligations under Topic 606, as these two
deliverables are distinct in that customers can benefit from each service on its own and the Group’s promises to deliver the services are
separately identifiable from each other in the contract.
F-13
Table of Contents
The Group determines the total transaction price to be the service fees chargeable from the borrowers and investors. The
transaction price is allocated to the loan facilitation services and post origination services using their relative standalone selling prices
consistent with the guidance in Topic 606. The Group does not have observable standalone selling price information for the loan
facilitation services or post origination services because it does not provide loan facilitation services or post origination services on a
standalone basis. There is no direct observable standalone selling price for similar services in the market that is reasonably available to
the Group. As a result, the Group uses an expected plus margin approach to estimate the standalone selling prices of loan facilitation
services and post origination services as the basis of revenue allocation, which involves significant judgements. In estimating its
standalone selling price for the loan facilitation services and post origination services, the Group considers the cost incurred to deliver
such services, profit margin for similar arrangements, customer demand, effect of competitors on the Group’s services, and other market
factors.
For each type of service, the Group recognizes revenue when (or as) the entity satisfies the service/performance obligation by
transferring a promised good or service (that is, an asset) to a customer. Revenues from loan facilitation are recognized at the time a loan
is originated between the investor and the borrower and the principal loan balance is transferred to the borrower, at which time the loan
facilitation service is considered completed. Revenues from post origination services are recognized on a straight-line basis over the term
of the underlying loans as the services are provided ratably on a monthly basis. A majority of the service fee is charged to the borrowers,
which is collected upfront upon at the loan inception or collected over the loan term. Investors pay service fees to the Group either at the
beginning and at the end of the investment commitment period (in terms of automated investing tools) or over the terms of the loan (in
terms of self-directing investing tools). In 2018, 2019 and 2020, service fees charged at the beginning or at the end of the investment
commitment period or over the terms of the loans in the periods presented were calculated to be equal to an annualized interest rate
ranging from 0.5% to 1.5% based on the investment amount and the investment term. Service fees charged to borrowers and investors,
including the service fees charged to investors collected at the end of the investment commitment period or over the terms of the loans in
the periods presented, were combined as contract price to be allocated to the two performance obligations relating to loan facilitation
services and post-origination services, and recognized as revenue when the relevant services are delivered. Revenue recognized related to
service fees not yet received from investors that will be collected at the end of the investment commitment period and over the
commitment period are recorded as accounts receivable. All service fees are fixed and not refundable. Revenue recognized is recorded
net of value added tax (“VAT”). Remaining performance obligations represent the amount of the transaction price for which service has
not been performed under post-origination services.
In December 2020, the Group ceased publishing information relating to new offerings of investment opportunities in fixed
income products for investors on its online lending information intermediary platform. Pursuant to certain collaboration arrangements
entered into by the Group and a licensed asset management company, the rights of investors in existing loans underlying the fixed
income products will be transferred to the asset management company. After such transfer, the outstanding balance of loans facilitated
shall become nil, and the asset management company will provide existing investors with services in relation to the return of their
remaining investment in loans.
Direct lending program revenue
Through its direct lending program, the Group provides traffic referral services to financial institution partners, allowing the
financial institution partners to gain access to borrowers who passed the Group’s risk assessment. The Group’s services provided consist
of:
a) Matching financial institution partners to potential qualified borrowers, and facilitating the execution of loan agreements
between the parties (also referred to as “loan facilitation service”); and
b) Providing repayment processing services for the financial institution partners and borrowers over the loan term, including
repayment reminders and loan collection (also referred to as “post origination services”).
Consistent with the revenue recognition policy under the online lending information intermediary services model, the Group has
determined that it is not the legal lender or borrower in the loan origination and repayment process, but acting as an intermediary to bring
the lender and the borrower together. Therefore, the Group does not record the loans receivable or payable arising from the loans
facilitated between the financial institution partners and borrowers. The Group considers its customers to be both the financial institution
partners and borrowers.
F-14
Table of Contents
The Group considers the loan facilitation service and post origination service as two separate performance obligations. The
Group determines the total transaction price to be the service fees chargeable from the borrowers or the financial institution partners,
which is the contracted price adjusted for variable consideration such as potential loan prepayment by the borrows that could reduce the
total transaction price, which is estimated using the expected value approach based on historical data and current trends of prepayments
of the borrowers. Then the transaction price is allocated to the loan facilitation services and post origination services using their relative
standalone selling prices consistent with the guidance in Topic 606, similar to online lending information intermediary services revenue.
For each type of service, the Group recognizes revenue when (or as) the entity satisfies the service/performance obligation by
transferring the promised service to customers. Revenues from loan facilitation services are recognized at the time a loan is originated
between the financial institution partners and the borrowers and the principal loan balance is transferred to the borrowers, at which time
the facilitation service is considered completed. Revenues from post origination services are recognized on a straight-line basis over the
term of the underlying loans as the services are provided ratably on a monthly basis.
Since April 2019, the Group has stopped charging service fees directly to the borrowers under its direct lending program.
Instead, the Group started to charge service fees either directly to the institutional funding partners, or indirectly through third-party
guarantee companies who provide guarantee services, or the insurance company who provided credit insurance to the institutional
funding partners on their loans to the borrowers. The Group concluded this change did not alter the substance of the services it provided
to borrowers and financial institution partners under the direct lending program, and therefore would not impact how revenue was
recognized. In 2019, under a cooperation agreement, as amended (the “Cooperation Agreement”), the Group predominantly partnered
with PICC Property and Casualty Company Limited Guangdong Branch (“PICC”) who provided the credit insurance service to
institutional funding partners on the loan origination, PICC collected all of the loan facilitation service fees and remitted the Group’s
portion of the service fees to the Group. The Group recorded an account receivable for the service fees confirmed and to be remitted by
PICC.
Other revenues
Other revenues mainly include product sales revenues from online sales of goods, penalty fee for late payment, and other
service revenues.
The Group generates product sales revenues primarily through selling of merchandise via its online shopping platform, 9F One
Mall (“online agent model”), and through selling of upscale products via third party platforms (“online direct sales model”). Under
online agent model, customers can buy merchandise provided by third-party merchandise suppliers on our 9F One Mall. The Group does
not control the merchandise, but rather is acting as an agent for the suppliers. Revenue is recognized for the net amount of consideration
the Group is entitled to retain in exchange for the agent service. The Group commenced the operations of the online direct sales model in
the first quarter of 2019 and terminated the operations of the online direct sales model in the third quarter of 2019. Under the online
direct sales model, revenue is recognized on a gross basis as the Group controls the merchandise before it is transferred to the customers,
which is indicated by (i) the Group is primarily responsible for fulfilling the promise to provide the specified upscale products to the
customers; (ii) the Group bears inventory risk; and (iii) the Group has discretion in establishing price.
Other revenues also include revenue of services such as insurance agency, securities brokerage, customer referral and
government subsidy income.
Cash incentives
To expand market presence, the Group voluntarily provides cash incentives in the form of cash coupons to new and existing
investors during its marketing activities. These coupons are not related to prior transactions, and can only be utilized in conjunction with
subsequent lending activities. The cash incentives provided are accounted as a reduction of the transaction price according to ASC 606-
10-32-25. Cash incentives paid to existing investors, cash incentives paid to new investors, and cash incentives recognized as a reduction
of revenue for year ended December 31, 2018 was RMB23.9 million, RMB1.2 million, and RMB25.8 million, respectively. Cash
incentives paid to existing investors, cash incentives paid to new investors, and cash incentives recognized as a reduction of revenue for
year ended December 31, 2019 was RMB59.6 million, RMB0.8 million, and RMB57.6 million, respectively. Cash incentives paid to
existing investors, cash incentives paid to new investors, and cash incentives recognized as a reduction of revenue for year ended
December 31, 2020 was RMB61.7 million, RMB2.7 million, and RMB8.9 million, respectively.
F-15
Table of Contents
Value added taxes (“VAT”)
The Group is subject to value added tax, or VAT, at a rate of 16% from May 1, 2018 to March 31, 2019 and 13% thereafter on
sales of products, and at a rate of 6% on services rendered by the Group, less any deductible VAT the Group has already paid or borne,
except for entities qualified as small-scale taxpayers at a VAT rate of 3% without any deduction. Since April 1, 2019, the Group has been
subject to an additional 10% deductible VAT. Entities that are VAT general taxpayers are allowed to offset qualified input VAT paid to
suppliers against their output VAT liabilities. VAT is reported as a deduction to revenue when incurred and amounted to RMB490,136,
RMB611,786, and RMB136,501 for the years ended December 31, 2018, 2019 and 2020, respectively. The net VAT balance between
input VAT and output VAT is recorded in the line item of accrued expenses and other liabilities on the face of balance sheet.
Disaggregation of revenues
The Group generates revenues primarily from loan facilitation and post-origination services provided to investors, borrowers
and financial institution partners through its online lending information intermediary services and direct lending program. The Group
also generates other revenues, such as penalty fees charged to borrowers for late payment, product sales revenues from online sales of
goods, and other service revenues. The following table provides further disaggregation by types of revenues recognized in 2018, 2019
and 2020.
2018
Online lending platform revenue
Online lending information intermediary services revenue
Revolving loan products (One Card)
Non‑revolving loan products
Direct lending program revenue
Other revenue
Total
2019
Online lending platform revenue
Online lending information intermediary services revenue
Revolving loan products (One Card)
Non‑revolving loan products
Direct lending program revenue
Other revenue
Total
2020
Online lending platform revenue
Online lending information intermediary services revenue
Revolving loan products (One Card)
Non‑revolving loan products
Direct lending program revenue
Other revenue
Total
F-16
Loan
facilitation
services
RMB
Post
origination
services
RMB
Other
revenues
RMB
Total
RMB
4,728,255
186,679
45,737
—
4,960,671
282,057
85,218
164
—
367,439
—
—
—
228,372
228,372
5,010,312
271,897
45,901
228,372
5,556,482
Loan
facilitation
services
RMB
Post
origination
services
RMB
Other
revenues
RMB
Total
RMB
1,698,133
104,611
1,675,153
—
3,477,897
269,718
30,226
304,788
—
604,732
—
—
—
342,334
342,334
1,967,851
134,837
1,979,941
342,334
4,424,963
Loan
facilitation
services
RMB
Post
origination
services
RMB
Other
revenues
RMB
Total
RMB
26,376
84,485
66,286
—
177,147
203,748
202,097
453,257
—
859,102
—
—
—
219,756
219,756
230,124
286,582
519,543
219,756
1,256,005
Table of Contents
The Group manages its business through a comprehensive offering of financial products tailored to the needs of the investors
and borrowers. These financial products are categorized by the Group as loan products, wealth management products and others. The
following table illustrates the disaggregation of revenues by product offering in 2018, 2019 and 2020:
Loan product revenue
Wealth management product revenue
Others
Total
December 31, December 31, December 31,
2018
RMB
4,930,515
471,060
154,907
5,556,482
2019
RMB
3,590,693
573,355
260,915
4,424,963
2020
RMB
847,576
188,673
219,756
1,256,005
Loan products-In 2018, 2019 and 2020, loan products represented product offerings tailored to the needs of the borrowers. Loan
product revenues in the above table represented the portion of the service fees that were charged to borrowers through the Group’s online
lending information intermediary services, and charged from borrowers with whom the Group has stopped charging service fees since
April 2019 or financial institution partners under direct lending program business.
Wealth Management products-In 2018, 2019 and 2020, wealth management products represented product offerings tailored to
the needs of the individual investors, including fixed income products and other wealth management products such as insurance and
stock investment brokerage services, and fund investment products services. Fixed income products were offered to individual investors
who desired to invest in loans facilitated through the Group’s online lending information intermediary services. Revenues from wealth
management products in the above table were mainly derived from fixed income products and represented the portion of service fees that
was charged to investors in the Group’s online lending information intermediary services. Revenues recognized on other wealth
management products were immaterial for the periods presented.
Deferred Revenue
Deferred revenue consists of post origination service fees received or receivable from borrowers, investors and financial
institution partners for which services have not yet been provided. Deferred revenues is recognized ratably as revenue when the post-
origination services are delivered during the loan period. The balance of deferred revenue decreased from RMB788,906 as of December
31, 2019 to RMB98,668 as of December 31, 2020 due to the cessation of cooperation with PICC and our new investment programs .
Revenue recognized during the years ended December 31, 2019 and 2020 that was included in the deferred revenue balance at the
beginning of the year was RMB290,674 and RMB555,646, respectively.
In December 2018, China National Internet Finance Rectification Office and the National Online Lending Rectification Office
jointly issued the Guidance on the Classification and Disposal of Risks of Online Lending Information Intermediaries and Risk
Prevention (“Circular 175”). Circular 175 tightens the regulation of the industry by requiring institutions other than normal
intermediaries, including shell intermediaries with no substantive operations, small-scale intermediaries, intermediaries with high risks,
and intermediaries that are unable to repay investors or otherwise unable to operate their businesses, to exit the online lending
information intermediary industry.
In light of the tightening regulatory environment, the Group significantly decreased online lending information intermediary
services during the year ended December 31, 2020. The Group launched re-designed investment programs by transferring their creditor’s
rights to a licensed asset management company named Ningxia Shunyi Asset Management Co. Ltd (“Ningxia Shunyi”). By opting for
the Group’s new investment programs, individual investors authorized our platform to transfer its creditor’s rights to Ningxia Shunyi on
their behalf at the individual investors’ option.
On August 24,2020, the Group signed the asset management agreement and supplementary agreement with Ningxia Shunyi.
According to the agreement, after the completion of the creditor’s rights transfer, Ningxia Shunyi and other third party will provide
services, including intermediary or management services.
F-17
Table of Contents
Contract assets, net
Contract assets are attributable to loan products to borrowers under our online lending platform, the Group is entitled to
payment of service fees when repayment of loans is received from the borrowers. Contract assets are recorded under these arrangements
when the Group provides the loan facilitation and post origination services but before the payments are due.
Contract assets are stated at the historical carrying amount net of write-off and allowance for collectability in accordance with
ASC Topic 310. The Group established an allowance for uncollectible contract assets based on estimates, historical experience and other
factors surrounding the credit risk of specific customers similar to borrowers related to the financial institution partners. The Group
evaluates and adjusts its allowance for uncollectible contract assets on a quarterly basis or more often as necessary. Uncollectible contract
assets are written off when the consideration entitled by the Group is due and the Group has determined the balance will not be collected.
The Group recognizes contract assets only to the extent that the Group believes it is probable that they will collect substantially all of the
consideration to which it will be entitled in exchange for the services transferred to the customer.
The following table presents the contract assets from loan facilitation services and post origination services:
Contract assets from loan facilitation services and post origination services
Less: Allowance for loss for collectability
Total
December 31,
December 31,
2019
RMB
27,079
(2,255)
24,824
2020
RMB
25,123
(14,749)
10,374
The following table presents the movement of allowance for loss for contract assets for the years ended December 31, 2019 and
2020:
Balance at beginning of the year
Provision for doubtful contract assets
Write-offs
Balance at end of the year
Practical Expedients and Exemptions
December 31,
December 31,
2019
RMB
329
14,811
(12,885)
2,255
2020
RMB
2,255
18,605
(6,111)
14,749
The Group generally expenses sales commissions when incurred because the amortization period would have been one year or
less. These costs are recorded within sales and marketing expenses.
Quality assurance fund liability
In order to provide assurance for investors, the Group established an investors’ protection plan.
From December 2013 to December 2016, the Group provided an investor protection service which is accounted for as
guarantee.
Starting from August 25, 2016, the Group cooperated with third party guarantee and insurance companies, who provided
investor protection services to replace the former quality assurance fund model, and the Group no longer has any legal obligation to
make compensation payments to investors on defaulted loans, and therefore no longer records a quality assurance fund liability in
accordance with ASC 405-20, Extinguishments of liabilities.
F-18
Table of Contents
In August 2016, the Group cooperated with Guangdong Nanfeng Guarantee Ltd. (“Nanfeng Guarantee”) and Taiping General
Insurance Co., Ltd, (“China Taiping”) to launch an investors’ protection plan to replace the former quality assurance fund model. As part
of the agreement with Nanfeng Guarantee and China Taiping, the Group transferred its legal responsibility to guarantee the existing loans
(i.e., existing and future defaults) to Nanfeng Guarantee and China Taiping. The Group agreed to pay the balance of the quality assurance
fund as of August 25, 2016 of RMB287 million from its own special account to a depository account set up by Nanfeng Guarantee and
supervised by China Taiping. For all new loans facilitated, the borrowers paid the quality assurance fund to Nanfeng Guarantee to
manage as part of the guarantee fund reserve going forward. A separate insurance policy was entered into by each borrower and the
insurance company (i.e., China Taiping), where the insurance company charged an insurance premium to the borrower to cover
additional default risks. Nanfeng Guarantee used the quality assurance fund in the depository account to compensate the defaulted loans.
China Taiping will not cover the repayment until the balance of the depository account at the depository bank becomes insufficient. As a
result, the Group no longer has a legal obligation to make compensation payments to investors for defaults (both incurred and future)
related to its existing loan portfolio as well as loans originated subsequent to August 25, 2016.
In September 2017, the Group launched an enhanced investors’ protection plan with China Taiping and Nanfeng Guarantee. For
loans with terms of 12 months or less, the borrower signed a “Loan Performance Guarantee Insurance Policy” with China Taiping and
paid an insurance premium to China Taiping. In the event that default of the insured loan happens, China Taiping will repay the
outstanding principal and the interest to the investors. For loans over 12 months, and for loans with terms of 12 months or less but not
covered by China Taiping’s insurance protection, the borrower signed a “Confirmation to Participation in Guarantee Plan” and Nanfeng
Guarantee provided the guarantee service. The borrowers pay the guarantee fee to Nanfeng Guarantee, which will be deposited in the
guarantee fund depository account set up by Nanfeng Guarantee. The Group and Nanfeng Guarantee will determine the guarantee fund
rate charged to borrowers based on the credit characteristics of the borrower as well as the underlying loan characteristics. If default of
any loan protected by Nanfeng Guarantee happens, Nanfeng Guarantee will withdraw the funds from the guarantee fund reserve account
to repay the investor within the fund’s balance as the upper limit.
In January 2018, the Group announced new updates to the arrangements regarding loans with terms of more than 12 months.
The borrower signs a guarantee contract with Guangdong Success Finance Guarantee Company Limited (“Guangdong Success”).
According to the contract, when the borrower defaults and, if the balance of the guarantee fund reserve account is insufficient to cover
the unpaid amounts, Guangdong Success will make additional repayment with an upper limit of a cap of five times the guarantee fee paid
by the borrower. For loans with the terms of 12 months or less, the borrower pays the insurance premium and signs a “Loan Performance
Guarantee Insurance Policy” with either China Taiping or PICC with whom the Group began to collaborate in March 2018. The loans
under China Taiping’s insurance protection obligation were all due by August 15, 2019; however, China Taiping’s insurance protection
obligation has not been completely fulfilled as of the date of this annual report due to the ongoing insurance claim and settlement
process. PICC has provided insurance protection to all the new loans with terms of no more than 12 months that have been originated
since May 2018 and covered by the insurance protection plan. Since November 2019, new loans with terms of no more than 12 months
are no longer covered by PICC’s investors protection plan. However, as of the date of this annual report, PICC’s insurance protection
obligation will continue for loans originated before November 2019 that were subject to PICC’s insurance protection plan. Furthermore,
Guangdong Success no longer provides guarantee protection on new loans facilitated after February 2020; however, Guangdong Success’
obligation with respect to loans facilitated before February 2020 has not been completely fulfilled as of the date of this annual report.
Since February 2020, the Group began to collaborate with Zhongtian Caizhi Financing Guarantee Co., Ltd. (“Zhongtian
Guarantee”), an independent third party. For all the new loans originated since February 2020, borrowers are required to make
contributions to the depository account set up by Zhongtian Guarantee. If a loan is past due for a certain period, Zhongtian Guarantee
will use the cash available in the depository account to repay the investors up to the total amount of principal and the accrued interests.
Fair value
Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or
permitted to be recorded at fair value, the Group considers the principal or most advantageous market in which it would transact and it
considers assumptions that market participants would use when pricing the asset or liability.
F-19
Table of Contents
Authoritative literature provides a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair
value into three broad levels. The level in the hierarchy within which the fair value measurement in its entirety falls is based upon the
lowest level of input that is significant to the fair value measurement as follows:
● Level 1—inputs are based upon unadjusted quoted prices for identical assets or liabilities traded in active markets.
● Level 2—inputs are based upon quoted prices for similar assets and liabilities in active markets, quoted prices for identical
or similar assets and liabilities in markets that are not active and model-based valuation techniques for which all significant
assumptions are observable in the market or can be corroborated by observable market data for substantially the full term
of the assets or liabilities.
● Level 3—inputs are generally unobservable and typically reflect management’s estimates of assumptions that market
participants would use in pricing the asset or liability. The fair values are therefore determined using model-based valuation
techniques that include option pricing models, discounted cash flow models, and similar techniques.
The carrying amounts of the Group’s financial instruments approximate their fair values because of their short-term nature. The
Group’s financial instruments include cash, accounts receivable, notes receivable, amount due from related parties, amount due to related
parties, deferred revenues, and accrued expenses and other liabilities.
Cash and cash equivalents
Cash and cash equivalents represent cash on hand, demand deposits and highly liquid investments placed with banks or other
financial institutions, which have original maturities less than three months. The Group considers all highly liquid investments with
stated maturity dates of three months or less from the date of purchase to be cash equivalents.
Restricted cash
A subsidiary of the Group receives funds from investors for the purpose of buying or selling securities on behalf of its
customers. The funds are deposited in a bank account restricted only for the use of purchasing securities on behalf of the investors and
the use of the funds within this account are monitored by the bank. Such bank balance represents an asset of the Group for the amounts
due to customers for the segregated bank balance held and payable to customers on demand. A corresponding payable to customers is
recorded upon receipt of the cash from the customer. As of December 31, 2019 and 2020, the Group had restricted bank deposits of
RMB125,437 and RMB390,702, respectively.
Term deposits
Term deposits consist of deposits placed with financial institutions with an original maturity of greater than three months and
less than one year. As of December 31, 2019 and 2020, the Group had term deposits of RMB24,000 and RMB133,761, respectively.
Loan receivables
Loan receivables are measured at amortized cost with interest accrued based on the contract rate. The Group evaluates the credit
risk associated with the loans, and estimates the cash flow expected to be collected over the lives of loans on an individual basis based on
the Group’s past experiences, the borrowers’ financial position, their financial performance and their ability to continue to generate
sufficient cash flows. A valuation allowance will be established for the loans unable to collect. Provision for uncollectable loans was
recorded in the amount of RMB649,771 and RMB315,205 for the year ended December 31, 2019 and 2020, respectively, based on the
results of the assessment.
F-20
Table of Contents
Allowance for doubtful accounts
Accounts receivable, other receivables and loan receivables are stated at the historical carrying amount net of write-offs and
allowance for doubtful accounts. The Group continuously monitors collections from its borrowers and maintains an allowance for
doubtful accounts based on various factors, including aging, historical collection data, specific collection issues that have been identified,
borrower concentration, general economic conditions and other factors surrounding the credit risk of specific borrowers. Uncollectible
receivables are written off when a settlement is reached for an amount that is less than the outstanding historical balance or when the
Group has determined it is probable that the balance will not be collected. The movement of the allowance for doubtful accounts is as
follows:
Balance at December 31, 2017
Reversal
Write-off
Balance at December 31, 2018
Provision for doubtful accounts(i)
Reversal
Write-off
Balance at December 31, 2019
Adoption of new accounting standard (ii)
Provision for doubtful accounts
Write-off
Balance at December 31, 2020
Accounts
receivable
RMB
29,611
(2,966)
(25,592)
1,053
1,447,582
—
(15,186)
1,433,449
—
13,545
Other
receivables
RMB
5,010
—
—
5,010
36,803
(329)
(4,711)
36,773
3,117
—
— (22,494)
17,396
1,446,994
Loans
receivable
RMB
—
—
—
—
649,771
—
(34,179)
615,592
8,420
315,205
(609,853)
329,364
Total
RMB
34,621
(2,966)
(25,592)
6,063
2,134,156
(329)
(54,076)
2,085,814
11,537
328,750
(609,853)
1,793,754
(i)
(ii)
In 2019, the provision for doubtful accounts mainly related to accounts receivable with PICC, who was responsible for the
collection of the Group’s service fees under the Group’s direct lending program. In November 2019, PICC no longer made
payments for the outstanding receivables and the Group has performed an analysis on the collectability of the receivables and
recognized a full provision for the outstanding account balance in the amount RMB 1,432,312. The Group has commenced legal
proceedings for the collection of this outstanding amount due from PICC. See Note 21 for disclosure related to the status of the
legal proceeding commenced against PICC in May 2021.
Refer to Note 4 Loan Receivables for further information on allowance for loan receivables.
Due to the adoption of ASU 2016-13, the Group recognized a total of RMB11,537 pre-tax increase to the allowance for doubtful
accounts on accounts receivable, other receivables and loans receivable. The Group determined that all of the receivables share
similar risk characteristics. The Group monitors the credit exposure on an ongoing basis and assess whether assets in the pool
continue to display similar risk characteristics.
F-21
Table of Contents
Business Combinations
The Group accounts for its business combinations using the acquisition method of accounting in accordance with ASC topic
805 (“ASC 805”), Business Combinations. The acquisition method of accounting requires that the consideration transferred to be
allocated to the assets, including separately identifiable assets and liabilities the Group acquired, based on their estimated fair values. The
consideration transferred in an acquisition is measured as the aggregate of the fair values at the date of exchange of the assets given,
liabilities incurred, and equity instruments issued as well as the contingent considerations and all contractual contingencies as of the
acquisition date. The Group also evaluates all contingent consideration arrangements to determine if the arrangements are compensatory
in nature. If the Group determines that a contingent consideration arrangement is compensatory, the arrangement would be accounted for
outside of the business combination and recorded as compensation expense in the post-acquisition financial statements of the combined
entity. The costs directly attributable to the acquisition are expensed as incurred. Identifiable assets, liabilities and contingent liabilities
acquired or assumed are measured separately at their fair value as of the acquisition date, irrespective of the extent of any non-controlling
interests. The excess of (i) the total of cost of acquisition, fair value of the non-controlling interests and acquisition date fair value of any
previously held equity interest in the acquiree over (ii) the fair value of the identifiable net assets of the acquiree, is recorded as goodwill.
If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in
earnings.
The determination and allocation of fair values to the identifiable assets acquired, liabilities assumed and non-controlling
interests is based on various assumptions and valuation methodologies requiring considerable judgment from management. The most
significant variables in these valuations are discount rates, terminal values, the number of years on which to base the cash flow
projections, as well as the assumptions and estimates used to determine the cash inflows and outflows. The Group determines discount
rates to be used based on the risk inherent in the related activity’s current business model and industry comparisons. Terminal values are
based on the expected life of assets, forecasted life cycle and forecasted cash flows over that period.
Long-term investments
The Group’s long-term investments consist of equity securities without readily determinable fair value, equity method
investments, held-to-maturity and available-for-sale investment.
a.
Equity securities without readily determinable fair value
Historically, for investee companies over which the Group did not have significant influence and a controlling financial interest,
the Group accounted for these as cost method investments under ASC 325-20. In January, 2018, the Group adopted Accounting
Standards Update (‘‘ASU’’) 2016-01, Financial Instruments—Recognition and Measurement of Financial Assets and Financial
Liabilities, and elected to account for equity investments that do not have a readily determinable fair value under the
measurement alternative prescribed within ASU 2016-01, to the extent such investments are not subject to consolidation or the
equity method. Under the measurement alternative, these financial instruments are carried at cost, less any impairment (assessed
quarterly), plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar
investment of the same issuer. In addition, income is recognized when dividends are received only to the extent they are
distributed from net accumulated earnings of the investee. Otherwise, such distributions are considered returns of investment
and are recorded as a reduction of the cost of the investment. The impairment losses on the equity securities without readily
determinable fair value during the years ended December 31, 2018, 2019 and 2020 were RMB23,140, RMB154,898, and
RMB282,076, respectively.
F-22
Table of Contents
b.
Equity method investments
Investee companies over which the Group has the ability to exercise significant influence, but does not have a controlling
interest, are accounted for using the equity method. Significant influence is generally considered to exist when the Group has an
ownership interest in the voting stock of the investee between 20% and 50%. Other factors, such as representation on the
investee’s board of directors, voting rights and the impact of commercial arrangements, are also considered in determining
whether the equity method of accounting is appropriate. The Group also uses the equity method of accounting for its
investments in variable interest entity where the Group is not considered the primary beneficiary but holds significant
influences. Under the equity method of accounting, the Group’s share of the earnings or losses of the investee company,
impairments, and other adjustments required by the equity method are reflected in “Earnings (loss) in equity method
investments, net” in the consolidated statements of operations.
An impairment charge is recorded if the carrying amount of the investment exceeds its fair value and this condition is
determined to be other-than temporary. The Group estimates the fair value of the investee company based on comparable quoted
price for similar investment in active market, if applicable, or discounted cash flow approach which requires significant
judgments, including the estimate of future cash flows, which is dependent on internal forecasts, the estimate of long term
growth rate of a company’s business, the estimate of the useful life over which cash flows will occur, and the determination of
the weighted average cost of capital. The impairment losses on its equity method investment are nil, RMB22,830 and
RMB179,193 during the years ended December 31, 2018, 2019 and 2020, respectively.
c.
Held-to-maturity and available-for-sale investments
Investments are classified as held-to-maturity when the Group has the positive intent and ability to hold the debt security to
maturity, and are recorded at amortized cost. As of December 31, 2019 and 2020, the balances of held-to-maturity securities
were RMB15,200 and RMB33,079, respectively.
For investments in investees’ stocks which are determined to be debt securities, the Group accounts for it as long-term
available-for-sale investments when they are not classified as either trading or held-to-maturity investments. The available-for-
sale investments are carried at its fair values and the unrealized gains or losses from the changes in fair values are included in
accumulated other comprehensive income.
The Group reviews its investment for other-than-temporary impairment (“OTTI”) based on the specific identification method.
The Group considers available quantitative and qualitative evidence in evaluating potential impairment of its investments. If the
cost of an investment exceeds the investment’s fair value, the Group considers, among other factors, general market conditions,
government economic plans, the duration and the extent to which the fair value of the investment is less than the cost, the
Group’s intent and ability to hold the investment, and the financial condition and near-term prospects of the issuers.
If there is OTTI on debt securities, the Group separates the amount of the OTTI into the amount that is credit related (credit loss
component) and the amount due to all other factors. The credit loss component is recognized in earnings, which represents the
difference between a security’s amortized cost basis and the discounted present value of expected future cash flows. The amount
due to other factors is recognized in other comprehensive income if the entity neither intends to sell and will not more likely
than not be required to sell the security before recovery. The difference between the amortized cost basis and the cash flows
expected to be collected is accreted as interest income. The Group recorded impairment losses on its held-to-maturity and
available-for-sale investments during the years ended December 31, 2018, 2019 and 2020 of nil, nil, RMB1,221, respectively.
Goodwill
Goodwill represents the excess of the purchase price of acquired businesses over the estimated fair value assigned to the
individual assets acquired and liabilities assumed. Goodwill is not depreciated or amortized but is tested for impairment on an annual
basis as of December 31, and in between annual tests when an event occurs or circumstances change that could indicate that the asset
might be impaired.
F-23
Table of Contents
Application of goodwill impairment test requires management judgement, including the identification of reporting units,
assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value to each reporting
unit. The judgment in estimating the fair value of reporting units includes estimating future cash flows, determining appropriate discount
rates and making other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value
for each reporting unit.
Prior to January 1, 2019, the Group performed a two-step test to determine the amount, if any, of goodwill impairment. In Step
1, the Group compared the fair value of the reporting unit with its carrying amount, including goodwill. If the carrying amount of the
reporting unit exceeded its fair value, the Group performed Step 2 and compared the implied fair value of goodwill with the carrying
amount of that goodwill for that reporting unit. An impairment charge equal to the amount by which the carrying amount of goodwill for
the reporting unit exceeded the implied fair value of that goodwill was recorded, limited to the amount of goodwill allocated to that
reporting unit. Starting from January 1, 2019, the Group early adopted ASU 2017-04. A reporting unit is identified as a component for
which discrete financial information is available and is regularly reviewed by management. The impairment test is performed as of year-
end or if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its
carrying amount by comparing the fair value of a reporting unit with its carrying value. If the fair value of the reporting unit exceeds its
carrying amount, goodwill is not impaired and no further testing is required. If the fair value of the reporting unit is less than the carrying
value, an impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however,
the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.
Based on the Group’s impairment assessment, the Group recorded goodwill impairment of nil, RMB6,191 and RMB50,291 for
the years ended December 31, 2018, 2019 and 2020, respectively.
Property, equipment and software, net
Property, equipment and software consists of computer and transmission equipment, furniture and office equipment, office
buildings, software, and leasehold improvements, which are recorded at cost less accumulated depreciation and amortization.
Depreciation and amortization are calculated on a straight-line basis over the following estimated useful lives:
Computer and electronic equipment
Furniture and office equipment
Office Building
License
Software
Leasehold improvements
3 years
5 years
20 years
20 years
5 years
Over the shorter of the remaining lease term or estimated useful lives
Origination and servicing expense
Origination and servicing expense consists primarily of variable expenses and vendor costs, including costs related to credit
assessment, customer and system support, payment processing services and collection associated with facilitating and servicing loan.
Government subsidy income
The Group receives government grants and subsidies in the PRC from various levels of local governments from time to time
which are granted for general corporate purposes and to support its ongoing operations in the region. The grants are determined at the
discretion of the relevant government authority and there are no restrictions on their use. The government subsidies are recorded as non-
operating income in the consolidated statement of operations and comprehensive income (loss) in the period the cash is received. The
government grants received by the Group were RMB23,364, RMB33,665 and RMB27,440 for the years ended December 31, 2018, 2019
and 2020, respectively.
F-24
Table of Contents
Leases
Before January 1, 2019, the Group applied ASC Topic 840 (“ASC 840”), Leases, and each lease is classified at the inception
date as either a capital lease or an operating lease. From January 1, 2019, the Group adopted the new lease accounting standard, ASC
Topic 842, Leases (“ASC 842”). The Group has no finance leases for any of the periods presented.
The Group leases certain office premises in different cities in the PRC and overseas under operating leases. The Group
determines whether an arrangement constitutes a lease and records lease liabilities and right-of-use assets on its consolidated balance
sheets at the lease commencement. The Group measures its lease liabilities based on the present value of the total lease payments not yet
paid discounted based on the more readily determinable of the rate implicit in the lease or its incremental borrowing rate, which is the
estimated rate the Group would be required to pay for a collateralized borrowing equal to the total lease payments over the term of the
lease. The Group estimates its incremental borrowing rate based on an analysis of corporate debt of companies with credit and financial
profiles similar to its own. The Group measures right-of-use assets based on the corresponding lease liability adjusted for payments made
to the lessor at or before the commencement date, and initial direct costs it incurs under the lease. The Group begins recognizing rent
expense when the lessor makes the underlying asset available for use by the Group. The Group’s leases have remaining lease terms of up
to four years, some of which include options to extend the leases for an additional period which has to be agreed with the lessors based
on mutual negotiation. After considering the factors that create an economic incentive, the Group did not include renewal option periods
in the lease term for which it is not reasonably certain to exercise.
For short-term leases of 12 months or less, the Group records rent expense in its consolidated statements of operations on a
straight-line basis over the lease term.
Income taxes
Current income taxes are provided on the basis of net profit (loss) for financial reporting purposes, adjusted for income and
expenses which are not assessable or deductible for income tax purposes, in accordance with the laws of the relevant tax jurisdictions.
Deferred income taxes are provided using asset and liability method, which requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method,
deferred tax assets and liabilities are determined on the basis of the differences between financial statements and tax basis of assets and
liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.
Deferred tax assets are recognized to the extent that these assets are more likely than not to be realized. In making such a
determination, management consider all positive and negative evidence, including future reversals of projected future taxable income and
results of recent operations. Net deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more-
likely-than-not that a portion of or all of the net deferred tax asset will not be realized.
In order to assess uncertain tax positions, the Group applies a more likely than not threshold and a two-step approach for the tax
position measurement and financial statement recognition. Under the two-step approach, the first step is to evaluate the tax position for
recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained,
including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount
that is more than 50% likely of being realized upon settlement. The Group recognizes interest and penalties, if any, under accrued
expenses and other current liabilities on its consolidated balance sheet and under other expenses in its consolidated statements of
operation and comprehensive income (loss). The Group did not have any significant unrecognized uncertain tax positions as of and for
the years ended December 31, 2018, 2019 and 2020.
F-25
Table of Contents
Share-based compensation
Share-based payment transactions with employees and managements, such as share options, are measured based on the grant
date fair value of the equity instrument. The Group has elected to recognize compensation expenses using the straight-line method for all
employee equity awards granted with graded vesting provided that the amount of compensation cost recognized at any date is at least
equal to the portion of the grant-date value of the options that are vested at that date, over the requisite service period of the award, which
is generally the vesting period of the award. Compensation expenses for awards with performance conditions is recognized when it is
probable that the performance condition will be achieved. The Group elects to recognize forfeitures when they occur.
Net income (loss) per ordinary share
Basic net income (loss) per ordinary share is computed by dividing net income (loss) attributable to ordinary shareholders by the
weighted average number of ordinary shares outstanding during the period.
The Group’s convertible redeemable preferred shares are participating securities as they participate in undistributed earnings on
an as-if converted basis. Accordingly, the Group uses the two-class method, whereby undistributed net income is allocated on a pro rata
basis to the ordinary shares and preferred shares to the extent that each class may share income in the year; whereas the undistributed net
loss for the year is allocated to ordinary shares only because the convertible redeemable participating preferred shares are not
contractually obligated to share the loss.
Diluted net income per ordinary share reflects the potential dilution that would occur if securities were exercised or converted
into ordinary shares. The Group had participating convertible redeemable preferred shares and share options which could potentially
dilute basic net income per ordinary share in the future. Diluted net income per ordinary share is computed using the two-class method or
the as-if-converted method, whichever is more dilutive. When the Group has a loss, the dilutive effect of these securities is not included
as they would be anti-dilutive.
Foreign currency translation
The Group’s reporting currency is RMB. The functional currency of the Company is the United States dollar (“US$”). The
functional currency of the Group’s entities in Hong Kong is Hong Kong dollars. The functional currency of the Group’s subsidiaries and
VIEs in the PRC is Renminbi (“RMB”).
Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional
currency at the rates of exchange ruling at the balance sheet date. Transactions in currencies other than the functional currency during
the year are converted into functional currency at the applicable rates of exchange prevailing when the transactions occurred. Transaction
gains and losses are recognized in the consolidated statements of operations.
Assets and liabilities are translated from each entity’s functional currency to the reporting currency using the exchange rates in
effect on the balance sheet date. Equity amounts are translated at historical exchange rates. Revenues, expenses, gains and losses are
translated using the average rates for the year. Translation adjustments are reported as cumulative translation adjustments and are shown
as a separate component in the consolidated statements of comprehensive income (loss).
Convenience translation
Translations of amounts from RMB into US$ are presented solely for the convenience of the reader and were calculated at the
rate of US$1.00 = RMB6.52500 on December 31, 2020, the last business day for the year ended December 31, 2020, representing the
exchange rate published by the Federal Reserve Board. No representation is intended to imply that the RMB amounts could have been, or
could be, converted, realized or settled into US$ at such rate, or at any other rate.
F-26
Table of Contents
Significant risks and uncertainties
i)
Foreign currency risk
RMB is not a freely convertible currency. The State Administration for Foreign Exchange, under the authority of the People’s
Bank of China, controls the conversion of RMB into foreign currencies. The value of RMB is subject to changes in central government
policies and to international economic and political developments affecting supply and demand in the China Foreign Exchange Trading
System market. The cash and cash equivalents of the Group included aggregate amounts of RMB3,251,899 and RMB 1,531,340 which
were denominated in RMB at December 31, 2019 and 2020, respectively, representing 69.43% and 56.16% of the cash and cash
equivalents at December 31, 2019 and 2020, respectively.
ii)
Concentration of credit risk
Financial instrument that potentially expose the Group to significant concentration of credit risk primarily consist of cash and
cash equivalents, accounts receivable, loans receivable, prepaid expenses and other assets. As of December 31, 2019 and 2020, the
majority of the Group’s cash and cash equivalents were deposited in financial institutions located in the PRC. Accounts receivable are
typically unsecured and are derived from revenue earned from customers in the PRC. The risk with respect to accounts receivable is
mitigated by credit evaluations the Group performs on its customers and its ongoing monitoring process of outstanding balances. The
Group made loans to third-party companies under loan agreements and is exposed to credit risk in case of defaults by the debtors. The
maximum amount of loss due to credit risk is limited to the total outstanding principal plus accrued interest on the balance sheets dates.
As of December 31, 2019, and 2020, there was RMB778,480 and RMB 267,383 of loans receivable outstanding, respectively. The Group
evaluates and monitors the credit worthiness of the debtors and records an allowance for uncollectible accounts based on an assessment
of the payment history, the existence of collateral, current information and events, and the facts and circumstances around the credit risk
of the debtor.
There are no revenues from customers which individually represented greater than 10% of the total net revenues for the year
ended December 31, 2018, 2019 and 2020.
As of December 31, 2019, receivables due from PICC for service fees under the direct lending program accounted for
approximately 83.54% of the Group’s accounts receivable balance. There are no customers of the Group that accounted for greater than
10% of the Group’s carrying amount of accounts receivable as of December 31, 2020.
Recent accounting pronouncements adopted
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The guidance supersedes existing guidance on
accounting for leases with the main difference being that operating leases are to be recorded in the statement of financial position as
right-of-use assets and lease liabilities, initially measured at the present value of the lease payments. For operating leases with a term of
12 months or less, a lessee is permitted to make an accounting policy election not to recognize lease assets and liabilities. The Group has
elected not to record on the balance sheet leases with an initial term of twelve months or less. For public companies, the guidance is
effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application of the
guidance is permitted. In July 2018, ASU 2016-02 was updated with ASU No. 2018-11, Targeted Improvements to ASC 842, which
provides entities with relief from the costs of implementing certain aspects of the new leasing standard. Specifically, under the
amendments in ASU 2018-11, (1) entities may elect not to recast the comparative periods presented when transitioning to ASC 842 (the
“optional transition method”) and (2) lessors may elect not to separate lease and non-lease components when certain conditions are met.
Before ASU 2018-11 was issued, transition to the new lease standard required application of the new guidance at the beginning of the
earliest comparative period presented in the financial statements.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments-Credit Losses (Topic 326)”, which requires entities to
measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and
reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses
on financial assets measured at amortized cost.
F-27
Table of Contents
The new guidance applies to loans, accounts receivable, trade receivables and other financial assets measured at amortized cost.
The new guidance also applies to debt securities and other financial assets measured at fair value through other comprehensive income.
The new guidance was effective January 1, 2020. The Group applied the new guidance using a modified retrospective approach through
a cumulative effect adjustment to retained earnings as of January 1, 2020 of RMB44,767. We have not recast prior period comparative
information, which we continue to report under the accounting guidance in effect for those periods. Our adoption of the new guidance
did not have a material impact on our consolidated financial statements.
Allowance for credit losses
Effective January 1, 2020, the Group implemented the new credit loss guidance using a modified retrospective approach. Prior
period comparative information has not been recast and continues to be reported under accounting guidance in effect for those periods.
The allowance for credit losses is a valuation account that is deducted from the accounts receivable, loans receivable (at
amortized cost basis) and other receivables to present the amount expected to be collected on these instruments. Accounts receivable,
loans receivable and other receivables are charged off against the respective allowance when management believes the uncollectibility of
the instrument is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged off and expected to be
charged off.
Management estimates each allowance balance using relevant available information, from internal and external sources, relating
to past events, current conditions and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the
estimation of expected credit losses. Adjustments to historical loss information are made for differences in current instrument specific
risk characteristics such as differences underwriting standards, portfolio mix, delinquency level or term as well as changes in
environmental conditions, such as changes in unemployment rates, property values and the relevant factors.
The Group measures the allowance for credit losses on a collective pool basis when similar risk characteristics exist.
Instruments that do not share similar risk characteristics are evaluated on an individual basis when applicable.
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework — Changes to
the Disclosure Requirements for Fair Value”. ASU 2018-13 removes and modifies existing disclosure requirements on fair value
measurement, namely regarding transfers between levels of the fair value hierarchy and the valuation processes for Level 3 fair value
measurements. Additionally, ASU 2018-13 adds further disclosure requirements for Level 3 fair value measurements, specifically
changes in unrealized gains and losses and other quantitative information. ASU 2018-13 is effective for fiscal years and interim periods
within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The Group had adopted ASU No. 2018-13
in the year 2020.
Recent accounting pronouncements not yet adopted
In January 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2020-01,
Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging
(Topic 815) (ASU 2020-01), which clarifies the interaction of the accounting for equity securities under Topic 321, the accounting for
equity method investments in Topic 323, and the accounting for certain forward contracts and purchased options in Topic 815. The
Group does not expect the adoption of this guidance to have a material impact on the consolidated financial statements.
The Group does not believe that other recently issued accounting standards, if currently adopted, will have a material effect on
the Group's consolidated financial statements.
F-28
Table of Contents
3. BUSINESS ACQUISITIONS
In 2019, the Group completed several business combinations to complement its existing businesses. Total cash consideration
transferred (net of cash acquired) for these acquisitions amounted to RMB49,411, which was net of cash acquired of RMB12,577. For
business acquisition where the Group held investments accounted for under the equity method, the Group’s existing equity interest in the
entities were remeasured to a fair value of RMB35,040 with the excess over the carrying value recorded as gain recognized on
remeasurement of previously held equity interest in acquiree of RMB16,272 on the consolidated statements of operations. Based on a
valuation performed by the Group with the assistance of a third party valuation expert, the purchase price allocated to the fair value of
assets acquired, liabilities assumed and non-controlling interest were RMB111,025, RMB10,712 and RMB15,862, respectively. The
assets acquired from the acquisitions mainly include trade name of RMB6,400 and technology of RMB27,600 to be amortized over 10
years and 5 years, respectively. Goodwill recognized in these acquisitions was RMB64,954, which was primarily attributable to the
synergies expected to be achieved from these acquisitions.
Neither the results of operations since the acquisition dates nor the pro forma results of operations of the acquirees were
presented because the effects of these business combinations, individually and in the aggregate, were not significant to the Group’s
consolidated results of operations.
4. LOAN RECEIVABLES, NET
Loan receivables
Less: Allowance for doubtful accounts
Less: Adoption of new accounting standard
Total
December 31, December 31,
2019
1,394,072
(615,592)
—
778,480
2020
596,747
(320,364)
(8,420)
267,383
In April 2018, the Group entered into several loan agreements with Zhongguo Factoring (Shenzhen) Co., Ltd. (“Zhongguo
Factoring”), a third-party borrower, with total loans amounting to RMB1,431.8 million. The balance of the loans to Zhongguo Factoring
amounted to RMB541.8 million and nil as of December 31, 2019 and 2020, respectively. The loans bear interest rates ranging from
4.35% to 9% per annum. The terms ranged from 1 year to 2.5 years. On November 6, 2019, upon maturity of a loan of RMB427.5
million, the Group negotiated with Zhongguo Factoring and extended the maturity date of this loan to November 5, 2020. The Group
determined that Zhongguo Factoring had encountered going concern issues due to their working capital deficiencies and poor operating
results. As a result, the Group fully impaired the loan receivable due from Zhongguo Factoring during the year ended December 31,
2019. Allowance for loan losses recorded for these loan receivables is RMB541.8 million as of December 31, 2019. RMB7.4 million was
repaid to the Group during the year ended December 31,2020, The Group reversed the allowance accordingly.The Group write off the
left allowance during the year ended December 31,2020. Allowance for loan losses recorded for these loan receivables is nil as of
December 31, 2020.
The Group entered into several loan agreements with certain third-party post loan service companies. As of December 31, 2020,
the Group had RMB596.7 million loan receivable outstanding, of which, RMB170 million of loans were guaranteed by Zhongji Wealth
Guarantee Co., Ltd., a third-party guarantor, with terms ranged from 11 months to 12 months and an interest rate of 6% per annum,
RMB66.2 million of loans are unsecured and interest rate of 4% or 10%,with terms of 12 months. The remaining RMB360.54 million of
loans are unsecured and interest free with a term of 21 months. As of May 13, 2021, RMB10.8 million was repaid to the Group.
As of December 31, 2019 and 2020, the Group recorded RMB73.8 million and RMB320.9 allowance for uncollectable for other
loan receivables, respectively.
Interest-earning loan receivables are on non-accrual status if loans are past due for more than 90 days. As of December 31, 2019
and 2020, RMB21,338 and RMB29,500 loan receivables were on non-accrual status.
F-29
Table of Contents
The following table sets forth the aging of loans as of December 31, 2019 and 2020, respectively:
1 - 89 days 90 days or Total past
December 31, 2019
December 31, 2020
5. PREPAID EXPENSE AND OTHER ASSETS
Deposits(i)
Advances to suppliers
Prepaid taxes
Prepaid service fee
Prepaid investment (ii)
Others
Less: Adoption of new accounting standard
Total
past due more past due
52,339
—
Total loans
21,338 73,677 1,320,395 1,394,072
596,747
29,500 29,500
596,747
Current
due
December 31, December 31,
2019
100,278
37,118
294,487
17,268
632,096
56,540
—
1,137,787
2020
91,258
10,607
338,450
45,201
270,996
37,046
(466)
793,092
(i)
(ii)
Deposits mainly include rent deposits and deposits to third-party vendors.
Prepaid investment mainly composed of the prepayment to acquire equity interests in Hubei Consumer Finance Company,
Shanghai Xinzhen Financial Information Consulting Co., Ltd and Jiangxi Financial Development Group Co. Ltd as of
December 31, 2019. The Group obtained the approval of changes of control from Hubei Consumer Finance Company and local
regulatory authorities during the year ended December 31,2020. As of December 31, 2020,the prepaid investment to Shanghai
Xinzhen Financial Information Consulting Co., Ltd and Jiangxi Financial Development Group Co. Ltd are still subject to the
approval of changes of control from the investees or local regulatory authorities.
6. FAIR VALUE OF ASSETS AND LIABILITIES
For a description of the fair value hierarchy and the Group’s fair value methodologies, see “Note 2—Summary of Significant
Accounting Policies.”
Financial instruments recorded at fair value
Assets and Liabilities Recorded at Fair Value
The Group does not have assets or liabilities measured at fair value on a non-recurring basis.
The following tables present the fair value hierarchy for assets and liabilities measured at fair value on a recurring basis
subsequent to initial recognition:
December 31, 2019
Assets
Available‑for‑sale investment
Total Assets
Level 1
RMB
Level 2
RMB
Level 3
RMB
Balance at
Fair Value
RMB
—
—
—
—
10,443
10,443
10,443
10,443
The Group did not transfer any assets or liabilities in or out of level 3 during the years ended December 31, 2019 and 2020.
F-30
Table of Contents
The Group purchased a convertible note receivable from a third-party private company amounting to RMB10.4 million which is
classified as available for sale investment in the fourth quarter of 2019, of which the fair value approximates its purchase price. During
the year ended December 31, 2020, the amount was repaid in full.
There were no additional investments classified as available-for-for sale during the year ended December 31, 2020.
Financial Instruments Not Recorded at Fair Value
Financial instruments, including cash and cash equivalents, restricted cash, term deposits, accounts receivable, other receivables,
loan receivables, prepaid expenses and other assets, accrued expenses and other liabilities and amounts due from/to related parties are not
recorded at fair value. The fair values of these financial instruments, other than loan receivables, are approximate their carrying value
reported in the consolidated balance sheets due to the short term nature of these assets and liabilities. The fair value of loan receivables is
disclosed in Note 4.
7. LONG-TERM INVESTMENTS
Balance at December 31, 2018
Additions
Disposal
Share of (loss) in equity method investments
Impairment charges
Unrealized losses recorded in accumulated other
comprehensive loss
Impact of exchange rate
Gain recognized on remeasurement of previously held equity
interest in acquire (Note 3)
Business combinations achieved in stages (Note 3)
Balance at December 31, 2019
Additions
Disposal
Share of (loss) in equity method investments
Impairment charges
Impact of exchange rate
Balance at December 31, 2020
Equity securities
without readily
determinable fair
value
RMB
699,747
5,000
(8,750)
—
(154,898)
Equity
method
investments
RMB
219,935
161,951
(104,149)
(29,455)
(22,830)
Available for
sales
investment
RMB
34,476
10,533
(35,739)
—
—
Held-to-
maturity
investment
RMB
—
15,200
—
—
—
Total
RMB
954,158
192,684
(148,638)
(29,455)
(177,728)
—
2,079
—
139
—
—
543,178
396,549
(5,000)
—
(282,076)
(4,949)
647,702
16,272
(35,040)
206,823
53,929
—
(21,317)
(179,193)
(2,751)
57,491
(99)
1,272
—
—
10,443
(10,443)
—
—
—
—
—
—
(99)
3,490
—
—
15,200
19,100
—
—
(1,221)
—
33,079
16,272
(35,040)
775,644
469,578
(15,443)
(21,317)
(462,490)
(7,700)
738,272
F-31
Table of Contents
Equity securities without readily determinable fair value
The following table sets forth the Group’s equity securities without readily determinable fair value:
Nanjing Lefang Intelligent Life Technology Development Co., Ltd (“Nanjing Lefang”) (i)
Shanghai Xinzheng financial information consulting Co., Ltd.(ii)
Abakus Ltd. (Cayman) (“Abskus”) (iii)
EZhou Rural Commercial Bank
BitPay, Inc. (Delaware)(iv)
GoopalGroup (v)
Hubei Consumption Financial Company (“Hubei Consumption”) (vi)
Zhuhai Yuanxin investment partnership (limited partnership(“ZhuhaiYuanxin")(vii)
Ningbo Weilie investment management partnership (limited partnership)（“NingboWeilie")(viii)
Others(ix)
Total
December 31,
2019
RMB
December 31,
2020
RMB
181,368
129,786
98,709
40,000
27,847
18,936
—
—
—
46,532
543,178
—
129,786
—
40,000
26,100
17,748
361,100
15,000
20,000
37,968
647,702
(i)
(ii)
(iii)
In March 2018, the Group purchase an additional 21.28% equity interest of Nanjing Lefang, formerly known as Nanjing
Banghang Information Consulting Limited, for a cash consideration of RMB250,000. The Group held a 30.53% equity interest
as of December 31, 2019 and 2020. The investments contain various right, protection, and a liquidation preference. The
investment is accounted for under the equity securities without readily determinable fair value of accounting as it is not
considered to be in-substance common stock. There were no observable price changes for the years ended December 31, 2018,
2019, and 2020. Due to continued decrease of operating result of Nanjing Lefang, the Group conducted an impairment
assessment and recorded an impairment loss of RMB99,868 and RMB181,368 for the years ended December 31, 2019 and
2020, respectively. In determining the fair value of the investment in Nanjing Lefang, the Group applied the market approach
using unobservable inputs, such as a lack of marketability discount and probability weighting for each scenario including
liquidation and an initial public offering.
In September 2018, the Group purchased a 15% equity interest of Shanghai Xinzheng Financial Information
Consulting Co., Ltd. for a total consideration of RMB129,786. The Group held a 15% equity interest as of December 31, 2019
and 2020. No impairment existed at December 31, 2019 and 2020 and there were no observable price changes for the years
ended December 31, 2018, 2019 and 2020.
In December 2014, the Group subscribed to 3,579,000 ordinary shares of Abakus (formerly known as Wecash Holdings Ltd.)
for a cash consideration of RMB6,500. The Group held 19.30%, 18.97%, and 18.97% equity interest as of December 31, 2018,
2019 and 2020, respectively. The Group recognized its share of profit in Abakus of RMB2,261 for the year ended December 31,
2018. In February 2018, due to issuance of equity interests to new shareholders, the Group’s equity interest in Abakus was
diluted from 22.17% to 19.86% and lost its ability to exercise significance influence. The investment in Abakus was accounted
for under equity method prior to the dilution in the Group’s equity interest. The investment is accounted for under the equity
securities without readily determinable fair value of accounting upon the cessation of the Group’s significant influence in
February 2018. In July 2019, Abakus agrees to repurchase 75,796 ordinary shares held by the Group for a cash consideration of
RMB14,807. A disposal gain of RMB6,057 was recognized, which is the difference between the consideration of RMB14,807
and the carrying value in Abakus, amounted to RMB8,750. Due to shut down of Abskus, the Group fully imaparied the
investment for the years ended December 31 2020.
(iv)
In March 2018, the Group acquired a 1.11% of equity interest in BitPay, Inc. (Delaware) for a cash consideration of US$4,000.
The Group held 1.11% equity interest as of December 31, 2019, and 2020. No impairment existed at December 31, 2018, 2019,
and 2020, and there were no observable price changes for the years ended December 31, 2018, 2019, and 2020.
F-32
Table of Contents
(v)
(vi)
(vii)
(viii)
(ix)
In January 2018, the Group purchased a 1.94% equity interest in Goopal Group for a cash consideration of US$2,720. The
Group held 1.94% equity interest as of December 31, 2019, and 2020. No impairment existed at December 31, 2018, 2019, and
2020, and there were no observable price changes for the years ended December 31, 2018, 2019, and 2020.
In December 2019, the Group paid RMB361,100 in cash in exchange of 24.47% equity interest in Hubei Consumer. No
impairment existed at December 31, 2020, and there were no observable price changes for the year ended December 31, 2020.
In November 2020, the Group paid RMB 15,000 in cash in exchange of 33.33% equity interest in Zhuhai Yuanxin. No
impairment existed at December 31, 2020, and there were no observable price changes for the year ended December 31, 2020.
In December 2017, the Group purchased a 8.50% equity interest in Ningbo Weilie for a total cash consideration of RMB
20,000,000.No impairment existed at December 31, 2020, and there were no observable price changes for the year ended
December 31, 2020.
Other investments represent several insignificant investments as of December 31, 2018, 2019 and 2020. Impairment losses of
RMB23,140, RMB20,724 and nil were reported in consolidated statements of operations for the years ended December 31,
2018, 2019 and 2020 related to Shanghai Wujiu Information Technology Company Limited (“Shanghai Wujiu”), Ofo
International Limited (“OFO”), and Orange Island Technology Inc.(“Orange”). During the year ended in December 31, 2018,
the Group determined that Shanghai Wujiu and OFO had encountered going concern issues due to their working capital
deficiencies and poor operating results. As a result, the Group fully impaired the investments during the year ended
December 31, 2018. During the year ended in December 31, 2019, the Group determined that Orange had encountered going
concern issues and was in the process of liquidation. Thus, the Group fully impaired the investment during the year ended
December 31, 2019.
Equity method investments
CSJ Golden Bull (Beijing) Investment Consulting Co., Ltd (“CSJ Golden Bull”)(i)
Suzhou Qingyu Technology Limited (“Suzhou Qingyu”)(ii)
Cornerstone Unicorn No.3 Private Equity Investment Fund(iii)
Others
Total
2019
RMB
26,675
19,092
132,859
28,197
206,823
2020
RMB
22,135
—
—
35,356
57,491
December 31, December 31,
(i)
(ii)
(iii)
In September 2017, the Group purchased an equity interest of CSJ Golden Bull for a total cash consideration of RMB40,900.
The Group held a 25% equity interest as of December 31, 2019 and 2020, and recognized its share of loss of RMB6,181,
RMB6,764, and RMB4,540 for the years ended December 31, 2018, 2019, and 2020, respectively.
In July 2017, the Group purchased a 20% equity interest in Suzhou Qingyu for a total consideration of RMB10,000. The
Group’s shareholding percentage decreased from 20% to 9.88% due to the issuance of equity interests to new shareholder. In
June 2018, the Group purchased 3.15% equity interests of Suzhou Qingyu for a total consideration of RMB20,000. The Group
held a 13.03% equity interest as of December 31, 2019 and have ability to exercise significance influence. The Group
recognized its share of loss of RMB5,083, RMB4,615 and RMB4,648 for the years ended December 31, 2018, 2019 and 2020.
Suzhou Qingyu had encountered going concern issues. Thus, the Group fully impaired the investment during the year ended
December 31, 2020.
In October 2019, the Group purchased 141,460,000 fund shares of Cornerstone Unicorn No.3 Private Equity Investment Fund
for a total consideration of RMB141,460. The total shares of the fund is 152,460,000 and the fund manager shall make
investment decisions independently. The fund manager can be replaced with the consent of all investors. The Group held 92%
share interest as of December 31, 2019 and has ability to exercise significance influence. In December 2020,Cornerstone
Unicorn and Cornerstone Management had encountered going concern issues. Thus, the Group fully impaired the investment
during the year ended December 31, 2020.
F-33
Table of Contents
Held-to-maturity investments
During the year ended December 31, 2019, the Group purchased a principal-guaranteed debt investment in the form of a
beneficiary interest in a trust for a cash consideration of RMB15,200, which has stated maturity within one year. No impairment loss
existed at December 31, 2019. During the year ended December 31, 2020, the Group extend this investment for one more year.
During the year ended December 31, 2020, the Group purchased a principal-guaranteed debt investment in the form of a
beneficiary interest in a trust for a cash consideration of RMB19,100, which has stated maturity within one year.
During the year ended December 31, 2020, the Group recorded an impairment charge of RMB1,221 for its held-to-maturity
investments due to the adoption of new accounting standards.
8. PROPERTY, EQUIPMENT AND SOFTWARE, NET
Office building
Computer and electronic equipment
Furniture and office equipment
Leasehold improvements
Software
Total property and equipment
Accumulated depreciation and amortization
Impairment loss for technology of discontinued online lending information services
Property, equipment, net
December 31, December 31,
2019
RMB
19,470
62,748
14,039
33,050
42,840
172,147
(61,771)
—
110,376
2020
RMB
19,470
57,856
10,065
30,069
46,008
163,468
(79,147)
(20,925)
63,396
Depreciation and amortization expense on property, equipment and software for the years ended December 31, 2018, 2019 and
2020 was RMB16,123, RMB28,071 and RMB14,500 respectively.
9. INTANGIBLE ASSETS, NET
Brokerage licenses
Trade Name
Technology
Total Intangible assets
Accumulated amortization
Impairment loss of technology with discontinued online lending information
intermediaries
Intangible assets, net
December 31, December 31,
2019
RMB
54,006
6,400
27,600
88,006
(14,530)
—
73,476
2020
RMB
51,880
6,400
27,600
85,880
(24,247)
(17,220)
44,413
The amortization periods range from 2.6 years to 20 years. Amortization expense on intangible assets for the years ended
December 31, 2018, 2019 and 2020 were RMB2,640, RMB9,398, and RMB9,717 respectively. As of December 31, 2020, the Group
expects to record amortization expenses related to intangible assets RMB7,281, RMB5,599, RMB5,599, RMB3,971 and RMB 3,397 for
the next five years, respectively, and RMB18,568 thereafter.
F-34
Table of Contents
10. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued advertising and marketing fee
Payable related to services fee and others
Amounts due to customers for the segregated bank balances held on their behalf
Deposit
Value added tax and surcharges
Others
Total accrued expenses and other current liabilities
11. RELATED PARTY BALANCES AND TRANSACTIONS
December 31, December 31,
2019
RMB
715,218
248,816
125,437
15,995
42,699
80,945
1,229,110
2020
RMB
105,638
152,396
405,719
2,913
16,494
43,526
726,686
The Group accounts for related party transactions based on various services agreements. Below summarizes the major related
parties and their relationships with the Group, and the nature of their services provided to/by the Group:
Name of related parties
Beijing Jiufu Weiban Technology Limited
(“9F Weiban”)
Beijing WeCash Qiyi Technology
Limited (“WeCash Qiyi”)
Huoerguosi Wukong Digital Technology
Limited (“Huoerguosi”)
WeCash Xiangshan Information
Technology Limited (“WeCash
Xiangshan”)
Shenzhen Boya
Kashi Boya Chengxin Internet
Technology Limited (“Kashi Boya”)
Shenzhen Lingxian
Shanghai Jiutai Financial Information
Services Limited (“Shanghai Jiutai”)
Relationship with the Group
Equity method investee (until
January 2019)
Equity method investee (until
February 2018)
Entity controlled by Sun, Lei (until
November 2018)
Subsidiary of equity method
investee
Equity method investee (until May
2019)
Subsidiary of equity method
investee (until May 2019)
Equity method investee (until
December 2019)
Entity controlled by Liu, Lei
CSJ Golden Bull
Equity method investee
Beijing Shunwei Wealth Technology
Limited (“Beijing Shunwei”)
Beijing Jiujia Wealth Management
Limited (“Beijing Jiujia”)
Yoquant
Zhejiang Lingchuang Food Limited
Qu, Jiachun
Ren, Yifan
Equity method investee (until June
2019)
Equity method investee (until
January 2018)
Equity method investee (until
January 2019)
Subsidiary of equity method
investee (until December 2019)
Principal shareholder of the Group
Major transaction with the Group
Consulting services and related party loans
Borrower acquisition and referral services
Advertising services
Credit inquiry services
Borrower acquisition and referral services
Borrower acquisition and referral services
Prepayment for merchandise
Related party loan
Investors acquisition, referral services, and
related party loan
Borrower acquisition and referral services
Investors acquisition and referral services and
related party loan
Consulting services
Deposit
Related party loan
Director of the Group
Related party loan
F-35
Table of Contents
Name of related parties
Liu, Lei
Zhuhai Hengqin Flash Cloud Payment
Information Technolgy Limited
(“Zhuhai Hengqin Payment”)
Huoerguosi Flash Cloud Payment
Information Technology Limited
(“Huoerguosi Payment”)
Nanjing Lefang
Relationship with the Group
Major transaction with the Group
President
Entity controlled by Sun, Lei
Related party loan
Payment processing service
Entity controlled by Sun, Lei
Payment processing service
Investee with significant influence
Borrower acquisition and referral services
purchased by the Group, consulting service
provided to Nanjing Lefang by the Group, and
related party loan
Borrower acquisition and referral services
Borrower acquisition and referral services
Shanghai Qiuzhi Information Technology
Limited (“Shanghai Qiuzhi”)
Beijing Jiuzao Technology
Limited(“Beijing Jiuzao”)
Equity method investee (from May
2019)
Entity controlled by Sun, Lei (from
December 2019)
Hangzhou Shuyun Gongjin Technology
Entity controlled by Sun, Lei
Credit inquiry services
Limited (“Hangzhou Shuyun”)
Chen, Lixing
Nine F Capital Limited (“Nine F”)
Lin, Yanjun
Sun, Lei
Vice President
Entity owned by Sun, Lei
Chief Financial Officer of the Group
Chief Executive Officer of the
Group
Related party loan
Related party loan
Related party loan
Related party loan
Details of related party balances and transactions as of and for the years ended December 31, 2018, 2019 and 2020 are as
follows:
(1)
Services provided by related parties
Investors and borrower acquisition and referral services:
Beijing Jiujia
Beijing Shunwei
Shenzhen Boya
Beijing Jiuzao
Nanjing Lefang
Shanghai Qiuzhi
Subtotal
Credit inquiry services:
WeCash Xiangshan
Hangzhou Shuyun
Subtotal
Payment processing service:
Zhuhai Hengqin Payment
Huoerguosi Payment
Subtotal
Others
Total
F-36
Year ended
Year ended
December 31,
2018
RMB
December 31,
2019
RMB
Year ended
December 31,
2020
RMB
9,965
5,133
9,781
—
12,890
—
37,769
427
—
427
17,808
20,504
38,312
261
76,769
—
1,221
4,696
7,257
29,476
120
42,770
—
5,925
5,925
9,175
—
9,175
20
57,890
—
—
—
852
—
49
901
—
358
358
—
—
—
—
1,259
Table of Contents
(2)
Services provided to related parties
Beijing Shunwei
Nanjing Lefang
Shanghai Qiuzhi
Shenzhen Boya
Kashi Boya
Others
Total
(3)
Amounts due from related parties
Nine F(i)
Beijing Shunwei
9F Weiban
Lin, Yanjun
Chen, Lixing
Nanjing Lefang
Shenzhen Lingxian
Sun Lei
Total
Year ended
Year ended
December 31,
2018
RMB
December 31,
2019
RMB
Year ended
December 31,
2020
RMB
3,941
26,386
—
—
4,495
179
35,001
—
1,994
99
6
—
—
2,099
—
—
—
—
—
—
—
December 31,
2019
RMB
December 31,
2020
RMB
—
—
—
—
—
50,000
—
—
50,000
—
—
—
—
—
—
—
—
—
(i)
On April 20, 2018, the Company extended a loan to Nine F of US$20 million with term of 3 years and an interest rate at the US
dollar deposit rate for the same period as published by Bank of China. The purpose of the loan is to finance the purchase by Lei
Sun of the ordinary shares of 9F Inc. from Yifan Ren, one of the Founders of the Company. The loan was fully repaid in August
2019.
(4)
Amounts due to related parties
Zhuhai Hengqin Payment
Huoerguosi Payment
Qu, Jiachun
Ren, Yifan
Zhejiang Lingchuang Food Limited
Nanjing Lefang
Beijing Shunwei
Shenzhen Boya
Hangzhou Shuyun
Beijing Jiuzao
Shanghai Qiuzhi
Niche Global Fintech Corporation Limited
Total
F-37
December 31,
2019
RMB
December 31,
2020
RMB
3,125
—
—
—
—
18,474
—
—
883
7,300
120
—
29,902
4,731
—
—
—
—
18,834
—
—
18
182
—
1,524
25,289
Table of Contents
12. INCOME TAXES
9F Inc. is a company incorporated in the Cayman Islands. Under the current laws of the Cayman Islands, it is not subject to tax
on either income or capital gain.
According to the HK regulations, HK entities are subject to a two-tiered income tax rate for taxable income earned in Hong
Kong with effect from April 1, 2018. The first HK$2 million of profits earned by HK entity will be taxed at 8.25%, while the remaining
profits will continue to be taxed at the existing 16.5% tax rate. In addition, to avoid abuse of the two-tiered tax regime, each group of
connected entities can nominate only one entity to benefit from the two-tiered tax rate.
Under the PRC Enterprise Income Tax Law (the “EIT Law”), the Group’s subsidiaries domiciled in the PRC are subject to 25%
statutory rate unless they are qualified for preferential income tax rate status in accordance with the EIT Law. Certain of the Group’s
PRC subsidiaries and VIEs enjoy a preferential income tax rate of 15% or 20% under the EIT Law. A ‘‘high and new technology
enterprise’’ is entitled to a favorable income tax rate of 15% and such qualification is reassessed by relevant governmental authorities
every three years. In December 2016, Beijing Muyu Technology Development Co., Ltd. (“Beijing Muyu”), a subsidiary of Beijing Jiufu
Puhui Information Technology Co., Ltd. (“Jiufu Puhui”), was qualified as a ‘‘high and new technology enterprise’’ and thus enjoyed a
preferential income tax rate of 15% for 2018, 2019, and 2020. In 2017, each of Jiufu Shuke, Jiufu Puhui and Jiufu Wukong (Beijing)
Technology Co., Ltd. (“Jiufu Wukong”), a subsidiary of Jiufu Shuke, was qualified as a ‘‘high and new technology enterprise’’ and thus
enjoyed a preferential income tax rate of 15% for 2018, 2019, and 2020. In 2018, Yisi Hudong(Beijing)Technology Co.,Ltd. (“Yisi
Hudong”), a subsidiary of Zhuhai Jiufu Xiaojin, was qualified as a ‘‘high and new technology enterprise’’ and thus enjoyed a preferential
income tax rate of 15% for 2018, 2019 and 2020. They would enjoy a preferential income tax rate of 15% for 2020, provided they
continue to meet the standards for “high and new technology enterprise” during 2021. Jiufu Weiban, a subsidiary of Xinjiang Shuke, was
qualified as a “high and new technology enterprise” and thus enjoyed a preferential income tax rate of 15% for 2018, 2019 and 2020.
They would enjoy a preferential income tax rate of 15% for 2021, provided they continue to meet the standards for “high and new
technology enterprise” during 2020. In addition, Zhuhai Hengqin Jiufu Technology Co., Ltd. (“Zhuhai Hengqin”) has been recognized as
an enterprise of encouraged industries in the Hengqin New Area of Guangdong Province and enjoyed a preferential income tax rate of
15% for 2018, 2019 and 2020. Zhuhai Jiufu Xiaojin Technology Co., Ltd. (“Zhuhai Xiaojin”) has been recognized as an enterprise of
encouraged industries in the Hengqin New Area of Guangdong Province and enjoyed a preferential income tax rate of 15% for 2018,
2019, and 2020. Xizang Jiufu Dingdang Information Technology Co., Ltd. (“Jiufu Dingdang”) has been recognized as encouraged
industries in the Tibet autonomous region and enjoyed a preferential income tax rate of 15% for 2018, 2019 and 2020, the income tax
shared by Tibet autonomous region was temporarily exempted. Xinjiang Teyi Shuke Information Technology Co., Ltd. (‘‘Xinjiang
Shuke’’, formerly known as Xinjiang Jiufu Onecard Information Technology Co., Ltd.) has been recognized as encouraged industries in
the Xinjiang Kashgar Special Economic Development Area and enjoyed a five-years exemption from enterprise income tax from 2017 to
2021. Liangzi (Tianjin) Finance Lease Limited (“Liangzi”) was qualified as a “small enterprises with low profits” and thus enjoyed a
preferential income tax rate of 25% for 2019 and 2020. Beijing Baibai Technology Co., Ltd, Beijing Juhuixuan Technology Co., Ltd,
Shenzhen Jiufu Xinfu Commercial Factoring Co., Ltd, Jiuxing insurance brokerage Co., Ltd, Beijing Jiubao Technology Co., Ltd, Zhuhai
Jiuxin Asset Management Co., Ltd, and Qianhai Jiufu network technology (Shenzhen) Co., Ltd are qualified as “small enterprises with
low profits” and thus enjoyed a preferential income tax rate of 20% for 2018, 2019 and 2020.
The current and deferred components of the income tax expense which were substantially attributable to the Group’s PRC
subsidiaries and VIEs and VIEs’ subsidiaries, are as follows:
Current tax
Deferred tax
Total
Year ended
Year ended
December 31,
2018
RMB
376,177
26,226
402,403
December 31,
2019
RMB
245,397
(419,994)
(174,597)
Year ended
December 31,
2020
RMB
42,758
495,546
538,322
F-38
Table of Contents
The reconciliation of income tax expense at statutory tax rate to income tax expense recognized is as follows:
Income (loss) before income tax expenses
Statutory tax rate in the PRC
Income tax expense at statutory tax rate
Non‑deductible expenses(i)
Change in valuation allowance
Effect of tax holiday and preferential tax rate
Share‑based compensation expenses
Effect of different tax rates of subsidiaries operating in other jurisdictions
Income tax expense
(i)
The amount included in non-deductible expenses is as follows:
Non‑deductible expenses—excessive advertising fees
Other non‑deductible expenses
Total
Year ended
Year ended
December 31,
2018
RMB
December 31,
2019
RMB
2,418,729
(2,220,324)
Year ended
December 31,
2020
RMB
(1,691,563)
25 %
25 %
25 %
604,682
19,526
20,980
(375,632)
127,041
5,806
402,403
(555,081)
15,362
43,350
221,590
88,288
11,894
(174,597)
(422,891)
278,303
504,360
104,218
72,657
1,675
538,322
Year ended
Year ended
December 31,
2018
RMB
December 31,
2019
RMB
Year ended
December 31,
2020
RMB
2,927
16,599
19,526
—
15,362
15,362
—
278,303
278,303
The aggregate amount and per ordinary share effect of the tax holiday and preferential tax rate are as follows:
The aggregate amount of tax holiday and preferential tax rate
The aggregate effect on basic and diluted net income per ordinary share:
—Basic
—Diluted
December 31, December 31, December 31,
2018
RMB
375,632
2019
RMB
(221,590)
2020
RMB
(104,218)
2.31
2.02
(1.27)
(1.27)
(0.52)
(0.52)
F-39
Table of Contents
The tax effects of temporary differences that gave rise to the deferred tax balances are as follows:
December 31, December 31, December 31,
Deferred revenue
Accrued expenses
Allowance for doubtful accounts
Net operating loss carry forward
Excess advertising fee
Less: valuation allowance
Total deferred tax assets, net
2018
RMB
36,834
55,110
4,335
44,379
—
(56,320)
84,338
2019
RMB
104,750
105,475
265,745
80,485
47,202
(99,670)
503,987
The movements of valuation allowance for the years ended December 31, 2018, 2019 and 2020 are as follows:
2020
RMB
11,786
106,404
330,488
142,722
12,630
(604,030)
—
2020
RMB
99,670
504,360
—
604,030
2018
RMB
35,340
34,459
(13,479)
56,320
2019
RMB
56,320
56,132
(12,782)
99,670
December 31, December 31, December 31,
2018
RMB
2019
RMB
2020
RMB
9,003
—
9,003
15,354
1,861
17,215
9,280
—
9,280
Balance at beginning of year
Additions
Reversal
Balance at end of year
Deferred tax liabilities:
Intangible asset from acquisition
Contract assets
Total deferred liabilities
The Group considers positive and negative evidence to determine whether some portion or all of the deferred tax assets will
more likely than not be realized. This assessment considers, among other matters, the nature, frequency and severity of recent losses,
forecasts of future profitability, the duration of statutory carryforward periods, the Group’s experience with tax attributes expiring unused
and tax planning alternatives. The valuation allowance is considered on each individual entity basis. Considering all the above factors,
valuation allowances were established to certain entities because the Group believes that it is more likely than not that its deferred tax
assets will not be realized as it does not expect to generate sufficient taxable income in the near future.
Uncertainties exist with respect to how the current income tax law in the PRC applies to the Group’s overall operations, and
more specifically, with regard to tax residency status. The EIT Law includes a provision specifying that legal entities organized outside
of the PRC will be considered residents for Chinese income tax purposes if the place of effective management or control is within the
PRC. The implementation rules to the EIT Law provide that non-resident legal entities will be considered PRC residents if substantial
and overall management and control over the manufacturing and business operations, personnel, accounting and properties, occurs within
the PRC. Despite the present uncertainties resulting from the limited PRC tax guidance on the issue, the Group does not believe that the
legal entities organized outside of the PRC within the Group should be treated as residents for EIT law purposes. If the PRC tax
authorities subsequently determine that the Group and its subsidiaries registered outside the PRC should be deemed resident enterprises,
the Group and its subsidiaries registered outside the PRC will be subject to the PRC income taxes, at a statutory income tax rate of 25%,
the Group is not subject to any other uncertain tax position.
F-40
Table of Contents
The EIT regulations (i.e. Caishui [2011] No. 112) specify that legal entities organized in the Xinjiang Kashgar Special
Economic Development Area upon meeting certain requirements can qualify for five years exemption on income tax. Uncertainties exist
with regard to whether Xinjiang Shuke can meet the requirements stipulated under the current EIT regulations as well as whether the
Group income allocation to entities in Xinjiang match with their business substance. Despite the present uncertainties resulting from the
limited tax implementation guidance for the preferential tax treatment of the above regulation in Xinjiang and the tax authorities’ view
on the income allocation, the Group believes that the legal entities in the Xinjiang Kashgar Special Economic Development Area meet
the requirements as stipulated by the prevailing EIT laws and regulations and therefore can qualified for the income tax exemption and
the current income allocation ratio can be sustained. If the PRC tax authorities subsequently determine that these entities do not qualified
for the income tax exemption status or the income allocation ratio is not in compliance with arm’s length principle, these entities will be
subject to the PRC income taxes, at a statutory rate of 25%, or a transfer pricing adjustment would be made to increase the profit of other
entities (subject to 25% or 15% EIT rate) in the Group, which will in turn increase our tax liability, late payment interest, and penalties of
the Group.
According to PRC Tax Administration and Collection Law, the statute of limitations is for a period of three years if the
underpayment of taxes is due to computational errors made by the taxpayer or withholding agent. The statute of limitations will be
extended five years under special circumstances, which are not clearly defined (but an underpayment of tax liability exceeding RMB0.1
million is specifically listed as a special circumstance). In the case of a related party transaction, the statute of limitations is ten years.
There is no statute of limitations in the case of tax evasion. From inception to 2020, the Group is subject to examination of the PRC tax
authorities.
In accordance with the EIT Law, dividends, which arise from profits of foreign invested enterprises (“FIEs”) earned after
January 1, 2008, are subject to a 10% withholding income tax. In addition, under tax treaty between the PRC and Hong Kong, if the
foreign investor is incorporated in Hong Kong and qualifies as the beneficial owner, the applicable withholding tax rate is reduced to 5%,
if the investor holds at least 25% in the FIE, or 10%, if the investor holds less than 25% in the FIE. A deferred tax liability should be
recognized for the undistributed profits of PRC subsidiaries unless the Group has sufficient evidence to demonstrate that the
undistributed dividends will be reinvested and the remittance of the dividends will be postponed indefinitely. The Group plans to
indefinitely reinvest undistributed profits earned from its China subsidiaries in its operations in the PRC. Therefore, no withholding
income taxes for undistributed profits of the Group’s subsidiaries have been provided as of December 31, 2017, 2018, and 2019.
Under applicable accounting principles, a deferred tax liability should be recorded for taxable temporary differences attributable
to the excess of financial reporting basis over tax basis in a domestic subsidiary. However, recognition is not required in situations where
the tax law provides a means by which the reported amount of that investment can be recovered tax-free and the enterprise expects that it
will ultimately use that means. The Group completed its feasibility analysis on a method, which the Group will ultimately execute if
necessary to repatriate the undistributed earnings of the VIEs without significant tax costs. As such, the Group does not accrue deferred
tax liabilities on the earnings of the VIEs given that the Group will ultimately use the means.
13. SHARE-BASED COMPENSATION
Share incentive plan
Share options
In 2015, the Group adopted the 2015 Share Incentive Plan (the “2015 Plan”) and, in 2016, the Group adopted the 2016 Share
Incentive Plan (the “2016 Plan”), which permits the grant of three types of awards: options, restricted shares and restricted share units.
Persons eligible to participate in the 2015 Plan and 2016 Plan (collectively, the “Plans”) includes employees, consultants and directors of
the Group or any of affiliates, which include the Group’s parent company, subsidiaries and the Group. Under the 2015 plan, a maximum
ordinary shares available for issuance were 15,094,700. Under the 2016 Plan, a maximum of 16,771,900 ordinary shares were reserved
for issuance. According to the resolutions of the board of director in 2017, the Group reserved additional 35,867,400 ordinary shares for
the Plans. According to the resolutions of the board of director in 2018, the Group reserved additional 3,518,000 ordinary shares for the
Plans.
F-41
Table of Contents
During the year ended December 31 2020, the Group granted 680,300 share options at the exercise price of RMB24.11 per
share, 2,853,911 share options at the exercise price of zero,3,345,098 share options at the exercise price of RMB24.11 per share,178,900
share options at the exercise price of RMB13.83 per share, 445,280 share options at the exercise price of RMB24.11 per share. These
grants are subject to the following vesting conditions:
● 680,300 share options will vest over 5 years based on vesting of 15%, 20%, 20%, 20% and 25% at each anniversary
subsequent to the grant date.
● 2,853,911 share options vested 1,426,955 on March,20,2020 and 1,426,955 on April,20,2020.
● 3,345,098 share options fully vested on May 28,2020.
● 178,900 share options will vest over 4 years based on vesting of 20%, 20%, 30%, and 30% at each anniversary subsequent
to the grant date.
● 445,280 share options will vest annually in equal instalment over 5 years.
During the year ended December 31 2019, the Group granted 2,279,400 share options at the exercise price of RMB24.06 per
share, 78,600 share options at the exercise price of RMB50.13 per share, and 21,500 share options at the exercise price of RMB14.32 per
share. These grants are subject to the following vesting conditions:
● 100,100 share options will vest annually in equal instalment over 3 or 4 years.
● 34,600 share options will vest annually in equal instalment at each calendar year end of grant date over 4 years.
● 33,600 share options will vest annually in equal instalment at each anniversary subsequent to the grant date over 5 years. In
addition to the service requirement, the share options will only vest upon IPO.
● 46,500 share options will vest over 5 years based on vesting of 15%, 20%, 20%, 20% and 25% at each anniversary
subsequent to the grant date. In addition to the service requirement, the share options will only vest upon IPO.
● 64,700 share options will vest over 4 years based on vesting of 20%, 25%, 25%, and 30% at each anniversary subsequent
to the grant date. In addition to the service requirement, the share options will only vest upon IPO.
● 100,000 share options will vest over 6 years based on vesting of 12%, 12%, 16%, 20%, 20% and 20% at each anniversary
subsequent to the grant date. In addition to the service requirement, the share options will only vest upon IPO.
● 2,000,000 share options will vest over 5 years based on vesting of 40%, 15%, 15%, 15%, and 15% at each anniversary of
grant date. In addition to the service requirement, the share options will only vest upon IPO.
During the year ended December 31, 2018, the Group granted 1,118,400 share options at the exercise price of RMB24.06 per
share, 961,100 share options at the exercise price of RMB14.32 per share. These grants are subject to the following vesting conditions:
● 618,400 share options will vest annually in equal instalment at each calendar year end subsequent to the grant date over 5
years. In addition to the service requirement, 500,700 share options will only vest upon IPO.
● 400,000 share options will vest over 4 years based on vesting of 40%, 20%, 20% and 20% at each calendar year end
subsequent to the grant date. In addition to the service requirement, the share options will only vest upon IPO.
● 357,800 share options will vest over 4 years based on vesting of 20%, 20%, 30%, and 30% at each calendar year end
subsequent to the grant date. In addition to the service requirement, 178,900 share options will only vest upon IPO.
F-42
Table of Contents
● 100,000 share options will vest over 5 years based on vesting of 16%,16%,16%,16%,16% and 20% of the options will be
average vested on each year end of grant date. In addition to the service requirement, the share options will only vest upon
IPO.
● 603,300 share options will vest over 3 years based on vesting of 60%,30% and 10% of the options will be average vested
on each year end of grant date.
The vesting of the share options granted during the years ended December 31 2018, 2019 and 2020 are also subject to certain
annual performance targets established by the Group’s Board of Directors and Chief Executive Officer(“CEO”). The Group recognized
compensation expenses related to the option linked to these performance targets during the vesting period based on the probable outcome
of these performance conditions. The Group has determined that it is probable these conditions will be met; as such the share-based
compensation is recognized over the vesting period.
The Group calculated the estimated fair value of the share options on the respective grant dates using the binomial option
pricing model with the assistance from an independent valuation firm, with the following assumptions used in 2018, 2019 and 2020. The
weighted-average grant-date fair value of the share options granted during 2018, 2019 and 2020 was RMB69.34, RMB38.29 and
RMB35.88 respectively.
Risk free rate of interest
Volatility
Dividend yield
Exercise multiples
Life of option (years)
(1) Risk free rate of interest
Year ended
December 31,
2018
Year ended Year ended
December 31, December 31,
2020
2019
2.45% ‑ 2.98% 1.79%-2.53% 0.27%-1.47%
43.5% ‑ 48.3% 43.4%-55.3% 48.8%-59.5%
—
2.2 / 2.8
4.0 - 6.0
—
2.2 / 2.8
4.0 ‑ 6.0
—
2.2 / 2.8
2.5-6.0
Based on the daily treasury long term rate of U.S. Department of the treasury with a maturity period close to the expected term
of the option.
(2) Volatility
The volatility factor estimated was based on the annualized standard deviation of the daily return embedded in historical share
prices of the selected guide line companies with a time horizon close to the expected expiry of the term.
(3) Dividend yield
The Company has never declared or paid any cash dividends on the Company’s capital stock, and does not anticipate any
dividend payments on the Company’s ordinary shares in the foreseeable future.
(4) Exercise multiples
The expected exercise multiple was estimated as the average ratio of the stock price as at the time when employees would
decide to voluntarily exercise their vested options. As the Group did not have sufficient information of past employee exercise history, it
was estimated by referencing to academic research publications. For key management grantee and non-key management grantee, the
exercise multiple was estimated to be 2.8 and 2.2 respectively.
F-43
Table of Contents
The activity in share options during period from December 31, 2019 to December 31, 2020 is set out below:
Number of
Options
Grant‑date
Exercise Price Fair Value
Weighted
Average
Weighted
Average
Outstanding as of December 31, 2019
Granted
Exercised
Forfeited
Outstanding as of December 31, 2020
36,474,200
7,503,489
(8,319,681)
(6,384,600)
29,273,408
RMB
RMB
12.28
14.70
—
17.05
17.24
34.61
35.88
22.00
39.66
40.24
The following table summarizes information with respect to share options outstanding as of December 31, 2020:
Exercise Price
RMB
7.78
14.32
24.06
24.11
51.05
Options Outstanding
Options Exercisable
Number
Weighted
Average
Remaining
Number
Weighted
Average
Remaining
Outstanding Contractual Life Outstanding Contractual Life
10,340,000
12,036,630
2,641,500
4,176,678
78,600
29,273,408
0.64
9,878,000
1.97 11,644,230
3.55
—
3.55
3,345,098
3.02
—
24,867,328
0.52
1.94
—
3.55
—
F-44
Table of Contents
The share-based compensation expenses recognized with each issuance of share options since January 1, 2015 are as follows:
Date of Grant
10/07/2015
25/09/2015
01/07/2016
16/08/2016
23/08/2016
01/09/2016
06/09/2016
01/08/2017
11/09/2017
10/10/2017
20/10/2017
26/12/2017
19/01/2018
07/03/2018
27/03/2018
27/04/2018
01/09/2018
29/09/2018
24/12/2018
07/01/2019
21/04/2019
13/06/2019
14/06/2019
01/07/2019
21/2/2020
28/2/2020
Share‑based compensation recognized for share options
For the year ended
December 31,
2019
RMB
2018
RMB
2,613
111
47,177
241
2,336
1,546
3,524
9,686
8,713
2,732
393,648
—
33,623
2,193
—
—
—
—
19
—
—
—
—
—
—
—
508,162
—
57
27,771
251
2,442
1,616
3,427
10,124
9,107
2,856
63,246
135,997
8,486
4,162
6,345
10,377
1,366
20,195
1,095
1,842
653
97
41
41,598
—
—
353,151
2020
RMB
—
—
10,319
—
1,571
—
898
6,623
—
2,862
—
4,674
1,533
—
3,604
—
1,028
4,600
—
839
309
177
75
13,657
110,145
127,716
290,630
A summary of share based compensation recognized related to share options granted and ordinary shares issued is as follows:
General and administrative expenses
Total
Year ended
Year ended
Year ended
December 31, December 31, December 31,
2019
RMB
353,151
353,151
2018
RMB
508,162
508,162
2020
RMB
290,630
290,630
As of December 31, 2018, 2019 and 2020, unrecognized compensation cost related to unvested option awards granted to
employees of the Group was RMB410,202, RMB150,349 and RMB8,741, respectively. As of December 31, 2020, such cost was
expected to be recognized over a weighted average period of 3.24 years.
14. CONVERTIBLE REDEEMABLE PREFERRED SHARES
On March 25, 2015, 9F issued 11,950,600 Series A preferred shares at a per-share purchase price of about US$2.93 (equivalent
to RMB18.16) to certain third party shareholders (“Series A Preferred Shareholders”) for a cash consideration of US$35 million
(equivalent to RMB215 million).
On July 5, 2017, 9F issued 2,830,300 Series B preferred shares at a per-share purchase price of about US$10.60 (equivalent to
RMB71.56) to certain third party shareholders (“Series B Preferred Shareholders”) for a cash consideration of US$30 million (equivalent
to RMB202 million).
F-45
Table of Contents
On Nov 7, 2017, 9F issued 5,051,800 Series C preferred shares at a per-share purchase price of about US$10.60 (equivalent to
RMB70.36) to certain third party shareholders (“Series C Preferred Shareholders”) for a cash consideration of US$54 million (equivalent
to RMB355 million).
On January 26, 2018, 9F issued 3,518,000 Series D preferred shares at a per-share purchase price of about US$18.48 (equivalent
to RMB116.09) to certain third party shareholders (“Series D Preferred Shareholders”) for a cash consideration of US$65 million
(equivalent to RMB 408 million).
On September 14, 2018, 9F issued 1,082,500 Series E preferred shares at a per-share purchase price of about US$18.48
(equivalent to RMB126.48) to certain third party shareholders (“Series E Preferred Shareholders”) for a cash consideration of
US$20 million (equivalent to RMB 136 million).
The key terms of the equity interest with preferential feature are follows:
Voting Rights
The holders of preferred shares and the holders of ordinary shares shall vote together based on their shareholding percentages.
Dividends
The holder of each preferred share shall have the right to receive non-cumulative dividends, pari passu with the ordinary shares,
on an as-converted basis, when, as and if declared by the Board.
Liquidation
If a Liquidation Event occurs, distributions to the shareholders of the Group shall be made in the following manner:
(a)
(b)
Each holder of the Series D and E preferred shares shall be entitled to receive out of the remaining assets of the Group
available for distribution to its Members, prior and in preference to any distribution of any assets or surplus funds of
the Group to the holders of the ordinary shares, Series A preferred shares, Series B preferred shares and Series C
preferred shares of the Group, an amount equal to 115% of the Series D Issue Price for each Series D preferred share
an amount equal to 115% of the Series E Issue Price for each Series E preferred share, plus all declared but unpaid
dividends and distributions on such Series D and E preferred share. If the assets and surplus funds distributable are
insufficient to permit the payment for the full Series D Preference Amount and Series E Preference Amount, then the
entire assets and surplus funds of the Group available for distribution to such holders shall be distributed ratably
among the holders of Series D and E preferred shares in proportion to the number of Series D and Series E preferred
shares owned by each such holder.
Each holder of the Series C preferred shares shall be entitled to receive out of the remaining assets of the Group
available for distribution to its Members, prior and in preference to any distribution of any assets or surplus funds of
the Group to the holders of the ordinary shares, Series A preferred shares and Series B preferred shares of the Group,
an amount equal to 115% of the Series C Issue Price for each Series C preferred share, plus all declared but unpaid
dividends and distributions on such Series C preferred share. If the assets and surplus funds distributable are
insufficient to permit the payment for the full Series C Preference Amount, then the entire assets and surplus funds of
the Group available for distribution to such holders shall be distributed ratably among the holders of Series C preferred
shares in proportion to the number of Series C preferred shares owned by each such holder.
F-46
Table of Contents
(c)
(d)
Each holder of the Series B preferred shares shall be entitled to receive out of the remaining assets of the Group
available for distribution to its shareholders, prior and in preference to any distribution of any assets or surplus funds
of the Group to the holders of the ordinary shares and Series A preferred shares of the Group, an amount equal to
115% of the Series B Conversion Price for each Series B preferred share, plus all declared but unpaid dividends and
distributions on such Series B preferred share. If the assets and surplus funds distributable are insufficient to permit the
payment for the full Series B Preference Amount, then the entire assets and surplus funds of the Group available for
distribution to such holders shall be distributed ratably among the holders of Series B preferred shares in proportion to
the number of Series B preferred shares owned by each such holder.
Each holder of the Series A preferred shares shall be entitled to receive out of the remaining assets of the Group
available for distribution to its shareholders, prior and in preference to any distribution of any assets or surplus funds
of the Group to the holders of the ordinary shares and any other class of shares of the Group, an amount equal to the
higher of
(i)
(ii)
130% of the Series A issue price for each Series A preferred share, plus all declared but unpaid dividends and
distributions on such Series A preferred share
an amount such holder of Series A preferred share is entitled to assuming pro rata distribution of the assets
and surplus funds distributable among all the holders of the preferred shares and all the holders of the
ordinary shares.
If the assets and surplus funds distributable are insufficient to permit the payment for the full Series A preference amount, then
the entire assets and surplus funds of the Group available for distribution to such holders shall be distributed ratably among the holders of
Series A preferred shares in proportion to the number of Series A preferred shares owned by each such holder.
Conversion
Each holder of preferred shares has the right to convert any or all of its preferred shares into ordinary shares at the quotient of
the original issue price divided by the then effective conversion price, which shall initially be the issue price per share of the preferred
shares, as defined in the memorandum and articles of association being no less than par value. In addition, all outstanding preferred
shares shall be automatically converted into ordinary shares upon the consummation of a Qualified IPO.
“Qualified IPO” means a firm commitment underwritten registered initial public offering by the Group of its ordinary shares (or
securities of the Group representing the ordinary shares), representing no less than 10% of the Group’s share capital on a fully-diluted
basis, on New York Stock Exchange, NASDAQ, Hong Kong Stock Exchange or other internationally recognized stock exchange, as
approved by the Shareholders in accordance with the Shareholders Agreement, the Memorandum and these Articles, pursuant to a
registration statement that is filed with and declared effective in accordance with the securities laws of relevant jurisdiction at a public
offering price per share (prior to customary underwriters’ commissions and expenses) that is no less than the higher of (i) the product of
1.2 and the Series A Issue Price, and (ii) an amount that represents the Series A Issue Price plus 20% of compound internal rate per
annum on the Series A Issue Price for the period from the Series A Issuance Date to the closing date of such offering.
F-47
Table of Contents
IPO Adjustment Events
If the Group completes an IPO within 12 months, 24 months or 36 months after the Closing and the public offering price per
ordinary share, in the IPO is less than the result of (A)130% (within 12 months), 150% (within 24 months) and 180% (within 36 months)
of the Series B, C, D and E Conversion Price effective immediately prior to the completion of the IPO, minus (B) all dividends that have
been declared on a Series B, C, D and E preferred share prior to the completion of the IPO (the “Declared Dividends”), then, at the
option of the Group:
(i)
the Series B, C, D and E Conversion Price of each Series B, C, D and E preferred share held by the Purchaser shall,
immediately prior to the completion of the IPO, be adjusted in accordance with the following formula (such new
Series B and C Conversion Price, the “Adjusted Conversion Price I, II and III”):
Adjusted Conversion Price I = (Per Share Offering Price + Declared Dividends) / 130% (within 12 months);
Adjusted Conversion Price II = (Per Share Offering Price + Declared Dividends) / 150% (within 24 months);
Adjusted Conversion Price III = (Per Share Offering Price + Declared Dividends) / 180% (within 36 months);
(ii)
the Group shall, within thirty (30) Business Days from the completion of the IPO, pay, or cause to be paid, an amount
calculated in accordance with the formula below (the “Adjustment Amount I”) to the Purchaser for each Series B, C, D
and E preferred share held by the Purchaser immediately prior to completion of the IPO in cash by wire transfer of
immediately available funds to an account designated by the Purchaser:
Adjusted Amount I = Series B&C&D&E Conversion Price effective immediately prior to completion of the
IPO—Adjusted Conversion Price I (within 12 months)
Adjusted Amount II = Series B&C&D&E Conversion Price effective immediately prior to completion of the
IPO—Adjusted Conversion Price II (within 24 months)
Adjusted Amount III = Series B&C&D&E Conversion Price effective immediately prior to completion of the
IPO—Adjusted Conversion Price III (within 36 months)
Performance Adjustments
The Group has determined that there was no beneficial conversion feature (“BCF”) attributable to the preferred shares, as the
effective conversion price was greater than the fair value of the ordinary shares on the respective commitment date. The Group will
reevaluate whether additional BCF is required to be recorded upon adjustments to the effective conversion price of the preferred shares,
if any.
Redemption
Redemption condition for Series A preferred shares
In the event that the Group has not consummated a Qualified IPO as of the date that is thirty-six (36) months after March 25,
2015, each holder of the then outstanding Series A preferred shares, may require that the Group redeem all of its preferred shares.
Redemption condition for Series B preferred shares
The Series B preferred shares is redeemable, at any time after the earlier of:
i)
Thirty-six (36) months after July 5, 2017, if the Group has not consummated a Qualified IPO;
F-48
Table of Contents
ii)
iii)
iv)
Any willful misconduct by the Founder or the Group;
Termination of the Founder by the Group;
Any redemption required by other investors, then subject to the applicable laws of the Cayman Islands and if so
requested by any holder of then issued, outstanding Series B preferred shares, the Group shall redeem all or part of the
issued, outstanding Series B preferred shares of such holder in cash out of funds legally available.
Redemption condition for Series C preferred shares
The Series C preferred shares is redeemable, at any time after the earlier of:
i)
ii)
Thirty-six (36) months after November 7, 2017, if the Group has not consummated a Qualified IPO;
The 2017 Actual Profit as defined by the provision of the preferred share agreement, is less than 80% of 2017 Target
Profit (RMB1,000,000,000);
Redemption condition for Series D preferred shares
The Series D preferred shares is redeemable, at any time after thirty-six (36) months after January 26, 2018, if the Group has not
consummated a Qualified IPO;
Redemption condition for Series E preferred shares
The Series E preferred shares is redeemable, at any time after the earlier of:
i)
ii)
Redemption Price
Thirty-six (36) months after September 14, 2018, if the Group has not consummated a Qualified IPO;
The 2017 Actual Profit as defined by the provision of the preferred share agreement, is less than 80% of 2017 Target
Profit (RMB1,000,000,000);
The redemption price for Series A, B, C and D preferred share redeemed shall be equal to the applicable preferred share issue
price plus a 8% annual return (simple interest), plus all declared but unpaid dividend thereon, for the period from the date of issuance of
such preferred share up to the date of redemption, proportionally adjusted for share subdivisions, share dividend, reorganizations,
reclassifications, consolidations or mergers. The redemption price for Series E preferred share redeemed shall be equal to the applicable
preferred share issue price plus a 10% annual return (simple interest), plus all declared but unpaid dividend thereon, for the period from
the date of issuance of such preferred share up to the date of redemption, proportionally adjusted for share subdivisions, share dividend,
reorganizations, reclassifications, consolidations or mergers.
Series A redemption event triggered as the Group’s failure to complete a Qualified IPO by March 24, 2018. The Group adjusted
the carrying amount of Series A preferred shares to equal the redemption value at December 31, 2018 and 2019, and recognized accretion
of the Series A preferred shares amounted to RMB17,225 and RMB10,711 in retained earnings during the year ended December 31, 2018
and 2019, respectively.
F-49
Table of Contents
The movement in the carrying value of the preferred shares is as follows:
Balance as of December 31, 2017
Issuance of Series D preferred shares
Issuance of Series E preferred shares
Accretion on convertible redeemable preferred shares to
redemption value
Balance as of December 31, 2018
Accretion on convertible redeemable preferred shares to
Series A
RMB
263,076
—
—
Series B
RMB
202,086
—
—
Series C
RMB
355,248
—
—
Series D
RMB
—
408,358
—
Series E
RMB
—
—
136,427
Total
RMB
820,410
408,358
136,427
17,225
280,301
—
202,086
—
355,248
—
408,358
—
136,427
17,225
1,382,420
redemption value
10,711
—
—
—
—
10,711
Conversion of convertible preferred shares to ordinary
shares
Balance as of December 31, 2019
(291,012)
—
(202,086)
—
(355,248)
—
(408,358)
—
(136,427)
—
(1,393,131)
—
Upon the completion of the initial public offering, all of the Company’s Preferred Share were converted into 24,433,200
ordinary shares on a one-to-one basis.
15. ORDINARY SHARES
The Group’s Amended and Restated Memorandum of Association authorizes the Group to issue 5,000,000,000 ordinary shares
with a par value of US$0.00001 per share approximately. As of December 31, 2018, 2019 and 2020, the Group had 162,672,800,
195,191,000, and 203,510,681 ordinary shares issued and outstanding, respectively.
On December 30, 2017, according to the resolution of the board of directors, the Group approved the issuance of 9,894,500
ordinary shares at par value to three individuals who are members of the executive management and board of directors of the Group.
In connection with the above issuances, to provide anti-dilution protection to the preferred shareholders, the board of director
further approved the issuance of a total of 1,309,900 ordinary shares at par value to the Series A, B and C Preferred Shareholders. A
deemed dividend of RMB103,550 was recorded based on a determined per share fair value of ordinary share at RMB82.10. These
ordinary shares were subsequently issued on February 1, 2018.
In August 2019, the Company completed its initial public offering and issued 8,085,000 ADSs (representing 8,085,000 Class A
ordinary shares). The net proceeds raised from initial public offering and from exercising the over-allotment option by the underwriters
were RMB463,065, net of issuance cost of RMB31,776. Upon the completion of the initial public offering, the 195,191,000 ordinary
shares outstanding were classified into Class A and Class B ordinary shares, of which 128,228,600 shares were designated to Class A
ordinary shares and 66,962,400 shares were designated to Class B ordinary shares. Holders of Class A ordinary shares and Class B
ordinary shares have the same rights except for voting and conversion rights. Each Class A ordinary share is entitled to one vote, and
each Class B ordinary share is entitled to five votes and is convertible into one Class A ordinary share at the option of the holder.
Class A ordinary shares—The Group is authorized to issue 4,600,000,000 Class A ordinary shares with a par value of $0.00001
per share. As of December 31, 2019 and 2020, there were 128,228,600 and 142,348,281 Class A ordinary shares outstanding,
respectively.
Class B ordinary shares—The Company is authorized to issue 200,000,000 Class B ordinary shares with a par value of
$0.00001 per share. As of December 31, 2019 and 2020, there were 66,962,400 and 61,162,400 Class B ordinary shares outstanding,
respectively.
F-50
Table of Contents
16. SEGMENT INFORMATION
The Group’s chief operating decision maker is our Chief Executive Officer who reviews the consolidated results of operations
when making decisions about allocating resources and assessing performance of the Group. The Group operates and manages its
business as a single segment.
Substantially all of the Group’s revenues for the years ended December 31, 2018, 2019 and 2020 were generated from the PRC.
As of December 31, 2018, 2019 and 2020, the majority of long-lived assets of the Group were located in the PRC and Hong
Kong.
17. EMPLOYEE BENEFIT PLAN
Full time employees of the Group in the PRC participate in a government-mandated defined contribution plan pursuant to which
certain pension benefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to
employees. The Group accrues for these benefits based on certain percentages of the employees’ salaries. The total contribution for such
employee benefits were RMB116,281, RMB110,394, and RMB69,370 for the years ended December 31, 2018, 2019 and 2020,
respectively.
18. STATUTORY RESERVES AND RESTRICTED NET ASSETS
In accordance with the PRC laws and regulations, the Group’s PRC subsidiaries and VIEs are required to make appropriation to
certain statutory reserves, namely a general reserve, enterprise expansion reserve, and staff welfare and bonus reserve, all of which are
appropriated from net profit as reported in their PRC statutory accounts. The Group’s PRC subsidiaries and VIEs are required to
appropriate at least 10% of their after-tax profits to the general reserve until such reserve has reached 50% of their respective registered
capital.
Appropriations to the enterprise expansion reserve and the staff welfare and bonus reserve are to be made at the discretion of the
board of directors of each of the Group’s PRC subsidiaries and VIEs. There were no appropriations to these reserves by the Group’s PRC
entities for the years ended December 31, 2018, 2019 and 2020.
As a result of PRC laws and regulations and the requirement that distributions by the PRC entity can only be paid out of
distributable profits computed in accordance with PRC GAAP, the PRC entity is restricted from transferring a portion of their net assets
to the Company. Amounts restricted include paid-in capital and statutory reserves of the Group’s subsidiaries and VIEs. As of
December 31, 2020, the aggregate amounts of paid-in capital, capital reserve and statutory reserves represented the amount of net assets
of the relevant entities in the Group not available for distribution amounted to RMB2,779,849.
19. NET INCOME (LOSS) PER ORDINARY SHARE
The Group has determined that its preferred shares are participating securities as the preferred shares participate in undistributed
earnings on an as-if-converted basis. The holders of the preferred shares are entitled to receive dividends on a pro rata basis, as if their
shares had been converted into ordinary shares. Accordingly, the Group uses the two-class method of computing net income per share,
for ordinary shares, and preferred shares according to the participation rights in undistributed earnings for the year ended December 31,
2018. For the year ended December 31, 2019, undistributed net loss is not allocated to preferred shares because they are not contractually
obligated to participate in the loss allocated to the ordinary shares. There were no preferred shares outstanding for the year ended
December 31, 2020.
F-51
Table of Contents
Basic and diluted net loss per share for each of the years presented were calculated as follows:
Numerator:
Net income (loss) attributable to 9F Inc.
Less:
Change in redemption value in Series A preferred shares
Deemed dividend to preferred shareholders
Undistributed earnings allocated to preferred shareholders
Net income (loss) attributable to ordinary shareholders for computing net income per
ordinary shares—basic
Denominator:
Weighted average ordinary shares outstanding used in computing net income per
ordinary shares—basic
Net income (loss) per ordinary share attributable to ordinary shareholders—basic
Diluted net income per share calculation
Net income (loss) attributable to ordinary shareholders for computing net income per
ordinary shares—basic
Add: adjustments to undistributed earnings to participating securities
Net income (loss) attributable to ordinary shareholders for computing net income per
ordinary shares—dilute
Denominator:
Weighted average ordinary shares basic outstanding
Effect of potentially diluted share options
Weighted average ordinary shares outstanding used in computing net income per
ordinary shares—dilute
Net income (loss) per ordinary share attributable to ordinary shareholders—diluted
For the years ended
December 31,
2019
RMB
2020
RMB
2018
RMB
1,981,804
(2,159,576)
(2,258,895)
(17,225)
—
(244,589)
(10,711)
—
—
—
—
—
1,719,990
(2,170,287)
(2,258,895)
162,672,800 174,552,468 198,596,879
(11.37)
(12.43)
10.57
1,719,990
27,007
(2,170,287)
—
(2,258,895)
—
1,746,997
(2,170,287)
(2,258,895)
162,672,800 174,552,468 198,596,879
—
23,062,400
—
185,735,200 174,552,468 198,596,879
(11.37)
(12.43)
9.41
For the year ended December 31, 2018, no share options were excluded from the computation of diluted earnings per share as
their effects have been anti-dilutive. For the years ended December 31, 2019 and 2020, the effects of all outstanding share options were
excluded from the computation of diluted loss per share, as their effects would be anti-dilutive.
20. LEASES
The Group leases certain office premises and cloud infrastructure to support its core business system under non-cancelable
leases. The Group determines if an arrangement is a lease at inception. Some lease agreements contain lease and non-lease components,
which the Group chooses not to account for as separate components as the Group has elected the practical expedient. As of December 31,
2020, the Group had no long-term leases that were classified as a financing lease. As of December 31, 2020, the Group did not have
additional operating leases that have not yet commenced.
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Non-cash right-of-use assets in exchange for new lease liabilities:
Operating leases
Weighted average remaining lease term
Operating leases
Weighted average discount rate
Operating leases
Short-term lease cost
F-52
For the years ended
December 31, 2020
59,395
12,285
1.5
5.30 %
314
Table of Contents
As of December 31, 2020, the maturity of operating lease liabilities are as follows:
Years ending December 31:
2021
2022
2023
2024
Thereafter
Less imputed interest
Total
RMB
14,862
13,405
2,956
—
—
31,223
1,720
29,503
Payments under operating leases are expensed on a straight-line basis over the periods of their respective leases. The terms of
the leases do not contain rent escalation or contingent rents. For the year ended December 31, 2018, 2019, 2020, total rental expense for
all operating leases amounted to RMB68,753, RMB71,287, and RMB58,831 respectively.
21. COMMITMENTS AND CONTINGENCIES
Contingencies
The Group is subject to period legal or administrative proceedings in the ordinary course of business. The Group does not
believe that any currently pending legal, except for the legal proceeding disclosed below, or administrative proceeding to which the
Group is a party will have a material effect on its business or financial condition.
Legal proceedings
As disclosed in Note 2, in 2019, the Company partnered with PICC under the direct lending program. In November 2019, PICC
stopped paying service fees as agreed in the Cooperation Agreement. PICC further disputed with the Group regarding payments of the
service fees under the Cooperation Agreement.
The Group has suspended its cooperation with PICC on new loans under its direct lending program since December 2019 and
has entered into agreements with other financing guarantee companies in providing guarantee services to the institutional funding
partners.
In May 2020, the Group commenced a legal proceeding against PICC by submitting a complaint with a local court in Beijing
for contract non-performance under the Cooperation Agreement. The Group, together with its legal counsel of the case has determined
that PICC has breached its contractual obligation under the Cooperation Agreement for not paying service fees that were due to the
Group under the direct lending program. The Group is seeking payments of approximately RMB2.3 billion from PICC to cover the
outstanding service fees and related late payment losses. After the Group’s legal action was filed against PICC, PICC filed a civil lawsuit
against the Group at a local court in Guangzhou claiming that the second amendment under the Cooperation Agreement is invalid, and
therefore PICC is not obligated to pay any outstanding service fees and that a portion of the service fees paid to the Group under the
Cooperation Agreement plus accrued interest should be refunded to PICC. After several rounds of jurisdictional objections, the case was
finally heard by the local court in Beijing in December 2020. As of the date of this report, the Group is still waiting for court hearing by
the local court in Beijing.
The Group is vigorously asserting its rights against PICC and will defend itself against any claims brought against the Group by
PICC in the legal proceeding. The Group obtained a legal opinion from a law firm in Beijing who believes that the Group’s claim should
have judicial support. As of the date of this report, the legal matter remains at the preliminary stage, and it is not possible at this stage to
ascertain the outcome of the lawsuit.
As of the date of this report, the Group is involved in 63 civil cases, disputes involving private lending guarantee, performance
infringement, and labor arbitration; the amounts in disputes are approximately RMB48.8 million, RMB5.4 million, RMB1.4 million, and
RMB1.1 million, respectively.The cases are at preliminary stage, and it is not possible at this stage to ascertain the outcome of any of the
lawsuits.
F-53
Table of Contents
Beginning in September 2020, the Group and certain of our current and former officers, directors and others were named as
defendants in various putative securities class actions captioned In re 9F Inc. Securities Litigation, Index No. 654654/2020 (Supreme
Court of the State of New York County of New York, Amended Complaint filed Dec. 7, 2020) (the “State Court Action”) and Holland v.
9F Inc. et al., No. 2:21-cv-00948 (United States District Court for the District of New Jersey, filed Jan. 20, 2021) (the “Federal Court
Action”). Both actions allege that defendants made misstatements and omissions in connection with the Company's initial public offering
in August 2019 in violation of the federal securities laws. On April 21, 2021, the parties completed briefing on Defendants’ Motion to
Dismiss the State Court Action, and a decision is currently pending. Both cases remain in their preliminary stages.
22. SUBSEQUENT EVENTS
The Group has reviewed its subsequent events through May 17, 2021, the date these consolidated financial statements were
issued and has determined that other than the following paragraph and matter discussed in Note 21, no material subsequent events have
occurred that require recognition in or disclosure to the consolidated financial statements.
The Group early terminated an office lease contract with terms from October 1, 2018 to September 30, 2021 in Beijing on
March 3,2021 due to its decision to exit its business operations. According to the termination agreement, the Group was required to pay
RMB10 million for the default and restoration. The Group paid the RMB10 million on March 26, 2021.
COVID-19 impacts
Starting from January 2020, a novel strain of coronavirus, COVID-19, has spread worldwide. As COVID-19 has negatively
affected the broader Chinese economy and the global economy, China has experienced lower domestic consumption in the first half of
2020, and may experience further economic uncertainty, which may also impact us in a materially negative way. Starting from the fourth
quarter of 2020 and extending to the first quarter of 2021, a few waves of COVID-19 infections emerged in various regions of China, and
varying levels of travel restrictions were reinstated. Our business has been and is likely to continue to be materially adversely affected by
the outbreak of COVID-19 in China.
F-54
Table of Contents
9F Inc.
SCHEDULE 1-CONDENSED BALANCE SHEETS
(PARENT COMPANY ONLY)
(Amounts in thousands except for number of shares and per share data, or otherwise noted)
December 31, December 31, December 31,
2020
RMB
2019
RMB
2020
US$
Assets:
Cash and cash equivalents
Amounts due from subsidiaries and VIEs
Other receivables
Prepaid expenses and other assets
Investments in subsidiaries and VIEs
Total assets
Liabilities:
Accrued expense and other liability
Amounts due to subsidiaries and VIEs
Total liabilities
Shareholders’ Equity:
Class A ordinary shares (US$0.00001 par value; 4,600,000,000 shares authorized; 128,228,600 and 142,348,281
shares issued and outstanding as of December 31, 2019 and 2020, respectively)
Class B ordinary shares (US$0.00001 par value; 200,000,000 shares authorized; 66,962,400 and 61,162,400 shares
issued and outstanding as of December 31, 2019 and 2020, respectively)
Additional paid-in capital
Retained earnings (deficit)
Accumulated other comprehensive income
Total shareholders’equity
Total liabilities and shareholders’ equity
814,089
1,061,026
377
8,707
4,406,243
6,290,442
—
9,659
9,659
1
1
5,241,296
947,265
92,220
6,280,783
6,290,442
778,097
892,472
653
2,080
2,503,999
4,177,301
8,684
39
8,723
1
1
5,531,926
(1,356,397)
(6,953)
4,168,578
4,177,301
119,249
136,877
100
219
383,755
640,200
1,331
6
1,337
—
—
847,805
(207,877)
(1,066)
638,863
640,200
F-55
Table of Contents
9F Inc.
SCHEDULE 1-CONDENSED STATEMENTS OF OPERATIONS
(PARENT COMPANY ONLY)
(Amounts in thousands except for number of shares and per share data, or otherwise noted)
Equity in earnings (loss) of subsidiaries and VIEs
Operating costs and expenses
Provision for contract assets and receivables
Interest income
Impairment loss of investments
Other income, net
Net income (loss)
Net income (loss) per ordinary share
Basic
Diluted
Weighted average number of ordinary shares used in computing net
income (loss) per ordinary share
Year ended
December 31,
2018
RMB
2,495,935
(514,144)
—
13
—
—
1,981,804
Year ended
December 31,
2019
RMB
(1,777,756)
(371,063)
(691)
4,601
(20,724)
6,057
(2,159,576)
Year ended
December 31,
2020
RMB
(1,855,047)
(333,427)
—
12,183
(97,892)
15,288
(2,258,895)
Year ended
December 31,
2020
US$
(284,298)
(51,100)
—
1,867
(15,003)
2,343
(346,191)
10.57
9.41
(12.43)
(12.43)
(11.37)
(11.37)
(1.74)
(1.74)
Basic
Diluted
162,672,800 174,552,468 198,596,879 198,596,879
185,735,200 174,552,468 198,596,879 198,596,879
F-56
Table of Contents
9F Inc.
SCHEDULE 1—CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(PARENT COMPANY ONLY)
(Amounts in thousands except for number of shares and per share data, or otherwise noted)
Net income (loss)
Other comprehensive income
Year ended Year ended Year ended Year ended
December 31, December 31, December 31, December 31,
2018
RMB
1,981,804
2019
RMB
(2,159,576)
2020
RMB
(2,258,895)
2020
US$
(346,191)
Foreign currency transaction adjustments
Unrealized gains (losses) on available-for-sale investments
Comprehensive Income (Loss)
84,430
(1,146)
2,065,088
12,126
(99)
(2,147,549)
(97,245)
—
(2,356,140)
(14,903)
—
(361,094)
F-57
Table of Contents
9F Inc.
SCHEDULE 1—CONDENSED STATEMENTS of CASH FLOW
(PARENT COMPANY ONLY)
(Amounts in thousands except for number of shares and per share data, or otherwise noted)
Cash Flows from Operating Activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Equity in earnings (loss) of subsidiaries and VIEs
Share‑based compensation expense
Impairment loss of equity securities without readily determinable fair value
Gain from disposal of equity securities without readily determinable fair
value
Changes in operating assets and liabilities:
Other receivables
Prepaid expenses and other assets
Accrued expense and other liabilities
Amounts due to subsidiaries and VIEs
Amounts due from subsidiaries and VIEs
Net cash provided by (used in) operating activities
Cash Flows from Investing Activities:
Investment in subsidiaries
Loan to related parties
Proceeds from repayment of related parties
Disposal of long-term investments
Net cash provided by (used in) investing activities
Cash Flows from Financing Activities:
Proceeds from exercise of share options
Proceeds from convertible redeemable preferred shares
Net proceeds from initial public offering and from exercising the over—
allotment option by the underwriters(net of issuance cost of RMB31,776)
Net cash provided by financing activities
Effect of exchange rate changes
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
F-58
Year ended
Year ended
Year ended
Year ended
December 31, December 31, December 31, December 31,
2018
RMB
2019
RMB
2020
RMB
2020
US$
1,981,804
(2,159,576)
(2,258,895)
(346,191)
(2,495,935)
508,162
—
—
1,777,756
353,151
20,725
1,855,047
290,630
97,892
284,298
44,541
15,003
(6,057)
—
—
—
(550)
3,551
(43)
(707,308)
(710,319)
—
(137,510)
—
—
(137,510)
—
544,785
—
544,785
87,448
(215,596)
361,047
145,451
(377)
(8,020)
(3,551)
9,659
131,387
115,097
(69,149)
—
138,163
8,289
77,303
—
6,667
5,901
(147)
45,654
42,749
18,774
(97,515)
—
—
(72,840)
—
1,022
904
(23)
6,997
6,552
2,877
(14,945)
—
—
(11,163)
—
—
—
—
—
—
463,065
463,065
13,173
668,638
145,451
814,089
—
—
(122,247)
(152,338)
814,089
661,751
—
—
18,735
(23,347)
124,765
101,418
Table of Contents
9F Inc.
SCHEDULE 1— NOTES TO CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY
(PARENT COMPANY ONLY)
1. Schedule I has been provided pursuant to the requirements of Rule 12-04 and 5-04(c) of Regulation S-X, which require condensed
financial information as to the financial position, changes in financial position and results of operations of a parent company as of
the same dates and for the same periods for which audited consolidated financial statements have been presented when the restricted
net assets of consolidated subsidiaries exceed 25 percent of consolidated net assets as of the end of the most recently completed
fiscal year.
2. The condensed financial information of 9F Inc. has been prepared using the same accounting policies as set out in the accompanying
consolidated financial statements except that the equity method has been used to account for investments in its subsidiaries, VIE and
the VIEs subsidiaries.
3. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP
have been condensed or omitted. The footnote disclosures contain supplemental information relating to the operations of the Group
and, as such, these statements should be read in conjunction with the notes to the Consolidated Financial Statements of the Group.
No dividends were paid by the Group’s subsidiaries to their parent company in 2018, 2019 and 2020.
4. As of December 31, 2020, there were no material contingencies, significant provisions of long-term obligations, and mandatory
dividend or redemption requirements of redeemable shares or guarantees of the Group, except for those which have been separately
disclosed in the Consolidated Financial Statements, if any.
F-59
Master Exclusive Service Agreement
Exhibit 4.5
This Master Exclusive Service Agreement (this “Agreement”) is made and entered into by and between the following parties
on [Execution Date] in Beijing, the People’s Republic of China (“China” or the “PRC”):
Party A:
Address:
Party B:
Address:
[Name of WFOE]
[WFOE’s Address]
[Name of VIE]
[VIE’s Address]
Each of Party A and Party B shall be hereinafter referred to as a “Party” respectively, and as the “Parties” collectively.
WHEREAS,
1.
2.
3.
Party A is a wholly foreign owned enterprise established in China, and has the necessary resources to provide technical and
consulting services;
Party B is a company established in China with exclusively domestic capital and is permitted to engage in consulting and
service business by relevant PRC government authorities. The businesses conducted by Party B currently and any time during
the term of this Agreement are collectively referred to as the “Principal Business”;
Party A is willing to provide Party B with technical support, consulting services and other services on exclusive basis in relation
to the Principal Business during the term of this Agreement, utilizing its advantages in technology, human resources, and
information, and Party B is willing to accept such services provided by Party A or Party A’s designee(s), each on the terms set
forth herein.
NOW, THEREFORE, through mutual discussion, the Parties have reached the following agreements:
1.
Services Provided by Party A
1.1
Party B hereby appoints Party A as Party B’s exclusive services provider to provide Party B with comprehensive
technical support, consulting services and other services during the term of this Agreement, in accordance with the
terms and conditions of this Agreement, including but not limited to the follows:
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Licensing Party B to use any software legally owned by Party A;
Development, maintenance and update of software involved in Party B’s business;
Design, installation, daily management, maintenance and updating of network system, hardware and database;
Technical support and training for employees of Party B;
Assisting Party B in consultancy, collection and research of technology and market information (excluding
market research business that wholly foreign owned enterprises are prohibited from conducting under PRC
law);
Providing business management consultation for Party B;
Providing marketing and promotion services for Party B;
(8)
(9)
Providing customer order management and customer services for Party B;
Leasing of equipments or properties; and
(10)
Other services requested by Party B from time to time to the extent permitted under PRC law.
1.2
Party B agrees to accept all the services provided by Party A. Party B further agrees that unless with Party A’s prior
written consent, during the term of this Agreement, Party B shall not directly or indirectly accept the same or any
similar services provided by any third party and shall not establish similar corporation relationship with any third party
regarding the matters contemplated by this Agreement. Party A may appoint other parties, who may enter into certain
agreements described in Section 1.3 with Party B, to provide Party B with the services under this Agreement.
1.3
Service Providing Methodology
1.3.1
1.3.2
1.3.3
Party A and Party B agree that during the term of this Agreement, where necessary, Party B may enter into
further service agreements with Party A or any other party designated by Party A, which shall provide the
specific contents, manner, personnel, and fees for the specific services.
To fulfill this Agreement, Party A and Party B agree that during the term of this Agreement, where necessary,
Party B may enter into equipment or property leases with Party A or any other party designated by Party A
which shall permit Party B to use Party A’s relevant equipment or property based on the needs of the business
of Party B.
Party B hereby grants to Party A an irrevocable and exclusive option to purchase from Party B, at Party A’s
sole discretion, any or all of the assets and business of Party B, to the extent permitted under PRC law, at the
lowest purchase price permitted by PRC law. The Parties shall then enter into a separate assets or business
transfer agreement, specifying the terms and conditions of the transfer of the assets.
2.
The Calculation and Payment of the Service Fees
2.1
The fees payable by Party B to Party A during the term of this Agreement shall be calculated as follows:
2.1.1
As requested by Party A, Party B shall pay service fee to Party A in each month. Party A may determine and
adjust the service fee at its sole discretion by considering the following factors and with reference to the
working capital requirements of Party B. Party B shall accept such determination and adjustments.
(1)
(2)
(3)
(4)
(5)
Complexity and difficulty of the services provided by Party A;
Title of and time consumed by employees of Party A providing the services;
Contents and value of the services provided by Party A;
Market price of the same type of services;
Operation conditions of the Party B.
2
2.1.2
On the premise of complying with the PRC law, Party A agrees that, during the term of this agreement, it is
entitled to and responsible for all economic benefits and risks derived by Party B. If any operating loss or
critical operation adversity occurs in Party B, Party A shall provide financial support to Party B, and only
Party A can decide whether Party B should continue its operation and Party B shall unconditionally accept
and execute the decision made by Party A as aforesaid.
2.1.3
If Party A transfers technology to Party B or develops software or other technology as entrusted by Party B or
leases equipments or properties to Party B, the technology transfer price, development fees or rent shall be
determined by the Parties based on the actual situations.
3.
Intellectual Property Rights and Confidentiality Clauses
3.1
3.2
Party A shall have exclusive and proprietary ownership, rights and interests in any and all intellectual properties arising
out of or created during the performance of this Agreement, including but not limited to copyrights, patents, patent
applications, software, technical secrets, trade secrets and others. Party B shall execute all appropriate documents, take
all appropriate actions, submit all filings and/or applications, render all appropriate assistance and otherwise conduct
whatever is necessary as deemed by Party A at its sole discretion for the purposes of vesting any ownership, right or
interest of any such intellectual property rights in Party A, and/or perfecting the protections for any such intellectual
property rights in Party A.
The Parties acknowledge that the existence and the terms of this Agreement and any oral or written information
exchanged between the Parties in connection with the preparation and performance of this Agreement are regarded as
confidential information. Each Party shall maintain confidentiality of all such confidential information, and without
obtaining the written consent of the other Party, it shall not disclose any relevant confidential information to any third
party, except for the information that: (a) is or will be in the public domain (other than through the receiving Party’s
unauthorized disclosure); (b) is under the obligation to be disclosed pursuant to the applicable laws or regulations,
rules of any stock exchange, or orders of the court or other government authorities; or (c) is required to be disclosed by
any Party to its shareholders, directors, employees, legal counsels or financial advisors regarding the transaction
contemplated hereunder, provided that such shareholders, directors, employees, legal counsels or financial advisors
shall be bound by the confidentiality obligations similar to those set forth in this Section. Disclosure of any
confidential information by the shareholders, director, employees of or agencies engaged by any Party shall be deemed
disclosure of such confidential information by such Party and such Party shall be held liable for breach of this
Agreement. This Section shall survive the termination of this Agreement for any reason.
4.
Representations and Warranties
4.1
Party A hereby represents, warrants and covenants as follows:
4.1.1
4.1.2
Party A is a wholly foreign owned enterprise legally established and validly existing in accordance with the
laws of China; Party A or the service providers designated by Party A will obtain all government permits and
licenses for providing the service under this Agreement before providing such services.
Party A has taken all necessary corporate actions, obtained all necessary authorizations as well as all consents
and approvals from third parties and government agencies (if required) for the execution, delivery and
performance of this Agreement. Party A’s execution, delivery and performance of this Agreement do not
violate any explicit requirements under any law or regulation.
4.1.3
This Agreement constitutes Party A’s legal, valid and binding obligations, enforceable against it in accordance
with its terms.
3
4.2
Party B hereby represents, warrants and covenants as follows:
4.2.1
4.2.2
Party B is a company legally established and validly existing in accordance with the laws of China and has
obtained and will maintain all permits and licenses for engaging in the Principal Business in a timely manner.
Party B has taken all necessary corporate actions, obtained all necessary authorizations as well as all consents
and approvals from third parties and government agencies (if required) for the execution, delivery and
performance of this Agreement. Party B’s execution, delivery and performance of this Agreement do not
violate any explicit requirements under any law or regulation.
4.2.3
This Agreement constitutes Party B’s legal, valid and binding obligations, and shall be enforceable against it
in accordance with its terms.
5.
Term of Agreement
5.1
5.2
5.3
This Agreement shall become effective upon execution by the Parties. Unless terminated in accordance with the
provisions of this Agreement or terminated in writing by Party A, this Agreement shall remain effective.
During the term of this Agreement, each Party shall renew its operation term prior to the expiration thereof so as to
enable this Agreement to remain effective. This Agreement shall be terminated upon the expiration of the operation
term of a Party if the application for renewal of its operation term is not approved by relevant government authorities.
The rights and obligations of the Parties under Sections 3, 6, 7 and this Section 5.3 shall survive the termination of this
Agreement.
6.
Governing Law and Resolution of Disputes
6.1
6.2
6.3
The execution, effectiveness, construction, performance, amendment and termination of this Agreement and the
resolution of disputes hereunder shall be governed by the laws of China.
In the event of any dispute with respect to the construction and performance of this Agreement, the Parties shall first
resolve the dispute through friendly negotiations. In the event the Parties fail to reach an agreement on the dispute
within 30 days after either Party’s request to the other Party for resolution of the dispute through negotiations, either
Party may submit the relevant dispute to the China International Economic and Trade Arbitration Commission for
arbitration, in accordance with its arbitration rules. The arbitration shall be conducted in Beijing, and the language
used during arbitration shall be Chinese. The arbitration award shall be final and binding on both Parties.
Upon the occurrence of any disputes arising from the construction and performance of this Agreement or during the
pending arbitration of any dispute, except for the matters under dispute, the Parties shall continue to exercise their
respective rights under this Agreement and perform their respective obligations under this Agreement.
7.
Breach of Agreement and Indemnification
7.1
7.2
If Party B conducts any material breach of any term of this Agreement, Party A shall have right to terminate this
Agreement and/or require Party B to indemnify all damages; this Section 7.1 shall not prejudice any other rights of
Party A herein.
Unless otherwise required by applicable laws, Party B shall not have any right to terminate this Agreement in any
event.
4
7.3
Party B shall indemnify and hold harmless Party A from any losses, injuries, obligations or expenses caused by any
lawsuit, claims or other demands against Party A arising from or caused by the services provided by Party A to Party B
pursuant to this Agreement, except where such losses, injuries, obligations or expenses arise from the gross negligence
or willful misconduct of Party A.
8.
Force Majeure
8.1
8.2
In the case of any force majeure events (“Force Majeure”) such as earthquake, typhoon, flood, fire, flu, war, strikes or
any other events that cannot be predicted and are unpreventable and unavoidable by the affected Party, which directly
or indirectly causes the failure of either Party to perform or completely perform this Agreement, then the Party affected
by such Force Majeure shall give the other Party written notices without any delay, and shall provide details of such
event within 15 days after sending out such notice, explaining the reasons for such failure of, partial or delay of
performance.
If such Party claiming Force Majeure fails to notify the other Party and furnish it with proof pursuant to the above
provision, such Party shall not be excused from the non-performance of its obligations hereunder. The Party so
affected by the event of Force Majeure shall use reasonable efforts to minimize the consequences of such Force
Majeure and to promptly resume performance hereunder whenever the causes of such excuse are cured. Should the
Party so affected by the event of Force Majeure fail to resume performance hereunder when the causes of such excuse
are cured, such Party shall be liable to the other Party.
8.3
In the event of Force Majeure, the Parties shall immediately consult with each other to find an equitable solution and
shall use all reasonable endeavors to minimize the consequences of such Force Majeure.
9.
Notices
9.1
All notices and other communications required or permitted to be given pursuant to this Agreement shall be delivered
personally or sent by registered mail, postage prepaid, by a commercial courier service or by facsimile transmission to
the address of such Party set forth below. A confirmation copy of each notice shall also be sent by email. The dates
on which notices shall be deemed to have been effectively given shall be determined as follows:
9.1.1
9.1.2
Notices given by personal delivery, by courier service or by registered mail, postage prepaid, shall be deemed
effectively given on the date of delivery or refusal at the address specified for notices.
Notices given by facsimile transmission shall be deemed effectively given on the date of successful
transmission (as evidenced by an automatically generated confirmation of transmission).
9.2
For the purpose of notices, the addresses of the Parties are as follows:
Party A:
[Name of WFOE]
Address:
[WFOE’s Address]
Attn:
Phone:
5
Party B:
[Name of VIE]
Address:
[VIE’s Address]
Attn:
Phone:
9.3
Any Party may at any time change its address for notices by a notice delivered to the other Party in accordance with the
terms hereof.
10.
Assignment
10.1 Without Party A’s prior written consent, Party B shall not assign its rights and obligations under this Agreement to any
third party.
10.2
Party B agrees that Party A may assign its obligations and rights under this Agreement to any third party and in case of
such assignment, Party A is only required to give written notice to Party B and does not need any consent from Party B
for such assignment.
11.
Severability
In the event that one or several of the provisions of this Agreement are found to be invalid, illegal or unenforceable in any
aspect in accordance with any laws or regulations, the validity, legality or enforceability of the remaining provisions of this
Agreement shall not be affected or compromised in any aspect. The Parties shall negotiate in good faith to replace such invalid,
illegal or unenforceable provisions with effective provisions that accomplish to the greatest extent permitted by law and the
intentions of the Parties, and the economic effect of such effective provisions shall be as close as possible to the economic effect
of those invalid, illegal or unenforceable provisions.
12.
Amendments and Supplements
Any amendments and supplements to this Agreement shall be in writing. The amendment agreements and supplementary
agreements that have been signed by the Parties and relate to this Agreement shall be an integral part of this Agreement and
shall have the same legal validity as this Agreement.
13.
Language and Counterparts
This Agreement is written in both Chinese and English language in two copies, each Party having one copy with equal legal
validity; in case there is any conflict between the Chinese version and English version, the Chinese version shall prevail.
[Signature Page Follows]
6
IN WITNESS WHEREOF, the Parties have caused their authorized representatives to execute this Master Exclusive Service
Agreement as of the date first above written.
Party A:
[Name of WFOE]
By:
Name:
Title:
Party B:
[Name of VIE]
By:
Name:
Title:
[Signature Page to Master Exclusive Service Agreement]
Schedule of Material Differences
Five VIE entities as set out below entered into master exclusive service agreement with WFOEs using this form, respectively. Pursuant to
Instruction ii to Item 601 of Regulation S-K, the Registrant may only file this form as an exhibit with a schedule setting forth the material
details in which the executed agreements differ from this form:
No.
1
2
3
4
5
Name of Variable Interest Entity (the “VIE”)
Jiufu Shuke Technology Group Co., Ltd.(formerly known as Beijing
Jiufu Times Investment Consulting Co., Ltd., Jiufu Internet Finance
Holdings Group Co., Ltd., and Jiufu Jinke Holdings Group Co., Ltd.,
successively)
Beijing Puhui Lianyin Information Technology Co., Ltd.
Shenzhen Fuyuan Network Technology Co., Ltd.
Beijing Yi Qi Mai Technology Co., Ltd. (formerly known as Beijing
Chaoka Internet Technology Co., Ltd. and Beijing Wu Kong Mao
Technology Co., Ltd.)
Zhuhai Huike Lianyin Technology Co., Ltd.
Name of WFOE
Beijing Jiufu Lianyin
Technology Co., Ltd.
Execution Date
August 25, 2014
Beijing Jiufu Lianyin
Technology Co., Ltd.
Qianhai Fuyuan Network
Technology (Shenzhen)
Co., Ltd.
Zhuhai Wukong Youpin
Technology Co., Ltd.
August 25, 2014
March 4, 2021
February 28, 2021
Zhuhai Xiaojin Hulian
Technology Co., Ltd.
April 20, 2020
8
Exclusive Option Agreement
Exhibit 4.6
This Exclusive Option Agreement (this “Agreement”) is executed by and among the Parties below as of [Execution Date] in
Beijing, the People’s Republic of China (“China” or the “PRC”):
Party A:
Address:
Party B:
ID No.:
Party C:
Address:
Party D:
Address:
[Name of the Registrant]
[Address of the Registrant]
[Name of the VIE Shareholder]
[Name of the VIE]
[Address of the VIE]
[Name of the WFOE]
[Address of the WFOE]
In this Agreement, each of Party A, Party B, Party C and Party D shall be referred to as a “Party” respectively, and they shall
be collectively referred to as the “Parties”.
WHEREAS:
1.
2.
3.
4.
1.
1.1
Party A is a company established in the Cayman Islands and holds 100% of the equity interests of Party D.
Party B is a shareholder of Party C and as of the date hereof holds [●]% of the equity interests of Party C, representing RMB[●]
in the registered capital of Party C.
Party D entered into an equity interest pledge agreement (the “Party B’s Equity Interest Pledge Agreement”) and a proxy
agreement and power of attorney (the “Party B’s Power of Attorney”) with Party B and Party C on the execution date of this
Agreement; Party D entered into a loan agreement (the “Loan Agreement”) with Party B on the execution date of this
Agreement.
Party B agrees to grant Party A an exclusive right through this Agreement, and Party A agrees to accept such exclusive right to
purchase all or part of equity interest held by Party B in Party C.
NOW, THEREFORE, through consultation and negotiation, the Parties have reached the following agreement:
SALE AND PURCHASE OF EQUITY INTEREST
Option Granted
In consideration of the payment of RMB10 by Party A, the receipt and adequacy of which is hereby acknowledged by Party B,
Party B hereby irrevocably grants Party A an irrevocable and exclusive right to purchase, or designate one or more persons
(each, a “Designee”) to purchase, the equity interests in Party C then held by Party B once or at multiple times at any time in
part or in whole at Party A’s sole and absolute discretion to the extent permitted by Chinese laws and at the price described in
Section 1.3 herein (such right being the “Equity Interest Purchase Option”). Except for Party A and the Designee(s), no other
person shall be entitled to the Equity Interest Purchase Option or other rights with respect to the equity interests in Party C held
by Party B. Party C hereby agrees to the grant by Party B of the Equity Interest Purchase Option to Party A. The term “person”
as used herein shall refer to individuals, corporations, partnerships, partners, enterprises, trusts or non-corporate organizations.
1.2
Steps for Exercise of Equity Interest Purchase Option
1.2.1
1.2.2
Concurrently with the execution of this Agreement, Party B shall execute and deliver to Party A one equity interest transfer
agreement in the format set forth in Exhibit 1 attached hereto.
Subject to the provisions of the laws and regulations of China, Party A may exercise the Equity Interest Purchase Option by
issuing a written notice to Party B (the “Equity Interest Purchase Notice”), specifying: (a) Party A’s decision to exercise the
Equity Interest Purchase Option; (b) the portion of equity interests to be purchased from Party B (the “Optioned Interests”);
and (c) the date for purchasing the Optioned Interests. Party B and Party C shall furnish all materials and documents necessary
for the registration of the said share transfer within seven (7) days after the date of Equity Interest Purchase Notice.
1.3
Equity Interest Purchase Price
The purchase price of the purchased price of the Optioned Interests (the “Base Price”) shall be RMB[•]. If PRC law requires a
minimum price higher than the Base Price when Party A exercises Equity Interest Purchase Option, the minimum price
regulated by PRC law shall be the purchase price (collectively, the “Equity Interest Purchase Price”).
1.4
Transfer of Optioned Interests
For each exercise of the Equity Interest Purchase Option by Party A:
1.4.1
1.4.2
1.4.3
1.4.4
1.4.5
Party C shall and Party B shall cause Party C to promptly convene a shareholders meeting, at which a resolution shall be
adopted approving Party B’s transfer of the Optioned Interests to Party A and/or the Designee(s);
Party B shall obtain written statements from the other shareholders of Party C giving consent to the transfer of the equity
interests to Party A and/or the Designee(s) and waiving any right of first refusal related thereto;
If at the time of exercising the Equity Interest Purchase Option, more than one shareholder hold equity interests in Party C, each
of Party B and Party C shall cause such other shareholders to provide their written consent to the transfer of the Optioned
Interests to Party A and/or the Designee(s) and to waive any preemptive right related thereto;
Party B shall execute an equity interest transfer agreement with respect to each transfer with Party A and/or each Designee
(whichever is applicable), in accordance with the provisions of this Agreement and the Equity Interest Purchase Notice
regarding the Optioned Interests and the format set forth in Exhibit 1 attached hereto;
The relevant Parties shall execute all other necessary contracts, agreements or documents, obtain all necessary government
licenses and permits and take all necessary actions to transfer valid ownership of the Optioned Interests to Party A and/or the
Designee(s), unencumbered by any security interests, and cause Party A and/or the Designee(s) to become the registered
owner(s) of the Optioned Interests. For the purpose of this Section and this Agreement, “security interests” shall include
securities, mortgages, third party’s rights or interests, any stock options, acquisition right, right of first refusal, right to offset,
ownership retention or other security arrangements, but shall be deemed to exclude any security interest created by this
Agreement, Party B’s Equity Interest Pledge Agreement and Party B’s Power of Attorney.
1.5
Payment of the Equity Interest Purchase Price
The Parties have agreed in the Loan Agreement that any proceeds obtained by Party B through the transfer of its equity interests
in Party C shall be used for repayment of the loan provided by Party D in accordance with the Loan Agreement. Accordingly, if
Party A designates Party D as the Designee, upon exercise of the Equity Interest Purchase Option, Party D may elect to make
payment of the Equity Interest Purchase Price through cancellation of the outstanding amount of the loan owed by Party B to
Party D, in which case Party A or Party D shall not be required to pay any additional purchase price to Party B, unless the
Equity Interest Purchase Price set forth herein is required to be adjusted in accordance with the applicable laws and regulations.
2
2.
2.1
COVENANTS
Covenants regarding Party C
Party B (as a shareholder of Party C) and Party C hereby covenant as follows:
2.1.1 Without the prior written consent of Party A, they shall not in any manner supplement, change or amend the articles of
association and bylaws of Party C, increase or decrease its registered capital, or change its structure of registered capital in other
manners;
2.1.2
They shall maintain Party C’s corporate existence in accordance with good financial and business standards and practices by
prudently and effectively operating its business and handling its affairs;
2.1.3 Without the prior written consent of Party A, they shall not at any time following the date hereof, sell, transfer, mortgage or
dispose of in any manner any assets of Party C or legal or beneficial interest in the business or revenues of Party C, or allow the
encumbrance thereon of any security interest;
2.1.4 Without the prior written consent of Party A, they shall not incur, inherit, guarantee or suffer the existence of any debt, except
for payables incurred in the ordinary course of business other than through loans;
2.1.5
They shall always operate all of Party C’s businesses within the ordinary course of business to maintain the asset value of Party
C and refrain from any action/omission that may affect Party C’s operating status and asset value;
2.1.6 Without the prior written consent of Party A, they shall not cause Party C to execute any major contract, except the contracts in
the ordinary course of business (for purpose of this subsection, a contract with a value exceeding RMB500,000 shall be deemed
a major contract);
2.1.7 Without the prior written consent of Party A, they shall not cause Party C to provide any person with any loan or credit;
2.1.8
They shall provide Party A with information on Party C’s business operations and financial condition at Party A’s request;
2.1.9
If requested by Party A, Party C shall procure and maintain, at its own cost, insurance in respect of Party C’s assets and business
from an insurance carrier acceptable to Party A, at an amount and type of coverage typical for companies that operate similar
businesses;
2.1.10 Without the prior written consent of Party A, they shall not cause or permit Party C to merge, consolidate with, acquire or invest
in any person;
2.1.11 They shall immediately notify Party A of the occurrence or possible occurrence of any litigation, arbitration or administrative
proceedings relating to Party C’s assets, business or revenue;
2.1.12 To maintain the ownership by Party C of all of its assets, they shall execute all necessary or appropriate documents, take all
necessary or appropriate actions and file all necessary or appropriate complaints or raise necessary and appropriate defenses
against all claims;
2.1.13 Without the prior written consent of Party A, they shall ensure that Party C shall not in any manner distribute dividends to its
shareholders, provided that upon Party A’s written request, Party C shall immediately distribute all distributable profits to its
shareholders;
3
2.1.14 At the request of Party A, they shall appoint any persons designated by Party A as directors of Party C;
2.1.15 Without Party A’s prior written consent, they shall not engage in any business in competition with Party A or its affiliates; and
2.1.16 Unless otherwise required by PRC law, Party C shall not be dissolved or liquated without prior written consent by Party A.
2.2
Other Covenants
Party B hereby covenants as follows:
2.2.1 Without the prior written consent of Party A, Party B shall not sell, transfer, mortgage or dispose of in any other manner any
legal or beneficial interest in the equity interests in Party C held by Party B, or allow the encumbrance thereon of any security
interest, except for the pledge placed on these equity interests in accordance with Party B’s Equity Interest Pledge Agreement;
2.2.2
2.2.3
2.2.4
2.2.5
2.2.6
Party B shall cause the shareholders’ meeting and/or the board of directors of Party C not to approve the sale, transfer, mortgage
or disposition in any other manner of any legal or beneficial interest in the equity interests in Party C held by Party B, or allow
the encumbrance thereon of any security interest, without the prior written consent of Party A, except for the pledge placed on
these equity interests in accordance with Party B’s Equity Interest Pledge Agreement and Party B’s Power of Attorney;
Party B shall cause the shareholders’ meeting or the board of directors of Party C not to approve the merger or consolidation
with any person, or the acquisition of or investment in any person, without the prior written consent of Party A;
Party B shall immediately notify Party A of the occurrence or possible occurrence of any litigation, arbitration or administrative
proceedings relating to the equity interests in Party C held by Party B;
Party B shall cause the shareholders’ meeting or the board of directors of Party C to vote their approval of the transfer of the
Optioned Interests as set forth in this Agreement and to take any and all other actions that may be requested by Party A;
To the extent necessary to maintain Party B’s ownership in Party C, Party B shall execute all necessary or appropriate
documents, take all necessary or appropriate actions and file all necessary or appropriate complaints or raise necessary and
appropriate defenses against all claims;
2.2.7
Party B shall appoint any designee of Party A as director of Party C, at the request of Party A;
2.2.8
Party B hereby waives its right of first refusal in regards to the transfer of equity interest by any other shareholder of Party C to
Party A (if any), and gives consent to the execution by each other shareholder of Party C with Party A and Party C the exclusive
option agreement, the share pledge agreement and the power of attorney similar to this Agreement, Party B’s Equity Interest
Pledge Agreement, and Party B’s Power of Attorney, and undertakes not to take any actions in conflict with such documents
executed by the other shareholders;
2.2.9
Party B shall promptly donate any profits, interests, dividends, or proceeds of liquidation or proceeds from transferring equity
interest held by Party B in Party C to Party A or any other person designated by Party A to the extent permitted under the
applicable PRC laws; and
2.2.10 Party B shall strictly abide by the provisions of this Agreement and other contracts jointly or separately executed by Party B and
Party C with Party D, perform the obligations hereunder and thereunder, and refrain from any action/omission that may affect
the effectiveness and enforceability thereof. To the extent that Party B has any remaining rights with respect to the equity
interests subject to this Agreement hereunder or under Party B’s Equity Interest Pledge Agreement among the same parties
hereto or under Party B’s Power of Attorney, Party B shall not exercise such rights except in accordance with the written
instructions of Party A.
4
3.
REPRESENTATIONS AND WARRANTIES
Party B and Party C hereby represent and warrant to Party A, jointly and severally, as of the date of this Agreement and each
date of transfer of the Optioned Interests, that:
They have the authority to execute and deliver this Agreement and any equity interest transfer agreements to which they are
parties concerning the Optioned Interests to be transferred thereunder (each, a “Transfer Contract”), and to perform their
obligations under this Agreement and any Transfer Contracts. Party B and Party C agree to enter into equity interest transfer
agreements in the format set forth in Exhibit 1 attached hereto upon Party A’s exercise of the Equity Interest Purchase Option.
This Agreement and the equity interest transfer agreements constitute or will constitute their legal, valid and binding obligations
and shall be enforceable against them in accordance with the provisions thereof;
Party B and Party C have obtained any and all approvals and consents from the relevant government authorities and third parties
(if required) for the execution, delivery, and performance of this Agreement;
The execution and delivery of this Agreement or any Transfer Contracts and the obligations under this Agreement or any
Transfer Contracts shall not: (i) cause any violation of any applicable PRC laws; (ii) be inconsistent with the articles of
association, bylaws or other organizational documents of Party C; (iii) cause the violation of any contracts or instruments to
which they are a party or which are binding on them, or constitute any breach under any contracts or instruments to which they
are a party or which are binding on them; (iv) cause any violation of any condition for the grant and/or continued effectiveness
of any licenses or permits issued to either of them; or (v) cause the suspension or revocation of or imposition of additional
conditions to any licenses or permits issued to either of them;
Party B has a good and merchantable title to the equity interests in Party C he holds. Except for Party B’s Equity Interest Pledge
Agreement, Party B has not placed any security interest on such equity interests;
Party C has a good and merchantable title to all of its assets, and has not placed any security interest on the aforementioned
assets;
Party C does not have any outstanding debts, except for (i) debt incurred in the ordinary course of business; and (ii) debts
disclosed to Party A for which Party A’s written consent has been obtained;
Party C has complied with all laws and regulations of China applicable to asset acquisitions; and
There are no pending or threatened litigation, arbitration or administrative proceedings relating to the equity interests in Party C,
assets of Party C or Party C.
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
4.
EFFECTIVE DATE AND TERM
This Agreement shall become effective upon execution by the Parties, and remain in effect until all equity interests held by
Party B in Party C have been transferred or assigned to Party A and/or any other person designated by Party A in accordance
with this Agreement.
5.
5.1
GOVERNING LAW AND RESOLUTION OF DISPUTES
Governing Law
The execution, effectiveness, construction, performance, amendment and termination of this Agreement and the resolution of
disputes hereunder shall be governed by the laws of the PRC.
5
5.2
Methods of Resolution of Disputes
In the event of any dispute with respect to the construction and performance of this Agreement, the Parties shall first resolve the
dispute through friendly negotiations. In the event the Parties fail to reach an agreement on the dispute within thirty (30) days
after any Party’s request to the other Parties for resolution of the dispute through negotiations, any Party may submit the
relevant dispute to the China International Economic and Trade Arbitration Commission for arbitration, in accordance with its
arbitration rules. The arbitration shall be conducted in Beijing, and the language used during arbitration shall be Chinese. The
arbitration award shall be final and binding on all Parties.
6.
TAXES AND FEES
Each Party shall pay any and all transfer and registration taxes, expenses and fees incurred thereby or levied thereon in
accordance with the laws of China in connection with the preparation and execution of this Agreement and the Transfer
Contracts, as well as the consummation of the transactions contemplated under this Agreement and the Transfer Contracts.
NOTICES
All notices and other communications required or permitted to be given pursuant to this Agreement shall be delivered
personally or sent by registered mail, postage prepaid, by a commercial courier service or by facsimile transmission to the
address of such Party set forth below. A confirmation copy of each notice shall also be sent by email. The dates on which
notices shall be deemed to have been effectively given shall be determined as follows:
Notices given by personal delivery, by courier service or by registered mail, postage prepaid, shall be deemed effectively given
on the date of delivery or refusal at the address specified for notices.
Notices given by facsimile transmission shall be deemed effectively given on the date of successful transmission (as evidenced
by an automatically generated confirmation of transmission).
7.
7.1
7.1.1
7.1.2
7.2
For the purpose of notices, the addresses of the Parties are as follows:
Party A:
Address:
Attn:
Phone:
Party B:
Address:
Phone:
Party C:
Address:
Attn:
Phone:
Party D:
Address:
Attn:
Phone:
[Name of the Registrant]
[Address of the Registrant]
[Name of the VIE Shareholder]
[Address of the VIE Shareholder]
[Name of the VIE]
[Address of the VIE]
[Name of the WFOE]
[Address of the WFOE]
7.3
Any Party may at any time change its address for notices by a notice delivered to the other Parties in accordance with the terms
hereof.
6
8.
CONFIDENTIALITY
The Parties acknowledge that the existence and the terms of this Agreement and any oral or written information exchanged
between the Parties in connection with the preparation and performance of this Agreement are regarded as confidential
information. Each Party shall maintain the confidentiality of all such confidential information, and without obtaining the
written consent of the other Party, it shall not disclose any relevant confidential information to any third parties, except for the
information that: (a) is or will be featured in the public domain (other than through the receiving Party’s unauthorized
disclosure); (b) is under the obligation to be disclosed pursuant to the applicable laws or regulations, rules of any stock
exchange, or orders of the court or other government authorities; or (c) is required to be disclosed by any Party to its
shareholders, investors, legal counsels or financial advisors regarding the transaction contemplated hereunder, provided that
such shareholders, investors, legal counsels or financial advisors shall be bound by the confidentiality obligations similar to
those set forth in this Section. Disclosure of any confidential information by the staff members or agencies hired by any Party
shall be deemed disclosure of such confidential information by such Party, which Party shall be held liable for breach of this
Agreement. This Section shall survive the termination of this Agreement for any reason.
9.
FURTHER WARRANTIES
The Parties agree to promptly execute the documents that are reasonably required for or are conducive to the implementation of
the provisions and purposes of this Agreement and to take further actions that are reasonably required for or are conducive to
the implementation of the provisions and purposes of this Agreement.
10.
BREACH OF AGREEMENT
10.1
If Party B or Party C conducts any material breach of any term of this Agreement, Party A shall have right to terminate this
Agreement and/or require Party B or Party C to compensate all damages; this Section 10 shall not prejudice any other rights of
Party A herein;
10.2
Party B or Party C shall not have any right to terminate this Agreement in any event unless otherwise required by the applicable
laws.
11.
MISCELLANEOUS
11.1
Amendments, Changes and Supplements
Any amendments and supplements to this Agreement shall be made in writing. The amendment agreements and supplementary
agreements that have been signed by the Parties and that relate to this Agreement shall be an integral part of this Agreement and
shall have the same legal validity as this Agreement.
11.2
Entire Agreement
Except for the amendments, supplements or changes in writing executed after the execution of this Agreement, this Agreement
shall constitute the entire agreement reached by and among the Parties hereto with respect to the subject matter hereof, and shall
supersede all prior oral and written consultations, representations and contracts reached with respect to the subject matter of this
Agreement.
11.3
Headings
The headings of this Agreement are for convenience only, and shall not be used to interpret, explain or otherwise affect the
meanings of the provisions of this Agreement.
7
11.4
Language
This Agreement is written in both Chinese and English language in four copies, each Party having one copy with equal legal
validity; in case there is any conflict between the Chinese version and the English version, the Chinese version shall prevail.
11.5
Severability
In the event that one or several of the provisions of this Agreement are found to be invalid, illegal or unenforceable in any
aspect in accordance with any laws or regulations, the validity, legality or enforceability of the remaining provisions of this
Agreement shall not be affected or compromised in any respect. The Parties shall strive in good faith to replace such invalid,
illegal or unenforceable provisions with effective provisions that accomplish to the greatest extent permitted by law and the
intentions of the Parties, and the economic effect of such effective provisions shall be as close as possible to the economic effect
of those invalid, illegal or unenforceable provisions.
11.6
Successors
This Agreement shall be binding on the respective successors of the Parties and the permitted assigns of such Parties.
11.7
Survival
11.7.1 Any obligations that occur or that are due as a result of this Agreement upon the expiration or early termination of this
Agreement shall survive the expiration or early termination thereof.
11.7.2 The provisions of Sections 5, 7, 8 and this Section 11.7 shall survive the termination of this Agreement.
11.8
Waivers
Any Party may waive the terms and conditions of this Agreement, provided that such a waiver must be provided in writing and
shall require the signatures of the Parties. No waiver by any Party in certain circumstances with respect to a breach by other
Parties shall operate as a waiver by such a Party with respect to any similar breach in other circumstances.
[Signature Page Follows]
8
IN WITNESS WHEREOF, the Parties have caused their authorized representatives to execute this Exclusive Option Agreement
as of the date first above written.
Party A:
[Name of the Registrant]
By:
Name:
Title:
Party B:
[Name of the VIE Shareholder]
By:
Party C:
[Name of the VIE]
By:
Name:
Title:
[Signature Page to Exclusive Option Agreement]
IN WITNESS WHEREOF, the Parties have caused their authorized representatives to execute this Exclusive Option Agreement
as of the date first above written.
Party D:
[Name of the WFOE]
By:
Name:
Title:
[Signature Page to Exclusive Option Agreement]
Exhibit 1
Share Transfer Agreement
This Equity Interest Transfer Agreement (this “Agreement”) is entered into in Beijing, China on [Execution Date] (the “Effective
Date”) by:
Transferor:
[Name of the VIE Shareholder]
Transferee:
NOW, the Parties agree as follows concerning the share transfer:
1.
2.
3.
4.
5.
The Transferor agrees to transfer to the transferee % of the equity interests of [Name of the VIE] (the “Company”) held by
the Transferor, representing RMB in the registered capital of the Company, and the Transferee agrees to accept said equity
interests.
After the closing of such equity interest transfer, the Transferor shall not have any rights or obligations as a shareholder with
regard to the transferred equity interests, and the Transferee shall have such rights and obligations as a shareholder of the
Company.
Any matter not covered by this Agreement may be determined by the Parties by way of signing supplementary agreements.
This Agreement shall be effective from the Effective Date first written above.
This Agreement is executed in four copies, with each party holding one copy. The other copies are made for the purpose of
going through business registration of such change.
[Signature Page Follows]
11
Transferor: [Name of the VIE Shareholder]
Signature:
Date:
Transferee:
Signature:
Date:
[Signature Page to Share Transfer Agreement]
Schedule of Material Differences
The VIE Shareholders and the VIEs as set out below entered into exclusive option agreement with the Registrant and WFOEs using this
form, respectively. Pursuant to Instruction ii to Item 601 of Regulation S-K, the Registrant may only file this form as an exhibit with a
schedule setting forth the material details in which the executed agreements differ from this form:
No.
1
2
Name of
VIE
Shareholder
Lijun Zhang
Zhuhai Hengqin
Zhilue Investment
Partnership
Enterprise (Limited
Partnership)
Name of
Variable
Interest Entity
(the
“VIE”)
Jiufu Shuke Technology
Group Co., Ltd.(formerly
known as Beijing Jiufu
Times Investment
Consulting Co., Ltd., Jiufu
Internet Finance Holdings
Group Co., Ltd., and Jiufu
Jinke Holdings Group
Co., Ltd., successively)
Jiufu Shuke Technology
Group Co., Ltd.(formerly
known as Beijing Jiufu
Times Investment
Consulting Co., Ltd., Jiufu
Internet Finance Holdings
Group Co., Ltd., and Jiufu
Jinke Holdings Group
Co., Ltd., successively)
Name of
WFOE
Beijing Jiufu Lianyin
Technology Co., Ltd.
Version of
Exclusive
Option
Agreement
Exclusive Option
Agreement
% of VIE
Shareholder’s
Equity
Interest
in the
VIE
8.8%
Base Price
RMB17,600,000
Execution
Date
August 28, 2020
Beijing Jiufu Lianyin
Technology Co., Ltd.
Exclusive Option
Agreement
33.2%
RMB64,400,000
August 28, 2020
13
3
Yifan Ren
Jiufu Shuke Technology
Group Co., Ltd.(formerly
known as Beijing Jiufu
Times Investment
Consulting Co., Ltd., Jiufu
Internet Finance Holdings
Group Co., Ltd., and Jiufu
Jinke Holdings Group
Co., Ltd., successively)
Beijing Jiufu Lianyin
Technology Co., Ltd.
Amended and
Restated Exclusive
Option Agreement
48%
RMB3,150,000
August 28, 2020
14
4
Zhuhai Hengqin
Saixing Investment
Partnership
Enterprise (Limited
Partnership)
Jiufu Shuke Technology
Group Co., Ltd.(formerly
known as Beijing Jiufu
Times Investment
Consulting Co., Ltd., Jiufu
Internet Finance Holdings
Group Co., Ltd., and Jiufu
Jinke Holdings Group
Co., Ltd., successively)
Beijing Jiufu Lianyin
Technology Co., Ltd.
Exclusive Option
Agreement
10%
RMB20,000,000
August 28, 2020
15
5
Lei Liu
Beijing Puhui Lianyin
Information Technology
Co., Ltd.
Beijing Jiufu Lianyin
Technology Co., Ltd.
Amended and
Restated Exclusive
Option Agreement
27.5%
RMB27,500
May 21, 2020
16
6
Dongcheng Zhang
Beijing Puhui Lianyin
Information Technology
Co., Ltd.
Beijing Jiufu Lianyin
Technology Co., Ltd.
Amended and
Restated Exclusive
Option Agreement
0.83%
RMB833
May 21, 2020
17
7
Changxing Xiao
Beijing Puhui Lianyin
Information Technology
Co., Ltd.
Beijing Jiufu Lianyin
Technology Co., Ltd.
Amended and
Restated Exclusive
Option Agreement
20.83%
RMB20,833
May 21, 2020
18
8
Lixing Chen
Beijing Puhui Lianyin
Information Technology
Co., Ltd.
Beijing Jiufu Lianyin
Technology Co., Ltd.
Amended and
Restated Exclusive
Option Agreement
27.67%
RMB27,668
May 21, 2020
19
9
Lei Sun
Beijing Puhui Lianyin
Information Technology
Co., Ltd.
Beijing Jiufu Lianyin
Technology Co., Ltd.
Amended and
Restated Exclusive
Option Agreement
23.17%
RMB23,166
May 21, 2020
20
10
11
12
13
14
15
16
Haigen Zhou
Jianbo Cai
Tianjin Yuying
Enterprise
Management and
Consulting
Partnership (Limited
Partnership)
Zhuhai Hengqin
Yunchuang
Investment
Partnership (Limited
Partnership)
Cen Chen
Yu Han
Shenzhen Fuyuan Network
Technology Co., Ltd.
Shenzhen Fuyuan Network
Technology Co., Ltd.
Beijing Yi Qi Mai
Technology Co., Ltd.
(formerly known as Beijing
Chaoka Internet Technology
Co., Ltd. and Beijing Wu
Kong Mao Technology Co.,
Ltd.)
Beijing Yi Qi Mai
Technology Co., Ltd.
(formerly known as Beijing
Chaoka Internet Technology
Co., Ltd. and Beijing Wu
Kong Mao Technology Co.,
Ltd.)
Zhuhai Huike Lianyin
Technology Co., Ltd.
Zhuhai Huike Lianyin
Technology Co., Ltd.
Qianhai Fuyuan
Network Technology
(Shenzhen) Co., Ltd.
Qianhai Fuyuan
Network Technology
(Shenzhen) Co., Ltd.
Qianhai Fuyuan
Network Technology
(Shenzhen) Co., Ltd.
Exclusive Option
Agreement
Exclusive Option
Agreement
Exclusive Option
Agreement
60%
40%
55%
RMB600,000
March 4, 2021
RMB400,000
March 4, 2021
RMB5,500,000
February 28, 2021
Qianhai Fuyuan
Network Technology
(Shenzhen) Co., Ltd.
Exclusive Option
Agreement
45%
RMB4,500,000
February 28, 2021
10%
90%
RMB100,000
May 28, 2020
RMB900,000
August 21, 2020
Zhuhai Xiaojin
Hulian Technology
Co., Ltd.
Zhuhai Xiaojin
Hulian Technology
Co., Ltd.
Reserved
Exclusive Option
Agreement
Exclusive Option
Agreement
21
Equity Interest Pledge Agreement
Exhibit 4.7
This Equity Interest Pledge Agreement (this “Agreement”) has been executed by and among the following parties on
[Execution Date] in Beijing, the People’s Republic of China (“China” or the “PRC”):
Party A:
Party B:
Party C:
[Name of the WFOE] (hereinafter “Pledgee”), a wholly foreign owned enterprise, organized and
existing under the laws of the PRC, with its address at [●];
[Name of the VIE Shareholder] (hereinafter “Pledgor”), a Chinese citizen with Chinese Identification
No.: [●]; and
[Name of the VIE], a limited liability company organized and existing under the laws of the PRC, with
its address at [●].
In this Agreement, each of Pledgee, Pledgor and Party C shall be referred to as a “Party” respectively, and they shall be
collectively referred to as the “Parties”.
Whereas:
1.
2.
3.
Pledgor is a Chinese citizen and holds [•]% of equity interests of Party C, representing RMB[•] in the registered capital of Party
C. Party C is a limited liability company registered in Beijing, China, engaging in consulting and service business. Party C
acknowledges the respective rights and obligations of Pledgor and Pledgee under this Agreement, and intends to provide any
necessary assistance in registering the Pledge;
Pledgee is a wholly foreign owned enterprise registered in China. Pledgee and Party C which is partially owned by Pledgor
have executed a Master Exclusive Service Agreement (as defined below) in Beijing; Pledgor, Pledgee, Party C and Pledgee’s
parent company, [Name of the Parent Company], have executed an Exclusive Option Agreement (as defined below); Pledgor,
Pledgor and Party C has executed a Power of Attorney (as defined below) in favor of Pledgee; and Pledgee and Pledgor have
executed a Loan Agreement (as defined below);
To ensure that Party C and Pledgor fully perform their obligations under the Master Exclusive Service Agreement, the Exclusive
Option Agreement, the Loan Agreement and the Power of Attorney, Pledgor hereby pledges to the Pledgee all of the equity
interest that Pledgor holds in Party C as security for Party C’s and Pledgor’s obligations under the Master Exclusive Service
Agreement, the Exclusive Option Agreement, the Loan Agreement and the Power of Attorney.
To perform the provisions of the Transaction Documents (as defined below), the Parties have mutually agreed to execute this
Agreement upon the following terms.
1.
DEFINITIONS
Unless otherwise provided herein, the terms below shall have the following meanings:
1.1
1.2
Pledge: shall refer to the security interest granted by Pledgor to Pledgee pursuant to Section 2 of this Agreement, i.e., the right
of Pledgee to be compensated on a preferential basis with the conversion, auction or sales price of the Equity Interest.
Equity Interest: shall refer to [●]% equity interests in Party C currently held by Pledgor, representing RMB[●] in the registered
capital of Party C, and all of the equity interest hereafter acquired by Pledgor in Party C.
1.3
1.4
1.5
1.6
1.7
1.8
2.
2.1
2.2
2.3
2.4
Term of Pledge: shall refer to the term set forth in Section 3 of this Agreement.
Transaction Documents: shall refer to the Master Exclusive Service Agreement executed by and between Party C and Pledgee
on [Execution Date] (the “Master Exclusive Service Agreement”), the Exclusive Option Agreement executed by and among
Pledgor, Pledgee, Party C and Pledgee’s parent company, [Name of the Parent Company], on [Execution Date] (the “Exclusive
Option Agreement”), the Loan Agreement executed on [Execution Date] by Pledgor and Pledgee, the Proxy Agreement and
Power of Attorney executed on [Execution Date] by Pledgor, Pledgee and Party C (the “Power of Attorney”) and any
modification, amendment and restatement to the aforementioned documents.
Contract Obligations: shall refer to all the obligations of Pledgor to Pledgee under the Exclusive Option Agreement, the Power
of Attorney, the Loan Agreement and this Agreement; all the obligations of Party C to Pledgee under the Master Exclusive
Service Agreement, the Exclusive Option Agreement and this Agreement.
Secured Indebtedness: shall refer to all the direct, indirect and derivative losses and losses of anticipated profits, suffered by
Pledgee, incurred as a result of any Event of Default. The amount of such loss shall be calculated in accordance with the
reasonable business plan and profit forecast of Pledgee, the consulting and service fees payable to Pledgee under the Master
Exclusive Service Agreement, all expenses occurred in connection with enforcement by Pledgee of Pledgor’s and/or Party C’s
Contract Obligations and etc..
Event of Default: shall refer to any of the circumstances set forth in Section 7 of this Agreement.
Notice of Default: shall refer to the notice issued by Pledgee in accordance with this Agreement declaring an Event of Default.
THE PLEDGE
Pledgor agrees to pledge all the Equity Interest as security for performance of the Contract Obligations and payment of the
Secured Indebtedness under this Agreement. Party C hereby assents that Pledgor pledges the Equity Interest to the Pledgee
pursuant to this Agreement.
During the term of the Pledge, Pledgee is entitled to receive dividends distributed on the Equity Interest. Pledgor may receive
dividends distributed on the Equity Interest only with prior written consent of Pledgee. Dividends received by Pledgor on
Equity Interest after deduction of individual income tax paid by Pledgor shall be, as required by Pledgee, (1) deposited into an
account designated and supervised by Pledgee and used to secure the Contract Obligations and pay the Secured Indebtedness
prior and in preference to any other payment; or (2) unconditionally donated to Pledgee or any other person designated by
Pledgee to the extent permitted under applicable PRC laws.
Pledgor may subscribe for capital increase in Party C only with prior written consent of Pledgee. Any equity interest obtained
by Pledgor as a result of Pledgor’s subscription of the increased registered capital of the Company shall also be deemed as
Equity Interest.
In the event that Party C is required by PRC law to be liquidated or dissolved, any interest distributed to Pledgor upon Party C’s
dissolution or liquidation shall, upon the request of the Pledgee, be (1) deposited into an account designate and supervised by
Pledgee and used to secure the Contract Obligations and pay the Secured Indebtedness prior and in preference to any other
payment; or (2) unconditionally donated to Pledgee or any other person designated by Pledgee to the extent permitted under
applicable PRC laws.
2
3.
3.1
3.2
4.
4.1
TERM OF PLEDGE
The Pledge shall become effective on such date when the pledge of the Equity Interest contemplated herein has been registered
with relevant administration for industry and commerce (the “AIC”). The Pledge shall be continuously valid until the Master
Exclusive Service Agreement, the Exclusive Option Agreement and the Power of Attorney expire or terminate. The parties
agree that within 3 business days following the execution of this Agreement, Pledgor and Party C shall register the Pledge in the
shareholders’ register of Party C, and within 10 business days after the competent AIC has formally begun accepting
applications for the registration of equity interest pledge, Pledgor and Party C shall submit an application to the AIC for the
registration of the Pledge of the Equity Interest contemplated herein. Pledgor and Party C shall submit all necessary documents
and complete all necessary procedures, as required by the PRC laws and regulations and the relevant AIC, to ensure that the
Pledge of the Equity Interest shall be registered with the AIC within 20 business days after filing (or such other time period
normally required by the relevant AIC).
During the Term of Pledge, in the event Party C fails to perform the Contract Obligations or pay Secured Indebtedness, Pledgee
shall have the right, but not the obligation, to dispose of the Pledge in accordance with the provisions of this Agreement.
CUSTODY OF RECORDS FOR EQUITY INTEREST SUBJECT TO PLEDGE
During the Term of Pledge set forth in this Agreement, Pledgor shall deliver to Pledgee’s custody the capital contribution
certificate for the Equity Interest and the shareholders’ register containing the Pledge within one week from the execution of this
Agreement. Pledgee shall have custody of such documents during the entire Term of Pledge set forth in this Agreement.
5.
REPRESENTATIONS AND WARRANTIES OF PLEDGOR AND PARTY C
As of the execution date of this Agreement, Pledgor and Party C hereby jointly and severally represent and warrant to Pledgee
that:
Pledgor is the sole legal and beneficial owner of the Equity Interest.
Pledgee shall have the right to dispose of and transfer the Equity Interest in accordance with the provisions set forth in this
Agreement.
Except for the Pledge, Pledgor has not placed any security interest or other encumbrance on the Equity Interest.
Pledgor and Party C have obtained any and all approvals and consents from applicable government authorities and third parties
(if required) for execution, delivery and performance of this Agreement.
The execution, delivery and performance of this Agreement will not: (i) violate any relevant PRC laws; (ii) conflict with Party
C’s articles of association or other constitutional documents; (iii) result in any breach of or constitute any default under any
contract or instrument to which it is a party or by which it is otherwise bound; (iv) result in any violation of any condition for
the grant and/or maintenance of any permit or approval granted to any Party; or (v) cause any permit or approval granted to any
Party to be suspended, cancelled or attached with additional conditions.
COVENANTS OF PLEDGOR AND PARTY C
During the term of this Agreement, Pledgor and Party C hereby jointly and severally covenant to the Pledgee:
Pledgor shall not transfer the Equity Interest, place or permit the existence of any security interest or other encumbrance on the
Equity Interest or any portion thereof, without the prior written consent of Pledgee, except for the performance of the
Transaction Documents;
5.1
5.2
5.3
5.4
5.5
6.
6.1
6.1.1
3
6.1.2
Pledgor and Party C shall comply with the provisions of all laws and regulations applicable to the pledge of rights, and within
five (5) days of receipt of any notice, order or recommendation issued or prepared by relevant competent authorities regarding
the Pledge, shall present the aforementioned notice, order or recommendation to Pledgee, and shall comply with the
aforementioned notice, order or recommendation or submit objections and representations with respect to the aforementioned
matters upon Pledgee’s reasonable request or upon consent of Pledgee;
6.1.3
Pledgor and Party C shall promptly notify Pledgee of any event or notice received by Pledgor that may have an impact on the
Equity Interest or any portion thereof, as well as any event or notice received by Pledgor that may have an impact on any
guarantees and other obligations of Pledgor arising out of this Agreement.
6.1.4
Party C shall complete the registration procedures for extension of the term of operation within three (3) months prior to the
expiration of such term to maintain the validity of this Agreement.
6.2
6.3
6.4
7.
7.1
Pledgor agrees that the rights acquired by Pledgee in accordance with this Agreement with respect to the Pledge shall not be
interrupted or harmed by Pledgor or any heirs or representatives of Pledgor or any other persons through any legal proceedings.
To protect or perfect the security interest granted by this Agreement for payment of the service fees under the Master Exclusive
Service Agreement, Pledgor hereby undertakes to execute in good faith and to cause other parties who have an interest in the
Pledge to execute all certificates, agreements, deeds and/or covenants required by Pledgee. Pledgor also undertakes to perform
and to cause other parties who have an interest in the Pledge to perform actions required by Pledgee, to facilitate the exercise by
Pledgee of its rights and authority granted thereto by this Agreement, and to enter into all relevant documents regarding
ownership of Equity Interest with Pledgee or designee(s) of Pledgee (natural persons/legal persons). Pledgor undertakes to
provide Pledgee within a reasonable time with all notices, orders and decisions regarding the Pledge that are required by
Pledgee.
Pledgor hereby undertakes to comply with and perform all guarantees, promises, agreements, representations and conditions
under this Agreement. In the event of failure or partial performance of its guarantees, promises, agreements, representations
and conditions, Pledgor shall indemnify Pledgee for all losses resulting therefrom.
EVENT OF DEFAULT
The following circumstances shall be deemed Event of Default:
7.1.1
Pledgor’s any breach to any obligations under the Transaction Documents and/or this Agreement.
7.1.2
Party C’s any breach to any obligations under the Transaction Documents and/or this Agreement.
7.2
7.3
8.
8.1
8.2
Upon notice or discovery of the occurrence of any circumstances or event that may lead to the aforementioned circumstances
described in Section 7.1, Pledgor shall immediately notify Pledgee in writing accordingly.
Unless an Event of Default set forth in this Section 7.1 has been successfully resolved to Pledgee’s satisfaction within twenty
(20) days after the Pledgee and/or Party C delivers a notice to the Pledgor requesting rectification of such Event of Default,
Pledgee may issue a Notice of Default to Pledgor in writing at any time thereafter, demanding the Pledgor immediately pay all
outstanding payments due under the Master Exclusive Service Agreement and all other payments due to Pledgee, and/or dispose
of the Pledge in accordance with the provisions of Section 8 of this Agreement.
EXERCISE OF PLEDGE
Pledgee may issue a Notice of Default to Pledgor when exercising the Pledge.
Subject to the provisions of Section 7.3, Pledgee may exercise the right to enforce the Pledge concurrently with the issuance of
the Notice of Default in accordance with Section 8.1 or at any time after the issuance of the Notice of Default. Once Pledgee
elects to enforce the Pledge, Pledgor shall cease to be entitled to any rights or interests associated with the Equity Interest.
4
8.3
8.4
8.5
8.6
8.7
9.
9.1
9.2
After Pledgee issues a Notice of Default to Pledgor in accordance with Section 8.1, Pledgee may exercise any remedy measure
under applicable PRC laws, the Transaction Documents and this Agreement, including but not limited to being paid in priority
with the Equity Interest based on the monetary valuation that such Equity Interest is converted into or from the proceeds from
auction or sale of the Equity Interest. The Pledgee shall not be liable for any loss incurred by its duly exercise of such rights
and powers.
The proceeds from exercise of the Pledge by Pledgee shall be used to pay for tax and expenses incurred as result of disposing
the Equity Interest and to perform Contract Obligations and pay the Secured Indebtedness to the Pledgee prior and in preference
to any other payment. After the payment of the aforementioned amounts, the remaining balance shall be returned to Pledgor or
any other person who have rights to such balance under applicable laws or be deposited to the local notary public office where
Pledgor resides, with all expense incurred being borne by Pledgor. To the extent permitted under applicable PRC laws, Pledgor
shall unconditionally donate the aforementioned proceeds to Pledgee or any other person designated by Pledgee.
Pledgee may exercise any remedy measure available simultaneously or in any order. Pledgee may exercise the right to being
paid in priority with the Equity Interest based on the monetary valuation that such Equity Interest is converted into or from the
proceeds from auction or sale of the Equity Interest under this Agreement, without exercising any other remedy measure first.
Pledgee is entitled to designate an attorney or other representatives to exercise the Pledge on its behalf, and Pledgor or Party C
shall not raise any objection to such exercise.
When Pledgee disposes of the Pledge in accordance with this Agreement, Pledgor and Party C shall provide necessary
assistance to enable Pledgee to enforce the Pledge in accordance with this Agreement.
BREACH OF AGREEMENT
If Pledgor or Party C conducts any material breach of any term of this Agreement, Pledgee shall have right to terminate this
Agreement and/or require Pledgor or Party C to indemnify all damages; this Section 9 shall not prejudice any other rights of
Pledgee herein;
Pledgor or Party C shall not have any right to terminate this Agreement in any event unless otherwise required by applicable
laws.
10.
ASSIGNMENT
10.1 Without Pledgee’s prior written consent, Pledgor and Party C shall not have the right to assign or delegate their rights and
obligations under this Agreement.
10.2
10.3
This Agreement shall be binding on Pledgor and his/her successors and permitted assigns, and shall be valid with respect to
Pledgee and each of his/her successors and assigns.
At any time, Pledgee may assign any and all of its rights and obligations under the Master Exclusive Service Agreement to its
designee(s) (natural/legal persons), in which case the designee shall have the rights and obligations of Pledgee under the
Transaction Documents and this Agreement, as if it were the original party to the Transaction Documents and this Agreement.
When the Pledgee assigns the rights and obligations under the Master Exclusive Service Agreement, upon the Pledgee’s request,
the Pledgor shall execute relevant agreements or other documents relating to such assignment.
5
10.4
10.5
In the event of a change in Pledgee due to an assignment, Pledgor and/or Party C shall, at the request of Pledgee, execute a new
pledge agreement with the new pledgee on the same terms and conditions as this Agreement, and register the same with the
relevant AIC.
Pledgor and Party C shall strictly abide by the provisions of this Agreement and other contracts jointly or separately executed by
the Parties hereto or any of them, including the Transaction Documents, perform the obligations hereunder and thereunder, and
refrain from any action/omission that may affect the effectiveness and enforceability thereof. Any remaining rights of Pledgor
with respect to the Equity Interest pledged hereunder shall not be exercised by Pledgor except in accordance with the written
instructions of Pledgee.
11.
TERMINATION
11.1
Upon the fulfillment of all Contract Obligations and the full payment of all Secured Indebtedness by Pledgor and Party C,
Pledgee shall release the Pledge under this Agreement upon Pledgor’s request as soon as reasonably practicable and shall assist
Pledgor to de-register the Pledge from the shareholders’ register of Party C and with relevant PRC local administration for
industry and commerce.
11.2
The provisions under Sections 9, 13, 14 and 11.2 herein of this Agreement shall survive the expiration or termination of this
Agreement.
12.
HANDLING FEES AND OTHER EXPENSES
All fees and out of pocket expenses relating to this Agreement, including but not limited to legal costs, costs of production,
stamp tax and any other taxes and fees, shall be borne by Party C.
13.
CONFIDENTIALITY
The Parties acknowledge that the existence and the terms of this Agreement and any oral or written information exchanged
between the Parties in connection with the preparation and performance this Agreement are regarded as confidential
information. Each Party shall maintain confidentiality of all such confidential information, and without obtaining the written
consent of the other Party, it shall not disclose any relevant confidential information to any third parties, except for the
information that: (a) is or will be in the public domain (other than through the receiving Party’s unauthorized disclosure); (b) is
under the obligation to be disclosed pursuant to the applicable laws or regulations, rules of any stock exchange, or orders of the
court or other government authorities; or (c) is required to be disclosed by any Party to its shareholders, directors, employees,
legal counsels or financial advisors regarding the transaction contemplated hereunder, provided that such shareholders,
directors, employees, legal counsels or financial advisors shall be bound by the confidentiality obligations similar to those set
forth in this Section. Disclosure of any confidential information by the shareholders, director, employees of or agencies engaged
by any Party shall be deemed disclosure of such confidential information by such Party and such Party shall be held liable for
breach of this Agreement. This Section shall survive the termination of this Agreement for any reason.
14.
GOVERNING LAW AND RESOLUTION OF DISPUTES
14.1
14.2
The execution, effectiveness, construction, performance, amendment and termination of this Agreement and the resolution of
disputes hereunder shall be governed by the laws of the PRC.
In the event of any dispute with respect to the construction and performance of this Agreement, the Parties shall first resolve the
dispute through friendly negotiations. In the event the Parties fail to reach an agreement on the dispute within 30 days after any
Party’s request to the other Parties for resolution of the dispute through negotiations, any Party may submit the relevant dispute
to the China International Economic and Trade Arbitration Commission for arbitration, in accordance with its Arbitration
Rules. The arbitration shall be conducted in Beijing, and the language used during arbitration shall be Chinese. The arbitration
award shall be final and binding on all Parties.
6
14.3
Upon the occurrence of any disputes arising from the construction and performance of this Agreement or during the pending
arbitration of any dispute, except for the matters under dispute, the Parties to this Agreement shall continue to exercise their
respective rights under this Agreement and perform their respective obligations under this Agreement.
15.
NOTICES
15.1
15.2
15.3
All notices and other communications required or permitted to be given pursuant to this Agreement shall be delivered
personally or sent by registered mail, postage prepaid, by a commercial courier service or by facsimile transmission to the
address of such party set forth below. A confirmation copy of each notice shall also be sent by E-mail. The dates on which
notices shall be deemed to have been effectively given shall be determined as follows:
Notices given by personal delivery, by courier service or by registered mail, postage prepaid, shall be deemed effectively given
on the date of delivery or refusal at the address specified for notices.
Notices given by facsimile transmission shall be deemed effectively given on the date of successful transmission (as evidenced
by an automatically generated confirmation of transmission).
15.4
For the purpose of notices, the addresses of the Parties are as follows:
Party A:
Address:
Attn:
Phone:
Party B:
Address:
Phone:
Party C:
Address:
Attn:
Phone:
[Name of the WFOE]
[●]
[●]
[●]
[Name of the VIE Shareholder]
[●]
[●]
[Name of the VIE]
[●]
[●]
[●]
15.5
Any Party may at any time change its address for notices by a notice delivered to the other Parties in accordance with the terms
hereof.
16.
SEVERABILITY
In the event that one or several of the provisions of this Contract are found to be invalid, illegal or unenforceable in any aspect
in accordance with any laws or regulations, the validity, legality or enforceability of the remaining provisions of this Contract
shall not be affected or compromised in any respect. The Parties shall strive in good faith to replace such invalid, illegal or
unenforceable provisions with effective provisions that accomplish to the greatest extent permitted by law and the intentions of
the Parties, and the economic effect of such effective provisions shall be as close as possible to the economic effect of those
invalid, illegal or unenforceable provisions.
17.
ATTACHMENTS
The attachments set forth herein shall be an integral part of this Agreement.
7
18.
EFFECTIVENESS
18.1
This Agreement shall become effective upon execution by the Parties.
18.2
Any amendments, changes and supplements to this Agreement shall be in writing and shall become effective upon completion
of the governmental filing procedures (if applicable) after the affixation of the signatures or seals of the Parties.
19.
LANGUAGE AND COUNTERPARTS
This Agreement is written in Chinese and English in three copies. Pledgor, Pledgee and Party C shall hold one copy
respectively. Each copy of this Agreement shall have equal validity. In case there is any conflict between the Chinese version
and the English version, the Chinese version shall prevail.
[Signature Page Follows]
8
IN WITNESS WHEREOF, the Parties have caused their authorized representatives to execute this Equity Interest Pledge
Agreement as of the date first above written.
Party A:
[Name of the WFOE]
By:
Name:
Title:
Party B:
[Name of the VIE Shareholder]
By:
Party C:
[Name of the VIE]
By:
Name:
Title:
[Signature Page to Equity Interest Pledge Agreement]
Attachments:
1.
2.
3.
4.
5.
6.
Shareholders’ Register of Party C;
The Capital Contribution Certificate for Party C;
Master Exclusive Service Agreement;
Exclusive Option Agreement;
Loan Agreement;
Proxy Agreement and Power of Attorney.
10
Schedule of Material Differences
The VIE Shareholders and the VIEs as set out below entered into equity interest pledge agreement with the WFOEs using this form,
respectively. Pursuant to Instruction ii to Item 601 of Regulation S-K, the Registrant may only file this form as an exhibit with a schedule
setting forth the material details in which the executed agreements differ from this form:
No.
1
2
Name of
VIE
Shareholder
Lijun Zhang
Zhuhai Hengqin
Zhilue Investment
Partnership
Enterprise (Limited
Partnership)
Name of Variable
Interest Entity (the
“VIE”)
Jiufu Shuke Technology
Group Co., Ltd.(formerly
known as Beijing Jiufu
Times Investment
Consulting Co., Ltd., Jiufu
Internet Finance Holdings
Group Co., Ltd., and Jiufu
Jinke Holdings Group
Co., Ltd., successively)
Jiufu Shuke Technology
Group Co., Ltd.(formerly
known as Beijing Jiufu
Times Investment
Consulting Co., Ltd., Jiufu
Internet Finance Holdings
Group Co., Ltd., and Jiufu
Jinke Holdings Group
Co., Ltd., successively)
Name of
WFOE
Beijing Jiufu Lianyin
Technology Co., Ltd.
Version of
Equity Interest
Pledge
Agreement
Equity Interest Pledge
Agreement
% of VIE
Shareholder’s
Equity Interest
in the VIE
8.8%
% of VIE
Shareholder’s
Pledged
Equity
Interest in
the VIE
8.8% and all of the
equity interest
hereafter acquired by
Pledgor in Party C
Execution
Date
August 28, 2020
Beijing Jiufu Lianyin
Technology Co., Ltd.
Equity Interest Pledge
Agreement
33.2%
33.2% and all of the
equity interest
hereafter acquired by
Pledgor in Party C
August 28, 2020
11
3
Yifan Ren
Jiufu Shuke Technology
Group Co., Ltd.(formerly
known as Beijing Jiufu
Times Investment
Consulting Co., Ltd., Jiufu
Internet Finance Holdings
Group Co., Ltd., and Jiufu
Jinke Holdings Group
Co., Ltd., successively)
Beijing Jiufu Lianyin
Technology Co., Ltd.
Amended and
Restated Equity
Interest Pledge
Agreement
48%
48% and all of the
equity interest
hereafter acquired by
Pledgor in Party C
August 28, 2020
12
4
Zhuhai Hengqin
Saixing Investment
Partnership
Enterprise (Limited
Partnership)
Jiufu Shuke Technology
Group Co., Ltd.(formerly
known as Beijing Jiufu
Times Investment
Consulting Co., Ltd., Jiufu
Internet Finance Holdings
Group Co., Ltd., and Jiufu
Jinke Holdings Group
Co., Ltd., successively)
Beijing Jiufu Lianyin
Technology Co., Ltd.
Equity Interest Pledge
Agreement
10%
10% and all of the
equity interest
hereafter acquired by
Pledgor in Party C
August 28, 2020
13
5
Lei Liu
Beijing Puhui Lianyin
Information Technology
Co., Ltd.
Beijing Jiufu Lianyin
Technology Co., Ltd.
Amended and
Restated Equity
Interest Pledge
Agreement
27.5%
27.5% and all of the
equity interest
hereafter acquired by
Pledgor in Party C
May 21, 2020
14
6
Dongcheng Zhang
Beijing Puhui Lianyin
Information Technology
Co., Ltd.
Beijing Jiufu Lianyin
Technology Co., Ltd.
Amended and
Restated Equity
Interest Pledge
Agreement
0.83%
0.83% and all of the
equity interest
hereafter acquired by
Pledgor in Party C
May 21, 2020
15
7
Changxing Xiao
Beijing Puhui Lianyin
Information Technology
Co., Ltd.
Beijing Jiufu Lianyin
Technology Co., Ltd.
Amended and
Restated Equity
Interest Pledge
Agreement
20.83%
20.83% and all of the
equity interest
hereafter acquired by
Pledgor in Party C
May 21, 2020
16
8
Lixing Chen
Beijing Puhui Lianyin
Information Technology
Co., Ltd.
Beijing Jiufu Lianyin
Technology Co., Ltd.
Amended and
Restated Equity
Interest Pledge
Agreement
27.67%
27.67% and all of the
equity interest
hereafter acquired by
Pledgor in Party C
May 21, 2020
17
9
Lei Sun
Beijing Puhui Lianyin
Information Technology
Co., Ltd.
Beijing Jiufu Lianyin
Technology Co., Ltd.
Amended and
Restated Equity
Interest Pledge
Agreement
23.17%
23.17% and all of the
equity interest
hereafter acquired by
Pledgor in Party C
May 21, 2020
18
10
11
12
13
14
15
16
Haigen Zhou
Shenzhen Fuyuan Network
Technology Co., Ltd.
Jianbo Cai
Shenzhen Fuyuan Network
Technology Co., Ltd.
Tianjin Yuying
Enterprise
Management and
Consulting
Partnership (Limited
Partnership)
Zhuhai Hengqin
Yunchuang
Investment
Partnership (Limited
Partnership)
Beijing Yi Qi Mai
Technology Co., Ltd.
(formerly known as Beijing
Chaoka Internet Technology
Co., Ltd. and Beijing Wu
Kong Mao Technology Co.,
Ltd.)
Beijing Yi Qi Mai
Technology Co., Ltd.
(formerly known as Beijing
Chaoka Internet Technology
Co., Ltd. and Beijing Wu
Kong Mao Technology Co.,
Ltd.)
Cen Chen
Zhuhai Huike Lianyin
Technology Co., Ltd.
Xiaomin Wang
Zhuhai Huike Lianyin
Technology Co., Ltd.
Qianhai Fuyuan
Network Technology
(Shenzhen) Co., Ltd.
Qianhai Fuyuan
Network Technology
(Shenzhen) Co., Ltd.
Qianhai Fuyuan
Network Technology
(Shenzhen) Co., Ltd.
Equity Interest Pledge
Agreement
Equity Interest Pledge
Agreement
Proxy Agreement and
Power of Attorney
Qianhai Fuyuan
Network Technology
(Shenzhen) Co., Ltd.
Proxy Agreement and
Power of Attorney
Zhuhai Xiaojin
Hulian Technology
Co., Ltd.
Zhuhai Xiaojin
Hulian Technology
Co., Ltd.
Reserved
Equity Interest Pledge
Agreement
Equity Interest Pledge
Agreement
60%
40%
55%
45%
10%
90%
60% and all of the
equity interest
hereafter acquired by
Pledgor in Party C
40% and all of the
equity interest
hereafter acquired by
Pledgor in Party C
55% and all of the
equity interest
hereafter acquired by
Pledgor in Party C
45% and all of the
equity interest
hereafter acquired by
Pledgor in Party C
10% and all of the
equity interest
hereafter acquired by
Pledgor in Party C
90% and all of the
equity interest
hereafter acquired by
Pledgor in Party C
March 4, 2021
March 4, 2021
February 28, 2021
February 28, 2021
May 28, 2020
April 20, 2020
19
Proxy Agreement and Power of Attorney
Exhibit 4.8
This Proxy Agreement and Power of Attorney (this “Agreement”) is entered into in Beijing, the People’s Republic of China
(“China” or the “PRC”) as of [Execution Date] by and among the following parties:
Party A:
Address:
[Name of the WFOE]
[●]
Party B:
ID No.:
[Name of the VIE Shareholder]
[●]
Party C:
Address:
[Name of the VIE]
[●]
In this Agreement, each of Party A, Party B and Party C shall be referred to as a “Party” respectively, and they shall be
collectively referred to as the “Parties”.
WHEREAS:
RECITALS
1.
2.
3.
Party B is a shareholder of Party C and as of the date hereof holds [●]% of the equity interests of Party C, representing RMB[●]
in the registered capital of Party C.
Party A and its affiliate(s), Party B and Party C have entered into a series of contractual arrangements, including a master
exclusive service agreement, an exclusive option agreement and equity interest pledge agreements.
As the consideration for Party A and its affiliates to provide Party C with services necessary for its business operation, Party A
has requested Party B to appoint Party A (as well as its successors, including a liquidator, if any, replacing Party A) as its
attorney-in-fact (“Attorney-in-Fact”), with full power of substitution, to exercise any and all of the rights in respect of Party
B’s shares in Party C and Party B has agreed to make such appointment.
NOW, THEREFORE, in consideration of the premises and the representations, warranties, covenants and agreements herein
contained, and intending to be legally bound hereby, the Parties hereby agree as follows:
Section 1
AGREEMENT
Party B hereby irrevocably nominates, appoints and constitutes Party A (as well as its successors, including a liquidator, if any,
replacing Party A) as its Attorney-in-Fact to exercise on Party B’s behalf any and all rights that Party B has in respect of Party B’s shares
in Party C conferred by relevant laws and regulations and the articles of association of Party C, including without limitation, the
following rights (collectively, “Shareholder Rights”):
(a)
(b)
(c)
to call and attend shareholders’ meetings of Party C;
to execute and deliver any and all written resolutions and meeting minutes in the name and on behalf of such Party B;
to vote by itself or by proxy on any matters discussed on shareholders’ meetings of Party C, including without limitation, the
sale, transfer, mortgage, pledge or disposal of any or all of the assets of Party C;
(d)
to sell, transfer, pledge or dispose of any or all of the shares in Party C;
(e)
(f)
(g)
(h)
(i)
(j)
(k)
(l)
(m)
to nominate, appoint or remove the legal representative, directors, supervisors and senior management of Party C when
necessary;
to oversee the economic performance of Party C;
to have full access to the financial information of Party C at any time;
to file any shareholder lawsuits or take other legal actions against Party C’s directors or senior management members when such
directors or members are acting to the detriment of the interest of Party C or its shareholder(s);
to approve annual budgets or declare dividends;
to manage and dispose of the assets of Party C;
to have the full rights to control and manage Party C’s finance, accounting and daily operation (including but not limited to
signing and execution of contracts and payment of government taxes and duties);
to approve the filing of any documents with the relevant governmental authorities or regulatory bodies; and
any other rights conferred to Party B by the articles of association of Party C and/or the relevant laws and regulations on the
shareholders.
Party B further agrees and undertakes that without the Attorney-in-Fact’s prior written consent, it shall not exercise any of the
Shareholder Rights.
Section 2
The Attorney-in-Fact has the right to appoint, at its sole discretion, a substitute or substitutes to perform any or all of its rights of the
Attorney-in-Fact under this Agreement, and to revoke the appointment of such substitute or substitutes.
Section 3
Party C confirms, acknowledges and agrees to the appointment of the Attorney-in-Fact to exercise any and all of the Shareholder Rights.
Party C further confirms and acknowledges that any and all acts done or to be done, decisions made or to be made, and instruments or
other documents executed or to be executed by the Attorney-in-Fact, shall therefore be as valid and effectual as though done, made or
executed by Party B.
Section 4
(n)
(o)
Party B hereby acknowledges that, if Party B increases its equity interest in Party C, whether by subscribing additional equity
interest or otherwise, any Shareholder Rights in connection with such additional equity interest acquired by Party B shall be
automatically subject to this Agreement and the Attorney-in-Fact shall have the right to exercise the Shareholder Rights with
respect to such additional equity interest on behalf of Party B as described in Section 1 hereunder; if Party B’s share in Party C
is transferred to any other party, whether by voluntary transfer, judicial sale, foreclosure sale, or otherwise, any such equity
interest in Party C so transferred remains subject to this Agreement and the Attorney-in-Fact shall continue to have the right to
exercise the Shareholder Rights with respect to such equity interest in Party C so transferred as described in Section 1
hereunder.
Furthermore, for the avoidance of any doubt, if any documents, such as an equity interest transfer agreement, are required to be
signed for Party B to fulfill his/her obligations under any exclusive option agreement and equity interest pledge
agreement(s) that Party B enters into with Party A or its affiliate(s) (as the same may be amended from time to time), the
Attorney-in-Fact shall have the right to sign such documents and perform all shareholder obligations under the exclusive option
agreement and the equity interest pledge agreement(s) on behalf of Party B. If required by the Attorney-in-Fact, Party B shall
sign any documents and fix the chops and/or seals thereon and Party B shall take any other actions as necessary for purposes of
consummation of the aforesaid share transfer.
2
Section 5
Party B further covenants with and undertakes to Party A that, if Party B receives any dividends, interest, any other forms of capital
distributions, residual assets upon liquidation, or proceeds or consideration from the transfer of equity interest as a result of, or in
connection with, Party B’s equity interest in Party C, Party B shall, to the extent permitted by applicable laws, remit all such dividends,
interest, capital distributions, assets, proceeds or consideration to Party A or the entity designated by Party A without any compensation.
Section 6
Party B hereby authorizes the Attorney-in-Fact to exercise the Shareholder Rights according to its own judgment without any oral or
written instruction from Party B. Party B undertakes to ratify any acts which the Attorney-in-Fact or any substitutes or agents appointed
by the Attorney-in-Fact may lawfully do or cause to be done pursuant to this Agreement.
Section 7
This Agreement shall become effective as of the date hereof when it is duly executed by the Parties’ authorized representatives and shall
remain effective as long as Party C exists. Party B shall not have the right to terminate this Agreement or revoke the appointment of the
Attorney-in-Fact without the prior written consent of Party A. This Agreement shall be binding upon and shall inure to the benefit of the
Parties and their successors and assigns.
Section 8
This Agreement constitutes the entire agreement between the Parties with respect to the subject matter hereof.
Section 9
This Agreement shall be construed in accordance with and governed by the laws of China.
Section 10
Any dispute or claim arising out of or in connection with or relating to this Agreement shall be resolved by the Parties in good faith
through negotiations. In case no resolution can be reached by the Parties, such dispute shall be submitted to the Beijing Arbitration
Commission for arbitration in accordance with its rules of arbitration in effect at the time of applying for such arbitration and the place of
arbitration shall be in Beijing. The arbitral tribunal or the arbitrators shall have the authority to award any remedy or relief in accordance
with the terms of this Agreement and applicable PRC laws, including provisional and permanent injunctive relief (such as injunctive
relief with respect to the conduct of business or to compel the transfer of assets), specific performance of any obligation created
hereunder, remedies over the shares or assets of Party C and winding up orders against Party C. The arbitral award shall be final and
binding upon all Parties.
To the extent permitted under applicable PRC laws, each of the Parties shall have the right to seek interim injunctive relief or other
interim relief from a court of competent jurisdiction in support of the arbitration when formation of the arbitral tribunal is pending or
under appropriate circumstances. For this purpose, the Parties agree that, to the extent not against applicable laws, the courts of the
Cayman Islands, the courts of PRC and the courts of the places where the principal assets of Party C are located, shall all be deemed to
have jurisdiction.
Section 11
Either Party shall forthwith on demand indemnify the other Party against any claim, loss, liability or damage (“Loss”) which such Party
shall incur as a consequence of any breach by the other Party of this Agreement provided that neither Party shall be liable to indemnify
the other Party for any Loss to the extent that such Loss arises from the willful misconduct, breach of applicable law, regulation or
contractual obligation or from the material negligence of the other Party or its directors, officers, employees, or agents. The Parties agree
that this clause shall survive the termination or expiration of this Agreement.
3
Section 12
This Agreement may be executed in one or more counterparts. All originals shall have the same legal effect.
Section 13
Both Chinese and English versions of this Agreement shall have equal validity. In case of any discrepancy between the English version
and the Chinese version, the Chinese version shall prevail.
[Signature Page Follows]
4
IN WITNESS WHEREOF, the Parties have duly executed this Agreement on the date appearing at the head hereof.
Party A:[Name of the WFOE]
By:
Name:
Title:
Party B:[Name of the VIE Shareholder]
By:
Party C:[Name of the VIE]
By:
Name:
Title:
[Signature Page to Proxy Agreement and Power of Attorney]
Schedule of Material Differences
The VIE Shareholders and the VIEs as set out below entered into proxy agreement and power of attorney with the WFOEs using this
form, respectively. Pursuant to Instruction ii to Item 601 of Regulation S-K, the Registrant may only file this form as an exhibit with a
schedule setting forth the material details in which the executed agreements differ from this form:
Name of
VIE
Shareholder
Lijun Zhang
Zhuhai Hengqin
Zhilue Investment
Partnership Enterprise
(Limited Partnership)
Yifan Ren
No.
1
2
3
Name of Variable Interest
Entity (the “VIE”)
Jiufu Shuke Technology Group Co., Ltd.
(formerly known as Beijing Jiufu Times
Investment Consulting Co., Ltd., Jiufu
Internet Finance Holdings Group
Co., Ltd., and Jiufu Jinke Holdings Group
Co., Ltd., successively)
Jiufu Shuke Technology Group Co., Ltd.
(formerly known as Beijing Jiufu Times
Investment Consulting Co., Ltd., Jiufu
Internet Finance Holdings Group
Co., Ltd., and Jiufu Jinke Holdings Group
Co., Ltd., successively)
Jiufu Shuke Technology Group Co., Ltd.
(formerly known as Beijing Jiufu Times
Investment Consulting Co., Ltd., Jiufu
Internet Finance Holdings Group
Co., Ltd., and Jiufu Jinke Holdings Group
Co., Ltd., successively)
Name of WFOE
Beijing Jiufu Lianyin
Technology Co., Ltd.
Version of Proxy
Agreement and
Power of
Attorney
Proxy Agreement and
Power of Attorney
% of VIE
Shareholder’s
Equity Interest
in the VIE
8.8%
Execution
Date
August 28, 2020
Beijing Jiufu Lianyin
Technology Co., Ltd.
Proxy Agreement and
Power of Attorney
33.2%
August 28, 2020
Beijing Jiufu Lianyin
Technology Co., Ltd.
Amended and Restated
Proxy Agreement and
Power of Attorney
48%
August 28, 2020
6
4
Zhuhai Hengqin
Saixing Investment
Partnership Enterprise
(Limited Partnership)
Jiufu Shuke Technology Group Co., Ltd.
(formerly known as Beijing Jiufu Times
Investment Consulting Co., Ltd., Jiufu
Internet Finance Holdings Group
Co., Ltd., and Jiufu Jinke Holdings Group
Co., Ltd., successively)
Beijing Jiufu Lianyin
Technology Co., Ltd.
Proxy Agreement and
Power of Attorney
10%
August 28, 2020
7
5
Lei Liu
Beijing Puhui Lianyin Information
Technology Co., Ltd.
Beijing Jiufu Lianyin
Technology Co., Ltd.
Amended and Restated
Proxy Agreement and
Power of Attorney
27.5%
May 21, 2020
8
6
7
Dongcheng Zhang
Beijing Puhui Lianyin Information
Technology Co., Ltd.
Beijing Jiufu Lianyin
Technology Co., Ltd.
Changxing Xiao
Beijing Puhui Lianyin Information
Technology Co., Ltd.
Beijing Jiufu Lianyin
Technology Co., Ltd.
Amended and Restated
Proxy Agreement and
Power of Attorney
Amended and Restated
Proxy Agreement and
Power of Attorney
0.83%
20.83%
May 21, 2020
May 21, 2020
9
8
9
Lixing Chen
Lei Sun
Beijing Puhui Lianyin Information
Technology Co., Ltd.
Beijing Jiufu Lianyin
Technology Co., Ltd.
Beijing Puhui Lianyin Information
Technology Co., Ltd.
Beijing Jiufu Lianyin
Technology Co., Ltd.
Amended and Restated
Proxy Agreement and
Power of Attorney
Amended and Restated
Proxy Agreement and
Power of Attorney
27.67%
23.17%
May 21, 2020
May 21, 2020
10
10
11
12
13
14
15
16
Tianjin Yuying
Enterprise
Management and
Consulting
Partnership (Limited
Partnership)
Zhuhai Hengqin
Yunchuang
Investment
Partnership (Limited
Partnership)
Cen Chen
Yu Han
Haigen Zhou
Jianbo Cai
Shenzhen Fuyuan Network Technology
Co., Ltd.
Shenzhen Fuyuan Network Technology
Co., Ltd.
Beijing Yi Qi Mai Technology Co., Ltd.
(formerly known as Beijing Chaoka
Internet Technology Co., Ltd. and Beijing
Wu Kong Mao Technology Co., Ltd.)
Qianhai Fuyuan Network
Technology (Shenzhen)
Co., Ltd.
Qianhai Fuyuan Network
Technology (Shenzhen)
Co., Ltd.
Qianhai Fuyuan Network
Technology (Shenzhen)
Co., Ltd.
Proxy Agreement and
Power of Attorney
Proxy Agreement and
Power of Attorney
Proxy Agreement and
Power of Attorney
60%
40%
55%
March 4, 2021
March 4, 2021
February 28, 2021
Beijing Yi Qi Mai Technology Co., Ltd.
(formerly known as Beijing Chaoka
Internet Technology Co., Ltd. and Beijing
Wu Kong Mao Technology Co., Ltd.)
Qianhai Fuyuan Network
Technology (Shenzhen)
Co., Ltd.
Proxy Agreement and
Power of Attorney
45%
February 28, 2021
Zhuhai Huike Lianyin Technology
Co., Ltd.
Zhuhai Huike Lianyin Technology
Co., Ltd.
Reserved
Zhuhai Xiaojin Hulian
Technology Co., Ltd.
Zhuhai Xiaojin Hulian
Technology Co., Ltd.
Proxy Agreement and
Power of Attorney
Proxy Agreement and
Power of Attorney
10%
90%
May 28, 2020
Augugst 21, 2020
11
Loan Agreement
Exhibit 4.9
This Loan Agreement (this “Agreement”) is made and entered into by and between the parties below as of [Execution Date] in
Beijing, China:
(1) [Name of the WFOE] (“Lender”), a wholly foreign owned enterprise, organized and existing under the laws of the PRC, with
its address at [●];
(2) [Name of the VIE Shareholder] (“Borrower”), a citizen of China with Chinese Identification No.: [●].
Each of the Lender and the Borrower shall be hereinafter referred to as a “Party” respectively, and as the “Parties” collectively.
Whereas:
1. As of the date hereof, Borrower holds [●]% of equity interests in [Name of VIE] (the “Borrower Company”). All of the
equity interest now held and hereafter acquired by Borrower in Borrower Company shall be referred to as Borrower Equity
Interest;
2. Lender confirms that it agrees to provide Borrower with and Borrower confirms that he/she has received a loan which equals to
RMB[●] that has been used for the purposes set forth under this Agreement.
After friendly consultation, the Parties agree as follows:
1
Loan
1.1
In accordance with the terms and conditions of this Agreement, Lender and Borrower hereby acknowledge that Borrower
obtained from Lender a loan in the amount of RMB[●] (the “Loan”). The term of the Loan shall be 10 years from the
effective date of this Agreement, which may be extended upon mutual written consent of the Parties. During the term of the
Loan or the extended term of the Loan, Borrower shall immediately repay the full amount of the Loan:
1.1.1
if 30 days elapse after Borrower receives a written notice from Lender requesting repayment of the Loan;
1.1.2
in the event of Borrower’s death, lack or limitation of civil capacity;
1.1.3
if Borrower ceases (for any reason) to be an employee of Lender, Borrower Company or their affiliates;
1.1.4
if Borrower engages in criminal act or is involved in criminal activities;
1.1.5
if under the applicable laws of China, foreign investors are permitted to invest in the principle business that is
currently conducted by Borrower Company in China with a controlling stake and/or in the form of wholly-foreign-
owned enterprises, the relevant competent authorities of China begin to approve such investments, and Lender’s
parent company, [9F Inc./JIUFU Financial Technology Service Limited] exercises the exclusive option under the
Exclusive Option Agreement (the “Exclusive Option Agreement”) described in this Agreement.
The Loan provided by Lender under this Agreement shall inure to Borrower’s benefit only and not to Borrower’s successors
or assigns.
Borrower agrees to accept the aforementioned Loan provided by Lender, and hereby acknowledges and warrants that he has
used the Loan to increase the registered capital of Borrower Company.
Lender and Borrower hereby agree and acknowledge that the Loan shall be repaid as follows: Borrower shall transfer the
Borrower Equity Interest in whole to [9F Inc./JIUFU Financial Technology Service Limited]. or any person(s) (legal or
natural persons) designated by [9F Inc./JIUFU Financial Technology Service Limited]. pursuant to the Exclusive Option
Agreement, and use any proceeds from the transfer of the Borrower Equity Interest (to the extent permissible) to repay the
Loan to Lender in accordance with this Agreement and in the manner designated by Lender.
1.2
1.3
1.4
1.5
The Parties hereby agree that the Loan shall be interest free unless otherwise agreed in this Agreement. When Borrower
transfers the Borrower Equity Interest to [9F Inc./JIUFU Financial Technology Service Limited]. or any
person(s) designated by [9F Inc./JIUFU Financial Technology Service Limited], if the transfer price of such equity interest
exceeds the principal of the Loan under this Agreement, to the extent permitted by law, the amount exceeding the principal
shall be deemed as the interest of the Loan under this Agreement payable by Borrower to Lender.
2
Representations and Warranties
2.1
Between the date of this Agreement and the date of termination of this Agreement, Lender hereby makes the following
representations and warranties to Borrower:
2.1.1
Lender is a corporation duly organized and legally existing in accordance with the laws of China;
2.1.2
Lender has the legal capacity to execute and perform this Agreement. The execution and performance by Lender of
this Agreement is consistent with Lender’s scope of business and the provisions of Lender’s corporate bylaws and
other organizational documents, and Lender has obtained all necessary and proper approvals and authorizations for
the execution and performance of this Agreement; and
2.1.3
This Agreement constitutes Lender’s legal, valid and binding obligations enforceable in accordance with its terms.
2.2
Between the date of this Agreement and the date of termination of this Agreement, Borrower hereby makes the following
representations and warranties:
2.2.1
2.2.2
2.2.3
Borrower has the legal capacity to execute and perform this Agreement. Borrower has obtained all
necessary and proper approvals and authorizations for the execution and performance of this Agreement;
This Agreement constitutes Borrower’s legal, valid and binding obligations enforceable in accordance with
its terms; and
There are no disputes, litigations, arbitrations, administrative proceedings or any other legal proceedings
relating to Borrower, nor are there any potential disputes, litigations, arbitrations, administrative
proceedings or any other legal proceedings relating to Borrower.
3
Borrower’s Covenants
3.1
As and when he becomes, and for so long as he remains a shareholder of Borrower Company, Borrower covenants
irrevocably that during the term of this Agreement, Borrower shall cause Borrower Company:
3.1.1
to strictly abide by the provisions of the Exclusive Option Agreement, the Master Exclusive Service Agreementand
and the Proxy Agreement and Power of Attorney to which the Borrower Company is a party, and to refrain from
any action/omission that may affect the effectiveness and enforceability of the Exclusive Option Agreement and
Master Exclusive Service Agreement.
3.1.2
at the request of Lender (or a party designated by Lender), to execute contracts/agreements on business cooperation
with Lender (or a party designated by Lender), and to strictly abide by such contracts/agreements;
2
3.1.3
3.1.4
to provide Lender with all of the information on Borrower Company’s business operations and financial condition
at Lender’s request;
to immediately notify Lender of the occurrence or possible occurrence of any litigation, arbitration or administrative
proceedings relating to Borrower Company’s assets, business or income;
3.1.5
at the request of Lender, to appoint any persons designated by Lender as directors of Borrower Company;
3.2
Borrower covenants that during the term of this Agreement, he shall:
3.2.1
endeavor to keep Borrower Company to engage in its principle businesses;
3.2.2
3.2.3
3.2.4
3.2.5
3.2.6
3.2.7
abide by the provisions of this Agreement, the Proxy Agreement and Power of Attorney, the Equity Interest Pledge
Agreement and the Exclusive Option Agreement to which the Borrower is a party, perform his obligations under
this Agreement, the Proxy Agreement and Power of Attorney, the Equity Interest Pledge Agreement and the
Exclusive Option Agreement, and refrain from any action/omission that may affect the effectiveness and
enforceability of this Agreement, the Proxy Agreement and Power of Attorney, the Equity Interest Pledge
Agreement and the Exclusive Option Agreement;
not sell, transfer, mortgage or dispose of in any other manner the legal or beneficial interest in Borrower Equity
Interest, or allow the encumbrance thereon of any security interest or the encumbrance, except in accordance with
the Equity Interest Pledge Agreement;
cause any shareholders’ meeting and/or the board of directors of Borrower Company not to approve the sale,
transfer, mortgage or disposition in any other manner of any legal or beneficial interest in Borrower Equity Interest,
or allow the encumbrance thereon of any security interest, except to Lender or Lender’s designated person;
cause any shareholders’ meeting and/or the board of directors of the Borrower Company not to approve the merger
or consolidation of Borrower Company with any person, or its acquisition of or investment in any person, without
the prior written consent of Lender;
immediately notify Lender of the occurrence or possible occurrence of any litigation, arbitration or administrative
proceedings relating to Borrower Equity Interest;
to the extent necessary to maintain his ownership of the Borrower Equity Interest, execute all necessary or
appropriate documents, take all necessary or appropriate actions and file all necessary or appropriate complaints or
raise necessary and appropriate defense against all claims;
3.2.8
without the prior written consent of Lender, refrain from any action /omission that may have a material impact on
the assets, business and liabilities of Borrower Company;
3.2.9
appoint any designee of Lender as director of Borrower Company, at the request of Lender;
3.2.10
3.2.11
to the extent permitted by the laws of China, at the request of Lender at any time, promptly and unconditionally
transfer all of Borrower Equity Interest to Lender or Lender’s designated representative(s) at any time, and cause
the other shareholders of Borrower Company to waive their right of first refusal with respect to the share transfer
described in this Section;
to the extent permitted by the laws of China, at the request of Lender at any time, cause the other shareholders of
Borrower Company to promptly and unconditionally transfer all of their equity interests to Lender or Lender’s
designated representative(s) at any time, and Borrower hereby waives his right of first refusal (if any) with respect
to the share transfer described in this Section;
3
3.2.12
in the event that [9F Inc./JIUFU Financial Technology Service Limited] purchases Borrower Equity Interest from
Borrower in accordance with the provisions of the Exclusive Option Agreement, use such purchase price obtained
thereby to repay the Loan to Lender; and
3.2.13 without the prior written consent of Lender, not to cause Borrower Company to supplement, change, or amend its
articles of association in any manner, increase or decreases its registered capital or change its share capital structure
in any manner.
4
Liability for Default
4.1
4.2
4.3
If Borrower conducts any material breach of any term of this Agreement, Lender shall have right to terminate this
Agreement and require the Borrower to compensate all damages; this Section 4.1 shall not prejudice any other rights of
Lender herein.
Borrower shall not terminate this Agreement in any event unless otherwise required by applicable laws.
In the event that Borrower fails to perform the repayment obligations set forth in this Agreement, Borrower shall pay
overdue interest of 0.01% per day for the outstanding payment, until the day Borrower repays the full principal of the Loan,
overdue interests and other payable amounts.
5
Notices
5.1
All notices and other communications required or permitted to be given pursuant to this Agreement shall be delivered
personally or sent by registered mail, postage prepaid, by a commercial courier service or by facsimile transmission to the
address of such Party set forth below. A confirmation copy of each notice shall also be sent by email. The dates on which
notices shall be deemed to have been effectively given shall be determined as follows:
5.1.1 Notices given by personal delivery, by courier service or by registered mail, postage prepaid, shall be deemed
effectively given on the date of delivery.
5.1.2 Notices given by facsimile transmission shall be deemed effectively given on the date of successful transmission (as
evidenced by an automatically generated confirmation of transmission).
5.2
For the purpose of notices, the addresses of the Parties are as follows:
Lender:
Address:
Attn:
Phone:
[Name of the WFOE]
[●]
[●]
[●]
Borrower:
Address:
Phone:
[Name of the VIE Shareholder]
[●]
[●]
5.3
Any Party may at any time change its address for notices by a notice delivered to the other Party in accordance with the
terms hereof.
6
Confidentiality
The Parties acknowledge that the existence and the terms of this Agreement and any oral or written information exchanged between
the Parties in connection with the preparation and performance this Agreement are regarded as confidential information. Each Party
shall maintain confidentiality of all such confidential information, and without obtaining the written consent of the other Party, it
shall not disclose any relevant confidential information to any third parties, except for the information that: (a) is or will be in the
public domain (other than through the receiving Party’s unauthorized disclosure); (b) is under the obligation to be disclosed
pursuant to the applicable laws or regulations, rules of any stock exchange, or orders of the court or other government authorities; or
(c) is required to be disclosed by any Party to its shareholders, directors, employees, legal counsels or financial advisors regarding
the transaction contemplated hereunder, provided that such shareholders, directors, employees, legal counsels or financial advisors
shall be bound by the confidentiality obligations similar to those set forth in this Section. Disclosure of any confidential
information by the shareholders, director, employees of or agencies engaged by any Party shall be deemed disclosure of such
confidential information by such Party and such Party shall be held liable for breach of this Agreement.
4
7
Governing Law and Resolution of Disputes
7.1 The execution, effectiveness, construction, performance, amendment and termination of this Agreement and the resolution of
disputes shall be governed by the laws of China.
7.2 In the event of any dispute with respect to the construction and performance of this Agreement, the Parties shall first resolve
the dispute through friendly negotiations. In the event the Parties fail to reach an agreement on the dispute within 30 days after
either Party’s request to the other Party for resolution of the dispute through negotiations, either Party may submit the relevant
dispute to the China International Economic and Trade Arbitration Commission for arbitration, in accordance with its then
effective arbitration rules. The arbitration shall be conducted in Beijing. The arbitration award shall be final and binding on all
Parties.
7.3 Upon the occurrence of any disputes arising from the construction and performance of this Agreement or during the pending
arbitration of any dispute, except for the matters under dispute, the Parties to this Agreement shall continue to exercise their
respective rights under this Agreement and perform their respective obligations under this Agreement.
8 Miscellaneous
8.1 This Agreement should become effective upon execution by the Parties, and shall expire upon the date of full performance by
the Parties of their respective obligations under this Agreement.
8.2 This Agreement shall be written in both Chinese and English language in two copies, each Party having one copy. The
Chinese version and English version shall have equal legal validity.
8.3 This Agreement may be amended or supplemented through written agreement by and between Lender and Borrower. Such
written amendment agreement and/or supplementary agreement executed by and between Lender and Borrower are an integral
part of this Agreement, and shall have the same legal validity as this Agreement.
8.4 In the event that one or several of the provisions of this Agreement are found to be invalid, illegal or unenforceable in any
aspect in accordance with any laws or regulations, the validity, legality or enforceability of the remaining provisions of this
Agreement shall not be affected or compromised in any respect. The Parties shall strive in good faith to replace such invalid,
illegal or unenforceable provisions with effective provisions that accomplish to the greatest extent permitted by law the
intentions of the Parties, and the economic effect of such effective provisions shall be as close as possible to the economic
effect of those invalid, illegal or unenforceable provisions.
8.5 The attachments (if any) to this Agreement shall be an integral part of this Agreement and shall have the same legal validity as
this Agreement.
8.6 Any obligations that occur or that are due as a result of this Agreement upon the expiration or early termination of this
Agreement shall survive the expiration or early termination thereof. The provisions of Sections 4, 6, 7 and this Section 8.6
shall survive the termination of this Agreement.
5
IN WITNESS WHEREOF, the Parties have caused their authorized representatives to execute this Loan Agreement as of the date
firs above written.
Lender: [Name of the WFOE]
By:
Name:
Title:
Borrower: [Name of the VIE Shareholder]
By:
6
Schedule of Material Differences
The VIE Shareholders as set out below entered into loan agreement with the WFOEs using this form, respectively. Pursuant to
Instruction ii to Item 601 of Regulation S-K, the Registrant may only file this form as an exhibit with a schedule setting forth the material
details in which the executed agreements differ from this form:
No.
1
Name of VIE
Shareholder
Lijun Zhang
2
3
4
5
6
Zhuhai Hengqin
Zhilue Investment
Partnership
Enterprise (Limited
Partnership)
Yifan Ren
Zhuhai Hengqin
Saixing Investment
Partnership
Enterprise (Limited
Partnership)
Lei Liu
Dongcheng Zhang
Name of Variable Interest
Entity (the “VIE”)
Jiufu Shuke Technology Group Co., Ltd.
(formerly known as Beijing Jiufu Times
Investment Consulting Co., Ltd., Jiufu
Internet Finance Holdings Group Co., Ltd.,
and Jiufu Jinke Holdings Group Co., Ltd.,
successively)
Jiufu Shuke Technology Group Co., Ltd.
(formerly known as Beijing Jiufu Times
Investment Consulting Co., Ltd., Jiufu
Internet Finance Holdings Group Co., Ltd.,
and Jiufu Jinke Holdings Group Co., Ltd.,
successively)
Jiufu Shuke Technology Group Co., Ltd.
(formerly known as Beijing Jiufu Times
Investment Consulting Co., Ltd., Jiufu
Internet Finance Holdings Group Co., Ltd.,
and Jiufu Jinke Holdings Group Co., Ltd.,
successively)
Jiufu Shuke Technology Group Co., Ltd.
(formerly known as Beijing Jiufu Times
Investment Consulting Co., Ltd., Jiufu
Internet Finance Holdings Group Co., Ltd.,
and Jiufu Jinke Holdings Group Co., Ltd.,
successively)
Beijing Puhui Lianyin Information
Technology Co., Ltd.
Beijing Puhui Lianyin Information
Technology Co., Ltd.
Name of WFOE
Beijing Jiufu Lianyin
Technology Co., Ltd.
Beijing Jiufu Lianyin
Technology Co., Ltd.
% of VIE
Shareholder’s Equity
Interest in the VIE
8.8%
Loan Amount
RMB17,600,000
Execution Date
June 21, 2019
33.2%
RMB66,400,000
August 28, 2020
Beijing Jiufu Lianyin
Technology Co., Ltd.
23.95%
48%
RMB3,150,000
RMB92,850,000
August 25, 2014
July 2, 2015
10%
RMB20,000,000
August 28,2020
5.00%
27.5%
1.67%
RMB2,500
RMB27,500
RMB833
August 25, 2014
May 21, 2020
August 25, 2014
Beijing Jiufu Lianyin
Technology Co., Ltd.
Beijing Jiufu Lianyin
Technology Co., Ltd.
Beijing Jiufu Lianyin
Technology Co., Ltd.
7
7
8
9
10
11
12
13
14
15
16
Changxing Xiao
Lixing Chen
Lei Sun
Haigen Zhou
Jianbo Cai
Tianjin Yuying
Enterprise
Management and
Consulting
Partnership (Limited
Partnership)
Zhuhai Hengqin
Yunchuang
Investment
Partnership (Limited
Partnership)
Beijing Puhui Lianyin Information
Technology Co., Ltd.
Beijing Puhui Lianyin Information
Technology Co., Ltd.
Beijing Puhui Lianyin Information
Technology Co., Ltd.
Shenzhen Fuyuan Network Technology Co.,
Ltd.
Shenzhen Fuyuan Network Technology Co.,
Ltd.
Beijing Yi Qi Mai Technology Co., Ltd.
(formerly known as Beijing Chaoka Internet
Technology Co., Ltd. and Beijing Wu Kong
Mao Technology Co., Ltd.)
Beijing Jiufu Lianyin
Technology Co., Ltd.
Beijing Jiufu Lianyin
Technology Co., Ltd.
Beijing Jiufu Lianyin
Technology Co., Ltd.
Qianhai Fuyuan
Network Technology
(Shenzhen) Co., Ltd.
Qianhai Fuyuan
Network Technology
(Shenzhen) Co., Ltd.
Qianhai Fuyuan
Network Technology
(Shenzhen) Co., Ltd.
Beijing Yi Qi Mai Technology Co., Ltd.
(formerly known as Beijing Chaoka Internet
Technology Co., Ltd. and Beijing Wu Kong
Mao Technology Co., Ltd.)
Qianhai Fuyuan
Network Technology
(Shenzhen) Co., Ltd.
Cen Chen
Zhuhai Huike Lianyin Technology Co., Ltd.
Yu Han
Zhuhai Huike Lianyin Technology Co., Ltd.
Reserved
Zhuhai Xiaojin Hulian
Technology Co., Ltd.
Zhuhai Xiaojin Hulian
Technology Co., Ltd.
8
41.66%
5.33%
27.67%
41.66%
46.33%
60%
40%
55%
RMB20,833
August 25, 2014
RMB2,668
RMB27,668
RMB20,833
RMB2,333
RMB600,000
August 25, 2014
May 21, 2020
August 25, 2014
July 27, 2015
March 4, 2021
RMB400,000
March 4, 2021
RMB5,500,000
February 28, 2021
45%
RMB4,500,000
February 28, 2021
10%
90%
RMB100,000
May 28, 2020
RMB900,000
August 21, 2020
Spousal Consent
Exhibit 4.10
The undersigned, [Spouse of the VIE Shareholder] (Passport No. [●]), is the lawful spouse of [Name of the VIE Shareholder]
(ID card No. [●]). I hereby unconditionally and irrevocably agree to the execution of the following documents (hereinafter referred to as
the “Transaction Documents”) by [Name of the VIE Shareholder] on [Execution Date], and the disposal of the equity interests of
[Name of the VIE] (hereinafter referred to as the “Domestic Company”) held by [Name of the VIE Shareholder] and registered in his
name according to the following documents:
(1)
(2)
(3)
(4)
Equity Interest Pledge Agreement entered into by and between [Name of the WFOE] (hereinafter referred to as the “WFOE”)
and the Domestic Company on [Execution Date];
Exclusive Option Agreement entered into by and among [Name of the Registrant], the Domestic Company and the WFOE on
[Execution Date];
Proxy Agreement and Power of Attorney executed by and between the WFOE and the Domestic Company on [Execution Date];
Loan Agreement entered into with the WFOE on [Execution Date].
I hereby undertake not to make any assertions in connection with the equity interests of the Domestic Company, which are held
by [Name of the VIE Shareholder]. I hereby further confirm that [Name of the VIE Shareholder] can perform the Transaction
Documents and further amend or terminate the Transaction Documents absent authorization or consent from me.
I hereby undertake to execute all necessary documents and take all necessary actions to ensure appropriate performance of the
Transaction Documents (as amended form time to time).
I hereby agree and undertake that if I obtain any equity interests of the Domestic Company, which are held by [Name of the VIE
Shareholder] for any reasons, I shall be bound by the Transaction Documents and the Master Exclusive Service Agreement entered into
between the WFOE and the Domestic Company as of [Execution Date] (the “Master Exclusive Service Agreement”) (as amended from
time to time) and comply with the obligations thereunder as a shareholder of the Domestic Company. For this purpose, upon the
WFOE’s request, I shall sign a series of written documents in substantially the same format and content as the Transaction Documents
and the Master Exclusive Service Agreement (as amended from time to time).
[Signature Page Follows]
Name: [Spouse of the VIE Shareholder]
Date:
Schedule of Material Differences
One or more spousal consent letters using this form were executed. Pursuant to Instruction ii to Item 601 of Regulation S-K, the
Registrant may only file this form as an exhibit with a schedule setting forth the material details in which the executed letters differ from
this form:
No.
1
Name of VIE Shareholder
Changxing Xiao
Name of Variable Interest Entity (the “VIE”)
Jiufu Shuke Technology Group Co., Ltd.(formerly known as
Beijing Jiufu Times Investment Consulting Co., Ltd., Jiufu
Internet Finance Holdings Group Co., Ltd., and Jiufu Jinke
Holdings Group Co., Ltd., successively)
Jiufu Shuke Technology Group Co., Ltd.(formerly known as
Beijing Jiufu Times Investment Consulting Co., Ltd., Jiufu
Internet Finance Holdings Group Co., Ltd., and Jiufu Jinke
Holdings Group Co., Ltd., successively)
Beijing Puhui Lianyin Information Technology Co., Ltd.
Lei Sun
Lei Liu
Dongcheng Zhang
Beijing Puhui Lianyin Information Technology Co., Ltd.
Changxing Xiao
Beijing Puhui Lianyin Information Technology Co., Ltd.
Lixing Chen
Beijing Puhui Lianyin Information Technology Co., Ltd.
Lei Sun
Beijing Puhui Lianyin Information Technology Co., Ltd.
Haigen Zhou
Shenzhen Fuyuan Network Technology Co., Ltd.
Jianbo Cai
Shenzhen Fuyuan Network Technology Co., Ltd.
Cen Chen
Reserved
Reserved
Reserved
Zhuhai Huike Lianyin Technology Co., Ltd.
Reserved
2
3
4
5
6
7
8
9
10
11
12
13
14
Name of WFOE
Beijing Jiufu Lianyin
Technology Co., Ltd.
Beijing Jiufu Lianyin
Technology Co., Ltd.
Beijing Jiufu Lianyin
Technology Co., Ltd.
Beijing Jiufu Lianyin
Technology Co., Ltd.
Beijing Jiufu Lianyin
Technology Co., Ltd.
Beijing Jiufu Lianyin
Technology Co., Ltd.
Beijing Jiufu Lianyin
Technology Co., Ltd.
Qianhai Fuyuan Network
Technology (Shenzhen)
Co., Ltd.
Qianhai Fuyuan Network
Technology (Shenzhen)
Co., Ltd.
Zhuhai Xiaojin Hulian
Technology Co., Ltd.
Exhibit 4.11
9F INC.
2021 SHARE INCENTIVE PLAN
ARTICLE 1
PURPOSE
The purpose of the 9F Inc. 2021 Share Incentive Plan (the “Plan”) is to promote the success and enhance the value of 9F Inc., a
company formed under the laws of the Cayman Islands (the “Company”), by linking the personal interests of the members of the Board,
Employees, Consultants and other individuals as the Committee may authorize and approve, to those of the Company’s shareholders and,
by providing such individuals with an incentive for outstanding performance, to generate superior returns to the Company’s shareholders.
The Plan is further intended to provide flexibility to the Company in its ability to motivate, attract, and retain the services of recipients of
share incentives hereunder upon whose judgment, interest, and special effort the successful conduct of the Company’s operation is
largely dependent.
ARTICLE 2
DEFINITIONS AND CONSTRUCTION
Wherever the following terms are used in the Plan they shall have the meanings specified below, unless the context clearly
indicates otherwise. The singular pronoun shall include the plural where the context so indicates.
2.1
“Applicable Laws” means the legal requirements relating to the Plan and the Awards under applicable provisions of
the corporate, securities, tax and other laws, rules, regulations and government orders, and the rules of any applicable stock exchange or
national market system, of any jurisdiction applicable to Awards granted to residents therein.
2.2
“Award” means an Option, Restricted Share or Restricted Share Unit award granted to a Participant pursuant to the
Plan.
2.3
“Award Agreement” means any written agreement, contract, or other instrument or document evidencing an Award,
including through electronic medium.
2.4
2.5
“Board” means the Board of Directors of the Company.
“Cause” with respect to a Participant means (unless otherwise expressly provided in the applicable Award Agreement,
or another applicable contract with the Participant that defines such term for purposes of determining the effect that a “for cause”
termination has on the Participant’s Awards) a termination of employment or service based upon a finding by the Service Recipient,
acting in good faith and based on its reasonable belief at the time, that the Participant:
(a)
has been negligent in the discharge of his or her duties to the Service Recipient, has refused to perform stated
or assigned duties or is incompetent in or (other than by reason of a disability or analogous condition) incapable of performing those
duties;
confidentiality, an unauthorized disclosure or use of inside information, customer lists, trade secrets or other confidential information;
(b)
has been dishonest or committed or engaged in an act of theft, embezzlement or fraud, a breach of
(c)
has breached a fiduciary duty, or willfully and materially violated any other duty, law, rule, regulation or
policy of the Service Recipient; or has been convicted of, or plead guilty or nolo contendere to, a felony or misdemeanor (other than
minor traffic violations or similar offenses);
(d)
(e)
has materially breached any of the provisions of any agreement with the Service Recipient;
has engaged in unfair competition with, or otherwise acted intentionally in a manner injurious to the
reputation, business or assets of, the Service Recipient; or
induced a principal for whom the Service Recipient acts as agent to terminate such agency relationship.
(f)
has improperly induced a vendor or customer to break or terminate any contract with the Service Recipient or
A termination for Cause shall be deemed to occur (subject to reinstatement upon a contrary final determination by the
Committee) on the date on which the Service Recipient first delivers written notice to the Participant of a finding of termination for
Cause.
2.6
2.7
2.8
“Code” means the Internal Revenue Code of 1986 of the United States, as amended.
“Committee” means the Board or a committee of the Board described in Article 10.
“Consultant” means any consultant or adviser if: (a) the consultant or adviser renders bona fide services to a Service
Recipient; (b) the services rendered by the consultant or adviser are not in connection with the offer or sale of securities in a capital-
raising transaction and do not directly or indirectly promote or maintain a market for the Company’s securities; and (c) the consultant or
adviser is a natural person who has contracted directly with the Service Recipient to render such services.
2.9
“Corporate Transaction”, unless otherwise defined in an Award Agreement, means any of the following transactions,
provided, however, that the Committee shall determine under (d) and (e) whether multiple transactions are related, and its determination
shall be final, binding and conclusive:
(a)
an amalgamation, arrangement or consolidation or scheme of arrangement (i) in which the Company is not the
surviving entity, except for a transaction the principal purpose of which is to change the jurisdiction in which the Company is
incorporated or (ii) following which the holders of the voting securities of the Company do not continue to hold more than 50% of the
combined voting power of the voting securities of the surviving entity;
(b)
(c)
the sale, transfer or other disposition of all or substantially all of the assets of the Company;
the complete liquidation or dissolution of the Company;
(d)
any reverse takeover or series of related transactions culminating in a reverse takeover (including, but not
limited to, a tender offer followed by a reverse takeover) in which the Company is the surviving entity but (A) the Company’s equity
securities outstanding immediately prior to such takeover are converted or exchanged by virtue of the takeover into other property,
whether in the form of securities, cash or otherwise, or (B) in which securities possessing more than fifty percent (50%) of the total
combined voting power of the Company’s outstanding securities are transferred to a person or persons different from those who held
such securities immediately prior to such takeover or the initial transaction culminating in such takeover; or
(e)
acquisition in a single or series of related transactions by any person or related group of persons (other than
the Company or by a Company-sponsored employee benefit plan) of beneficial ownership (within the meaning of Rule 13d-3 of the
Exchange Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Company’s outstanding
securities.
2.10
“Disability”, unless otherwise defined in an Award Agreement, means that the Participant qualifies to receive long-
term disability payments under the Service Recipient’s long-term disability insurance program, as it may be amended from time to time,
to which the Participant provides services regardless of whether the Participant is covered by such policy. If the Service Recipient to
which the Participant provides service does not
2
have a long-term disability plan in place, “Disability” means that a Participant is unable to carry out the responsibilities and functions of
the position held by the Participant by reason of any medically determinable physical or mental impairment for a period of not less than
ninety (90) consecutive days. A Participant will not be considered to have incurred a Disability unless he or she furnishes proof of such
impairment sufficient to satisfy the Committee in its discretion.
2.11
“Effective Date” shall have the meaning set forth in Section 11.1.
2.12
“Employee” means any person, including an officer or a member of the Board of the Company or any Parent or
Subsidiary of the Company, who is in the employment of a Service Recipient, subject to the control and direction of the Service
Recipient as to both the work to be performed and the manner and method of performance. The payment of a director’s fee by a Service
Recipient shall not be sufficient to constitute “employment” by the Service Recipient.
2.13
“Exchange Act” means the Securities Exchange Act of 1934 of the United States, as amended.
2.14
“Fair Market Value” means, as of any date, the value of Shares determined as follows:
(a)
If the Shares are listed on one or more established stock exchanges or national market systems, including
without limitation, The New York Stock Exchange, The Nasdaq Stock Market and the Hong Kong Stock Exchange, its Fair Market Value
shall be the closing sales price for such shares (or the closing bid, if no sales were reported) as quoted on the principal exchange or
system on which the Shares are listed (as determined by the Committee) on the date of determination (or, if no closing sales price or
closing bid was reported on that date, as applicable, on the last trading date such closing sales price or closing bid was reported), as
reported in The Wall Street Journal or such other source as the Committee deems reliable;
(b)
If the Shares are regularly quoted on an automated quotation system (including the OTC Bulletin Board) or by
a recognized securities dealer, its Fair Market Value shall be the closing sales price for such shares as quoted on such system or by such
securities dealer on the date of determination, but if selling prices are not reported, the Fair Market Value of a Share shall be the mean
between the high bid and low asked prices for the Shares on the date of determination (or, if no such prices were reported on that date, on
the last date such prices were reported), as reported in The Wall Street Journal or such other source as the Committee deems reliable; or
(c)
In the absence of an established market for the Shares of the type described in (a) and (b), above, the Fair
Market Value thereof shall be determined by the Committee in good faith and in its discretion by reference to (i) the placing price of the
latest private placement of the Shares and the development of the Company’s business operations and the general economic and market
conditions since such latest private placement, (ii) other third party transactions involving the Shares and the development of the
Company’s business operation and the general economic and market conditions since such sale, (iii) an independent valuation of the
Shares, or (iv) such other methodologies or information as the Committee determines to be indicative of Fair Market Value and relevant.
2.15
“Incentive Share Option” means an Option that is intended to meet the requirements of Section 422 of the Code or any
successor provision thereto.
2.16
“Independent Director” means (i) before the Shares or other securities representing the Shares are listed on a stock
exchange, a member of the Board who is a Non-Employee Director; and (ii) after the Shares or other securities representing the Shares
are listed on a stock exchange, a member of the Board who meets the independence standards under the applicable corporate governance
rules of the stock exchange.
2.17
“Non-Employee Director” means a member of the Board who qualifies as a “Non-Employee Director” as defined in
Rule 16b-3(b)(3) of the Exchange Act, or any successor definition adopted by the Board.
2.18
“Non-Qualified Share Option” means an Option that is not intended to be an Incentive Share Option.
3
2.19
“Option” means a right granted to a Participant pursuant to Article 5 of the Plan to purchase a specified number of
Shares at a specified price during specified time periods. An Option may be either an Incentive Share Option or a Non-Qualified Share
Option.
2.20
“Participant” means a person who, as a member of the Board, Consultant or Employee, or other individuals as the
Committee may authorize and approve, has been granted an Award pursuant to the Plan.
2.21
“Parent” means a parent corporation under Section 424(e) of the Code.
2.22
“Plan” means this 9F Inc. 2021 Share Incentive Plan, as it may be amended from time to time.
2.23
“Related Entity” means any business, corporation, partnership, limited liability company or other entity in which the
Company, a Parent or Subsidiary of the Company holds a substantial ownership interest, directly or indirectly, but which is not a
Subsidiary and which the Board designates as a Related Entity for purposes of the Plan.
2.24
“Restricted Share” means a Share awarded to a Participant pursuant to Article 6 that is subject to certain restrictions
and may be subject to risk of forfeiture.
2.25
“Restricted Share Unit” means the right granted to a Participant pursuant to Article 7 to receive a Share at a future date.
2.26
“Securities Act” means the Securities Act of 1933 of the United States, as amended.
2.27
“Service Recipient” means the Company, any Parent or Subsidiary of the Company and any Related Entity to which a
Participant provides services as an Employee, a Consultant, or a Director.
2.28
“Share” means ordinary shares of the Company, par value US$0.0001 per share, and such other securities of the
Company that may be substituted for Shares pursuant to Article 9.
2.29
“Subsidiary” means any corporation or other entity of which a majority of the outstanding voting shares or voting
power is beneficially owned or controlled directly or indirectly by the Company.
2.30
“Trading Date” means the closing of the first sale to the general public of the Shares pursuant to a registration
statement filed with and declared effective by the U.S. Securities and Exchange Commission under the Securities Act.
ARTICLE 3
SHARES SUBJECT TO THE PLAN
3.1
Number of Shares.
(a)
Subject to the provisions of Article 9 and Section 3.1(b), the maximum aggregate number of Shares which
may be issued pursuant to all Awards (including Incentive Share Options) shall be 20,351,068 ordinary shares of the Company, par value
US$0.0001 per share,and an annual increase on the first day of each of the five consecutive fiscal years of the Company commencing
with the fiscal year beginning January 1, 2022, by (i) an amount equal to 1.0% of the total number of the then issued and outstanding
Shares or (ii) such fewer number of Shares as may be determined by the Board.
(b)
To the extent that an Award terminates, expires, or lapses for any reason, any Shares subject to the Award
shall again be available for the grant of an Award pursuant to the Plan. To the extent permitted by Applicable Laws, Shares issued in
assumption of, or in substitution for, any outstanding awards of any entity acquired in any form or combination by the Company or any
Parent or Subsidiary of the Company shall not be counted against Shares available for grant pursuant to the Plan. Shares delivered by the
Participant or withheld by the Company upon the exercise of any Award under the Plan, in payment of the exercise price thereof or tax
4
withholding thereon, may again be optioned, granted or awarded hereunder, subject to the limitations of Section 3.1(a). If any Restricted
Shares are forfeited by the Participant or repurchased by the Company, such Shares may again be optioned, granted or awarded
hereunder, subject to the limitations of Section 3.1(a). Notwithstanding the provisions of this Section 3.1(b), no Shares may again be
optioned, granted or awarded if such action would cause an Incentive Share Option to fail to qualify as an Incentive Share Option under
Section 422 of the Code.
3.2
Shares Distributed. Any Shares distributed pursuant to an Award may consist, in whole or in part, of authorized and
unissued Shares, treasury shares (subject to Applicable Laws) or Shares purchased on the open market. Additionally, in the discretion of
the Committee, American Depository Shares in an amount equal to the number of Shares which otherwise would be distributed pursuant
to an Award may be distributed in lieu of Shares in settlement of any Award. If the number of Shares represented by an American
Depository Share is other than on a one-to-one basis, the limitations of Section 3.1 shall be adjusted to reflect the distribution of
American Depository Shares in lieu of Shares.
ARTICLE 4
ELIGIBILITY AND PARTICIPATION
4.1
Eligibility. Those eligible to participate in this Plan include Employees, Consultants, and all members of the Board,
and other individuals, as determined, authorized and approved by the Committee.
4.2
Participation. Subject to the provisions of the Plan, the Committee may, from time to time, select from among all
eligible individuals, those to whom Awards shall be granted and shall determine the nature and amount of each Award. No individual
shall have any right to be granted an Award pursuant to this Plan.
4.3
Jurisdictions. In order to assure the viability of Awards granted to Participants in various jurisdictions, the Committee
may provide for such special terms as it may consider necessary or appropriate to accommodate differences in local law, tax policy, or
custom applicable in the jurisdiction in which the Participant resides, is employed, operates or is incorporated. Moreover, the Committee
may approve such supplements to, or amendments, restatements, or alternative versions of, the Plan as it may consider necessary or
appropriate for such purposes without thereby affecting the terms of the Plan as in effect for any other purpose; provided, however, that
no such supplements, amendments, restatements, or alternative versions shall increase the share limitations contained in Section 3.1 of
the Plan. Notwithstanding the foregoing, the Committee may not take any actions hereunder, and no Awards shall be granted, that would
violate any Applicable Laws.
ARTICLE 5
OPTIONS
5.1
General. The Committee is authorized to grant Options to Participants on the following terms and conditions:
(a)
Exercise Price. The exercise price per Share subject to an Option shall be determined by the Committee and
set forth in the Award Agreement which may be a fixed or variable price related to the Fair Market Value of the Shares. The exercise
price per Share subject to an Option may be amended or adjusted in the absolute discretion of the Committee, the determination of which
shall be final, binding and conclusive. For the avoidance of doubt, to the extent not prohibited by Applicable Laws or any exchange rule,
a downward adjustment of the exercise prices of Options mentioned in the preceding sentence shall be effective without the approval of
the Company’s shareholders or the approval of the affected Participants.
(b)
Time and Conditions of Exercise. The Committee shall determine the time or times at which an Option may
be exercised in whole or in part, including exercise prior to vesting; provided that the term of any Option granted under the Plan shall not
exceed ten years, except as provided in Section 12.1. The Committee shall also determine any conditions, if any, that must be satisfied
before all or part of an Option may be exercised.
5
(c)
Payment. The Committee shall determine the methods by which the exercise price of an Option may be paid,
the form of payment, including, without limitation (i) cash or check denominated in U.S. Dollars, (ii) to the extent permissible under the
Applicable Laws, cash or check in Chinese Renminbi, (iii) cash or check denominated in any other local currency as approved by the
Committee, (iv) Shares held for such period of time as may be required by the Committee in order to avoid adverse financial accounting
consequences and having a Fair Market Value on the date of delivery equal to the aggregate exercise price of the Option or exercised
portion thereof, (v) after the Trading Date the delivery of a notice that the Participant has placed a market sell order with a broker with
respect to Shares then issuable upon exercise of the Option, and that the broker has been directed to pay a sufficient portion of the net
proceeds of the sale to the Company in satisfaction of the Option exercise price; provided that payment of such proceeds is then made to
the Company upon settlement of such sale, (vi) other property acceptable to the Committee with a Fair Market Value equal to the
exercise price, or (vii) any combination of the foregoing. Notwithstanding any other provision of the Plan to the contrary, no Participant
who is a member of the Board or an “executive officer” of the Company within the meaning of Section 13(k) of the Exchange Act shall
be permitted to pay the exercise price of an Option in any method which would violate Section 13(k) of the Exchange Act.
Participant. The Award Agreement shall include such additional provisions as may be specified by the Committee.
(d)
Evidence of Grant. All Options shall be evidenced by an Award Agreement between the Company and the
have the following effects on Options granted to the Participants:
(e)
Effects of Termination of Employment or Service on Options. Termination of employment or service shall
(i)
Except as otherwise determined by the Committee at the time of the grant of the Award or thereafter,
upon termination of employment or service, Options that at that time have not vested shall be forfeited in accordance with the Award
Agreement; provided, however, the Committee may (a) provide in any Option Award Agreement that forfeiture conditions relating to
Options will be waived in whole or in part in the event of terminations resulting from specified causes, and (b) in other cases waive in
whole or in part forfeiture conditions relating to Options.
employment by or service to the Service Recipient is terminated by the Service Recipient for Cause, the Participant’s Options will
terminate upon such termination, whether or not the Option is then vested and/or exercisable;
(ii)
Dismissal for Cause. Unless otherwise provided in the Award Agreement, if a Participant’s
(iii)
Death or Disability. Unless otherwise provided in the Award Agreement, if a Participant’s
employment by or service to the Service Recipient terminates as a result of the Participant’s death or Disability, the Participant (or his or
her legal representative or beneficiary, in the case of the Participant’s Disability or death, respectively), will have the right to exercise the
Participant’s Options (or portion thereof) to the extent that such Options were vested and exercisable on the date of the Participant’s
termination of Employment on account of death or Disability.
5.2
Incentive Share Options. Incentive Share Options may be granted to Employees of the Company, a Parent or
Subsidiary of the Company. Incentive Share Options may not be granted to Employees of a Related Entity or to Independent Directors or
Consultants. The terms of any Incentive Share Options granted pursuant to the Plan, in addition to the requirements of Section 5.1, must
comply with the following additional provisions of this Section 5.2:
(a)
Individual Dollar Limitation. The aggregate Fair Market Value (determined as of the time the Option is
granted) of all Shares with respect to which Incentive Share Options are first exercisable by a Participant in any calendar year may not
exceed $100,000 or such other limitation as imposed by Section 422(d) of the Code, or any successor provision. To the extent that
Incentive Share Options are first exercisable by a Participant in excess of such limitation, the excess shall be considered Non-Qualified
Share Options.
date of grant. However, the exercise price of any Incentive Share Option granted to any
(b)
Exercise Price. The exercise price of an Incentive Share Option shall be equal to the Fair Market Value on the
6
individual who, at the date of grant, owns Shares possessing more than ten percent of the total combined voting power of all classes of
shares of the Company may not be less than 110% of Fair Market Value on the date of grant and such Option may not be exercisable for
more than five years from the date of grant.
(c)
Transfer Restriction. The Participant shall give the Company prompt notice of any disposition of Shares
acquired by exercise of an Incentive Share Option within (i) two years from the date of grant of such Incentive Share Option or (ii) one
year after the transfer of such Shares to the Participant.
Plan after the tenth anniversary of the Effective Date.
(d)
Expiration of Incentive Share Options. No Award of an Incentive Share Option may be made pursuant to this
Participant.
(e)
Right to Exercise. During a Participant’s lifetime, an Incentive Share Option may be exercised only by the
ARTICLE 6
RESTRICTED SHARES
6.1
Grant of Restricted Shares. The Committee, at any time and from time to time, may grant Restricted Shares to
Participants as the Committee, in its sole discretion, shall determine. The Committee, in its sole discretion, shall determine the number of
Restricted Shares to be granted to each Participant.
6.2
Restricted Shares Award Agreement. Each Award of Restricted Shares shall be evidenced by an Award Agreement that
shall specify the period of restriction, the number of Restricted Shares granted, and such other terms and conditions as the Committee, in
its sole discretion, shall determine. Unless the Committee determines otherwise, Restricted Shares shall be held by the Company as
escrow agent until the restrictions on such Restricted Shares have lapsed.
6.3
Issuance and Restrictions. Restricted Shares shall be subject to such restrictions on transferability and other
restrictions as the Committee may impose (including, without limitation, limitations on the right to vote Restricted Shares or the right to
receive dividends on the Restricted Share). These restrictions may lapse separately or in combination at such times, pursuant to such
circumstances, in such installments, or otherwise, as the Committee determines at the time of the grant of the Award or thereafter.
6.4
Forfeiture/Repurchase. Except as otherwise determined by the Committee at the time of the grant of the Award or
thereafter, upon termination of employment or service during the applicable restriction period, Restricted Shares that are at that time
subject to restrictions shall be forfeited or repurchased in accordance with the Award Agreement; provided, however, the Committee may
(a) provide in any Restricted Share Award Agreement that restrictions or forfeiture and repurchase conditions relating to Restricted
Shares will be waived in whole or in part in the event of terminations resulting from specified causes, and (b) in other cases waive in
whole or in part restrictions or forfeiture and repurchase conditions relating to Restricted Shares.
6.5
Certificates for Restricted Shares. Restricted Shares granted pursuant to the Plan may be evidenced in such manner as
the Committee shall determine. If certificates representing Restricted Shares are registered in the name of the Participant, certificates
must bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Restricted Shares, and the
Company may, at its discretion, retain physical possession of the certificate until such time as all applicable restrictions lapse.
6.6
Removal of Restrictions. Except as otherwise provided in this Article 6, Restricted Shares granted under the Plan shall
be released from escrow as soon as practicable after the last day of the period of restriction. The Committee, in its discretion, may
accelerate the time at which any restrictions shall lapse or be removed. After the restrictions have lapsed, the Participant shall be entitled
to have any legend or legends under Section 6.5 removed from his or her Share certificate, and the Shares shall be freely transferable by
the Participant, subject to applicable legal restrictions. The Committee (in its discretion) may establish procedures regarding the release
of Shares from escrow and the removal of legends, as necessary or appropriate to minimize administrative burdens on the Company.
7
ARTICLE 7
RESTRICTED SHARE UNITS
7.1
Grant of Restricted Share Units. The Committee, at any time and from time to time, may grant Restricted Share Units
to Participants as the Committee, in its sole discretion, shall determine. The Committee, in its sole discretion, shall determine the number
of Restricted Share Units to be granted to each Participant.
7.2
Restricted Share Units Award Agreement. Each Award of Restricted Share Units shall be evidenced by an Award
Agreement that shall specify any vesting conditions, the number of Restricted Share Units granted, and such other terms and conditions
as the Committee, in its sole discretion, shall determine.
7.3
Performance Objectives and Other Terms. The Committee, in its discretion, may set performance objectives or other
vesting criteria which, depending on the extent to which they are met, will determine the number or value of Restricted Share Units that
will be paid out to the Participants.
7.4
Form and Timing of Payment of Restricted Share Units. At the time of grant, the Committee shall specify the date or
dates on which the Restricted Share Units shall become fully vested and nonforfeitable. Upon vesting, the Committee, in its sole
discretion, may pay Restricted Share Units in the form of cash, in Shares or in a combination thereof.
7.5
Forfeiture/Repurchase. Except as otherwise determined by the Committee at the time of the grant of the Award or
thereafter, upon termination of employment or service during the applicable restriction period, Restricted Share Units that are at that time
unvested shall be forfeited or repurchased in accordance with the Award Agreement; provided, however, the Committee may (a) provide
in any Restricted Share Unit Award Agreement that restrictions or forfeiture and repurchase conditions relating to Restricted Share Units
will be waived in whole or in part in the event of terminations resulting from specified causes, and (b) in other cases waive in whole or in
part restrictions or forfeiture and repurchase conditions relating to Restricted Share Units.
ARTICLE 8
PROVISIONS APPLICABLE TO AWARDS
8.1
Award Agreement. Awards under the Plan shall be evidenced by Award Agreements that set forth the terms, conditions
and limitations for each Award which may include the term of an Award, the provisions applicable in the event the Participant’s
employment or service terminates, and the Company’s authority to unilaterally or bilaterally amend, modify, suspend, cancel or rescind
an Award.
8.2
No Transferability; Limited Exception to Transfer Restrictions.
and by the Award Agreement, as the same may be amended:
8.2.1
Limits on Transfer. Unless otherwise expressly provided in (or pursuant to) this Section 8.2, by applicable law
(a)
alienation, assignment, pledge, encumbrance or charge;
all Awards are non-transferable and will not be subject in any manner to sale, transfer, anticipation,
(b)
(c)
Awards will be exercised only by the Participant; and
amounts payable or shares issuable pursuant to an Award will be delivered only to (or for the account
of), and, in the case of Shares, registered in the name of, the Participant.
In addition, the shares shall be subject to the restrictions set forth in the applicable Award Agreement.
8
8.2.2
Further Exceptions to Limits on Transfer. The exercise and transfer restrictions in Section 8.2.1 will not apply
to:
(a)
transfers to the Company or a Subsidiary;
(b) transfers by gift to “immediate family” as that term is defined in SEC Rule 16a-1(e) promulgated under
the Exchange Act;
(c)
the designation of a beneficiary to receive benefits if the Participant dies or, if the Participant has died,
transfers to or exercises by the Participant’s beneficiary, or, in the absence of a validly designated
beneficiary, transfers by will or the laws of descent and distribution; or
(d) if the Participant has suffered a disability, permitted transfers or exercises on behalf of the Participant by
the Participant’s duly authorized legal representative; or
(e)
transfer to one or more natural persons who are the Participant’s family members or entities owned and
controlled by the Participant and/or the Participant’s family members, including but not limited to trusts
or other entities whose beneficiaries or beneficial owners are the Participant and/or the Participant’s
family members, or to such other persons or entities as may be expressly approved by the Committee,
pursuant to such conditions and procedures as the Committee or may establish.
Notwithstanding anything else in this Section 8.2.2 to the contrary, but subject to compliance with all
applicable laws, Incentive Share Options, Restricted Sharesand Restricted Share Units will be subject to any
and all transfer restrictions under the Code applicable to such Awards or necessary to maintain the intended
tax consequences of such Awards.
8.3
Beneficiaries. Notwithstanding Section 8.2, a Participant may, in the manner determined by the Committee, designate a
beneficiary to exercise the rights of the Participant and to receive any distribution with respect to any Award upon the Participant’s death.
A beneficiary, legal guardian, legal representative, or other person claiming any rights pursuant to the Plan is subject to all terms and
conditions of the Plan and any Award Agreement applicable to the Participant, except to the extent the Plan and Award Agreement
otherwise provide, and to any additional restrictions deemed necessary or appropriate by the Committee. If the Participant is married and
resides in a community property state, a designation of a person other than the Participant’s spouse as his or her beneficiary with respect
to more than 50% of the Participant’s interest in the Award shall not be effective without the prior written consent of the Participant’s
spouse. If no beneficiary has been designated or survives the Participant, payment shall be made to the person entitled thereto pursuant to
the Participant’s will or the laws of descent and distribution. Subject to the foregoing, a beneficiary designation may be changed or
revoked by a Participant at any time provided the change or revocation is filed with the Committee.
8.4
Share Certificates. Notwithstanding anything herein to the contrary, the Company shall not be required to issue or
deliver any certificates evidencing the Shares pursuant to the exercise of any Award, unless and until the Committee has determined, with
advice of counsel, that the issuance and delivery of such certificates is in compliance with all Applicable Laws, regulations of
governmental authorities and, if applicable, the requirements of any exchange on which the Shares are listed or traded. All Share
certificates delivered pursuant to the Plan are subject to any stop-transfer orders and other restrictions as the Committee deems necessary
or advisable to comply with all Applicable Laws, and the rules of any national securities exchange or automated quotation system on
which the Shares are listed, quoted, or traded. The Committee may place legends on any Share certificate to reference restrictions
applicable to the Shares. In addition to the terms and conditions provided herein, the Committee may require that a Participant make such
reasonable covenants, agreements, and representations as the Committee, in its discretion, deems advisable in order to comply with any
such laws, regulations, or requirements. The Committee shall have the right to require any Participant to comply with any timing or other
restrictions with respect to the
9
settlement or exercise of any Award, including a window-period limitation, as may be imposed in the discretion of the Committee.
8.5
Paperless Administration. Subject to Applicable Laws, the Committee may make Awards, provide applicable
disclosure and procedures for exercise of Awards by an internet website or interactive voice response system for the paperless
administration of Awards.
8.6
Foreign Currency. A Participant may be required to provide evidence that any currency used to pay the exercise price
of any Award were acquired and taken out of the jurisdiction in which the Participant resides in accordance with Applicable Laws,
including foreign exchange control laws and regulations. In the event the exercise price for an Award is paid in Chinese Renminbi or
other foreign currency, as permitted by the Committee, the amount payable will be determined by conversion from U.S. dollars at the
official rate promulgated by the People’s Bank of China for Chinese Renminbi, or for jurisdictions other than the Peoples Republic of
China, the exchange rate as selected by the Committee on the date of exercise.
ARTICLE 9
CHANGES IN CAPITAL STRUCTURE
9.1
Adjustments. In the event of any dividend, share split, combination or exchange of Shares, amalgamation, arrangement
or consolidation, spin-off, recapitalization or other distribution (other than normal cash dividends) of Company assets to its shareholders,
or any other change affecting the shares of Shares or the share price of a Share, the Committee, in order to prevent diminution or
enlargement of the benefits intended to be made available under the Award, shall make such proportionate adjustments to reflect such
change with respect to to (a) the aggregate number and type of shares that may be issued under the Plan (including, but not limited to,
adjustments of the limitations in Section 3.1); (b) the terms and conditions of any outstanding Awards (including, without limitation, any
applicable performance targets or criteria with respect thereto); and (c) the grant or exercise price per share for any outstanding Awards
under the Plan.
9.2
Corporate Transactions. Except as may otherwise be provided in any Award Agreement or any other written agreement
entered into by and between the Company and a Participant, if the Committee anticipates the occurrence, or upon the occurrence, of a
Corporate Transaction, the Committee may, in its sole discretion, provide for (i) any and all Awards outstanding hereunder to terminate at
a specific time in the future and shall give each Participant the right to exercise the vested portion of such Awards during a period of time
as the Committee shall determine, or (ii) the purchase of any Award for an amount of cash equal to the amount that could have been
attained upon the exercise of such Award (and, for the avoidance of doubt, if as of such date the Committee determines in good faith that
no amount would have been attained upon the exercise of such Award, then such Award may be terminated by the Company without
payment),or (iii) the replacement of such Award with other rights or property selected by the Committee in its sole discretion or the
assumption of or substitution of such Award by the successor or surviving corporation, or a Parent or Subsidiary thereof, with appropriate
adjustments as to the number and kind of Shares and prices, or (iv) payment of Award in cash based on the value of Shares on the date of
the Corporate Transaction plus reasonable interest on the Award through the date when such Award would otherwise be vested or have
been paid in accordance with its original terms, if necessary to comply with Section 409A of the Code.
9.3
Outstanding Awards — Other Changes. In the event of any other change in the capitalization of the Company or
corporate change other than those specifically referred to in this Article 9, the Committee may, in its absolute discretion, make such
adjustments in the number and class of shares subject to Awards outstanding on the date on which such change occurs and in the per
share grant or exercise price of each Award as the Committee may consider appropriate to prevent dilution or enlargement of rights.
9.4
No Other Rights. Except as expressly provided in the Plan, no Participant shall have any rights by reason of any
subdivision or consolidation of Shares of any class, the payment of any dividend, any increase or decrease in the number of shares of any
class or any dissolution, liquidation, merger, or consolidation of the Company or any other corporation. Except as expressly provided in
the Plan or pursuant to action of the Committee under the Plan, no issuance by the Company of shares of any class, or securities
convertible into shares of any class,
10
shall affect, and no adjustment by reason thereof shall be made with respect to, the number of shares subject to an Award or the grant or
exercise price of any Award.
ARTICLE 10
ADMINISTRATION
10.1
Committee. The Plan shall be administered by the Boardor a committee of one or more members of the Board to whom
the Board shall delegate the authority to grant or amend Awards to Participants other than any of the Committee members. Any grant or
amendment of Awards to any Committee member shall then require an affirmative vote of a majority of the Board members who are not
on the Committee.
10.2
Action by the Committee. A majority of the Committee shall constitute a quorum. The acts of a majority of the
members of the Committee present at any meeting at which a quorum is present, and acts approved in writing by a majority of the
Committee in lieu of a meeting, shall be deemed the acts of the Committee. Each member of the Committee is entitled to, in good faith,
rely or act upon any report or other information furnished to that member by any officer or other employee of the Company or any
Subsidiary, the Company’s independent certified public accountants, or any executive compensation consultant or other professional
retained by the Company to assist in the administration of the Plan.
10.3
Authority of the Committee. Subject to any specific designation in the Plan, the Committee has the exclusive power,
authority and discretion to:
(a) designate Participants to receive Awards;
(b) determine the type or types of Awards to be granted to each Participant;
(c) determine the number of Awards to be granted and the number of Shares to which an Award will relate;
(d) determine the terms and conditions of any Award granted pursuant to the Plan, including, but not limited to,
the exercise price, grant price, or purchase price, any restrictions or limitations on the Award, any vesting schedule, forfeiture restrictions
or restrictions on the exercisability of an Award, and accelerations or waivers thereof, any provisions related to non-competition and
recapture of gain on an Award, based in each case on such considerations as the Committee in its sole discretion determines;
(e) determine whether, to what extent, and pursuant to what circumstances an Award may be settled in, or the
exercise price of an Award may be paid in, cash, Shares, other Awards, or other property, or an Award may be canceled, forfeited, or
surrendered;
(f) prescribe the form of each Award Agreement, which need not be identical for each Participant;
(g) decide all other matters that must be determined in connection with an Award;
(h) establish, adopt, or revise any rules and regulations as it may deem necessary or advisable to administer the
Plan;
(i)
interpret the terms of, and any matter arising pursuant to, the Plan or any Award Agreement; and
deems necessary or advisable to administer the Plan.
(j) make all other decisions and determinations that may be required pursuant to the Plan or as the Committee
11
10.4
Decisions Binding. The Committee’s interpretation of the Plan, any Awards granted pursuant to the Plan, any Award
Agreement and all decisions and determinations by the Committee with respect to the Plan are final, binding, and conclusive on all
parties.
ARTICLE 11
EFFECTIVE AND EXPIRATION DATE
11.1
Effective Date. The Plan is effective as of February, 2021 (the “Effective Date”) upon adoption by the Board.
11.2
Expiration Date. The Plan will expire on, and no Award may be granted pursuant to the Plan after, the tenth anniversary
of the Effective Date. Any Awards that are outstanding on the tenth anniversary of the Effective Date shall remain in force according to
the terms of the Plan and the applicable Award Agreement.
ARTICLE 12
AMENDMENT, MODIFICATION, AND TERMINATION
12.1
Amendment, Modification, And Termination. With the approval of the Board, at any time and from time to time, the
Committee may terminate, amend or modify the Plan; provided, however, that (a) to the extent necessary and desirable to comply with
Applicable Laws or stock exchange rules, the Company shall obtain shareholder approval of any Plan amendment in such a manner and
to such a degree as required, unless the Company decides to follow home country practice, and (b) unless the Company decides to follow
home country practice, shareholder approval is required for any amendment to the Plan that (i) increases the number of Shares available
under the Plan (other than any adjustment as provided by Article 9), or (ii) permits the Committee to extend the term of the Plan or the
exercise period for an Option beyond ten years from the date of grant.
12.2
Awards Previously Granted. Except with respect to amendments made pursuant to Section 12.1, no termination,
amendment, or modification of the Plan shall adversely affect in any material way any Award previously granted pursuant to the Plan
without the prior written consent of the Participant.
ARTICLE 13
GENERAL PROVISIONS
13.1
No Rights to Awards. No Participant, employee, or other person shall have any claim to be granted any Award pursuant
to the Plan, and neither the Company nor the Committee is obligated to treat Participants, employees, and other persons uniformly.
13.2
No Shareholders Rights. No Award gives the Participant any of the rights of a Shareholder of the Company unless and
until Shares are in fact issued to such person in connection with such Award.
13.3
Taxes. No Shares shall be delivered under the Plan to any Participant until such Participant has made arrangements
acceptable to the Committee for the satisfaction of any income and employment tax withholding obligations under Applicable Laws. The
Company or any Subsidiary shall have the authority and the right to deduct or withhold, or require a Participant to remit to the Company,
an amount sufficient to satisfy all applicable taxes (including the Participant’s payroll tax obligations) required or permitted by
Applicable Laws to be withheld with respect to any taxable event concerning a Participant arising as a result of this Plan. The Committee
may in its discretion and in satisfaction of the foregoing requirement allow a Participant to elect to have the Company withhold Shares
otherwise issuable under an Award (or allow the return of Shares) having a Fair Market Value equal to the sums required to be withheld.
Notwithstanding any other provision of the Plan, the number of Shares which may be withheld with respect to the issuance, vesting,
exercise or payment of any Award (or which may be repurchased from the Participant of such Award after such Shares were acquired by
the Participant from the Company) in order to satisfy any income and payroll tax liabilities applicable to the Participant with respect to
the issuance, vesting, exercise or payment of the Award shall, unless specifically approved by the Committee, be limited to the number of
12
Shares which have a Fair Market Value on the date of withholding or repurchase equal to the aggregate amount of such liabilities based
on the minimum statutory withholding rates for the applicable income and payroll tax purposes that are applicable to such supplemental
taxable income.
13.4
No Right to Employment or Services. Nothing in the Plan or any Award Agreement shall interfere with or limit in any
way the right of the Service Recipient to terminate any Participant’s employment or services at any time, nor confer upon any Participant
any right to continue in the employment or services of any Service Recipient.
13.5
Unfunded Status of Awards. The Plan is intended to be an “unfunded” plan for incentive compensation. With respect to
any payments not yet made to a Participant pursuant to an Award, nothing contained in the Plan or any Award Agreement shall give the
Participant any rights that are greater than those of a general creditor of the Company or any Subsidiary.
13.6
Indemnification. To the extent allowable pursuant to Applicable Laws, each member of the Committee or of the Board
shall be indemnified and held harmless by the Company from any loss, cost, liability, or expense that may be imposed upon or
reasonably incurred by such member in connection with or resulting from any claim, action, suit, or proceeding to which he or she may
be a party or in which he or she may be involved by reason of any action or failure to act pursuant to the Plan and against and from any
and all amounts paid by him or her in satisfaction of judgment in such action, suit, or proceeding against him or her; provided he or she
gives the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it
on his or her own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which
such persons may be entitled pursuant to the Company’s Memorandum of Association and Articles of Association, as a matter of law, or
otherwise, or any power that the Company may have to indemnify them or hold them harmless.
13.7
Relationship to other Benefits. No payment pursuant to the Plan shall be taken into account in determining any benefits
pursuant to any pension, retirement, savings, profit sharing, group insurance, welfare or other benefit plan of the Company or any
Subsidiary except to the extent otherwise expressly provided in writing in such other plan or an agreement thereunder.
13.8
Expenses. The expenses of administering the Plan shall be borne by the Company and its Subsidiaries.
13.9
Titles and Headings. The titles and headings of the Sections in the Plan are for convenience of reference only and, in
the event of any conflict, the text of the Plan, rather than such titles or headings, shall control.
13.10
Fractional Shares. No fractional Shares shall be issued and the Committee shall determine, in its discretion, whether
cash shall be given in lieu of fractional Shares or whether such fractional Shares shall be eliminated by rounding up or down as
appropriate.
13.11
Limitations Applicable to Section 16 Persons. Notwithstanding any other provision of the Plan, the Plan, and any
Award granted or awarded to any Participant who is then subject to Section 16 of the Exchange Act, shall be subject to any additional
limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of
the Exchange Act) that are requirements for the application of such exemptive rule. To the extent permitted by the Applicable Laws, the
Plan and Awards granted or awarded hereunder shall be deemed amended to the extent necessary to conform to such applicable
exemptive rule.
13.12 Government and Other Regulations. The obligation of the Company to make payment of awards in Shares or otherwise
shall be subject to all Applicable Laws, and to such approvals by government agencies as may be required. The Company shall be under
no obligation to register any of the Shares paid pursuant to the Plan under the Securities Act or any other similar law in any applicable
jurisdiction. If the Shares paid pursuant to the Plan may in certain circumstances be exempt from registration pursuant to the Securities
Actor other Applicable Laws, the Company may restrict the transfer of such Shares in such manner as it deems advisable to ensure the
availability of any such exemption.
13
13.13 Governing Law. The Plan and all Award Agreements shall be construed in accordance with and governed by the laws
of the Cayman Islands.
13.14
Section 409A. To the extent that the Committee determines that any Award granted under the Plan is or may become
subject to Section 409A of the Code, the Award Agreement evidencing such Award shall incorporate the terms and conditions required
by Section 409A of the Code. To the extent applicable, the Plan and the Award Agreements shall be interpreted in accordance with
Section 409A of the Code and the U.S. Department of Treasury regulations and other interpretative guidance issued thereunder, including
without limitation any such regulation or other guidance that may be issued after the Effective Date. Notwithstanding any provision of
the Plan to the contrary, in the event that following the Effective Date the Committee determines that any Award may be subject to
Section 409A of the Code and related Department of Treasury guidance (including such Department of Treasury guidance as may be
issued after the Effective Date), the Committee may adopt such amendments to the Plan and the applicable Award agreement or adopt
other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, that the
Committee determines are necessary or appropriate to (a) exempt the Award from Section 409A of the Code and/or preserve the intended
tax treatment of the benefits provided with respect to the Award, or (b) comply with the requirements of Section 409A of the Code and
related U.S. Department of Treasury guidance.
13.15 Appendices. The Committee may approve such supplements, amendments or appendices to the Plan as it may consider
necessary or appropriate for purposes of compliance with Applicable Laws or otherwise and such supplements, amendments or
appendices shall be considered a part of the Plan; provided, however, that no such supplements shall increase the share limitation
contained in Section 3.1 of the Plan without the approval of the Board.
14
Exhibit 8.1
List of Significant Subsidiaries and Consolidated Variable Interest Entities of 9F Inc.
Significant Subsidiaries
Place of Incorporation
Moore Digital Technology Information Service Limited
Hong Kong
Fuyuan Securities Limited
Hong Kong
Beijing Shuzhi Lianyin Technology Co., Ltd.
People’s Republic of China
Zhuhai Xiaojin Hulian Technology Co., Ltd.
People’s Republic of China
Zhuhai Jiuxin Asset Management Co., Ltd.
People’s Republic of China
Zhuhai Wukong Youpin Technology Co., Ltd.
People’s Republic of China
Qianhai Fuyuan Network Technology (Shenzhen) Co., Ltd.
People’s Republic of China
Beijing Jinniu Zhixuan Technology Co., Ltd.
People’s Republic of China
Variable Interest Entities
Place of Incorporation
Jiufu Shuke Technology Group Co., Ltd.
People’s Republic of China
Beijing Puhui Lianyin Information Technology Co., Ltd.
People’s Republic of China
Zhuhai Huike Lianyin Technology Co., Ltd.
People’s Republic of China
Shenzhen Fuyuan Network Technology Co., Ltd.
People’s Republic of China
Beijing Yi Qi Mai Technology Co., Ltd.
People’s Republic of China
Significant Subsidiaries held by Variable Interest Entities
Place of Incorporation
Zhuhai Onecard Xiaojin Technology Co., Ltd.
People’s Republic of China
Beijing Jiufu Puhui Information Technology Co., Ltd.
People’s Republic of China
Xinjiang Teyi Shuke Information Technology Co., Ltd.
People’s Republic of China
Certification by the Principal Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 12.1
I, Lei Liu, certify that:
1.
I have reviewed this Annual Report on Form 20-F of 9F Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the Company as of, and for, the period
presented in this report;
4. The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the Company, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d. Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the
period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the
Company’s internal control over financial reporting; and
5. The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons
performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and
report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the
Company’s internal control over financial reporting.
Date: May 17, 2021
/s/ Lei Liu
Name: Lei Liu
Title: Chief Executive Officer
Certification by the Principal Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 12.2
I, Yanjun Lin, certify that:
1.
I have reviewed this Annual Report on Form 20-F of 9F Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the Company as of, and for, the period
presented in this report;
4. The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e)) and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the Company, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d. Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the
period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the
Company’s internal control over financial reporting; and
5. The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons
performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and
report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the
Company’s internal control over financial reporting.
Date: May 17, 2021
/s/ Yanjun Lin
Name: Yanjun Lin
Title: Chief Financial Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 13.1
In connection with the Annual Report of 9F Inc. (the “Company”) on Form 20-F for the fiscal year ended December 31, 2020 as
filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lei Liu, Chief Executive Officer of the
Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my
knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
May 17, 2021
/s/ Lei Liu
Name: Lei Liu
Title: Chief Executive Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 13.2
In connection with the Annual Report of 9F Inc. (the “Company”) on Form 20-F for the fiscal year ended December 31, 2020 as
filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Yanjun Lin, Chief Financial Officer of the
Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my
knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
May 17, 2021
/s/ Yanjun Lin
Name: Yanjun Lin
Title: Chief Financial Officer
Exhibit 15.1
9/F, Office Tower C1, Oriental Plaza, 1 East Chang An Avenue
Beijing 100738, P. R. China
Tel: +86 10 8525 5500 Fax: +86 10 6525 5511 / 8525 5522
Beijing · Shanghai · Shenzhen · Hong Kong
www.hankunlaw.com
Date: May 17, 2021
9F Inc. (the "Company")
Room 1607, Building No. 5, 5 West Laiguangying Road
Chaoyang District, Beijing 100102
People’s Republic of China
Dear Sir/Madam:
We hereby consent to the use of our name and the summary of our opinion under the headings, “Item 3. Key Information—
D. Risk Factors” and “Item 4. Information on the Company—C. Organizational Structure,” included in the Company's
Annual Report on Form 20-F for the year ended December 31, 2020 (the “Annual Report”), which will be filed with the
Securities and Exchange Commission (the “SEC”) in the month of May 2021. We also consent to the filing of this consent
letter with the SEC as an exhibit to the Annual Report.
In giving such consent, we do not thereby admit that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, or under the Securities Exchange Act of 1934, in each case, as amended, or
the regulations promulgated thereunder.
Very truly yours,
/s/ Han Kun
Han Kun Law Offices
Exhibit 15.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement No. 333- 238489 on Form S-8 of our report dated
May 17, 2021, relating to the consolidated financial statements of 9F Inc., appearing in this Annual Report on Form 20-F for the
year ended December 31, 2020.
/s/ Wei, Wei & Co., LLP
Flushing, New York
May 17, 2021
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement No. 333-238489 on Form S-8 of our report dated June 24,
2020 relating to the financial statements of 9F Inc., appearing in this Annual Report on Form 20-F for the year ended December 31,
2020.
Exhibit 15.3
/s/ Deloitte Touche Tohmatsu Certified Public Accountants LLP
Deloitte Touche Tohmatsu Certified Public Accountants LLP
Beijing, the People’s Republic of China
May 17, 2021
Exhibit 16.1
May 17, 2021
Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549-7561
Dear Sirs/Madams:
We have read Item 16F of 9F Inc.’s Form 20-F dated May 17, 2021, and have the following comments:
1. We agree with the statements made in the first and fourth sentences of paragraph 1 and in paragraphs 2, 3 and 4 of Item
16F, for which we have a basis on which to comment on, and we agree with, the disclosures.
2. We have no basis on which to agree or disagree with the statements made in the second and third sentences of paragraph 1
and in paragraph 5, 6, 7, 8 and 9 of Item 16F.
Yours truly,
/s/ Deloitte Touche Tohmatsu Certified Public Accountants LLP
Deloitte Touche Tohmatsu Certified Public Accountants LLP
Beijing, the People’s Republic of China
Exhibit 16.2
May 17, 2021
Securities and Exchange Commission
100 F Street, N.E.
Washington, DC 20549
Commissioners,
We have read the statements made by 9F Inc. (copy attached), pursuant to Item 16F of Form 20-F, which
we understand will be filed with the Securities and Exchange Commission as part of the Form 20-F of 9F
Inc. dated May 17, 2021. We agree with the statements concerning our Firm contained therein.
Sincerely,
/s/ Marcum Bernstein & Pinchuk LLP
Enclosure
www.marcumbp.com