Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report
For the transition period from to
Commission file number: 001-39121
ECMOHO Limited
(Exact name of Registrant as specified in its charter)
N/A
(Translation of Registrant’s name into English)
Cayman Islands
5th Floor, 909 Tianyaoqiao Road
Xuhui District
Shanghai, 200030
The People’s Republic of China
(Jurisdiction of incorporation or organization)
(Address of principal executive offices)
Zoe Wang
Tel.: +86 21 5456 5223
Email: ir@ecmoho.com
Address:
5th Floor, 909 Tianyaoqiao Road
Xuhui District
Shanghai, 200030
The People’s Republic of China
(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
Trading Symbol(s)
Name of each exchange on which registered
American depositary shares, each representing four
Class A ordinary shares
Class A ordinary shares, par value US$0.00001 per
share*
MOHO
The Nasdaq Stock Market LLC
The Nasdaq Stock Market LLC
*Not for trading, but only in connection with the listing on the Nasdaq Stock Market LLC of American depositary shares, each representing four (4) Class A
ordinary Shares.
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Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
(Title of Class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual
report.
As of December 31, 2021, there were (i) 133,581,883 Class A ordinary shares, par value US$0.00001 per share, including 106,037,596 Class A ordinary
shares represented by 26,509,399 American depositary shares, and (ii) 59,355,616 Class B ordinary shares, par value US$0.00001 per share. Each American
depositary share represents four (4) Class A 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
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 definition 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 ☐
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i
TABLE OF CONTENTS
PART I
1
Item 1.
Identity of Directors, Senior Management and Advisers
1
Item 2.
Offer Statistics and Expected Timetable
1
Item 3.
Key Information
1
Item 4.
Information on the Company
50
Item 4A.
Unresolved Staff Comments
77
Item 5.
Operating and Financial Review and Prospects
77
Item 6.
Directors, Senior Management and Employees
97
Item 7.
Major Shareholders and Related Party Transactions
104
Item 8.
Financial Information
107
Item 9.
The Offer and Listing
108
Item 10.
Additional Information
108
Item 11.
Quantitative and Qualitative Disclosures about Market Risk
121
Item 12.
Description of Securities Other than Equity Securities
122
PART II
125
Item 13.
Defaults, Dividend Arrearages and Delinquencies
125
Item 14.
Material Modifications to the Rights of Security Holders and Use of Proceeds
125
Item 15.
Controls and Procedures
126
Item 16A.
Audit Committee Financial Expert
127
Item 16B.
Code of Ethics
127
Item 16C.
Principal Accountant Fees and Services
128
Item 16D.
Exemptions from the Listing Standards for Audit Committees
128
Item 16E.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
128
Item 16F.
Change in Registrant’s Certifying Accountant
128
Item 16G.
Corporate Governance
129
Item 16H.
Mine Safety Disclosure
130
Item 16I.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
130
PART III
131
Item 17.
Financial Statements
131
Item 18.
Financial Statements
131
Item 19.
Exhibits
132
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ii
Conventions that apply to this Annual Report on Form 20-F
In this annual report on Form 20-F, each of the following terms has the meaning ascribed to it below:
●
“we,” “us,” “our company” and “our” refer to ECMOHO Limited, a Cayman Islands exempted company with limited
liability (or its predecessors as the context requires), and its subsidiaries, consolidated affiliated entities (including the
variable interest entity) and their respective subsidiaries;
●
“ADRs” refers to our American depository receipts, which evidence our ADSs;
●
“ADSs” refers to our American depositary shares, each of which represents four (4) of our Class A ordinary shares;
●
“brand partners” refers to owners of non-proprietary brands (represented in our brand portfolio), each of which is managed
by a dedicated operations team;
●
“China” or “PRC” refers to the People’s Republic of China, excluding, for the purpose of this annual report on Form 20-F
only, Taiwan, Hong Kong and Macau;
●
“Class A ordinary share” refers to a Class A ordinary share in the capital of our company, with a par value of US$0.00001
per share;
●
“Class B ordinary share” refers to a Class B ordinary share in the capital of our company, with a par value of US$0.00001
per share;
●
“ECMOHO Hong Kong” refers to ECMOHO (Hong Kong) Health Technology Limited, a limited company established
under the Laws of Hong Kong;
●
“ECMOHO Shanghai” or “WFOE”, refers to our wholly-owned subsidiary in China, Shanghai ECMOHO Health
Biotechnology Co, Ltd., a limited liability company established under the Laws of the PRC;
●
“EIT Law” refers to the Enterprise Income Tax Law of the PRC;
●
“initial public offering” refers to our initial public offering of 4,675,000 ADSs (including ADSs sold in connection with
the over-allotment offering), representing 18,700,000 of our Class A ordinary shares;
●
“integrated solution provider” refers to entities that provide services connecting producers with consumers by combining
global sourcing capabilities with local distribution channels and coverage. Such providers typically offer integrated
solutions consisting of one-stop information technology solutions, online and offline store operations, digital marketing,
warehousing and logistics, and customer management;
●
“KOLs” refers to key opinion leaders who have extensive experience or industry insights in the various subsectors of the
health and wellness industry;
●
“major brand partners” refers to our brand partners, each of which contributed over US$10.0 million to our product sales
revenues in the designated period;
●
“ordinary shares” refers, collectively, to our Class A ordinary shares and Class B ordinary shares;
●
“the variable interest entity” or “the VIE” refers to Shanghai Yibo, an entity that ECMOHO Limited controls and
consolidates through contractual arrangements;
●
“RMB” or “Renminbi” refers to the legal currency of China;
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iii
●
“Shanghai Yibo” refers to Shanghai Yibo Medical Equipment Co., Ltd.;
●
“SKU” refers to stock keeping unit, which, for the purpose of this annual report on Form 20-F, can be a combination of
other stock keeping units;
●
“US$” or “U.S. dollars” refers to the legal currency of the United States of America;
●
“Xianggui Shanghai” refers to Xianggui (Shanghai) Biotechnology Co., Ltd; and
●
“Yang Infinity” refers to Yang Infinity (Shanghai) Biotechnology Co., Limited, the former variable entity in China, which
was deconsolidated in April 2020.
Names of certain companies provided in this annual report are translated or transliterated from their original Chinese legal names.
Discrepancies in any table between the amounts identified as total amounts and the sum of the amounts listed therein are due to rounding.
This annual report on Form 20-F includes our audited consolidated financial statements for 2019, 2020 and 2021.
Our reporting currency is the U.S. dollar. This annual report contains translations of certain Renminbi amounts into U.S. dollars at specified
rates for the convenience of the reader. Unless otherwise stated, the translation of Renminbi into U.S. dollars has been made at RMB6.3757
to US$1.00, the exchange rate set by the People’s Bank of China on December 31, 2021. We make no representation that any Renminbi or
U.S. dollar amounts could have been, or could be, converted into U.S. dollars or Renminbi, as the case may be, at any particular rate, the
rates stated below, or at all. The PRC government imposes controls over its foreign currency reserves in part through direct regulation of the
conversion of Renminbi into foreign exchange and through restrictions on foreign trade. On May 6, 2022, the noon buying rate was
RMB6.6651 to US$1.00.
Cautionary Note Regarding Forward-looking Statements
This annual report on Form 20-F contains certain “forward-looking statements” within the meaning of the Private Securities Litigation
Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Exchange Act.
All statements other than statements of historical fact in this annual report on Form 20-F are forward-looking statements. These forward-
looking statements can be identified by words or phrases such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “is/are likely to,”
“may,” “plan,” “should,” “will” and similar expressions. These forward-looking statements include, without limitation, statements relating
to:
●
the continued growth of the e-commerce market or the health and wellness industry in China;
●
our ability to manage the expansion of our business and implement our business strategies;
●
our ability to anticipate changes in customer and consumer preferences;
●
our ability to maintain and develop favorable relationships with e-commerce channels, brand partners, content generators
and other third parties involved in our ecosystem;
●
our ability to compete with other companies and new entrants to the market effectively;
●
our capital needs and ability to source such capital on acceptable terms;
●
dependence on key management personnel and quality and retention of personnel generally;
●
regulatory changes in the PRC and compliance with such regulations;
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●
the impact of the COVID-19 pandemic on the PRC economy, our major brand partners in the United States and Europe
and our operations and financial performance;
●
our ability to effectively manage our inventory and warehousing capabilities;
●
the effectiveness of our own information technology systems and infrastructure;
●
other factors that may affect our business, financial condition and results of operations; and
●
other risk factors discussed under “Item 3. Key Information—D. Risk Factors.”
You should thoroughly read this annual report and the documents that we refer to in this annual report with the understanding that our actual
future results may be materially different from and worse than what we expect. Other sections of this annual report include additional factors
which could adversely impact our business and financial performance. Moreover, we operate in an evolving environment. New risk factors
and uncertainties emerge from time to time and it is not possible for our management to predict all risk factors and uncertainties, nor can we
assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statements. We qualify all of our forward-looking statements by these cautionary
statements.
You should not rely upon forward-looking statements as predictions of future events. We undertake no obligation to update or revise any
forward-looking statements, whether as a result of new information, future events or otherwise.
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1
PART I
Item 1. Identity of Directors, Senior Management and Advisers
Not applicable.
Item 2. Offer Statistics and Expected Timetable
Not applicable.
Item 3. Key Information
Our Holding Company Structure and Contractual Arrangements with Our Consolidated VIE and Its Respective Individual
Shareholders
ECMOHO Limited, our ultimate Cayman Islands holding company, does not have any substantive operations other than (1) directly
controlling our subsidiaries in Hong Kong and China, which conduct our health and wellness business operations in China, and (2) indirectly
controlling Shanghai Yibo, the variable interest entity, which holds an ICP license but does not have any substantial operations in China.
Investors in the ADSs are purchasing equity securities of our ultimate Cayman Islands holding company, rather than purchasing equity
securities of the VIE. As used in this annual report, “we,” “us,” “our company,” “the Company” or “our” refers to ECMOHO Limited, a
Cayman Islands company, its subsidiaries in China. The VIE currently does not have substantive operations in China.
A series of contractual agreements, including equity interest pledge agreement, exclusive call option agreement, exclusive technology
consulting and service agreement, power of attorney and spousal consent letters, have been entered into by and among the WFOE, the VIE
and its shareholders. For more details of these contractual arrangements, see “Item 4. Information on the Company—C. Organizational
Structure—-Contractual Arrangements with the Variable Interest Entity.”
The contractual arrangements may not be as effective as direct ownership in providing us with control over our consolidated VIE and we
may incur substantial costs to enforce the terms of the arrangements. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our
Corporate Structure—Any failure by the VIE or its shareholders to perform their obligations under our contractual arrangements with them
would have a material adverse effect on our business,” and “Item 3. Key Information—D. Risk Factors— Risks Related to Our Corporate
Structure — The shareholders of the VIE may have potential conflicts of interest with us, which may materially and adversely affect our
business and financial condition.”
The VIE structure is used to replicate foreign investment in China-based companies where the PRC law prohibits direct foreign investment
in the operating companies. Neither we nor our subsidiaries own any share in the VIE. Instead, we control and receive the economic benefits
of the VIE’s business operation through a series of contractual agreements with the VIE. The contractual agreements with the VIE are
designed to provide ECMOHO Shanghai, or the WFOE, with the power, rights, and obligations equivalent in all material respects to those it
would possess as the principal equity holder of the VIE, including full control rights and the rights to the assets, property, and revenue of the
VIE. As a result of our direct ownership in ECMOHO Shanghai and its contractual agreements with the VIE, we are deemed as the primary
beneficiary of the VIE. In 2019, 2020 and 2021, revenue attributable to the VIE and our former variable entity in China was US$29
thousand, US$67 thousand and nil, respectively.
Our corporate structure is subject to risks associated with our contractual arrangements with the VIE. Investors may never directly hold
equity interests in the VIE. If the PRC government finds that contractual arrangements with the VIE do not comply with PRC laws and
regulations, or if these regulations or their interpretations change in the future, we could be subject to severe penalties or be forced to
relinquish our control over the VIE. Our holding company, our PRC subsidiaries, the VIE, and investors of our company face uncertainty
about potential future actions by the PRC government that could affect the enforceability of the contractual arrangements with the VIE and,
consequently, our ability to develop e-commerce business through the VIE and the prospect of our company.
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2
Our Operations in China and Permissions Required from the PRC Authorities for Our Operations
We conduct our business operations primarily through our wholly-owned subsidiaries in China. We also control the VIE through certain
contractual arrangements, which holds an Internet Content Provision (“ICP”) License and may develop e-commerce platforms in the future.
We, together with the VIE, are subject to PRC laws relating to, among others, restrictions over foreign investments in value-added
telecommunications business set out in the Negative List (2021 Version) promulgated by the Ministry of Commerce (“MOFCOM”), and the
National Development and Reform Commission (“NDRC”). To the extent that we plan to develop e-commerce platforms in the future, we
have to implement such business strategy through the VIE under our contractual arrangements.
We and the VIE face various legal and operational risks and uncertainties associated with being based in or having our operations primarily
in China and the complex and evolving PRC laws and regulations. The PRC government has significant authority to exert influence on the
ability of a China-based company, such as us and the VIE, to conduct its business, accept foreign investments or list on U.S. or other foreign
exchanges. For example, we and the VIE face risks associated with regulatory approvals of offshore offerings, anti-monopoly regulatory
actions, oversight on cybersecurity and data privacy, as well as the PCAOB audit inspection requirements. Such risks could result in a
material change in our operations and/or the value of the ADSs or could significantly limit or completely hinder our ability to offer ADSs
and/or other securities to investors and cause the value of such securities to significantly decline or be worthless. The PRC government also
has significant discretion over the conduct of the business of us and the VIE and may intervene with or influence our operations or the
development of the health and wellness industry as it deems appropriate to further regulatory, political and societal goals. Furthermore, the
PRC government has recently indicated an intent to exert more oversight and control over overseas securities offerings and foreign
investment in China-based companies like us. Any such action, once taken by the PRC government, could significantly limit or completely
hinder our ability to offer securities to investors and cause the value of such securities to significantly decline or in extreme cases, become
worthless. For a detailed description of risks related to doing business in China, “Item 3. Key Information—D. Risk Factors— Risks Related
to Doing Business in China.”
Our operations in China are governed by PRC laws and regulations. As of the date of this annual report, our subsidiaries in China and the
VIE have obtained the requisite licenses and permits from the PRC government authorities that are material for the business operations of
our holding company, our subsidiaries and the VIE in China, including, among others, food operation license. However, due to the
uncertainties of interpretation and implementation of relevant laws and regulations, and the enforcement practice by government authorities
in the PRC, we cannot assure you that we have obtained all the permits or licenses required for conducting our business in China, or that we
will be able to renew our existing licenses and permits in the future. We may be required to obtain additional licenses, permits, filings or
approvals for the functions and services of our platform in the future. For more detailed information, see “Item 3. Key Information—D. Risk
Factors—Risks Related to Doing Business in China—We may be adversely affected by the complexity, uncertainties and changes in PRC
regulation of healthcare industry and Internet-related businesses, and any lack of requisite approvals, licenses or permits applicable to our
business may have a material adverse effect on our business and results of operations.”
As of the date of this annual report, we, our PRC subsidiaries and the VIE are not required to obtain approval or permission from the CSRC,
the CAC or any other regulatory entity for the operations of the VIE and our PRC subsidiaries, or for us to offer securities to foreign
investors under any currently effective PRC laws, regulations, and regulatory rules. However, the PRC government has recently indicated an
intent to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers. For
more detailed information, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—The approval of
and the filing with the CSRC or other PRC government authorities may be required in connection with our future offshore offerings under
PRC law, and, if required, we cannot predict whether or for how long we will be able to obtain such approval or complete such filing.”
Cash and Asset Flows through Our Organization
ECMOHO Limited transfers cash to ECMOHO (Hong Kong) Heath Technology Limited (“ECMOHO Hong Kong”), its wholly-owned
subsidiary in Hong Kong, by making capital contributions or providing loans, and ECMOHO Hong Kong transfers cash to the subsidiaries in
China, Japan, Hong Kong, and Korea by making capital contributions or providing loans to these entities. Because ECMOHO Limited and
the WFOE control the VIE through contractual arrangements, they are not able to make direct capital contributions to the VIE. However,
they may transfer cash to the VIE by loans or by making payments to the VIE for inter-group transactions.
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In 2019, 2020 and 2021, ECMOHO Limited provided working capital of US$14.6 million, US$16.5 million and US$17.9 million to its
subsidiaries in China and overseas jurisdictions, respectively. For the years ended December 31, 2019, 2020 and 2021, the WFOE and its
subsidiaries transferred US$1.8 million, US$0.9 million and US$96 thousand to Yang Infinity, our former variable interest entity, and the
VIE, respectively.
The VIE may transfer cash to the WFOE and its subsidiaries by paying service fees according to exclusive technology consulting and service
agreements. For the years ended December 31, 2019, 2020 and 2021, the total amount of service fees that Yang Infinity and the VIE paid to
the WFOE and its subsidiaries under the exclusive technology consulting and service agreement was US$2.8 million, US$0.7 million and
nil, respectively.
For the years ended December 31, 2019, 2020 and 2021, no dividends or distributions were made to ECMOHO Limited by our subsidiaries.
Under PRC laws and regulations, our PRC subsidiaries and the VIE are subject to certain restrictions with respect to paying dividends or
otherwise transferring any of their net assets to us. Remittance of dividends by a wholly foreign-owned enterprise out of China is also subject
to examination by the banks designated by SAFE. The restricted amounts include the paid-up capital and the statutory reserve funds of our
PRC subsidiaries and the VIE, and were US$18.7 million, US$14.4 million and US$14.3 million as of December 31, 2019, 2020 and 2021,
respectively. Furthermore, cash transfers from our PRC subsidiaries to entities outside of China are subject to PRC government control of
currency conversion. Shortages in the availability of foreign currency may temporarily delay the ability of our PRC subsidiaries and the VIE
to remit sufficient foreign currency to pay dividends or other payments to us, or otherwise satisfy their foreign currency denominated
obligations. For risks relating to the fund flows of our operations in China, see “Item 3. Key Information—Risk Factors—Risks Related to
Doing Business in China—Any limitation on the ability of our PRC subsidiaries to make payments to us, or the tax implications of making
payments to us, could have a material adverse effect on our ability to conduct our business or our financial condition.”
In the years ended December 31, 2019, 2020 and 2021, no assets other than cash were transferred through our organization.
ECMOHO Limited has not declared or paid any cash dividends, nor does it have any present plan to pay any cash dividends on its 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. See “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Dividend Policy.”
For the Cayman Islands, PRC and U.S. federal income tax considerations applicable to an investment in our ADSs or Class A ordinary
shares, see “Item 10. Additional Information—E. Taxation.”
PCAOB’s Inspection over Financial Statements
Our financial statements contained in the annual report on Form 20-F for the fiscal year ended December 31, 2021 have been audited by
Friedman LLP, an independent registered public accounting firm that is headquartered in the United States. Friedman LLP is a firm
registered with the U.S. Public Company Accounting Oversight Board (the “PCAOB”), and is required by the laws of the U.S. to undergo
regular inspections by the PCAOB to assess its compliance with the laws of the U.S. and professional standards. Friedman LLP has been
subject to PCAOB inspections, and is not among the PCAOB-registered public accounting firms headquartered in the PRC or Hong Kong
that are subject to PCAOB’s determination on December 16, 2021 of having been unable to inspect or investigate completely by the
PCAOB. Therefore, we have not been identified by the SEC as a commission-identified issuer under the Holding Foreign Company
Accountable Act (“HFCAA”), as of the date of this annual report. If, in the future, we have been identified by the SEC for three consecutive
years as a commission-identified issuer whose registered public accounting firm is determined by the PCAOB as not being inspected or
investigated completely because of a position taken by one or more authorities in China, the SEC may prohibit our ordinary shares or ADSs
from being traded on a national securities exchange or in the over the counter trading market in the United States. Additionally, on June 22,
2021, the U.S. Senate passed a bill which would reduce the number of consecutive non-inspection years required for triggering the
prohibitions under the HFCAA from three years to two years. On February 4, 2022, the U.S. House of Representatives passed a bill which
contained, among other things, an identical provision. If this provision is enacted into law and the number of consecutive non-inspection
years required for triggering the prohibitions under the HFCAA is reduced from three years to two, then our ADSs could be prohibited from
trading in the United States as early as 2023. If we fail to meet the listing standards specified in the HFCAA in the future, we could face
possible delisting from the Nasdaq, cessation of trading in over the counter market, deregistration from the SEC and/or other risks, which
may materially and adversely affect, or effectively terminate, our ADSs trading in the United States.
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4
A. [Reserved]
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
This section describes the risks that we currently believe may materially affect our business, financial condition and results of operations.
The factors below should be considered in connection with any forward-looking statements in this annual report on Form 20-F. Although we
will make reasonable efforts to mitigate or minimize these risks, one or more of a combination of these risks could materially and adversely
impact our business, revenues, sales, net assets, financial condition, results of operations, liquidity, capital resources and prospects.
Additional risks and uncertainties that we are unaware of, or that we currently believe to be immaterial, may also become important factors
that affect us.
Summary Risk Factors
Risks Related to Our Business and Industry
●
Our business, financial position, liquidity and results of operations have been, and are likely to continue to be, materially and
adversely affected by the COVID-19 pandemic.
●
If the e-commerce market or the health and wellness industry in China does not grow, or grows more slowly than we expect,
the demand for our products and solutions could be materially and adversely affected.
●
We may not be able to effectively manage the expansion of our business or optimally implement our business strategies.
●
If we fail to anticipate evolving consumer preferences for health and wellness products and/or fail to cater effectively to
consumer demands, our ability to attract and retain customers may be materially and adversely affected.
●
Our success depends on our ability to maintain relationships with existing brand partners and to develop relationships with new
brand partners.
●
We may be unable to compete effectively against stronger and better-resourced e-commerce companies, offline competitors or
new entrants to the health and wellness market, and we may lose market share as a result.
●
We may need additional capital but may not be able to obtain it on acceptable terms, or at all.
●
We depend on key management as well as experienced and capable personnel generally, and any failure to attract, motivate or
retain our staff could hinder our ability to maintain and grow our business.
●
We are subject to evolving regulatory requirements, non-compliance with which, or changes in which, may materially and
adversely affect our business and prospects.
●
We may be subject to claims under consumer protection laws, including health and safety claims and product liability claims, if
property or people are harmed by the products sold on our platform.
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5
Risks Related to Our Corporate Structure
●
We are a “controlled company” within the meaning of the Nasdaq corporate governance requirements, which may result in
public investors having less protection than they would if we were not a controlled company.
●
If the PRC government finds that the agreements that establish the operating structure for some of our operations in China do
not comply with PRC regulations relating to the relevant industries, or if these regulations or the interpretation of existing
regulations change in the future, we could be subject to penalties or be forced to relinquish our control over the VIE.
●
The shareholders of the VIE may have potential conflicts of interest with us.
Risks Related to Doing Business in China
●
Changes in the political and economic policies of the PRC government may materially and adversely affect our business,
financial condition and results of operations and may result in our inability to sustain our growth and expansion strategies.
●
There are uncertainties regarding the interpretation and enforcement of PRC laws, rules and regulations.
●
We may be adversely affected by the complexity, uncertainties and changes in PRC regulation of healthcare industry and
Internet-related businesses, and any lack of requisite approvals, licenses or permits applicable to our business may have a
material adverse effect on our business and results of operations.
●
Recent joint statement by the SEC and the Public Company Accounting Oversight Board (United States), or the PCAOB,
proposed rule changes submitted by Nasdaq, the newly enacted Holding Foreign Companies Accountable Act all call for
additional and more stringent criteria to be applied to emerging market companies upon assessing the qualification of their
auditors, especially the non-U.S. auditors who are not inspected by the PCAOB. These developments could add uncertainties
to the trading of our ADSs on U.S. stock exchanges.
Risks Related to Our ADSs
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The trading price of our ADSs may be volatile, which could result in substantial losses to you.
●
If we fail to regain compliance with Nasdaq’s minimum bid price requirement, the ADSs could be subject to delisting.
●
The issuance of additional shares in the future may impact the price of our ADSs and our ability to regain compliance with
Nasdaq’s minimum bid price requirement.
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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.
●
Our dual-class share structure with different voting rights limits our investors’ 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 holders of
our ADSs may view as beneficial.
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Risks Related to Our Business and Industry
Our business, financial position, liquidity and results of operations have been, and are likely to continue to be, materially and adversely
affected by the COVID-19 pandemic.
The COVID-19 pandemic has created unique global and industry-wide challenges, including challenges to many aspects of our business.
Since January 2020, the Chinese government has imposed a series of strict and protracted measures, including quarantines, travel
restrictions, limitations on social or public gatherings, and the temporary closure of business venues and facilities across the country.
Governments across the globe have responded to contain the spread and reduce the risk of exposure to infection through international travel
restrictions, lockdowns of cities and wider regions, business closures and strict social distancing measures. Starting from March 2022, China
has experienced a new round of regional COVID-19 outbreaks. In particular, we have been subject to quarantine measures imposed by
regulatory authorities in Shanghai, where our headquarters are located, since March 2022. As of the date of this annual report, the impact of
the quarantine measures was limited to work-from-home policy implemented at our offices in Shanghai. We face risks associated with
decline in sales order and delay in delivery due to prolonged quarantine measures implemented in Shanghai, although currently the impact of
quarantine measures has been limited, as we have not experienced disruption of logistics in all of our warehouses, which are not located in
Shanghai. Relaxation of restrictions on economic and social activities in the future may also lead to new cases, which may lead to
reimposition of travel restrictions and quarantine measures.
The COVID-19 pandemic and the associated efforts to contain the spread of the disease have caused unprecedented disruptions to the global
economy, impacted business operations across many industries and geographies and created significant volatility and uncertainty, all of
which have had a material adverse effect on our results of operations, cash flows and overall financial position. For example, during the
implementation of quarantine measures in China, our operations were affected as many of our employees were unable to return to work
following the Lunar New Year public holiday. We only resumed full operations and achieved full staffing levels in mid-March 2020.
Moreover, during the first quarter of 2020, some of our third-party business partners in China, in particular, domestic logistics and transport
service providers, experienced temporary shutdowns or worker absenteeism and were unable to meet their obligations to us. These events
had an adverse impact on our ability to promptly provide our customers with the products they purchased, which, in turn, has affected our
financial performance. Although domestic logistics and transport services providers have resumed their ordinary course of business, there
has been and may continue to be a significant increase in international freight costs in light of the COVID-19 pandemic due to tight supply
chain capacity, which has had and may continue to have an impact on our fulfillment expenses. Furthermore, we have experienced and
expect to continue to experience disruptions to our supply chains if our brand partners, especially international brand partners based in the
United States and Europe, are severely impacted by the COVID-19 pandemic or government-imposed quarantines. If we are unable to
procure products from our key brand partners when required, our operations, financial condition and results of operations may be adversely
impacted in the foreseeable future and such impacts may be material. If we choose to increase the levels of inventory we hold, when
possible, to minimize the risk of experiencing product shortages, we may be exposed to increased inventory risk due to accumulated excess
inventory, which may have an adverse impact on our results of operations and financial condition. See “—If we fail to effectively manage
our inventory, our reputation, results of operations and financial condition may be materially and adversely affected.” Additionally, our
ability to enter into agreements with new brand partners has been impacted by pandemic related restrictions on business travels, causing a
decrease in the number of brand partners, which has affected and may continue to adversely affect our product sales and revenues. If we fail
to find alternative brand partners or otherwise grow our brand partner base, our results of operations may be materially and adversely
affected. We have modified our business practices in response to the COVID-19 pandemic, and started to provide integrated solutions,
including e-commerce business solutions, digital marketing services and e-commerce third- party operation management services to our
brand partners. We have also terminated business relationships with some of our then existing brand partners with whom we had less
favorable terms. However, the impact of our new initiatives in response to COVID-19 is uncertain and we may be subject to additional risks
related to our new initiatives.
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The longer-term trajectory of COVID-19, the spread of virus variations, and effectiveness and availability of the vaccines, and their impact
on our industry and the broader economy are still difficult to assess or predict and pose significant uncertainties that are difficult for us to
quantify and beyond our control. For example, in July 2021 and March 2022, COVID-19 outbreaks began to spread to multiple locations in
China. The new outbreaks were reported to be associated with the highly contagious Delta and Omicron variants, which raised concerns over
the outlook of future quarantine measures that have been or may be adopted in response. As such, we are currently unable to predict with the
ultimate long-term impact of COVID-19 pandemic on our business, financial condition, liquidity and results of operations. As a result of our
brand optimization strategy and the impact of COVID-19 related supply-chain disruption, we experienced a 57.3% decrease in product sales
revenues from US$300.2 million in 2020 to US$128.0 million in 2021 and a 43.4% decrease in service revenues from US$4.8 million in
2020 to US$2.7 million in 2021. The COVID-19 outbreak may continue to have an adverse impact on our results of operations in the
foreseeable future.
Each of the following risk factors should be read in the context of the foregoing uncertain trends, events and developments as they affect us,
whether or not we make specific reference to the COVID-19 pandemic, given the potentially materially adverse effect of the pandemic on
our business.
If the e-commerce market or the health and wellness industry in China does not grow, or grows more slowly than we expect, the demand
for our products and solutions could be materially and adversely affected.
Continued demand for our products and solutions depends on whether the e-commerce market and the health and wellness industry in China
will continue to grow. The long-term viability and prospects of the online retail business in China remain relatively untested. Our future
results of operations will depend on numerous factors affecting the development of the e-commerce industry in China, which may be beyond
our control, including:
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developments in, or changes to, laws, regulations, governmental policies, incentives, taxation and regulatory and policy
environment affecting our operations and e-commerce market or the health and wellness industry;
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the penetration rates of Internet services, personal computers and mobile connectivity;
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the trust and confidence level of e-commerce consumers in China, as well as changes in consumers’ demographics and
preferences;
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whether alternative retail channels or business models that better address the needs and preferences of consumers emerge in
China; and
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the development of fulfillment, payment and other ancillary services associated with online purchasing.
Additionally, our future results of operations will depend on numerous factors affecting the development of the health and wellness industry
in China, including:
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changes in the spending power of Chinese consumers;
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the prevalence of health issues and chronic diseases among Chinese consumers;
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the impact of the COVID-19 pandemic; and
●
the ongoing health and wellness market deficiencies and consumer mistrust of incumbent health and wellness product and
service providers.
If consumer utilization of e-commerce channels in China does not grow, or grows more slowly than we expect, demand for our products and
services would be adversely affected, our revenues would be negatively impacted and our ability to pursue our growth strategies would be
compromised.
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We are subject to evolving regulatory requirements, non-compliance with which, or changes in which, may materially and adversely
affect our business and prospects.
As a provider of an e-commerce platform for health and wellness products, we are subject to legal and regulatory requirements applicable to
multiple industries in China. These industries primarily include the Internet and health and wellness industries. We have been subject to
penalties by PRC regulatory authorities in the past due to our failure to comply with their requirements, including those in relation to pricing.
The regulations to which we are subject in this area are new and evolving. As a result, the interpretation of these laws and their enforcement
is often uncertain. Predicting the application of these laws can be difficult, and unexpected outcomes in the interpretation and enforcement of
the applicable regulations may have an adverse impact on our business and operations. Additionally, any future changes in regulation may
render our business non-compliant or require changes to our business practices or licensing arrangements to ensure compliance. These
changes may involve significant costs, which in turn may adversely affect our business and prospects.
Various regulatory authorities of the PRC government regulate value-added telecommunications services, food business, pharmaceutical
operations and services, online drug and medical device operations and online trading and e-commerce. Violations of regulations may lead to
the imposition of significant penalties which may affect our business, operations, reputation and financial prospects. In respect of the
healthcare industry, in particular, any violation of the relevant laws, rules and regulations may result in harsh penalties and, under certain
circumstances, lead to criminal prosecution.
As we introduce new products and services to our customers, we may be required to comply with additional laws and regulations that are yet
to be determined. To comply with such additional laws and regulations, we may be required to obtain necessary certificates, licenses or
permits, as well as expend additional resources to monitor regulatory and policy developments. Our failure to adequately comply with such
additional laws and regulations may delay, or possibly prevent, some of our products or services from being offered to users, which may
have a material adverse effect on our business, financial condition and results of operations.
Additionally, China has enacted laws and regulations governing Internet access and the distribution of products, services, news, information,
audio-video programs and other content through the Internet. The PRC government has prohibited the distribution of information through the
Internet that it deems to be in violation of PRC laws and regulations. If any of the information disseminated through our marketplaces and
websites were deemed by the PRC government to violate any content restrictions, we would not be able to continue to display such content
and could become subject to penalties, including confiscation of income, fines, suspension of business and revocation of required licenses,
which could materially and adversely affect our business, financial condition and results of operations.
As our operations in China are subject to regulations over the Internet, health and wellness industries, value-added telecommunications
services, food business, pharmaceutical operations and services, online drug and medical device operations and online trading and e-
commerce, any industry-wide adverse regulatory development or policies adopted by the relevant authorities to influence the development of
such industries may significantly change the demand for our products and services, impose additional restrictions over our business
operations, and otherwise materially and adversely affect our business, financial condition and results of operations.
If we fail to anticipate evolving consumer preferences for health and wellness products and/or fail to cater effectively to consumer
demands, our ability to attract and retain customers may be materially and adversely affected.
Our ability to attract and retain our consumers depends largely on our ability to offer health and wellness products that they find attractive.
The success of our business relies on our ability to anticipate changes in consumer preferences, demographic shifts in our consumer base and
broader evolving trends in the industry, and to respond to such changes in a timely and cost-effective manner. If we rely on misleading
industry intelligence or consistently misinterpret the consumer data we collect, we may fail to cater to the preferences of our consumers or
fail to continue to retain our consumers. Consequently, our business, financial condition and results of operations may be materially and
adversely affected.
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Our success depends on our ability to maintain relationships with existing brand partners and to develop relationships with new brand
partners.
Our success is closely tied to our relationships with our existing brand partners, who supply the products that we sell through various
platforms. We also identify and target potential new brand partners whose products complement our established inventory or that represent
new opportunities for us to meet consumer demand. Many of our brand partners deal with us on a non-exclusive basis, and a number of our
brand partner relationships are relatively recent, having been established over the last three to four years. Because of these factors, we face,
and expect to continue to face, constant and intense competition for the business of our brand partners from other Chinese distributors in the
health and wellness market. Our relationships with our brand partners may weaken and we may lose our market share if our competitors
offer their services to them. The e-commerce market is characterized by rapid technological developments and frequent changes in
regulation, specifications and other requirements for how our brand partners should sell their merchandise through particular channels. This
could negatively affect our ability to retain existing brand partners and attract new brand partners, our future financial and operating results,
and our potential for growth. If we are unable to maintain these relationships or enter into advantageous new arrangements through our
targeted approaches to specific potential brand partners, our ability to attract new brand partners may decrease.
In addition, a small number of brand partners contribute a significant portion of our total revenues. For example, in 2021, the single largest
brand partner in terms of the revenue contribution of its products accounted for 27.1% of our total net revenues. In the same period, the ten
largest brand partners in terms of the revenue contribution of their products, in the aggregate, accounted for 90% of our total net revenues.
Moreover, four of the ten largest brand partners in terms of revenue contribution in 2021 are under the common control of a global food and
beverage company. While our relationships with these four brand partners were developed independently and they are each managed by a
dedicated operations team, we cannot assure you that failure to maintain a satisfactory relationship with one of these brand partners in the
future will not adversely affect our reputation with the other brand partners under common control. Furthermore, the loss of one or more of
our largest brand partners may result in a material and adverse effect on our financial condition and results of operation. In addition, we may
not be able to collect account receivables from our brand partners in a timely manner or at all. For example, we incurred allowance for
doubtful accounts of US$5.5 million in 2021. The incurrence of significant allowance for doubtful accounts or bad debt provisions for our
account receivables would adversely affect our financial condition.
In such a rapidly changing market, the needs of our brand partners are also constantly evolving to keep pace with consumer demands. If we
fail to respond to the evolving needs of our brand partners, our continuing relationships with existing brand partners, our reputation and the
demand for our services may be adversely affected. This may have a material and adverse impact on our business, financial position and
results of operations.
We may be unable to compete effectively against stronger and better-resourced e-commerce companies, offline competitors or new
entrants to the health and wellness market, and we may lose market share as a result.
The health and wellness market is intensely competitive in China. We may not be able to command the same price for our services and
solutions or we may face a decrease in our market share, which may affect our future financial and operating results, and our ability to grow
our business. In addition, competition may intensify if our competitors increase their resources and product range and if established
companies in other market segments or geographic markets expand into our market segments or geographic markets. If we cannot compete
successfully, our business, financial condition and operating results could be materially and adversely affected.
We face competition in a number of areas. We compete to attract, engage and retain consumers based on the variety, value and
personalization of the products and services we offer, and overall user experience and convenience. We compete to attract and retain brand
partners based on our scale of operation and the capability of engaging consumers, the sales and growth solutions offered to brand partners as
a result of our consumer and industry analysis and the efficiency of our logistics infrastructure in facilitating the delivery of our brand
partners’ products to consumers. We also compete for experienced and effective talent and personnel, who serve critical functions in the
development of our products and our ecosystem.
Our ability to compete effectively depends on a number of factors, some of which may be beyond our control, including brand partners
choosing to develop in-house e-commerce platforms or infrastructure, offline competitors with a broader product range, e-commerce
channels deciding to directly compete with us and consolidations within the Chinese health and wellness industry that may result in stronger
competitors.
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If we are not able to compete effectively, we may lose market share and face a decrease in consumer engagement and sales, which could
materially and adversely affect our business, financial condition and results of operations as well as our reputation.
Some of our current or future competitors may have, or may develop, greater brand recognition, better supplier relationships, larger customer
bases or greater financial, technical or marketing resources than us. Any smaller companies or potential new entrants to the Chinese health
and wellness market may be acquired by, receive investment from or enter into strategic relationships with well-established and well-
financed companies or investors which may enhance their competitive positions. Some of our competitors may be able to secure more
favorable terms from suppliers, devote greater resources to marketing and promotional campaigns, adopt more aggressive pricing or
inventory policies and devote substantially more resources to their technology and infrastructure systems than us. We cannot be certain that
we will be able to compete successfully against current or future competitors, and competitive pressures may have a material adverse effect
on our business, financial condition and results of operations.
We incurred net losses in 2020 and 2021, and we may not achieve or maintain profitability.
We incurred a net loss of US$13.5 million in 2020 and US$55.7 million in 2021. We may not be able to achieve or maintain profitability in
the future. Although we have strengthened our management ability and internal control in order to achieve profitability, including improving
our inventory and working capital turnover rate, return on marketing and promotion investment, and expenditure on selling and
administration activities, we still face the risks in relation to introducing new brand partner and achieving profit due to the weaker than
expected consumer demand and downturns in macroeconomic in future.
Any failure to increase our revenues sufficiently to keep pace with our investments and other expenses could prevent us from achieving or
maintaining profitability or positive operating cash flow on a consistent basis. If we are unable to successfully address these risks and
challenges as we encounter them, our business, financial condition and results of operations could be adversely affected.
We incurred net cash outflow in the past, and we may not be able to obtain additional capital when needed on acceptable terms, or at all.
In order for us to continue to grow, we need significant amount of working capital to fund our inventory. In addition, we may require
additional capital in case of operating losses as well as any investments or acquisitions we may decide to pursue. For example, net cash used
in operating activities reached US$14.2 million in 2019 and net cash provided by operating activities was US$21.6 million and US$4.1
million in 2020 and 2021, respectively. However, we may incur operating cash outflows in the future due to the expansion of our business
and the corresponding increase in inventory. See “—If we fail to effectively manage our inventory, our reputation, results of operations and
financial condition may be materially and adversely affected.”
If our cash resources are insufficient to satisfy our cash requirements, we may seek to issue additional equity or debt securities, including
convertible notes, or obtain new or expanded credit facilities. Our ability to obtain external financing in the future is subject to a variety of
uncertainties, including our future financial condition, results of operations, cash flows, share price performance, liquidity of international
capital and lending markets, the PRC governmental regulations over foreign investment and the health and wellness industry and the PRC
regulations over overseas offerings. Any debt financing, if available, may involve restrictive covenants and could restrict our operational
flexibility and reduce our profitability. In addition, incurring indebtedness would subject us to increased debt service obligations. There can
be no assurance that financing would be available in a timely manner or in amounts or on terms acceptable to us, or at all, particularly in
light of the ongoing COVID-19 pandemic. Any such failure could severely restrict our liquidity as well as have a material adverse effect on
our business, financial condition and results of operations. Moreover, any issuance of equity or equity-linked securities could result in
significant dilution to the interests of our existing shareholders.
If we are unable to obtain increased financing, any resultant cash flow shortage may materially affect our ability to procure products from
our brand partners and meet our financial obligations, which may damage our reputation and brand partner relationships. Such damage to our
reputation or relationships would have a material and adverse effect on our business, financial condition and results of operations.
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We depend on key management as well as experienced and capable personnel generally, and any failure to attract, motivate or retain our
staff could hinder our ability to maintain and grow our business.
Our future success depends substantially upon the continued service of our key executives and other key employees, particularly our co-
founders, Ms. Wang and Mr. Zeng. If we lose the services of any member of management or key personnel, we may not be able to locate
suitable or qualified replacements, and we may incur additional expenses to recruit and train new staff, which could severely disrupt our
business and growth.
The size and scope of our ecosystem also require us to hire and retain a wide range of experienced and capable personnel who can adapt to a
dynamic, competitive and challenging business environment. We will need to continue to attract and retain experienced and capable
personnel at all levels as we expand our business and operations. Competition for such talent is intense, and the availability of suitable and
qualified candidates in the PRC is limited. This high level of competition could compel us to offer higher compensation and other benefits to
attract and retain the right candidate. Even if we were to offer higher compensation and other benefits, there is no assurance that these
individuals will choose to join us or continue to work for us. Any failure to attract or retain key management and personnel could severely
disrupt our business and growth.
We may not be able to effectively manage the expansion of our business or optimally implement our business strategies.
To realize our mission of providing comprehensive health and wellness solutions to our consumers, we have implemented expansion strategy
and have experienced rapid growth in recent years. However, there is no assurance that we will be able to maintain our historical growth
rates in future periods. Our revenue growth may slow or even decline for many reasons, including competition, and industry and economy
conditions. We have continued to widen our relationships with existing brand partners to include more offerings, procuring new brand
partners with different products, improving our logistic and fulfillment capabilities to support our expanded offering and growing through
acquisitions of complementary businesses. We have also continued to strengthen our multi-channel value proposition by leveraging new
ways to market and distribute products, including social media platforms, short video platforms and offline promotions. Additionally, we are
exploring new business opportunities in providing integrated solutions including e-commerce business solutions, digital marketing services
and e-commerce third-party operation management services. In particular, we plan to put more emphasis on offering brand partners with
technology-centric services to add value and therefore reinforce our relationship. To execute our business initiatives and promote service-
oriented business model, we need to upgrade our technology infrastructure and recruit and train more technical staff, which will lead to
increased costs and expenses. This expansion has contributed to a heightened level of complexity of our business, in terms of both the type
and scale of our operations, which may place a significant strain on our operational, financial and technical resources and increase demands
on our management and employees. We cannot assure you that we will be able to continue to manage our growth, improve our profitability
or execute our strategies effectively, and any failure to do so may materially and adversely affect our business and prospects.
We are also continuously executing a number of growth initiatives, strategies and operating plans designed to enhance our business,
including launching various new services, such as offering strategy, marketing, products, digitalization, consumer insights, supply chain and
SaaS solutions to assist our business partners deliver customized products and services to consumers. The anticipated benefits from these
efforts are based on assumptions that may prove to be inaccurate. Moreover, we may not be able to successfully complete these growth
initiatives, strategies and operating plans and realize all of the benefits that we expect to achieve, such as expanding our product and service
offerings, or it may be more costly to do so than we anticipate. In addition, profitability, if any, in the new areas that we expand into may be
lower than in our existing business, and we may not be successful enough in these newer areas to recoup our investments in them. If any of
these circumstances were to occur, our business, financial condition and results of operations may be materially and adversely affected.
We may be subject to claims under consumer protection laws, including health and safety claims and product liability claims, if property
or people are harmed by the products sold on our platform.
Due to several high-profile consumer complaint incidents that have occurred in China in recent years and attendant media and advocacy
group attention, there has been increased governmental focus in the PRC on consumer protection. Operators of e-commerce marketplaces
and platforms are subject to certain provisions of consumer protection laws even where such operator is not the seller of the product or
service purchased by the consumer. In addition, if we do not take appropriate remedial action against sellers or service providers for actions
they engage in that we know, or should have known, would infringe upon the rights and interests of consumers, we may be held jointly and
severally liable with the seller or service provider for such infringement.
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Moreover, applicable PRC consumer protection laws hold that trading platforms will be held liable for failing to meet any undertakings such
platforms make to consumers with regard to products listed on their websites. Furthermore, we are required to report to the State
Administration for Market Regulation, or the SAMR, or its local branches any violation of applicable laws, regulations or SAMR rules by
sellers or service providers, such as sales of goods without proper license or authorization, and to take appropriate remedial measures,
including ceasing to provide services to such sellers or service providers. If claims are brought against us under any of these laws, we could
be subject to damages and reputational damage as well as action by regulators, which could have a material adverse effect on our business,
financial condition and results of operations.
We do not maintain product liability insurance for products and services transacted on our platform, and any other insurance policies may not
cover us, adequately or at all, for any liability we may incur. Even unsuccessful claims could result in the expenditure of funds and
management time and resources and could materially reduce our net income and profitability.
If counterfeit products are distributed by us, our reputation and financial results could be materially and adversely affected.
We source health and wellness products from reputable brand partners. However, their measures of safeguarding against counterfeit products
may not be adequate. In addition, we engage third-party warehousing and logistics service providers and third-party couriers to conduct
product fulfillment, and we may not be able to detect and prevent all potential instances of misconduct or negligence committed by them or
by our employees involved in the fulfillment process. If counterfeit products are distributed by us, we may suffer reputational damage. If we
are deemed to have participated or assisted in infringement activities associated with counterfeit products, we may be subject to sanctions
under applicable laws and regulations, which may include injunctions to cease infringing activities, rectification, compensation,
administrative penalties and even criminal liability, depending on the gravity of such misconduct. Furthermore, counterfeit products may be
defective or inferior in quality as compared to authentic products and may pose safety risks to consumers. If consumers are injured by
counterfeit products distributed by us, we may be subject to lawsuits, severe administrative penalties and criminal liability. See “—We may
be subject to claims under consumer protection laws, including health and safety claims and product liability claims, if property or people are
harmed by the products sold on our platform.”
If we fail to effectively manage our inventory, our reputation, results of operations and financial condition may be materially and
adversely affected.
In order to operate our business effectively and meet our consumers’ demands and expectations, we must maintain a certain level of
inventory to ensure prompt deliveries when required. We determine the levels of inventory we hold on the basis of our experience,
assessment of consumer demand in a certain period of time and the lead time required to have the inventory in our warehouse.
We forecast consumer demand by relying on a number of factors, including:
●
the purchase history of consumers;
●
performance metrics from our customers, especially third-party e-commerce channels;
●
market intelligence, including intelligence on product innovation and introduction;
●
changes in consumer spending patterns; and
●
event-driven factors, such as cyclical demand for preventative products.
We use such metrics to forecast consumer demand more accurately and thereby optimize our inventory management in terms of product
portfolio and volume.
However, forecasts are inherently uncertain, and demand for products can change significantly between the inventory order date and the
projected sale date. In addition, the acquisition of certain types of inventory may require significant lead time and prepayment and they may
not be returnable. Moreover, while we are in the process of negotiating with new suppliers to have them repurchase unsold items upon
termination of agreements, we normally do not have the right to return the unsold items to our suppliers, save for in a limited range of
circumstances, such as in the case of quality defects, as set out in our supply agreements.
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If we overestimate demand for our products, we may be exposed to increased inventory risks due to accumulated excess inventory.
Prolonged periods of excess inventory may lead to pressures on our warehousing system and fulfillment capabilities, increases in inventory
holding costs and the risk of inventory obsolescence. In addition, if we fail to manage our inventory effectively, we may experience a decline
in inventory values and significant inventory write-downs or write-offs due to product expiration. Moreover, we may be required to lower
sale prices in order to reduce inventory levels, which may lead to lower gross margins. Conversely, if we underestimate demand for our
products, or if our brand partners fail to supply quality products in a timely manner, we may experience inventory shortages, which might
result in lost revenues and diminished consumer satisfaction, which could harm our business and reputation.
Any of the above may materially and adversely affect our results of operations and financial condition. As we plan to continue to expand our
product offerings, we may continue to face challenges in effectively managing our inventory.
Any interruption in our product inventory or fulfillment operations may have an adverse impact on our business.
Our ability to process and fulfill orders accurately depends on the efficient operation of our fulfillment and logistics network and our ability
to accurately take orders through the various platforms on which we distribute products and our ability to fulfill such orders. Our fulfillment
and logistics infrastructure, including our warehousing facilities and transportation services, may be vulnerable to damage or interruption
caused by fire, flood, power outage, telecommunications failure, break-ins, earthquake, human error, transportation disruptions and other
events. If any of our fulfillment and logistics infrastructures were to be rendered incapable of operations, then we may be unable to fulfill
any orders. We do not carry business interruption insurance, and the occurrence of any of the foregoing risks could have a material adverse
effect on our business, prospects, financial condition and results of operations.
As a result of the COVID-19 pandemic, our third-party couriers have been unable to consistently fulfill online orders to our customers in a
timely manner. We also experienced delays in getting products from our suppliers and incurred higher shipping costs in inbound and
outbound shipments, all of which have had an adverse impact on our business. Although domestic logistics and transport services providers
have recovered and resumed their ordinary course of business, there has been and may continue to be a significant increase in international
freight costs in light of the COVID-19 pandemic, which has had and may continue to have an impact on our fulfillment expenses. See “—
Our business, financial position, liquidity and results of operations have been, and are likely to continue to be, materially and adversely
affected by the COVID-19 pandemic.”
Our results of operations are subject to fluctuations due to the seasonality of our business and other events.
We have experienced and expect to continue to experience seasonal fluctuations in our financial performance. These seasonal patterns have
caused and will continue to cause fluctuations in our operating results. Historically, we have recorded stronger performance in the fourth
quarter, primarily because consumers increase their purchases during e-commerce festivals in China, such as the periods around Singles Day
(which is an online sales promotion event that falls on November 11 of each year) and Double Twelves (which is another online sales
promotion event that falls on December 12 of each year). In addition, we generally experience a lower level of sales activity in the first
quarter due to the Lunar New Year public holiday, during which the volumes of online purchases and logistical operations drop significantly
due to vacations and business closures.
In anticipation of increased sales activity prior to shopping festivals, we increase our inventory levels and incur additional expenses such as
procuring additional working capital and increasing the size of our workforce on a temporary basis. If our seasonal sales patterns become
more pronounced in the future, this may strain our personnel, customer service operations, fulfillment operations and shipment activities and
may cause a shortfall in revenues compared to expenses in a given period. As a result, our financial results may be materially and adversely
affected. In addition to increasing our own inventory levels, we also rely on our brand partners to increase their inventory levels to match
projected seasonal demand. If we and our brand partners do not increase inventory levels for popular products in sufficient amounts or if we
are unable to restock popular products from our brand partners in a timely manner, we may fail to fulfill customer demand. This may harm
our reputation and damage the trust that consumers have in our business, which is a key part of our business model. As a result, we may
experience a material and adverse effect on our financial conditions and results of operations.
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Our dependence on a small number of e-commerce channels could materially and adversely affect our business or results of operations.
We depend on a small number of e-commerce channels to sell products to consumers. As a result, we derive a substantial portion of our
revenue from activity on these channels. For example, in 2019, 2020 and 2021, sales on Alibaba’s Tmall platform contributed approximately
21%, 20% and 19% of our total net revenues, respectively.
If the sales on e-commerce channels in China do not grow or grow more slowly than we expect, demand for our products would be adversely
affected, our revenues would be negatively impacted, and our ability to pursue our growth strategy would be compromised. Moreover, if the
e-commerce channels that we rely on are not successful in attracting consumers or their reputations are adversely affected for any reason, we
may experience reduced demand for our products.
Our business may be harmed if the e-commerce channels we rely upon decide to make significant changes to their respective business
models, policies, systems or plans. Currently, large e-commerce channels influence to a certain extent terms that affect our profitability and
financial condition, including the return policies we offer and the sharing of marketing expenses and payables or receivables between the e-
commerce channels and us. We may not be able to negotiate such policies or agreements on terms most favorable to us in the future.
In addition, we cannot guarantee that we will be able to access such e-commerce channels in the long term. If we fail to maintain our
relationships with such channels, they may decide at any time and for any reason to significantly limit our ability to integrate our solutions
with their platforms. Given that online retail in China is dominated by a few large e-commerce channels, we may not be able to adapt or
build new relationships on terms favorable to us with any other emerging channels.
Any of the above may adversely affect our revenue, financial condition and results of operations.
We use third-party couriers to deliver orders. If these couriers fail to provide reliable delivery services on commercially acceptable terms,
our business and reputation may be materially and adversely affected.
We maintain cooperation arrangements with third-party couriers to deliver our products to our customers. We rely on a select number of
third-party delivery services, for example Cainiao, the primary deliverer of cross-border sales through the Tmall platform. In 2019, 2020 and
2021, Cainiao was paid approximately 32%, 29% and 25%, respectively, of our third-party delivery fees, and the goods delivered by Cainiao
accounted for approximately 11%, 13% and 16%, respectively, of our revenue in the same periods. As such, we may face adverse
consequences if there are interruptions to, or failures in, these third parties’ delivery services. Such interruptions or failures could prevent the
timely or proper delivery of our products to consumers, eroding consumer confidence and reducing repeat orders. These interruptions may be
due to events that are beyond our control or the control of these delivery companies, such as inclement weather, natural disasters,
transportation disruptions, including as a result of public health emergencies, or labor unrest. While we may claim compensation for
disruptions under our standard agreements with third-party delivery services, such claims are subject to a complicated review process and we
cannot provide assurance that any compensation payments would make up for the lost consumer goodwill. Also, any significant increase in
delivery fees charged by these third parties may result in a significant increase in our online distribution expenses. If we fail to find other
reliable third-party couriers on commercially acceptable terms, our profitability may be harmed.
In addition, if our third-party couriers fail to comply with applicable PRC rules and regulations, our delivery services may be materially and
adversely affected. We may not be able to find alternative delivery companies to provide delivery services in a timely and reliable manner, or
at all. Delivery of our products could also be affected or interrupted by the merger, acquisition, insolvency or government shut-down of the
delivery companies we engage to make deliveries. If our products are not delivered in proper condition or on a timely basis, our reputation
could suffer and we may experience a material adverse effect on our financial condition and results of operations.
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We have adopted favorable return policies with certain customers and a higher-than-expected rate of returns could materially and
adversely affect our results of operations and financial condition.
In certain instances, we sell the products of our brand partners to third-party e-commerce platforms, which in turn sell those products to
consumers. We have adopted contractual product return policies with certain of these third-party e-commerce platforms. These return
policies are generally favorable to the third-party e-commerce platforms, and provide in certain cases that products may be returned in
unlimited quantities and without cause, albeit subject to a limited return period. If we experience a higher-than-expected rate of returns from
these third-party e-commerce platforms, this may result in wastage, overstock and monetary loss, which may materially and adversely affect
our financial condition and results of operations.
In addition, we may from time to time be required to amend our existing return policies or implement new return policies pursuant to
changes in applicable laws and regulations, which may lead to a larger group of customers being able to take advantage of our return
policies, potentially resulting in increased costs. If our return policy is misused, we may experience significantly increased costs, which may
materially and adversely affect our financial condition and results of operations. If we seek to set limits on such return policies in order to
reduce costs, the reaction from our customers may be negative, which may materially and adversely affect our reputation and results of
operations.
Any damage to our reputation, including negative publicity against us or our brand partners, may materially and adversely affect our
business operations and prospects.
We have cultivated a reputation of trustworthiness and excellence among our brand partners and our consumers. We believe that our
reputation is a key reason for consumers to make purchases, and for brand partners who choose us to distribute their products and provide
them with market insights and strategies. As a result, we depend on our reputation for the continued success of our business operations and
for generating revenue. However, we cannot be certain that we will be able to maintain our positive reputation in the future. Our reputation
may be materially and adversely affected by a number of factors, many of which are beyond our control, including:
●
negative developments or events relating to our proprietary products or the products of our brand partners which are sold
on our platform, or which we provide to third-party e-commerce platforms, including with respect to their efficacy or side
effects;
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lawsuits and regulatory investigations against us or otherwise relating to products associated with us or our industry in
general;
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improper or illegal conduct by our employees or brand partners that is not authorized by us; and
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adverse publicity associated with us, our products or our industry, whether founded or unfounded.
Any damage to our reputation as a result of these or other factors may cause our products to be perceived unfavorably by consumers, existing
or potential brand partners or the Chinese health and wellness market in general, which may materially and adversely affect our reputation,
results of operations and financial position.
If our brand partners develop sophisticated knowledge of the Chinese health and wellness market, or increase their in-house e-commerce
capabilities, demand for our solutions and services may be materially and adversely affected.
Our brand partners value our solutions and services because of our ability to assist with marketing their products to the Chinese health and
wellness market. This ability is founded on our extensive experience in, and local knowledge of, the Chinese health and wellness market, and
our technical proficiency in connecting our brand partners to end-consumers in China. If our brand partners significantly develop their local
expertise and market knowledge, or choose to sell their products directly through third-party e-commerce platforms, our solutions and
services may become less important or attractive to our brand partners, and demand for our solutions and services may decline. This may
cause a decrease in customer retention and revenue, materially and adversely affecting our business, financial condition and results of
operations.
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We may be liable for any false or misleading statements or representations made by the healthcare experts on our platforms.
We partnered with healthcare experts and KOLs to generate health and wellness content. These content generators, who receive a fixed fee
from us, provide general advice on trending health and wellness topics and, based on product information from our brand partners, combine
such advice with product recommendations. We may be held liable for any false or misleading statements or representations made by the
healthcare experts on our platforms. When these healthcare experts publish health management plans and make health and wellness
recommendations, they may make false or misleading statements or representations in relation to the suitability, effectiveness, use or
potential side effects of such plans or products. These healthcare experts may also be negligent in their observations or fail to specify that
their recommendation is general in nature and may not apply to the circumstances of particular consumers. We may not always have
appropriate disclaimers in place on our platforms.
We may be subject to legal proceedings and claims from time to time where these statements or representations are found to result in harm to
our customers. These claims and legal proceedings may be expensive and time consuming to investigate and defend and may divert
resources and management attention from the operation of our business. Although these claims may be unsuccessful, they may harm our
reputation and reduce our ability to attract customers and users.
Changes in international trade policies and international barriers to trade, or the escalation of trade tensions, may have an adverse effect
on our business and expansion plans.
Recent international trade disputes and the uncertainties created by such disputes may disrupt the transnational flow of goods and
significantly undermine the stability of the global and Chinese economy, thereby harming our business.
Changes to trade policies, treaties and tariffs in the jurisdictions in which we operate, or are contemplating operating, or the perception that
these changes could occur, could adversely affect the financial and economic conditions in such jurisdictions, as well as our international and
cross-border operations, our financial condition and results of operations. The U.S. administration has advocated greater restrictions on trade
generally, and has imposed and significantly increased tariffs on certain goods imported into the United States, particularly from China. Such
trade developments could materially impact our business as certain of our brand partners are based in the United States, and thus may face
increased difficulty in sourcing base ingredients for their products, or cost-effectively developing new products with restricted or more
expensive base ingredients. As a result, we may face an increase in our operating costs as our suppliers raise their prices to absorb their
increased costs, or an inability to meet the demands of the consumers who purchase from us, and a resulting decrease in our profits.
Increases in tariffs and the prolongation of uncertainty surrounding international trade between the United States and China could have an
adverse effect on our ability to source products from certain of our United States-based partners, either at an acceptable cost or at all, to sell
in China. If the products of our brand partners become subject to increased tariffs or other trade barriers, the resultant increase in cost or
difficulty of importation may force us to find alternative providers of comparable products. We cannot be certain that these alternative
providers would be acceptable to Chinese consumers, given that the level of trust in the brands that we supply is a primary driver of
purchasing decisions made by Chinese consumers. As a result, we may experience a decrease in demand, and a material and adverse effect
on our financial condition and results of operations.
Therefore, any escalation in existing trade tensions or the advent of a trade war, or news and rumors of the escalation of a potential trade war,
could affect the supply chains of participants within our ecosystem, increase their and our costs and have a material adverse effect on our
business, results of operations and, ultimately, the trading price of our ADSs.
Exchange rate fluctuations may negatively affect our results of operations.
We source our products from brand partners globally. We purchase these products primarily using U.S. dollars, and these products are
ultimately sold to the Chinese domestic market, whose participants primarily make their purchases in Renminbi. There is ordinarily a
temporal gap between the point at which we purchase products and the point at which we receive payment for the products sold. As a result,
we are subject to the fluctuations of the currency exchange markets, particularly in the value of RMB to the U.S. dollar. If the value of
Renminbi declines during the temporal gap relative to the U.S. dollar, we may face a lower profit margin, or in some cases a loss, on the
products sold. For example, we had an exchange rate loss of US$393.0 thousand in 2019, an exchange rate gain of US$979.1 thousand in
2020, and an exchange rate loss of US$860.8 thousand in 2021.
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In addition, substantially all of our operating expenses are denominated in Renminbi, while our financial assets are denominated in U.S.
dollars and a significant portion of our debt is denominated in U.S. dollars. We are a holding company and we rely on dividends paid by our
operating subsidiaries in China for our cash needs. Any significant revaluation of the Renminbi may materially reduce any dividends payable
on our ADSs in U.S. dollars. 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 Renminbi amount we would receive. Conversely, if we decide to
convert our Renminbi into U.S. dollars for the purpose of making payments for dividends on our Class A 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 amount we
would receive. As such, currency fluctuations may materially and adversely affect our financial condition and results of operations.
We have incurred and expect to continue to incur substantial share-based compensation expenses.
We have adopted share incentive plans on September 30, 2018 and May 19, 2021. See “Item 6. Directors, Senior Management and
Employees-B. Compensation-Share Incentive Plans” for a detailed discussion. For the years ended December 31, 2019, 2020 and 2021, we
recorded US$1.6 million, US$474,559 and US$2.6 million, respectively, in share-based compensation expenses. We will continue to grant
share-based compensation in the future in order to attract and retain key personnel and employees. Consequently, our share-based
compensation expenses may be recurring and even significantly increase in absolute amount, which may have a material adverse effect on
our results of operations.
Any failure to comply with PRC regulations regarding advertising may subject us to civil claims, fines and other legal or administrative
sanctions.
PRC advertising laws and regulations require the content of advertisements to be fair, accurate, not misleading and in full compliance with
applicable laws. Pursuant to the Interim Administrative Measures for the Examination of Advertisements for Drugs, Medical Devices, Health
Food and Formula Food for Special Medical Purposes, promulgated by the SAMR on December 24, 2019, the content of healthcare food
advertisements must follow the registration certificate or filing certificate approved by the administration for market regulation or the
registered or filed specifications. We have made efforts to ensure our advertisements and related advertising practices are in compliance with
applicable regulations. However, we cannot assure you that we have fully complied with the requirements of PRC regulatory authorities or
will be able to fully comply with the requirements of PRC regulatory authorities regarding advertising. If we are found in violation of
applicable advertising laws and regulations, we may face serious penalties, including fines, revocation of our business licenses and
discontinuance of our advertising activities. As a result, we may not be able to publish new advertisements in a timely manner, and our
turnover and reputation could be materially affected. Moreover, governmental actions and civil claims may be filed against us for misleading
or inaccurate advertising. We may have to spend significant resources in defending against such actions, and these actions may damage our
reputation, result in reduced turnover and negatively affect our results of operations.
We may not be able to conduct our marketing activities effectively, properly or at reasonable costs.
We conduct a variety of marketing and brand promotion efforts designed to enhance our brand recognition and increase sales of our products.
However, our brand promotion and marketing activities may not be well received and may not result in the levels of sales that we anticipate.
Additionally, marketing approaches and tools in the Chinese health and wellness market are continually evolving, which may further require
us to experiment with new marketing methods to keep pace with industry developments. Failure to refine our existing marketing approaches
or to introduce new marketing approaches in a cost-effective manner may materially and adversely affect our financial condition and results
of operations.
We are subject to limitations in promoting our products, which may have an impact on our business operations.
We are subject to certain limitations in promoting products. The healthcare experts we work with and other relevant parties in the provision
of our health and wellness content may have to comply with rules and regulations that restrict the promotion or dissemination of certain
healthcare-related information, such as information on the professional healthcare services and practice provided by licensed medical
practitioners. Such restrictions may affect our ability to further enhance our brand recognition or secure new business opportunities in the
future.
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There can be no assurance that our existing practices of monitoring our content dissemination process and publication would continue to be
effective and would comply fully with laws and regulations. Should there be any change in the relevant rules and regulations, or change of
interpretation thereof, we, the healthcare experts we work with and other relevant third parties may be regarded as breaching the relevant
rules and regulations and may be subject to regulatory penalties or disciplinary actions, which may materially and adversely affect our
business and reputation.
Our own information technology systems and infrastructure could fail or be subject to disruption.
Our platform depends on the efficient and uninterrupted operation of our computer and communications systems. Substantially all of our
computer hardware and our cloud computing services are currently located in China. In addition, we retain substantial quantities of data
related to transactions, consumer information and other data that enables the operation and management of online stores. Although we have
prepared for contingencies through redundancy measures and disaster recovery plans, such preparation may not be sufficient and we do not
carry business interruption insurance.
Despite any precautions we take, the occurrence of a natural disaster, such as an earthquake, flood or wildfire, or other unanticipated
problems at our facilities in China, including power outages, telecommunications delays or failures, break-ins to our systems or computer
viruses, could result in delays or interruptions to our website or other portions of our platform, loss of data and significant business
interruption. Any of these events could damage our reputation, significantly disrupt our operations and subject us to liability, which could
adversely affect our business, financial condition and results of operations.
Security breaches and attacks against our systems and network, and any potentially resulting breach or failure to otherwise protect
confidential and proprietary information could adversely affect our business, reputation, financial condition and results of operations.
Our business generates and processes a large amount of data, and the improper use or disclosure of such data could harm our reputation
as well as have a material adverse effect on our business and prospects.
Our business collects and processes a large quantity of personal, transaction and behavioral data. We face risks in the handling and securing
of these large volumes of data. In particular, we face a number of challenges relating to data from transactions and other activities on our
platform, including:
●
protecting the data in and hosted on our system, including against attacks on our system by outside parties or fraudulent
behavior by our employees;
●
addressing concerns related to privacy and sharing, safety, security and other factors; and
●
complying with applicable laws, rules and regulations relating to the collection, use, disclosure or security of personal
information, including any requests from regulatory and governmental authorities relating to such data.
Any systems failure or security breach or lapse that results in the release of user data could harm our reputation and brand and, consequently,
our business, in addition to exposing us to potential legal liability.
As we expand our operations, we may be subject to additional laws in other jurisdictions where our brand partners, consumers and other
participants are located. The laws, rules and regulations of other jurisdictions may impose requirements and penalties that are more stringent
than, or conflict with, those under PRC law, compliance with which could require significant resources and costs. Our privacy policies and
practices concerning the collection, use and disclosure of user data are located on our websites. Any failure, actual or perceived, by us to
comply with our posted privacy policies or with any regulatory requirements or privacy protection-related laws, rules and regulations could
result in proceedings or actions against us by governmental entities or others. These proceedings or actions may subject us to significant
penalties and negative publicity and require us to change our business practices. Any such occurrence could increase our costs and materially
and adversely affect our reputation, financial condition and results of operations.
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If the contents we distribute are deemed by the relevant authorities in the PRC to be medical in nature, we may be subject to additional
regulations and incur substantial compliance cost, and our business prospects, results of operations and financial condition may be
materially and adversely affected.
The distribution of medical information and medical advertisements are subject to PRC regulations. Any website operator that provides
medical information services must obtain certain licenses and approvals by relevant authorities before engaging in such businesses in China.
As of December 31, 2021, we, together with certain healthcare experts and KOLs, generated health and wellness articles to address growing
market demand, and we publish such contents on social media accounts we operate, and these contents are sometimes provided to news and
information outlets with embedded links to our online stores. If information displayed on our social media accounts or otherwise distributed
by us is considered medical information or medical advertisement by relevant authorities, we may be subject to additional regulations. As a
health and wellness integrated solution provider, we do not possess the required licenses or approvals required for distribution of medical
information and medical advertisements. Consequently, if required by relevant authorities, we may need to scale back, rearrange or alter the
content or information displayed on our platforms and adjust our business model. We may also incur substantial compliance costs, and as a
result, our business prospects, results of operations and financial condition may be adversely affected.
The successful operation of our business depends upon the performance and reliability of the Internet and telecommunications
infrastructures in China.
Our business depends on the reliable performance of the Internet and telecommunications infrastructures in China. Almost all access to the
Internet is maintained through state-owned telecommunication operators under the administrative control and regulatory supervision of the
Ministry of Industry and Information Technology of China. In addition, the national networks in China are connected to the Internet through
state-owned international gateways, which are the only channels through which a domestic user can connect to the Internet outside China.
We may not have access to equivalent or sufficient alternative networks in the event of disruptions, failures or other problems with China’s
Internet infrastructure. As this vital infrastructure is state-owned, we are subject to governmental policy which may disrupt supply, and may
have fewer avenues of recourse to remedy any losses caused by disruption pursuant to governmental policy. In addition, the Internet
infrastructure in China might not support the demands associated with continued growth in Internet usage.
The failure of telecommunications network operators to provide us with the requisite bandwidth could also interfere with the speed and
availability of our websites. We have no control over the costs of the services provided by the national telecommunications operators. If the
cost of telecommunications and Internet services rises significantly, or if the telecommunication network in China is disrupted or fails, our
gross margins could be adversely affected. Technical limitations on Internet use could also be developed or implemented. For example,
restrictions could be implemented on personal Internet use in the workplace in general or access to our platform in particular. This could lead
to a reduction of consumer activity or a loss of consumers altogether, which in turn could have an adverse effect on our financial position and
results of operations. In addition, if Internet access fees or other charges to Internet users increase, our user traffic might decrease, which in
turn could significantly decrease our revenues and have a material and adverse effect on our financial condition and results of operations.
A severe or prolonged downturn in the global or Chinese economy could materially and adversely affect our business and our financial
condition.
The global macroeconomic environment is facing challenges, including, amongst other things:
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uncertainty regarding the impact of the coronavirus epidemic in China and several major economies around the world;
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ongoing political and economic tensions between the United States and China; and
●
the ongoing uncertainty in the wake of the United Kingdom’s recent exit from the European Union.
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Our business and operations are primarily based in China and substantially all of our revenues are derived directly and indirectly from our
operations in China. Accordingly, our financial results have been, and are expected to continue to be, affected by the economy in general and
the health and wellness market in China in particular. Although the economy in China has grown significantly in the past decades, it is still
facing difficulties and has experienced inconsistent growth in recent years. The COVID-19 pandemic has had, and is expected to continue to
have, an adverse impact on general economic conditions in China.
Economic conditions in China are sensitive to the global economic conditions described above, the ultimate duration and impact of the
COVID-19 pandemic, changes in domestic economic and political circumstances and the expected or perceived overall economic growth
rate in China. Any prolonged slowdown in the global or Chinese economy may have an adverse impact on the levels of disposable income of
Chinese consumers, and impede the growth of the rising Chinese middle class. As a result, demand for our products, which is strongly driven
by members of the Chinese middle class, may be negatively affected. Such a decrease in demand may have a material and adverse impact on
our business, results of operations and financial condition.
We may be the subject of anti-competitive, harassing or other detrimental conduct by third parties, including complaints to regulatory
agencies, negative blog postings, and the public dissemination of malicious assessments of our business that could harm our reputation
and cause us to lose customers and revenues and materially and adversely affect the price of our ADSs.
We may be the target of anti-competitive, harassing or other detrimental conduct by third parties. Such conduct includes complaints,
anonymous or otherwise, to regulatory agencies. We may be subject to government or regulatory investigation as a result of such third-party
conduct and may be required to expend significant time and incur substantial costs to address such third-party conduct, and there is no
assurance that we will be able to conclusively refute each of the allegations within a reasonable period of time, or at all. Additionally,
allegations, directly or indirectly against us, may be posted in Internet chat rooms or on blogs or websites by anyone, whether or not
associated with us, on an anonymous basis. Consumers value readily available information concerning retailers, manufacturers, and their
goods and services and often act on such information without further investigation or authentication and without regard to its accuracy. The
availability of information on social media platforms and devices is virtually immediate, as is its impact. Social media platforms and devices
immediately publish the content their subscribers and participants post, often without filters or checks on the accuracy of the content posted.
Information posted may be inaccurate and adverse to us, and it may harm our financial performance, prospects or business. The harm may be
immediate without affording us an opportunity for redress or correction. Our reputation may be negatively affected as a result of the public
dissemination of anonymous allegations or malicious statements about our business, which in turn may cause us to lose market share,
customers and revenues and adversely affect the price of our ADSs.
Our business may be materially and adversely affected by adverse news, scandals or other incidents associated with the general health
and wellness industry.
Incidents that inspire doubt as to the quality or safety of health and wellness products manufactured, distributed or sold by other participants
in the general health and wellness industry in China or around the world, particularly those who primarily operate in the e-commerce space,
have been, and may continue to be, subject to widespread media attention. Such incidents may damage the reputation of not only the parties
involved, but also the health and wellness industry in general, even if such parties or incidents have no relation to us, our management, our
employees, our brand partners, our platform or the third-party e-commerce websites through which we also market products. There may also
be a decrease in consumer demand for healthcare-related products if these negative incidents diminish the trust of consumers in the Chinese
health and wellness market. Such negative publicity, and any resultant decrease in demand for our products and services, may adversely
affect our reputation and business operations. In addition, incidents not related to product quality or safety, or other negative publicity or
scandals implicating us or our employees, regardless of merit, may also have an adverse impact on our reputation, financial condition and
results of operations.
We may not be able to protect our intellectual property rights.
We rely on a combination of trademark, fair trade practice, patent, copyright and trade secret protection laws in the PRC and other
jurisdictions in which we hold intellectual property rights, as well as confidentiality procedures and contractual provisions with employees,
suppliers and third parties, to protect our intellectual property rights.
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Intellectual property protection may not be sufficient in the PRC or in the other jurisdictions in which we hold intellectual property.
Confidentiality agreements may be breached by counterparties, and there may not be adequate remedies available to us for any such breach.
Accordingly, we may not be able to effectively protect our intellectual property rights or to enforce our contractual rights in the PRC or
elsewhere. In addition, policing any unauthorized use of our intellectual property is difficult, time-consuming and costly, and the steps we
have taken may be inadequate to prevent the misappropriation of our intellectual property. In the event that we resort to litigation to enforce
our intellectual property rights, such litigation could result in substantial costs and a diversion of our managerial and financial resources. We
can provide no assurance that we will prevail in such litigation. In addition, our trade secrets may be leaked or otherwise become available
to, or be independently discovered by, our competitors. Any failure in protecting or enforcing our intellectual property rights could have a
material adverse effect on our business, financial condition and results of operations.
We may be accused of infringing intellectual property rights of third parties and content restrictions of relevant laws.
Third parties may claim that the technology used in the operation of our platforms infringes upon their intellectual property rights. Although
we have not previously faced material litigation involving direct claims of infringement by us, the possibility of intellectual property claims
against us increases as we expand. Such claims, whether meritorious or not, may result in injunctions against us, payment of damages and
expenditure of significant financial and management resources. If we are found to have infringed the intellectual property rights of third
parties in the future, we may need to obtain licenses to continue to operate our platforms and such licenses may not be available on terms
acceptable to us or at all. These risks are amplified by the increase in the number of third parties whose sole or primary business is to assert
such claims.
We may from time to time become party to litigation, other legal or administrative disputes and proceedings that may materially and
adversely affect us.
In the course of our ordinary business operations, we may become a party to litigation, legal proceedings, claims, disputes or arbitration
proceedings from time to time. For example, in March 2016, we entered into a cooperation framework agreement to establish a joint venture
with Shanghai Heng Shou Tang Health Food Co. Ltd., Shanghai Heng Shou Tang Pharmaceutical Co., Ltd. and Mr. Wei Song, or our joint
venture partners. As part of the agreement, Shanghai Heng Shou Tang Health Food Co. Ltd. and Shanghai Heng Shou Tang Pharmaceutical
Co., Ltd. agreed to contribute their ownership in a number of trademarks to the joint venture. However, only a portion of such trademarks
were transferred to us. In October 2018, we filed a civil claim against the joint venture partners in the Shanghai Xuhui People’s Court to
enforce the transfer of the remaining trademarks, claim damages in the amount of RMB7.19 million (US$1.05 million) and request that
Shanghai Heng Shou Tang Health Food Co. Ltd. and Shanghai Heng Shou Tang Pharmaceutical Co., Ltd. be enjoined from using the brand
name “Heng Shou Tang” in all categories. In January 2019, the joint venture partners filed a counterclaim to rescind the agreement and
allege damages in the amount of RMB3.25 million (US$472.7 thousand). In July 2019, the Shanghai Xuhui People’s Court ruled that we
shall pay damages in the amount of RMB3.25 million (US$472.7 thousand) to the joint venture partners for breaching our contractual
obligation to contribute capital to our joint venture, and that the joint venture partners shall continue to perform their contractual obligations
by transferring the remaining trademarks to the joint venture and cease to use the brand name “Heng Shou Tang” in all categories. Both we
and our joint venture partners filed appeals with the Shanghai First Intermediate People’s Court. In November 2019, the Shanghai First
Intermediate People’s Court delivered its judgment, which provides, amongst other matters, that we shall not pay damages to our joint
venture partners and our joint venture partners shall continue to perform their contractual obligations by transferring the remaining
trademarks to our joint venture.
In April 2022, we received a request for arbitration from Puritan’s Pride Inc., in connection with the alleged breach of the distribution
agreement between Puritan’s Pride Inc., and a subsidiary of ours dated December 12, 2016, as amended on December 31, 2019 (the
“Distribution Agreement”). Puritan’s Pride is seeking no less than approximately US$17.1 million in damages for the alleged breach of the
Distribution Agreement. As of the date of this annual report, this arbitration claim remains in its preliminary stage, and we are unable to
estimate the result of such claim. We are actively assessing our strategies to defend this claim.
Were any proceedings, claims, disputes or arbitration to arise, these may distract our senior management’s attention and consume our time
and other resources. In addition, even if we ultimately succeed in such proceedings, there may be negative publicity created in the course of
or surrounding that proceeding, which may materially and adversely affect our reputation. Any settlement or adverse determination may
subject us to significant monetary damages or liabilities or suspend or terminate parts of our operations. As a result, our business, financial
condition, results of operations and prospects may be materially and adversely affected.
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Future strategic alliances, acquisitions or divestments may have a material adverse effect on our business, financial condition and results
of operations.
We regularly examine a range of corporate opportunities, including acquisitions and divestments, with a view to determining whether such
opportunities will enhance our strategic position and financial performance. We plan to expand our business both geographically and in
terms of the products and services that we offer to our customers and brand partners. In pursuit of this strategy, we may enter into strategic
alliances, including joint ventures or equity investments, with various third parties to further our business purpose from time to time. For
example, on July 23, 2020, we entered into an investment agreement with Anze Premium Health and Beauty Pte. Ltd., or Anze, a company
involved in the research and development of Chinese herbal medicine-based health and wellness products. We are committed to paying Anze
up to US$30 million, comprising of up to US$15 million for an equity interest in Anze and up to US$15 million for zero coupon notes issued
by Anze. As of December 31, 2021, we made investment of US$7.4 million in Anze, representing approximately 14.6% of its equity interest.
For the year ended December 31, 2021, we recorded impairment loss of US$7.3 million due to reduced profit projection of Anze as a result
of negative impact of Covid-19. These alliances could subject us to a number of risks, including risks associated with sharing proprietary
information, non-performance by a third party and increased expenses in establishing new strategic alliances, any of which may materially
and adversely affect our business. We may have limited ability to monitor or control the actions of these third parties and, to the extent any of
these strategic third parties suffers negative publicity or harm to their reputation from events relating to their business or experience declines
in business performance, we may also suffer negative publicity or harm to our reputation by virtue of our association with any such third
party.
In addition, when appropriate opportunities arise, we may acquire additional assets, products, technologies or businesses that are
complementary to our existing business or we may divest certain of our assets. In addition to possible shareholder approval, any proposed
acquisition may also require us to obtain approvals and licenses from relevant governmental authorities and to comply with any applicable
PRC laws and regulations, which could result in increased delay and costs, and may derail our business strategy if we fail to do so. Any
international operations that we absorb as part of any acquisitions may give rise to risks and challenges that could adversely affect our
business, such as compliance with international legal and regulatory requirements, further management of fluctuations in currency exchange
rates or competition from local incumbents with superior local market knowledge and competitive advantages. Moreover, we cannot be
certain that any international expansion efforts can be completed as planned or achieve the intended results, or that any negative results from
acquired interests would not affect our business as a whole. Any separation of a divested asset may be complex and costly, and may include
separating relevant accounting and data processing systems and management controls, as well as managing relevant relationships with
employees, customers, regulators, counterparties, suppliers and other business partners.
Furthermore, past and future acquisitions or divestments and the subsequent integration or separation of new assets and businesses require
significant attention from our management and could result in a diversion of resources from our existing business, which in turn could have a
material adverse effect on our business operations. Acquired assets or businesses may not generate the financial results we expect.
Acquisitions could result in the use of substantial amounts of cash, potentially dilutive issuances of equity securities, the occurrence of
significant goodwill impairment charges, amortization expenses for other intangible assets and exposure to potential unknown liabilities of
the acquired business. Moreover, the costs of identifying and consummating acquisitions may be significant. Furthermore, our equity
investees may generate significant losses, a portion of which will be shared by us in accordance with U.S. GAAP. Any such negative
developments could have a material adverse effect on our business, financial condition and results of operations.
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Increases in labor costs in the PRC may adversely affect our business and results of operations.
The Chinese economy has been experiencing increases in inflation and labor costs in recent years. As a result, average wages in China are
expected to continue to grow. In addition, various PRC laws and regulations designed to enhance labor protection require us to pay certain
statutory employee benefits, including pensions, housing funds, medical insurance, work-related injury insurance, unemployment insurance
and maternity insurance to designated government agencies for the benefit of our employees. The relevant government agencies may
examine whether an employer has made adequate payments of the requisite statutory employee benefits, and those employers who fail to
make adequate payments could be subject to late payment fees, fines and/or other penalties. As the interpretation and implementation of
these laws and regulations are still evolving, our employment practices may not at all times be deemed to be in compliance with the
applicable laws and regulations. If the relevant authorities determine that we should make supplemental social insurance and housing fund
contributions and that we are subject to fines and legal sanctions, our business, financial condition and results of operations could be
adversely affected. Furthermore, the Labor Contract Law has reinforced the protection of employees who, under the Labor Contract Law,
have the right, among others, to have written employment contracts, to enter into employment contracts with no fixed term under certain
circumstances, to receive overtime wages and to terminate or alter terms in labor contracts under certain circumstances. The Labor Contract
Law sets forth additional restrictions and increases the costs involved with dismissing employees. There can be no assurance that our
employment practices will at all times be in full compliance, and we could be subject to penalties or incur significant liabilities in connection
with labor disputes or investigations. We expect that our labor costs, including wages and employee benefits, will continue to increase.
Unless we are able to pass on these increased labor costs to our customers by increasing the prices of our products and services, our financial
condition and results of operations could be adversely affected.
In addition, we may face labor unrest if our employees form the view that we do not pay them adequately or provide adequate working
conditions. Such labor unrest may take the form of labor disputes, strike actions or protests against us. This may have an adverse impact on
our reputation and cause a loss of public trust in our company. If this were to occur, such loss of trust may materially and adversely affect our
financial condition and results of operations.
If we fail to maintain proper and effective internal controls, our ability to produce accurate financial statements on a timely basis could
be impaired.
As a result of the initial public offering, we have become subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act
of 2002 and the rules and regulations of the Nasdaq Stock Market. The Sarbanes-Oxley Act requires, among other things, that we maintain
effective disclosure controls and procedures and internal controls over financial reporting. Commencing with our fiscal year ended
December 31, 2020, we must perform system and process evaluation and testing of our internal controls over financial reporting to allow
management to report on the effectiveness of our internal controls over financial reporting in our Form 20-F filing for that year, as required
by Section 404 of the Sarbanes-Oxley Act. In addition, when we cease to be an “emerging growth company” as the term is defined in the
Jumpstart Our Business Startups 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. This will require that we incur substantial additional professional fees and internal costs to expand our accounting and
finance functions and that we expend significant management efforts. We may experience difficulty in meeting these reporting requirements
in a timely manner.
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In the course of preparing and auditing our consolidated financial statements for the year ended December 31, 2019, we and our former
independent registered public accounting firm identified one material weakness in our internal control over financial reporting as of
December 31, 2019. In accordance with U.S. GAAP and financial reporting requirements set forth by the SEC, a “material weakness” is a
deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a
material misstatement of our company’s annual or interim consolidated financial statements will not be prevented or detected on a timely
basis. The material weakness, which was first identified in the course of preparing our consolidated financial statements for the year ended
December 31, 2018, relates to our lack of sufficient financial reporting and accounting personnel with appropriate knowledge of U.S. GAAP
and SEC reporting requirements to formalize key controls over financial reporting and to prepare consolidated financial statements and
related disclosures. In the course of preparing and auditing our consolidated financial statements for the years ended December 31, 2020 and
2021, we and our current independent registered public accounting firm identified the same material weakness in our internal control over
financial reporting as of December 31, 2020 and 2021, respectively.To remedy this identified material weakness, we have started to
undertake steps to strengthen our internal control over financial reporting, including: (1) implementing regular and continuous U.S. GAAP
accounting and financial reporting training programs for our accounting and financial reporting personnel; (2) establishing effective
oversight and clarifying reporting requirements for non-recurring and complex transactions to ensure consolidated financial statements and
related disclosures are accurate, complete and in compliance with SEC reporting requirements; (3) preparing comprehensive accounting
policies, manuals and closing procedures to improve the quality and accuracy of our period-end financial closing process; and (4) engaging
an external consultant firm with experienced staff holding the CPA license with a solid understanding of U.S. GAAP to assist us in the
preparation of the financial statements for the year ended December 31, 2021. We also plan to hire more qualified personnel equipped with
relevant U.S. GAAP and SEC reporting experience and qualifications to strengthen the financial reporting function. However, these
measures have not been fully implemented, and we concluded that the material weakness in our internal control over financial reporting had
not been fully remediated as of December 31, 2021. We will continue to implement measures to remediate the material weakness.
In the course of preparing and auditing our consolidated financial statements for the year ended December 31, 2021, pursuant to new
information technology methodology, we and our independent registered public accounting firm identified additional material weaknesses in
our internal control over financial reporting as of December 31, 2021 relating to information technology control, in the areas of (1) data
backup and recovery management, (2) system and data accesses, and (3) information, cybersecurity and vulnerability risk assessment and
management. Following the identification of these material weaknesses, we plan to take measures to remedy our information technology
control. For details, see “Item 15. Controls and Procedures—Internal Control Over Financial Reporting.”
However, we cannot assure you that all these measures will be sufficient to remediate our material weaknesses in time, or at all. Neither we
nor our independent registered public accounting firm undertook a comprehensive assessment of our internal control under the Sarbanes-
Oxley Act for purposes of identifying and reporting any weakness 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 control weaknesses may have been identified.
In addition, our internal control over financial reporting will not prevent or detect all errors and all fraud. A control system, no matter how
well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of
the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or
fraud will not occur or that all control issues and instances of fraud will be detected.
An occurrence of a natural disaster, pandemic or other events could have a material adverse effect on our business, financial condition
and results of operations.
Our business could be materially and adversely affected by natural disasters, such as earthquakes, wildfires or floods or other events, such as
pandemics, wars, acts of terrorism, states of emergency, environmental accidents, power shortages, labor unrest or communication
interruptions. The occurrence of such an event in China or elsewhere could materially disrupt our business and operations. Such events could
also cause a temporary closure of the facilities we use for our operations, which would severely disrupt our operations and have a material
adverse effect on our business, financial condition and results of operations. Our operations could be disrupted if any of our employees were
suspected of having any of the epidemic illnesses, since this could require us to quarantine some or all of such employees or disinfect the
facilities used for our operations. In addition, our revenue and profitability could be materially reduced to the extent that a natural disaster or
other outbreak harms the global or Chinese economy in general. Our operations could also be severely disrupted if our users or other
participants were affected by such natural disasters, pandemics or other events.
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For example, the COVID-19 pandemic and the associated business uncertainty and volatility has had an adverse impact on our business,
financial condition and results of operations. See “—Our business, financial position, liquidity and results of operations have been, and are
likely to continue to be, materially and adversely affected by the COVID-19 pandemic.”
We may not have sufficient insurance coverage.
We have obtained insurance to cover certain potential risks and liabilities, such as property damage. However, insurance companies in China
offer limited business insurance products. As a result, we may not be able to acquire any insurance for certain types of risks such as business
liability or service disruption insurance for our operations in China, and our coverage may not be adequate to compensate for all losses that
may occur, particularly with respect to loss of business or operations. We do not maintain business interruption insurance or product liability
insurance, nor do we maintain key-man life insurance. This could leave us exposed to potential claims and losses. Any business disruption,
litigation, regulatory action, outbreak of epidemic disease or natural disaster could also expose us to substantial costs and diversion of
resources. We cannot assure you that our insurance coverage is sufficient to prevent us from any loss or that we will be able to successfully
claim our losses under our current insurance policy on a timely basis, or at all. If we incur any loss that is not covered by our insurance
policies, or the compensated amount is significantly less than our actual loss, our business, financial condition and results of operations could
be materially and adversely affected.
Failure to renew our current leases or locate desirable alternatives for our leased properties could materially and adversely affect our
business.
We lease properties for our offices and the warehousing facilities that we operate. We may not be able to successfully extend or renew such
leases upon expiration of the current term on commercially reasonable terms, or at all, and may therefore be forced to relocate our affected
operations. This could disrupt our operations and result in significant relocation expenses, which could adversely affect our business,
financial condition and results of operations.
In addition, we compete with other businesses for premises at certain locations or of desirable sizes. As a result, even though we could
extend or renew our leases, rental payments may significantly increase as a result of the high demand for the leased properties. Moreover, we
may not be able to locate desirable alternative sites for our current leased properties as our business continues to grow and failure in
relocating our affected operations could adversely affect our business and operations.
Certain of our leasehold interests in leased properties have not been registered with the relevant PRC governmental authorities as
required by relevant PRC laws and some of our leased properties have title defects.
We have not registered certain of our lease agreements with the relevant governmental authorities. Under the relevant PRC laws and
regulations, we may be required to register and file with the relevant governmental authority executed leases. The failure to register the lease
agreements for our leased properties will not affect the validity of these lease agreements, but the competent housing authorities may order
us to register the lease agreements in a prescribed period of time and impose a fine ranging from RMB1,000 (US$153) to RMB10,000
(US$1,533) for each non-registered lease if we fail to complete the registration within the prescribed timeframe.
In addition, the actual use of some of our leased properties was inconsistent with the planned use on the property ownership certificates. If
relevant governmental authorities require the lessor to correct such inconsistency or request land resumption, we may be unable to continue
to lease such properties and as a result we may be forced to relocate the properties and incur additional expenses relating to such relocation.
If we fail to find suitable replacement sites in a timely manner or on terms acceptable to us, our business and results of operations could be
materially and adversely affected.
The custodians or authorized users of our controlling non-tangible assets, including chops and seals, may fail to fulfill their
responsibilities, or misappropriate or misuse these assets.
Under the PRC law, legal documents for corporate transactions, including agreements and contracts are executed using the chop or seal of
the signing entity or with the signature of a legal representative whose designation is registered and filed with relevant PRC market
regulation administrative authorities.
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In order to secure the use of our chops and seals, we have established internal control procedures and rules for using these chops and seals. In
any event that the chops and seals are intended to be used, the responsible personnel will submit a formal application, which will be verified
and approved by authorized employees in accordance with our internal control procedures and rules. In addition, in order to maintain the
physical security of our chops, we generally have them stored in secured locations accessible only to authorized employees. Although we
monitor such authorized employees, the procedures may not be sufficient to prevent all instances of abuse or negligence. There is a risk that
our employees could abuse their authority, for example, by entering into a contract not approved by us or seeking to gain control of one of
our subsidiaries or our affiliated entities or their subsidiaries. If any employee obtains, misuses or misappropriates our chops and seals or
other controlling non-tangible assets for whatever reason, we could experience disruption to our normal business operations. We may have to
take corporate or legal action, which could involve significant time and resources to resolve and divert management from our operations, and
we may not be able to recover our loss due to such misuse or misappropriation if the third party relies on the apparent authority of such
employees and acts in good faith.
Risks Related to Our Corporate Structure
We are a “controlled company” within the meaning of the Nasdaq corporate governance requirements, which may result in public
investors having less protection than they would if we were not a controlled company.
Our co-founders, Ms. Zoe Wang, who serves as our Chairman and Chief Executive Officer, and Mr. Leo Zeng, who serves as our Chief
Operating Officer and Acting Chief Financial Officer, collectively held 81.1% of the total voting rights in our company as of May 11, 2022,
and we are, and expect to continue to be, a “controlled company” as defined under the Nasdaq Stock Market Rules. As a controlled
company, we rely on certain exemptions that are available to controlled companies from the Nasdaq corporate governance requirements.
Examples of the requirements from which we are exempt include the requirements that:
●
the majority of our board of directors consists of independent directors;
●
our compensation committee be composed entirely of independent directors; and
●
our corporate governance and nominating committee be composed entirely of independent directors.
We are not required to and do not voluntarily meet these requirements. As a result of our use of the “controlled company” exemption, our
investors do not have the same protection as they would if we were not a controlled company.
In addition, Ms. Wang and Mr. Zeng have decisive influence in determining the outcome of any corporate transaction or other matter
submitted to the shareholders for approval, including mergers, consolidations and the sale of all or substantially all of our assets, election of
directors and other significant corporate actions. Without the consent of Ms. Wang and Mr. Zeng, we may be prevented from entering into
transactions that could be beneficial to us. The interests of Ms. Wang and Mr. Zeng may differ from the interests of our other shareholders.
If the PRC government finds that the agreements that establish the operating structure for some of our operations in China do not
comply with PRC regulations relating to the relevant industries, or if these regulations or the interpretation of existing regulations
change in the future, we could be subject to severe penalties or be forced to relinquish our control over the VIE.
Under current PRC laws and regulations, foreign investors are generally not allowed to own more than 50% of the equity interests in a value-
added telecommunications services provider (subject to several exceptions).
We are a Cayman Islands holding company and our PRC subsidiaries are considered foreign-invested enterprises, directly or indirectly.
Accordingly, none of these PRC subsidiaries is eligible to provide value-added telecommunications services in China. We do not currently
provide value-added telecommunications services because our sales of goods purchased by us does not constitute providing value-added
telecommunications services. The variable interest entity, Shanghai Yibo, however, holds an ICP license and may develop e-commerce
platforms for other trading parties.
We entered into a series of contractual arrangements with Shanghai Yibo and its shareholders, which enable us to:
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●
exercise effective control over Shanghai Yibo;
●
receive substantially all of the economic benefits of Shanghai Yibo; and
●
have an exclusive option to purchase all or part of the equity interests and assets in Shanghai Yibo when and to the extent
permitted by PRC law.
Because of these contractual arrangements, we are the primary beneficiary of Shanghai Yibo and hence consolidate its financial results as the
VIE. In 2021, revenue attributable to the VIE was nil.
In the opinion of Commerce & Finance Law Offices, our PRC counsel, the ownership structure of the VIE, currently does not result in any
violation of the applicable PRC laws or regulations currently in effect; and the agreements under the contractual arrangements among
ECMOHO Shanghai, the VIE and VIE’s shareholders, are governed by PRC laws or regulations, and are currently valid, binding and
enforceable in accordance with the applicable PRC laws and regulations currently in effect.
However, our PRC counsel also advised us that there are substantial uncertainties regarding the interpretation and application of current and
future PRC laws, regulations and rules 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. If the PRC government finds the agreements that establish our Internet-based business do not comply
with PRC government restrictions on foreign investment in the aforesaid business we engage in, we could be subject to severe penalties,
including being prohibited from continuing operations.
If we or the VIE is found to be in violation of any existing or future PRC laws or regulations, or fails to obtain or maintain any of the
required permits or approvals, the relevant PRC regulatory authorities would have broad discretion to take action in dealing with such
violations or failures, including:
●
revoking the business licenses and/or operating licenses of the VIE;
●
shutting down our website, or discontinuing or restricting the conducting of any transactions between certain of our PRC
subsidiaries and the VIE;
●
imposing fines, confiscating the income from the VIE or imposing other requirements with which we or the VIE may not
be able to comply;
●
requiring us to restructure our ownership structure or operations, including terminating the contractual arrangements with
the VIE and deregistering the equity pledges of the VIE, which in turn would affect our ability to consolidate, derive
economic interests from or exert effective control over the VIE; or
●
prohibiting or restricting our use of the proceeds of our initial public offering to finance our business and operations in
China.
The imposition of any of these penalties may result in an adverse effect on our ability to develop e-commerce business in the future. In
addition, it is unclear what impact the PRC government actions would have on us and on our ability to consolidate the financial results of the
VIE in our consolidated financial statements, if the PRC governmental authorities were to find our legal structure and contractual
arrangements to be in violation of PRC laws and regulations. If the imposition of any of these government actions causes us to lose our right
to direct the activities of the VIE or our right to receive substantially all the economic benefits and residual returns from the VIE and we are
not able to restructure our ownership structure and operations in a satisfactory manner, we would no longer be able to consolidate the
financial results of the VIE in our consolidated financial statements. Either of these results, or any other significant penalties that might be
imposed on us in this event, would have an adverse effect on our financial condition and results of operations.
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Any failure by the VIE or its shareholders to perform their obligations under our contractual arrangements with them would have a
material adverse effect on our business.
Although substantially all of our revenues are generated by our PRC and Hong Kong subsidiaries, and substantially all of our assets are held
by our PRC and Hong Kong subsidiaries, we have relied and expect to continue to rely on contractual arrangements with Shanghai Yibo and
its shareholders to hold our ICP license, which will enable us to develop value-added telecommunication business. These contractual
arrangements may not be as effective as direct ownership in providing us with control over the VIE.
If the VIE or its shareholders fail to perform their respective obligations under the contractual arrangements, we may have to incur
substantial costs and expend additional resources to enforce such arrangements. We may also have to rely on legal remedies under PRC law,
including seeking specific performance or injunctive relief, and claiming damages. We cannot assure you such remedies will be effective.
For example, if the shareholders of the VIE were to refuse to transfer their equity interest in the VIE 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, 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 law and provide for the resolution of disputes through
arbitration in China. Accordingly, these contracts would be interpreted in accordance with PRC law and any disputes would be resolved in
accordance with PRC legal procedures. The legal system in the PRC is not as developed as in some other jurisdictions, such as the United
States. See “— Risks Related to Doing Business in China—There are uncertainties regarding the interpretation and enforcement of PRC
laws, rules and regulations.” Meanwhile, there are very few precedents and little formal guidance as to how contractual arrangements in the
context of a VIE should be interpreted or enforced under PRC law, and as a result it may be difficult to predict how an arbitration panel
would view such contractual arrangements. As a result, uncertainties in the PRC legal system could limit our ability to enforce these
contractual arrangements. Additionally, under PRC law, rulings by arbitrators are final, parties cannot appeal the arbitration results in courts,
and if the losing parties fail to carry out the arbitration awards within a prescribed time limit, the prevailing parties may only enforce the
arbitration awards in PRC courts through arbitration award recognition proceedings, which would require additional expenses and delay.
In the event we are unable to enforce our contractual arrangements, we may not be able to exert effective control over the VIE or to develop
relevant businesses. As a result, our business, financial condition, results of operations and prospects would be adversely affected.
The shareholders of the VIE may have potential conflicts of interest with us, which may materially and adversely affect our business and
financial condition.
The shareholders of the VIE, Ms. Zoe Wang and Mr. Leo Zeng, may have potential conflicts of interest with us. These shareholders may
breach, or cause the VIE to breach, or refuse to renew, the existing contractual arrangements we have with them and the VIE, which would
have a material adverse effect on our ability to effectively control the VIE and receive substantially all the economic benefits from them. For
example, the shareholders may be able to cause our agreements with the VIE 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.
Contractual arrangements in relation to the VIE may be subject to scrutiny by the PRC tax authorities and they may determine that we or
the VIE owes 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. We could face adverse tax consequences if the PRC tax authorities determine that the contractual arrangements among
ECMOHO Shanghai, Shanghai Yibo and the shareholders of Shanghai Yibo were not entered into on an arm’s-length basis in such a way as
to result in an impermissible reduction in taxes under applicable PRC laws, rules and regulations, and adjust Shanghai Yibo’s income 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 Shanghai Yibo for PRC tax purposes, which could in turn increase their tax liabilities. In addition, the PRC tax authorities may
impose punitive interest on Shanghai Yibo for the adjusted but unpaid taxes at the rate of 5% over the basic RMB lending rate published by
the People’s Bank of China for a period according to the applicable regulations. Our financial position could be adversely affected if the
VIE’s tax liabilities increase or if it is required to pay punitive interest.
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Uncertainties exist with respect to the interpretation and implementation of the PRC Foreign Investment Law and how it may impact the
viability of our current corporate structure, corporate governance and business operations.
The National People’s Congress approved the Foreign Investment Law on March 15, 2019 and the State Council approved the Regulation on
Implementing the Foreign Investment Law (the “Implementation Regulations”) on December 26, 2019, effective from January 1, 2020,
which replaced the trio of existing laws regulating foreign investment in China, namely, the Sino-foreign Equity Joint Venture Enterprise
Law, the Sino-foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-invested Enterprise Law, together with their
implementation rules and ancillary regulations. The Supreme People’s Court of China issued the Interpretation on the Application of the
Foreign Investment Law of the PRC on December 26, 2019, effective from January 1, 2020, to ensure fair and efficient implementation of
the Foreign Investment Law. According to the judicial interpretation, courts in China shall not, among other things, support contracted
parties to claim foreign investment contracts in sectors not on the Special Administrative Measures for Access of Foreign Investment
(Negative List) as void because the contracts have not been approved or registered by administrative authorities. The Foreign Investment
Law and Implementation Regulations 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 these rules are relatively new, uncertainties still exist in relation to their interpretation. For instance, under the Foreign
Investment Law, “foreign investment” refers to the investment activities directly or indirectly conducted by foreign individuals, enterprises
or other entities in China. Though it does not explicitly classify contractual arrangements as a form of foreign investment, there is no
assurance that foreign investment via contractual arrangement would not be interpreted as a type of indirect foreign investment activities
under the definition in the future. In addition, the definition contains a catch-all provision which includes investments made by foreign
investors through means stipulated in laws or administrative regulations or other methods prescribed by the State Council. Therefore, it still
leaves leeway for future laws, administrative regulations or provisions promulgated by the Stale Council to provide for contractual
arrangements as a form of foreign investment. In any of these cases, it will be uncertain whether our contractual arrangements will be
deemed to be in violation of the market access requirements for foreign investment under the PRC laws and regulations, or whether they may
be invalid in whole or in part. Furthermore, if future laws, administrative regulations or provisions prescribed by the State Council mandate
further actions to be taken by companies with respect to existing contractual arrangements, we may face substantial uncertainties as to
whether we can complete such actions in a timely manner, or at all. Failure to take timely and appropriate measures to cope with any of these
or similar regulatory compliance challenges could adversely affect our current corporate structure, corporate governance and business
operations.
Risks Related to Doing Business in China
Substantial uncertainties exist with respect to the interpretation and implementation of cybersecurity related regulations and
cybersecurity review as well as any impact these may have on our business operations.
The cybersecurity legal regime in China is relatively new and evolving rapidly, and their interpretation and enforcement involve significant
uncertainties. As a result, it may be difficult to determine what actions or omissions may be deemed to be in violations of applicable laws
and regulations in certain circumstances.
Network operators in China are subject to numerous laws and regulations, and have the obligations to, among others, (1) establish internal
security management systems that meet the requirements of the classified protection system for cybersecurity, (2) implement technical
measures to monitor and record network operation status and cybersecurity incidents, (3) implement data security measures such as data
classification, backups and encryption, and (4) submit for cybersecurity review under certain circumstances.
On November 7, 2016, the Standing Committee of the National People’s Congress issued the Cyber Security Law, which imposes more
stringent requirements on operators of “critical information infrastructure,” especially in data storage and cross-border data transfer.
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On December 28, 2021, the CAC, the NDRC, the MIIT, and several other administrations jointly published the Measures for Cybersecurity
Review, effective on February 15, 2022, which provides that certain operators of critical information infrastructure purchasing network
products and services or network platform operators carrying out data processing activities, which affect or may affect national security, must
apply with the Cybersecurity Review Office for a cybersecurity review. However, the scope of operators of “critical information
infrastructure” under the current regulatory regime remains unclear and is subject to the decisions of competent PRC regulatory authorities.
As advised by our PRC counsel, Commerce & Finance Law Offices, the exact scope of operators of “critical information infrastructure”
under the Measures for Cybersecurity Review and current PRC regulatory regime remains unclear, and is subject to the decisions of the
relevant PRC government authorities that have been delegated the authority to identify operators of “critical information infrastructure” in
their respective jurisdictions (including regions and industries). PRC government authorities have wide discretion in the interpretation and
enforcement of these laws, including the identification of operators of “critical information infrastructure” and the interpretation and
enforcement of requirements potentially applicable to such operators of “critical information infrastructure.”
Although we do not believe we are at risk of being deemed to be an operator of “critical information infrastructure” or a network platform
operator meeting the above criteria under PRC cybersecurity laws, the relevant regulatory authority may not agree with our assessment. If we
are identified as an operator of “critical information infrastructure,” we would be required to fulfill various obligations as required under
PRC cybersecurity laws and other applicable laws for such operators of “critical information infrastructure” that currently not applicable to
us, including, among others, setting up a special security management organization, organizing regular cybersecurity education and training,
formulating emergency plans for cyber security incidents and conducting regular emergency drills, and although the internet products and
services we purchase are primarily bandwidth and marketing services, we may need to follow cybersecurity review procedure and apply with
Cybersecurity Review Office before making certain purchases of network products and services. If we are subject to the cybersecurity
review, we may be required to suspend the provision of any existing or new services to our customers and consumers, and we may
experience other disruptions of our operations, which could cause us to lose users and customers therefore leading to adverse impacts on our
business. The cybersecurity review could also lead to negative publicity and a diversion of time and attention of our management and our
other resources. It could be costly and time-consuming for us to prepare application materials and make the applications. Furthermore, there
can be no assurance that we will obtain the clearance or approval for these applications from the Cybersecurity Review Office and the
relevant regulatory authorities in a timely manner, or at all. If we are found to be in violation of cybersecurity requirements in China, the
relevant governmental authorities may, at their discretion, conduct investigations, levy fines, request app stores to take down our apps and
cease to provide viewing and downloading services related to our apps, prohibit the registration of new users on our platform, or require us
to change our business practices in a manner materially adverse to our business. Any of these actions may disrupt our operations and
adversely affect our business, results of operations and financial condition.
On November 14, 2021, the CAC published a discussion draft of the Administrative Measures for Internet Data Security, or the Draft
Measures for Internet Data Security, which provides that data processors conducting the following activities shall apply for cybersecurity
review: (1) merger, reorganization or division of Internet platform operators that have acquired a large number of data resources related to
national security, economic development or public interests affects or may affect national security; (2) listing abroad of data processors
processing over one million users’ personal information; (3) listing in Hong Kong which affects or may affect national security; or (4) other
data processing activities that affect or may affect national security. There have been no clarifications from the authorities as of the date of
this annual report as to the standards for determining such activities that “affects or may affect national security.” The CAC has solicited
comments on this draft until December 13, 2021, but there is no timetable as to when it will be enacted. As such, substantial uncertainties
exist with respect to the enactment timetable, final content, interpretation and implementation. The Draft Measures for Internet Data
Security, if enacted as proposed, may materially impact our capital raising activities. Any failure to obtain such approval or clearance from
the regulatory authorities could materially constrain our liquidity and have a material adverse impact on our business operations and
financial results, especially if we need additional capital or financing.
The interpretation and application of these cybersecurity laws, regulations and standards are still uncertain and evolving, especially the Draft
Measures for Internet Data Security. We cannot assure you that relevant governmental authorities will not interpret or implement these and
other laws or regulations in ways that may negatively affect us.
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Adverse changes in China’s or global economic and political policies could have a material and adverse effect on overall economic
growth in China, which could materially and adversely affect our business.
Substantially all of our operations are conducted in China and substantially all of our revenues are generated from China. Accordingly, our
results of operations, financial condition and prospects are influenced by economic, political and legal developments in China. Economic
reforms begun in the late 1970s have resulted in significant economic growth. However, any economic reform policies or measures in China
may from time to time be modified or revised. China’s economy differs from the economies of most developed countries in many respects,
including the extent of the government involvement, level of development, growth rate, control of foreign exchange and allocation of
resources. The PRC government exercises significant control over China’s economic growth through strategically allocating resources,
controlling the payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to
particular industries or companies. The PRC government has significant authority to exert influence on the ability of a China-based
company, such as us, to conduct its business. Therefore, investors of our company and our business face potential uncertainties from the PRC
government.
While the PRC economy has experienced significant growth in the past decades, growth has been uneven across different regions and
between economic sectors, and the growth rate of the Chinese economy has gradually slowed since 2010, which trend may continue.
Furthermore, China’s GDP growth turned negative in the first quarter of 2020. Any adverse changes in economic conditions in China, in the
policies of the Chinese government or in the laws and regulations in China could have a material adverse effect on the overall economic
growth of China. Such developments could adversely affect our business and operating results, lead to reduction in demand for our products
and services and adversely affect our competitive position. 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 or changes in tax regulations.
COVID-19 had a severe and negative impact on the Chinese and the global economy in the first quarter of 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 has gradually slowed in recent years and the trend may continue.
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. The COVID-19 pandemic has impacted the global and Chinese economy severely in 2020. Our results of operations and
financial condition have been affected negatively by the spread of COVID-19 in 2020 and 2021. Any severe or prolonged slowdown in the
global or Chinese economy may further materially and adversely affect our business, results of operations and financial condition.
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The PRC government’s significant oversight and discretion over our business operations could result in a material adverse change in our
operations and the value of our listed securities.
We conduct our operations in China through our PRC subsidiaries and the VIE, with which we have maintained contractual arrangements.
Our operations in China are governed by PRC laws and regulations. The PRC government has significant oversight and discretion over the
conduct of our business, and it may influence our operations, which could result in a material adverse change in our operation and/or the
value of our Class A ordinary shares and/or ADSs. The PRC government has recently indicated an intent to exert more oversight and control
over offerings that are conducted overseas and/or foreign investment in China-based issuers. For example, on July 6, 2021, the relevant PRC
government authorities made public the Opinions on Strictly Cracking Down Illegal Securities Activities in Accordance with the Law. These
opinions emphasized the need to strengthen the administration over illegal securities activities and the supervision on overseas listings by
China-based companies and proposed to take effective measures, such as promoting the construction of relevant regulatory systems to deal
with the risks and incidents faced by China-based overseas-listed companies. On December 28, 2021, the NDRC, the MIIT, and several other
administrations jointly published the Measures for Cybersecurity Review, effective on February 15, 2022, which required that, among others,
operators of “critical information infrastructure” purchasing network products and services or network platform operators carrying out data
processing activities, that affect or may affect national security, shall apply with the Cybersecurity Review Office for a cybersecurity review.
In addition, a network platform operator holding over one million users’ personal information shall apply with the Cybersecurity Review
Office for a cybersecurity review when it seeks to list overseas. On November 14, 2021, the CAC released the draft Administrative Measures
for Internet Data Security, or the Draft Measures for Internet Data Security, for public comments, which requires, among others, that a prior
cybersecurity review should be required for listing abroad of data processors which process over one million users’ personal information,
and the listing of data processors in Hong Kong which affects or may affect national security. Since the Draft Measures for Internet Data
Security is in the process of being formulated and the Opinions on Strictly Cracking Down Illegal Securities Activities in Accordance with
the Law remain unclear on how it will be interpreted, amended and implemented by the relevant PRC governmental authorities, it remains
uncertain how PRC governmental authorities will regulate overseas listing in general and whether we are required to obtain any specific
regulatory approvals from the CSRC, CAC or any other PRC governmental authorities for our offshore offerings. If the CSRC, CAC or other
regulatory agencies later promulgate new rules or explanations requiring that we obtain their approvals for our future offshore offerings, we
may be unable to obtain such approvals in a timely manner, or at all, and such approvals may be rescinded even if obtained. Any such
circumstance could significantly limit or completely hinder our ability to continue to offer securities to investors and cause the value of such
securities to significantly decline or be worthless. In addition, implementation of industry-wide regulations directly targeting our operations
could cause the value of our securities to significantly decline. Therefore, investors of our company and our business face potential
uncertainty from actions taken by the PRC government affecting our business.
Recent joint statement by the SEC and the Public Company Accounting Oversight Board (United States), or the PCAOB, the newly
enacted Holding Foreign Companies Accountable Act all call for additional and more stringent criteria to be applied to emerging market
companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected by the
PCAOB. These developments could add uncertainties to the trading of our ADSs on U.S. stock exchanges.
As part of a continued regulatory focus in the United States on access to audit and other information currently protected by national law, in
particular China’s, the Holding Foreign Companies Accountable Act, or the HFCAA, has been signed into law on December 18, 2020. The
HFCAA states if the SEC determines that a company has filed audit reports issued by a registered public accounting firm that has not been
subject to inspection for the PCAOB for three consecutive years beginning in 2021, the SEC shall prohibit the shares or ADS of such
company from being traded on a national securities exchange or in the over-the-counter trading market in the U.S.
On June 22, 2021, the U.S. Senate passed a bill known as the Accelerating Holding Foreign Companies Accountable Act, to amend Section
104(i) of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7214(i)) to prohibit securities of any registrant from being listed on any of the U.S.
securities exchanges or traded over-the-counter if the auditor of the registrant’s financial statements is not subject to PCAOB inspection for
two consecutive years, instead of three consecutive years as currently enacted in the HFCAA.
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On December 2, 2021, the SEC adopted final amendments to its rules implementing the HFCAA (the “Final Amendments”). The Final
Amendments include requirements to disclose information, including the auditor name and location, the percentage of shares of the issuer
owned by governmental entities, whether governmental entities in the applicable foreign jurisdiction with respect to the auditor has a
controlling financial interest with respect to the issuer, the name of each official of the Chinese Communist Party who is a member of the
board of the issuer, and whether the articles of incorporation of the issuer contains any charter of the Chinese Communist Party. The Final
Amendments also establish procedures the SEC will follow in identifying issuers and prohibiting trading by certain issuers under the
HFCAA. On December 16, 2021, the PCAOB determined that it is unable to inspect or investigate completely PCAOB-registered public
accounting firms headquartered in mainland China and in Hong Kong, and indicated that it will reassess its determinations at least annually.
On February 4, 2022, the U.S. House of Representatives passed the America Competes Act of 2022 which includes the exact same
amendments as the bill passed by the Senate. The America Competes Act however includes a broader range of legislation not related to the
HFCAA in response to the U.S. Innovation and Competition Act passed by the Senate in 2021. The U.S. House of Representatives and U.S.
Senate will need to agree on amendments to these respective bills to align the legislation and pass their amended bills before the U.S.
President can sign into law. It is unclear when the U.S. Senate and U.S. House of Representatives will resolve the differences in the U.S.
Innovation and Competition Act and the America Competes Act of 2022 bills currently passed, or when the U.S. President will sign on the
bill to make the amendment into law, or at all.
Our financial statements contained in the annual report on Form 20-F for the fiscal year ended December 31, 2021 have been audited by
Friedman LLP. Friedman LLP, is registered with the PCAOB and 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 headquartered in Manhattan,
New York, and has been inspected by the PCAOB on a regular basis. However, the recent developments would add uncertainties to the
trading of our ADSs on U.S. stock exchanges, and we cannot assure you whether Nasdaq or other regulatory authorities would apply
additional and more stringent criteria to us after considering the effectiveness of our auditor’s audit procedures and quality control
procedures, adequacy of personnel and training, or sufficiency of resources, geographic reach, or experience as it relates to our audit.
As of the date of this annual report, we have not been identified as a “Commission-Identified Issuer,” which is an issuer identified by the
SEC as having filed an annual report containing an audit report issued by a registered public accounting firm that the PCAOB has
determined it is unable to inspect or investigate completely because of a position taken by an authority in the foreign jurisdiction. PCAOB
may in the future determine that it cannot inspect or fully investigate our auditor, and we may become a “Commission-Identified Issuer” as a
result, which will cause the delisting of our securities in the Nasdaq and the cease of trading of our securities in over-the-counter market in
the United States.
There are uncertainties regarding the interpretation and enforcement of PRC laws, rules and regulations.
Most of our operations are conducted in the PRC, and are governed by PRC laws, rules and regulations. Our PRC subsidiaries are subject to
laws, rules and regulations applicable to foreign investment in China. The PRC legal system is a civil law system based on written statutes.
Unlike the common law system, prior court decisions may be cited for reference but have limited precedential value.
In 1979, the PRC government began to promulgate a comprehensive system of laws, rules and regulations governing economic matters in
general. The overall effect of legislation over the past four decades has significantly enhanced the protections afforded to various forms of
foreign investment in China. However, China has not developed a fully integrated legal system, and recently enacted laws, rules and
regulations may not sufficiently cover all aspects of economic activities in China or may be subject to significant degrees of interpretation by
PRC regulatory agencies. In particular, because these laws, rules and regulations are relatively new, and because of the limited number of
published decisions and the nonbinding nature of such decisions, and because the laws, rules and regulations often give the relevant regulator
significant discretion in how to enforce them, the interpretation and enforcement of these laws, rules and regulations involve uncertainties
and can be inconsistent and unpredictable. In addition, the PRC legal system is based in part on government policies and internal rules, some
of which are not published on a timely basis or at all, and which may have a retroactive effect. As a result, we may not be aware of our
violation of these policies and rules until after the occurrence of the violation.
Any administrative and court proceedings in China may be protracted, resulting in substantial costs and diversion of resources and
management attention. 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. These uncertainties may impede our ability to enforce the contracts we have
entered into and could materially and adversely affect our business, financial condition and results of operations.
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The approval of and the filing with the CSRC or other PRC government authorities may be required in connection with our future
offshore offerings under PRC law, and, if required, we cannot predict whether or for how long we will be able to obtain such approval or
complete such filing.
Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, adopted by six PRC regulatory
agencies in 2006 and amended in 2009, requires an overseas special purpose vehicle formed for listing purposes through acquisitions of PRC
domestic companies and controlled by PRC persons or entities to obtain the approval of the CSRC prior to the listing and trading of such
special purpose vehicle’s securities on an overseas stock exchange. The interpretation and application of the regulations remain unclear, and
our offshore offerings may ultimately require approval of the CSRC. If the CSRC approval is required, it is uncertain whether we can or how
long it will take us to obtain the approval and, even if we obtain such CSRC approval, the approval could be rescinded. Any failure to obtain
or delay in obtaining the CSRC approval for any of our offshore offerings, or a rescission of such approval, would subject us to sanctions
imposed by the CSRC or other PRC regulatory authorities, which could include fines and penalties on our operations in China, restrictions or
limitations on our ability to pay dividends outside of China, and other forms of sanctions that may materially and adversely affect our
business, financial condition, and results of operations.
On July 6, 2021, the relevant PRC government authorities issued Opinions on Strictly Cracking Down Illegal Securities Activities in
Accordance with the Law. These opinions emphasized the need to strengthen the administration over illegal securities activities and the
supervision on overseas listings by China-based companies and proposed to take effective measures, such as promoting the construction of
relevant regulatory systems to deal with the risks and incidents faced by China-based overseas-listed companies. On December 24, 2021, the
State Council issued a draft of the Provisions of the State Council on the Administration of Overseas Securities Offering and Listing by
Domestic Companies, and the CSRC issued a draft of Administration Measures for the Filing of Overseas Securities Offering and Listing by
Domestic Companies for public comments. These draft measures propose to establish a new filing-based regime to regulate overseas
offerings and listings by domestic companies. Specifically, an overseas offering and listing by a PRC company, whether directly or
indirectly, an initial or follow-on offering, must be filed with the CSRC. The examination and determination of an indirect offering and
listing will be conducted on a substance-over-form basis, and an offering and listing shall be deemed as a PRC company’s indirect overseas
offering and listing if the issuer meets the following conditions: (1) any of the operating income, gross profit, total assets, or net assets of the
PRC enterprise in the most recent fiscal year was more than 50% of the relevant line item in the issuer’s audited consolidated financial
statement for that year; and (2) senior management personnel responsible for business operations and management are mostly PRC citizens
or are ordinarily resident in the PRC, and the principal place of business is in the PRC or carried out in the PRC. The issuer or its affiliated
PRC entity, as the case may be, shall complete the filing procedures required by and submit relevant information to the CSRC. Failure to
comply with the filing requirements may result in fines to the relevant PRC companies, suspension of their businesses, revocation of their
business licenses and operation permits and fines on the controlling shareholder and other responsible persons. Theses draft measures also
set forth certain regulatory red lines for overseas offerings and listings by PRC enterprises.
There are substantial uncertainties as to whether these draft measures to regulate direct or indirect overseas offering and listing would be
further amended, revised or updated, their enactment timetable and final content. As the CSRC may formulate and publish guidelines for
filings in the future, these draft measures did not provide for detailed requirements of the substance and form of the filing documents. In a
Q&A released on CSRC’s official website on December 24, 2021, the respondent CSRC official indicated that the proposed new filing
requirement will start with new issuers and listed companies seeking follow-on financing and other financing activities. As for the filings for
other listed companies, the regulator will grant adequate transition period and apply separate arrangements. The Q&A also pointed out that,
if compliant with relevant PRC laws and regulations, companies with compliant VIE structure may seek overseas listing after completion of
the CSRC filings. Nevertheless, the Q&A did not specify what would qualify as a “compliant VIE structure” and what relevant PRC laws
and regulations are required to be complied with. Given the substantial uncertainties surrounding the latest CSRC filing requirements at this
stage, we cannot assure you that, if ever required, we would be able to complete the filings and fully comply with the relevant new rules on a
timely basis, if at all.
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On December 27, 2021, the NDRC and the Ministry of Commerce jointly issued the Special Administrative Measures (Negative List) for
Foreign Investment Access (2021 Version), or the 2021 Negative List, which became effective on January 1, 2022. Pursuant to the Special
Administrative Measures, if a PRC company engaging in the prohibited business stipulated in the 2021 Negative List seeks an overseas
offering and listing, it shall obtain the approval from the competent governmental authorities. Besides, the foreign investors of the issuer
shall not be involved in the company’s operation and management, and their shareholding percentages shall be subject, mutatis mutandis, to
the relevant regulations on the domestic securities investments by foreign investors. As the 2021 Negative List is relatively new, there remain
substantial uncertainties as to the interpretation and implementation of these new requirements, and it is unclear as to whether and to what
extent listed companies like us will be subject to these new requirements. If we are required to comply with these requirements and fail to do
so on a timely basis, if at all, our business operation, financial conditions and business prospect may be adversely and materially affected.
In addition, we cannot assure you that any new rules or regulations promulgated in the future will not impose additional requirements on us.
If it is determined in the future that approval and filing from the CSRC or other regulatory authorities or other procedures, including the
cybersecurity review under the Measures for Cybersecurity Review and the Draft Measures for Internet Data Security, are required for our
offshore offerings, it is uncertain whether we can or how long it will take us to obtain such approval or complete such filing procedures and
any such approval or filing could be rescinded or rejected. Any failure to obtain or delay in obtaining such approval or completing such filing
procedures for our offshore offerings, or a rescission of any such approval or filing if obtained by us, would subject us to sanctions by the
CSRC or other PRC regulatory authorities for failure to seek CSRC approval or filing or other government authorization for our offshore
offerings. These regulatory authorities may impose fines and penalties on our operations in China, limit our ability to pay dividends outside
of China, limit our operating privileges in China, delay or restrict the repatriation of the proceeds from our offshore offerings into China or
take other actions that could materially and adversely affect our business, financial condition, results of operations, and prospects, as well as
the trading price of our listed securities. The CSRC or other PRC regulatory authorities also may take actions requiring us, or making it
advisable for us, to halt our offshore offerings before settlement and delivery of the shares offered. Consequently, if investors engage in
market trading or other activities in anticipation of and prior to settlement and delivery, they do so at the risk that settlement and delivery
may not occur. In addition, if the CSRC or other regulatory authorities later promulgate new rules or explanations requiring that we obtain
their approvals or accomplish the required filing or other regulatory procedures for our prior offshore offerings, we may be unable to obtain a
waiver of such approval requirements, if and when procedures are established to obtain such a waiver. Any uncertainties or negative
publicity regarding such approval requirement could materially and adversely affect our business, prospects, financial condition, reputation,
and the trading price of our listed securities.
PRC regulations of loans to PRC entities and direct investment in PRC entities by offshore holding companies may delay or prevent us
from using the proceeds of offshore financing activities, including follow-on offerings, to make loans or additional capital contributions
to our PRC subsidiaries.
We may transfer funds to our PRC subsidiaries or finance our PRC subsidiaries by means of shareholder loans or capital contributions. Any
loans from us to our PRC subsidiaries, which is a foreign-invested enterprise, cannot exceed statutory limits based on the difference between
the registered capital and the investment amount of such subsidiaries or 200% of its net assets, and shall be registered with the State
Administration of Foreign Exchange, or SAFE, or its local counterparts. Any capital contributions we make to our PRC subsidiaries is
subject to the requirement of necessary filings in the Foreign Investment Comprehensive Management Information System and registration
with other governmental authorities. We may not be able to obtain these government registrations or approvals on a timely basis, if at all. If
we fail to receive such registrations or approvals, our ability to provide loans or capital contributions to our PRC subsidiaries in a timely
manner may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand our
business.
On March 30, 2015, SAFE issued the Circular on Reform of the Administrative Rules of the Payment and Settlement of Foreign Exchange
Capital of Foreign-Invested Enterprises, or SAFE Circular 19, which became effective on June 1, 2015. SAFE Circular 19 adopts a concept
of “discretionary conversion,” which is defined as the conversion of a foreign-invested enterprise’s foreign currency registered capital in
accordance with the enterprise’s actual business needs. No review of the purpose of the funds is required at the time of conversion under
SAFE Circular 19. However, use of any RMB funds converted from its registered capital shall be based on true transactions. In addition,
equity investments using converted registered capital are no longer prohibited under SAFE Circular 19.
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SAFE issued the Circular on Reforming and Regulating Policies on the Control over Foreign Exchange Settlement of Capital Accounts, or
SAFE Circular 16, on June 9, 2016, which became effective on the same day. Pursuant to SAFE Circular 16, enterprises registered in the
PRC may also convert their foreign debts from foreign currency to RMB on self-discretionary basis. SAFE Circular 16 provides an
integrated standard for conversion of foreign exchange under capital account items (including but not limited to foreign currency capital and
foreign debts) on self-discretionary basis which applies to all enterprises registered in the PRC. SAFE Circular 16 reiterates the principle that
RMB converted from foreign currency-denominated capital of a company may not be directly or indirectly used for purposes beyond its
business scope or prohibited by PRC laws or regulations, while such converted RMB shall not be provided as loans to its non-affiliated
entities, or used for construction and purchase of non-self-used real estate (excluding real estate enterprises) or unless otherwise expressly
provided in law, directly or indirectly used in securities investment or other financial management excluding the bank capital preservation
products.
Violations of SAFE Circular 19 and SAFE Circular 16 could result in administrative penalties. SAFE Circular 19 and SAFE Circular 16 may
significantly limit our ability to transfer any foreign currency we hold, including the net proceeds from our equity offering and notes
offering, to our PRC subsidiaries, which may adversely affect our liquidity and our ability to fund and expand our business in China.
On October 23, 2019, SAFE issued the Notice of the State Administration of Foreign Exchange on Further Promoting the Facilitation of
Cross-border Trade and Investment, or SAFE Circular 28. SAFE Circular 28 allows non-investment foreign-invested enterprises to use their
capital funds to make equity investments in China, provided that such investments do not violate the Negative List and that the target
investment projects are genuine and in compliance with PRC laws.
In light of the various requirements imposed by PRC regulations on loans to and direct investment in PRC entities by offshore holding
companies, we cannot assure you that we will be able to complete the necessary government registrations or obtain the necessary
government approvals on a timely basis, if at all, with respect to future loans by us to our PRC subsidiaries or with respect to future capital
contributions by us to our PRC subsidiaries. If we fail to complete such registrations or obtain such approvals, our ability to use the proceeds
we received from our offshore financing activities, including equity offerings, and to capitalize or otherwise fund our PRC operations may be
negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand our business.
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We may be adversely affected by the complexity, uncertainties and changes in PRC regulation of healthcare industry and Internet-related
businesses, and any lack of requisite approvals, licenses or permits applicable to our business may have a material adverse effect on our
business and results of operations.
Our business is subject to governmental supervision and regulation by the relevant PRC governmental authorities, including but not limited
to the MOFCOM, the MIIT, the National Medical Products Administration of the PRC, or the NMPA, the NHC and SAMR and their
counterparts. Together, these governmental authorities promulgate and enforce regulations that cover many aspects of the operation of food
and pharmaceutical businesses, medical and healthcare services and Internet-related businesses, including foreign ownership of, and the
licensing and permit requirements pertaining to, companies in such business. The laws and regulations related to medical and healthcare
services and Internet-related businesses are evolving rapidly, 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. Under PRC laws, an entity must obtain the food operation license from SAMR or its counterpart for conducting
healthcare-related products wholesale and retail business, the pharmaceutical operation license from the NMPA or its counterpart for
conducting pharmaceutical wholesale and retail business, and the value-added telecommunications services operating licenses from the MIIT
or its counterpart for either online information services or third-party e-commerce platforms. We have made great efforts to obtain all
applicable licenses and permits necessary to our main business. However, the interpretation and application of existing PRC laws,
regulations and policies and possible new laws, regulations or policies relating to the pharmaceutical operation, medical and healthcare
services, and Internet-related businesses have created substantial uncertainties regarding the legality of existing and future foreign
investments in, and the businesses and activities of, pharmaceutical operation and Internet-related business industry in China, including our
business, we cannot assure you that we have obtained all the permits or licenses required for conducting our business or will be able to
maintain our existing licenses or obtain new ones. For example, the address on some of our Food Operation Permits is inconsistent with our
actual operating address. If the PRC government considers that we were operating without the proper approvals, licenses or permits or
promulgates new laws and regulations that require additional approvals or licenses 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.
PRC regulations regarding acquisitions impose significant regulatory approval and review requirements, which could make it more
difficult for us to pursue growth through acquisitions.
Under the PRC Anti-Monopoly Law, companies undertaking acquisitions relating to businesses in China must notify MOFCOM in advance
of any transaction where the parties’ revenues in the China market exceed certain thresholds and the buyer would obtain control of, or
decisive influence over, the target, while under the M&A Rules, the approval of MOFCOM must be obtained in circumstances where
overseas companies established or controlled by PRC enterprises or residents acquire domestic companies affiliated with such PRC
enterprises or residents. Applicable PRC laws, rules and regulations also require certain merger and acquisition transactions to be subject to
security review. Due to the level of our revenues, our proposed acquisition of control of, or decisive influence over, any company with
revenues within China of more than RMB400 million in the year prior to any proposed acquisition would be subject to MOFCOM merger
control review. As a result, many of the transactions we may undertake could be subject to MOFCOM merger review. Complying with the
requirements of the relevant regulations to complete such transactions could be time-consuming, and any required approval processes,
including approval from MOFCOM, 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, MOFCOM has not accepted antitrust filings for any transaction involving parties that
adopt a variable interest entity structure. If MOFCOM’s practice remains unchanged, our ability to carry out our investment and acquisition
strategy may be materially and adversely affected and there may be significant uncertainty as to whether we will be able to complete large
acquisitions in the future in a timely manner or at all.
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PRC regulations relating to investments in offshore companies by PRC residents may subject our PRC-resident beneficial owners or our
PRC subsidiaries to liability or penalties, limit our ability to inject capital into our PRC subsidiaries or limit our PRC subsidiaries’ ability
to increase their registered capital or distribute profits.
SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and
Financing and Roundtrip Investment through Special Purpose Vehicles, or the SAFE Circular 37, on July 4, 2014, which replaced the former
circular commonly known as “SAFE Circular 75” promulgated by SAFE on October 21, 2005. SAFE Circular 37 requires PRC residents to
register with local branches of SAFE in connection with their direct establishment or indirect control of an offshore entity, for the purpose of
overseas investment and financing, with such PRC residents’ legally owned assets or equity interests in domestic enterprises or offshore
assets or interests, referred to in SAFE Circular 37 as a “special purpose vehicle.” SAFE Circular 37 further requires amendment to the
registration in the event of any significant changes with respect to the special purpose vehicle, such as increase or decrease of capital
contributed by PRC individuals, share transfer or exchange, merger, division or other material event. In the event that a PRC shareholder
holding interests in a special purpose vehicle fails to fulfill the required SAFE registration, the PRC subsidiaries of that special purpose
vehicle may be prohibited from making profit distributions to the offshore parent and from carrying out subsequent cross-border foreign
exchange activities, and the special purpose vehicle may be restricted in its ability to contribute additional capital into its PRC subsidiary.
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.
We have notified substantial beneficial owners of ordinary shares who we know are PRC residents of their filing obligation, and are aware
that Ms. Zoe Wang and Mr. Leo Zeng have each completed the necessary registration with the local SAFE branch or qualified banks as
required by SAFE Circular 37. However, we may not at all times be aware of the identities of all of our beneficial owners who are PRC
residents. To our knowledge, some of our beneficial owners who are PRC residents have not completed the necessary registration as required
by SAFE Circular 37. We do not have control over our beneficial owners and cannot assure you that all of our PRC-resident beneficial
owners will comply with SAFE Circular 37 and subsequent implementation rules. The failure of our beneficial owners who are PRC
residents to register or amend their SAFE registrations in a timely manner pursuant to SAFE Circular 37 and subsequent implementation
rules, or the failure of future beneficial owners of our company who are PRC residents to comply with the registration procedures set forth in
SAFE Circular 37 and subsequent implementation rules, may subject such beneficial owners or our PRC subsidiaries to fines and legal
sanctions. Furthermore, since SAFE Circular 37 was recently promulgated and it is unclear how this regulation, and any future regulation
concerning offshore or cross-border transactions, will be interpreted, amended and implemented by the relevant PRC governmental
authorities, we cannot predict how these regulations will affect our business operations or future strategy. Failure to register or comply with
relevant requirements may also limit our ability to contribute additional capital to our PRC subsidiaries and limit our PRC subsidiaries’
ability to distribute dividends to our company. These risks may have a material adverse effect on our business, financial condition and results
of operations.
Any failure to comply with PRC regulations regarding our employee equity 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 share incentive plans in overseas non-publicly listed companies may submit
applications to SAFE or its local branches for the foreign exchange registration with respect to offshore special purpose companies. Our
directors, executive officers and other employees who are PRC citizens or who have resided in the PRC for a continuous period of not less
than one year and who have been granted restricted shares, RSUs or options may follow SAFE Circular 37 to apply for the foreign exchange
registration before our company becomes an overseas listed company. We and our directors, executive officers and other employees who are
PRC citizens or who have resided in the PRC for a continuous period of not less than one year and who have been granted restricted shares,
RSUs or options will be subject to the Notice on Issues Concerning the Foreign Exchange Administration for Domestic Individuals
Participating in Stock Incentive Plan of Overseas Publicly Listed Company, issued by SAFE in February 2012, according to which,
employees, directors, supervisors and other management members participating in any stock incentive plan of an overseas publicly listed
company who are PRC citizens or who are non-PRC citizens residing in China for a continuous period of not less than one year, subject to
limited exceptions, are required to register with SAFE through a domestic qualified agent, which could be a PRC subsidiary of such overseas
listed company, and complete certain other procedures. Failure to complete the SAFE registrations may subject them to fines and legal
sanctions and may also limit their ability to make payment under our equity incentive plans or receive dividends or sales proceeds related
thereto, or our ability to contribute additional capital into our wholly foreign-owned enterprises in China and limit our wholly foreign-owned
enterprises’ ability to distribute dividends to us. We also face regulatory uncertainties that could restrict our ability to adopt additional equity
incentive plans for our directors and employees under PRC law.
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In addition, the State Administration for Taxation has issued circulars concerning employee share options or restricted shares. Under these
circulars, employees working in the PRC who exercise share options, or whose restricted shares or RSUs vest, will be subject to PRC
individual income tax. The PRC subsidiaries of an overseas listed company have obligations to file documents related to employee share
options or restricted shares with relevant tax authorities and to withhold individual income taxes of those employees related to their share
options, restricted shares or RSUs. Although we currently withhold income tax from our PRC employees in connection with their exercise of
options and the vesting of their restricted shares and RSUs, if the employees fail to pay, or the PRC subsidiaries fail to withhold, their
income taxes according to relevant laws, rules and regulations, the PRC subsidiaries may face sanctions imposed by the tax authorities or
other PRC governmental authorities.
Any limitation on the ability of our PRC subsidiaries to make payments to us, or the tax implications of making payments to us, could
have a material adverse effect on our ability to conduct our business or our financial condition.
We are a holding company, and we rely principally on dividends and other distributions from our PRC subsidiaries for our cash needs,
including the funds necessary to pay dividends to our shareholders or service any debt we may incur. Current PRC regulations permit our
PRC subsidiaries to pay dividends only out of its accumulated profits, if any, determined in accordance with PRC accounting standards and
regulations. In addition, our PRC subsidiaries are required to set aside at least 10% of its after-tax profits each year, if any, to fund certain
statutory reserve funds until the aggregate amount of such reserve funds reaches 50% of its registered capital. Apart from these reserves, our
PRC subsidiaries may allocate discretionary portion of their after-tax profits based on PRC accounting standards to a discretionary surplus
fund. These reserves and funds are not distributable as cash dividends. Furthermore, if our PRC subsidiaries incur debt, the debt instruments
may restrict its ability to pay dividends or make other payments to us. We cannot assure you that our PRC subsidiaries will generate
sufficient earnings and cash flows in the near future to pay dividends or otherwise distribute sufficient funds to enable us to meet our
obligations, pay interest and expenses or declare dividends.
Distributions made by PRC companies to their offshore parents are generally subject to a 10% withholding tax under the Enterprise Income
Tax Law. Pursuant to the Enterprise Income Tax Law and the 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 Income, the
withholding tax rate on dividends paid by our PRC subsidiaries to our Hong Kong subsidiary would generally be reduced to 5%, provided
that our Hong Kong subsidiary is the beneficial owner of the PRC sourced income. Further, the State Taxation Administration promulgated
the Announcement of the Certain Issues with Respect to the “Beneficial Owner” in Tax Treaties in 2018, which sets forth certain detailed
factors in determining “beneficial owner” status, and specifically, if an applicant’s business activities do not constitute substantive business
activities, the applicant will not qualify as a “beneficial owner.” Although our PRC subsidiary is wholly owned by our Hong Kong
subsidiary, we will not be able to enjoy the 5% withholding tax rate with respect to any dividends or distributions made by our PRC
subsidiary to its parent company in Hong Kong if our Hong Kong subsidiary is not regarded as a “beneficial owner.”
Limitations on the ability of our PRC subsidiaries to pay dividends to us could limit our ability to access cash generated by the operations of
our PRC subsidiaries and the VIE, including to make investments or acquisitions that could be beneficial to our businesses, pay dividends to
our shareholders or otherwise fund and conduct our business.
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We may be treated as a resident enterprise for PRC tax purposes under the PRC Enterprise Income Tax Law, and we may therefore be
subject to PRC income tax on our global income.
Under the PRC Enterprise Income Tax Law and its implementing rules, enterprises established under the laws of jurisdictions outside China
with “de facto management bodies” located in China may be considered PRC tax resident enterprises for tax purposes and may be subject to
the PRC enterprise income tax at the rate of 25% on their global income. “De facto management body” refers to a managing body that
exercises substantive and overall management and control over the production and business, personnel, accounting books and assets of an
enterprise. The SAT issued the Notice Regarding the Determination of Chinese-Controlled Offshore-Incorporated Enterprises as PRC Tax
Resident Enterprises on the Basis of De Facto Management Bodies, or the Circular 82, which provides certain specific criteria for
determining whether the “de facto management body” of a Chinese-controlled offshore-incorporated enterprise is located in China. Although
Circular 82 only applies to offshore enterprises controlled by PRC enterprises, not those controlled by individuals or foreign enterprises, the
determining criteria set forth in Circular 82 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 offshore enterprises, regardless of whether they are controlled by PRC enterprises. If we
were to be considered a PRC resident enterprise, we would be subject to PRC enterprise income tax at the rate of 25% on our global income,
and our profitability and cash flow may be materially reduced as a result of our global income being taxed under the Enterprise Income Tax
Law. We believe that none of our entities outside China is a PRC resident enterprise for PRC tax purposes. 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.”
Dividends payable to our foreign investors and gains on the sale of our ADSs or Class A ordinary shares by our foreign investors may be
subject to PRC tax.
Under the Enterprise Income Tax Law and its implementation regulations issued by the State Council, a 10% PRC withholding tax is
applicable to dividends payable to investors that are non-resident enterprises, which do not have an establishment or place of business in the
PRC or which have such establishment or place of business but the dividends are not effectively connected with such establishment or place
of business, to the extent such dividends are derived from sources within the PRC. Any gain realized on the transfer of ADSs or Class A
ordinary shares by such investors is also subject to PRC tax at a current rate of 10% which in the case of dividends will be withheld at source
if such gain is regarded as income derived from sources within the PRC. If we are deemed a PRC resident enterprise, dividends paid on our
Class A ordinary shares or ADSs, and any gain realized from the transfer of our Class A ordinary shares or ADSs, may be treated as income
derived from sources within the PRC and may as a result be subject to PRC taxation. Furthermore, if we are deemed a PRC resident
enterprise, dividends payable to individual investors who are non-PRC residents and any gain realized on the transfer of ADSs or Class A
ordinary shares by such investors may be subject to PRC tax at a current rate of 20%. Any PRC tax liability may be reduced under applicable
tax treaties. However, it is unclear whether holders of our ADSs or Class A ordinary shares would be able to claim the benefit of income tax
treaties or agreements entered into between China and other countries or areas if we are considered a PRC resident enterprise. If dividends
payable to our non-PRC investors or gains from the transfer of our ADSs or Class A ordinary shares by such investors are subject to PRC
tax, the value of your investment in our ADSs or Class A ordinary shares may decline significantly.
We and our shareholders face uncertainties with respect to indirect transfers of equity interests in PRC resident enterprises by their non-
PRC holding companies.
On February 3, 2015, the SAT issued the Announcement on Several Issues Concerning the Enterprise Income Tax on Indirect Transfer of
Assets by Non-Resident Enterprises, or the SAT Circular 7. The SAT Circular 7 extends its tax jurisdiction to transactions involving the
transfer of taxable assets through offshore transfer of a foreign intermediate holding company. In addition, SAT Circular 7 has introduced
safe harbors for internal group restructurings and the purchase and sale of equity through a public securities market. SAT Circular 7 also
brings challenges to both foreign transferor and transferee (or other person who is obligated to pay for the transfer) of taxable assets. On
October 17, 2017, the SAT issued the Announcement on Issues Relating to Withholding at Source of Income Tax of Non-resident
Enterprises, or the SAT Circular 37, which came into effect on December 1, 2017. The SAT Circular 37 further clarifies the practice and
procedure of the withholding of non-resident enterprise income tax.
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Where a non-resident enterprise transfers taxable assets indirectly by disposing of the equity interests of an overseas holding company, which
is an Indirect Transfer, the non-resident enterprise as either transferor or transferee, or the PRC entity that directly owns the taxable assets,
may report such Indirect Transfer to the relevant tax authority. Using a “substance over form” principle, the PRC tax authority may disregard
the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing,
avoiding or deferring PRC tax. As a result, gains derived from such Indirect Transfer may be subject to PRC enterprise income tax, and the
transferee or other person who is obligated to pay for the transfer is obligated to withhold the applicable taxes, currently at a rate of 10% for
the transfer of equity interests in a PRC resident enterprise. Both the transferor and the transferee may be subject to penalties under PRC tax
laws if the transferee fails to withhold the taxes and the transferor fails to pay the taxes.
We face uncertainties as to the reporting and other implications of certain past and future transactions where PRC taxable assets are involved,
such as offshore restructuring, sale of the shares in our offshore subsidiaries and investments. Our company may be subject to filing
obligations or taxed if our company is transferor in such transactions, and may be subject to withholding obligations if our company is
transferee in such transactions, under SAT Circular 7 and/or SAT Circular 37. For transfer of shares in our company that do not qualify for
the public securities market safe harbor by investors who are non-PRC resident enterprises, our PRC subsidiaries may be requested to assist
in the filing under SAT Circular 7 and/or SAT Circular 37. As a result, we may be required to expend valuable resources to comply with SAT
Circular 7 and/or SAT Circular 37 or to request the relevant transferors from whom we purchase taxable assets to comply with these
circulars, or to establish that our company should not be taxed under these circulars, which may have a material adverse effect on our
financial condition and results of operations.
Restrictions on currency exchange may limit our ability to utilize our revenue effectively.
A portion of our revenue is denominated in Renminbi. The Renminbi is currently convertible under the “current account,” which includes
dividends, trade and service-related foreign exchange transactions, but not under the “capital account,” which includes foreign direct
investment and loans, including loans we may secure from our onshore subsidiaries or variable interest entity. Currently, our PRC
subsidiaries, which are wholly foreign-owned enterprises, may purchase foreign currency for settlement of “current account transactions,”
including payment of dividends to us, without the approval of SAFE by complying with certain procedural requirements. However, the
relevant PRC governmental authorities may limit or eliminate our ability to purchase foreign currencies in the future for current account
transactions. Since a portion of our future revenue will be denominated in Renminbi, any existing and future restrictions on currency
exchange may limit our ability to utilize revenue generated in Renminbi to fund our business activities outside of the PRC or pay dividends
in foreign currencies to our shareholders, including holders of our ADSs. Foreign exchange transactions under the capital account remain
subject to limitations and require approvals from, or registration with, SAFE and other relevant PRC governmental authorities. This could
affect our ability to obtain foreign currency through debt or equity financing for our subsidiaries and the VIE.
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.
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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-mandated employee benefit contribution plans, including
certain social insurance, housing funds and other welfare-oriented payment obligations, and to 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 contribution 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 may be subject to late fees and fines in relation to the underpaid employee benefits and under-withheld
individual income tax, and, if so, our financial condition and results of operations may be adversely affected.
Risks Related to Our ADSs
The trading price of our ADSs may be volatile, which could result in substantial losses to you.
The trading price of our ADSs is 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. The securities of some of these companies have experienced significant volatility since their
initial public offerings, including, in some cases, substantial price declines in the trading prices of their securities. The trading performances
of other Chinese companies’ securities after their offerings, including technology companies and transaction service platforms, 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 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. Furthermore, 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, the second half of 2011 and in 2015, including as a result of concerns over the impact of the COVID-19 pandemic, which may have a
material adverse effect on the trading 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 or our industry;
●
announcements of studies and reports relating to the quality of our credit offerings or those of our competitors;
●
changes in the economic performance or market valuations of other transaction service platforms;
●
actual or anticipated fluctuations in our quarterly results of operations and changes or revisions of our expected results;
●
changes in financial estimates by securities research analysts;
●
conditions in the market for health and wellness products;
●
announcements by us or our competitors of new product and service offerings, acquisitions, strategic relationships, joint
ventures, capital raisings or capital commitments;
●
additions to or departures of our senior management;
●
fluctuations of exchange rates between the Renminbi and the U.S. dollar;
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●
release or expiry of lock-up or other transfer restrictions on our outstanding shares or ADSs; and
●
sales or perceived potential sales of additional Class A ordinary shares or ADSs.
Substantial future sales or perceived potential sales of our ADSs, Class A ordinary shares or other equity securities in the public market
could cause the price of our ADSs to decline significantly.
Sales of our ADSs, Class A ordinary shares or other equity securities in the public market, or the perception that these sales could occur,
could cause the market price of our ADSs to decline significantly. As of May 11, 2022, we had 138,581,883 Class A ordinary shares
outstanding, including 115,037,596 Class A ordinary shares represented by ADSs. All of our ADSs are freely transferable by persons other
than our “affiliates” without restriction or additional registration under the U.S. Securities Act of 1933, as amended, or the Securities Act.
If we fail to regain compliance with Nasdaq’s minimum bid price requirement, the ADSs could be subject to delisting.
For the period from November 8, 2019 to March 17, 2022, the ADSs were listed on the Nasdaq Global Market. The Nasdaq Listing
Rules has minimum requirements that a company must meet for continued listing on the Nasdaq Global Market. These requirements include
maintaining a minimum closing bid price of US$1.00 per ADS for a period of 30 consecutive trading days. On September 16, 2021, we
received a notice from Nasdaq that we failed to comply with the minimum closing bid price requirement set forth in Rule 5450(a)(1) of the
Nasdaq Listing Rules as the closing bid price per ADS had been below US$1.00 for a period of 30 consecutive business days. The Nasdaq
notification letter does not result in the immediate delisting of our securities. Pursuant to Rule 5810(c)(3)(A) of the Nasdaq Listing Rules, we
had a compliance period of 180 calendar days, or until March 15, 2022 to regain compliance with Nasdaq’s minimum bid price requirement.
In response, we submitted an application to transfer the listing the ADSs from the Nasdaq Global Market to the Nasdaq Capital Market. On
March 16, 2022, the Nasdaq’s Listing Qualifications department approved our request to transfer the listing of the ADSs from the Nasdaq
Global Market to the Nasdaq Capital Market, which took effect on March 17, 2022, and the ADSs are currently listed on the Nasdaq Capital
Market. As a result of the transfer to the Nasdaq Capital Market, Nasdaq granted us a second period of 180 calendar days, or until September
12, 2022, to regain compliance with the minimum bid price requirement for continued listing. To regain compliance, the closing bid price per
ADS must meet or exceed US$1.00 per ADS for a minimum of 10 consecutive business days on or prior to September 12, 2022.
The transfer of our listing to the Nasdaq Capital Market is not expected to have any impact on trading in the ADSs. The ADSs will continue
to trade under the symbol “MOHO.” The Nasdaq Capital Market operates in substantially the same manner as the Nasdaq Global Market,
and companies on the Nasdaq Capital Market must meet certain financial and corporate governance requirements to qualify for continued
listing, including the minimum bid price requirement of at least US$1.00 per ADS pursuant to Rule 5550(a)(2) of the Nasdaq Listing Rules.
However, the transfer of listing may reduce the liquidity of the ADSs and cause further declines in the market price of the ADSs.
We have not regained compliance with the minimum bid price requirement as of the date of annual report. We are closely monitoring the bid
price of our ADSs, and may consider available options, such as an adjustment of our ADS-to-Class A ordinary share ratio, to increase the per
ADS price of our ADSs. As required by Nasdaq, we confirmed that we would implement a reverse stock split or ADS ratio change, if
necessary, to regain compliance with the minimum bid price requirement. However, there can be no assurance that we will be able to regain
compliance with the minimum bid price requirement in a timely manner. If we fail to regain compliance by September 12, 2022, or if we fail
to meet the other continued listing requirements of the Nasdaq Capital Market, we may be subject to delisting. The delisting of the ADSs
may significantly reduce the liquidity of the ADSs, cause further declines to the market price of the ADSs, and make it more difficult for us
to obtain adequate financing to support our continued operation.
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The issuance of additional shares in the future may impact the price of our ADSs and our ability to regain compliance with Nasdaq’s
minimum bid price requirement.
We had 197,937,499 ordinary shares issued and outstanding shares as of May 11, 2022, representing (1) 138,581,883 Class A ordinary
shares, among which 115,037,596 Class A ordinary shares were in the form of 28,759,399 ADSs, and (2) 59,355,616 Class B ordinary
shares, which can be converted into equal number of Class A ordinary shares at the discretion of the holders thereof. On August 5, 2021, we
completed an underwritten public offering of an aggregate of 10,000,000 ADSs of the Company, at a public offering price of US$0.90 per
ADS. The issuance and sale of any securities in the future may be dilutive to our existing shareholders and may cause the price of our ADSs
to decline. The issuance of additional shares by us that has the effect of reducing the price of the trading price of the ADSs may also prevent
us from being able to regain compliance with the minimum bid price requirement of Nasdaq Listing Rule 5550(a)(2) prior to September 12,
2022, which may result in our ADSs being suspended from trading or delisted from the Nasdaq Capital Market. If a suspension of trading or
delisting of the ADSs were to occur, there would be significantly less liquidity in our securities. In addition, our ability to raise additional
capital through equity or debt financing would be greatly impaired.
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.
It is our policy not to offer guidance on earnings. The trading market for our ADSs depends 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 significantly.
Our dual-class share structure with different voting rights limits our investors’ 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 holders of our
ADSs may view as beneficial.
We have a dual-class share structure such that our ordinary shares consist of Class A ordinary shares and Class B ordinary shares. In respect
of matters requiring the votes of shareholders, holders of Class A ordinary shares are entitled to one vote per share, while holders of Class B
ordinary shares are entitled to 10 votes per share. One (1) of our ADSs represents four (4) of our Class A ordinary shares. 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.
As of May 11, 2022, Ms. Zoe Wang and Mr. Leo Zeng beneficially own all of our issued and outstanding Class B ordinary shares. These
Class B ordinary shares constitute approximately 30.0% of our total issued and outstanding share capital and 81.1% of the aggregate voting
power of our total issued and outstanding share capital as of May 11, 2022, due to the disparate voting powers associated with our dual-class
share structure. See “Item 6. Directors, Senior Management and Employees — E. Share Ownership.” As a result of the dual-class share
structure and the concentration of ownership, holders of Class B ordinary shares have considerable influence over matters such as decisions
regarding mergers, consolidations and the sale of all or substantially all of our assets, election of directors and other significant corporate
actions. Such holders may take actions that are not in the best interest of us or our other shareholders. This concentration of ownership may
discourage, delay or prevent a change in control of our company, which could have the effect of depriving our other shareholders of the
opportunity to receive a premium for their shares as part of a sale of our company and may reduce the price of our ADSs. This concentrated
control limits our investors’ ability to influence corporate matters and could discourage others from pursuing any potential merger, takeover
or other change of control transactions that holders of Class A ordinary shares and holders of our ADSs may view as beneficial.
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There can be no assurance that we will not be a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for
any taxable year, which could result in adverse U.S. federal income tax consequences to U.S. holders of our ADSs or ordinary shares.
A non-U.S. corporation will be a passive foreign investment company, or PFIC, for any taxable year if either (1) at least 75% of its gross
income for such year consists of certain types of “passive” income; or (2) at least 50% of the value of its assets (generally determined on the
basis of a quarterly average) during such year is attributable to assets that produce passive income or are held for the production of passive
income, or the asset test. Assuming that we are the owner of the VIE for U.S. federal income tax purposes, based upon the composition of
our income and assets, we do not believe that we were a PFIC for our taxable year ended December 31, 2021. However, no assurance can be
given as to whether we will be a PFIC in the current taxable year or the foreseeable future because the determination of whether we are or
will become a PFIC is a fact-intensive inquiry made on an annual basis that depends, in part, upon the composition of our income and assets.
If the market price of our ADSs does not increase or declines, we may become a PFIC for the current or subsequent taxable years because
the value of our assets for the purpose of the asset test may be determined by reference to the market price of our ADSs (which may be
volatile). The composition of our income and assets may also be affected by how, and how quickly, we use our liquid assets.
If we were to be or become a PFIC for any taxable year during which a U.S. Holder holds our ADSs or ordinary shares, certain adverse U.S.
federal income tax consequences could apply to such U.S. Holder. See “Taxation—U.S. Federal Income Taxation—PFIC Rules.”
As a foreign private issuer, we are permitted to, and we will continue to, rely on exemptions from certain Nasdaq corporate governance
standards applicable to domestic U.S. issuers. This may afford less protection to holders of our Class A ordinary shares and holders of
the ADSs than they would enjoy if we were a domestic U.S. company.
We are exempted from certain corporate governance requirements of Nasdaq by virtue of being a foreign private issuer. We are required to
provide a brief description of the significant differences between our corporate governance practices and the corporate governance practices
required to be followed by domestic U.S. companies listed on the Nasdaq Stock Market. The standards applicable to us are considerably
different than the standards applied to domestic U.S. issuers. We have relied on and plan to continue to rely on home country practice with
respect to our corporate governance. Specifically, we do not (i) have a majority of the board be independent; (ii) have a compensation
committee or a nominating and corporate governance committee consisting entirely of independent directors; (iii) have an audit committee
be composed of at least three members; or (iv) hold annual general shareholder meeting. These practices may afford less protection to
shareholders than they would enjoy if we complied fully with the Nasdaq corporate governance requirements.
As a foreign private issuer, we are exempt from certain disclosure requirements under the Exchange Act, which may afford less protection to
our shareholders than they would enjoy if we were a domestic U.S. company.
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 securities
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.
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We intend to continue 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 is less extensive and less timely compared to that required to be
filed with the SEC by U.S. domestic issuers. As a result, our investors may not be afforded the same protections or information that would be
made available to our investors were they investing in a U.S. domestic issuer.
As an emerging growth company, we are exempt from certain 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 the Sarbanes-Oxley Act so long as we are an emerging growth
company.
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. We have
elected not to “opt out” of such extended transition period, which means that when a standard is issued or revised and it has different
application dates for public or private companies, we will adopt the new or revised standard at the time private companies adopt the new or
revised standard and will do so until such time that we either (i) irrevocably elect to “opt out” of such extended transition period or (ii) no
longer qualify as an emerging growth company. As a result, our operating results and financial statements may not be comparable to the
operating results and financial statements of other companies who have adopted the new or revised accounting standards.
You may face difficulties in protecting your interests, and your ability to protect your rights through the U.S. federal courts may be
limited because we are incorporated under Cayman Islands law, we conduct substantially all of our operations in China and most of our
directors and all of our executive officers reside outside the United States.
We are incorporated in the Cayman Islands and conduct substantially all of our operations in China through our wholly foreign-owned
enterprises and the VIE. Most of our directors and all of our executive officers reside outside the United States and a substantial portion of
their assets are located outside of the United States. As a result, it may be difficult or impossible for you to bring an action against us or
against these individuals in the Cayman Islands or in China in the event that you believe that your rights have been infringed under the
securities laws of the United States or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman
Islands and China may render you unable to enforce a judgment against our assets or the assets of our directors and officers. There is no
statutory recognition in the Cayman Islands of judgments obtained in the United States or China, although the courts of the Cayman Islands
will generally recognize and enforce a non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits.
Our corporate affairs are governed by our memorandum and articles of association, as amended and restated from time to time, and by the
Companies Act (2021 Revision) (as amended) and common law of the Cayman Islands. The rights of shareholders to take legal action
against us and our directors, actions by minority shareholders and the fiduciary responsibilities of our directors 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 English common law, which provides persuasive, but not binding, authority in a court in the
Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as
clearly established as they would be under statutes or judicial precedents in the United States. In particular, the Cayman Islands has a less
developed body of securities laws than the United States and provides significantly less protection to investors. In addition, shareholders in
Cayman Islands companies may not have standing to initiate a shareholder derivative action in U.S. federal courts.
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In addition, we conduct substantially all of our business operations in China, and most of our directors and all of our executive officers reside
outside the United State. The SEC, U.S. Department of Justice, or the DOJ, and other authorities often have substantial difficulties in
bringing and enforcing actions against non-U.S. companies and non-U.S. persons, including company directors and officers, in certain
emerging markets, including China. Additionally, our public shareholders may have limited rights and few practical remedies in emerging
markets where we operate, as shareholder claims that are common in the United States, including class action based on securities law and
fraud claims, generally are difficult or impossible to pursue as a matter of law or practicality in many emerging markets, including China.
For example, in China, there are significant legal and other obstacles for the SEC, the DOJ and other U.S. authorities to obtaining
information needed for shareholder investigations or litigation. Although the competent 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, the regulatory cooperation with the securities regulatory authorities in the United States has not been efficient in the absence
of a mutual and practical cooperation mechanism. According to Article 177 of the PRC Securities Law which became effective in March
2020, no foreign securities regulator is allowed to directly conduct investigation or evidence collection activities within the territory of the
PRC. Accordingly, without the consent of the PRC securities regulator and the other competent governmental authorities, no organization or
individual may provide the documents and materials relating to securities business activities to foreign securities regulators.
As a result, our public shareholders may have more difficulty in protecting their interests through actions against us, our management, our
directors or our major shareholders than would shareholders of a corporation incorporated in a jurisdiction in the United States.
You, as holders of our ADSs, may have fewer rights than holders of our Class A ordinary shares and must act through the depositary to
exercise those rights.
Holders of ADSs do not have the same rights of our shareholders and may only exercise the voting rights with respect to the underlying
Class A ordinary shares in accordance with the provisions of the deposit agreement. Under our memorandum and articles of association, the
minimum notice period required to convene a general meeting is seven days. When a general meeting is convened, you may not receive
sufficient notice of a shareholders’ meeting to permit you to withdraw your Class A ordinary shares to allow you to cast your vote with
respect to any specific matter. In addition, the depositary and its agents may not be able to send voting instructions to you or carry out your
voting instructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to you in a timely
manner, but we cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote your
ADSs. Furthermore, the depositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner
in which any vote is cast or for the effect of any such vote. As a result, you may not be able to exercise your right to vote and you may lack
recourse if your ADSs are not voted as you requested. In addition, in your capacity as an ADS holder, you will not be able to call a
shareholders’ meeting.
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.
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You may not receive distributions on our Class A ordinary shares or any value for such Class A ordinary shares if it is illegal or
impractical to make them available to you.
The depositary of our ADSs has agreed to pay you the cash dividends or other distributions it or the custodian for our ADSs receives on our
Class A ordinary shares or other deposited securities after deducting its fees and expenses. You will receive these distributions in proportion
to the number of our Class A ordinary shares that your ADSs represent. However, the depositary is not responsible for making such
payments or distributions if 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 pursuant to an applicable exemption from registration. The depositary is not responsible for making a
distribution available to any holders of ADSs if any government approval or registration required for such distribution cannot be obtained
after reasonable efforts made by the depositary. We have no obligation to take any other action to permit the distribution of our ADSs, Class
A ordinary shares, rights or anything else to holders of our ADSs. This means that you may not receive the distributions we make on our
Class A ordinary shares or any value for them if it is illegal or impractical for us to make them available to you. These restrictions may
materially reduce the value of your ADSs.
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 us or the depositary, arising out of or based upon the deposit
agreement or the transactions contemplated thereby or by virtue of owning the ADSs (including any such action or proceeding that may arise
under the U.S. federal securities laws), may only be instituted in a state or federal court in the city of 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. Such exclusive jurisdiction may, among other things,
discourage lawsuits against or involving us or the depositary, lead to increased costs to bring a claim or limit your ability to bring a claim in a
judicial forum you find favorable. 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 will be deemed to have agreed to be bound by the deposit agreement as
amended, unless such amendment is found to be invalid under any applicable laws, including the U.S. federal securities laws.
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 plaintiffs in any such action.
The deposit agreement governing the ADSs representing our Class A Ordinary Shares provides that, to the fullest extent permitted by
applicable law, ADSs 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. The waiver to right to a jury
trial of the deposit agreement is not intended to be deemed a waiver by any holder or beneficial owner of ADSs of our or the depositary’s
compliance with the U.S. federal securities laws and the rules and regulations promulgated thereunder.
If we or the depositary oppose a jury trial demand based on the waiver, the court would determine whether the waiver was enforceable based
on the facts and circumstances of that case in accordance with the applicable state and federal law. 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. 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 investing in the ADSs.
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If you or any other holders or beneficial owners of ADSs bring a claim against us or the depositary in connection with matters arising under
the deposit agreement or the ADSs, including claims under federal securities laws, you or such other holder or beneficial owner may not be
entitled to a jury trial with respect to such claims, which may have the effect of limiting and discouraging lawsuits against us and/or the
depositary. If a lawsuit is brought against us and/or the depositary under the deposit agreement, it may be heard only by a judge or justice of
the applicable trial court, which would be conducted according to different civil procedures and may result in a different outcome than a trial
by jury would have had, including results that could be less favorable to the plaintiffs in any such action.
Nevertheless, if this jury trial waiver 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 our ADSs serves as a waiver by any holder or beneficial
owner of ADSs or by us or the depositary of compliance with any provision of the U.S. federal securities laws and the rules and regulations
promulgated thereunder.
Cayman Islands economic substance requirements may have an effect on our business and operations.
Pursuant to the International Tax Cooperation (Economic Substance) Act (2020 Revision) (as amended) of the Cayman Islands, or the ES
Act, that came into force on January 1, 2019, a “relevant entity” is required to satisfy the economic substance test set out in the ES Act. A
“relevant entity” includes an exempted company incorporated in the Cayman Islands as is our company. Based on the current interpretation
of the ES Act, we believe that our company, ECMOHO Limited, is a pure equity holding company since it only holds equity participation in
other entities and only earns dividends and capital gains. Accordingly, for so long as our company, ECMOHO Limited. is a “pure equity
holding company,” it is only subject to the minimum substance requirements, which require us to (1) comply with all applicable filing
requirements under the Companies Act, Cap. 22 (Act 3 of 1961, as consolidated and revised) of the Cayman Islands; and (2) has adequate
human resources and adequate premises in the Cayman Islands for holding and managing equity participations in other entities. However, we
cannot assure you that we will not be subject to more requirements under the ES Act. Uncertainties over the interpretation and
implementation of the ES Act may have an adverse impact on our business and operations.
We will continue to incur increased costs as a result of being a public company, particularly when we cease to qualify as an “emerging
growth company,” which may strain our resources.
As a public company, we incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-
Oxley Act, as well as rules subsequently implemented by the SEC and the Nasdaq Stock Market, imposes various requirements on the
corporate governance practices of public companies. 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 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. We have elected not to “opt out” of such extended
transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies,
we will adopt the new or revised standard at the time private companies adopt the new or revised standard and will do so until such time that
we either (1) irrevocably elect to “opt out” of such extended transition period or (2) no longer qualify as an emerging growth company.
Compliance with these rules and regulations has increased and will continue to increase our legal and financial compliance costs and has
made and will continue to make some corporate activities more time-consuming and costly. When 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 and the other rules and regulations of the SEC. In addition, we have incurred
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 expect these rules and regulations to increase our legal and financial compliance
costs, but we cannot predict or estimate the 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.
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Item 4. Information on the Company
A.
History and Development of the Company
Our Company
Our business commenced operations in December 2011, when our co-founders, Ms. Zoe Wang and Mr. Leo Zeng, established our
predecessor, Shanghai ECMOHO Health Biotechnology Co., Ltd., or ECMOHO Shanghai, incorporated under the laws of the PRC.
In May 2013, we became the exclusive distributor and brand manager in China of our first international brand partner, Puritan’s Pride, a
U.S.-based manufacturer of vitamins, minerals, herbs and other nutritional supplements.
In January 2014, we commenced operation of the Puritan’s Pride cross-border flagship store on Tmall Global.
In September 2017, we began working with Wyeth Nutrition, an established international brand that focuses on nutrition products for
mothers, infants and young children.
In June 2018, ECMOHO Limited was incorporated under the laws of the Cayman Islands, and ECMOHO (Hong Kong) Health Technology
Limited, or ECMOHO Hong Kong, was incorporated under the laws of Hong Kong and wholly owned by ECMOHO Limited. In July 2018,
ECMOHO Hong Kong acquired 97.5% of the equity interest of ECMOHO Shanghai from our co-founders and certain other shareholders of
ECMOHO Shanghai.
In April 2019, we launched XG Health, our proprietary integrated family health management and service platform, which offers offline
retailers and consumers a range of health and wellness products and rich content. In April 2020, we divested our 60% interest in Xianggui
Shanghai, our subsidiary through which we operated the XG Health platform. See “—Divestment of our interest in the XG Health platform”
for more information.
In June 2019, ECMOHO Hong Kong, through an onshore subsidiary, entered into an agreement to acquire the remaining 2.5% of the equity
interest of ECMOHO Shanghai from its minority shareholders.
In November 2019, we completed an initial public offering of 4,675,000 ADSs (including ADSs sold in connection with the over-allotment
offering), representing 18,700,000 of our Class A ordinary shares. Our ADSs commenced trading on the Nasdaq Global Market under the
trading symbol “MOHO” on November 8, 2019.
In the first quarter of 2020, we entered into various business cooperation arrangements with certain companies to offer digital marketing,
data analytics services and other services. For example, in March 2020, we commenced offering online and offline marketing services to
Beingmate Baby & Child Food Co., Ltd. and in April 2020 we commenced offering marketing services to L&P Cosmetic Co., Limited.
On July 23, 2020, we entered into an investment agreement with Anze, a company involved in the research and development of Chinese
herbal medicine-based health and wellness products. We are committed to paying Anze up to US$30 million, comprising of up to US$15
million for an equity interest in Anze and up to US$15 million for zero coupon notes issued by Anze. As of December 31, 2021, we made
investment of US$7.4 million in Anze, representing approximately 14.6% of its equity interest.
Disposition of our proprietary brands
In 2016, we acquired two brands to provide tailored products that target underserved market niches, Heng Shou Tang, which is a traditional
Chinese herbal tonics brand, and KGC, which is a household healthcare equipment brand that specializes in premium massage chairs. The
products of these two brands are manufactured by third parties with whom we enter into annual manufacturing and supply agreements. In
2019 and 2020, combined revenues from the sales of Heng Shou Tang and KGC products were US$6.0 million and US$3.0 million,
respectively. In 2020, the combined revenues from the sales of Heng Shou Tang and KGC products represented less approximately 1.0% of
our total net revenues. In July 2020 and October 2020, we sold the two brands KGC and Heng Shou Tang, respectively, through equity
transfer agreements with Shanghai Xianggui Health Technology Co., Ltd., an entity then controlled by our co-founders, Ms. Wang and Mr.
Zeng.
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Divestment of our interest in the XG Health platform
We developed XG Health, an integrated family health management and service platform that connects consumers and specialty offline
retailers with our brand partners and healthcare experts and offers health management plans such as blood pressure control and weight
management programs. These health management plans, prepared by the doctors and nutritionists, contain detailed guidelines on dietary
plans and other daily routines and, where relevant, include product recommendations. Consumers may reach out to these healthcare experts
for further inquiries and receive customized health and wellness recommendations. XG Health also provides a rich array of carefully selected
health and wellness products. Consumers may purchase these products for themselves or promote these products on social media and earn
commissions on an actual sale. In addition, in mid-2019, we launched an XG Health mobile app for retailers, enabling them to source health
and wellness products from us and we rolled out a pilot program to invite owners of specialty stores in “lower-tier” cities, townships and
rural area in Anhui Province in China to register on this app, and we plan to expand our offline coverage nationwide.
We operated XG Health through our PRC-incorporated subsidiary Xianggui Shanghai. In 2019, sales through our XG Health platform
accounted for less than 1.0% of our total net revenues. In early 2020, during the COVID-19 pandemic, as cities, towns and municipalities
across China, including Anhui province, began implementing lockdown and virus containment measures, some specialty stores that had
registered on our XG Health app were experiencing financial difficulties and were unable to engage in e-commerce with us. In April 2020,
we divested 60% of our equity interests in Xianggui Shanghai to Shanghai Xianggui Health Technology Co. Ltd., an entity then controlled
by our co-founders, for a consideration of RMB3.4 million.
Divestment of equity interest in Shanghai Juyi Information Technology Co., Ltd.
Shanghai Juyi Information Technology Co., Ltd. (“Shanghai Juyi”) was our wholly-owned subsidiary in China that primarily engaged in
technology development for intelligent system. In September 2021, we divested 90% of our equity interests in Shanghai Juyi to Mr. Wei
WANG, a director of our board of director, and an employee of our company for nil consideration due to the accumulated deficit and
recurring losses incurred by Shanghai Juyi. See “Item 7. Major Shareholders and Related Party Transactions-B. Related Party Transactions—
Divestment of equity interest in Shanghai Juyi” for more information.
Follow-on public offering
On August 5, 2021, we completed an underwritten public offering of an aggregate of 10,000,000 ADSs at a public offering price of US$0.90
per ADS. After deducting underwriting discounts and commissions and other offering expenses, the net proceeds of the Public Offering were
approximately US$8.1 million.
Nasdaq Listing Standards Compliance
On September 16, 2021, Nasdaq notified us that we failed to comply with the minimum closing bid price requirement set forth in Rule
5450(a)(1) of the Nasdaq Listing Rules as the closing bid price per ADS had been below US$1.00 for a period of 30 consecutive business
days. Pursuant to Rule 5810(c)(3)(A) of the Nasdaq Listing Rules, we had a compliance period of 180 calendar days, or until March 15,
2022 to regain compliance with Nasdaq’s minimum bid price requirement. In response, we submitted an application to transfer the listing the
ADSs from the Nasdaq Global Market to the Nasdaq Capital Market, and on March 16, 2022, the Nasdaq’s Listing Qualifications
department approved our request to transfer the listing of the ADSs from the Nasdaq Global Market to the Nasdaq Capital Market, which
took effect on March 17, 2022. As a result of the transfer to the Nasdaq Capital Market, Nasdaq granted us a second period of 180 calendar
days, or until September 12, 2022, to regain compliance with the minimum bid price requirement for continued listing. To regain
compliance, the closing bid price per ADS must meet or exceed US$1.00 per ADS for a minimum of 10 consecutive business days on or
prior to September 12, 2022.
The transfer of our listing to the Nasdaq Capital Market is not expected to have any impact on trading in the ADSs. As of the date of this
annual report, our ADSs continue to trade under the symbol “MOHO” on Nasdaq Capital Market, which operates in substantially the same
manner as the Nasdaq Global Market. Companies on the Nasdaq Capital Market must meet certain financial and corporate governance
requirements to qualify for continued listing, including the minimum bid price requirement of at least US$1.00 per ADS pursuant to Rule
5550(a)(2) of the Nasdaq Listing Rules.
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We have not regained compliance with the minimum bid price requirement as of the date of this annual report. We are closely monitoring the
bid price of our ADSs, and may consider available options, such as an adjustment of our ADS-to-Class A ordinary share ratio, to increase the
per ADS price of our ADSs. As required by Nasdaq, we confirmed that we would implement a reverse stock split or ADS ratio change, if
necessary, to regain compliance with the minimum bid price requirement. See “Item 3. Key Information — D. Risk Factors — Risks Related
to Our ADSs — If we fail to regain compliance with Nasdaq’s minimum bid price requirement, the ADSs could be subject to delisting.”
Additional Information
Cogency Global Inc. is acting as our company’s authorized representative in the United States. The address of Cogency Global Inc. is 122 E.
42nd Street, 18th Floor, New York, NY 10168, the United States of America.
Our principal executive offices are located at 5th Floor, 909 Tianyaoqiao Road, Xuhui District, Shanghai, 200030, the People’s Republic of
China. Our telephone number at this address is +86 21 5456 5223. Our registered office in the Cayman Islands is at the offices of Walkers
Corporate Limited, 190 Elgin Avenue, George Town, Grand Cayman, KY1-9008, Cayman Islands. Our website can be found at
www.ecmoho.com. The information contained on our website is not a part of this annual report on Form 20-F.
The SEC maintains a website, www.sec.gov, that contains reports, proxy and information statements, and other information regarding
registrants, including ECMOHO Limited, that file electronically with the SEC.
See “Item 5. Operating and Financial Review and Prospects — B. Liquidity and Capital Resources — Capital Expenditures” for a discussion
of our capital expenditures.
B.
Business Overview
We are an integrated solution provider in China’s rapidly growing health and wellness market. As an integrated solution provider, we have
connected the supply chain of our industry, including upstream brand partners and midstream channels with consumers in China. Leveraging
our operational experiences, technologies and data analytics capabilities, we empower market participants in China’s health and wellness
market with a comprehensive suite of value propositions, including (1) the provision of strategies, consumer insights, inventory and channel
management services, (2) a platform for experts and KOLs to reach and monetize their fan base, (3) the supply of consistent and reliable
products and expert-curated content to small and mid-sized businesses, and (4) quality products and trustworthy content to consumers.
Our Business Model and Services
We generate revenues mainly through product sales to consumers and retailers, and to a lesser extent, services provided primarily to brand
partners. The following table sets forth a breakdown of our net revenues for the periods indicated:
Year Ended December 31,
2019
2020
2021
Amount % of total Amount % of total Amount % of total
(in thousands of U.S. dollars, except percentages)
Product sales
302,099
91.7
300,156
98.4
128,041
97.9
Services
27,381
8.3
4,783
1.6
2,706
2.1
Total
329,480
100.0
304,939
100.0
130,747
100.0
Product Sales
Utilizing our data analytics capabilities, we carefully select products that suit consumer needs from upstream brand partners and offer these
products to consumers through a variety of channels, including authorized flagship stores of our brand partners and self-operated branded
stores on third-party e-commerce platforms, such as Tmall and JD.com. As live streaming has become increasingly popular as a sales
method, we set up a new department to sell products directly to consumers through live streaming on Tmall, Douyin and Kuaishou.
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We also sell our brand partners’ products to third-party e-commerce platforms and other small and medium-sized online and offline retailers.
We typically enter into supply agreements with such e-commerce platforms and other retailers with a term of 12 months or more, during
which the e-commerce platforms or other retailers place orders with us from time to time for specified products based on a pre-determined
price or based on price negotiated at the time of the order. Some of these agreements set forth the purchase price for the specified products;
others provide that such price shall be set forth in each purchase order following consultation between the retailer and us.
In addition, we enter into consignment arrangements with certain e-commerce platforms, pursuant to which the title to the products we
deliver to these e-commerce platforms remains with us until these products are sold to end-consumers. These e-commerce platforms pay us
the purchase price of the underlying products according to pre-determined billing cycles, but they have the right to return to us for a full
refund any product that is returned by end-consumers or has remained unsold for a specified period of time.
Services
We offer our brand and retail partners solutions on strategy, marketing, products, digitalization, consumer insights, supply chain and SaaS
tailored to their needs and charge fixed project-based service fees or commissions. We also regularly conduct research on China’s health and
wellness market and provide the analysis to our brand partners. As live streaming has become increasingly popular as a sales method, we
started to provide livestreaming services for our customers to facilitate their product sales, such as conducting livestream sales sessions and
introducing to them livestreaming celebrities.
Our Brand Partners and Brand Partner Development and Services
Brand Partners
As of December 31, 2021, we sourced 34 brands of products from 20 brand partners. The products we source cover a wide range of
categories, including health supplements and food, mother and child care products, and personal care products. The following table sets forth
a selection of the brands we work with and the products we sourced in 2021:
Categories
Selected Brand Partners
Selected Products
Health Supplements and Food
Harbin Pharmaceutical
Healthcare Product Series of Calcium Supplements
Puritan’s Pride
Chondroitin & MSM Joint Soother
Jiangzhong Food Therapy
Gruel
Chongkundang
Lacto-fit Probiotics
Lei Yunshang
Healthcare Products
Mother and Child Care Products
Lansinoh
Lanolin Nipple Cream
Wyeth Nutrition
Illuma Organic Growing-up Formula Milk Powder
Personal Care Products
Bausch & Lomb
Eye healthcare products
The table below sets forth a breakdown of our product sales revenue by product category:
Year Ended December 31,
2019
2020
2021
Amount % of total Amount % of total Amount % of total
(in thousands of U.S. dollars, except percentages)
Health Supplements and Food
116,976
38.7
138,269
46.1
71,391
55.8
Mother and Child Care Products
131,927
43.7 118,729
39.5
49,713
38.8
Personal Care Products
24,293
8.0
25,554
8.5
992
0.8
Others*
28,903
9.6
17,604
5.9
5,945
4.6
Total
302,099
100.0
300,156
100.0
128,041
100.0
*
Includes household healthcare equipment and household cleaning products.
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Our product sales revenues in 2021 decreased significantly as compared to 2020, with a decrease in the sales of health supplements and food
from US$138.3 million in 2020 to US$71.4 million in 2021, a decrease in the sales of mother and child care products from US$118.7 million
to US$49.7 million in 2021, and a decrease in the sales of personal care products from RMB25.6 million to RMB1.0 million in 2021, as a
result of our strategic adjustment of our brand portfolio.
We typically enter into annual supply agreements with our brand partners and, in some cases, act as the sole online exclusive strategic
partner or sole cross-border e-commerce strategic partner in China. We purchase products from our brand partners at a discount to retail price
by placing orders on an as-needed basis based on the projected sales cycle of the underlying product. We typically commit to sales targets
and sometimes minimum inventory requirements with our brand partners. In return, we often receive sales rebates from our brand partners.
Toward the end of the term, we assess the underlying products’ performance and negotiate with the brand partners on the renewal of the
agreement. We constantly optimize our brand partner and product portfolio based on our consumer data and analytics derived from the traffic
and interactions on the online stores we operate, on third-party e-commerce platforms and the social media accounts operated by us.
We also provide value-added services to some of our brand partners under the service fee model. See “—Our Business Model and Services -
Services” for details. We enter into separate service agreements with those brand partners for such services.
Brand Partner Development and Services
Brand partner screening and acquisition
We are highly selective in screening and choosing brand partners. We primarily focus on brands with global recognition, long and proven
track records or leading positions in their respective market segments. We further screen potential brand partners by analyzing consumer
behaviors, including their searches, inquiries and purchases, in the online flagship stores we operate on third-party e-commerce platforms.
Such records reveal the latest trends in consumer demand, allowing us to constantly review and from time to time strategically select brands
with products that address the needs of consumers in China. In addition, we identify brands with significant market potential based on our
market insights with a view to developing them into our major brand partners. Brands are generally willing to consider partnering with us
because of our valuable insights into consumer demand, which enables targeted marketing efforts that are more effective and efficient than
conventional marketing efforts without the support of consumer data analytics. To optimize the use of our resources, we also from time to
time terminate our partnership with certain brands whose products do not perform as expected.
Brand partner services
Each of our brand partners is assigned an operations team led by an experienced operations expert, who is responsible for managing our
relationship with the brand partner and provides consultation on the brand partner’s needs. Based on such needs, we provide our brand
partners with comprehensive tailored solutions that encompass growth strategies, marketing strategies, design and operation of online stores,
online and offline marketing campaigns, consumer management, channel management and supply chain management.
Content Generation and Promotional Activities
Content Generation
As of December 31, 2021, we partnered with approximately 2,061 healthcare experts and KOLs to generate health and wellness content.
These content generators, who receive a fixed fee from us, provide general advice on trending health and wellness topics and, based on
product information from our brand partners, combine such advice with product recommendations. The generated content is then vetted by
the relevant brand partner and processed by our 43-person contents team, comprising specialists in editing and website design and in-house
licensed nutritionists, for publication. Such content is published as articles and short videos on various social media accounts we operate, and
sometimes is provided to news and information outlets with embedded links to our online stores. Our contents team receives ongoing
training from and supervision by our legal team, ensuring that the content generated complies with the relevant PRC laws and regulations.
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Online Promotional Activities
We operate online flagship stores on multiple e-commerce platforms. See “—Our Business Model and Services” for details. Our online
presence is a crucial component of our sales and marketing strategy and consumer-centric ecosystem, and we use a number of methods to
increase site traffic, including conducting sales promotions through the online flagship stores, paying for advertisements tied to certain health
and wellness-related keywords on search engines and generating blogs and videos that increase our exposure to target consumers. In
addition, we leverage our data analytics capabilities to conduct targeted marketing. See “—Technology Infrastructure” for details.
Offline Promotional Activities
We regularly engage in a range of offline promotional activities. To attract consumers, we host free healthcare presentations given by
medical practitioners that are open to the public, and where samples of health and wellness products related to the presentation’s topic are
given out for free. We also collaborate with brand partners to host pop-up stores. To attract more retailers, we host promotional presentations
for our brand partners that are attended by their senior executives.
Fulfillment and Payment
From our years of experience in the cross-border and domestic e-commerce business, we have acquired significant know-how in managing
the entire fulfillment process. We engage third-party warehousing and logistics service providers to ship the products we source from our
brand partners to the warehouses we designate. We store our inventory in facilities occupying an aggregate floor area of approximately
46,000 square meters, comprising one self-operated warehouse in Wuhu, one warehouse that we lease and operate in Hangzhou and facilities
operated by third-party warehousing and logistics service providers located in different cities in China and different countries, such as the
United States. We monitor and adjust our inventory level on an ongoing basis based on our sales projections and the shipment schedule of
our brand partners. In the case of cross-border e-commerce, we arrange bulk shipment from our brand partners’ overseas warehouses to
cross-border bonded zones in China pending customs clearance. Once a consumer places an order and makes payment, we clear the products
through customs, including making the necessary tax payment, and deliver the products to the consumer.
We deliver products purchased by consumers and retailers nationwide through 14 third-party couriers. We typically enter into annual service
agreements with warehousing and logistics service providers and third-party couriers and assume risks of damage and loss not attributable to
the service provider’s fault.
Technology Infrastructure
Our technology infrastructure is critical to our ability to serve consumers, including our data analytics capabilities. As of December 31, 2021,
our technology and information technology team consisted of 19 employees, including core team members with extensive experience with e-
commerce and Internet companies in China.
Central to our data analytics capabilities is our enterprise customer resource planning, or ECRP, system. The ECRP system retrieves orders
placed by consumers directly with us and creates a profile for each consumer. To remove duplicate profiles across different channels, the
ECRP system runs a check on IP addresses and contact information, such as mobile number and delivery address. Based on the order placed,
each consumer profile is automatically assigned labels that enable targeted marketing.
Based on our consumers’ historical purchases and responses to our marketing messages, the ECRP system may assign each consumer
numerous labels that differentiate their health and wellness needs, brand preferences, purchasing power and level of interest in our
promotional activities. In addition, our data analysts monitor the sales data gathered by the ECRP system on an ongoing basis and identify
trends in consumer demand.
We also license from third parties software programs that provide support for other aspects of our operations, including supply chain
management, warehousing management and financial accounting. In addition, we are committed to ensuring the security and reliability of
our technology infrastructure and safeguarding our data. We have adopted comprehensive cybersecurity and system back-up policies and
regularly conduct internal audits on compliance with these policies. We intend to further invest in our technology infrastructure to support
the growth of our business.
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Intellectual Property
We regard our trademarks, copyright, service marks, domain names, trade secrets, proprietary technologies and other intellectual property as
critical to our success. To protect our proprietary rights in content, services and technology, we rely on trademark, copyright and trade secret
protection laws in China. As of December 31, 2021, we owned 361 registered trademarks, including those relating to our “ECMOHO” brand
name. As of the same date, we also owned 41 copyrights and six domain names in China and Hong Kong.
We use our brand partners’ names, logos and other marks in connection with marketing and selling their products. Some of our agreements
with our brand partners provide us with licenses, typically coterminous with the agreement, to use their intellectual property for the said
purposes; others require that we obtain the brand partner’s consent for specific uses of the brand partner’s intellectual property. We do not
register our brand partners’ trademarks in China on their behalf.
Insurance
We provide social security insurance, including pension insurance, unemployment insurance, work-related injury insurance and medical
insurance, for our employees. We have also obtained insurance to cover certain potential risks and liabilities, such as property damage. We
do not maintain business interruption insurance, product liability insurance or key-man life insurance. We consider our insurance coverage
sufficient for our business operations in China.
Legal Proceedings
In April 2022, we received a request for arbitration from Puritan’s Pride Inc., in connection with the alleged breach of the distribution
agreement between Puritan’s Pride Inc., and a subsidiary of us dated December 12, 2016, as amended on December 31, 2019 (the
“Distribution Agreement”). Puritan’s Pride is seeking no less than approximately US$17.1 million in damages for the alleged breach of the
Distribution Agreement. As of the date of this annual report, this arbitration claim remains in its preliminary stage, and we are unable to
estimate the result of such claim. We are actively assessing our strategies to defend this claim.
From time to time, we are involved in legal proceedings in the ordinary course of our business. See “Item 3. Key Information - D. Risk
Factors-Risks Related to Our Business and Industry-We may from time to time become party to litigation, other legal or administrative
disputes and proceedings that may materially and adversely affect us” for more information. Except as disclosed in this annual report on
Form 20-F, we are currently not a party to any material legal or administrative proceedings.
Regulations
This section summarizes the principal PRC regulations related to our business.
We operate our business in China under a legal regime created and made by PRC lawmakers consisting of the National People’s Congress, or
the NPC, which is the country’s highest legislative body, the State Council, which is the highest authority of the executive branch of the PRC
central government, and several ministries and agencies under its authority, including the National Health Commission of the PRC, or the
NHC, the Ministry of Industry and Information Technology, or the MIIT, the State Administration for Market Regulation (formerly known as
the State Administration for Industry and Commerce), or the SAMR, and their respective local offices.
See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—We may be adversely affected by the
complexity, uncertainties and changes in PRC regulation of healthcare industry and Internet-related businesses, and any lack of requisite
approvals, licenses or permits applicable to our business may have a material adverse effect on our business and results of operations.”
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Regulations Relating to Foreign Investment
Investment activities in the PRC by foreign investors and foreign-owned enterprises are principally governed by the Guidance Catalog of
Industries for Foreign Investment, or the Catalog, which was first issued in 1995 and amended from time to time. The latest Catalog was
promulgated by the Ministry of Commerce of the PRC, or the MOFCOM, and the National Development and Reform Commission, or the
NDRC, on June 28, 2017 and became effective on July 28, 2017, and contains specific provisions governing market access of foreign capital
and stipulates in details the areas of entry pertaining to the categories of encouraged industries for foreign investment, restricted industries
for foreign investment and prohibited industries for foreign investment. The Special Administrative Measures for Access of Foreign
Investments (2021 Edition) promulgated on December 27, 2021 and became effective on January 1, 2022, or the Negative List 2021, and the
Catalog of Encouraged Industries for Foreign Investment (2020 Edition) promulgated on December 27, 2020 and became effective January
27, 2021, replaced the Catalog in its entirety. According to the current regulation, any industry not listed in the Negative List 2021 is a
permitted industry and is generally open to foreign investment unless specifically prohibited or restricted by PRC laws and regulations.
According to the Negative List 2021, foreign investment in value-added telecommunications service providers shall not exceed 50%
(excluding e-commerce, domestic multi-party telecommunication, storage and forwarding business, and call center).
In order to coincide the implementation of the Foreign Investment Law (as defined below) and the Implementation Regulations (as defined
below), the MOFCOM and the SAMR promulgated the Measures for Reporting of Information on Foreign Investment on December 30,
2019, which became effective from January 1, 2020. The Measures for Reporting of Information on Foreign Investment stipulates that
foreign investors or foreign-invested enterprises, or the FIEs, shall submit investment information by submitting initial reports, change
reports, cancellation reports, annual reports etc. through enterprise registration system and national enterprise credit information publicity
system. The Announcement of the MOFCOM [2019] No. 62—Announcement on Matters Concerning the Reporting of Information on
Foreign Investment promulgated by the MOFCOM on December 31, 2019 and the Circular of the SAMR on Effective Work on Registration
of Foreign-invested Enterprises for the Implementation of the Foreign Investment Law promulgated by SAMR on December 28, 2019
further refine the related rules.
Foreign Investment Law
On March 15, 2019, the NPC promulgated the Foreign Investment Law, which became effective on January 1, 2020 and replaced the Sino-
Foreign Equity Joint Venture Enterprise Law, the Sino-Foreign Cooperative Joint Venture Enterprise Law and the Foreign Owned Enterprise
Law, together with their implementation rules and ancillary regulations. The organizational form, organization and activities of foreign-
invested enterprises shall be governed, among others, by the PRC Company Law and the PRC Partnership Enterprise Law. Foreign-invested
enterprises established before the implementation of the Foreign Investment Law may retain the original business organization within five
years after the implementation of the Foreign Investment Law. The Foreign Investment Law mainly stipulates four forms of foreign
investments: (1) a foreign investor, individually or collectively with other investors, establishes a foreign-invested enterprise within PRC; (2)
a foreign investor acquires stock shares, equity shares, interests in assets, or other like rights and interests of an enterprise within PRC; (3) a
foreign investor, individually or collectively with other investors, invests in a new project within the PRC; and (4) foreign investors invest in
the PRC through any other methods under laws, administrative regulations, or provisions prescribed by the State Council of the PRC. It does
not mention the relevant concept and regulatory regime of VIE structures, and uncertainties still exist in relation to its interpretation and
implementation
On December 26, 2019, the State Council promulgated the Implementation Regulations on the Foreign Investment Law, or the
Implementation Regulations, which became effective on January 1, 2020. The Implementation Regulations strictly implements the
legislative principles and purpose of the Foreign Investment Law, emphasizes on the promotion and protection of the foreign investment and
refines the specific measures. On the same date, the Supreme People’s Court issued the Interpretation on the Application of the Foreign
Investment Law of the PRC, which also came into effect on January 1, 2020. This interpretation shall apply to any contractual dispute arising
from the acquisition of the relevant rights and interests by a foreign investor by way of gift, division of property, merger of enterprises,
division of enterprises, etc.
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Regulations Relating to Value-added Telecommunications Services
Foreign Investment in Value-Added Telecommunications
Foreign direct investment in telecommunications companies in China is regulated by the Administrative Provisions of Foreign-Invested
Telecommunications Enterprises, or the FITE Regulations, which were issued by the State Council on December 11, 2001 and amended on
September 10, 2008 and February 6, 2016. The FITE Regulations stipulate that a foreign-invested telecommunications enterprise in the PRC,
or the FITE, must be established as a Sino-foreign equity joint venture for operations in the PRC. Under the FITE Regulations and in
accordance with WTO-related agreements, the foreign party investing in a FITE engaging in value-added telecommunications services may
hold up to 50% of the ultimate equity interests of the FITE. In addition, the major foreign party to be the shareholder of the FITE must
satisfy a number of stringent performance and operational experience requirements, including demonstrating a good track record and
experience in operating a value-added telecommunications business. The FITE that meets these requirements must obtain approvals from the
Ministry of Industry and Information Technology, or the MIIT, and the MOFCOM or their authorized local branches, which retain
considerable discretion in granting approvals. Furthermore, the foreign party investing in e-commerce business, as a type of value-added
telecommunications services, has been allowed to hold up to 100% of the ultimate equity interests of the FITE based on the Circular of the
Ministry of Industry and Information Technology on Removing the Restrictions on Shareholding Ratio Held by Foreign Investors in Online
Data Processing and Transaction Processing (Operating E-commerce) Business issued on June 19, 2015 and the current effective Catalog of
Telecommunications Services, or the Telecom Catalog.
On July 13, 2006, the Ministry of Information Industry of the PRC, or the MII, which is the predecessor of the MIIT, promulgated the Notice
of the Ministry of Information Industry on Strengthening the Administration of Foreign Investment in Value-added Telecommunications
Services, or the MII Notice, which reiterates certain requirements of the FITE Regulations and strengthens the administration by the MII.
Under the MII Notice, if a foreign investor intends to invest in PRC value-added telecommunications business, the FITE must be established
to apply for the relevant telecommunications business licenses. In addition, a domestic company that holds a license for the provision of
value-added telecommunications services is prohibited from leasing, transferring or selling the license to foreign investors in any form, and
from providing any assistance, including providing resources, sites or facilities, to foreign investors to conduct value-added
telecommunications businesses illegally in China. Trademarks and domain names that are used under the provision of value-added
telecommunications services must be owned by the license holder or its shareholders. The MII Notice also requires that each value-added
telecommunications services license holder have appropriate facilities for its approved business operations and to maintain such facilities in
the business regions covered by its license. The value-added telecommunications services license holder shall perfect relevant measures for
safeguarding the network and information, establish relevant administrative system for information safety, set up the procedures for handling
emergencies of network and information safety and implement the liabilities of information safety.
Telecommunications Regulations
The Telecommunications Regulations of the People’s Republic of China, or the Telecom Regulations, promulgated on September 25, 2000
and amended on July 29, 2014 and February 6, 2016, are the primary PRC laws governing telecommunications services, and set out the
general framework for the provision of telecommunications services by domestic PRC companies. The Telecom Regulations require that
telecommunications services providers shall obtain operating licenses prior to commencing operations. The Telecom Regulations draw a
distinction between basic telecommunications services and value-added telecommunications services. The Telecom Catalog, issued by the
MII, as an attachment to the Telecom Regulations, and amended by the MIIT on December 28, 2015 and June 6, 2019, identifies Internet
information services and online data processing and transaction processing as value-added telecommunications services.
On July 3, 2017, the MIIT issued the revised Administrative Measures for the Licensing of Telecommunications Business, or the Telecom
License Measures, which became effective in September 1, 2017, to supplement the Telecom Regulations. The Telecom License Measures
require that an operator of value-added telecommunications services obtain a value-added telecommunications business operating license
from the MIIT or its provincial level counterparts. The term of a value-added telecommunications business license is five years and subject
to annual inspection.
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Internet Information Services
On September 25, 2000, the State Council promulgated the Measures for the Administration of Internet Information Services, or the ICP
Measures, as amended on January 8, 2011. Under the ICP Measures, the Internet information service is categorized into commercial Internet
information services and non-commercial Internet services. The operators of non-commercial Internet information services must file with
relevant governmental authorities and operators of commercial Internet information services in China must obtain a license for Internet
information provision, or the ICP License, from the relevant governmental authorities, and the provision of particular information services,
such as news, publishing, education, healthcare, medicine and medical device, and must also comply with relevant laws and regulations and
obtain the approval from competent governmental authorities.
Internet information service providers are required to monitor their websites. They may not post or disseminate any content that falls within
prohibited categories provided by laws or administrative regulations and must stop providing any such content on their websites. The PRC
government may order ICP License holders that violate the content restrictions to correct those violations and revoke their ICP Licenses
under serious conditions.
The MIIT released the Circular on Regulating the Use of Domain Names in Internet Information Services on November 27, 2017, effective
from January 1, 2018, which provides that the domain names used by the Internet information service provider in providing Internet
information services shall be registered and owned by such Internet information service provider, and if the Internet information service
provider is a legal entity, the domain name registrant shall be the legal entity (or any of its shareholders), or its principal or senior manager.
Mobile Internet Applications Information Services
On June 28, 2016, the Cyberspace Administration of China, or the CAC, promulgated the Administrative Provisions on Mobile Internet
Applications Information Services, or the APP Provisions, which became effective on August 1, 2016. Under the APP Provisions, mobile
application providers are prohibited from engaging in any activity that may endanger national security, disturb the social order, or infringe
the legal rights of third parties, and may not produce, copy, issue or disseminate through Internet mobile applications any content prohibited
by laws and regulations. The APP Provisions also require application providers to procure relevant qualifications required by laws and
regulations to provide services through such applications and require application store service providers to file with local branches of the
CAC within 30 days after they start providing application store services. On January 5, 2022, the CAC further promulgated the Circular of
the Cyberspace Administration of China on Seeking Public Comments on the Administrative Provisions on Mobile Internet Applications
Information Services (Draft for Comment), or the Draft APP Provisions. Under the Draft APP Provisions, the application distribution
platform shall file with local branches of the CAC within 30 days after they start providing application distribution services. For the purpose
of the Draft APP Provisions, engaging in application distribution services refers to activities that provide users with services such as
application release, download, and dynamic loading through the Internet, including application stores, quick applications, Internet applets,
browser plug-ins and other platform distribution services.
Furthermore, on December 16, 2016, the MIIT promulgated the Interim Measures on the Administration of Pre-installation and Distribution
of Applications for Mobile Smart Terminals, which took effect on July 1, 2017. It requires, among others, that Internet information service
providers should ensure that a mobile application, 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
hardware and operating system of a mobile smart device.
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Regulations Relating to Medical Devices Operation and Service
Medical Devices Operation
According to the Regulations on the Supervision and Administration of Medical Devices, which was promulgated by the State Council on
January 4, 2000 and most recently amended on February 9, 2021, and the Measures on the Supervision and Administration of the Business
Operations of Medical Devices, which was promulgated by the State Food and Drug Administration, or the SFDA, the predecessor of the
China Food and Drug Administration, or the CFDA (the predecessor of the NMPA), on July 30, 2014 and amended on November 17, 2017
and other relevant laws and regulations, business operations of medical devices are regulated based on the degree of risks involving the
medical devices, which are divided into three categories. Operation of Class I medical devices does not require a license or record-filing,
while operations of Class II medical devices and Class III medical devices are subject to record-filing and licensing requirements,
respectively. An entity engaging in the operation of medical devices shall meet certain requirements with respect to its management system,
personnel, facilities, etc., and shall apply for approval to operate Class III medical devices and make record-filing with relevant
governmental authority to operate Class II medical devices. The valid term of a medical devices operation permit is five years.
On March 10, 2022, the SAMR promulgated the revised Measures on the Supervision and Administration of the Business Operations of
Medical Devices, or the New Measures of Medical Devices Operation, which will become effective on May 1, 2022. The New Measures of
Medical Devices Operation further strengthens the responsibility of the enterprise regarding medical device quality and pays more attention
to the quality management of the entire process of operation.
Regulations Relating to Online Operation of Drugs and Medical Devices
Internet Drug Information Service
The Administrative Measures for Internet Drug Information Service, or the Internet Drug Measures, was promulgated by the SFDA on
July 8, 2004 and amended by the CFDA on November 17, 2017, pursuant to which the Internet drug information service means service
activities of providing online users with drug (including medical device) information via Internet and is divided into commercial Internet
drug information services and non-commercial Internet drug information services. The website operator that provides drugs (including
medical devices) information services must obtain an Internet Drug Information Service Qualification Certificate from the competent
counterpart of the CFDA. The valid term for an Internet Drug Information Service Qualification Certificate is five years and may be renewed
at least six months prior to its expiration date upon a re-examination by the relevant governmental authorities.
Furthermore, as requested by Internet Drug Measures, the information relating to drugs shall be accurate and scientific in nature, and its
provision shall comply with the relevant laws and regulations. No product information of narcotic drugs, psychotropic drugs, medicinal toxic
drugs, radiopharmaceutical, detoxification drugs and pharmaceutics made by medical institutes shall be published on the website. In
addition, advertisements relating to drugs (including medical devices) shall be approved by the CFDA or its competent counterparts.
Online Sales of Medical Device
Under PRC laws and regulations, the medical devices are allowed to be sold online in general.
On December 20, 2017, the CFDA promulgated the Measures for the Administration and Supervision of Online Sales of Medical Devices, or
the Online Medical Devices Sales Measures, which became effective on March 1, 2018. According to the Online Medical Devices Sales
Measures, enterprises engaged in online sales of medical devices must be medical device manufacture and operation enterprises that have
obtained a medical devices production license or operation license or have been filed for record, unless such licenses or record-filing is not
required by laws and regulations, and the third-party platform for provision of online medical devices transaction services shall obtain an
Internet Drug Information Service Qualification Certificate. Enterprises engaged in online sales of medical devices and providers of third-
party platforms providing online trading service for medical devices shall take technical measures to ensure that the data and materials of
online sales of medical devices are authentic, complete and traceable, for example, the records of sales information of medical devices shall
be kept for two years after the lifetime of the medical devices, and for no less than five years in case of no lifetime limit, or be kept
permanently in case of implanted medical devices.
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Regulations Relating to Online Trading and E-Commerce
On January 26, 2014, the State Administration for Industry and Commerce, or the SAIC, the predecessor of the General Office of the SAMR,
promulgated the Administrative Measures for Online Trading, or the Online Trading Measures, which became effective on March 15, 2014,
to regulate all operating activities for product sales and services provision via the Internet (including mobile Internet). It stipulates the
obligations of online products operators and services providers and certain special requirements applicable to third-party platform operators.
On March 15, 2021, the SAMR promulgated the Measures for the Supervision and Administration of Online Transactions, or the Online
Transactions Measures, which became effective on May 1, 2021 and replaced the Online Trading Measures. The Online Transactions
Measures regulates business activities of selling commodities or providing services through the network and the supervision and
administration activities of the market supervision and administration departments. The business activities of selling commodities or
providing services in information network activities such as online social networking and online live broadcasting also apply to the Online
Transactions Measures. Furthermore, the MOFCOM promulgated the Provisions on the Procedures for Formulating Transaction Rules of
Third-Party Online Retail Platforms (Trial) on December 24, 2014, which became effective on April 1, 2015, to guide and regulate the
formulation, revision and enforcement of transaction rules by online retail third-party platform operators. These measures impose more
stringent requirements and obligations on third-party platform operators. For example, third-party platform operators are obligated to make
public and file their transaction rules with MOFCOM or their respective provincial counterparts, examine and register the legal status of each
third-party merchant selling products or services on their platforms and display on a prominent location on a merchant’s webpage the
information stated in the merchant’s business license or a link to its business license. Where third-party platform operators also conduct self-
operation of products or services on the platform, these third-party platform operators must make a clear distinction between their online
direct sales and sales of third-party merchant products on their third-party platforms to avoid misleading the consumers.
After the issuance of Online Trading Measures, relevant authorities have issued a number of guidelines and implementing rules aimed at
adding greater specificity to these regulations and continues to consider and issue guidelines and implementing rules in this industry.
For example, the Ministry of Finance, or the MOF, the General Administration of Customs, or the GAC, and the SAT issued the Circular on
Tax Policy for Cross-Border E-commerce Retail Imports on March 24, 2016, which became effective on April 8, 2016 and the Circular on
Improving Tax Policies for Cross-Border E-commerce Retail Imports on November 29, 2018, which became effective on January 1, 2019, to
regulate cross-border e-commerce trading and introduced the concept of the List of Imported Commodities Retailed through Cross-Border E-
commerce, or the Cross-Border E-Commerce Goods List, which has been issued and updated by the three authorities together with other
relevant authorities from time to time. The Cross-Border E-Commerce Goods List has been recently updated on March 1, 2022. The Circular
on Improving the Regulation of Cross-border E-commerce Retail Imports was issued by the MOFCOM, the NDRC, the MOF, the GAC, the
SAT and the SAMR on November 28, 2018 to further implement the rules and pursuant to which, qualified retail imported goods on cross-
border e-commerce platforms shall be treated as personal items which are not subject to stricter regulations and higher tax rates applicable to
normal imported goods in 37 cross-border e-commerce trial cities.
On August 31, 2018, the SCNPC promulgated the E-Commerce Law of the People’s Republic of China, or the E-Commerce Law, which
took effect on January 1, 2019. The promulgation of the E-Commerce Law established the basic legal framework for the development of
China’s E-Commerce business and clarified the obligations of the operators of E-Commerce platforms and the possible legal consequences if
operators of E-commerce platforms are found to be in violation of legally prescribed obligations. For example, pursuant to the E-Commerce
Law, an operator of an E-commerce platform shall give appropriate reminders to and provide convenience for the operators on its platform
who have not completed the formalities for the registration of market entities to complete such formalities. Also, an operator of an E-
commerce platform is legally obligated to verify and register the information of the business operators on its platform, prepare emergency
plans in response to possible cyber security incidents, keep the transaction information for no less than three years from the date on which
the transaction has been completed, establish rules on the protection of intellectual property rights and conform to the principle of openness,
fairness and justice. Violation of the provisions of the E-Commerce Law may entail being ordered to make corrections within a prescribed
period of time, confiscation of gains illegally obtained, fines, suspension of business, inclusion of such violations in the credit records and
possible civil liabilities.
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Regulations Relating to Food Business
The Food Safety Law of the People’s Republic of China, which was effective as from June 1, 2009 and amended by the SCNPC on April 24,
2015, December 29, 2018, April 29, 2021 and became effective on the same date, and the Implementation Regulations of the Food Safety
Law of the People’s Republic of China, which took effect as from July 20, 2009 and were amended by the State Council on February 6, 2016
and October 11, 2019, regulate food safety and set up a system of the supervision and administration of food safety and adopt food safety
standards. The State Council implements a licensing system for the food production and transaction. To engage in food production, sale or
catering services, the business operator shall obtain a license in accordance with the laws. Furthermore, the State Council implements strict
supervision and administration for special categories of foods such as healthcare foods, formula foods for special medical purposes and
infant formula foods.
The Administrative Measures for Food Operation Licensing, promulgated by the CFDA on August 31, 2015 and amended on November 17,
2017, regulates the food business licensing activities, strengthens the supervision and management of food business and ensures food safety.
Food business operators shall obtain one Food Business License for one business venue where they engage in food business activities. The
valid term of a food business license is five years.
According to the Administration Measures of Health-care Food Products issued by the Ministry of Health, or the MOH, on March 15, 1996,
any food claimed to have the effect of healthcare must be identified by the MOH.
Regulations Relating to Product Quality and Consumers’ Protection
According to the Product Quality Law of the People’s Republic of China, which was effective as from September 1, 1993 and amended by
the SCNPC on July 8, 2000, August 27, 2009 and December 29, 2018, products for sale must satisfy relevant safety standards and sellers
shall adopt measures to maintain the quality of products for sale. Sellers may not mix impurities or imitations into products, or pass
counterfeit goods off as genuine ones, or defective products as good ones or substandard products as standard ones. For sellers, any violation
of state or industrial standards for health and safety or other requirements may result in civil liabilities and administrative penalties, such as
compensation for damages, fines, confiscation of products illegally manufactured or sold and the proceeds from the sales of such products
illegally manufactured or sold and even revoking business license; in addition, severe violations may subject the responsible individual or
enterprise to criminal liabilities.
According to the Consumers Rights and Interests Protection Law of the People’s Republic of China, or the Consumers Rights and Interests
Protection Law, which became effective on January 1, 1994 and was amended by the SCNPC on August 27, 2009 and October 25, 2013,
business operators should guarantee that the products and services they provide satisfy the requirements for personal or property safety, and
provide consumers with authentic information about the quality, function, usage and term of validity of the products or services. The
consumers whose interests have been damaged due to the products or services that they purchase or accept on the Internet trading platforms
may claim damages to sellers or service providers. Where the operators of the online trading platforms are unable to provide the real names,
addresses and valid contact details of the sellers or service providers, the consumers may also claim damages to the operators of the online
trading platforms. Operators of online trading platforms that clearly knew or should have known that sellers or service providers use their
platforms to infringe upon the legitimate rights and interests of consumers but fail to take necessary measures, must bear joint and several
liabilities with the sellers or service providers. Moreover, if business operators deceive consumers or knowingly sell substandard or defective
products, they should not only compensate consumers for their losses, but also pay additional damages equal to three times the price of the
goods or services.
On January 6, 2017, the SAIC issued the Interim Measures for Seven-day Unconditional Return of Online Purchased Goods, which became
effective on March 15, 2017 and amended by the SAMR on October 23, 2020, further clarifying the scope of consumers’ rights to make
returns without a reason, including exceptions, return procedures and online trading platform operators’ responsibility to formulate seven-
day unconditional return rules and related consumer protection systems, and supervise the merchants for compliance with these rules.
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Regulations Relating to Pricing
In China, the prices of a very small number of products and services are guided or fixed by the government. According to the Pricing Law of
the People’s Republic of China, or the Pricing Law, promulgated by the SCNPC on December 29, 1997 and became effective on May 1,
1998, business operators must, as required by the government departments in charge of pricing, mark the prices explicitly and indicate the
name, origin of production, specifications and other related particulars clearly. Business operators may not sell products at a premium or
charge any fees that are not explicitly indicated. Business operators must not commit the specified unlawful pricing activities, such as
colluding with others to manipulate the market price, using false or misleading prices to deceive consumers to transact, or conducting price
discrimination against other business operators. Failure to comply with the Pricing Law may subject business operators to administrative
sanctions such as warning, ceasing unlawful activities, compensation, confiscating illegal gains and fines. The business operators may be
ordered to suspend business for rectification or have their business licenses revoked under severe circumstances.
Regulations Relating to Management of Importing Goods
According to the Customs Law of the People’s Republic of China, promulgated by the SCNPC on January 22, 1987, most recently amended
on April 29, 2021, and became effective on the same date, unless otherwise provided for, the declaration of import or export commodities
and the payment of duties may be made by the consignees or consigners themselves, and such formalities may also be completed by their
entrusted customs brokers that have registered with the Customs. The consignees and consignors for imported or exported commodities and
the customs brokers engaged in customs declaration shall register with the Customs for their declaration activities in accordance with the
laws. The declaration of inward and outward articles and payment of duties on them may be made by the owners of the articles themselves or
by the persons they have entrusted with the work.
According to the Foreign Trade Law of the People’s Republic of China, promulgated by the SCNPC on May 12, 1994, amended on April 6,
2004 and November 7, 2016, and effective as from November 7, 2016, and the Measures for the Archival Filing and Registration of Foreign
Trade Business Operators, promulgated by the MOFCOM on June 25, 2004 and became effective on July 1, 2004 and further revised on
August 18, 2016, November 30, 2019, and May 10, 2021, foreign trade operators engaged in goods or technology import and export shall go
through the registration for record formalities with the MOFCOM or its entrusted institutions, except for those that are exempted from the
registration for record formalities in accordance with the laws, administrative regulations and the rules of the MOFCOM. Customs will
decline to carry out customs clearance and inspection procedures for the import and export of goods for operators that fail to go through the
registration for record formalities.
Pursuant to the Notice of the Ministry of Commerce on Relevant Issues Concerning the Filing and Registration of Right to Foreign Trade of
Foreign-invested Enterprises issued by the MOFCOM on August 17, 2004 and effective as of the same date, any FIEs established after
July 1, 2004 that engage in import or export of self-use or self-produced goods and technologies of this enterprise need not go through the
registration for record formalities for foreign trade operators.
The principal regulations on the inspection of import and export of commodities are set out in the Import and Export Commodity Inspection
Law of the People’s Republic of China promulgated by the SCNPC on February 21, 1989 and amended on April 28, 2002, June 29, 2013,
April 27, 2018, December 29, 2018, and April 29, 2021, and its implementation rules. According to the aforesaid laws and regulations, the
imported and exported commodities that are subject to compulsory inspection listed in the catalog compiled by the General Administration
of Quality Supervision, Inspection and Quarantine of the PRC shall be inspected by the commodity inspection authorities, and the imported
and exported commodities that are not subject to statutory inspection shall be subject to random inspection. Consignees and consignors or
their entrusted agents shall apply for inspection to the commodity inspection authorities.
Pursuant to the Administrative Measures for the Import and Export of Goods of the People’s Republic of China which were issued by the
State Council on December 10, 2001 and became effective on January 1, 2002, the PRC government implements a unified administrative
system for the import and export of goods, which allows free import and export of goods and maintains the fairness and orderliness of the
import and export of goods according to law. Unless clearly provided in laws and administrative regulations that the import or export of
goods is forbidden or restricted, no entity or individual may establish or maintain prohibitive or restrictive measures over the import and
export of goods.
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Regulations Relating to Leasing
Pursuant to the Law on Administration of Urban Real Estate of the People’s Republic of China promulgated by the SCNPC on July 5, 1994,
amended on August 30, 2007, August 27, 2009 and August 26, 2019, and which took effect on January 1, 2020, when leasing premises, the
lessor and lessee are required to enter into a written lease contract, containing such provisions as the leasing term, use of the premises, rental
and repair liabilities, and other rights and obligations of both parties. Both lessor and lessee are also required to register the lease with the
real estate administration department. If the lessor and lessee fail to go through the registration procedures, both lessor and lessee may be
subject to fines.
According to the PRC Civil Code promulgated by the NPC on May 28, 2020 and effective from January 1, 2021, the lessee may sublease the
leased premises to a third party, subject to the consent of the lessor. Where the lessee subleases the premises, the lease contract between the
lessee and the lessor remains valid. The lessor is entitled to terminate the lease contract if the lessee subleases the premises without the
consent of the lessor. In addition, if the lessor transfers the premises, the lease contract between the lessee and the lessor will still remain
valid.
Meanwhile, pursuant to the PRC Civil Code, if a mortgagor leases the mortgaged property before the mortgage contract is executed, the
previously established leasehold interest will not be affected by the subsequent mortgage, and where a mortgagor leases the mortgaged
property after the creation and registration of the mortgage interest, the leasehold interest will be subordinated to the registered mortgage.
Regulations Relating to Advertising
In 1994, the SCNPC promulgated the Advertising Law of the People’s Republic of China, or the Advertising Law, which was most recently
revised on April 29, 2021 and became effective on the same date. The Advertising Law regulates commercial advertising activities in the
PRC and sets out the obligations of advertisers, advertising operators, advertising publishers and advertisement endorser, and prohibits any
advertisement from containing any obscenity, pornography, gambling, superstition, terrorism or violence-related content. Any advertiser in
violation of such requirements on advertisement content will be ordered to cease publishing such advertisements and imposed a fine ranging
from RMB200,000 to RMB1,000,000; in severe circumstances, the business license of such advertiser may be revoked, and the relevant
authorities may revoke the approval document for advertisement examination and refuse to accept applications submitted by such advertiser
for one year. In addition, any advertising operator or advertising publisher in violation of such requirements will be imposed a fine ranging
from RMB200,000 to RMB1,000,000, and the advertisement fee received will be confiscated; in severe circumstances, the business license
of such advertising operator or advertising publisher may be revoked.
The Interim Measures for the Administration of Internet Advertising, or the Internet Advertising Measures, regulating the Internet-based
advertising activities, were adopted by the SAIC on July 4, 2016 and became effective on September 1, 2016. According to the Internet
Advertising Measures, Internet advertisers are responsible for the authenticity of the advertisements content and all online advertisements
must be marked “Advertisement” so that viewers can easily identify them as such. Publishing and circulating advertisements through the
Internet shall not affect the normal use of the Internet by users. It is not allowed to induce users to click on the content of advertisements by
any fraudulent means, or to attach advertisements or advertising links in the emails without permission.
The Interim Administrative Measures for the Examination of Advertisements for Drugs, Medical Devices, Health Food and Formula Food
for Special Medical Purposes, released by the SAMR on December 24, 2019 and which became effective on March 1, 2020, stipulates that
advertisements for drugs, medical devices, health food and formula food for special medical purposes shall be examined and approved by
market regulation departments or drug administrative departments at provincial level.
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Regulations Relating to Internet Information Security and Privacy Protection
PRC governmental authorities have enacted laws and regulations with respect to Internet information security and protection of personal
information from any abuse or unauthorized disclosure, and which includes the Decision of the Standing Committee of the National People’s
Congress on Internet Security Protection enacted and amended by the SCNPC on December 28, 2000 and August 27, 2009, respectively, the
Provisions on the Technical Measures for Internet Security Protection issued by the Ministry of Public Security on December 13, 2005 and
took effect on March 1, 2006, the Decision of the Standing Committee of the National People’s Congress on Strengthening Network
Information Protection promulgated by the SCNPC on December 28, 2012, the Several Provisions on Regulating the Market Order of
Internet Information Services promulgated by the MIIT on December 29, 2011, and the Provisions on Protection of Personal Information of
Telecommunication and Internet Users, or the Personal Information Provisions, released by the MIIT on July 16, 2013. Internet information
in China is regulated and restricted from a national security standpoint.
The Personal Information Provisions regulate the collection and use of users’ personal information in the provision of telecommunications
services and Internet information services in the PRC. Telecommunication business operators and Internet service providers are required to
institute and disclose their own rules for the collecting and use of users’ information. Telecommunication business operators and Internet
service providers must specify the purposes, manners and scopes of information collection and uses, obtain consent of the relevant citizens,
and keep the collected personal information confidential. Telecommunication business operators and Internet service providers are prohibited
from disclosing, tampering with, damaging, selling or illegally providing others with, collected personal information. Telecommunication
business operators and Internet service providers are required to take technical and other measures to prevent the collected personal
information from any unauthorized disclosure, damage or loss. Once users terminate the use of telecommunications services or Internet
information services, telecommunications business operators and Internet information service providers shall stop the collection and use of
the personal information of users and provide the users with services for deregistering their account numbers.
The Personal Information Provisions further define the personal information of user to include user name, birth date, identification number,
address, phone number, account number, passcode, and other information that may be used to identify the user independently or in
combination with other information and the timing, places, etc. of the use of services by the users. Furthermore, according to the
Interpretations on Several Issues Concerning the Application of Law in the Handling of Criminal Cases Involving Infringement of Citizens’
Personal Information, or the Interpretations, issued by the Supreme People’s Court and the Supreme People’s Procuratorate on May 8, 2017
and which took effect on June 1, 2017, personal information means various information recorded electronically or through other manners,
which may be used to identify individuals or activities of individuals, including, but not limited to, the name, identification number, contact
information, address, user account number and passcode, property ownership and whereabouts.
On November 1, 2015, the Ninth Amendment to the Criminal Law of the People’s Republic of China issued by the SCNPC became effective,
pursuant to which, any Internet service provider that fails to comply with obligations related to Internet information security administration
as required by applicable laws and refuses to rectify upon order is subject to criminal penalty for (i) any large-scale dissemination of illegal
information; (ii) any severe consequences due to the leakage of the user information; (iii) any serious loss of criminal evidence; or (iv) other
severe circumstances. Furthermore, any individual or entity that (i) sells or distributes personal information in a manner which violates
relevant regulations, or (ii) steals or illegally obtains any personal information is subject to criminal penalty in severe circumstances.
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Cyber Security Law of the People’s Republic of China, or the Cyber Security Law, was promulgated by SCNPC on November 7, 2016 and
took effect on June 1, 2017, which is formulated to maintain the network security, safeguard the cyberspace sovereignty, national security
and public interests, protect the lawful rights and interests of citizens, legal persons and other organizations, and requires that a network
operator, which includes, among others, Internet information services providers, take technical measures and other necessary measures to
safeguard the safe and stable operation of the networks, effectively respond to the network security incidents, prevent illegal and criminal
activities, and maintain the integrity, confidentiality and availability of network data. The Cyber Security Law reaffirms the basic principles
and requirements set forth in other existing laws and regulations on personal information protections and strengthens the obligations and
requirements of Internet service providers, which include, but are not limited to: (i) keeping all user information collected strictly
confidential and setting up a comprehensive user information protection system; (ii) abiding by the principles of legality, rationality and
necessity in the collection and use of user information and disclosure of the rules, purposes, methods and scopes of collection and use of user
information; and (iii) protecting users’ personal information from being leaked, tampered with, destroyed or provided to third parties. Any
violation of the provisions and requirements under the Cyber Security Law and other related regulations and rules may result in
administrative liabilities such as warnings, fines, confiscation of illegal gains, revocation of licenses, suspension of business, and shutting
down of websites, or, in severe cases, criminal liabilities. After the release of the Cyber Security Law, on May 2, 2017, the CAC issued the
Measures for Security Reviews of Network Products and Services (Trial), which was later replaced by the Measures for Cybersecurity
Review, or the Review Measures, which was promulgated by the CAC and other relevant authorities on April 13, 2020, amended on
December 28, 2021 and became effective on February 15, 2022. The Review Measures establish the basic framework and principle for
national security reviews of network products and services. Pursuant to the current Review Measures, the scope of review under the Review
Measures extends to critical information infrastructure operators that intend to purchase internet products and services and data processing
operators engaging in data processing activities, which affect or may affect national security.
On August 22, 2019, the CAC promulgated the Provisions on the Cyber Protection of Children’s Personal Information, which became
effective on October 1, 2019, requiring that before collecting, using, transferring or disclosing the personal information of a child, the
Internet service operator should inform the child’s guardians in a noticeable and clear manner and obtain their consents. Meanwhile, Internet
service operators should take measures like encryption when storing children’s personal information.
The recommended national standard, the Information Security Technology Personal Information Security Specification, puts forward
specific refinement requirements on the collection, preservation, use and commission processing, sharing, transfer, public disclosure, etc.
Although it is not mandatory, in the absence of clear implementation rules and standards for the law on cybersecurity and other personal
information protection, it will be used as the basis for judging and making determinations. On November 28, 2019, the Notice of
Identification Method of Application Illegal Collection and Use of Personal Information was issued, which provides a reference for the
identification of App’s illegal collection and use of personal information, and provides guidance for App operators’ self-inspection and self-
correction and netizens’ social supervision.
On November 14, 2021, the CAC released the Regulations on the Network Data Security (Draft for Comments), or the Draft Regulations.
The Draft Regulations provide that data processors refer to individuals or organizations that determine the purpose and the manner of
processing data. In accordance with the Draft Regulations, data processors shall apply for a cybersecurity review for the following activities:
(1) merger, reorganization or division of Internet platform operators that have acquired a large number of data resources related to national
security, economic development or public interests to the extent that affects or may affect national security; (2) overseas listing of data
processors which process over one million users’ personal information; (3) listing in Hong Kong which affects or may affect national
security; or (4) other data processing activities that affect or may affect national security. Besides, data processors that are listed overseas
shall carry out an annual data security assessment.
On August 20, 2021, the SCNPC promulgated the Personal Information Protection Law which took effect on November 1, 2021. The
Personal Information Protection Law requires, among others, that (1) the processing of personal information should have a clear and
reasonable purpose which should be directly related to the processing, in a method that has the least impact on personal rights and interests,
and (2) the collection of personal information should be limited to the minimum scope necessary to achieve the processing purpose to avoid
the excessive collection of personal information. Different types of personal information and personal information processing will be subject
to various rules on consent, transfer, and security. Entities handling personal information shall bear responsibilities for their personal
information handling activities and adopt necessary measures to safeguard the security of the personal information that they handle. The
entities failing to comply could be ordered to correct, or suspend or terminate the provision of services, and face confiscation of illegal
income, fines or other penalties.
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Regulations Relating to Intellectual Property
China has adopted comprehensive legislation governing intellectual property rights, including copyrights, trademarks, patents and domain
names. China is a signatory to the primary international conventions on intellectual property rights and has been a member of the Agreement
on Trade Related Aspects of Intellectual Property Rights since its accession to the World Trade Organization in December 2001.
Copyright
On September 7, 1990, the SCNPC promulgated the Copyright Law of the People’s Republic of China, or the Copyright Law, effective on
June 1, 1991, which was amended on October 27, 2001, February 26, 2010, and November 11, 2020, respectively, with the latest amendment
took effect on June 1, 2021. The amended Copyright Law extends copyright protection to Internet activities, products disseminated over the
Internet and software products. In addition, there is a voluntary registration system administered by the Copyright Protection Center of
China.
Under the Regulations on the Protection of the Right to Network Dissemination of Information which was promulgated by the State Council
on May 18, 2006, amended on January 30, 2013 and became effective on March 1, 2013, it is further provided that an Internet information
service provider may be held liable under various situations, including that if it knows or should reasonably have known a copyright
infringement through the Internet and the service provider fails to take measures to remove or block or disconnect links to the relevant
content, or, although not aware of the infringement, the Internet information service provider fails to take such measures upon receipt of the
copyright holder’s notice of such infringement.
In order to further implement the Regulations on Computer Software Protection, promulgated by the State Council on December 20, 2001
and amended on January 8, 2011 and January 30, 2013, respectively, the National Copyright Administration issued the Measures for the
Registration of Computer Software Copyright on February 20, 2002, which specify detailed procedures and requirements with respect to the
registration of software copyrights.
Trademark
According to the Trademark Law of the People’s Republic of China promulgated by the SCNPC on August 23, 1982, and amended on
February 22, 1993, October 27, 2001, August 30, 2013 and April 23, 2019, respectively, the Trademark Office of the China National
Intellectual Property Administration is responsible for the registration and administration of trademarks in China. The China National
Intellectual Property Administration is responsible for resolving trademark disputes. Registered trademarks are valid for ten years from the
date the registration is approved. A registrant may apply to renew a registration within twelve months before the expiration date of the
registration. If the registrant fails to apply in a timely manner, a grace period of six additional months may be granted. If the registrant fails to
apply before the grace period expires, the registered trademark shall be deregistered. Renewed registrations are valid for ten years. On
April 29, 2014, the State Council issued the revised Implementing Regulations of the Trademark Law of the People’s Republic of China,
which specified the requirements of applying for trademark registration and renewal.
Patent
According to the Patent Law of the People’s Republic of China, or the Patent Law, promulgated by the SCNPC on March 12, 1984 and
amended on September 4, 1992, August 25, 2000, December 27, 2008 and October 17, 2020, respectively, and the Implementation Rules of
the Patent Law of the People’s Republic of China, or the Implementation Rules of the Patent Law, promulgated by the State Council on June
15, 2001 and revised on December 28, 2002 and January 9, 2010, the patent administrative department under the State Council is responsible
for the administration of patent-related work nationwide and the patent administration departments of provincial or autonomous regions or
municipal governments are responsible for administering patents within their respective administrative areas. The Patent Law and
Implementation Rules of the Patent Law provide for three types of patents, namely “inventions,” “utility models” and “designs”. Invention
patents are valid for twenty years, while utility model patents and design patents are valid for ten years, from the date of application. The
Chinese patent system adopts a “first come, first file” principle, which means that where more than one person files a patent application for
the same invention, a patent will be granted to the person who files the application first. An invention or a utility model must possess
novelty, inventiveness and practical applicability to be patentable. Third Parties must obtain consent or a proper license from the patent
owner to use the patent. Otherwise, the unauthorized use constitutes an infringement on the patent rights.
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Domain Names
On August 24, 2017, the MIIT promulgated the Administrative Measures for Internet Domain Names, or the Domain Name Measures, which
became effective on November 1, 2017. Under the Domain Name Measures, any entity that engages in internet information services shall use
its domain name in compliance with laws and regulations and in line with relevant provisions of the telecommunications authority, but shall
not use its domain name to commit any act of violation of laws, regulations and provisions.
Regulations Relating to Foreign Exchange
The principal regulations governing foreign currency exchange in China are the Administrative Regulations on Foreign Exchange of the
People’s Republic of China, or the Foreign Exchange Administrative Regulation, which was promulgated by the State Council on
January 29, 1996, which became effective on April 1, 1996 and was subsequently amended on January 14, 1997 and August 5, 2008,
respectively, and the Administrative Regulations on Foreign Exchange Settlement, Sales and Payment which was promulgated by the
People’s Bank of China, or the PBOC, on June 20, 1996 and became effective on July 1, 1996. Under these 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 State Foreign Exchange Administration of the People’s Republic of China, or the SAFE, by complying with
certain procedural requirements. By contrast, approval from or registration with appropriate governmental authorities is required where RMB
is to be converted into foreign currency and remitted out of China to pay capital account items such as the repayment of foreign currency-
denominated loans, direct investment overseas and investments in securities or derivative products outside of the PRC. FIEs are permitted to
convert their after-tax dividends into foreign exchange and to remit such foreign exchange out of their foreign exchange bank accounts in the
PRC.
On March 30, 2015, SAFE promulgated the Notice on Reforming the Administration of Foreign Exchange Settlement of Capital of Foreign-
invested Enterprises, or the SAFE Circular 19, which took effect on June 1, 2015. According to SAFE Circular 19, the foreign currency
capital contribution to an FIE in its capital account may be converted into RMB on a discretional basis.
On June 9, 2016, the SAFE promulgated the Circular on Reforming and Regulating Policies on the Management of the Settlement of Foreign
Exchange of Capital Accounts, or the SAFE Circular 16. The SAFE Circular 16 unifies the discretional foreign exchange settlement for all
the domestic institutions. The Discretional Foreign Exchange Settlement refers to the foreign exchange capital in the capital account which
has been confirmed by the relevant policies subject to the discretional foreign exchange settlement (including foreign exchange capital,
foreign loans and funds remitted from the proceeds from the overseas listing) that can be settled at the banks based on the actual operational
needs of the domestic institutions. The proportion of Discretional Foreign Exchange Settlement of the foreign exchange capital is
temporarily determined as 100%. Violations of SAFE Circular 19 or SAFE Circular 16 could result in administrative penalties in accordance
with the Foreign Exchange Administrative Regulation and relevant provisions.
Furthermore, SAFE Circular 16 stipulates that the use of foreign exchange incomes of capital accounts by FIEs shall follow the principles of
authenticity and self-use within the business scope of the enterprises. The foreign exchange incomes of capital accounts and capital in RMB
obtained by the FIE from foreign exchange settlement shall not be used for the following purposes: (i) directly or indirectly for the payment
beyond the business scope of the enterprises or the payment prohibited by relevant laws and regulations; (ii) directly or indirectly for
investment in securities or financial schemes other than bank guaranteed products unless otherwise provided by relevant laws and
regulations; (iii) for granting loans to non-affiliated enterprises, unless otherwise permitted by its business scope; and (iv) for the
construction or purchase of real estate that is not for self-use (except for the real estate enterprises).
On October 23, 2019, SAFE promulgated the Notice of the State Administration of Foreign Exchange on Further Promoting the Facilitation
of Cross-border Trade and Investment, or the SAFE Circular 28, which stipulates that non-investment FIEs may use capital to carry out
domestic equity investment in accordance with the law under the premises of not violating the Negative List and that the projects invested
are true and in compliance with laws and regulations.
On April 10, 2020, SAFE promulgated the Circular of the State Administration of Foreign Exchange on Optimizing Administration of
Foreign Exchange to Support the Development of Foreign-related Business, or the SAFE Circular 8, which became effective on the same
date. Under the SAFE Circular 8, on condition that the use of funds is true and compliant with the administration regulations on the use of
capital account income, eligible enterprises are allowed to use capital project income, such as those from capital funds, foreign debts and
overseas listings, for domestic payment without providing the bank in advance with proof of authenticity in terms of each payment.
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Regulations Relating to Dividend Distributions
The principal regulations governing the distribution of dividends paid by wholly foreign-owned enterprises, or WFOEs, include the
Company Law of the PRC. Under these regulations, WFOEs in China may pay dividends only out of their accumulated profits, if any, as
determined in accordance with PRC accounting standards and regulations. In addition, an FIE in China is required to set aside at least 10%
of its after-tax profit based on PRC accounting standards each year to its general reserves until its cumulative total reserve funds reaches
50% of its registered capital. These reserve funds, however, may not be distributed as cash dividends.
Regulations Relating to Offshore Special Purpose Companies Held by PRC Residents
SAFE promulgated the Circular on Printing and Distributing the Provisions on Foreign Exchange Administration over Domestic Direct
Investment by Foreign Investors and the Supporting Documents on May 11, 2013, amended on October 10, 2018 and December 30, 2019,
respectively, 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.
SAFE promulgated Notice on Issues Relating to Foreign Exchange Administration over the Overseas Investment and Financing and Round-
trip Investment by Domestic Residents via Special Purpose Vehicles, or the SAFE Circular 37, on July 4, 2014 that requires PRC residents or
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 residents or entities 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 term of operation), capital increase or capital reduction, transfers or exchanges of shares, or mergers or
divisions. SAFE Circular 37 was issued to replace the Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC
Residents Engaging in Financing and Roundtrip Investments via Overseas Special Purposes Vehicles.
SAFE further enacted the Notice of the State Administration of Foreign Exchange on Further Simplifying and Improving the Foreign
Exchange Management Policies for Direct Investment, or the SAFE Circular 13, which allows PRC residents or entities 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 shareholder holding interests in a special
purpose vehicle fails to fulfill the required SAFE registration, the PRC subsidiaries of that special purpose vehicle may be prohibited from
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.
On January 26, 2017, SAFE issued the Notice on Improving the Check of Authenticity and Compliance to Further Promote Foreign
Exchange Control, or the 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.
Regulations Relating to Stock Incentive Plans
According to the Notice of the State Administration of Foreign Exchange on Issues Relating to the Foreign Exchange Administration for
Domestic Individuals Participating in Stock Incentive Plan of Overseas Listed Company, or the Share Incentive Rules, which was issued on
February 15, 2012 and other regulations, directors, supervisors, senior management and other employees participating in any share incentive
plan of an overseas publicly listed company who are PRC citizens or non-PRC citizens residing in China for a continuous period of not less
than one year, subject to certain exceptions, are required to register with the SAFE. All such participants need to authorize a qualified PRC
agent, such as a PRC subsidiary of the overseas publicly listed company to register with the SAFE and handle foreign exchange matters such
as opening accounts, transferring and settlement of the relevant proceeds. The Share Incentive Rules further require an offshore agent to be
designated to handle matters in connection with the exercise of share options and sales of proceeds for the participants of the share incentive
plans. Failure to complete the said SAFE registrations may subject its participating directors, supervisors, senior management and other
employees to fines and legal sanctions.
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In addition, the 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 for 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 Relating to Taxation
Income tax
According to the Enterprise Income Tax Law of the People’s Republic of China, or the EIT Law, which was promulgated by the NPC on
March 16, 2007, became effective as from January 1, 2008 and amended by the SCNPC on February 24, 2017 and December 29, 2018, an
enterprise established outside the PRC with de facto management bodies within the PRC is considered as a resident enterprise for PRC
enterprise income tax purposes and is generally subject to a uniform 25% enterprise income tax rate on its worldwide income. The
Implementing Rules of the Enterprise Income Law of the People’s Republic of China, or the Implementing Rules of the EIT Law, defines a de
facto management body as a managing body that in practice exercises “substantial and overall management and control over the production
and operations, personnel, accounting, and properties” of the enterprise. Non-PRC resident enterprises without any branches in the PRC pay
an enterprise income tax in connection with their income originating from the PRC at the tax rate of 10%.
Enterprises that are recognized as high and new technology enterprises in accordance with the Administrative Measures for the
Determination of High and New Tech Enterprises issued by the Ministry of Science, the MOF and the SAT are entitled to enjoy a preferential
enterprise income tax rate of 15%. The validity period of the high and new technology enterprise qualification shall be three years from the
date of issuance of the certificate. An enterprise can re-apply for such recognition as a high and new technology enterprise before or after the
previous certificate expires.
On February 3, 2015, the SAT, issued the Announcement on Several Issues Concerning the Enterprise Income Tax on Indirect Transfer of
Assets by Non-Resident Enterprises, or the SAT Circular 7. The SAT Circular 7 repeals certain provisions in the Notice of the State
Administration of Taxation on Strengthening the Administration of Enterprise Income Tax on Income from Equity Transfer by Non-Resident
Enterprises, or the SAT Circular 698, issued by SAT on December 10, 2009 and the Announcement on Several Issues Relating to the
Administration of Income Tax on Non-resident Enterprises issued by SAT on March 28, 2011 and clarifies certain provisions in the SAT
Circular 698. The SAT Circular 7 provides comprehensive guidelines relating to, and heightening the Chinese tax authorities’ scrutiny on,
indirect transfers by a non-resident enterprise of assets (including assets of organizations and premises in PRC, immovable property in the
PRC, equity investments in PRC resident enterprises), or the PRC Taxable Assets. For instance, when a non-resident enterprise transfers
equity interests in an overseas holding company that directly or indirectly holds certain PRC Taxable Assets and if the transfer is believed by
the Chinese tax authorities to have no reasonable commercial purpose other than to evade enterprise income tax, the SAT Circular 7 allows
the Chinese tax authorities to reclassify the indirect transfer of PRC Taxable Assets into a direct transfer and therefore impose a 10% rate of
PRC enterprise income tax on the non-resident enterprise. The SAT Circular 7 lists several factors to be taken into consideration by tax
authorities in determining if an indirect transfer has a reasonable commercial purpose. However, regardless of these factors, the overall
arrangements in relation to an indirect transfer satisfying all the following criteria will be deemed to lack a reasonable commercial purpose:
(i) 75% or more of the equity value of the intermediary enterprise being transferred is derived directly or indirectly from PRC Taxable
Assets; (ii) at any time during the one-year period before the indirect transfer, 90% or more of the asset value of the intermediary enterprise
(excluding cash) is comprised directly or indirectly of investments in the PRC, or during the one-year period before the indirect transfer, 90%
or more of its income is derived directly or indirectly from the PRC; (iii) the functions performed and risks assumed by the intermediary
enterprise and any of its subsidiaries and branches that directly or indirectly hold the PRC Taxable Assets are limited and are insufficient to
prove their economic substance; and (iv) the foreign tax payable on the gain derived from the indirect transfer of the PRC Taxable Assets is
lower than the potential PRC tax on the direct transfer of those assets. On the other hand, indirect transfers falling into the scope of the safe
harbors under the SAT Circular 7 will not be subject to PRC tax under the SAT Circular 7. The safe harbors include qualified group
restructurings, public market trades and exemptions under tax treaties or arrangements.
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On October 17, 2017, SAT issued the Announcement on Issues Relating to Withholding at Source of Income Tax of Non-resident Enterprises,
or the SAT Circular 37, which took effect on December 1, 2017. Certain provisions of the SAT Circular 37 were repealed by the
Announcement of the State Administration of Taxation on Revising Certain Taxation Normative Documents issued on June 15, 2018.
According to the SAT Circular 37, the balance after deducting the equity net value from the equity transfer income shall be the taxable
income amount for equity transfer income. Equity transfer income shall mean the consideration collected by the equity transferor from the
equity transfer, including various income in monetary form and non-monetary form. Equity net value shall mean the tax computation basis
for obtaining the said equity. The tax computation basis for equity shall be: (i) the capital contribution costs actually paid by the equity
transferor to a Chinese resident enterprise at the time of investment and equity participation, or (ii) the equity transfer costs actually paid at
the time of acquisition of such equity to the original transferor of the said equity. Where there is reduction or appreciation of value during the
equity holding period, and the gains or losses may be confirmed pursuant to the rules of the finance and tax authorities of the State Council,
the equity net value shall be adjusted accordingly. When an enterprise computes equity transfer income, it shall not deduct the amount in the
shareholders’ retained earnings such as undistributed profits, etc. of the investee enterprise, which may be distributed in accordance with the
said equity. In the event of partial transfer of equity under multiple investments or acquisitions, the enterprise shall determine the costs
corresponding to the transferred equity in accordance with the transfer ratio, out of all costs of the equity.
Under the SAT Circular 7 and the Law of the People’s Republic of China on the Administration of Tax Collection promulgated by the SCNPC
on September 4, 1992 and newly amended on April 24, 2015, in the case of an indirect transfer, entities or individuals obligated to pay the
transfer price to the transferor shall act as withholding agents. If they fail to make withholding or withhold the full amount of tax payable, the
transferor of equity shall declare and pay tax to the relevant tax authorities within seven days from the occurrence of tax payment obligation.
Where the withholding agent does not make the withholding, and the transferor of the equity does not pay the tax payable amount, the tax
authority may impose late payment interest on the transferor. In addition, the tax authority may also hold the withholding agents liable and
impose a penalty ranging from 50% to 300% of the unpaid tax on them. The penalty imposed on the withholding agents may be reduced or
waived if the withholding agents have submitted the relevant materials in connection with the indirect transfer to the PRC tax authorities in
accordance with the SAT Circular 7.
Withholding tax on dividend distribution
The EIT Law prescribes a standard withholding tax rate of 20% on dividends and other China-sourced income of non-PRC resident
enterprises which have no establishment or place of business in the PRC, or if established, the relevant dividends or other China-sourced
income are in fact not associated with such establishment or place of business in the PRC. However, the Implementing Rules of the EIT Law
reduced the rate from 20% to 10%. However, a lower withholding tax rate might be applied if there is a tax treaty between China and the
jurisdiction of the foreign holding companies, for example, pursuant to the Arrangement Between the Mainland of China and the Hong Kong
Special Administrative Region for the Avoidance of Double Taxation on Income, 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 the Double Tax Avoidance Arrangement and other applicable laws, the 10% withholding tax on the
dividends that the Hong Kong resident enterprise receives from a PRC resident enterprise may be reduced to 5% upon receiving approval
from the tax authority in charge.
Based on the Notice on Relevant Issues Relating to the Enforcement of Dividend Provisions in Tax Treaties issued on February 20, 2009 by
the SAT, if the relevant PRC tax authorities determine, at their discretion, that a company benefits from such reduced income tax rate due to a
structure or an arrangement that is primarily tax-driven, such PRC tax authorities may adjust the preferential tax treatment; and based on the
Announcement of the State Administration of Taxation on Issues Concerning “Beneficial Owners” in Tax Treaties, which was promulgated
on February 3, 2018 and came into effect on April 1, 2018. If the company’s activities do not constitute substantive business activities, it will
be analyzed according to the actual situation of the specific case, which may not be conducive to the determination of its “beneficiary
owner” capacity, and thus may not enjoy the concessions under the Double Tax Avoidance Arrangement.
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Value-added tax
Pursuant to the Interim Regulations on Value-Added Tax of the People’s Republic of China, which was promulgated by the State Council on
December 13, 1993 and amended on November 10, 2008, February 6, 2016 and November 19, 2017, and the Implementation Rules for the
Interim Regulations on Value-Added Tax of the People’s Republic of China, which was promulgated by the MOF on December 25, 1993 and
amended by the MOF and the SAT on December 15, 2008 and October 28, 2011, entities or individuals engaging in sale of goods, provision
of processing services, repairs and replacement services or import of goods within the territory of the PRC shall pay value-added tax, or the
VAT. Unless provided otherwise, the rate of VAT is 17% on sales and 6% on the services. On April 4, 2018, MOF and SAT jointly
promulgated the Circular of the Ministry of Finance and the State Administration of Taxation on Adjustment of Value-Added Tax Rates, or
the Circular 32, according to which (i) for VAT taxable sales acts or import of goods originally subject to VAT rates of 17% and 11%
respectively, such tax rates shall be adjusted to 16% and 10%, respectively; (ii) for purchase of agricultural products originally subject to tax
rate of 11%, such tax rate shall be adjusted to 10%; (iii) for purchase of agricultural products for the purpose of production and sales or
consigned processing of goods subject to tax rate of 16%, such tax shall be calculated at the tax rate of 12%; (iv) for exported goods
originally subject to tax rate of 17% and export tax refund rate of 17%, the export tax refund rate shall be adjusted to 16%; and (v) for
exported goods and cross-border taxable acts originally subject to tax rate of 11% and export tax refund rate of 11%, the export tax refund
rate shall be adjusted to 10%. Circular 32 became effective on May 1, 2018 and shall supersede existing provisions which are inconsistent
with Circular 32.
On November 16, 2011, the MOF and the SAT jointly promulgated the Pilot Plan for Imposition of Value-Added Tax to Replace Business
Tax, or the VAT Pilot Plan, which imposes VAT in lieu of business tax for certain “modern service industries” in certain regions and
eventually expanded to nationwide application in 2013. According to the Implementation Rules for the Pilot Plan for Imposition of Value-
Added Tax to Replace Business Tax released by the MOF and the SAT on the VAT Pilot Program, the “modern service industries” include
research, development and technology services, information technology services, cultural innovation services, logistics support, lease of
corporeal properties, attestation and consulting services. The Notice on Comprehensively promoting the Pilot Plan of the Conversion of
Business Tax to Value-Added Tax, promulgated by the MOF and the SAT on March 23, 2016 and as amended, sets out that VAT in lieu of
business tax be collected in all regions and industries.
On March 20, 2019, MOF, SAT and GAC jointly promulgated the Announcement on Relevant Policies for Deepening Value-Added Tax
Reform, which became effective on April 1, 2019, provides that (i) with respect to VAT taxable sales acts or import of goods originally
subject to VAT rates of 16% and 10%, respectively, such tax rates shall be adjusted to 13% and 9%, respectively; (ii) with respect to purchase
of agricultural products originally subject to tax rate of 10%, such tax rate shall be adjusted to 9%; (iii) with respect to purchase of
agricultural products for the purpose of production or consigned processing of goods subject to tax rate of 13%, such tax shall be calculated
at the tax rate of 10%; (iv) with respect to export of goods and services originally subject to tax rate of 16% and export tax refund rate of
16%, the export tax refund rate shall be adjusted to 13%; and (v) with respect to export of goods and cross-border taxable acts originally
subject to tax rate of 10% and export tax refund rate of 10%, the export tax refund rate shall be adjusted to 9%.
Regulations Relating to Employment
The Labor Contract Law of the People’s Republic of China, or the Labor Contract Law was promulgated on June 29, 2007 by the SCNPC
and amended on December 28, 2021. The Labor Contract Law and its implementation rules provide requirements concerning employment
contracts between an employer and its employees. If an employer fails to enter into a written employment contract with an employee within
one year from the date on which the employment relationship is established, the employer must rectify the situation by entering into a written
employment contract with the employee and pay the employee twice the employee’s salary for the period from the day following the lapse of
one month from the date of establishment of the employment relationship to the day prior to the execution of the written employment
contract. The Labor Contract Law and its implementation rules also require compensation to be paid upon certain terminations. In addition,
if an employer intends to enforce a non-compete provision in an employment contract or non-competition agreement with an employee, it
has to compensate the employee on a monthly basis during the term of the restriction period after the termination or expiry of the labor
contract. Employers in most cases are also required to provide severance payment to their employees after their employment relationships
are terminated.
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Enterprises in China are required by PRC laws 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, a work-related 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 from time to time at locations where they
operate their businesses or where they are located.
On December 28, 2012, the Labor Contract Law was amended to impose more stringent requirements on labor dispatch which became
effective on July 1, 2013. Pursuant to the amended Labor Contract Law, the dispatched contract workers shall be entitled to equal pay for
equal work as a full-time employee of an employer, and they shall only be engaged to perform temporary, ancillary or substitute works, and
an employer shall strictly control the number of dispatched contract workers so that they do not exceed a certain percentage of total number
of employees. “Temporary work” means a position with a term of less than six months; “auxiliary work” means a non-core business position
that provides services for the core business of the employer; and “substitute worker” means a position that can be temporarily replaced with a
dispatched contract worker for the period that a regular employee is away from work for vacation, study or for other reasons. According to
the Interim Provisions on Labor Dispatch, or the Labor Dispatch Provisions, promulgated by the Ministry of Human Resources and Social
Security of the People’s Republic of China on January 24, 2014, which became effective on March 1, 2014, (i) the number of dispatched
contract workers hired by an employer should not exceed 10% of the total number of its employees (including both directly hired employees
and dispatched contract workers); (ii) in the case that the number of dispatched contract workers exceeds 10% of the total number of its
employees at the time when the Labor Dispatch Provisions became effective (i.e., March 1, 2014), the employer shall formulate a plan to
reduce the number of its dispatched contract workers to below the statutory cap prior to March 1, 2016, and (iii) such plan shall be filed with
the local bureau of human resources and social security. Nevertheless, the Labor Dispatch Provisions do not invalidate the labor contracts
and dispatch agreements entered into prior to December 28, 2012. In addition, the employer shall not hire any new dispatched contract
worker before the number of its dispatched contract workers is reduced to below 10% of the total number of its employees.
Regulations Relating to M&A
On August 8, 2006, six PRC regulatory agencies, including the CSRC, promulgated the Rules on the Merger and Acquisition of Domestic
Enterprises by Foreign Investors, or the M&A Rules, which became effective on September 8, 2006 and were amended on June 22, 2009.
The M&A Rules and 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. For example, the M&A
Rules require that MOFCOM be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC
domestic enterprise, if (i) any important industry is concerned, (ii) such transaction involves factors that impact or may impact national
economic security, or (iii) such transaction will lead to a change in control of a domestic enterprise which holds a famous trademark or PRC
time-honored brand.
In addition, according to the Notice on Establishing the Security Review System for Mergers and Acquisitions of Domestic Enterprises by
Foreign Investors issued by the General Office of the State Council on February 3, 2011 and which became effective 30 days thereafter, the
Rules on Implementation of Security Review System for the Merger and Acquisition of Domestic Enterprises by Foreign Investors issued by
the MOFCOM on August 25, 2011 and which became effective on September 1, 2011, 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 MOFCOM, and the regulations prohibit
any activities attempting to bypass such security review, including by structuring the transaction through a proxy or contractual control
arrangement.
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C. Organizational Structure.
We conduct our business in China through our various subsidiaries and the VIE. The following diagram illustrates our corporate structure
and the place of incorporation of each of our company, significant subsidiaries, and variable interest entity as of the date of this annual report
on Form 20-F.
(1)
Contractual arrangements include an exclusive technology consulting and service agreement, powers of attorney, an equity pledge
agreement, an exclusive call option agreement and spousal consent letters.
(2)
Shanghai Yibo Medical Equipment Co., Ltd. is the VIE in China, and is 50% owned by Ms. Wang and 50% owned by Mr. Zeng,
our co-founders.
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The following table sets out the details of our subsidiaries and the variable interest entity that are significant to us.
Subsidiaries
Place
of
Incorporation
ECMOHO (Hong Kong) Health Technology Limited
Hong Kong
ECMOHO (Hong Kong) Limited
Hong Kong
ECMOHO Co., Ltd.
Korea
Yiling (Shanghai) Information Technology Co., Ltd.
PRC
Import-It Corp.
BVI
Yipinda (Shanghai) Health Technology Co., Ltd.
PRC
Shanghai ECMOHO Health Biotechnology Co, Ltd.
PRC
Shanghai Ranyao Marketing Technology Co., Ltd.
PRC
Jianyikang Health Technology (Shanghai) Co., Ltd.
PRC
Shanghai Tonggou Information Technology Co., Ltd.
PRC
Hangzhou Duoduo Supply Chain Management Co., Ltd.
PRC
Shanghai ECMOHO Health Technology Co., Ltd.
PRC
Yijiasancan (Shanghai) E-commerce Co., Ltd.
PRC
Variable Interest Entity
Place
of
Incorporation
Shanghai Yibo Medical Equipment Co., Ltd.
PRC
Contractual Arrangements with the Variable Interest Entity
PRC laws and regulations impose restrictions on foreign ownership and investment in, among other areas, Internet-based businesses such as
provision of online information and other value-added telecommunications services. Similar to all other entities with foreign-incorporated
holding company structures in our industry in China, we operated our Internet-based business in the PRC through our subsidiaries and the
VIE, Shanghai Yibo. To comply with PRC laws and regulations, we have entered into a series of contractual arrangements with Shanghai
Yibo, which is wholly owned by PRC citizens. In 2021, the VIE held the ICP license and other regulated licenses, although it did not operate
any Internet-based business in which foreign investment is restricted or prohibited in 2021.
Based on these contractual arrangements, we are able to:
●
exercise effective control over the variable interest entity;
●
receive substantially all of the economic benefits from the variable interest entity; and
●
have an exclusive option to purchase all or part of the equity interest in the variable interest entity when, and to the extent,
permitted by PRC law.
As a result of these contractual arrangements, we have become the primary beneficiary of the VIE under U.S. GAAP in 2021. We have
consolidated the financial results of the VIE in our consolidated financial statements in accordance with U.S. GAAP. As of December 31,
2021, the operations of the VIE were still in a preliminary stage and had immaterial impact on the consolidated financials of our business.
As described in “Item 4. Information on the Company—A. History and Development of the Company—Divestment of our interest in the XG
Health platform,” in April 2020, we divested 60% of our equity interests in Xianggui Shanghai and, thereby, terminated the contractual
arrangements with Yang Infinity, which was a variable interest entity prior to the divestment, and its wholly owned subsidiary Yinchuan
Xianggui.
The following is a summary of our contractual arrangements with Shanghai Yibo and its shareholders.
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Agreements That Allow Us to Receive Substantially All Economic Benefits from the Variable Interest Entity
Exclusive Technology Consulting and Service Agreements. Under the exclusive technology consulting and service agreement between
ECMOHO Shanghai and Shanghai Yibo, ECMOHO Shanghai has the exclusive right to provide to Shanghai Yibo consulting and services
related to, among other things, research and development, system operation, advertising, internal training and technical support. ECMOHO
Shanghai has the exclusive ownership of intellectual property rights created as a result of the performance of this agreement. In exchange,
Shanghai Yibo agrees to pay ECMOHO Shanghai an annual service fee, at an amount that is agreed by ECMOHO Shanghai. Unless
ECMOHO Shanghai provides valid notice of termination 90 days prior to the term of agreement ending, this agreement will remain effective
for 10 years to be automatically renewed for another 10 years thereafter.
Agreements That Provide Us with Effective Control over the Variable Interest Entity
Powers of Attorney. Each of the shareholders of Shanghai Yibo has executed a power of attorney to irrevocably appoint ECMOHO Shanghai
or its designated person as its attorney-in-fact to exercise all of its rights as a shareholder of Shanghai Yibo, including, but not limited to, the
right to convene and attend shareholder meetings, vote on any resolution that requires a shareholder vote, such as the appointment or
removal of directors and executive officers, and other voting rights pursuant to the then-effective articles of association of Shanghai Yibo.
Each power of attorney will remain in force for so long as the controlling shareholders remain the shareholders of Shanghai Yibo.
Equity Pledge Agreements. Pursuant to the equity pledge agreement among ECMOHO Shanghai, Shanghai Yibo, and the shareholders of
Shanghai Yibo, the shareholders pledged all of their equity interests in Shanghai Yibo to guarantee their and Shanghai Yibo’s performance of
their obligations under the contractual arrangements including the exclusive technology consulting and service agreement, the exclusive
option agreement and the power of attorney. In the event of a breach by Shanghai Yibo or its shareholders of contractual obligations under
these agreements, ECMOHO Shanghai, as pledgee, will have the right to dispose of the pledged equity interests in Shanghai Yibo. The
shareholders of Shanghai Yibo also undertake that, during the term of the equity pledge agreement, they will not dispose of the pledged
equity interests or create or allow any encumbrance on the pledged equity interests. During the term of the equity pledge agreement,
ECMOHO Shanghai has the right to receive all of the dividends and profits distributed on the pledged equity interests. The equity pledge for
the VIE has been registered with local PRC authorities.
Spousal Consent Letters. Pursuant to the spousal consent letter, each of the respective spouse of the shareholders of Shanghai Yibo,
unconditionally and irrevocably agreed that the equity interest in Shanghai Yibo held by and registered in the name of his/her spouse will be
disposed of pursuant to the equity pledge agreement, the exclusive call option agreement and the power of attorney. The spouse agreed not to
assert any rights over the equity interest in Shanghai Yibo held by his/her spouse. In addition, in the event that the spouse obtains any equity
interest in Shanghai Yibo held by his/her spouse for any reason, the spouse agreed to be bound by the contractual arrangements.
Agreements That Provide Us with the Option to Purchase the Equity Interests in the Variable Interest Entity
Exclusive Call Option Agreements. Pursuant to the exclusive call option agreement between ECMOHO Shanghai, Shanghai Yibo and its
shareholders, the shareholders of Shanghai Yibo irrevocably grant ECMOHO Shanghai an exclusive option to purchase, at its discretion, or
have its designated person to purchase, to the extent permitted under PRC law, all or part of the equity interests in Shanghai Yibo. The
purchase price shall be the lowest price permitted by applicable PRC law. In addition, Shanghai Yibo has granted ECMOHO Shanghai an
exclusive option to purchase, at its discretion, or have its designated person to purchase, to the extent permitted under PRC law, all or part of
Shanghai Yibo’s assets at the book value of such assets, or at the lowest price permitted by applicable PRC law, whichever is higher. The
shareholders of Shanghai Yibo undertake that, without our prior written consent or the prior written consent of ECMOHO Shanghai, they
may not increase or decrease the registered capital, dispose of its assets, incur any debt or guarantee liabilities, enter into any material
purchase agreements, conduct any merger, acquisition or investments, amend its articles of association or provide any loans to third parties.
The exclusive call option agreement will remain effective until all equity interest in Shanghai Yibo held by its shareholders and all assets of
Shanghai Yibo are transferred or assigned to ECMOHO Shanghai or its designated representatives.
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In the opinion of Commerce & Finance Law Offices, our PRC counsel, the ownership structure of the VIE currently does not result in any
violation of the applicable PRC laws or regulations currently in effect, and the agreements under the contractual arrangements among us, the
VIE and its shareholders are governed by PRC laws or regulations, and are currently valid, binding and enforceable in accordance with the
applicable PRC laws and regulations currently in effect, and do not result in any violation of the applicable PRC laws or regulations currently
in effect.
However, our PRC counsel, Commerce & Finance Law Offices, advised us that there are substantial uncertainties regarding the
interpretation and application of current and future PRC laws, regulations and rules 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. If the PRC government finds the agreements that establish
our Internet-based business do not comply with PRC government restrictions on foreign investment in the aforesaid business we engage in,
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” and “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in
China.”
In addition, the shareholders of the VIE, Ms. Zoe Wang and Mr. Leo Zeng, may have potential conflicts of interest with us. These
shareholders may breach, or cause the VIE to breach, or refuse to renew, the existing contractual arrangements we have with them and the
VIE, which would have a material adverse effect on our ability to effectively control the VIE and receive substantially all the economic
benefits from it. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure.”
D.
Property, Plants and Equipment
Our corporate headquarters are located in Shanghai. We also lease warehouse space in Wuhu and Hangzhou. As of December 31,
2021, we leased an aggregate of approximately 1,000 square meters of office space and an aggregate of approximately 46,000 square meters
of warehouse space. We believe that our existing properties and facilities are generally adequate for our current needs.
Item 4A.
Unresolved Staff Comments
None.
Item 5. Operating and Financial Review and Prospects
A. Operating Results
The following discussion of our financial condition and results of operations should be read together with the information included under
“Item 4. Information on the Company” and the Consolidated Financial Statements included elsewhere in this document. This discussion
includes forward-looking statements, and involves numerous risks and uncertainties, including, but not limited to, those described under
“Cautionary Note Regarding Forward-Looking Statements” and “Item 3. Key Information—D. Risk Factors.” Actual results may differ
materially from those contained in any forward-looking statements.
Overview
We are an integrated solution provider in China’s health and wellness market. We help our brand partners to grow and succeed by leveraging
integrated solutions comprising e-commerce business solutions, digital marketing services and e-commerce third-party operation
management services.
We generate revenues from product sales, and to a lesser extent, services provided primarily to brand partners. Product sales revenues are
generated through sales to consumers and to retailers, as well as sales from consignment arrangements with certain e-commerce platforms.
Services revenues primarily consist of the fixed project-based service fees we charge our brand partners value-added services, such as
marketing solutions, as well as operating commissions. Our total net revenues decreased by 7.4% from US$329.5 million in 2019 to
US$304.9 million in 2020 and further decreased by 57.1% from US$304.9 million in 2020 to US$130.7 million in 2021. Product sales
revenues represented 91.7%, 98.4% and 97.9% of our total net revenues in 2019, 2020 and 2021, respectively. Our net income/(loss)
attributable to ECMOHO Limited was US$2.3 million, US$(13.3) million and US$(55.7) million in 2019, 2020 and 2021, respectively.
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Key Factors Affecting Our Results of Operations
Our results of operations are affected by the general factors driving China’s health and wellness industry, including:
●
rising spending power and health awareness;
●
an aging population and increasing life expectancy;
●
prevalence of health issues and chronic diseases; and
●
increased demand for trustworthy health and wellness products.
Our results of operations are affected by the increasing penetration of mobile Internet and e-commerce. In addition, our results of operations
are affected by company-specific factors, including the following:
●
Our ability to expand our product and service offerings. We mainly generate our revenues by selling products to
consumers and retailers and providing services primarily to brand partners. Our ability to expand our product and service
offerings is therefore critical to the growth of our revenues.
●
Our ability to retain and attract consumers. Consumers are central to all of our sources of revenue. They purchase
products from us or from retailers with whom we have supply agreements and, through their purchases, provide us with
market insights that allow us to provide marketing solutions to our brand partners. We would need to retain existing and
attract new consumers to maintain and grow our revenues.
●
Our ability to retain and attract brand partners, retailers and content generators. Brand partners, retailers and content
generators are crucial to our ability to provide consumers with quality products and trustworthy content. See “Item 4.
Information on the Company—B. Business Overview” for additional information. We would need to continue to attract
new brand partners, retailers and content generators to grow our ecosystem and revenues.
●
Our ability to manage growth, control costs and manage working capital. Our business growth will result in substantial
demands on our management, operational, technological, financial and other resources. Our ability to control cost is key to
our success. In addition, our ability to gain better insight into inventory turnover and sales patterns, which allows us to
optimize the use of our working capital, may also affect our financial condition and results of operation.
●
Impact of COVID-19. The outbreak of COVID-19 has had certain negative impact on the overall economy of the countries
and regions where we conduct our business. We have experienced and expect to continue to experience increases in
international freight costs and disruptions to our supply chains. Additionally, our ability to enter into agreements with new
brand partners has been impacted by pandemic related restrictions on business travels. In response to the pandemic, we
have started to provide technology solutions to our brand partners, and terminated business relationships with some of our
then existing brand partners under which we were subject to less favorable terms. We are currently unable to predict with
certainty the duration and severity of the COVID-19 pandemic, and its ultimate impact on our business and results of
operations.
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Key Components of Results of Operations
Net Revenues
We generate revenues from product sales and services. Product sales revenues are generated through sales to consumers and retailers, such as
third-party e-commerce platforms as well as sales from consignment arrangements with certain e-commerce platforms. Services revenues
primarily consist of the fixed project-based service fees we charge our brand partners for our value-added services, such as designing and
running online stores and organizing offline marketing activities. We recorded revenues net of return allowances, value-added tax and sales
incentives, if any. See “Item 4. Information on the Company—B. Business Overview—Our Business Model and Services” for additional
information.
The following table sets forth the components of our net revenues for the periods indicated:
Year Ended December 31,
2019
2020
2021
Amount
% of total
Amount
% of total
Amount
% of total
(in thousands of U.S. dollars, except percentages)
Product sales
302,099
91.7 300,156
98.4 128,041
97.9
Services
27,381
8.3
4,783
1.6
2,706
2.1
Total
329,480
100.0 304,939
100.0 130,747
100.0
We expect to optimize net revenues mix as we continue to promote brand portfolio optimization and expand our channel coverage and
service offerings, along with the recovery of China’s economy in the post-COVID-19 era in 2021. Product sales revenues, as a percentage of
our total net revenues, increased from 91.7% in 2019 to 98.4% in 2020, primarily due to a decrease in revenue generated from our service
offerings, and decreased to 97.9% in 2021 due to our quality-driven growth strategy to selectively cooperate with brands demonstrating
higher profit margin, which led to a decrease in product sales revenues. Services revenues, as a percentage of our total net revenues,
decreased from 8.3% in 2019 to 1.6% in 2020 due to a slowdown in the growth of our service revenues during our service department
restructuring and upgrade process and increased from 1.6% in 2020 to 2.1% in 2021.
Cost of Revenues
Cost of revenues consists of cost of product sales and cost of services. Cost of product sales is comprised of the purchase price of the
products sourced from our brand partners, purchase rebates and inventory write-downs. Cost of services consists of (1) advertising and
promotion fees paid to third parties, and (2) employee wages and benefits, both attributable to the provision of value-added services to our
brand partners.
The following table sets forth a breakdown of our cost of revenues:
Year Ended December 31,
2019
2020
2021
Amount
% of total
Amount
% of total
Amount
% of total
(in thousands of U.S. dollars, except percentages)
Cost of product sales
242,973
94.4 242,728
98.5 121,527
99.0
Cost of services
14,458
5.6
3,572
1.5
1,222
1.0
Total
257,431
100.0 246,300
100.0 122,749
100.0
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Our cost of revenues slightly decreased from US$257.4 million in 2019 to US$246.3 million in 2020, which was primarily attributable to a
decrease in cost of services, generally in line with the decrease in our service revenues. Our cost of revenues sharply decreased from
US$246.3 million in 2020 to US$122.7 million in 2021, generally in line with the decrease in our net revenues.
Gross Profit
The following table sets forth our gross profit and gross margin for the periods indicated:
Year ended December 31,
2019
2020
2021
(in thousands of U.S. dollars, except percentages)
Gross profit
72,049
58,639
7,998
Gross margin
21.9 %
19.2 %
6.1 %
A key factor affecting our gross margin is the relative revenue contribution of product sales to certain major e-commerce platforms.
Products sold to these e-commerce platforms generate a lower gross margin due to the volume discount we offer. Our operating margin,
however, is not affected by this factor to the same degree because products sold to these e-commerce platforms incur a smaller amount of
sales and marketing expenses and fulfillment expenses per unit than products sold to other customers, which offsets the difference in unit
price. Another factor affecting our gross margin is the relative contribution of each product in our total revenue mix. We generated a larger
portion of revenue from product sales through distributors that had lower gross margins than from product sales to platforms and consumers
that had higher gross margins.
Operating Expenses
Our operating expenses consist of fulfillment expenses, sales and marketing expenses, general and administrative expenses, and research and
development expenses. The following table sets forth the components of our operating expenses for the periods indicated:
Year Ended December 31,
2019
2020
2021
Amount
% of total
Amount
% of total
Amount
% of total
(in thousands of U.S. dollars, except percentages)
Fulfillment expenses
16,957
25.2
14,399
19.9
9,239
14.4
Sales and marketing expenses
40,206
59.6
45,754
63.3
27,860
43.4
General and administrative expenses
8,497
12.6
11,037
15.3
18,759
29.2
Research and development expenses
1,808
2.7
1,105
1.5
1,052
1.7
Impairment loss on long-term investment
—
—
—
—
7,268
11.3
Other operating income
(35)
(0.1)
—
—
—
—
Total operating expenses
67,433
100.0
72,295
100.0
64,178
100.0
Fulfillment expenses primarily consist of warehousing, shipping and handling costs for dispatching and delivering products to consumers,
employee wages and benefits for the relevant personnel, and customs clearance expenses.
Sales and marketing expenses primarily consist of advertising costs for the products we offer, employee wages and benefits for our sales and
marketing staff, storefront fees paid to e-commerce platforms on which we operate and represent a pre-determined percentage of our sales
revenues on these platforms, and travel and entertainment expenses.
General and administrative expenses mainly consist of employee wages and benefits for corporate employees, rental expenses, audit and
legal fees, amortization of both intangible assets and leasehold improvement, and other corporate overhead costs.
Research and development expenses principally consist of employee wages and benefits for research and development personnel, general
expenses and depreciation expenses associated with research and development activities.
Impairment loss on long-term investment consists of impairment loss on long-term investment of Anze, a company involved in the research
and development of Chinese herbal medicine-based health and wellness products, due to reduced profit projection of Anze as a result of
negative impact of Covid-19.
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Net Income/(Loss) Attributable to ECMOHO Limited
Our net income attributable to ECMOHO Limited consists of our net income less our net income/(loss) attributable to the non-controlling
interest shareholders and redeemable non-controlling interest shareholders. Our net income/(loss) attributable to ECMOHO Limited was
US$2.3 million, US$(13.3) million and US$(55.7) million in 2019, 2020 and 2021, respectively.
Taxation
Cayman Islands
We are incorporated in the Cayman Islands. Under the current tax laws of the Cayman Islands, we are not subject to income, corporation or
capital gains tax, and no withholding tax is imposed upon the payment of dividends.
Hong Kong
Before 2019, our subsidiaries incorporated in Hong Kong were subject to Hong Kong profit tax at a rate of 16.5% on their taxable income
generated from operations in Hong Kong. Effective 2019, the applicable income tax rate was changed to 8.25% for profits of up to HK$2.0
million and 16.5% for the remainder of the taxable income. Dividends income received from subsidiaries in China are not subject to Hong
Kong profits tax.
China
Income Tax. According to the EIT Law, which was promulgated on March 16, 2007 and amended in 2017, and its implementing rules, an
income tax rate of 25% generally applies to all enterprises incorporated in the PRC. Under the EIT Law, an enterprise established outside the
PRC with “de facto management bodies” within the PRC is considered a resident enterprise for PRC enterprise income tax purposes and is
generally subject to a uniform 25% enterprise income tax rate on its worldwide income. Although we believe that none of our entities outside
of China is a PRC resident enterprise for PRC tax purposes, PRC income tax at a rate of 25% would generally be applicable to our
worldwide income if we were to be considered a PRC resident enterprise.
Dividend Withholding Tax. According to the EIT Law and its implementation rules, the profits of a foreign-invested enterprise arising in
2008 and thereafter that are distributed to its immediate holding company outside the PRC are subject to withholding tax at a rate of 10%,
but a lower withholding tax rate may be applied if there is a beneficial tax treaty between the PRC and the jurisdiction of the foreign holding
company. A holding company in Hong Kong, for example, will be eligible, with approval of the PRC local tax authority, to a 5%
withholding tax rate under the Double Tax Avoidance Arrangement, if such holding company is considered a non-PRC resident enterprise
and holds at least 25% of the equity interests in the PRC foreign-invested enterprise distributing the dividends. However, the PRC tax
authorities will review preferential tax treatment and grant such treatment on a case-by-case basis. Therefore, if such Hong Kong holding
company is not considered the beneficial owner of such dividends under applicable PRC tax regulations, such dividend will remain subject
to withholding tax at a rate of 10%.
Value-Added Tax. Since April 1, 2019, our product sales revenues have been subject to value-added tax at a rate ranging from 9% to 13%.
Our services revenues are subject to value-added tax at a rate of 6%. We are also subject to surcharges on value-added tax payments in
accordance with PRC law. See “Item 4. Information on the Company—B. Business Overview—Regulations—Regulations Relating to
Taxation—Value-added tax” for details.
Non-GAAP Measures
We use the following non-GAAP performance indicators to monitor financial performance: adjusted operating income/(loss) and adjusted
net income/(loss).
We use adjusted operating income/(loss) and adjusted net income/(loss), each a non-GAAP financial measure, in evaluating our operating
results and for financial and operational decision-making purposes. Adjusted operating income/(loss) represents operating income/(loss)
excluding share-based compensation expenses, severance expenses and impairment loss on long-term investment. Adjusted net
income/(loss) represents net income/(loss) excluding share-based compensation expenses, severance expenses and impairment loss on long-
term investment. These adjustments have no impact on income tax.
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We believe that adjusted operating income/(loss) and adjusted net income/(loss) help identify underlying trends in our business that could
otherwise be distorted by the effect of certain expenses that we include in operating income and net income. We also believe that adjusted
operating income and adjusted net income provide useful information about our operating results, enhance the overall understanding of our
past performance and future prospects and allow for greater visibility with respect to key metrics used by our management in its financial
and operational decision-making.
Year Ended December 31,
2019
2020
2021
(unaudited)
(in thousands of U.S. dollars)
Adjusted operating income/(loss)
6,191
(13,181)
(45,800)
Adjusted net income/(loss)
3,510
(13,010)
(45,305)
The non-GAAP financial measures are not defined under U.S. GAAP and are not presented in accordance with U.S. GAAP. They should not
be considered in isolation or construed as alternatives to net loss or any other measure of performance or as an indicator of our operating
performance. Investors are encouraged to review the historical non-GAAP financial measures in light of the most directly comparable GAAP
measures, as shown below. The non-GAAP financial measures presented here may not be comparable to similarly titled measures presented
by other companies. Other companies may calculate similarly titled measures differently, limiting their usefulness as comparative measures
to our data. We encourage investors and others to review our financial information in its entirety and not rely on a single financial measure.
The table sets forth a reconciliation of our adjusted operating income/(loss) and adjusted net income/(loss) in the years presented to the most
directly comparable financial measures calculated and presented in accordance with U.S. GAAP, which are operating income/(loss) and net
income/(loss):
Year Ended December 31,
2019
2020
2021
(unaudited)
(in thousands of U.S. dollars)
Operating income/(loss)
4,616 (13,656) (56,180)
Add: share-based compensation expenses
1,575
475
2,552
severance expenses
—
—
560
Impairment loss on long-term investment
—
—
7,268
Adjusted operating income/(loss)
6,191
(13,181)
(45,800)
Net income/(loss)
1,935
(13,485)
(55,685)
Add: share-based compensation expenses
1,575
475
2,552
severance expenses
—
—
560
Impairment loss on long-term investment
—
—
7,268
Adjusted net income/(loss)
3,510
(13,010)
(45,305)
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83
Results of Operations
The following table sets forth a summary of our consolidated results of operations for the periods presented, both in absolute terms and as a
percentage of our total net revenues for the periods presented. This information should be read together with our consolidated financial
statements and related notes included elsewhere in this annual report on Form 20-F. The results of operations in any period are not
necessarily indicative of our future results of operations or future trends that may impact those results.
Year Ended December 31,
2019
2020
2021
% of total
% of total
% of total
Amount
net revenues
Amount
net revenues
Amount
net revenues
(in thousands of U.S. dollars, except percentages)
Net Revenues
Product sales
302,099
91.7
300,156
98.4
128,041
97.9
Services
27,381
8.3
4,783
1.6
2,706
2.1
Total net revenues
329,480
100.0
304,939
100.0
130,747
100.0
Total cost of revenue
(257,431)
(78.1)
(246,300)
(80.8)
(122,749)
(93.9)
Gross profit
72,049
21.9
58,639
19.2
7,998
6.1
Operating expenses:
Fulfillment expenses
(16,957)
(5.1)
(14,398)
(4.7)
(9,239)
(7.1)
Sales and marketing expenses
(40,206)
(12.2)
(45,754)
(15.0)
(27,860)
(21.3)
General and administrative expenses
(8,497)
(2.6)
(11,037)
(3.6)
(18,759)
(14.3)
Research and development expenses
(1,808)
(0.5)
(1,106)
(0.4)
(1,052)
(0.8)
Impairment loss on long-term investment
—
—
—
—
(7,268)
(5.6)
Other operating income
35
0.0
—
—
—
—
Total operating expenses
(67,433)
(20.5)
(72,295)
(23.7)
(64,178)
(49.1)
Operating income/(loss)
4,616
1.4
(13,656)
(4.5)
(56,180)
(43.0)
Finance expenses, net
(2,513)
(0.8)
(2,615)
(0.9)
(1,884)
(1.4)
Foreign exchange gain/(loss), net
(393)
(0.1)
979
0.3
(861)
(0.6)
Other income, net
475
0.1
1,800
0.6
306
0.2
Income/(loss) before income tax expenses
2,185
0.7
(13,492)
(4.4)
(58,619)
(44.8)
Income taxes expenses
(250)
(0.1)
7
0.0
2,934
2.2
Net income/(loss)
1,935
0.6
(13,485)
(4.4)
(55,685)
(42.6)
Net income(loss) attributable to ECMOHO Limited
2,297
0.7
(13,299)
(4.4)
(55,655)
(42.6)
Year Ended December 31, 2021 Compared to Year Ended December 31, 2020
Net Revenues
Our net revenues were US$130.7 million in 2021, representing a decrease of 57.1% from US$304.9 million in 2020. The decrease in total
net revenues was primarily due to a 57.3% decrease in products revenues from US$300.2 million in 2020 to US$128.0 million in 2021,
representing a decrease in the revenues from sales of mother and child care products from US$118.7 million in 2020 to US$49.7 million in
2021, and a decrease in the revenues from sales of health supplements and food products from US$138.3 million in 2020 to US$71.4 million
in 2021. The decrease in product sales revenues was mainly due to (1) our quality-driven growth strategy to optimize our brand portfolio and
(2) a weakened demand for mother and child care products partly due to the negative news coverage regarding Gerber in 2021. The decrease
in total net revenues was also attributable to a 43.4% decrease in services revenues from US$4.8 million in 2020 to US$2.7 million in 2021,
primarily due to the decline of services provided for outbound brands.
Cost of Revenues
Our cost of revenues decreased by 50.2% from US$246.3 million in 2020 to US$122.7 million in 2021, primarily representing a decrease in
cost of products sales from US$242.7 million in 2020 to US$121.5 million in 2021, in line with the decrease in our product sales revenues,
partially offset by an increase in inventories write-down recorded in cost of product sales from US$0.5 million in 2020 to US$4.6 million in
2021, primarily due to a larger amount of inventories expiring in 2021 as compared to those in 2020.
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Gross Profit
As a result of the foregoing, our gross profit declined by 86.4% from US$58.6 million in 2020 to US$8.0 million in 2021. Our gross margin
declined from 19.2% in 2020 to 6.1% in 2021, primarily due to the higher revenue contribution of product sales through distributors that had
lower gross margins than the revenue contribution of product sales to platforms and consumers that had higher gross margins.
Operating Expenses
Our total operating expenses decreased by 11.2% from US$72.3 million in 2020 to US$64.2 million in 2021, generally in line with the
decrease in our net revenues. Our operating expenses as a percentage of total net revenues increased from 23.7% in 2020 to 49.1% in 2021.
Fulfillment Expenses. Our fulfillment expenses decreased by 35.8% from US$14.4 million in 2020 to US$9.2 million in 2021, primarily due
to a decrease in warehouse expenses and logistics expenses as a result of lower product sales volume in 2021. As a percentage of total net
revenues, our fulfillment expenses increased from 4.7% in 2020 to 7.1% in 2021, primarily due to the decline of sales revenue.
Sales and Marketing Expenses. Our sales and marketing expenses decreased by 39.1% from US$45.8 million in 2020 to US$27.9 million in
2021. The decrease was primarily due to (1) a 39.4% decrease in advertising costs from US$24.2 million in 2020 to US$14.7 million in 2021
as a result of the decrease in the number of brand partners and the resulting decrease in our promotional events, and (2) a 65.9% decrease in
storefront fees paid to e-commerce platforms from US$5.1 million in 2020 to US$1.7 million in 2021 in line with the decline of our sales
revenues generated from these platforms and (3) a 26.6% decrease in employee-related expenses from US$13.6 million in 2020 to US$10.0
million in 2021 due to our efforts to optimize workforce. As a percentage of total net revenues, our sales and marketing expenses increased
from 15.0% in 2020 to 21.3% in 2021, primarily due to the decline of sales revenue.
General and Administrative Expenses. Our general and administrative expenses increased by 70.0% from US$11.0 million in 2020 to
US$18.8 million in 2021. The increase was primarily due to (1) an increase in bad debt expenses from US$(0.05) million in 2020 to US$8.0
million in 2021 in relation to our account receivables, other receivables, advance payment, and impairment of long-term fixed assets, and (2)
an increase in share based compensation expenses from US$0.2 million in 2020 to US$0.9 million in 2021, primarily due to the increased
shares granted to our employees for their outstanding performance, partially offset by a decrease in other miscellaneous expenses, such as
professional fees and liability insurances. As a percentage of total net revenues, our general and administrative expenses increased from
3.6% in 2020 to 14.3% in 2021.
Research and Development Expenses. Our research and development expenses remained relatively stable at US$1.1 million in 2020 and
2021, respectively. As a percentage of total net revenues, our research and development expenses increased from 0.4% in 2020 to 0.8% in
2021.
Impairment loss on long-term investment. Our impairment of long-term investment increased from nil in 2020 to US$7.3 million in 2021.
The increase was due to the record of full impairment on long-term investment of Anze in 2021. Our impairment loss on long-term
investment accounted for 5.6% of our total net revenues in 2021.
Other Operating Income. We did not have other operating income in 2020 and 2021.
Operating Loss
As a result of the foregoing, we recorded operating loss of US$56.2 million in 2021 as compared to operating loss of US$13.7 million in
2020.
Our operating margin, defined as our operating loss divided by our total net revenues, decreased from (4.5)% in 2020 to (43.0)% in 2021.
The decrease in our operating margin was primarily due to the decrease in gross profit and an increase in operating expenses as a percentage
of total net revenues.
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Finance Expenses, Net
Our finance expenses decreased from US$2.6 million in 2020 to US$1.9 million in 2021 primarily due to a decrease in our interest expenses.
We incurred lower interest expenses in 2021 due to the decrease in loans that we borrowed from financial institutions in 2021. Our
outstanding loans were repaid as of December 31, 2021, leading to lower loan balance as of December 31, 2021 than that as of December 31,
2020.
Foreign Exchange Gains/(Loss), Net
We recorded foreign exchange loss of US$0.9 million in 2021, as compared to foreign exchange gain of US$1.0 million in 2020, due to
depreciation of Renminbi against U.S. dollar in 2021 as opposed to appreciation of Renminbi against U.S. dollar in 2020.
Other Income, Net
Our other income decreased to US$0.3 million in 2021 from US$1.8 million in 2020, primarily due to the decrease in government grant
received in 2021 as we received government grants of US$1.8 million in connection with our successful listing in the U.S. in 2020.
Income Tax Benefits
Our income tax benefits increased significantly from US$6.5 thousand in 2020 to US$2.9 million in 2021, primarily due to an increase in
deferred tax benefit as result of increase in net operating losses.
Net Loss
As a result of the foregoing, we recorded net loss of US$55.7 million in 2021 as compared to net loss of US$13.5 million in 2020.
Net Loss attributable to ECMOHO Limited
We recorded net loss attributable to ECMOHO Limited of US$55.7 million in 2021 as compared to net loss attributable to ECMOHO
Limited of US$13.3 million in 2020.
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
Net Revenues
Our net revenues totaled US$304.9 million in 2020, representing a decrease of 7.4% from US$329.5 million in 2019. The decrease in total
net revenues was primarily due to an 82.6% decrease in service revenues from US$27.4 million in 2019 to US$4.8 million in 2020. Our net
revenues generated from product sales remained relatively stable in 2020 as compared to 2019, with a decrease in the sales of mother and
child care products from US$131.9 million in 2019 to US$118.7 million in 2020, offset by an increase in the sales of health supplements and
food products from US$117.0 million in 2019 and to US$138.3 million in 2020. The decrease in our net revenues generated from services
was mainly due to a slowdown in the growth of our service revenues during our service department restructuring and upgrade process.
Cost of Revenues
Our cost of revenues decreased by 4.3% from US$257.4 million in 2019 to US$246.3 million in 2020. The decrease was in-line with the
decrease of our net revenues, and was mainly driven by a decrease in cost of services from US$14.5 million in 2019 to US$3.6 million in
2020, in line with the decrease in our service revenues.
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Gross Profit
As a result of the foregoing, our gross profit declined by 18.6% from US$72.1 million in 2019 to US$58.6 million in 2020. Our gross margin
declined from 21.9% in 2019 to 19.2% in 2020, primarily as a result of (1) lower-margin products, including food and personal care
products, representing a larger proportion of our total net revenues, and (2) the higher contribution of product sales through platforms and
distributors that had lower gross margins compared with product sales to consumers.
Operating Expenses
Our total operating expenses increased by 7.2% from US$67.5 million in 2019 to US$72.3 million in 2020. Our operating expenses as a
percentage of total net revenues increased from 20.5% in 2019 to 23.7% in 2020.
Fulfillment Expenses. Our fulfillment expenses decreased by 15.1% from US$17.0 million in 2019 to US$14.4 million in 2020. The decrease
was primarily due to a 19.3% decrease in logistic expense as we experienced (1 a decrease in the number of product shipments in line with
our decreased revenues in 2020, and (2) lower unit expenses that we paid to third-party logistics providers. As a percentage of total net
revenues, our fulfillment expenses decreased from 5.2% in 2019 to 4.7% in 2020.
Sales and Marketing Expenses. Our sales and marketing expenses increased by 13.8% from US$40.2 million in 2019 to US$45.8 million in
2020. The increase was primarily due to (1) a 34.8% increase in advertising costs from US$18.0 million in 2019 to US$24.2 million in 2020
as we launched more promotional events to market our products, and (2) a 12.8% increase in storefront fees paid to e-commerce platforms
from US$4.5 million in 2019 to US$5.1 million in 2020 in line with the growth of our sales revenues on these platforms. As a percentage of
total net revenues, our sales and marketing expenses increased from 12.2% in 2019 to 15.0% in 2020.
General and Administrative Expenses. Our general and administrative expenses increased by 29.9% from US$8.5 million in 2019 to
US$11.0 million in 2020. The increase was primarily due to (1) a significant increase in professional service fees from US$2.6 million in
2019 to US$5.7 million in 2020 in relation to our consulting, audit and legal service expenses, and (2) insurance expense of US$0.9 million
in 2020 as we purchased liability insurances for our directors and officers, offset by an 82.3% decrease in share-based compensation from
US$1.2 million in 2019 to US$0.2 million in 2020, as an increasing amount of the vesting value of our employees’ restricted shares unit was
amortized in 2019 as compared to 2020. As a percentage of total net revenues, our general and administrative expenses increased from 2.6%
in 2019 to 3.6% in 2020.
Research and Development Expenses. Our research and development expenses decreased by 38.9% from US$1.8 million in 2019 to US$1.0
million in 2020. The decrease was primarily due to a 41.1% decrease in employee wages and benefits for our research and development
personnel from US$1.7 million in 2019 to US$1.1 million in 2020 as we cut down our spending on research and development projects due to
the COVID-19 in 2020. As a percentage of total net revenues, our research and development expenses decreased from 0.5% in 2019 to 0.4%
in 2020.
Other Operating Income. We recorded nil in other operating income in 2020.
Operating Income/(Loss)
As a result of the foregoing, we recorded operating loss of US$13.7 million in 2020 as compared to operating income of US$4.6 million in
2019.
Our operating margin, defined as our operating income/(loss) divided by our total net revenues, decreased from 1.4% in 2019 to (4.5)% in
2020. The decrease in our operating margin was primarily due to the decrease in gross profit and an increase in operating expenses as a
percentage of total net revenues.
Finance Expenses, Net
Our finance expenses slightly increased from US$2.5 million in 2019 to US$2.6 million in 2020 primarily due to an increase in our interest
expenses. We incurred higher interest expenses in 2020 due to increased loans we borrowed from financial institutions in 2020. Our
outstanding loans were repaid as of December 31, 2020, leading to lower loan balance as of December 31, 2020 than that as of December 31,
2019.
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Foreign Exchange Gains/(Loss), Net
We recorded foreign exchange gain of US$1.0 million in 2020, as compared to foreign exchange losses of US$0.4 million in 2019, due to
appreciation of RMB against U.S. dollar when paying our vendors in U.S. dollar in 2020 as opposed to depreciation of RMB against U.S.
dollar in 2019.
Other Income, Net
Our other income increased significantly to US$1.8 million in 2020, to US$475.2 thousand in 2019. The increase was primarily due to
government grants of US$1.8 million that we received in connection with our successful listing in the U.S.
Income Tax (Expenses)/Benefits
We recorded income tax benefits of US$6.5 thousand in 2020 as compared to income tax expenses of US$250.0 thousand in 2019, primarily
due to a decrease in the profits recorded by our subsidiaries.
Net Income/(Loss)
As a result of the foregoing, we recorded net loss of US$13.5 million in 2020 as compared to net income of US$1.9 million in 2019.
Net Income/(Loss) attributable to ECMOHO Limited
We recorded net loss attributable to ECMOHO Limited of US$13.3 million in 2020 as compared to net income attributable to ECMOHO
Limited of US$2.3 million in 2019.
B. Liquidity and Capital Resources
We have financed our operations primarily through proceeds from offering of equity securities and debt financing in the form of short-term
borrowings and loans from related parties. As of December 31, 2021, we had cash and cash equivalents of US$43.6 million, short-term
borrowings of US$10.3 million and total working capital of US$23.2 million. As of December 31, 2021, 7.6% of our cash and cash
equivalents was held in PRC, including US$9.6 thousand held by the VIE. For details of the restrictions and limitations on liquidity and
capital resources as a result of our corporate structure, see “— A. Operating Results—Holding Company Structure.” In 2021, we obtained
loan proceeds of US$30.6 million from bank and third-party borrowings and made repayments of US$37.3 million.
In assessing our liquidity position, we monitor and analyze our cash on hand and operating and capital expenditure commitments. We expect
that our cash on hand is sufficient to finance our working capital requirements within the twelve-month period from the date of this annual
report. If we are unable to finance the working capital requirements with cash on hand and cash generated from operating activities, we may
have to consider the following options to supplement our available funds:
•
we will continuously seek equity financing to support our working capital;
•
we will seek other available sources of financing from PRC banks and other financial institutions; and
•
we will seek financial support and credit guarantee commitments from our related parties.
Our management is of the opinion that we have sufficient funds to meet our working capital requirements and current liabilities as they
become due within the twelve-month period from the date of this annual report. However, there is no assurance that we will be secure
additional equity or debt financing in a timely manner and at commercially reasonable terms, or at all. There are a number of factors that
could potentially arise and undermine our ability to secure sufficient working capital, such as changes in the demand for our products,
adverse development in regulatory policy over our business operation and/or our industry, prolonged economic downturns, and increasingly
intensive competition in our industry.
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In utilizing the cash that we hold offshore, we may (1) make additional capital contributions to our PRC subsidiaries, (2) establish new PRC
subsidiaries and make capital contributions to these new PRC subsidiaries, (4) make loans to our PRC subsidiaries, or (4) acquire/invest in
offshore entities with business operations in China in offshore transactions. However, most of these uses are subject to PRC regulations
and/or approvals. For example, loans by us to our PRC subsidiaries, which are foreign-invested enterprise, to finance their activities cannot
exceed statutory limits and must be registered with SAFE or its local branches. See “Item 4. Information on the Company—B. Business
Overview—Regulations— Regulations Relating to Foreign Exchange.”
A substantial portion of our future revenues are likely to continue to be in the form of RMB. Under existing PRC foreign exchange
regulations, payments of current account items, including profit distributions, interest payments and trade and service-related foreign
exchange transactions, can be made in foreign currencies without prior SAFE approval as long as certain routine procedural requirements are
fulfilled. Therefore, our PRC subsidiaries are allowed to pay dividends in foreign currencies to us without prior SAFE approval by following
certain routine procedural requirements. However, approval from or registration with competent government authorities is required where the
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. The PRC government may at its discretion restrict access to foreign currencies for current account transactions in the
future. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China— Restrictions on currency exchange
may limit our ability to utilize our revenue effectively.”
The following table sets forth a summary of our cash flows for the periods indicated:
Year Ended December 31,
2019
2020
2021
(in thousands of U.S. dollars)
Net cash (used in)/provided by operating activities
(14,189)
21,601
4,079
Net cash used in investing activities
(813)
(6,644)
(1,074)
Net cash provided by/(used in) financing activities
54,337
(22,786)
(718)
Cash, cash equivalents and restricted cash at beginning of the year
12,965
51,099
45,284
Cash, cash equivalents and restricted cash at end of the year
51,099
45,284
43,624
Operating Activities
Net cash provided by operating activities in 2021 was US$4.1 million, which reflects our net loss of US$55.7 million, as adjusted for the
effects of the changes in operating assets and liabilities, and non-cash items. In 2021, the principal items accounting for changes in operating
assets and liabilities were (1) a decrease of US$6.9 million in inventories as a result of better inventory management, (2) a decrease of
US$2.7 million in prepayments and other current assets as we realized more of prepayments and current assets, (3) a decrease of US$21.8
million in our accounts receivable primarily due to the collection of outstanding balances, (4) an increase of US$10.3 million in accounts
payable primarily due to increased purchases from vendors, and (5) an increase of US$0.2 million in advance from customers, partially offset
by (i) a decrease of US$0.5 million in tax payable, (ii) a decrease of US$0.9 million in operating lease liabilities as we made regular our
lease payment, (iii) a decrease of US$1.9 million in accrued liabilities and other current liabilities primarily due to the decreased payables for
service procurement in connection with service revenue , (iv) a decrease of US$0.9 million in amounts due to related parties, and (v) a
decrease of US$68 thousand in salary and welfare payable. Adjustment for non-cash items primarily consisted of (a) amortization of right-
of-use asset and interest of lease liabilities of US$1.1 million, (b) depreciation and amortization expense of US$1.1 million, (c) inventory
write-down of US$4.6 million, (d) share-based compensation of US$2.6 million, (e) impairment loss on long-term investments of US$7.3
million, (f) impairment loss on fixed assets of US$0.5 million, (g) provision for allowance of doubtful accounts of US$7.6 million, and (h)
deferred tax benefits of 3.1 million.
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Net cash provided by operating activities in 2020 was US$21.6 million, which reflects our net loss of US$13.5 million, as adjusted for the
effects of the changes in operating assets and liabilities, and non-cash items. In 2020, the principal items accounting for changes in operating
assets and liabilities were (1) a decrease of US$15.2 million in inventories as a result of better inventory management, (2) a decrease of
US$13.1 million in prepayments and other current assets as we realized more of prepayments and current assets, (3) a decrease of US$10.0
million in our accounts receivable primarily due to the collection of outstanding balances, (4) an increase of US$0.4 million in tax payable,
and (5) an increase of US$0.2 million in salary and welfare payable, partially offset by (i) a decrease of US$2.4 million in accounts payable
primarily due to the better management of our business, (ii) a decrease of US$1.9 million in operating lease liabilities as we paid off our
lease payment regularly, (iii) a decrease of US$1.7 million in accrued liabilities and other current liabilities, (iv) a decrease of US$0.7
million in amounts due to related parties, and (v) a decrease of US$0.3 million in advance from customers. Adjustment for non-cash items
primarily consisted of (a) amortization of right-of-use asset and interest of lease liabilities of US$1.5 million, (b) depreciation and
amortization expense of US$0.8 million, (c) inventory write-down of US$0.5 million and (d) share-based compensation of US$0.5 million.
Net cash used in operating activities in 2019 was US$14.2 million, which reflects our net income of US$1.9 million, as adjusted for the
effects of the changes in operating assets and liabilities and non-cash items. In 2019, the principal items accounting for changes in operating
assets and liabilities were (1) an increase of US$17.2 million in our accounts receivable primarily due to the growth of sales to platforms and
distributors and (2) an increase of US$11.0 million in prepayments and other current assets and partially, offset by (i) an increase of US$4.5
million in accrued liabilities and other current liabilities, (ii) a decrease of US$2.5 million in inventory as a result of better inventory
management, and (iii) an increase of US$3.6 million in accounts payable primarily due to the growth of our business. Adjustment for non-
cash items primarily consisted of (a) amortization of right-of-use asset and interest of lease liabilities of US$1.6 million, (b) share-based
compensation of US$1.6 million, (c) inventory write-down of US$1.2 million and (d) depreciation and amortization expense of US$996.7
thousand.
Investing Activities
Net cash used in investing activities in 2021 was US$1.1 million, primarily consisting of (1) US$1.5 million incurred in purchases of long-
term investments, (2) releases of US$6 thousand cash held at disposal entities, and (3) US$0.2 million in payments for software procurement,
and (4) US$0.1 million in purchases of property and equipment, partially offset by (i) proceeds from disposal of property and equipment of
US$7.7 thousand, (ii) US$0.6 million for repayment from long-term investments investee, and (iii) US$1.5 thousand for loss from sale of
equity interests in subsidiaries.
Net cash used in investing activities in 2020 was US$6.6 million, primarily consisting of (1) US$5.9 million incurred in purchases of long-
term investments, (2) US$0.6 million for loan to long-term investments investee, (3) releases of US$0.6 million cash held at disposal entities,
(4) US$0.1 million in payments for software procurement, and (5) US$0.1 million in purchases of property and equipment, partially offset
by, (i) proceeds from sale of equity interests in subsidiaries of US$0.7 million and (ii) proceeds from disposal of property and equipment of
US$0.1 million.
Net cash used in investing activities in 2019 was US$813.0 thousand, consisting of (1) US$557.6 thousand incurred in purchases of property
and equipment and (2) payments of US$255.4 thousand for software procurement.
Financing Activities
Net cash used in financing activities in 2021 was US$0.7 million, primarily consisting of (1) repayments of borrowings of US$37.3 million,
(2) repayment of advances to related parties of US$3.2 million, and (3) repayment of borrowings from related parties of US$1.0 million,
partially offset by (i) proceeds from borrowings of US$30.6 million, (ii) proceeds from advances from related parties of US$2.2 million, and
(iii) proceed from offering, net of US$8.1 million.
Net cash used in financing activities in 2020 was US$22.8 million, primarily consisting of (1) repayments of borrowings of US$122.7
million, (2) repayment of advances to related parties of US$5.2 million, (3) cash payments of US$3.1 million for acquisition of redeemable
non-controlling interests , and (4) repayment of borrowings from related parties of US$0.6 million, partially offset by (i) proceeds from
borrowings of US$105.0 million, and (ii) proceeds from advances from related parties of US$3.4 million.
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90
Net cash provided by financing activities in 2019 was US$54.3 million, primarily consisting of (1) proceeds from borrowings of US$50.4
million, (2) net proceeds from issuance of ordinary shares of US$35.0 million, (3) advances from related parties of US$9.4 million,
representing interest-free advances form Ms. Zoe Wang and Mr. Leo Zeng and their immediate family members and (4) cash consideration
of US$9.3 million for subscription of shares in our company from the shareholders of ECMOHO Shanghai in connection with our corporate
restructuring and (5) proceeds from borrowings of US$4.0 million from related parties, partially offset by (i) repayments of borrowings of
US$37.3 million, (ii) repayment of advances to related parties of US$10.6 million and (iii) cash payments of US$4.3 million for acquisition
of equity interests of ECMOHO Shanghai from Ms. Zoe Wang and Mr. Leo Zeng in connection with our corporate restructuring. For details
of our corporate restructuring, see Note 1(b) to our consolidated financial statements included elsewhere in this annual report on Form 20-F.
For details of our related party transactions, see “Item 7. Major Shareholders and Related Party Transactions-B. Related Party Transactions”
and Note 27 to our consolidated financial statements included elsewhere in this annual report.
Capital Expenditures
We made capital expenditures of US$813.0 thousand, US$260.0 thousand and US$274.0 thousand in 2019, 2020 and 2021, respectively,
primarily in relation to purchases of office and warehouse equipment, leasehold improvement and software.
Holding Company Structure
ECMOHO Limited is a holding company with no material operations of its own. ECMOHO Limited is a Cayman Islands holding company,
which does not have any substantive operations other than (1) directly controlling our subsidiaries in Hong Kong and China, which conduct
our health and wellness business operations in China, and (2) indirectly controlling Shanghai Yibo, the variable interest entity, which holds
an ICP license but does not have any substantial operations in China. As a result, ECMOHO Limited’s ability to pay dividends or otherwise
fund and conduct its business 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, our wholly foreign-owned subsidiaries in China are permitted to pay dividends to us only out of their retained earnings, if any, as
determined in accordance with their articles of association and PRC accounting standards and regulations. Under PRC law, each of our
subsidiaries and the VIE 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, our wholly foreign-owned subsidiaries in China and the VIE
may allocate a portion of their after-tax profits based on PRC accounting standards to a discretionary surplus fund at their 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.
Under PRC laws and regulations, as an offshore holding company, we are only permitted to provide funding to our PRC subsidiaries through
loans or capital contributions, and to the VIE through loans, and such funding is subject to applicable government registration and approval
requirements in China. As a result, there is uncertainty with respect to our ability to provide prompt financial support to our PRC subsidiaries
and VIE, when needed. Notwithstanding the foregoing, our PRC subsidiaries may use their own retained earnings (rather than Renminbi
converted from foreign currency denominated capital) to provide financial support to the VIE either through entrustment loans from our PRC
subsidiaries or direct loans to the VIE’s nominee shareholders, which would be contributed to the VIE as capital injections. Such direct loans
to the nominee shareholders would be eliminated in our consolidated financial statements against the VIE’s share capital.
Financial Information Related to the VIE
The following tables present the condensed consolidating schedule of financial information for ECMOHO Limited, or the Parent, the VIE
and the non-variable interest entities for the periods and as of the dates presented.
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91
Selected Condensed Consolidated Balance Sheets Data
As of December 31, 2021
VIE
Non-VIE
Intercompany
Group
Parent
Consolidated
Consolidated
Elimination
Consolidated
Total current assets
94,816,987
21,171
37,685,391
(45,396,457)
87,127,092
Total non-current assets
—
—
6,427,344
—
6,427,344
Total assets
94,816,987
21,171
44,112,735
(45,396,457)
93,554,436
Total current liabilities
17,925,800
228,386
91,133,939
(45,396,457)
63,891,668
Deficit of investments in subsidiaries
47,974,799
—
—
(47,974,799)
—
Other non-current liabilities
—
—
776,142
—
776,142
Total liabilities
65,900,599
228,386
91,910,081
(93,371,256)
64,667,810
Total equity/(deficit)
28,916,388
(207,215) (47,797,346)
47,974,799
28,886,626
As of December 31, 2020
VIE
Non-VIE
Intercompany
Group
Parent
Consolidated*
Consolidated
Elimination
Consolidated
Total current assets
77,427,435
16,749
88,662,124
(35,707,030)
130,399,278
Investments in subsidiaries
10,671,658
—
—
(10,671,658)
—
Other non-current assets
—
—
12,228,631
—
12,228,631
Total assets
88,099,093
16,749
100,890,755
(46,378,688)
142,627,909
Total current liabilities
8,291,419
127,769
88,398,508
(35,707,030)
61,110,666
Other non-current liabilities
—
—
1,963,569
—
1,963,569
Total liabilities
8,291,419
127,769
90,362,077
(35,707,030)
63,074,235
Total equity/(deficit)
79,807,674
(111,020)
10,528,678
(10,671,658)
79,553,674
*include Yang Infinity, our former variable entity in China, which was deconsolidated in April 2020.
Selected Condensed Consolidated Statements of Operations and Comprehensive (Loss)/Income Data
Year Ended December 31, 2021
VIE
Non-VIE
Intercompany
Group
Parent
Consolidated
Consolidated
Elimination
Consolidated
Net revenues
—
—
130,746,560
—
130,746,560
Cost of revenues
—
—
(122,748,704)
—
(122,748,704)
Operating expenses
(3,831,129)
(92,573)
(60,254,182)
—
(64,177,884)
Loss from operations
(3,831,129)
(92,573)
(52,256,326)
—
(56,180,028)
Equity in income of subsidiaries and VIEs
(52,045,068)
—
—
52,045,068
—
Other income/(expense), net
220,999
76
273,936
—
495,011
Net profit/(loss)
(55,655,198)
(92,497)
(51,982,390)
52,045,068
(55,685,017)
Year Ended December 31, 2020
VIEs
Non-VIE
Intercompany
Group
Parent
Consolidated*
Consolidated
Elimination
Consolidated
Net revenues
—
66,612
304,872,153
—
304,938,765
Cost of revenues
—
(51,828)
(246,247,798)
—
(246,299,626)
Operating expenses
(1,801,055)
(162,170)
(70,331,605)
—
(72,294,830)
Loss from operations
(1,801,055)
(147,386)
(11,707,250)
—
(13,655,691)
Equity in income of subsidiaries and VIEs
(11,336,812)
—
—
11,336,812
—
Other income/(expense), net
(161,045)
(14,506)
346,090
—
170,539
Net profit/(loss)
(13,298,912)
(161,892)
(11,361,160)
11,336,812
(13,485,152)
*include Yang Infinity, our former variable entity in China, which was deconsolidated in April 2020.
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92
Year Ended December 31, 2019
VIEs
Non-VIE
Intercompany
Group
Parent
Consolidated*
Consolidated
Elimination
Consolidated
Net revenues
—
29,122
329,450,794
—
329,479,916
Cost of revenues
—
(29,048)
(257,402,026)
—
(257,431,074)
Operating expenses
(616,906)
(545,162)
(66,270,630)
—
(67,432,698)
Loss from operations
(616,906)
(545,088)
5,778,138
—
4,616,144
Equity in income of subsidiaries and VIEs
2,601,704
—
—
(2,601,704)
—
Other income/(expense), net
—
135
(2,681,381)
—
(2,681,246)
Net profit/(loss)
1,984,798
(544,953)
3,096,757
(2,601,704)
1,934,898
*include Yang Infinity, our former variable entity in China, which was deconsolidated in April 2020.
Selected Condensed Consolidated Cash Flows Data
Year Ended December 31, 2021
VIE
Non-VIE
Intercompany
Group
Parent
Consolidated
Consolidated Elimination
Consolidated
Net cash (used in) provided by operating activities
(10,306,884)
3,884 14,381,545
— 4,078,545
Net cash (used in) provided by investing activities
—
— (1,074,088)
— (1,074,088)
Net cash (used in) provided by financing activities
7,785,477
— (8,503,615)
—
(718,138)
Effect of exchange rate changes
(3,947,039)
— (3,947,039)
Net increase (decrease) in cash and cash equivalents
(2,521,407)
3,884
856,803
— (1,660,720)
Year Ended December 31, 2020
VIEs
Non-VIE
Intercompany
Group
Parent
Consolidated*
Consolidated
Elimination
Consolidated
Net cash (used in) provided by operating activities
(8,381,595)
763 29,981,549
—
21,600,717
Net cash (used in) provided by investing activities
—
—
(6,643,839)
—
(6,643,839)
Net cash (used in) provided by financing activities
80,767
(25,636) (22,841,299)
— (22,786,168)
Effect of exchange rate changes
—
—
2,014,703
—
2,014,703
Net increase/(decrease) in cash and cash equivalents
(8,300,828)
(24,873)
2,511,114
—
(5,814,587)
*include Yang Infinity, our former variable entity in China, which was deconsolidated in April 2020.
Year Ended December 31, 2019
VIEs
Non-VIE
Intercompany
Group
Parent
Consolidated*
Consolidated
Elimination
Consolidated
Net cash (used in) provided by operating activities
(567,446)
(434,616) (13,186,883)
— (14,188,945)
Net cash (used in) provided by investing activities
(10,502,538)
—
9,689,531
—
(813,007)
Net cash (used in) provided by financing activities
54,872,326
484,980 (1,020,250)
—
54,337,056
Effect of exchange rate changes
—
— (1,201,068)
—
(1,201,068)
Net increase (decrease) in cash and cash equivalents
43,802,342
50,364 (5,718,670)
—
38,134,036
*include Yang Infinity, our former variable entity in China, which was deconsolidated in April 2020.
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Off-balance Sheet Arrangements
We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any unconsolidated third
parties. In addition, we have not entered into any derivative contracts that are indexed to our shares and classified as shareholders’ 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. Moreover, 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.
Contractual Obligations
The following table summarizes payments due under significant contractual commitments as of December 31, 2021:
Payments Due by Period
2022
2023
2024
2025
2026
Total
(in thousands of U.S. dollars)
Operating lease obligations
458.6 266.4 273.9 281.5
— 1,280.4
Our operating lease commitments relate to our corporate offices and warehouses.
Other than the above, we did not have any significant purchase commitments, capital commitments or other long-term liabilities as of
December 31, 2021.
C. Research and Development, Patents and Licenses
See “Item 4. Information on the Company—B. Business Overview—Technology” and “Item 4. Information on the Company—B. Business
Overview—Intellectual Property.”
D. Trend Information
Other than as disclosed elsewhere in this annual report on Form 20-F, and in particular other than the impact of the COVID-19 pandemic, we
are not aware of any trends, uncertainties, demands, commitments or events for the year ended December 31, 2021, that are reasonably likely
to have a material and adverse effect on our total net revenues, income, profitability, liquidity or capital resources, or that would cause the
reported financial information to not necessarily be indicative of future results of operations or financial conditions.
E. Critical Accounting Estimate
We prepare our financial statements in conformity with U.S. GAAP, which requires us to make judgments, estimates and assumptions. We
continually evaluate these estimates and assumptions based on the most recently available information, our own historical experience and
various other assumptions that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of
the financial reporting process, actual results could differ from our expectations as a result of changes in our estimates. Some of our
accounting policies require a higher degree of judgment than others in their application and require us to make significant accounting
estimates.
Our principal accounting policies are set forth in Note 2 to our consolidated financial statements included elsewhere in this annual report on
Form 20-F. We have identified the following accounting policies as the most critical to an understanding of our financial position and results
of operations, because the application of these policies requires significant and complex management estimates, assumptions and judgment,
and the reporting of materially different amounts could result if different estimates or assumptions were used or different judgments were
made. When reviewing our financial statements, you should consider (1) our selection of critical accounting policies, (2) the judgments and
other uncertainties affecting the application of such policies, and (3) the sensitivity of reported results to changes in conditions and
assumptions.
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Revenue Recognition
We adopted ASC 2014-09 and its amendments (together, “ASC 606”) for all periods presented. According to ASC 606, revenue is
recognized when control of the promised good or service is transferred to the customers, in an amount that reflects the consideration we
expect to be entitled to in exchange for those goods or services. We follow five steps in revenue recognition: (i) identify the contract(s) with
a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to
the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation.
Our revenues are derived from (i) product sales and (ii) providing services including online store operating services, promotion and
marketing services primarily to our brand partners and certain other brand customers.
When either party to a contract has performed, we present the contract on the consolidated balance sheet as a contract asset or a contract
liability, depending on the relationship between the entity’s performance and the customer’s payment. A receivable is recorded when we
have an unconditional right to consideration. A right to consideration is unconditional if only the passage of time is required before payment
of that consideration is due. A contract asset is recorded when we have transferred products to the customer before payment is received or is
due, and our right to consideration is conditional on future performance or other factors in the contract.
If we recognize a receivable before we transfer products to the customer, we will defer revenue recognition, which is also defined as a
contract liability under the new revenue guidance. A contract liability is recorded when our obligation to transfer goods or services to a
customer has not yet occurred but we have received consideration from the customer. We present such amounts as advances from customers
on the consolidated balance sheet.
Product sales
We select, purchase and obtain direct control of the goods from our brand partners and/or their authorized distributors and sells goods
directly to end consumers through online stores we operate or to secondary distributors in accordance with distribution agreements.
Revenue is recognized when consumers or secondary distributors physically accept the products after delivery, which is when the control of
products is transferred, and is recorded net of return allowances, value-added tax and sales incentives, if any.
A majority of our consumers make online payments through third-party payment platforms when they place orders on our online stores. The
funds will not be released to us by these third-party payment platforms until the consumers accept the products on the online platform.
Shipping and handling charges paid by customers are included in net revenues. We typically do not charge shipping fees on orders exceeding
a certain sale amount. Shipping and handling costs incurred by us are considered to be fulfillment activities which are presented as part of
our operating expenses.
Product sales consignment arrangement
We also enter into arrangement with online platforms, where we retain control over the goods until a sale is made to the end consumer. We
consider the arrangement meet the indicators of consignment arrangement under ASC 606-10-55-80, because (i) we do not relinquish control
of the products, even though the online platform has physical possession of the goods. The products are considered to be our own inventory
until they are sold to the end consumers; (ii) we retain the right to require the return of the goods held with the online platform; (iii) the
online platforms have no obligation to pay for the products that are in its physical possession.
Revenue under consignment arrangements is recognized when a sale is made to the end customer and control is transferred to the end
customer upon their acceptance in accordance with the sales report provided by the online platforms. Such revenues reflect the consideration
paid by end consumers and do not take into account the sales commissions we pay to the relevant online platform, which are recorded as
sales and marketing expenses.
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Services
We offer our brand partners and certain other customers marketing solutions tailored to their needs and charge fixed project-based fees,
including designing and operating online stores, running online promotional events, organizing online and offline marketing campaigns
featuring social media influencers and circulating marketing messages to end-consumers.
For services provided to customers, depending on the terms of the contract and the laws that apply to the contract, control of the services
may be transferred over time or at a point in time. Control of the services is transferred over time if our performance:
●
provides all of the benefits received and consumed simultaneously by the customer;
●
creates and enhances an asset that the customer controls as we perform; or
●
does not create an asset with an alternative use to us and we have an enforceable right to payment for performance
completed to date.
If control of the services transfers over time, revenue is recognized over the period of the contract by reference to the progress towards
complete satisfaction of that performance obligation. Otherwise, revenue is recognized at a point in time when the customer obtains control
of services.
With respect to our marketing services, the length of the periods over which services are provided is generally within months, we recognize
such revenues when service is rendered and a service report is delivered to the customer, which marks the time when control of the service
output has passed to the customer.
Consideration from our brand partners is considered to be in exchange for distinct services that we transfer to the brand partner, as
(i) services provided to brand partners can be sufficiently separable from our procurement of products from those brand partners,
(ii) consideration from the brand partner represents the standalone selling price of such services, and (iii) the fees do not represent
reimbursement of costs incurred by us to sell the brand partner’s products. We account for the service in the same way that it accounts for
sales to other customers and revenues generated from these service arrangements are recognized on a gross basis and presented as services
revenue on the consolidated statements of operations and comprehensive income/(loss).
Practical expedients and exemption
Upon the election of the practical expedient under ASC 340-40-25-4, the incremental costs of obtaining a contract are expensed when
incurred if the amortization period of the asset that the entity otherwise would have recognized is one year or less.
Since there is no difference between the amount of promised consideration and the price of our products or services, and the actual length of
time between our transfer of products or services to our customers and the payment for those products or services is less than one year, we
have concluded that there is no significant financing component in place within our product sales or service arrangements as a practical
expedient in accordance with ASC 606-10-32-18.
Revenue recognition for products sales and services does not require us to exercise significant judgment or estimate.
Sales returns
We generally offer consumers an unconditional right of return for a period of seven days upon receipt of products. We also offer certain
retailers various rights of return after the acceptance of products. Return allowances, which reduce revenue and costs of sales, are estimated
by categories of return policies offered to consumers and retailers, based on our historical data and subject to adjustments to the extent that
actual returns differ or are expected to differ.
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Sales incentives
We provide sales rebates to certain third-party online platforms/secondary distributors based on their purchase volume, which are accounted
for as variable consideration. We estimate these amounts based on the expected amount to be provided to the third-party online
platforms/secondary distributors considering the contracted rebate rates and estimated sales volume based on significant management
judgments according to historical experience such as the likelihood of reaching the purchase thresholds and sales forecasts, and account for it
as a reduction of the transaction price.
Inventories
Inventories are stated at the lower of cost or net realizable value. Cost is determined using the weighted average method. Provisions are made
for excessive, slow moving, expired and obsolete inventories as well as for inventories with carrying values in excess of net realizable value.
Certain factors could impact the realizable value of inventory, so we continually evaluate the recoverability based on assumptions about
customer demand and market conditions. The evaluation may take into consideration historical usage, inventory aging, expiration date,
expected demand, anticipated sales price, new product development schedules, the effect new products might have on the sale of existing
products, product obsolescence, customer concentrations, and other factors. The reserve or write-down is equal to the difference between the
cost of inventory and the estimated net realizable value based upon assumptions about future demand and market conditions. If actual market
conditions are less favorable than those projected by management, additional inventory reserves or write-downs may be required that could
negatively impact our gross margin and operating results. If actual market conditions are more favorable, we may have higher gross margin
when products that have been previously reserved or written down are eventually sold.
Income taxes
Current income taxes are provided on the basis of net income for financial reporting purposes, adjusted for income and expense items which
are not assessable or deductible for income tax purposes, in accordance with the regulations of the relevant tax jurisdictions.
Deferred income taxes are accounted for using an asset and liability method. Under this method, deferred income taxes are recognized for
the tax consequences of temporary differences by applying enacted statutory rates applicable to future years to differences between the
financial statement carrying amounts and the tax bases of existing assets and liabilities. The tax base of an asset or liability is the amount
attributed to that asset or liability for tax purposes. The effect on deferred taxes of a change in tax rates is recognized in the consolidated
statements of operations and comprehensive income/(loss) in the period of change. A valuation allowance is provided to reduce the amount
of deferred tax assets if it is considered more likely than not that some portion of, or all of, the deferred tax assets will not be realized.
Share-based compensation
Share-based compensation expenses are measured at the grant date and categorized as either sales and marketing expenses or general and
administrative expenses, depending on the job functions of the grantees.
For the restricted share units granted with service conditions, compensation expense is recognized using the straight-line method over the
requisite service period. Forfeitures are estimated at the time of grant, with such estimate updated periodically and with actual forfeitures
recognized currently to the extent they differ from the estimate.
For the restricted share units granted with performance conditions whose vesting is contingent upon meeting company-wide performance
goals, compensation expenses are recognized using graded vesting method over the requisite service period in accordance with ASC 718 and
will be adjusted for subsequent changes in the expected outcome of the performance-vesting condition. For the restricted share units granted
with service conditions and the occurrence of an initial public offering as a performance condition, cumulative share-based compensation
expenses for the options that have satisfied the service condition will be recorded upon the completion of the initial public offering, using the
graded vesting method.
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For the restricted share units granted with market conditions whose vesting is contingent on the company’s market value exceeding a specific
amount, Monte Carlo simulation has been applied to determine the fair value and requisite service period, and the corresponding
compensation expense is recognized using the straight-line method over the estimated requisite service period unless the market condition is
satisfied before the end of the initially estimated requisite service period.
Starting from November 2019 upon completion of our IPO, we are a publicly traded company with observable price in the U.S
stock exchange market to determine the fair value and requisite service period.
Item 6.Directors, Senior Management and Employees
A. Directors and Senior Management
The following table sets forth certain information concerning our directors and executive officers.
Name*
Age
Position
Zoe Wang
42 Co-Founder, Chairman & Chief Executive Officer, Director
Leo Zeng
46 Co-Founder, Chief Operating Officer & Acting Chief Financial Officer, Director
Daniel Wang
35 General Manager – New Business, Director
Grace Fu
41 Independent Director
Yuan Fang
51 Independent Director
Zoe Wang currently serves as our Chairwoman, Chief Executive Officer and a director of our board of directors. Prior to taking on this role,
Ms. Wang had 19 years’ experience in marketing and e-commerce retail management with companies such as Shanghai Pingchengjingjie
Advertising Co. Ltd. and Shanghai Yiheng Advertising Co. Ltd. Ms. Wang holds an associate degree in traditional Chinese medicine from
Wuhu College of Traditional Chinese Medicine and a business qualification from Changjiang Business School. Ms. Wang is the spouse of
Mr. Leo Zeng and the sister of Mr. Daniel Wang.
Leo Zeng currently serves as our Chief Operating Officer, Acting Chief Financial Officer and a director of our board of directors. Mr. Zeng
has extensive experience in sales and marketing over 16 years in multiple industries. Mr. Zeng also has broad managerial skills, gained from
his time as a co-founder and general manager of Hydrotech Marine & Offshore Technology Co. Ltd. Mr. Zeng holds a bachelor’s degree in
marine engineering management from Dalian Maritime University, and a master’s degree of business administration from Fudan University.
Mr. Zeng is the spouse of Ms. Zoe Wang and the brother-in-law of Mr. Daniel Wang.
Daniel Wang currently serves as our General Manager – New Business and a director of our board of directors. Mr. Wang has served in
various leadership roles since the founding of our company. He is currently in charge of our health supplements and food division, household
healthcare equipment division, global business development and the management of new business. Mr. Wang has over ten years of
experience in e-commerce and retail operations, and over eight years of experience in e-commerce management. Mr. Wang holds a
bachelor’s degree in engineering management from Tongling University.
Grace Fu currently serves as an Independent Director on our board of directors. Ms. Fu has extensive experience in investment and
management. Ms. Fu is currently a vice president at CID Group Ltd. and a deputy dean of the CID Research Institute. Prior to joining CID
Group Ltd., Ms. Fu served as an investment manager at The Omni-Power Co., Ltd. Ms. Fu holds a bachelor’s degree in architecture from
Shanghai Jiaotong University, a master’s degree in architectural design and theory from Shanghai Jiaotong University, and an EMBA degree
from Antai College of Economics and Management at Shanghai Jiaotong University.
Yuan Fang currently serves as an Independent Director of our board of directors. Mr. Fang has over 10 years of experiences in venture
capital investment, operation management and investment banking. Mr. Yuan Fang joined Delta Capital in late 2014 and has been leading
Delta Capital’s investments in technology and consumer services areas. Prior to joining Delta Capital, Mr. Yuan Fang worked in Matrix
Partners China, WI Harper Group, SK China Holding Co. Ltd., and BNP Paribas. Mr. Yuan Fang also gained valuable experiences from
working as a key founding member in start-up companies. Mr. Yuan Fang received a master’s degree from College Des Ingenieurs in Paris,
and an MBA and two bachelor’s degrees from Tsinghua University in Beijing.
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98
B. Compensation
In 2021, the aggregate cash compensation to our executive officers and directors was RMB1.3 million (US$0.2 million). Each of the officers
and directors is entitled to reimbursement for all necessary and reasonable expenses properly incurred in the course of employment. We have
not set aside or accrued any amount to provide pension, retirement or other similar benefits to our executive officers and directors. Our PRC
subsidiaries and the VIE are required by law to make contributions in amounts equal to certain percentages of each employee’s salary,
including bonuses and allowances, for his or her pension insurance, medical insurance, unemployment insurance and other statutory benefits
and a housing provident fund.
Employment Agreements and Indemnification Agreements
We have entered into employment agreements with our senior executive officers. Pursuant to these agreements, we are entitled to terminate a
senior executive officer’s employment for cause at any time without remuneration for certain acts of the officer, such as being convicted of
any criminal conduct, any act of gross or willful misconduct or any serious, willful, grossly negligent or persistent breach of any employment
agreement provision, or engaging in any conduct which may make the continued employment of such officer detrimental to our company.
Neither we nor our subsidiaries provide benefits to senior executive officers upon termination of service.
In connection with the employment agreements, each senior executive officer agrees to hold all information, know-how and records in any
way connected with the products of our company, including, without limitation, all software and computer formulas, designs, specifications,
drawings, data, manuals and instructions and all customer and supplier lists, sales and financial information, business plans and forecasts, all
technical solutions and the trade secrets of our company, in strict confidence perpetually. Each officer also agrees that we shall own all the
intellectual property developed by such officer during his or her employment.
We have entered into indemnification agreements with each of our directors and executive officers. Under these agreements, we agree to
indemnify them against certain liabilities and to reimburse them for expenses in connection with claims made by reason of their being a
director or officer of our company.
Share Incentive Plans
2018 Omnibus Incentive Plan
On September 30, 2018, we adopted our 2018 Omnibus Incentive Plan, or the 2018 Plan, to promote our success and the interests of our
shareholders by providing a means through which we may grant equity-based incentives to attract, motivate, retain and reward certain
officers, employees, directors, consultants and other eligible persons to further link the interests of recipients with those of our shareholders
generally. We granted restricted share units under the 2018 Plan to our employees and directors. Under the 2018 Plan, a total of 11,386,410
Class A ordinary shares were initially reserved for issuance. As of May 11, 2022, restricted share units representing a total of 9,808,405
Class A ordinary shares were issued to our officers and employees and remain outstanding under the 2018 Plan.
The following paragraphs summarize the terms of the 2018 Plan.
Types of Awards. The 2018 Plan permits the grant of restricted shares, restricted share units, options and stock appreciation rights.
Plan Administration. The 2018 Plan is administered by our board of directors or by a committee designated by our board of directors. The
committee or the full board of directors, as applicable, 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.
Award Agreement. Generally, awards granted under the 2018 Plan are evidenced by an award agreement that sets forth terms, conditions and
limitations for each award, which must be consistent with the plan.
Exercise Price. The plan administrator determines the exercise price for each award, which is stated in the award agreement.
Eligibility. We may grant awards only to those persons that the plan administrator determines to be eligible persons, which may include our
employees, directors and consultants.
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99
Term of the Awards. The term of each award granted under the 2018 Plan may not exceed ten years from the date of the grant.
Vesting Schedule. In general, the plan administrator determines the vesting schedule, which is set forth in the award agreement.
Acceleration of Awards upon Change in Control. The plan administrator may determine, at the time of grant or thereafter, that an award will
become vested and exercisable, in full or in part, in the event that a change in control of our company occurs.
Transfer Restrictions. Awards may not be transferred in any manner by the recipient other than by will or the laws of descent and
distribution, except as otherwise provided by the plan administrator.
Termination. The 2018 Plan is valid and effective for a term of 10 years commencing from its adoption.
2021 Omnibus Incentive Plan
On May 19, 2021, we adopted our 2021 Omnibus Incentive Plan, or the 2021 Plan, to attract and retain the best available personnel, provide
additional incentives to employees, directors and consultants and promote the success of our business. We may grant options, restricted
shares, restricted share units and other equity-based awards under the 2021 Plan to our employees, directors and consultants. Under the 2021
Plan, a total of 14,471,750 Class A ordinary shares were initially reserved for issuance. As of May 11, 2022, restricted share units
representing a total of 2,260,000 Class A ordinary shares were issued to our officers and employees and remain outstanding under the 2021
Plan.
The following paragraphs summarize the terms of the 2021 Plan.
Types of Awards. The 2021 Plan permits the grant of restricted shares, restricted share units, options, dividend equivalent rights and other
stock-based awards.
Plan Administration. The 2021 Plan is administered by our board of directors or by a committee designated by our board of directors. The
committee or the full board of directors, as applicable, 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.
Award Agreement. Generally, awards granted under the 2021 Plan are evidenced by an award agreement that sets forth terms, conditions and
limitations for each award, which must be consistent with the plan.
Exercise Price. The plan administrator determines the exercise price for each award, which is stated in the award agreement.
Eligibility. We may grant awards only to those persons that the plan administrator determines to be eligible persons, which may include our
employees, directors and consultants.
Term of the Awards. The term of each award granted under the 2021 Plan may not exceed ten years from the date of the grant.
Vesting Schedule. In general, the plan administrator determines the vesting schedule, which is set forth in the award agreement.
Acceleration of Awards upon Change in Control. The plan administrator may determine, at the time of grant or thereafter, that an award will
become vested and exercisable, in full or in part, in the event that a change in control of our company occurs.
Transfer Restrictions. Awards may not be transferred in any manner by the recipient other than by will or the laws of descent and
distribution, except as otherwise provided by the plan administrator.
Termination. The 2021 Plan is valid and effective for a term of 10 years commencing from its adoption.
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The following table summarizes, as of May 11, 2022, the outstanding restricted share units granted to our executive officers, directors and
other individuals as a group under our 2018 and 2021 Plan.
Class A Ordinary
Shares Underlying
Restricted Share
Name
Units Granted
Date of Grant
Zoe Wang
—
—
Leo Zeng
—
—
Daniel Wang
1,706,260
October 1, 2020-June 1, 2021
Grace Fu
120,000
July 1, 2021-
Other individuals as a group
10,242,145
September 30, 2018-December 31, 2021
Total
12,068,405
C. Board practices
Board of Directors
Our board of directors consists of five directors. A director is not required to hold any shares in our company by way of qualification. A
director who is not a shareholder of our company shall nevertheless be entitled to attend and speak at general meetings of shareholders. A
director may vote with respect to any contract or transaction or proposed contract or transaction in which he is interested provided (1) such
director, if his such interest is material, has declared the nature of his interest at a meeting of the board and (2) his vote is not otherwise
disqualified by the chairman of the relevant board meeting, pursuant to any applicable rules and regulations as a result of listing of our ADSs
or shares on the Nasdaq Stock Market or pursuant to other corporate governance requirements adopted by the board from time to time. The
Directors may exercise all the powers of the company to borrow money and to mortgage or charge its undertaking, property and uncalled
capital or any part thereof, or to otherwise provide for a security interest to be taken in such undertaking, property or uncalled capital, and to
issue debentures, debenture stock and other securities whenever money is borrowed or as security for any debt, liability or obligation of the
company or of any third party. Pursuant to the service contracts between our company and our directors, neither we nor our subsidiaries
provide benefits to non-executive directors 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. As a foreign private issuer, we are permitted under the Nasdaq Stock Market Rules to follow home country
corporate governance practices. We rely on these exemptions provided by the Nasdaq Stock Market Rules to foreign private issuers. For
example, we do not (1) have a majority of the board be independent; (2) have a compensation committee or a nominating and corporate
governance committee consisting entirely of independent directors; or (iii) have an audit committee be composed of at least three members.
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 Mr. Yuan Fang, who is also the Chair, and Ms. Grace Fu. Both Mr. Fang and Ms. Fu
satisfy 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, as amended.
We have determined that Mr. Fang 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 registered public accounting firm, pre-approving all auditing and non-auditing services
permitted to be performed by the independent registered public accounting firm and reviewing the performance of the
independent registered public accounting firm;
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●
reviewing with the independent registered public accounting firm any audit problems or difficulties and management’s
response;
●
discussing the annual audited financial statements with management and the independent registered public accounting
firm;
●
reviewing major issues as to the adequacy and effectiveness of our internal controls and any special audit steps adopted in
light of material control deficiencies;
●
annually reviewing and reassessing the adequacy of our audit committee charter and recommend any proposed changes to
the board for approval;
●
meeting separately and periodically with management and the independent registered public accounting firm;
●
monitoring compliance with our code of business conduct;
●
reviewing and approving all proposed related party transactions; and
●
reporting regularly to the board.
Compensation Committee. Our compensation committee consists of Ms. Zoe Wang, who also acts as the Chair of the committee, Mr. Leo
Zeng and Ms. Grace Fu. Ms. Fu 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 company’s compensation and employee benefit plans and
practices, including its executive compensation plans. Our chief executive officer may not be present at any committee meeting during which
his compensation is deliberated. The compensation committee is responsible for, among other things:
●
reviewing and approving the compensation for our executive officers;
●
reviewing the compensation of our non-employee directors; and
●
periodically reviewing and approving any general compensation and employee benefit plans, and making recommendation
to the board as necessary.
Nominating and Corporate Governance Committee. Our nominating and corporate governance committee consists of Ms. Grace Fu, who
also acts as the Chair of the committee, Mr. Yuan Fang, Ms. Zoe Wang and Mr. Leo Zeng. Both Ms. Fu and Mr. Fang satisfy 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 identifying 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:
●
identifying, recruiting and, if appropriate, interviewing candidates to fill positions on our board of directors;
●
reviewing annually with the board the current composition of the board with regards to characteristics such as
independence, knowledge, experience, skills, expertise 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.
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Qualification
There is no requirement for our directors to own any shares in our company in order for them to qualify as directors.
Duties of Directors
Under Cayman Islands law, our directors have a duty of loyalty to act honestly in good faith with a view to our best interests. Our directors
also have a duty to exercise the skill they actually possess and such care and diligence that a reasonably prudent person would exercise in
comparable circumstances. In fulfilling their duty of care to us, our directors must ensure compliance with our memorandum and articles of
association. Our company has the right to seek damages if a duty owed by our directors is breached.
Term of Directors
Pursuant to our memorandum and articles of association currently in effect, our directors are not subject to a term of office and hold office
until their resignation, death or removal in accordance with our memorandum and articles of association.
A director will be removed from office if, among other things, the director (1) becomes bankrupt or makes any arrangement or composition
with his creditors; (2) dies or is found to be or becomes of unsound mind; or (3) is prohibited by any applicable law or designated stock
exchange rules from being a director.
Our directors may be appointed, in the event of filling a vacancy or adding any director to the existing board, by the affirmative vote of a
majority of the directors then in office or the sole remaining director, or by the affirmative vote of at least a majority of the total voting power
of the outstanding shares of our company entitled to vote in any annual election of directors or class of directors, voting together as a single
class. In other circumstances, our directors may be appointed by our shareholders through ordinary resolutions.
D. Employees
We had a total of 677, 455 and 300 full-time employees as of December 31, 2019, 2020 and 2021, respectively. Substantially all of our full-
time employees are based in China.
The following table sets forth a breakdown of our employees by function as of December 31, 2021:
Function
Number
Fulfillment
37
Sales and marketing
199
General and administrative
45
Research and development
19
Total
300
As required by laws and regulations in China, we participate in various employee social security plans that are organized by municipal and
provincial governments including, among other things, pension, medical insurance, unemployment insurance, maternity insurance, on-the-
job injury insurance and housing fund plans through a PRC government-mandated benefit contribution plan. 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 agreements and confidentiality agreements or clauses with our senior management and core
personnel. These agreements include a standard non-compete covenant that prohibits the employee from competing with us, directly or
indirectly, during his or her employment and for six months after termination of his or her employment.
We believe that we maintain a good working relationship with our employees, and we have not experienced any material labor disputes.
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103
E. Share Ownership
The following table sets forth information as of May 11, 2022 with respect to the beneficial ownership of our ordinary shares by (i) each of
our directors and officers and (ii) each person known to us to own beneficially 5.0% or more of our ordinary shares as a single class. The
total number of ordinary shares outstanding as of May 11, 2022 is 197,937,499, comprising 138,581,883 Class A ordinary shares and
59,355,616 Class B ordinary shares but excludes ordinary shares issuable upon the exercise of outstanding share options, vested but not yet
issued restricted shares and ordinary shares reserved for future issuance under our share incentive plans.
Class A ordinary shares
Class B ordinary shares
% of
% of
Aggregate
Aggregate
Voting
Shareholding
Power
Number
%*
Number
%**
***
****
Directors and Executive Officers:†
Zoe Wang(1)
638,106
0.5
37,575,200
63.3
19.3
51.4
Leo Zeng(2)
—
—
21,780,416
36.7
11.0
29.7
Yuan Fang
—
—
—
—
—
—
Daniel Wang
1,706,260
1.2
—
—
0.9
0.2
Grace Fu
120,000
0.1
—
—
0.1
—
All our Directors and Executive Officers as a group
2,464,366
1.8
59,355,616
100.0
31.3
81.3
Principal Shareholders:
Zoe Wang(1)
638,106
37,575,200
63.3
19.3
51.4
Leo Zeng(2)
—
21,780,416
36.7
11.0
29.7
Notes:
†
Except as otherwise indicated below, the business address of our directors and executive officers is 5th Floor, 909 Tianyaoqiao
Road, Xuhui District, Shanghai, China.
*
For each person or group included in this column, percentage ownership is calculated by dividing the number of Class A ordinary
shares beneficially owned by such person or group by the sum of the total number of Class A ordinary shares outstanding as of May
11, 2022, being 138,581,883.
**
For each person or group included in this column, percentage ownership is calculated by dividing the number of Class B ordinary
shares beneficially owned by such person or group by the sum of the total number of Class B ordinary shares outstanding as of May
11, 2022, being 59,355,616.
***
For each person or group included in this column, percentage of aggregate shareholding is calculated by dividing the number of
shares beneficially owned by such person or group by the total number of shares outstanding, assuming conversion of all of our
Class B ordinary shares into Class A ordinary shares. Our Class B ordinary shares are convertible at any time by the holders thereof
into Class A ordinary shares on a share-for-share basis. Class A ordinary shares are not convertible into Class B ordinary shares at
any time.
****
For each person or group included in this column, percentage of aggregate voting power is calculated by dividing the number of
ordinary shares beneficially owned by such person or group by the voting power of all of our outstanding ordinary shares, assuming
conversion of all of our Class B ordinary shares into Class A ordinary shares. Each holder of Class A ordinary shares is entitled to
one vote per Class A ordinary share. Each holder of Class B ordinary shares is entitled to ten votes per Class B ordinary share. Our
Class B ordinary shares are convertible at any time by the holders thereof into Class A ordinary shares on a share-for-share basis.
(1)
Represents 638,106 Class A ordinary shares and 37,575,200 Class B ordinary shares held by Behealth Limited, a British Virgin
Islands company wholly owned by Ms. Zoe Wang. The registered office address of Behealth Limited is c/o Sertus Incorporations
(BVI) Limited Sertus Chambers, P.O. Box 905, Quastisky Building, Road Town, Tortola, British Virgin Islands.
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104
(2)
Represents 21,780,416 Class B ordinary shares held by Uhealth Limited, a British Virgin Islands company wholly owned by Leo
Zeng. The registered office address of Uhealth Limited is c/o Sertus Incorporations (BVI) Limited Sertus Chambers, P.O. Box 905,
Quastisky Building, Road Town, Tortola, British Virgin Islands.
Item 7. Major Shareholders and Related Party Transactions
A. Major Shareholders
See “Item 6. Directors, Senior Management and Employees—E. Share Ownership.”
To our knowledge, as of May 11, 2022, a total of 115,037,596 Class A ordinary shares, representing approximately 83.0% of our total
outstanding Class A ordinary shares, were held by one recorded shareholder in the United States, which is Citibank, N.A., the depositary of
our ADS program. The number of beneficial owners of our ADSs in the United States is much larger than the one record holder 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.
B. Related Party Transactions
As of December 31,
2019
2020
2021
US$
US$
US$
Balance amount with related parties
Payables due to related parties
(5,511,642)
(708)
(125,164)
Borrowings from and interests due to related parties
(10,721,819)
(9,400,000) (8,410,000)
Accounts payable – related parties
(3,045)
(118,183)
Year Ended December 31,
2019
2020
2021
US$
US$
US$
Transaction with related parties
Repayment of advances to related parties
(10,593,662)
(5,214,261)
(3,232,578)
Proceeds of advances from related parties
9,436,151
3,409,587
2,186,806
Proceeds of borrowings from related parties
6,000,000
10,000,000
11,000,000
Repayment of borrowings from related parties
(2,000,000)
(10,600,000)
(11,990,000)
Reimbursement to related parties
331,956
292,736
47,880
Product sales to related parties
—
264,824
2,115,290
Purchases from related parties
—
6,560
268,009
Proceeds from sale of equity interests in subsidiaries
—
710,392
—
Sale consideration from sale of equity interests in a subsidiary offset with amounts due to
related parties
—
652,401
—
Gain from sale of equity interests in subsidiaries to related parties recognized to additional
paid-in capital
—
1,950,871
—
Transactions with our co-founders
We have drawn down interest free advances from our co-founders and certain of their affiliates to fund our working capital from time to
time, which amounted to US$9.4 million, US$3.4 million and US$2.2 million in 2019, 2020 and 2021, respectively. As of December 31,
2019, 2020 and 2021, payables due to these related parties amounted to US$5.5 million, US$708 and US$125,164, respectively. As of the
date of this annual report on Form 20-F, payables due to these related parties amount to US$7.1 million.
Transactions with Techlong International Investments Limited In September and October 2017, we entered into loan agreements with
the principal amounts of US$1.5 million and US$1.5 million from Techlong International Investments Limited, a company under the
common control with CID Greater China Fund V, L.P., for business development and general corporate purposes. The loan agreement
provides with an interest rate of 6% per annum and shall be repaid upon the borrower’s request.
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In April 2018, we entered into an additional loan agreement with principal amount of US$3.0 million from Techlong International
Investments Limited for business development and general corporate purposes. The loan agreement provides with an interest rate of 6% per
annum and shall be repaid upon the borrower’s request.
In November 2019, we entered into additional loan agreements with principal amount of US$2.0 million from Techlong International
Investments Limited for business development and general corporate purposes. The loan agreement provides with an interest rate of 8% per
annum and shall be repaid upon the borrower’s request.
In May 2020, we entered into supplementary loan agreements with Techlong International Investments Limited, pursuant to which Techlong
International Investments Limited agreed to, with respect to their existing loans to us, waive certain interests thereon and adjust the
repayment schedule. In addition, Mr. Zeng has agreed to enter into certain share charges with Techlong International Investments Limited in
respect of 4,000,000 Class B ordinary shares to guarantee our payment obligations under our loan agreements with Techlong International
Investments Limited.
In February 2021, we entered into a supplementary loan agreement with Techlong International Investments Limited, pursuant to which the
borrower agreed to, with respect to its existing loans to us, extend to us an additional principal amount of US$1.0 million to be due on May
31, 2021 with an annual interest rate of 8.0%.
As of the date of this annual report on Form 20-F, the aggregate principal and interest outstanding under the aforementioned loan agreements
with Techlong International Investments Limited is US$6.4 million.
Transactions with Xianggui Shanghai
On May 6, 2021, Shanghai Tonggou Information Technology Co., Ltd., our wholly owned subsidiary in the PRC (“Shanghai Tonggou”),
entered into a cooperation framework agreement with Xianggui Shanghai. Pursuant to the cooperation framework agreement, Shanghai
Tonggou and its affiliate companies shall grant to Xianggui Shanghai and its affiliate companies the operation and distribution rights of
certain brand products of Shanghai Tonggou and its affiliate companies, provided that Shanghai Tonggou and its affiliate companies shall
have received proper authorization from such brand partners. The relevant cooperation period, fees and other arrangements shall be governed
by further written agreements to be entered into among Shanghai Tonggou and Xianggui Shanghai, and their respective affiliate companies.
Xianggui Health Management, an entity then controlled by our co-founders, holds 60% of Xianggui Shanghai’s equity interests, and our
director, Daniel Wang holds 40% of Xianggui Shanghai’s equity interests. As such, Shanghai Tonggou and Xianggui Shanghai may be
deemed to be under common control of our co-founders, Ms. Wang and Mr. Zeng, at the time of entering into the cooperation framework
agreement. As of December 31, 2021, Xianggui Shanghai was 100% controlled by Xianggui Health Management, an entity controlled by
our director, Daniel Wang and his wife.
Divestment of equity interest in Shanghai Juyi
On September 2, 2021, Yijiasancan Shanghai entered into a share transfer agreement with a director of the board of directors, Daniel Wang,
and an employee of our company. Prior to the share transfer, Yijiasancan Shanghai held 100% of equity interest of Shanghai Juyi
Information Technology Co., Ltd., or Shanghai Juyi. Pursuant to the share transfer agreement, Yijiasancan Shanghai transferred, for nil
consideration, (1) 70% of equity interests of Shanghai Juyi to Daniel Wang and (2) 20% of equity interests of Shanghai Juyi to an employee
of our company.
Our decision to disinvest Shanghai Juyi is to restructure its operating entities and improve its operating results in the e-commerce health and
wellness industry, and in light of the continuous loss incurred by Shanghai Juyi. We evaluated and determined that the divestment of
Shanghai Juyi did not constitute a strategic shift that has had or will have a material effect on our business operations and financial results.
Therefore, the results of operations relating to Shanghai Juyi were not reported as discontinued operations under the guidance of Accounting
Standards Codification 205.
Investors Rights Agreement and Registration Rights
We entered into the investors rights agreement, or the Investors Rights Agreement, on August 7, 2018 with our shareholders, which consist
of holders of ordinary shares and holders of preferred shares.
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The Investors Rights Agreement provides for certain special rights, including right of first offer, right of first refusal, co-sale rights, drag-
along rights, preemptive rights and contains provisions governing the board of directors and other corporate governance matters. Those
special rights, as well as the corporate governance provisions, automatically terminated when we became subject to the periodic reporting
requirements of Sections 12(g) or 15(d) of the Exchange Act.
Pursuant to the Investors Rights 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. Upon the request of holders of at least 25% or more of the issued and outstanding registrable securities (on an
as converted basis), the shareholders have the right to demand in writing that we file a registration statement covering the outstanding shares
of the company requested by the shareholders to be covered by the registration statement. We are obliged to use our reasonable efforts to file
such registration statement within 120 days after receipt of the shareholder request. We have the right to delay the filing or effectiveness of a
registration statement, or delay the offering contemplated by the registration statement, for a period not exceeding 90 consecutive days or
more in a 12-month period if it is determined in good faith by either Ms. Wang or Mr. Zeng, in consultation with our board of directors, that
proceeding with such an offering would require the company to disclose material information that would not otherwise be required to be
disclosed at that time and that the disclosure of such information at that time would not be in the best interests of the company or its
shareholders or that the registration or offering to be delayed would, if not delayed, materially and adversely affect the company, taken as a
whole, or materially interfere with, or jeopardize the success of, any pending or proposed material transaction, including any debt or equity
financing, any acquisition or disposition, any recapitalization or reorganization or any other material transaction. We are not obligated to
effect more than two demand registrations. Further, we are not obligated to effect a registration under these clauses of the Investors Rights
Agreement, if the shareholders propose to sell the shares to the public at an aggregate price (based on the then-current market prices) of less
than US$50,000,000.
Registration on Form F-3. Any holder may request us to file a registration statement on Form F-3 if we qualify for registration on Form F-3.
The holders are entitled to one registration on Form F-3 per 12-month period. We have the right to delay the filing or effectiveness of a
registration statement, or delay the offering contemplated by the registration statement, for the same period and on the same conditions as
outlined above. We are not obligated to effect a registration on Form F-3 if the shareholders that have requested we do so propose to sell the
relevant shares to the public at an aggregate price (based on the then-current market prices) of less than US$15,000,000.
Piggyback Registration Rights. If we propose to register for a public offering or our securities other than relating to any share incentive plan
or a corporate reorganization, and the form of registration is suitable for the registration of shares held by the shareholders, we must give 10
days’ notice to all holders of registrable securities and offer them an opportunity to be included in such registration. If the managing
underwriter determines in good faith that the number of shares proposed to be included in the registration exceeds the number of shares that
can be sold in such underwritten offering without materially delaying or jeopardizing the success of the offering (including the price per
share of the shares proposed to be sold in such underwritten offering), the managing underwriter may decide to exclude shares from the
registration and the underwriting, and the number of shares that may be included in the registration and the underwriting will be allocated,
first, to us, second, to each of the holders requesting inclusion of their registrable securities on a pro rata basis based on the total amount of
registrable securities requested by each such holder, and third, to holders of other securities of our company.
Expenses of Registration. We will bear all registration expenses, including proportional amounts with the shareholders of the underwriting
discounts and commissions, but excluding fees for special counsel for the holders participating in such registration and certain excepted
expenses as described in the Investors Rights Agreement, incurred in connection with registrations, filings or qualification pursuant to the
Investors Rights Agreement.
Termination of Obligations. Our obligation to effect any demand, piggyback or Form F-3 registration shall terminate on the date at which, in
the opinion of our counsel, all registrable securities proposed to be sold by a holder may then be sold without registration and without regard
to any volume limitation requirement pursuant to Rule 144 promulgated under the Securities Act.
Contractual Agreements with Respect to the VIE
See “Item 4. Information on the Company—C. Organizational Structure—Contractual Arrangements with the Variable Interest Entity” for a
description of the contractual arrangements between our PRC subsidiary Shanghai ECMOHO and the VIE.
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Employment Agreements and Indemnification Agreements
See “Item 6. Directors, Senior Management and Employees Management—B. Compensation—Employment Agreements and
Indemnification Agreements.”
Share Incentive Plans
See “Item 6.B. Directors, Senior Management and Employees-Compensation-Share Incentive Plans.”
C. Interests of Experts and Counsel
Not applicable.
Item 8. Financial Information
A. Consolidated Statements and Other Financial Information
Consolidated Financial Statements
The information required by this item is set forth beginning on page F-1 of this annual report on Form 20-F.
Legal or Arbitration Proceedings
The information on legal or arbitration proceedings required by this item is set forth in “Item 4. Information on the Company—B. Business
Overview—Legal Proceedings.”
Dividend Policy
We have not declared or paid any dividends. We do not have any present plans to pay any dividends on ordinary shares in the foreseeable
future. We intend to retain the available funds and any future earnings to operate and expand our business.
We are a holding company incorporated in the Cayman Islands. We rely principally on dividends from our PRC subsidiaries for our cash
requirements, including any payment of dividends to our shareholders. PRC regulations may restrict the ability of our PRC subsidiaries to
pay dividends to us. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in China—Any limitation on the
ability of our PRC subsidiaries to make payments to us, or the tax implications of making payments to us, could have a material adverse
effect on our ability to conduct our business or our financial condition.”
Our board of directors has discretion as to whether to distribute dividends, subject to applicable laws. In addition, our shareholders may by
ordinary resolution declare dividends, but no dividend may exceed the amount recommended by our directors. Under Cayman Islands law,
our company may pay dividends only out of either profit or share premium account, provided 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. 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.
If we pay any dividends, our depositary will distribute such dividends to our ADS holders to the same extent as holders of our ordinary
shares, 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—D. American Depositary Shares.” Cash dividends on our ordinary shares, if any, will be paid in U.S.
dollars.
B. Significant Changes
Other than as set forth in this annual report on Form 20-F, no significant change has occurred with respect to us since the date of our
audited consolidated U.S. GAAP financial statements included elsewhere in this annual report on Form 20-F.
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Item 9. The Offer and Listing
A. Offer and Listing Details
Our ADSs have been listed on the Nasdaq Stock Market since November 8, 2019, under the symbol “MOHO.” Each ADS represents four
Class A ordinary shares, par value US$0.00001 per share.
B. Plan of Distribution
Not applicable.
C. Markets
See “—Offer and Listing Details” above.
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
Item 10.Additional Information
A. Share Capital
Not applicable.
B. Memorandum and Articles of Association
We are a Cayman Islands incorporated exempted company with limited liability and our affairs are governed by our third amended and
restated memorandum and articles of association and the Companies Act (as amended) of the Cayman Islands and the common law of the
Cayman Islands. Our registered office in the Cayman Islands is located at Walkers Corporate Limited, 190 Elgin Avenue, George Town,
Grand Cayman, KY1-9008, Cayman Islands.
We incorporate by reference into this annual report on Form 20-F our Third Amended and Restated Memorandum and Articles of
Association, the form of which was filed as Exhibit 3.2 to our registration statement on Form F-1 (File Number 333-233951) filed with the
SEC on November 7, 2019.
The following are summaries of material provisions of our Third Amended and Restated Memorandum and Articles of Association and of
the Companies Act as they related to the material terms of our ordinary shares.
Objects of our Company. Under our Third 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.
Ordinary Shares. Our ordinary shares are divided into Class A ordinary shares and Class B ordinary shares. Holders of our Class A ordinary
shares and holders of our Class B ordinary shares have the same rights except for voting rights. Each Class A ordinary share entitles the
holder thereof to one (1) vote on all matters subject to vote at our general meetings, and each Class B ordinary share entitles
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the holder thereof to ten (10) votes on all matters subject to vote at our general meetings. Our ordinary shares are issued in registered form
and are issued when registered in our register of members.
Conversion. Our Class B ordinary shares are convertible at any time by the holder thereof into Class A ordinary shares on a one-for-one
basis, while Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances.
Dividends. The holders of our ordinary shares are entitled to such dividends as may be declared by our board of directors. Under the laws of
the Cayman Islands, our company may declare and pay a dividend out of either profit or share premium account, provided 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.
Voting Rights. Our Class A ordinary shares and Class B ordinary shares vote together as a single class on all matters submitted to a vote of
our shareholders, except as may otherwise be required by law or provided for in our Third Amended and Restated Memorandum and Articles
of Association. In respect of matters requiring shareholders’ vote, each Class A ordinary share is entitled to one vote, and each Class B
ordinary share is entitled to ten votes. At any general meeting a resolution put to the vote of the meeting shall be decided by way of a poll.
A quorum required for a meeting of shareholders consists of one or more shareholders at least holding or representing by proxy at least a
majority of the votes of the issued shares or, if a corporation or other non-natural person, by its duly authorized representative. Advance
notice of at least seven calendar days is required for the convening of our annual general meeting and other shareholders meetings.
An ordinary resolution to be passed at a meeting by the shareholders requires the affirmative vote of a simple majority of the votes attaching
to the ordinary shares cast at a meeting. A special resolution requires the affirmative vote of no less than two-thirds of the votes cast
attaching to the outstanding shares at a meeting. Our Third Amended and Restated Memorandum and Articles of Association provide that a
special resolution shall be required to approve any amendments to any provisions of our post-offering amended and restated articles of
association. 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 Third Amended and Restated Memorandum and Articles of
Association.
General Meetings of Shareholders. As a Cayman Islands exempted company, we are not obliged by the Companies Act to call shareholders’
annual general meetings. Our Third Amended and Restated Memorandum and Articles of Association provide that we may (but are not
obliged to) hold a general meeting of the company, and the general meeting shall be held at such time and place as may be determined by our
directors.
Shareholders’ general meetings may be convened by the chairman or a majority of our board of directors. Advance notice of at least seven
(7) calendar days is required for the convening of our annual general shareholders’ meeting (if any) and any other general meeting of our
shareholders. A quorum required for any general meeting of shareholders consists of one or more shareholders present or by proxy,
representing not less than a majority of all votes attaching to all of our shares in issue and entitled to vote.
The Companies Act 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
Third Amended and Restated Memorandum and Articles of Association provide that upon the requisition of shareholders representing in
aggregate not less than 10% of the votes attaching to the outstanding shares of our company entitled to vote at general meetings, our board
will convene an extraordinary general meeting and put the resolutions so requisitioned to a vote at such meeting.
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 writing, and shall be executed by or on behalf of the transferor, and if the directors so requires, signed
by the transferee.
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 the company has a lien.
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The registration of transfers may be suspended and the register closed at such times and for such periods, not exceeding 30 days in any year,
as our board of directors may from time to time determine.
Liquidation. On the winding up of our company, if the assets available for distribution amongst our shareholders shall be more than sufficient
to repay the whole of the share capital at the commencement of the winding up, the surplus shall be distributed amongst our shareholders in
proportion to the amount paid up on the shares held by them. 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 capital paid up, or which ought to
have been paid up, at the commencement of the winding up on the shares held by them, respectively.
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 days prior to the specified time of payment. The shares that have
been called upon and remain unpaid are subject to forfeiture.
Redemption, Repurchase and Surrender of Shares. We may issue shares on terms that such shares are subject to redemption, at our option or
at the option of the holders of these shares, on such terms and in such manner as may be determined by our board of directors. Our company
may also repurchase any of our shares on such terms and in such manner as have been agreed by our board of directors and our shareholders.
Under the Companies Act, the redemption or repurchase of any share may be paid out of our company’s profits or out of the proceeds of a
new issue of shares made for the purpose of such redemption or repurchase, or out of capital (including share premium account and capital
redemption reserve) if our company can, immediately following such payment, pay its debts as they fall due in the ordinary course of
business. In addition, under the Companies 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 other than shares held as treasury shares 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, the rights attached to any class of
shares (unless otherwise provided by the terms of issue of the shares of that class), whether or not our company is being wound-up, may be
varied with the consent in writing of the holders of not less than two-thirds of the issued shares of that class or with the sanction of a
resolution passed at a separate meeting of the holders of the shares of the class by the holders of a two-thirds majority of the votes cast at
such a meeting. 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 Third 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.
Our Third 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 preference shares and to determine, with respect to any series of preference shares, the terms and rights of that
series.
Our board of directors may issue preference 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. However, we will provide our shareholders with annual audited financial
statements.
Anti-Takeover Provisions. Some provisions of our Third Amended and Restated Memorandum and Articles of Association may discourage,
delay or prevent a change of control of our company or management that shareholders may consider favorable, including provisions that:
●
authorize our board of directors to issue preference shares in one or more series and to designate the price, rights,
preferences, privileges and restrictions of such preference shares without any further vote or action by our shareholders;
and
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●
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 Third 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.
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 registered in the Cayman Islands but conducts business
mainly outside of the Cayman Islands may apply to be registered 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 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 an exempted 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 the shares of the
company.
See “Item 6. Directors, Senior Management and Employees — C. Board practices—Board of Directors” for additional information required
by this item.
Differences in Corporate Law
The Companies Act is modeled after that of England but does not follow recent English statutory enactments and differs from laws
applicable to U.S. corporations and their shareholders. Set forth below is a summary of the significant differences between the provisions of
the Companies Act applicable to us and 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 consolidated company and the vesting of the
undertaking, property and liabilities of such companies to the consolidated company. In order to effect such a merger or consolidation, the
directors of each constituent company must approve a written plan of merger or consolidation, which must then be authorized by (a) a special
resolution of the shareholders of each constituent company, and (b) such other authorization, if any, as may be specified in such constituent
company’s articles of association. The plan must be filed with the Registrar of Companies of the Cayman Islands together with a declaration
as to the solvency of the consolidated or surviving company, a list of the assets and liabilities of each constituent company and an
undertaking that a copy of the certificate of merger or consolidation will be given to the members and creditors of each constituent company
and that notification of the merger or consolidation will be published in the Cayman Islands Gazette. Court approval is not required for a
merger or consolidation which is effected in compliance with these statutory procedures.
A merger between a Cayman parent company and its Cayman subsidiary or subsidiaries does not require authorization by a resolution of
shareholders of that Cayman subsidiary if a copy of the plan of merger is given to every member of that Cayman subsidiary to be
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merged unless that member agrees otherwise. For this purpose a company is a “parent” of a subsidiary if it holds issued shares that together
represent at least 90% of the votes at a general meeting of the subsidiary.
The consent of each holder of a fixed or floating security interest over a constituent company is required unless this requirement is waived by
a court in the Cayman Islands.
Save in certain limited circumstances, a shareholder of a Cayman constituent company who dissents from the merger or consolidation is
entitled to payment of the fair value of his shares (which, if not agreed between the parties, will be determined by the Cayman Islands court)
upon dissenting to the merger or consolidation, provide the dissenting shareholder complies strictly with the procedures set out in the
Companies Act. The exercise of dissenter rights will preclude the exercise by the dissenting shareholder of any other rights to which he or
she might otherwise be entitled by virtue of holding shares, save for the right to seek relief on the grounds that the merger or consolidation is
void or unlawful.
Separate from the statutory provisions relating to mergers and consolidations, the Companies Act also contains statutory provisions that
facilitate the reconstruction and amalgamation of companies by way of schemes of arrangement, provided that the arrangement is approved
by a majority in number of each class of shareholders and creditors with whom the arrangement is to be made, and who must in addition
represent three-fourths in value of each such class of shareholders or creditors, as the case may be, that are present and voting either in
person or by proxy at a meeting, or meetings, convened for that purpose. The convening of the meetings and subsequently the arrangement
must be sanctioned by the Grand Court of the Cayman Islands. While a dissenting shareholder has the right to express to the court the view
that the transaction ought not to be approved, the court 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 a dissentient
minority shareholder upon a tender offer. When a tender offer is made and accepted by holders of 90% of the shares affected within
four months, the offeror may, within a two-month period commencing on the expiration of such four month period, require the holders of the
remaining shares to transfer such shares to the offeror on the terms of the offer. An objection can be made to the Grand Court of the Cayman
Islands but this is unlikely to succeed in the case of an offer which has been so approved unless there is evidence of fraud, bad faith or
collusion.
If an arrangement and reconstruction is thus approved, or if a tender offer is made and accepted, a dissenting shareholder would have no
rights comparable to appraisal rights, save that objectors to a takeover offer may apply to the Grand Court of the Cayman Islands for various
orders that the Grand Court of the Cayman Islands has a broad discretion to make, 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 and as a general rule a derivative action may not be brought by a
minority shareholder. However, based on English authorities, which would in all likelihood be of persuasive authority in the Cayman Islands,
there are exceptions to the foregoing principle, including when:
●
a company acts or proposes to act illegally or ultra vires;
●
the act complained of, although not ultra vires, could only be effected duly if authorized by more than a simple majority
vote that has not been obtained; and
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●
those who control the company are perpetrating a “fraud on the minority.”
Indemnification of Directors and Executive Officers and Limitation of Liability. Cayman Islands law does not limit the extent to which a
company’s memorandum and articles of association may provide for indemnification of officers and directors, except to the extent any such
provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or
the consequences of committing a crime. Our Third Amended and Restated Memorandum and Articles of Association permit
indemnification of officers and directors against all actions, proceedings, costs, charges, expenses, losses, damages or liabilities incurred or
sustained by such officers and directors, other than by reason of such officer’s or director’s own dishonesty, willful default or fraud, in or
about the conduct of our business or affairs (including as a result of any mistake of judgment) or in the execution or discharge of his or her
duties, powers, authorities or discretions, including without prejudice to the generality of the foregoing, any costs, expenses, losses or
liabilities incurred by such officer and director in defending (whether successfully or otherwise) any civil proceedings concerning us or our
affairs in any court whether in the Cayman Islands or elsewhere. This standard of conduct is generally the same as permitted under the
Delaware General Corporation Law for a Delaware corporation.
In addition, we have entered into indemnification agreements with our directors and executive officers that provide such persons with
additional indemnification beyond that provided in our Third 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 it is considered that he owes the following duties to the company—a duty to act bona fide in the best interests of the company, a
duty not to make a profit based on his position as director (unless the company permits him to do so) and 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. 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.
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 Third 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.
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The Companies Act provide 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
Third Amended and Restated Memorandum and Articles of Association allow our shareholders holding in aggregate not less than one-tenth
of all votes attaching to the outstanding shares of our company entitled to vote at general meetings to requisition an extraordinary general
meeting of our shareholders, in which case our board is obliged to convene an extraordinary general meeting and to put the resolutions so
requisitioned to a vote at such meeting. Other than this right to requisition a shareholders’ meeting, our Third Amended and Restated
Memorandum and Articles of Association do not provide our shareholders with any other right to put proposals before annual general
meetings or extraordinary general meetings. As an exempted Cayman Islands company, we are not obliged by law to call shareholders’
annual general meetings.
Cumulative Voting. Under the Delaware General Corporation Law, cumulative voting for elections of directors is not permitted unless the
corporation’s certificate of incorporation specifically provides for it. Cumulative voting potentially facilitates the representation of minority
shareholders on a board of directors since it permits the minority shareholder to cast all the votes to which the shareholder is entitled on a
single director, which increases the shareholder’s voting power with respect to electing such director. There are no prohibitions in relation to
cumulative voting under the laws of the Cayman Islands but our Third 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 post-offering amended and restated 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, it does provide that such transactions must be entered into bona fide in the best interests of the company and not with the effect
of constituting a fraud on the minority shareholders.
Dissolution; Winding up. Under the Delaware General Corporation Law, unless the board of directors approves the proposal to dissolve,
dissolution must be approved by shareholders holding 100% of the total voting power of the corporation. Only if the dissolution is initiated
by the board of directors may it be approved by a simple majority of the corporation’s outstanding shares. Delaware law allows a Delaware
corporation to include in its certificate of incorporation a supermajority voting requirement in connection with dissolutions initiated by the
board.
Under Cayman Islands law, a company may be wound up by either an order of the courts of the Cayman Islands or by a special resolution of
its members or, if 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, our company may be dissolved, liquidated or wound up by a special resolution of our shareholders.
Variation of Rights of Shares. Under the Delaware General Corporation Law, a corporation may vary the rights of a class of shares with the
approval of a majority of the outstanding shares of such class, unless the certificate of incorporation provides otherwise. Under Cayman
Islands law and our post-offering amended and restated articles of association, if our share capital is divided into more than one class of
shares, we may vary the rights attached to any class with the written consent of the holders of not less than two-thirds of the
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issued shares of that class or with the sanction of a resolution passed at a general meeting of the holders of the shares of that class by a two-
thirds majority of the votes cast at such a meeting.
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. As
permitted by Cayman Islands law, our Third Amended and Restated Memorandum and Articles of Association may only be amended with a
special resolution of our shareholders.
Rights of Non-resident or Foreign Shareholders. There are no limitations imposed by our Third 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 Third Amended and Restated Memorandum and Articles of Association governing the ownership threshold above
which shareholder ownership must be disclosed.
C. Material Contracts
On August 3, 2021, we entered into an underwriting agreement with Aegis Capital Corp. (“Aegis”) as the representative of the underwriters
named therein, pursuant to which we agreed to issue and sell an aggregate of 10,000,000 ADSs, each representing four Class A ordinary
shares, par value US$0.00001 per share, of the Company (the “Public Offering”). In addition, we granted Aegis a 45-day option to purchase
up to an additional approximately 12.8% of the number of the ADSs offered in the Public Offering to cover over-allotments (the “Over-
allotment Options), if any. On August 5, 2021, we completed the Public Offering at a public offering price of US$0.90 per ADS. Aegis did
not elect to exercise the Over-allotment Options. After deducting underwriting discounts and commissions and other offering expenses, the
net proceeds of the Public Offering were approximately US$8.1 million.
We have not entered into any material contracts other than in the ordinary course of business or other than those described above, in “Item 4.
Information on the Company” and in “Item 7. Major shareholders and Related Party Transactions” or elsewhere in this annual report on
Form 20-F.
D. Exchange Controls
The Cayman Islands currently has no exchange control regulations or currency restrictions. See “Item 4. Information on the Company—B.
Business Overview—Regulations Regulations Relating to Foreign Exchange.”
E. Taxation
The following sets forth material Cayman Islands, PRC and U.S. federal income tax consequences of an investment in our ordinary shares or
ADSs. It is based upon laws and relevant interpretations thereof as of December 31, 2021, all of which are subject to change, possibly with
retroactive effect. 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. Accordingly, you should consult your own tax adviser regarding the tax consequences of
an investment in the ADSs. To the extent that the discussion relates to matters of Cayman Islands tax law, it represents the opinion of
Walkers (Hong Kong), our Cayman Islands counsel. To the extent that the discussion relates to matters of PRC tax law, it represents the
opinion of Commerce & Finance Law Offices, our PRC legal counsel.
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 or our shareholders 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 by our company. There are no exchange control regulations or currency restrictions in the Cayman Islands.
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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 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 China with its “de facto
management body” within China is considered a resident enterprise and will be subject to the enterprise income tax rate of 25% on its global
income. 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 State
Administration of Taxation issued a circular, known as 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 China; (ii) decisions relating to the enterprise’s financial and human resource matters are made or are subject to approval
by organizations or personnel in China; (iii) the enterprise’s primary assets, accounting books and records, company seals, and board and
shareholder resolutions are located or maintained in China; and (iv) at least 50% of voting board members or senior executives habitually
reside in China.
We believe that ECMOHO Limited is not a PRC resident enterprise for PRC tax purposes. ECMOHO Limited is not controlled by a PRC
enterprise or PRC enterprise group, and we do not believe that ECMOHO Limited meets all of the conditions above. ECMOHO Limited is a
company incorporated outside China. 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
China. 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 ECMOHO Limited 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 China. 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 ECMOHO Limited would be able to claim the benefits of any tax treaties
between their country of tax residence and China in the event that ECMOHO Limited is treated as a PRC resident enterprise. See “Item 3.
Key Information—D. Risk Factors—Risks Related to Doing Business in China—We may be treated as a resident enterprise for PRC tax
purposes under the PRC Enterprise Income Tax Law, and we may therefore be subject to PRC income tax on our global income.”
U.S. Federal Income Taxation
This section describes the material U.S. federal income tax consequences of owning ordinary shares and ADSs. It applies to you only if you
are a U.S. holder (as defined below) and you hold your ordinary shares or ADSs as capital assets for tax purposes. This discussion addresses
only U.S. federal income taxation and does not discuss all of the tax consequences that may be relevant to you in light of your individual
circumstances, including foreign, state or local tax consequences, estate and gift tax consequences, and tax consequences arising under the
Medicare contribution tax on net investment income or the alternative minimum tax, and your U.S. federal income tax consequences may be
different than those described below if you are a member of a special class of holders subject to special rules, including:
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●
a dealer in securities;
●
a trader in securities that elects to use a mark-to-market method of accounting for securities holdings;
●
a tax-exempt organization;
●
a life insurance company;
●
a person that actually or constructively owns 10% or more of the combined voting power of our voting stock or of the total
value of our stock;
●
a person that holds ordinary shares or ADSs as part of a straddle or a hedging or conversion transaction;
●
a person that purchases or sells ordinary shares or ADSs as part of a wash sale for tax purposes; or
●
a U.S. person whose functional currency is not the U.S. dollar.
This section is based on the Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations, published
rulings, court decisions and the income tax treaty between the United States and the PRC, or the Treaty, all as of the date hereof. These laws
are subject to change, possibly on a retroactive basis. There is currently no comprehensive income tax treaty between the United States and
the Cayman Islands.
If an entity or arrangement that is treated as a partnership for U.S. federal income tax purposes holds the shares or ADSs, the U.S. federal
income tax treatment of a partner will generally depend on the status of the partner and the tax treatment of the partnership. Partnerships
holding ordinary shares or ADSs and their partners should consult their tax advisors with regard to the U.S. federal income tax treatment of
an investment in the ordinary shares or ADSs.
You are a U.S. holder if you are a beneficial owner of ADSs and you are, for U.S. federal income tax purposes:
●
a citizen or resident of the United States;
●
a domestic corporation;
●
an estate whose income is subject to U.S. federal income tax regardless of its source; or
●
a trust if a United States court can exercise primary supervision over the trust’s administration and one or more United
States persons are authorized to control all substantial decisions of the trust.
You should consult your own tax advisor regarding the U.S. federal, state and local tax consequences of owning and disposing of ordinary
shares or ADSs in your particular circumstances.
In general, and taking into account the earlier assumptions, for federal income tax purposes, if you hold ADRs evidencing ADSs, you will be
treated as the owner of the shares represented by those ADRs. Exchanges of shares for ADRs, and ADRs for shares, generally will not be
subject to U.S. federal income tax.
The tax treatment of your ordinary shares or ADSs will depend in part on whether or not we are a passive foreign investment company, or
PFIC, for U.S. federal income tax purposes. Except as discussed below under “—PFIC Rules,” this discussion assumes that we are not a
PFIC for U.S. federal income tax purposes.
Distributions. Under the U.S. federal income tax laws, the gross amount of any distribution we pay out of our current or accumulated
earnings and profits (as determined for U.S. federal income tax purposes), other than certain pro-rata distributions of our shares, will be
treated as a dividend that is subject to U.S. federal income taxation. If you are a noncorporate U.S. holder, dividends paid that constitute
qualified dividend income will be taxable to you at the preferential rates applicable to long-term capital gains provided that you hold the
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ordinary shares or ADSs for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date and meet other
holding period requirements. Dividends we pay with respect to the ADSs generally will be qualified dividend income provided that, in
the year that you receive the dividend, the ADSs are readily tradable on an established securities market in the United States. Our ADSs are
listed on the Nasdaq Global Market, and we therefore expect that dividends we pay with respect to the ADSs will be qualified dividend
income. It is unclear whether dividends paid with respect to our ordinary shares will be qualified dividend income.
The dividend is taxable to you when you, in the case of ordinary shares, or the depositary, in the case of ADSs, receives the dividend,
actually or constructively. The dividend will not be eligible for the dividends-received deduction generally allowed to United States
corporations in respect of dividends received from other United States corporations.
Distributions in excess of current and accumulated earnings and profits, as determined for U.S. federal income tax purposes, will be treated
as a non-taxable return of capital to the extent of your basis in the ordinary shares or ADSs and thereafter as capital gain. However, we do
not expect to calculate earnings and profits in accordance with U.S. federal income tax principles. Accordingly, you should expect to
generally treat distributions we make as dividends.
In the event that we were deemed to be a PRC resident enterprise under the Enterprise Income Tax Law, you might be subject to PRC
withholding taxes on dividends paid to you with respect to the ordinary shares or ADSs. See “Item 10. Additional Information—E. Taxation
—People’s Republic of China Taxation.” In that case, you must include any PRC tax withheld even though you do not in fact receive it.
Subject to certain conditions and limitations, PRC withholding taxes on dividends, to the extent of the portion of the tax that could not be
reduced or refunded under the Treaty or otherwise, would be treated as foreign taxes eligible for credit against your U.S. federal income tax
liability. Special rules would apply in determining the foreign tax credit limitation with respect to dividends that are subject to preferential
tax rates. For purposes of calculating the foreign tax credit limitation, dividends will generally be income from sources outside the United
States and will generally be “passive” income. The rules governing the foreign tax credit are complex. You are urged to consult your tax
advisor regarding the availability of the foreign tax credit under your particular circumstances.
Sale or Disposition of ADSs or Ordinary Shares. If you are a U.S. holder and you sell or otherwise dispose of your ordinary shares or
ADSs, you will recognize capital gain or loss for U.S. federal income tax purposes equal to the difference between the U.S. dollar value of
the amount that you realize and your tax basis, determined in U.S. dollars, in your ordinary shares or ADSs. Capital gain of a noncorporate
U.S. holder is generally taxed at preferential rates where the property is held for more than one year. The gain or loss will generally be
income or loss from sources within the United States for foreign tax credit limitation purposes. However, if we were treated as a PRC
resident enterprise for Enterprise Income Tax Law purposes and PRC tax were imposed on any gain, and if you are eligible for the benefits
of the Treaty, you may elect to treat such gain as PRC source gain under the Treaty. If you are not eligible for the benefits of the Treaty or
you fail to make the election to treat any gain as PRC source, then you may not be able to use the foreign tax credit arising from any PRC tax
imposed on the disposition of our ordinary shares or ADSs unless such credit can be applied (subject to applicable limitations) against tax
due on other income derived from foreign sources. You will be eligible for the benefits of the Treaty if, for purposes of the Treaty, you are a
resident of the United States, and you meet other requirements specified in the Treaty. Because the determination of whether you qualify for
the benefits of the Treaty is fact-intensive and depends upon your particular circumstances, you are specifically urged to consult your tax
advisors regarding your eligibility for the benefits of the Treaty. You are also urged to consult your tax advisor regarding the tax
consequences in case any PRC tax is imposed on gain on a disposition of our ADSs, including the availability of the foreign tax credit and
the election to treat any gain as PRC source, under your particular circumstances.
PFIC Rules. The determination of whether we will be or become a PFIC will depend upon the composition of our income (which may differ
from our historical results and current projections) and assets and the value of our assets from time to time, including, in particular the value
of our goodwill and other unbooked intangibles (which may depend upon the market value of the ADSs or ordinary shares from time-to-time
and may be volatile). In addition, although the law in this regard is unclear, we treat the VIE as being owned by us for U.S. federal income
tax purposes, not only because we exercise effective control over the operation of such entities but also because we are entitled to
substantially all of their economic benefits, and, as a result, we consolidate their results of operations in our consolidated financial
statements. Assuming that we are the owner of the VIE for U.S. federal income tax purposes, based upon the composition of our income and
assets, we do not believe that we were a PFIC for our taxable year ended December 31, 2021. However, if our market capitalization does not
increase or declines or we do not spend our cash as quickly as anticipated, we may be classified as a PFIC for the current or future fiscal
years. It is also possible that the IRS, may challenge the classification or valuation of certain of our assets, which may result in our company
being, or becoming classified as, a PFIC in prior, current or future taxable years.
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The determination of whether we will be or become a PFIC may also depend, in part, on how, and how quickly, we use our liquid assets.
Under circumstances where we retain significant amounts of liquid assets, or if the VIE was not treated as owned by us for U.S. federal
income tax purposes, our risk of being classified as a PFIC may substantially increase. Because there are uncertainties in the application of
the relevant rules and PFIC status is a factual determination made annually after the close of each fiscal year, there can be no assurance that
we will not be a PFIC for the current taxable year or any future fiscal year or that the IRS will not take a contrary position. If we were
classified as a PFIC for any year during which a U.S. Holder held the ADSs or ordinary shares, we generally would continue to be treated as
a PFIC for all succeeding years during which such U.S. holder held the ADSs or ordinary shares.
In general, if you are a U.S. holder, we will be a PFIC with respect to you if for any taxable year in which you held our ordinary shares or
ADSs:
●
at least 75% of our gross income for the taxable year is passive income; or
●
at least 50% of the value, determined on the basis of a quarterly average, of our assets is attributable to assets that produce
or are held for the production of passive income.
“Passive income” generally includes dividends, interest, gains from the sale or exchange of investment property rents and royalties (other
than certain rents and royalties derived in the active conduct of a trade or business) and certain other specified categories of income. If a
foreign corporation owns at least 25% by value of the stock of another corporation, the foreign corporation is treated for purposes of the
PFIC tests as owning its proportionate share of the assets of the other corporation, and as receiving directly its proportionate share of the
other corporation’s income.
If we are a PFIC for any taxable year and any entity in which we own equity interests were also a PFIC (any such entity, a “Lower-tier
PFIC”), you would be deemed to own a proportionate amount (by value) of the shares of each Lower-tier PFIC and would be subject to U.S.
federal income tax according to the rules described in the subsequent paragraph on (i) certain distributions by a Lower-tier PFIC and
(ii) dispositions of shares of Lower-tier PFICs, in each case as if you held such shares directly, even though you had not received the
proceeds of those distributions or dispositions.
If we are treated as a PFIC, and you are a U.S. holder that did not make a mark-to-market election, as described below, you will generally be
subject to special rules with respect to:
●
any gain you realize on the sale or other disposition of your ordinary shares or ADSs; and
●
any excess distribution that we make to you (generally, any distributions to you during a single taxable year, other than the
taxable year in which your holding period in the ordinary shares or ADSs begins, that are greater than 125% of the average
annual distributions received by you in respect of the ordinary shares or ADSs during the three preceding taxable years or,
if shorter, your holding period for the ordinary shares or ADSs that preceded the taxable year in which you receive the
distribution).
Under these rules:
●
the gain or excess distribution will be allocated ratably over your holding period for the ordinary shares or ADSs;
●
the amount allocated to the taxable year in which you realized the gain or excess distribution or to prior years before the
first year in which we were a PFIC with respect to you will be taxed as ordinary income;
●
the amount allocated to each other prior year will be taxed at the highest tax rate in effect for that year; and the interest
charge generally applicable to underpayments of tax will be imposed in respect of the tax attributable to each such year.
Your ordinary shares or ADSs will generally be treated as stock in a PFIC if we were a PFIC at any time during your holding period in your
ordinary shares or ADSs, even if we are no longer satisfy the requirements to constitute a PFIC under the tests described above.
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Alternatively, if we are a PFIC in a taxable year and our ordinary shares or ADSs are treated as “marketable stock” in such year, you may
make a mark-to-market election with respect to your ADSs. If you make this election, you will not be subject to the PFIC rules described
above, except that you will continue to be subject to the PFIC rules with respect to any Lower-tier PFIC that you are deemed to own under
the rules described above. Instead, in general, you will include as ordinary income each year the excess, if any, of the fair market value of
your ordinary shares or ADSs at the end of the taxable year over your adjusted basis in your ordinary shares or ADSs. You will also be
allowed to take an ordinary loss in respect of the excess, if any, of the adjusted basis of your ordinary shares or ADSs over their fair market
value at the end of the taxable year (but only to the extent of the net amount of previously included income as a result of the mark-to-market
election). Your basis in the ordinary shares or ADSs will be adjusted to reflect any such income or loss amounts. Any gain that you recognize
on the sale or other disposition of your ordinary shares or ADSs would be ordinary income and any loss would be an ordinary loss to the
extent of the net amount of previously included income as a result of the mark-to-market election and, thereafter, a capital loss.
In addition, notwithstanding any election you make with regard to the ordinary shares or ADSs, dividends that you receive from us will not
constitute qualified dividend income to you if we are a PFIC (or are treated as a PFIC with respect to you) either in the taxable year of the
distribution or the preceding taxable year. Dividends that you receive that do not constitute qualified dividend income are not eligible for
taxation at the preferential rates applicable to qualified dividend income.
If you own ordinary shares or ADSs during any year that we are a PFIC with respect to you, you may be required to file Internal Revenue
Service, or IRS, Form 8621.
F. Dividends and Paying Agents
Not applicable.
G. Statement by Experts
Not applicable.
H. Documents on Display
The SEC maintains a website at www.sec.gov that contains reports, proxy statements and other information regarding registrants, including
ECMOHO Limited, that file electronically with the SEC.
We also make our periodic reports as well as other information filed with or furnished to the SEC available, free of charge, through our
website, at www.ecmoho.com (the content of our website does not form part of this annual report on Form 20-F).
The company is subject to the information requirements of the Exchange Act and, in accordance therewith, is obligated to file annual reports
on Form 20-F within the time specified by the SEC and furnish other reports and information on Form 6-K to the SEC. As a foreign private
issuer, the company is exempt from the rules under the Exchange Act prescribing the furnishing and content of proxy statements to
shareholders.
The SEC allows us to “incorporate by reference” the information we file with the SEC. This means that we can disclose important
information to you by referring you to another document filed separately with the SEC. The information incorporated by reference is
considered to be part of this annual report on Form 20-F.
I. Subsidiary Information
Not applicable.
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Item 11. Quantitative and Qualitative Disclosures about Market Risk
Foreign Exchange Risk
A portion of our total net revenues and expenses are denominated in Renminbi. Renminbi are not freely convertible into foreign currencies,
including U.S. dollars. Our exposure to foreign exchange risk primarily relates to cash and cash equivalents and short-term borrowings
denominated in Renminbi. 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 is affected by the exchange rate between U.S. dollar and Renminbi because the earnings
of our PRC subsidiaries and VIE are denominated in Renminbi, while our ADSs are traded in U.S. dollars.
The value of Renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political
and economic conditions and the foreign exchange policy adopted by the PRC government. On July 21, 2005, the PRC government changed
its policy of pegging the value of the Renminbi to the U.S. dollar. Following the removal of the U.S. dollar peg, the Renminbi appreciated
more than 20% against the U.S. dollar over the following three years. Between July 2008 and June 2010, this appreciation halted and the
exchange rate between the Renminbi and the U.S. dollar remained within a narrow band. Since June 2010, the PRC government has allowed
the Renminbi to appreciate slowly against the U.S. dollar again, and it has appreciated more than 10% since June 2010. On August 11, 2015,
the People’s Bank of China announced plans to improve the central parity rate of the Renminbi against the U.S. dollar by authorizing market-
makers to provide parity to the China Foreign Exchange Trading Center operated by the People’s Bank of China with reference to the
interbank foreign exchange market closing rate of the previous day, the supply and demand for foreign currencies as well as changes in
exchange rates of major international currencies. Effective from October 1, 2016, the International Monetary Fund added Renminbi to its
Special Drawing Rights currency basket. Such change and additional future changes may increase volatility in the trading value of the
Renminbi against foreign currencies. The PRC government may adopt further reforms of its exchange rate system, including making the
Renminbi freely convertible in the future. Accordingly, 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 Renminbi against the U.S. dollar would
reduce the Renminbi 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 ADSs, servicing our outstanding debt, or for other business purposes, appreciation of the U.S.
dollar against the Renminbi would reduce the U.S. dollar amounts available to us.
As of December 31, 2021, we had Renminbi-denominated cash and cash equivalents amounting to US$3.3 million at the exchange rate of
RMB6.3757 for US$1.00 as published by the People’s Bank of China on December 31, 2021. If Renminbi had depreciated by 10% against
the U.S. dollar, our cash and cash equivalents would have decreased by US$302.5 thousand.
Interest Rate Risk
Our exposure to interest rate risk primarily relates to the interest expenses incurred on our short-term borrowings. As of December 31, 2021,
we had short-term borrowings of US$10.3 million, of which 31.8% were denominated in U.S. dollars and 68.2% in Renminbi. The interest
rates of our U.S. dollar-denominated short-term borrowings are subject to mutual agreement between us and the respective lenders, and the
interest rates of our Renminbi-denominated short-term borrowings are pegged to the loan prime rate published by the People’s Bank of
China. These short-term borrowings carry a degree of interest rate risk. We have not been exposed to material risks due to changes in interest
rates, and we have not used any derivative financial instruments to manage our interest risk exposure. However, our future interest expenses
may increase due to changes in market interest rates. As of December 31, 2021, our short-term borrowings had a weighted average interest
rate of 7.8% per annum.
Off-Balance Sheet Commitments and Arrangements
We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. In
addition, we have not entered into any derivative contracts that are indexed to our own shares and classified as shareholder’s equity, or that
are not reflected in our consolidated combined 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. Moreover, 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 research and development services with us.
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Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements that are relevant to us, see Note 2(al) to our consolidated financial statements
included elsewhere in this annual report on Form 20-F.
Item 12.Description of Securities Other than Equity Securities
A. Debt Securities
Not applicable.
B. Warrants and Rights
Not applicable.
C. Other Securities
Not applicable.
D. American Depositary Shares
Fees Payable by ADS Holders
Citibank, N.A., located at 388 Greenwich Street, New York, New York 10013, as depositary under the company’s ADS program, collects
fees for issuance and cancellation of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or
from intermediaries acting for them on such fees as per the deposit agreement.
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An ADS holder is required to pay the following service fees to the depositary:
Service
Fees
●
Issuance of ADSs (e.g., an issuance of ADS upon a deposit of
Class A ordinary shares, upon a change in the ADS(s)-to-Class A
ordinary share(s) ratio, or for any other reason), excluding ADS
issuances as a result of distributions of Class A ordinary shares)
Up to U.S. 5¢ per ADS issued
●
Cancellation of ADSs (e.g., a cancellation of ADSs for delivery
of deposited property, upon a change in the ADS(s)-to-Class A
ordinary share(s) ratio, or for any other reason)
Up to U.S. 5¢ per ADS canceled
●
Distribution of cash dividends or other cash distributions (e.g.,
upon a sale of rights and other entitlements)
Up to U.S. 5¢ per ADS held
●
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¢ per ADS held
●
Distribution of securities other than ADSs or rights to purchase
additional ADSs (e.g., upon a spin-off)
Up to U.S. 5¢ per ADS held
●
ADS Services
Up to U.S. 5¢ per ADS held on the applicable record
date(s) established by the depositary bank
●
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)
Up to U.S. 5¢ per ADS (or fraction thereof) transferred
●
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 (each
as defined in the Deposit Agreement) into freely transferable
ADSs, and vice versa).
Up to U.S. 5¢ per ADS (or fraction thereof) converted
and 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;
●
the fees, expenses, spreads, taxes and other charges of the depositary bank and/or service providers (which may be a
division, branch or affiliate of the depositary bank) in the conversion of foreign currency;
●
any reasonable and customary out-of-pocket expenses incurred by the depositary bank in connection with conversion of
foreign currency compliance with currency exchange control or other governmental requirements; and
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●
the fees, charges, costs and expenses incurred by the depositary bank, the custodian, or any nominee in connection with
the ADR program.
The fees and charges an ADS holder may be required to pay may vary over time and may be changed by us and by the depositary. ADS
holders will receive prior notice of increases in such fees and charges.
Fees and Other Payments Made by the Depositary to us
In 2021, we did not receive any payments from the depositary for standard out-of-pocket maintenance costs of its ADS program, including,
but not limited to, continuing annual stock exchange listing fees, special investor promotion activities, issue-related expenses, cost for
preparing and audit of U.S. GAAP accounts, legal and accounting fees associated with listing on the Nasdaq Stock Market, miscellaneous
expenses such as costs associated with votes by ADS holders and payments made to proxy firms.
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PART II
Item 13.Defaults, Dividend Arrearages and Delinquencies
None.
Item 14.Material Modifications to the Rights of Security Holders and Use of Proceeds
Material Modifications to the Rights of Security Holders and Use of Proceeds
See “Item 10. Additional Information” for a description of the rights of shareholders, 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 333-233951), in
relation to our initial public offering of 4,675,000 ADSs (including 300,000 ADSs sold upon the exercise of the underwriters’ over-allotment
option) representing 18,700,000 Class A ordinary shares, at an initial offering price of US$10.00 per ADS. Our initial public offering was
closed in November 2019. UBS Securities LLC, China International Capital Corporation Hong Kong Securities Limited and AMTD Global
Markets Limited were the joint book-running managers for our initial public offering.
The registration statement on Form F-1 was declared effective by the SEC on November 7, 2019. For the period from the effective date of
the registration statement on Form F-1 to December 31, 2021, the total expenses incurred for our company’s account in connection with our
initial public offering was approximately US$11.7 million, which included US$7.9 million in underwriting discounts and commissions for
the initial public offering and approximately US$3.8 million in other costs and expenses for our initial public offering. We received net
proceeds of approximately US$35.0 million from our initial public offering. None of the transaction expenses included payments to directors
or officers of our company or their associates, persons owning more than 10% or more of our equity securities or our affiliates. None of the
net proceeds from the initial public offering were paid, directly or indirectly, to any of our directors or officers or their associates, persons
owning 10% or more of our equity securities or our affiliates.
For the period from the date that the registration statement on Form F-1 was declared effective by the SEC to December 31, 2021, the net
proceeds received from our initial public offering were mainly kept as bank deposits.
On June 21, 2021, we filed a registration statement on Form F-3 (No. 333-257200) with the SEC, which was declared effective on July 6,
2021 to offer ordinary shares, preferred shares, debt securities, warrants, either individually or as units composed of one or more of the other
securities, of an aggregate offering price of up to US$50,000,000. We intend to use the net proceeds from such offerings in the manner as
disclosed in our registration statement on Form F-3 (No. 333-257200).
On August 5, 2021, we completed an underwritten public offering in which we issued and sold an aggregate of 10,000,000 ADSs at a public
offering price of US$0.90 per ADS (the “Public Offering”). After deducting underwriting discounts and commissions and other offering
expenses, the net proceeds of the Public Offering were approximately US$8.1 million.
We incurred approximately US$0.9 million in expenses in connection with the Public Offering, which included commissions fees paid to
Aegis Capital Corp. and other miscellaneous fees. 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 we
received from the 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.
We intend to use the net proceeds from the Public Offering primarily for investment in our SaaS platform, working capital and general
corporate purpose. As of December 31, 2021, approximately US$7.3 million of the net proceeds from the Public Offering was used as
working capital and for general corporate purpose, including around US$7.0 million used as payment to our brand partners. We still intend to
use the remainder of the proceeds from the Public Offering as disclosed in our registration statement on Form F-3 (No. 333-257200).
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Item 15.Controls and Procedures
Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer and chief financial officer, has performed an evaluation of the
effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period
covered by this report, as required by Rule 13a-15(b) under the Exchange Act.
Based upon that evaluation, our management has concluded that, as of December 31, 2021, our disclosure controls and procedures were not
effective. We have started to undertake steps to remediate the material weakness in our disclosure controls and procedures as set forth below
under “Internal Control over Financial Reporting.”
Management’s Annual 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) under the Exchange Act. Our management, with the participation of our chief executive officer and our chief financial officer,
evaluated the effectiveness of our internal control over financial reporting based on criteria established in the framework in Internal Control
—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this
evaluation, our management has concluded that our internal control over financial reporting was not effective as of December 31, 2021.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies and procedures may deteriorate.
Attestation Report of the Registered Public Accounting Firm
This annual report on Form 20-F does not include an attestation report of our registered public accounting firm due to rules of the SEC where
domestic and foreign registrants that are “emerging growth companies” which we are, are not required to provide the auditor attestation
report.
Internal Control over Financial Reporting
In the course of preparing and auditing our consolidated financial statements for the year ended December 31, 2019, we and our former
independent registered public accounting firm identified one “material weakness” in our internal control over financial reporting as of
December 31, 2019. In accordance with U.S. GAAP and financial reporting requirements set forth by the SEC, a “material weakness” is a
deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a
material misstatement of our company’s annual or interim financial statements will not be prevented or detected on a timely basis.
This material weakness, which was first identified in the course of preparing our consolidated financial statements for the year ended
December 31, 2018, relates to our lack of sufficient financial reporting and accounting personnel with appropriate knowledge of U.S. GAAP
and SEC reporting requirements to formalize key controls over financial reporting and to prepare consolidated financial statements and
related disclosures. In the course of preparing and auditing our consolidated financial statements for the years ended December 31, 2020 and
2021, we and our current independent registered public accounting firm identified the same material weakness in our internal control over
financial reporting as of December 31, 2020 and 2021, respectively.
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We have started to undertake steps to strengthen our internal control over financial reporting, including: (1) implementing regular and
continuous U.S. GAAP accounting and financial reporting training programs for our accounting and financial reporting personnel; (2)
establishing effective oversight and clarifying reporting requirements for non-recurring and complex transactions to ensure consolidated
financial statements and related disclosures are accurate, complete and in compliance with SEC reporting requirements; and (3) preparing
comprehensive accounting policies, manuals and closing procedures to improve the quality and accuracy of our period-end financial closing
process; and (4) engaging an external consultant firm with experienced staff holding the CPA license with a solid understanding of U.S.
GAAP to assist us in the preparation of the financial statements for the year ended December 31, 2021. We also plan to hire more qualified
personnel equipped with relevant U.S. GAAP and SEC reporting experience and qualifications to strengthen the financial reporting function.
However, such measures have not been fully implemented, and we concluded that the material weakness in our internal control over
financial reporting had not been fully remediated as of December 31, 2021.
In the course of preparing and auditing our consolidated financial statements for the years ended December 31, 2021, pursuant to new
information technology methodology, we and our independent registered public accounting firm identified additional material weaknesses in
our internal control over financial reporting as of December 31, 2021 relating to information technology control, in the areas of (1) data
backup and recovery management, (2) system and data accesses, and (3) information, cybersecurity and vulnerability risk assessment and
management. Following the identification of these material weaknesses, we plan to take measures to remedy our information technology
control, including but not limited to (i) developing enhanced risk assessment procedures and controls related to changes in information
technology systems, (ii) developing a training program for employees to address information technology control principles and requirements,
with a focus on issues related to user access and change-management over information technology systems impacting financial reporting,
(iii) developing and maintaining documentation underlying information technology control, and (iv) developing cybersecurity awareness
training to employees, adopt a documented cybersecurity policy, assess and address cybersecurity risk on a regular basis.
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, related to the assessment of the effectiveness 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 not any changes in our internal controls over financial reporting that occurred during the
period covered by this annual report on Form 20-F that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
Item 16 RESERVED
Item 16A.
Audit Committee Financial Expert
The board has determined that Mr. Yuan Fang, the Chair of our Audit Committee, qualifies as an “audit committee financial expert”
as defined under the applicable rules of the SEC issued pursuant to Section 407 of the Sarbanes-Oxley Act of 2002. For detailed biographical
information on Mr. Fang, see “Item 6. Directors, Senior Management and Employees— A. Directors and Senior Management.” Mr. Fang
satisfies the “independence” requirements of Rule 5605(a)(2) of the Nasdaq Stock Market Rules and meets the independence standards under
Rule 10A-3 under the Exchange Act, as amended.
Item 16B.
Code of Ethics
We have adopted a Code of Business Conduct and Ethics, which is applicable to all of our directors, executive officers and employees. We
filed our code of ethics as Exhibit 99.1 of our registration statement on Form F-1 (File No. 333-233951) filed with the SEC on November 7,
2019. The code of ethics is also publicly available on our website, www.ecmoho.com (the content of our website does not form part of this
annual report on Form 20-F).
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In addition, our board of directors has adopted a set of corporate governance guidelines covering a variety of matters, including
approval of related party transactions. Our corporate governance guidelines also provide that any adoption of a new stock incentive plan and
any material amendments to such plans will be subject to the approval of our non-executive directors. The guidelines reflect certain guiding
principles with respect to our board’s structure, procedures and committees. The guidelines are not intended to change or interpret any
applicable law, rule or regulation or our amended articles of association.
Item 16C.
Principal Accountant Fees and Services
The following table sets forth the aggregate fees, by categories, in connection with certain professional services rendered by
PricewaterhouseCoopers Zhong Tian LLP and Friedman LLP, our independent public accountants for the years indicated. We did not pay
any other fees to our auditors during the years indicated below.
Year Ended December 31,
2020
2021
(in thousands of U.S. dollars)
Audit Fees(1)
851
624
Audit-Related Fees
—
—
Tax Fees(2)
—
—
All Other Fees
—
—
Total
851
624
Notes:
(1)
“Audit Fees” represents the aggregate fees billed for each of the fiscal years listed for professional services rendered by our
principal auditors for the audit or review of our annual or quarterly financial statements. We paid or accrued expenses of US$74,800
for the fiscal years ended December 31, 2021 related to our predecessor auditor.
(2)
“Tax Fees” represents the aggregate fees for professional services rendered by our principal auditors for tax advisory.
The policy of our audit committee is to pre-approve all audit and non-audit services provided by our independent public accountant,
including audit services, audit-related services and other services as described above. All of the services of Friedman LLP described above
were in accordance with the audit committee pre-approval policy.
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
Neither we nor any “affiliated purchaser,” as defined in Rule 10b-18(a)(3) of the Exchange Act, purchased any of our equity
securities during the period covered by this annual report.
Item 16F.
Change in Registrant’s Certifying Accountant
On October 23, 2020, PricewaterhouseCoopers Zhong Tian LLP, or PwC, was dismissed as our independent registered public accounting
firm. Effective from the same date, we appointed Friedman LLP as our independent registered public accounting firm for the fiscal year
ended December 31, 2020. The change of auditor was approved by our board of directors and audit committee.
PwC’s report on our consolidated financial statements as of and for the years ended December 31, 2018 and 2019 did not contain any
adverse opinion or a disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope, or accounting principle.
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During the fiscal years ended December 31, 2018 and 2019 and subsequent interim period through October 23, 2020, we did not have any
disagreements, as that term is defined in Item 16F(a)(1)(iv) of Form 20-F and the related instructions thereto, with PwC on any matter of
accounting principles or practices, financial statement disclosure, or auditing scope or procedures that, if not resolved to the satisfaction of
PwC, would have caused them to make reference to the subject matter of the disagreement in connection with its audit reports on our
consolidated financial statements for the two fiscal years ended December 31, 2019.
During the fiscal years ended December 31, 2018 and 2019 and subsequent interim period through October 23, 2020, there were no
“reportable events,” as defined in Item 16F (a)(1)(v) of Form 20-F, other than the material weakness reported by management in Item 15 of
our annual report on Form 20-F filed with the SEC on June 12, 2020. The material weakness relates to our lack of sufficient financial
reporting and accounting personnel with appropriate knowledge of U.S. GAAP and SEC reporting requirements to formalize key controls
over financial reporting and to prepare consolidated financial statements and related disclosures.
During the fiscal years ended December 31, 2018 and 2019 and subsequent interim period through October 23, 2020, neither we nor anyone
on our behalf consulted with Friedman LLP regarding either (i) the application of accounting principles to a specified transaction, either
completed or proposed, or the type of audit opinion that might be rendered on our consolidated financial statements, nor has Friedman LLP
provided to us a written report or oral advice that Friedman LLP concluded was an important factor considered by us in reaching a decision
as to the accounting, auditing or financial reporting issue, or (ii) any matter that was either the subject of a “disagreement” with Friedman
LLP as that term is defined in Item 16F(a)(1)(iv) of Form 20-F and the related instructions to Item 16F of Form 20-F, or a “reportable event,”
as that term is described in Item 16F(a)(1)(v) of Form 20-F.
We provided a copy of this disclosure to PwC and requested that PwC furnish us with a letter addressed to the SEC stating whether
it agrees with the statements made above, and if not, stating the respects in which it does not agree. A copy of PwC’s letter dated April 30,
2021 is attached herewith as Exhibit 16.1.
Item 16G.
Corporate Governance
As a Cayman Islands exempted company with limited liability listed on the Nasdaq Capital Market, we are subject to the Nasdaq Stock
Market Rules for corporate governance listing standards. However, we qualify as a foreign private issuer (as defined in Rule 3b-4 under the
Exchange Act) under the Nasdaq Stock Market Rules and we are permitted to follow home country practice in respect of certain corporate
governance matters. As a result, our corporate governance practices differ in some respects from those required to be followed by U.S.
companies listed on the Nasdaq Capital Market. For example, we do not (i) have a majority of the board be independent; (ii) have a
compensation committee or a nominating and corporate governance committee consisting entirely of independent directors; (iii) have an
audit committee be composed of at least three members, or (iv) hold annual general shareholder meeting. Other than those described above,
there are no other significant differences between our corporate governance practices and those followed by U.S. domestic companies under
the Nasdaq Stock Market Rules. We may also continue to rely on these and other exemptions available to foreign private issuers in the
future, and to the extent that we choose to do so, our shareholders may be afforded less protection than they otherwise would have under the
Nasdaq Stock Market Rules applicable to U.S. domestic issuers. See “Item 3. Key Information- D. Risk Factors-Risks Related to Our ADSs-
As a foreign private issuer, we are permitted to, and we will continue to, rely on exemptions from certain Nasdaq corporate governance
standards applicable to domestic U.S. issuers. This may afford less protection to holders of our Class A ordinary shares and holders of the
ADSs than they would enjoy if we were a domestic U.S. company.”
Furthermore, we are also permitted to rely on exemptions afforded to controlled companies. Our co-founders, Ms. Zoe Wang, who serves as
our Chairwoman and Chief Executive Officer, and Mr. Leo Zeng, who serves as our Chief Operating Officer and Acting Chief Financial
Officer, collectively held 81.1% of the total voting rights in our company as of May 11, 2022, and we are, and expect to continue to be, a
“controlled company” as defined under the Nasdaq Stock Market Rules. We currently rely on the exemptions with respect to (i) the
requirement that a majority of the board of directors consist of independent directors, and (ii) the requirement that the compensation
committee and the nominating and corporate governance committee consist entirely of independent directors. See “Item 3. Key Information-
D. Risk Factors-Risks Related to Our ADSs-We are a “controlled company” within the meaning of the Nasdaq corporate governance
requirements, which may result in public investors having less protection than they would if we were not a controlled company.” Even if we
cease to be a controlled company, we may still rely on exemptions available to foreign private issuers, including being able to adopt home
country practices in relation to corporate governance matters, as described above.
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We strive to evolve and update our corporate governance guidelines and best practices in the interest of transparency, long-term
shareholder value and respect for minority shareholders. We disclose timely and accurate information regarding our operations and
performance.
Item 16H.
Mine Safety Disclosure
Not applicable.
Item 16I. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections
Not applicable.
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PART III
Item 17. Financial Statements
The company has responded to Item 18 in lieu of Item 17.
Item 18. Financial Statements
The information required by this item is set forth beginning on page F-1 of this annual report on Form 20-F.
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132
Item 19. Exhibits
Exhibit
Number
Description
1.1
Third Amended and Restated Memorandum of Association and Articles of Association (incorporated by reference to
Exhibit 3.2 to the registration statement on Form F-1 (File No. 333-233951), as amended, initially filed with the SEC on
September 26, 2019)
2.1
Registrant’s Specimen American Depositary Receipt (incorporated by reference to Exhibit 4.1 to the registration statement on
Form F-1 (File No. 333-233951), as amended, initially filed with the SEC on September 26, 2019)
2.2
Registrant’s Specimen Certificate for Class A ordinary shares (incorporated by reference to Exhibit 4.2 to the registration
statement on Form F-1 (File No. 333-233951), as amended, initially filed with the SEC on September 26, 2019)
2.3
Deposit Agreement, among the Registrant, Citibank, N.A., as the depositary and the holders and beneficial owners of
American Depositary Shares issued thereunder (incorporated by reference to Exhibit 99.(A) to the registration statement on
Form F-6 (File No. 333-234148), as amended, initially filed with the SEC on October 10, 2019)
2.4*
Description of securities registered under Section 12 of the Securities Exchange Act, as amended
4.1
English translation of the Exclusive Technology Consulting and Service Agreement between ECMOHO Limited and Shanghai
Yibo Medical Equipment Co., Ltd., dated November 28, 2018 (incorporated by reference to Exhibit 10.1 to the registration
statement on Form F-1 (File No. 333-233951), as amended, initially filed with the SEC on September 26, 2019)
4.2
English translation of the Equity Pledge Agreement among Shanghai ECMOHO Health Biotechnology Co., Ltd., Shanghai
Yibo Medical Equipment Co., Ltd., and the shareholders of Shanghai Yibo Medical Equipment Co., Ltd., dated
November 28, 2018 (incorporated by reference to Exhibit 10.2 to the registration statement on Form F-1 (File No. 333-
233951), as amended, initially filed with the SEC on September 26, 2019)
4.3
English translation of the Exclusive Call Option Agreement among Shanghai ECMOHO Health Biotechnology
Co., Ltd., Shanghai Yibo Medical Equipment Co., Ltd. and the shareholders of Shanghai Yibo Medical Equipment Co., Ltd.,
dated November 28, 2018 (incorporated by reference to Exhibit 10.3 to the registration statement on Form F-1 (File No. 333-
233951), as amended, initially filed with the SEC on September 26, 2019)
4.4
English translation of the Powers of Attorney by the shareholders of Shanghai Yibo Medical Equipment Co., Ltd.,
dated November 28, 2018 (incorporated by reference to Exhibit 10.4 to the registration statement on Form F-1 (File No. 333-
233951), as amended, initially filed with the SEC on September 26, 2019)
4.5
English translation of the Confirmation Letters from the shareholders of Shanghai Yibo Medical Equipment Co., Ltd., dated
November 28, 2018 (incorporated by reference to Exhibit 10.5 to the registration statement on Form F-1 (File No. 333-
233951), as amended, initially filed with the SEC on September 26, 2019)
4.6
English translation of the Spousal Consent Letters from the respective spouses of the shareholders of Shanghai Yibo Medical
Equipment Co., Ltd., dated November 28, 2018 (incorporated by reference to Exhibit 10.6 to the registration statement on
Form F-1 (File No. 333-233951), as amended, initially filed with the SEC on September 26, 2019)
4.7
ECMOHO 2018 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.19 to the registration statement on Form F-1
(File No. 333-233951), as amended, initially filed with the SEC on September 26, 2019)
4.8
2021 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.1 to the registration statement on Form S-8 (File No.
333-257546) filed with the SEC on June 30, 2021)
Table of Contents
133
4.9
English translation of the Loan Agreements between ECMOHO (Hong Kong) Limited and Techlong International Investments
Limited, dated September 18, 2017, March 28, 2018 and April 3, 2018, respectively (incorporated by reference to Exhibit
10.37 to the registration statement on Form F-1 (File No. 333-233951), as amended, initially filed with the SEC on September
26, 2019)
4.10
Form of indemnification agreements between ECMOHO Limited and the directors and executive officers of ECMOHO
Limited and employment agreements between ECMOHO Limited and the directors of ECMOHO Limited (incorporated by
reference to Exhibit 10.39 to the registration statement on Form F-1 (File No. 333-233951), as amended, initially filed with the
SEC on September 26, 2019)
4.11
English translation of the Equity Transfer Agreement by and among Yiling (Shanghai) Information Technology Co., Ltd.,
Daniel Wang, Shanghai Xianggui Health Management Co., Ltd. and Xianggui (Shanghai) Biotechnology Co., Ltd., dated
April 27, 2020 (incorporated by reference to Exhibit 4.40 to the annual report on Form 20-F (File No. 001-39121), filed with
the SEC on June 12, 2020)
4.12
English translation of the Agreement on Contract Cancellation by and among Xianggui (Shanghai) Biotechnology Co., Ltd.,
Yang Infinity (Shanghai) Biotechnology Co., Limited, Zoe Wang, Leo Zeng and Shanghai Xianggui Health Management Co.,
Ltd., dated April 27, 2020 with respect to the cancellation of the contractual arrangements with Yang Infinity (Shanghai)
Biotechnology Co., Limited (incorporated by reference to Exhibit 4.41 to the annual report on Form 20-F (File No. 001-
39121), filed with the SEC on June 12, 2020)
4.13
English translation of the Agreement on Cancellation of Equity Pledge Contract between Xianggui (Shanghai) Biotechnology
Co., Ltd. and Zoe Wang, dated April 27, 2020 (incorporated by reference to Exhibit 4.42 to the annual report on Form 20-F
(File No. 001-39121), filed with the SEC on June 12, 2020)
4.14
English translation of the Agreement on Cancellation of Equity Pledge Contract between Xianggui (Shanghai) Biotechnology
Co., Ltd. and Leo Zeng, dated April 27, 2020 (incorporated by reference to Exhibit 4.43 to the annual report on Form 20-F
(File No. 001-39121), filed with the SEC on June 12, 2020)
4.15
English translation of the Loan Agreements between ECMOHO Limited and Techlong International Investments Limited,
dated November 12, 2019 (incorporated by reference to Exhibit 4.44 to the annual report on Form 20-F (File No. 001-39121),
filed with the SEC on June 12, 2020)
4.16
English translation of the Supplementary Loan Agreement by and among Techlong International Investments Limited,
ECMOHO Limited, Uhealth Limited and Leo Zeng, dated May 29, 2020 (incorporated by reference to Exhibit 4.45 to the
annual report on Form 20-F (File No. 001-39121), filed with the SEC on June 12, 2020)
4.17
English translation of the Supplementary Loan Agreement by and among Techlong International Investments Limited,
ECMOHO (Hong Kong) Health Technology Limited, Uhealth Limited and Leo Zeng, dated May 29, 2020 (incorporated by
reference to Exhibit 4.46 to the annual report on Form 20-F (File No. 001-39121), filed with the SEC on June 12, 2020)
4.18
English translation of the Shanghai Jieshi Technology Co., Ltd. Equity Transfer Agreement by and among Yijiasancan
(Shanghai) E-commerce Co., Ltd. and Shanghai Xianggui Health Technology Co., Ltd. dated July 9, 2020 (incorporated by
reference to Exhibit 4.41 to the annual report on Form 20-F (File No. 001-39121), filed with the SEC on April 30, 2021)
4.19
English translation of the Shanghai Hengshoutang Health Technology Co., Ltd. Equity Transfer Agreement by and among
Yijiasancan (Shanghai) E-commerce Co., Ltd. and Shanghai Xianggui Health Technology Co., Ltd. dated October 28, 2020
(incorporated by reference to Exhibit 4.42 to the annual report on Form 20-F (File No. 001-39121), filed with the SEC on
April 30, 2021)
Table of Contents
134
4.20
Shareholder’s Agreement by and among ECMOHO (Hong Kong) Health Technology Limited, Huizhi Zhang, Yue Tang, Ling
Ma and Anze Premium Health and Beauty Pte. Ltd. dated July 23, 2020 (incorporated by reference to Exhibit 4.43 to the
annual report on Form 20-F (File No. 001-39121), filed with the SEC on April 30, 2021)
4.21
Share Sale and Purchase Agreement by and among ECMOHO (Hong Kong) Health Technology Limited, Ling Ma and Anze
Premium Health and Beauty Pte. Ltd. dated July 23, 2020 (incorporated by reference to Exhibit 4.44 to the annual report on
Form 20-F (File No. 001-39121), filed with the SEC on April 30, 2021)
4.22
Note Purchase Agreement by and among Anze Premium Health and Beauty Pte. Ltd., ECMOHO (Hong Kong) Health
Technology Limited, Huizhi Zhang, Yue Tang and Ling Ma dated July 23, 2020 (incorporated by reference to Exhibit 4.45 to
the annual report on Form 20-F (File No. 001-39121), filed with the SEC on April 30, 2021)
8.1*
List of Significant Subsidiaries and VIE
11.1
Code of Business Conduct and Ethics (incorporated by reference to Exhibit 99.1 to the registration statement on Form F-1
(File No. 333-233951), as amended, initially filed with the SEC on September 26, 2019)
12.1*
Certification by Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
12.2*
Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
13.1**
Certification by the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
13.2**
Certification by the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
15.1*
Consent of Commerce & Finance Law Offices
15.2*
Consent of Walkers (Hong Kong)
15.3*
Consent of Friedman LLP
15.4*
Consent of PricewaterhouseCoopers Zhong Tian LLP
16.1
Letter from PricewaterhouseCoopers Zhong Tian LLP to the Securities and Exchange Commission (incorporated by reference
to Exhibit 16.1 to the annual report on Form 20-F (File No. 001-39121), filed with the SEC on April 30, 2021)
101.INS*
Inline XBRL Instance Document
101.SCH*
Inline XBRL Taxonomy Extension Schema Document
101.CAL*
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*
Inline XBRL Taxonomy Extension Presentation Linkbase Document
104*
Cover Page Interactive Data File (embedded within the Inline XBRL document)
* Filed herewith.
** Furnished herewith.
Table of Contents
135
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and
authorized the undersigned to sign this annual report on its behalf.
May 13, 2022
ECMOHO LIMITED
By
/s/ Zoe Wang
Name: Zoe Wang
Title:
Chairman & Chief Executive Officer
By
/s/ Leo Zeng
Name: Leo Zeng
Title:
Director, Chief Operating Officer & Acting Chief Financial
Officer
Table of Contents
F-1
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm (PCAOB ID: 711)
F-2
Report of Independent Registered Public Accounting Firm (PCAOB ID: 1424)
F-3
Consolidated Balance Sheets as of December 31, 2020 and 2021
F-4
Consolidated Statements of Operations and Comprehensive Income/(Loss) for the years ended December 31, 2019, 2020 and 2021
F-5
Consolidated Statements of Changes in Shareholders’ (Deficit)/Equity for the years ended December 31, 2019, 2020 and 2021
F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2020 and 2021
F-7
Notes to the Consolidated Financial Statements
F-8
Table of Contents
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of ECMOHO Limited
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of ECMOHO Limited and Subsidiaries (collectively, the “Company”) as of
December 31, 2020 and 2021, and the related consolidated statements of operations and comprehensive income/(loss), changes in
shareholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2021, and the related notes
(collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 2020 and 2021, and the results of its operations and its cash
flows for each of the years in the two-year period ended December 31, 2021, in conformity with accounting principles generally accepted in
the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or
fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part
of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due
to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that our audits provide a reasonable basis for our opinion.
/s/ Friedman LLP
We have served as the Company’s auditor since 2020.
New York, New York
May 13, 2022
Table of Contents
F-3
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of ECMOHO Limited
Opinion on the Financial Statements
We have audited the consolidated statements of comprehensive income, of changes in shareholders’ equity and of cash flows of ECMOHO
Limited and its subsidiaries (the “Company”) for the year ended December 31, 2019, including the related notes (collectively referred to as
the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the
results of operations and cash flows of the Company for the year ended December 31, 2019 in conformity with accounting principles
generally accepted in the United States of America.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s consolidated financial statements based on our 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 of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due
to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that our audit provide a reasonable basis for our opinion.
/s/PricewaterhouseCoopers Zhong Tian LLP
Shanghai, the People’s Republic of China
June 12, 2020
We served as the Company’s auditor from 2018 to 2020.
Table of Contents
F-4
ECMOHO LIMITED
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2020 AND 2021
As of
As of
December 31,
December 31,
Note
2020
2021
US$
US$
ASSETS
Current assets
Cash and cash equivalents
6
45,284,308
43,623,588
Accounts receivable, net
7
42,005,638
16,161,652
Inventories
8
33,263,094
21,818,999
Prepayments and other current assets
9
9,200,238
5,522,853
Loan receivable
13
646,000
—
Total current assets
130,399,278
87,127,092
Property and equipment, net
10
966,509
114,522
Intangible assets, net
12
565,106
103,197
Operating lease right-of-use assets
11
2,434,221
1,203,219
Deferred tax assets
26
829,389
3,919,468
Long-term investment
15
5,904,000
4,197
Other non-current assets
14
1,529,406
1,082,741
Total assets
142,627,909
93,554,436
LIABILITIES AND SHAREHOLDERS’ EQUITY
Short term borrowings
16
16,942,751
10,320,644
Accounts payable
24,190,898
35,851,079
Amounts due to related parties
27
9,400,708
8,535,164
Operating lease liabilities, current
11
411,557
402,462
Advances from customers
730,630
964,797
Salary and welfare payables (including salary and welfare payables of the consolidated VIEs and VIE’s
subsidiary without recourse to the Group of US$4,604 and US$5,280 as of December 31, 2020 and 2021,
respectively)
821,044
772,092
Tax payables (including tax payables of the consolidated VIEs and VIE’s subsidiary without recourse to the
Group of US$250 and US$0 as of December 31, 2020 and 2021, respectively)
18
3,574,217
3,187,759
Accrued liabilities and other current liabilities (including accrued liabilities and other current liabilities of the
consolidated VIEs and VIE’s subsidiary without recourse to the Group of US$122,915 and US$223,106 as of
December 31, 2020 and 2021, respectively)
17
5,038,861
3,857,671
Total current liabilities
61,110,666
63,891,668
Deferred tax liabilities
26
24,684
5,052
Operating lease liabilities, non-current
11
1,938,885
771,090
Total liabilities
63,074,235
64,667,810
Commitments and contingencies (Note 29)
Shareholders’ equity:
Class A Ordinary Shares, US$0.00001 par value; 4,924,849,600 shares authorized at December 31,2020 and
2021; 69,361,883 and 133,581,883 shares issued and outstanding at December 31, 2020 and 2021, respectively
693
1,335
Class B Ordinary Shares, US$0.00001 par value; 71,355,616 shares authorized at December 31, 2020 and 2021;
71,355,615 and 59,355,616 shares issued and outstanding at December 31, 2020 and 2021, respectively
714
594
Additional paid-in capital
108,369,688
118,947,530
Accumulated other comprehensive (loss)/income
4,037,628
(1,522,824)
Accumulated deficit
(32,855,049)
(88,510,247)
Total ECMOHO Limited shareholders’ equity
79,553,674
28,916,388
Non-controlling interests
—
(29,762)
Total shareholders’ equity
79,553,674
28,886,626
Total liabilities and shareholders’ equity
142,627,909
93,554,436
The accompanying notes are an integral part of these consolidated financial statements.
Table of Contents
F-5
ECMOHO LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME/(LOSS)
FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021
Year Ended December 31,
Note
2019
2020
2021
US$
US$
US$
Net revenues:
Products sales
302,098,523
300,155,525
128,040,585
Services
27,381,393
4,783,240
2,705,975
Total net revenues
22
329,479,916
304,938,765
130,746,560
Total cost of revenue
(257,431,074)
(246,299,626)
(122,748,704)
Gross profit
72,048,842
58,639,139
7,997,856
Operating expenses:
Fulfillment expenses
(16,956,520)
(14,398,579)
(9,239,241)
Sales and marketing expenses
2(x)
(40,205,943)
(45,753,811)
(27,859,522)
General and administrative expenses
(8,496,574)
(11,036,905)
(18,759,164)
Research and development expenses
(1,808,422)
(1,105,535)
(1,052,361)
Impairment loss on long-term investment
—
—
(7,267,596)
Other operating income
34,761
—
—
Total operating expenses
(67,432,698)
(72,294,830)
(64,177,884)
Operating income/(loss)
4,616,144
(13,655,691)
(56,180,028)
Finance expense, net
23
(2,513,847)
(2,615,282)
(1,883,917)
Foreign exchange (loss)/gain, net
(392,955)
979,103
(860,799)
Other income, net
2(ad)
475,195
1,800,214
305,529
Income/(loss) before income tax expenses
2,184,537
(13,491,656)
(58,619,215)
Income tax (expenses)/benefits
26
(249,639)
6,504
2,934,198
Net Income/(loss)
1,934,898
(13,485,152)
(55,685,017)
Less: Net loss attributable to the non-controlling interest shareholders and redeemable
non-controlling interest shareholders
(361,657)
(186,240)
(29,819)
Net income/(loss) attributable to ECMOHO Limited
2,296,555
(13,298,912)
(55,655,198)
Less: Accretion on Series A convertible redeemable preferred shares to redemption value
(1,022,461)
—
—
Less: Accretion to redemption value of redeemable non-controlling interests
(311,757)
—
—
Net (loss)/income attributable to ECMOHO Limited’s ordinary shareholders
962,337
(13,298,912)
(55,655,198)
Net income/(loss)
1,934,898
(13,485,152)
(55,685,017)
Other comprehensive (loss)/income
Foreign currency translation adjustment, net of nil tax
(887,407)
6,360,165
(5,560,395)
Less: Comprehensive loss attributable to noncontrolling interests
(404,798)
(128,338)
(29,762)
Comprehensive income/(loss) attributable to ECMOHO Limited
1,452,289
(6,996,649)
(61,215,650)
Net (loss)/earnings per share attributable to ECMOHO Limited’s ordinary
shareholders
—basic
0.01
(0.10)
(0.35)
—diluted
0.01
(0.10)
(0.35)
Weighted average number of Ordinary Shares
—basic
98,104,216
139,619,496
158,969,475
—diluted
115,644,864
139,619,496
158,969,475
The accompanying notes are an integral part of these consolidated financial statements.
Table of Contents
F-6
ECMOHO LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021
Accumulated
Class A Ordinary Shares
Class B Ordinary Shares
Additional
other
Non-
Total
Number of
Number of
Paid-in
comprehensive
Accumulated
Controlling
Shareholders'
Shares
Amount
Shares
Amount
Capital
(loss)/income
deficit
interests
(Deficit)/Equity
US$
US$
US$
US$
US$
US$
US$
Balances at December 31, 2018
15,531,000
155
75,150,400
752
—
(1,420,369)
(21,852,692)
310,904
(32,222,550
Share-based compensation expense (Note 24)
—
—
—
—
1,575,029
—
—
—
1,575,029
Sale of equity interests in a subsidiary to non-controlling interests
—
—
—
—
2,757
—
—
592,725
595,482
Capital contribution from non-controlling interests shareholders
—
—
—
—
—
—
—
29,196
29,196
Accretion to redemption value of redeemable convertible preferred stock (Note 19)
—
—
—
—
(1,022,461)
—
—
—
(1,022,461
Accretion to redemption value of redeemable non-controlling interests and income attribution (Note 20)
—
—
—
—
(311,757)
—
—
27,068
(284,689
Acquisition of non-controlling interests (Note 20)
—
—
—
—
(180,784)
—
—
10,460
(170,324
Acquisition of redeemable non-controlling interests (Note 20)
—
—
—
—
1,296,171
—
—
—
1,296,171
Conversion of preferred shares to Class A ordinary shares (Note 19)
29,336,099
293
—
—
69,564,896
—
—
—
69,565,189
Subscription fees received from the Founders of ECMOHO Shanghai for Reorganization purpose (Note 1(b))
—
—
—
—
—
—
—
—
9,261,300
Issuance of ordinary shares upon Initial Public Offering (“IPO”) and over-allotment option, net of cost of
issuance (Note 21)
18,700,000
187
—
—
35,020,427
—
—
—
35,020,614
Foreign currency translation
—
—
—
—
—
(844,266)
—
(43,141)
(887,407
Net income
—
—
—
—
—
—
2,296,555
(361,657)
1,934,898
Balances at December 31, 2019
63,567,099
635
75,150,400
752 105,944,278
(2,264,635)
(19,556,137)
565,555
84,690,448
Share-based compensation expense (Note 24)
—
—
—
—
474,559
—
—
—
474,559
Sale of equity interests in subsidiaries (Note 3)
—
—
—
—
1,950,871
—
—
(437,217)
1,513,654
Conversion of Class B Ordinary shares into Class A Ordinary shares (Note 21)
3,794,784
38
(3,794,784)
(38)
—
—
—
—
—
Issuance of restricted shares units
2,000,000
20
—
—
(20)
—
—
—
—
Foreign currency translation
—
—
—
—
—
6,302,263
—
57,902
6,360,165
Net loss
—
—
—
—
—
—
(13,298,912)
(186,240)
(13,485,152
Balances at December 31, 2020
69,361,883
693
71,355,616
714 108,369,688
4,037,628
(32,855,049)
—
79,553,674
Share-based compensation expense (Note 24)
—
—
—
—
2,552,318
—
—
—
2,552,318
Loss from sale of equity interests in subsidiaries (Note 3)
—
—
—
—
(37,331)
—
—
—
(37,331
Conversion of Class B Ordinary shares into Class A Ordinary shares (Note 21)
12,000,000
120
(12,000,000)
(120)
—
—
—
—
—
Issuance of restricted shares units
12,220,000
122
—
—
(122)
—
—
—
—
Proceeds from offering, net
40,000,000
400
—
—
8,062,977
—
—
—
8,063,377
Foreign currency translation
—
—
—
—
—
(5,560,452)
—
57
(5,560,395
Net loss
—
—
—
—
—
—
(55,655,198)
(29,819)
(55,685,017
Balances at December 31, 2021
133,581,883
1,335
59,355,616
594 118,947,530
(1,522,824)
(88,510,247)
(29,762)
28,886,626
The accompanying notes are an integral part of these consolidated financial statements.
Table of Contents
F-7
ECMOHO LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021
Year Ended December 31,
2019
2020
2021
US$
US$
US$
Cash flows from operating activities:
Net Income/(loss)
1,934,898
(13,485,152)
(55,685,017)
Adjustments to reconcile net income/(loss) to net cash (used in) provided by operating activities:
Depreciation and amortization expense
996,715
828,546
1,128,169
Provision for/(reversal of) allowance of doubtful accounts
93,737
(39,210)
7,612,174
Inventory provision
1,194,496
548,109
4,634,522
Impairment loss on long-term investment
—
—
7,267,596
Impairment loss on property and equipment
—
—
476,762
Gain on disposal of property and equipment
—
—
(2,815)
Deferred tax benefit/(expenses)
192,741
(6,582)
(3,054,564)
Share-based compensation
1,575,029
474,559
2,552,318
Amortization of right-of-use asset and interest of lease liabilities
1,636,237
1,511,607
1,058,998
Changes in operating assets and liabilities
Accounts receivable
(17,164,688)
9,978,211
21,792,022
Inventories
2,497,477
15,161,760
6,864,671
Prepayments and other current assets
(11,008,829)
13,055,163
2,671,987
Other non-current assets
(374,253)
49,917
456,108
Accounts payable
3,648,039
(2,429,356)
10,303,346
Amounts due to related parties
488,186
(746,904)
(865,544)
Advance from customers
(1,911,843)
(335,822)
226,143
Tax payable
177,502
401,915
(466,701)
Salary and welfare payables
(1,058,214)
153,700
(67,678)
Operating lease liabilities
(1,494,644)
(1,851,577)
(909,887)
Accrued liabilities and other current liabilities
4,498,900
(1,668,167)
(1,914,065)
Other non-current liabilities
(110,431)
—
—
Net cash (used in)/provided by operating activities
(14,188,945)
21,600,717
4,078,545
Cash flows from investing activities:
Cash held at disposal entities
—
(559,590)
(5,562)
Proceeds from sale of equity interests in subsidiaries
—
710,392
—
Loss from sale of equity interests in subsidiaries
—
(40,019)
1,490
Purchases of property and equipment
(557,627)
(119,092)
(102,826)
Proceeds from disposal of property and equipment
—
55,454
7,718
Payments for software procurement
(255,380)
(141,393)
(170,908)
Proceeds from disposal of intangible assets
—
409
—
(Loan to) repayment from long-term investments investee
—
(646,000)
646,000
Purchase of long-term investment
—
(5,904,000)
(1,450,000)
Net cash used in investing activities
(813,007)
(6,643,839)
(1,074,088)
Cash flows from financing activities:
Cash payments for acquisition of equity interests of ECMOHO Shanghai for Reorganization purpose (Note 1(b))
(4,261,580)
—
—
Subscription fees received from the Founders of ECMOHO Shanghai for Reorganization purpose (Note 1(b))
9,261,300
—
—
Subscription fees received from the Round A and Round B Investors of ECMOHO Shanghai for Reorganization purpose (Note 1(b))
89,222
—
—
Proceeds from borrowings
50,434,437
105,033,389
30,550,799
Repayments of borrowings
(37,295,468)
(122,724,334)
(37,349,478)
Cash received from maturity of loan deposits (Note 9)
861,268
430,034
—
Cash payment for loan deposits (Note 9)
(854,188)
—
—
Contribution from non-controlling interests shareholders
29,196
—
—
Payment for acquisition of non-controlling interests
(170,324)
—
—
Payment for acquisition of redeemable non-controlling interests (Note 20)
(2,215,392)
(3,120,583)
—
Proceeds from issuance of ordinary shares upon Initial Public Offering and over-allotment option, net of payment of cost of issuance/(Payment of
Initial Public Offering costs)
35,020,614
—
—
Capital injection from non-controlling interests shareholders
595,482
—
—
Proceeds (repayment) of borrowings from related parties
4,000,000
(600,000)
(990,000)
Proceeds of advances from related parties
9,436,151
3,409,587
2,186,806
Repayment of advances to related parties
(10,593,662)
(5,214,261)
(3,232,578)
Proceed from offering, net
—
—
8,116,313
Net cash provided by/(used in) financing activities
54,337,056
(22,786,168)
(718,138)
Effect of exchange rate change on cash, cash equivalents and restricted cash
(1,201,068)
2,014,703
(3,947,039)
Net change in cash, cash equivalents and restricted cash
38,134,036
(5,814,587)
(1,660,720)
Cash, cash equivalents and restricted cash at beginning of year
12,964,859
51,098,895
45,284,308
Cash, cash equivalents and restricted cash at end of year
51,098,895
45,284,308
43,623,588
Supplemental disclosure of cash flow information:
Interest paid
(2,531,209)
(2,422,116)
(1,365,964)
Income tax paid
—
—
—
Non-cash financing and investing activities
Accretion to redemption value of convertible redeemable preferred shares
1,022,461
—
—
Accretion to redemption value of redeemable non-controlling interests
311,757
—
—
Payables for the acquisition of redeemable non-controlling interests (Note 20)
(3,120,583)
—
—
Operating lease right-of-use assets obtained in exchange for operating lease liabilities (Note 11)
—
2,756,170
1,541,091
Termination of operating lease right-of-use assets and operating lease liabilities
—
—
2,001,317
Sale consideration from sale of equity interests in a subsidiary offset with amounts due to related parties (Note 3)
—
652,401
—
Recognition of other receivables from former subsidiaries offset with amounts due to related parties (Note 3)
—
2,295,358
—
Loss from sale of equity interests in subsidiaries to related parties recognized to additional paid-in capital (Note 3)
—
1,950,871
37,331
Accrued offering cost
—
—
52,936
The accompanying notes are an integral part of these consolidated financial statements.
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ECMOHO LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-8
1.
Organization and Principal Activities
(a) Principal activities
Ecmoho Limited (the “Company”), an exempted company with limited liability incorporated in the Cayman Islands, together with (i) its
various equity-owned consolidated subsidiaries, (ii) its controlled affiliate Shanghai Yibo Medical Device Co., Ltd (“Yibo or Yibo VIE”)
and Yang Infinity (Shanghai) Biotechnology Co., Limited (“Yang or Yang VIE”) and Yang VIE’s subsidiary are collectively referred to
as the “Group”. The Company serves as an investment holding company with no operations of its own. The Group is primarily engaged
in e-commerce business and sells products to consumers and retailers. The Group also provides services including online store operating
services, promotion and marketing services to its brand partners and other brand customers.
As of December 31, 2021, the Company’s principal subsidiaries and VIEs are as follows:
Percentage
of direct
Date of
Place of
or indirect
Principle
Name of subsidiaries and VIEs
establishment/acquisition
incorporation
ownership
activities
Subsidiaries of the Company:
ECMOHO (Hong Kong) Health
Technology Limited
(“ECMOHO HK”)
Established on June 27, 2018
Hong Kong
100.00 % Investment holding
Shanghai ECMOHO Health
Biotechnology Co. Limited
(“ECMOHO Shanghai”)
Established on December 23, 2011
PRC
100.00 % Product sales and services
Jianyikang Health Technology
(Shanghai) Co., Limited
Established on May 21, 2018
PRC
100.00 % Product sales
Ecmoho (Hong Kong) Limited
Established on April 1, 2015
Hong Kong
100.00 % Product sales and services
Import It Corp.
Established on September 4, 2012
BVI
100.00 % Product sales and services
Shanghai Tonggou Information
Technology Co., Limited
Established on May 20, 2013
PRC
100.00 %
Product sales and services
Yijiasancan (Shanghai) E-commerce Co., Ltd.
Established on August 21, 2013
PRC
100.00 % Product sales and services
Shanghai Hengshoutang Health
Technology Co., Limited
Established on April 11, 2016 and
divested in October 2020
PRC
70.00 % Product sales
Qinghai Hengshoutang Plateau
Medicine Co., Limited
Acquired on March 21, 2017 and
divested in October 2020
PRC
70.00 % Product sales
Shanghai Jieshi Technology Co.,
Limited
Acquired on December 16, 2016 and
disposed in July 2020
PRC
100.00 % Product sales
Shanghai ECMOHO Health
Technology Co., Limited
Established on May 5, 2015
PRC
100.00 % Product sales
Hangzhou Duoduo Supply Chain
Management Co., Limited
Acquired on April 25, 2017
PRC
100.00 % Bonded area warehousing
ECMOHO Co., Ltd. (Korea)
Established on August 27, 2018
Korea
100.00 % Product sales
Yi Ling (Shanghai) Information
Technology Co., Limited
Established on August 30, 2018
PRC
100.00 % Intercompany services
Xianggui (Shanghai)
Biotechnology Co., Ltd.
Established on September 28, 2018
and divested in April 2020
PRC
60.00 % Product sales and services
Shanghai Juyi
Information Technology
Co., Ltd. (1)
Established on October 15, 2018 and
divested in September 2021
PRC
100.00 % Product sales and services
Yipinda (Shanghai)
Health Technology
Co., Ltd.
Established on February 27, 2019
PRC
100.00 % Product sales
ECMOHO Co.,
Ltd. (Japan) (2)
Established on July 15, 2016,
dissolved in August 2021
Japan
100.00 % Inactive
Ecmoho USA Ltd.
Established on October 26, 2017
USA
100.00 % Inactive
Shanghai Yiheng Yimei
Biotechnology Co., Ltd.
(Yimei Biotech) (2)
Established on September 22, 2020,
dissolved in July 2021
PRC
51.00 % Inactive
Shanghai Kailing Health
Technology Co., Ltd.
(Kailing)
Established on March 5, 2020
PRC
51.00 % Product sales
Shanghai Ranyao Digital
Media Technology Co.,
Ltd. (Ranyao)
Established on September 30, 2020,
increased ownership to 90% in
October 2021
PRC
90.00 % Startup
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ECMOHO LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-9
Guangzhou ECMOHO Health
Technology Co., Limited
(Guangzhou Yiheng) (2)
Established on August 14, 2020,
dissolved in July 2021
PRC
51.00 % Inactive
Shanghai Hengcang Supply
Chain Management Co., Ltd.
Established on August 1, 2018
PRC
100.00 % Warehousing service
Zhengzhou ECMOHO
Health Technology
Co., Ltd. (2)
Established on July 6, 2015, dissolved
in July 2021
PRC
100.00 % Inactive
ECMOHO (Hong Kong) Development
Limited (“ECMOHO Development”)
Established on December 28, 2020
Hong Kong
100.00 % Startup
ECMOHO (Hong Kong) Information
Management Limited (“ECMOHO
Information Management”)
Established on December 28, 2020
Hong Kong
100.00 % Startup
Shanghai Kangyao Technology
Co., Limited
Established on January 8, 2021
PRC
51.00 % Product sales
Shanghai Ranyi Information Technology
Co., Limited
Established on January 14, 2021
PRC
51.00 % Product sales and services
Wuhu Hengcang Supply Chain
Management Co., Limited
Established on January 18, 2021
PRC
100.00 % Storage service
Shanghai Yiyao Information Technology
Co., Limited
Established on January 11, 2021
PRC
51.00 % Product sales
Shanghai Boyi Information Technology
Co., Limited (1)
Established on January 14, 2021 and
divested in April 2021
PRC
51.00 % Product sales
Y Tech (Hong Kong) Health Technology Limited
Established on January 22, 2021
Hong Kong
51.00 % Inactive
May Sky (Hong Kong) Health Management Limited
Established on January 20, 2021
Hong Kong
51.00 % Inactive
ECMOHO (Hong Kong) International Trade Company Limited
Established on January 4, 2021
Hong Kong
51.00 % Inactive
Variable Interest Entity (“VIE”):
Shanghai Yibo Medical Device Co.,
Ltd (“Yibo or Yibo VIE”)
Established on April 21, 2017
PRC
100.00 %
Operates the Company’s own online e-
commerce platform
Yang Infinity (Shanghai)
Biotechnology Co., Limited
(“Yang or Yang VIE”)
Established on November 15, 2018
and divested in April 2020
PRC
60.00 % Product sales
Subsidiary of Variable Interest Entity
(“VIE subsidiary”):
Yinchuan Xianggui Internet Hospital
Co., Ltd
Established on May 17, 2019 and
divested in April 2020
PRC
60.00 % Product sales
(1) Disposed during the year ended December 31, 2021 (see item d below).
(2) The dissolution of ECMOHO Co. Ltd (Japan), Shanghai Yiheng Yimei Biotechnology Co., Ltd., Guangzhou ECMOHO Health
Technology Co., Limited and Zhengzhou ECMOHO Health Technology Co., Ltd. did not have a material impact to the Company’s
consolidated financial statements.
(b) Reorganization
The Group commenced its operations in December 2011 through ECMOHO Shanghai, a People’s Republic of China (“the PRC”)
company established by Ms. Zoe Wang and Mr. Leo Zeng, who are in spousal relationship (collectively known as “the Founders”).
In 2015 and 2016, ECMOHO Shanghai offered 19% and 12% of its equity interests with preferential rights to Round A and Round B
Investors with the consideration of US$ 13,081,880 and US$ 24,000,000, respectively (Note 19).
In April 2018, one of the Round A Investors (“Exit Investor”) sold all its 8.36% equity interest with preferential rights to the Founders
for cash (Note 19).
To facilitate offshore financing, an offshore corporate structure was formed in August 2018 (the “Reorganization”), which was carried
out as follows:
1)
In June 2018, the Company was incorporated in the Cayman Islands by the Founders.
2)
In June 2018, ECMOHO HK was incorporated in Hong Kong with 100% ownership by the Company.
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ECMOHO LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-10
3)
In July 2018, ECMOHO HK legally acquired 97.5% of the equity interest of ECMOHO Shanghai from the Founders and most of
the Investors, except for 2.5% equity interests held by certain of the Investors (“NCI holders”), with the cash consideration of US$
18,737,426. Such consideration shall be used by these Founders and Investors to subscribe ordinary shares and preferred shares of
the Company to exchange its equity interests of ECMOHO Shanghai for Reorganization purpose. As of December 31, 2018,
consideration of US$14,475,846 has been paid, and consideration of US$ 4,261,580 remained outstanding and was presented as
amounts due to related parties on the consolidated balance sheets. The remaining consideration of US$ 4,261,580 was fully paid in
2019.
4)
In August 2018, the Founders subscribed 9,519,000 Class A Ordinary Shares and 75,150,400 Class B Ordinary Shares of the
Company with the cash consideration of US$ 15,261,676 (part of the above mentioned cash consideration of US$ 18,737,426), in
the same proportions as the percentage of equity interest they held in ECMOHO Shanghai before the Reorganization. As of
December 31, 2018, consideration of US$ 6,000,376 has been received, and consideration of US$ 9,261,300 remained outstanding
and was presented as subscriptions receivable, a contra-equity balance on the consolidated balance sheets. The remaining
consideration of US$ 9,261,300 was fully received in 2019.
The 9,519,000 Class A Ordinary Shares were in connection with the 8.36% equity interests the Founder purchased from the Exit
Investor. The Founders gave up the preferential rights associated with the equity interests simultaneously with the issuance of such
Class A Ordinary Shares (Note 19). In August 2018, the Founders sold 8,880,894 out of the 9,519,000 Class A Ordinary Shares to
third party investors (Note 21).
5)
In September 2018, the Round A and Round B Investors, except for the NCI holders, subscribed for 9,519,000 Class A-1 and
10,817,000 Class A-2 Ordinary Shares with preferential rights of the Company with the total cash consideration of US$ 3,475,750
(the remaining part of the above mentioned cash consideration of US$ 18,737,426), all in the same proportions, on an as converted
basis, as the percentage of equity interest they held in ECMOHO Shanghai before the Reorganization. As of December 31, 2018,
consideration of US$ 3,386,528 has been received, and consideration of US$ 89,222 remained outstanding and was presented as
subscriptions receivable, a contra mezzanine equity balance on the consolidated balance sheets. The remaining consideration of
US$ 89,222 was fully received in 2019 (Note 19).
The Reorganization was a recapitalization with no substantial changes in the shareholding of the Company. Therefore, it was
accounted for using historical costs with assets and liabilities reflected at carryover basis. Accordingly, the accompanying
consolidated financial statements have been prepared as if the current corporate structure had been in existence throughout the
periods.
(c) VIE arrangements
To comply with the relevant PRC laws and regulations, the Company operates its internet-based business in which foreign investment is
restricted or prohibited through its Yibo VIE. To provide the Company the control of the Yibo VIE, ECMOHO Shanghai entered into a
series of contractual arrangements with the Yibo VIE or its equity holders as follows:
Exclusive Technology Consulting and Service Agreement
Under the exclusive technology consulting and service agreement between ECMOHO Shanghai and Yibo VIE, ECMOHO Shanghai has
the exclusive right to provide to Yibo VIE consulting and services related to, among other things, research and development, system
operation, advertising, internal training and technical support. ECMOHO Shanghai has the exclusive ownership of intellectual property
rights created as a result of the performance of this agreement. In exchange, Yibo VIE agrees to pay ECMOHO Shanghai an annual
service fee, at an amount that is agreed by ECMOHO Shanghai. Unless ECMOHO Shanghai
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ECMOHO LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-11
provides valid notice of termination 90 days prior to the term of agreement ending, this agreement will remain effective for 10-years to
be automatically renewed for another 10 years thereafter.
Powers of Attorney
The shareholders of Yibo VIE, have each executed a power of attorney to irrevocably appoint ECMOHO Shanghai or its designated
person as their attorney-in-fact to exercise all of their rights as shareholders of Yibo VIE, including, but not limited to, the right to
convene and attend shareholder meetings, vote on any resolution that requires a shareholder vote, such as the appointment or removal of
directors and executive officers, and other voting rights pursuant to the then-effective articles of association of Yibo VIE. The power of
attorney will remain in force for so long as the controlling shareholders remain the shareholders of Yibo VIE.
Equity Pledge Agreement
Pursuant to the equity pledge agreement among ECMOHO Shanghai, Yibo VIE, and the shareholders of Yibo VIE, the shareholders
pledged all of their equity interests in Yibo VIE to guarantee their and Yibo VIE’s performance of their obligations under the contractual
arrangements including the exclusive technology consulting and service agreement, the exclusive option agreement and the power of
attorney. In the event of a breach by Yibo VIE or its shareholders of contractual obligations under these agreements, ECMOHO
Shanghai, as pledgee, will have the right to dispose of the pledged equity interests in Yibo VIE. The shareholders of Yibo VIE also
undertake that, during the term of the equity pledge agreement, they will not dispose of the pledged equity interests or create or allow
any encumbrance on the pledged equity interests. During the term of the equity pledge agreement, ECMOHO Shanghai has the right to
receive all of the dividends and profits distributed on the pledged equity interests. As of the date of this prospectus, the equity pledge for
the Company’s variable interest equity has been registered with local PRC authorities.
Spousal Consent Letters
Pursuant to the spousal consent letter, each of the respective spouse of the shareholders of Yibo VIE, unconditionally and irrevocably
agreed that the equity interest in Yibo VIE held by and registered in the name of his/her spouse will be disposed of pursuant to the equity
pledge agreement, the exclusive call option agreement and the power of attorney. The spouse agreed not to assert any rights over the
equity interest in Yibo VIE held by his/her spouse. In addition, in the event that the spouse obtains any equity interest in Yibo VIE held
by his/her spouse for any reason, the spouse agreed to be bound by the contractual arrangements.
Exclusive Call Option Agreement
Pursuant to the exclusive call option agreement between ECMOHO Shanghai, Yibo VIE and its shareholders, the shareholders of Yibo
VIE irrevocably grant ECMOHO Shanghai an exclusive option to purchase, at its discretion, or have its designated person to purchase,
to the extent permitted under PRC law, all or part of the equity interests in Yibo VIE. The purchase price shall be the lowest price
permitted by applicable PRC law. In addition, Yibo VIE has granted ECMOHO Shanghai an exclusive option to purchase, at its
discretion, or have its designated person to purchase, to the extent permitted under PRC law, all or part of Yibo VIE’s assets at the book
value of such assets, or at the lowest price permitted by applicable PRC law, whichever is higher. The shareholders of Yibo VIE
undertake that, without the Company’s prior written consent or the prior written consent of ECMOHO Shanghai, they may not increase
or decrease the registered capital, dispose of its assets, incur any debt or guarantee liabilities, enter into any material purchase
agreements, conduct any merger, acquisition or investments, amend its articles of association or provide any loans to third parties. The
exclusive call option agreement will remain effective until all equity interest in Yibo VIE held by its shareholders and all assets of Yibo
VIE are transferred or assigned to ECMOHO Shanghai or its designated representatives.
Yibo VIE, under Generally Accepted Accounting Principles in the United States (“US GAAP”), is considered to be a consolidated VIE
in which the Company, or its subsidiaries, through contractual arrangements, bears the risks of, and enjoys the
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ECMOHO LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-12
rewards normally associated with, ownership of the entity, and therefore the Company or one of its subsidiaries is the primary
beneficiary of the entity. Through the aforementioned contractual agreements, the Company has the ability to:
●
exercise control over Yibo VIE whereby having the power to direct Yibo VIE’s activities that most significantly drive the
economic results of Yibo VIE;
●
receive substantially all of the economic benefits and residual returns, and absorb substantially all the risks and expected losses
from the Yibo VIE as if it was their sole shareholder; and
●
have an exclusive option to purchase all of the equity interests in Yibo VIE.
In June 2019, Yang VIE entered into the VIE Agreements, including Exclusive Technology Support and Consulting Services
Agreement, Powers of Attorney, Equity Pledge Agreement, Spousal Consent Letters and Exclusive Call Option Agreement which
contain terms substantially similar to those entered into between Yibo VIE and ECMOHO Shanghai in 2018. Yang VIE was disposed in
April 2020. See Note 3 - Divestment of subsidiaries and deconsolidation of VIEs for more details.
Management therefore concluded that the Company, through the above contractual arrangements, has the power to direct the activities
that most significantly impact the VIEs’ economic performance, bears the risks of and enjoys the rewards normally associated with
ownership of the VIEs, and therefore the Company is the ultimate primary beneficiary of the VIEs. Consequently, the financial results of
the VIEs were included in the Group’s consolidated financial statements.
The following table sets forth the assets, liabilities, results of operations and cash flows of VIEs and its subsidiary, which are included in
the Group’s consolidated financial statements. Transactions between the VIEs and VIE subsidiary are eliminated in the balances
presented below:
As of December 31,
2020
2021
US$
US$
Assets
Current assets
Cash and cash equivalents
5,511
9,570
Prepayments and other current assets
11,238
11,601
Total current assets
16,749
21,171
Total assets
16,749
21,171
Liabilities
Current liabilities
Salary and welfare payables
4,604
5,280
Tax payables
250
—
Accrued liabilities and other current liabilities
122,915
223,106
Total current liabilities
127,769
228,386
Total liabilities
127,769
228,386
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ECMOHO LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-13
Year Ended December 31,
2019
2020
2021
US$
US$
US$
Net revenues
29,122
66,612
—
Net losses
(544,953)
(161,892)
(92,497)
Year Ended December 31,
2019
2020
2021
US$
US$
US$
Net cash (used in)/provided by operating activities
(434,616)
763
3,884
Net cash provided by/(used in) financing activities
484,980
(25,636)
—
Net increase/(decrease) in cash and cash equivalents
50,364
(24,873)
3,884
In accordance with the aforementioned VIE agreements, the Company has power to direct activities of the VIEs, and can have assets
transferred out of VIEs. Therefore, the Company considers that there is no asset in VIEs that can be used only to settle obligations of the
VIEs, except for registered capital, as of December 31, 2020 and 2021. As the VIEs and their subsidiaries were incorporated as limited
liability Company under the PRC Company Law, the creditors do not have recourse to the general credit of the Company for all the
liabilities of the VIEs.
There is currently no contractual arrangement that would require the Company to provide additional financial support to the VIEs. As
the Group is conducting certain businesses in the PRC through the VIEs, the Group may provide additional financial support on a
discretionary basis in the future, which could expose the Group to a loss.
There is no VIE where the Company has variable interest but is not the primary beneficiary.
The Group believes that the contractual arrangements among its shareholders and ECMOHO Shanghai comply with PRC law and are
legally enforceable. However, uncertainties in the PRC legal system could limit the Company’s ability to enforce these contractual
arrangements and if the shareholders of the VIEs were to reduce their interest in the Company, their interests may diverge from that of
the Company and that may potentially increase the risk that they would seek to act contrary to the contractual terms.
The Company’s ability to control the VIEs also depends on the voting rights proxy and the effect of the share pledge under the Equity
Pledge Agreement and ECMOHO Shanghai has to vote on all matters requiring shareholder approval in the VIEs. As noted above, the
Company believes this voting right proxy is legally enforceable but may not be as effective as direct equity ownership.
(d) Divestitures
Yang Infinity (Shanghai) Biotechnology Co., Limited and Xianggui (Shanghai) Biotechnology Co., Ltd.
On April 27, 2020, Zoe Wang, the Group’s Chairman and Chief Executive Officer, and Leo Zeng, the Group’s Chief Operating Officer,
(collectively “Sellers”) entered into a Share Transfer Agreement (the “Equity Transfer Agreement”) with Shanghai Xianggui Health
Management Co. Ltd. (“Xianggui Health Management”), a related party. Pursuant to the Equity Transfer Agreement, the Sellers shall
sell 100% equity interests in Yang VIE, which is a VIE of Xianggui (Shanghai) Biotechnology Co., Ltd.
On April 27, 2020, Yi Ling (Shanghai) Information Technology Co., Limited (“Yi Ling”), the Group’s wholly owned subsidiary, entered
into a Share Transfer Agreement (the “Equity Transfer Agreement”) with Xianggui Health Management, a related party. Pursuant to
the Equity Transfer Agreement, Yi Ling shall sell all of its 60% equity interests in Xianggui (Shanghai) Biotechnology Co., Ltd.
(“Xianggui”), the Group’s 60% owned subsidiary, to Xianggui Health Management in exchange for RMB3,400,000 (approximately US$
521,000). The Group’s decision to dispose of Yang VIE and Xianggui is to restructure its
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ECMOHO LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-14
operating entities to improve its operating results within the e-commerce health and wellness industry. See Note 3 - Divestment of
subsidiaries and deconsolidation of VIEs for more details.
Shanghai Jieshi Technology Co., Limited
On July 9, 2020, Yijiasancan (Shanghai) E-commerce Co., Ltd. (“Yijiasancan”), the Group’s wholly owned subsidiary, entered into a
Share Transfer Agreement (the “Equity Transfer Agreement”) with Shanghai Xianggui Health Technology Co. Ltd. (“Xianggui Health
Technology”), a related party. Pursuant to the Equity Transfer Agreement, Yijiasancan shall sell 100% equity interests in Shanghai Jieshi
Technology Co., Limited (“Shanghai Jieshi”), the Group’s wholly owned subsidiary, to Xianggui Health Technology in exchange for
RMB1,000,000 (approximately US$ 153,000). The Group’s decision to dispose of Shanghai Jieshi is to restructure its operating entities
to improve its operating results within the e-commerce health and wellness industry. See Note 3 - Divestment of subsidiaries and
deconsolidation of VIEs for more details.
Shanghai Hengshoutang Health Technology Co., Limited
On October 28, 2020, Yijiasancan, the Group’s wholly owned subsidiary, entered into a Share Transfer Agreement (the “Equity Transfer
Agreement”) with Xianggui Health Technology, a related party. Pursuant to the Equity Transfer Agreement, Yijiasancan shall sell 70%
equity interests in Shanghai Hengshoutang Health Technology Co., Limited (“Shanghai Hengshoutang”), the Group’s wholly owned
subsidiary, to Xianggui Health Technology in exchange for RMB5,000,000 (approximately US$ 766,000). The Group’s decision to
dispose of Shanghai Hengshoutang is to restructure its operating entities to improve its operating results within the e-commerce health
and wellness industry. See Note 3 - Divestment of subsidiaries and deconsolidation of VIEs for more details.
Shanghai Juyi Information Technology Co., Ltd.
On September 2, 2021, Yijiasancan (Shanghai) E-commerce Co., Ltd. (“Yijiasancan”), the Group’s wholly owned subsidiary, entered
into a Share Transfer Agreement (the “Equity Transfer Agreement”) with two individual related parties, among which, 70% was
transferred to Daniel Wang, the Director, and 20% was transferred to Wang Wei , the IT Director, both related parties. Pursuant to the
Equity Transfer Agreement, Yijiasancan shall sell 90% equity interests in Shanghai Juyi Information Technology Co., Limited
(“Shanghai Juyi”), the Group’s wholly owned subsidiary, to two related parties, collectively at 90%, and the consideration is zero. The
Group’s decision to dispose of Shanghai Juyi is to restructure its operating entities to improve its operating results within the e-
commerce health and wellness industry. See Note 3 - Divestment of subsidiaries and deconsolidation of VIEs for more details.
Shanghai Boyi Information Technology Co., Ltd
On March 22, 2021, Shanghai ECMOHO Health Biotechnology Co., Ltd. (“ECMOHO Shanghai”), the Group’s wholly owned
subsidiary, entered into a Share Transfer Agreement (the “Equity Transfer Agreement”) with Cui Yun and Wang Yang, both third parties.
Pursuant to the Equity Transfer Agreement, ECMOHO Shanghai shall sell 51% equity interests in Shanghai Boyi Information
Technology Co., Limited (“Shanghai Boyi”), the Group’s 51% owned subsidiary, to Cui Yun and Wang Yang at a consideration of RMB
2 (US$ 0.3). The Group’s decision to dispose of Shanghai Boyi is to restructure its operating entities to improve its operating results
within the e-commerce health and wellness industry. See Note 3 - Divestment of subsidiaries and deconsolidation of VIEs for more
details.
2. Liquidity Consideration and Principal Accounting Policies
(a)
Liquidity
In assessing the Group’s liquidity, the Group monitors and analyzes its cash on-hand and its operating and capital expenditure
commitments. The Group’s liquidity needs are to meet its working capital requirements, operating expenses and capital expenditure
obligations. Debt financing in the form of short-term borrowings, loans from related parties and equity financing have
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F-15
been utilized to finance the working capital requirements of the Group. As of December 31, 2021, the Group’s working capital was
approximately $23.2 million and the Group had cash of approximately $43.6 million.
The Group expects its cash on hand is sufficient to finance the working capital requirements of the Group within the normal operating
cycle of a twelve-month period from the date of this report. If the Group is unable to have sufficient fund to finance the working capital
requirements of the Group within the normal operating cycle of a twelve-month period from the date of this report, the Group may have
to consider supplementing its available sources of funds through the following sources:
●
the Group will continuously seek equity financing to support its working capital;
●
other available sources of financing from PRC banks and other financial institutions;
●
financial support and credit guarantee commitments from the Group’s related parties.
Based on the above considerations, the Group’s management is of the opinion that it has sufficient funds to meet the Group’s working
capital requirements and current liabilities as they become due one year from the date of this report. However, there is no assurance that
management will be successful in their plans. There are a number of factors that could potentially arise that could undermine the
Group’s plans, such as changes in the demand for the Group’s products, PRC government policy, economic conditions, and competitive
pricing in the industries that the Group operates in.
(b)
Basis of preparation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in
the United States of America (“US GAAP”) pursuant to the rules and regulations of the Securities Exchange Commission (“SEC”).
The Reorganization was a recapitalization with no substantial changes in the shareholding of the Company. Accordingly, the
accompanying consolidated financial statements have been prepared as if the current corporate structure had been in existence
throughout the periods.
Significant accounting policies followed by the Company in the preparation of the accompanying consolidated financial statements are
summarized below.
(c)
Basis of consolidation
The Group’s consolidated financial statements include the financial statements of the Company, its subsidiaries and its VIEs for which
the Company is the primary beneficiary. All transactions and balances among the Company, its subsidiaries, its VIEs have been
eliminated upon consolidation.
A subsidiary is an entity in which the Company, directly or indirectly, controls more than one half of the voting powers; or has the power
to appoint or remove the majority of the members of the board of directors; or to cast a majority of votes at the meeting of directors; or
has the power to govern the financial and operating policies of the investee under a statute or agreement among the shareholders or
equity holders. Non-controlling interest represents the portion of the net assets of subsidiaries attributable to interests that are not owned
or controlled by the Group. The non-controlling interest is presented in the consolidated balance sheets, separately from equity
attributable to the shareholders of the Group. Non-controlling interest’s operating results are presented on the face of the consolidated
statements of operations and comprehensive income (loss) as an allocation of the total income (loss) for the year between non-
controlling shareholders and the shareholders of the Group.
A VIE is an entity in which the Company, through contractual agreements, has the power to direct activities of, bears the risks of, and
enjoys the rewards normally associated with ownership of the entity. In determining whether the Company or its subsidiaries
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F-16
are the primary beneficiary, the Company considered whether it has the power to direct activities that are significant to the VIE’s
economic performance, and also the Group’s obligation to absorb losses of the VIEs that could potentially be significant to the VIEs or
the right to receive benefits from the VIEs that could potentially be significant to the VIEs. ECMOHO Shanghai and ultimately the
Company hold all the variable interests of the VIEs, and has been determined to be the primary beneficiary of the VIEs.
(d)
Use of estimates
The preparation of the Group’s consolidated financial statements in conformity with US GAAP requires management to make estimates
and assumptions that affect the 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.
The Company believes that revenue recognition, sales return, sales incentive, inventory write-down, rebates, realization of deferred tax
assets, assessment for useful life and impairment of long-lived assets, allowance for doubtful accounts, incremental borrowing rates used
in lease liabilities calculations, impairment of long-term investment and valuation of ordinary shares and preferred shares requires
significant judgments and estimates used in the preparation of its consolidated financial statements.
Management bases the estimates on historical experience and on various other assumptions as discussed elsewhere to the consolidated
financial statements that are believed to be reasonable, the results of which form the basis for making judgments about the carrying
values of assets and liabilities. On an ongoing basis, management evaluates its estimates based on information that is currently available.
Changes in circumstances, facts and experience may cause the Company to revise its estimates. Changes in estimates are recorded in the
period in which they become known. Actual results could materially differ from these estimates.
(e)
Functional Currency and Foreign Currency Translation
The Group uses United States dollars (“US$” or “USD”) as its reporting currency. The functional currency of the Company and its
subsidiaries incorporated outside of PRC is US$, while the functional currency of the PRC entities in the Group is RMB as determined
based on the criteria of ASC 830, Foreign Currency Matters.
Transactions denominated in other than the functional currencies are translated into the functional currency of the entity at the exchange
rates prevailing on the transaction dates. Financial assets and liabilities denominated in other than the functional currency are translated
at the balance sheet date exchange rate. The resulting exchange differences are included in the consolidated statements of operations and
comprehensive income/(loss) as foreign exchange related gains.
The financial statements of the Group’s entities using functional currency other than US$ are translated from the functional currency to
the reporting currency, US$. Assets and liabilities of the Group’s subsidiaries incorporated in PRC are translated into US$ at balance
sheet date exchange rates, Income and expense items are translated at average exchange rates prevailing during the fiscal year,
representing the index rates stipulated by the People’s Bank of China. Translation adjustments arising from these are reported as foreign
currency translation adjustments and are shown as accumulated other comprehensive income/(loss) on the consolidated financial
statement.
The exchange rates used for translation on December 31, 2020 and 2021 were US$1.00=RMB 6.5249 and US$1.00=RMB 6.3757,
respectively, representing the index rates stipulated by the People’s Bank of China. The exchange rates used for translation for the years
ended December 31, 2019, 2020 and 2021 were US$1.00=RMB 6.8985, US$1.00=RMB 6.8976 and US$1.00=RMB 6.4515,
respectively, representing the index rates stipulated by the People’s Bank of China.
(f)
Fair value of financial instruments
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
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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.
The established fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level
of input that is significant to the fair value measurement.
The three levels of inputs that may be used to measure fair value include:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Observable, market-based inputs, other than quoted prices, in active markets for identical assets or liabilities.
Level 3: Unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or
liabilities.
Accounting guidance also describes three main approaches to measuring the fair value of assets and liabilities: (1) market approach;
(2) income approach and (3) cost approach. The market approach uses prices and other relevant information generated from market
transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future
amounts to a single present value amount. The measurement is based on the value indicated by current market expectations about those
future amounts. The cost approach is based on the amount that would currently be required to replace an asset.
The Group does not have any non-financial assets or liabilities that are recognized or disclosed at fair value in the financial statements
on a recurring basis.
The Group’s financial instruments consist principally of cash and cash equivalents, restricted cash, accounts receivable, deposits, loan
deposits, accounts payable, operating lease liabilities, accrued liabilities and other current liabilities, short-term borrowings, amounts
due to related parties and other liabilities.
As of December 31, 2020 and 2021, the carrying values of cash and cash equivalents, restricted cash, accounts receivable, deposits, loan
receivables, loan deposits, accounts payable, operating lease liabilities, accrued liabilities and other current liabilities, short-term
borrowings, amounts due to related parties and other liabilities approximated their fair values reported in the consolidated balance sheets
due to the short term maturities of these instruments.
(g)
Cash, cash equivalents and restricted cash
Cash and cash equivalents include cash in bank and time deposits placed with banks, other financial institutions and third party payment
processors, which have original maturities of three months or less at the time of purchase and are readily convertible to known amounts
of cash.
Restricted cash mainly represents secured deposits held in designated bank accounts for drawdown of bank loans.
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Cash, cash equivalents and restricted cash as reported in the consolidated statements of cash flows are presented separately on the
consolidated balance sheet as follows:
As of December 31,
2019
2020
2021
US$
US$
US$
Cash and cash equivalents
49,098,841
45,284,308
43,623,588
Restricted cash
2,000,054
—
—
Total
51,098,895
45,284,308
43,623,588
(h)
Accounts receivable, net
Accounts receivable are presented net of allowance for doubtful accounts. The Group maintains an allowance for doubtful accounts
which reflects its best estimate of amounts that potentially will not be collected. The Group determines the allowance for doubtful
accounts on general basis taking into consideration various factors including but not limited to historical collection experience and
credit-worthiness of the customers as well as the age of the individual receivables balance. Additionally, the Group makes specific bad
debt provisions based on any specific knowledge the Group has acquired that might indicate that an account is uncollectible. The facts
and circumstances of each account may require the Group to use substantial judgment in assessing its collectability.
(i)
Inventories
Inventories are stated at the lower of cost or net realizable value. Cost is determined using the weighted average method. Provisions are
made for excessive, slow moving, expired and obsolete inventories as well as for inventories with carrying values in excess of net
realizable value . Certain factors could impact the realizable value of inventory, so the Group continually evaluates the recoverability
based on assumptions about customer demand and market conditions. The evaluation may take into consideration historical usage,
inventory aging, expiration date, expected demand, anticipated sales price, new product development schedules, the effect new products
might have on the sale of existing products, product obsolescence, customer concentrations, and other factors. The reserve or write-
down is equal to the difference between the cost of inventory and the estimated net realizable value based upon assumptions about future
demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory
reserves or write-downs may be required that could negatively impact the Group’s gross margin and operating results. If actual market
conditions are more favorable, the Group may have higher gross margin when products that have been previously reserved or written
down are eventually sold.
(j)
Loan receivables
Loan receivables are presented net of allowance for doubtful accounts. The Group reviews its loan receivables on a regular basis to
determine if the allowance is adequate and adjusts when necessary. The Group continues to evaluate the reasonableness of the allowance
policy and update it if necessary. For the years ended December 31, 2019, 2020 and 2021, there were no allowances recognized.
(k)
Property and equipment, net
Property and equipment are carried at cost less accumulated depreciation and amortization. Depreciation is calculated on a straight-line
basis over the following estimated useful lives, taking into account any estimated residual value. Residual rate is determined based on
the economic value of the property and equipment at the end of the estimated useful lives as a percentage of the original cost.
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The estimated useful lives and residual rates are as follows:
Classification
Useful years
Residual rate
Warehouse equipment
3 years
5 %
Furniture, computer and office
equipment
2 - 5 years
0%-5 %
Leasehold improvement
Over the shorter of the expected life of leasehold improvements or the lease term
0 %
Expenditures for maintenance and repairs are expensed as incurred. The gain or loss on the disposal of property and equipment is the
difference between the net sales proceeds and the carrying amount of the relevant assets and is recognized in the consolidated statements
of operations and comprehensive income/(loss).
(l)
Intangible assets, net
Software purchased from third parties are initially recorded at cost and amortized on a straight-line basis over the shorter of the useful
economic lives or stipulated period in the contract, which is usually 5 years.
Other separately identifiable intangible assets that have finite lives and continue to be amortized consist primarily of trademark and
business license purchased from third parties. The Company amortizes these intangible assets on a straight-line basis over their
estimated useful lives, which are 5 to 10 years.
The estimated life of amortized intangibles is reassessed if circumstances occur that indicate the life has changed.
(m)
Impairment of long-lived assets
For long-lived assets including property and equipment, intangible assets and other non-current assets, the Group evaluates for
impairment whenever events or changes (triggering events) indicate that the carrying amount of an asset may no longer be recoverable.
The Group assesses the recoverability of the long-lived assets by comparing the carrying value of the long-lived assets to the estimated
undiscounted future cash flows expected to receive from use of the assets and their eventual disposition. Such assets are considered to be
impaired if the sum of the expected undiscounted cash flows is less than the carrying amount of the assets. The impairment to be
recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. For the years
ended December 31, 2019, 2020 and 2021, impairment loss of long-lived assets was US$0, US$0 and US$476,762, which were
recorded in general and administrative expenses in the consolidated statements of operations and comprehensive income/(loss).
(n)
Long-term investment
The Group has elected to record its long-term investment on equity security without a readily determinable fair value at cost minus
impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar
investment of the same issue due to its non-marketable equity securities not qualifying for the practical expedient to estimate its fair
value in accordance with ASC 820-10-35-59. For the years ended December 31, 2019, 2020 and 2021, impairment loss of long-term
investment was US$0, US$0 and US$7,267,596.
(o)
Advances from customers
Certain third party customers pay in advance to purchase product goods. Cash proceeds received from customers are initially recorded
as advances from customers and are recognized as revenues when revenue recognition criteria are met.
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F-20
(p)
Deconsolidation
The Group accounts for the deconsolidation of a subsidiary by recognizing a gain or loss in net income/loss attributable to the parent,
measured as the difference between:
a.
The aggregate of all of the following:
1.
The fair value of any consideration received;
2.
The fair value of any retained noncontrolling investment in the former subsidiary at the date the subsidiary is deconsolidated;
3.
The carrying amount of any noncontrolling interest in the former subsidiary (including any accumulated other comprehensive
income attributable to the noncontrolling interest) at the date the subsidiary is deconsolidated.
b.
The carrying amount of the former subsidiary’s assets and liabilities.
If the deconsolidation transactions were transacted with related parties under common control, the Group should not recognize gain on
sales of the subsidiaries/VIEs and losses should be recognized by the Group only when an impairment in value is indicated. The Group
would recognize the net consideration as a contribution to capital as opposed to a gain.
(q)
Revenue recognition
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”) and
subsequently, the FASB issued several amendments which amends certain aspects of the guidance in ASC 2014-09 (ASU No. 2014-09
and the related amendments are collectively referred to as “ASC 606”). According to ASC 606, revenue is recognized when control of
the promised good or service is transferred to the customers, in an amount that reflects the consideration the Group expects to be entitled
to in exchange for those goods or services.
The Group adopted ASC 606 for all periods presented. Consistent with the criteria of Topic 606, the Group follows five steps for its
revenue recognition: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine
the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when
(or as) the entity satisfies a performance obligation.
The Group’s revenues are primarily derived from (i) product sales and (ii) services including online store operating services, promotion
and marketing services to its brand partners and other brand customers. Refer to Note 22 to the consolidated financial statements for
disaggregation of the Group’s revenue for the years ended December 31, 2019, 2020 and 2021.
When either party to a contract has performed, the Group presents the contract in the statement of financial position as a contract asset
or a contract liability, depending on the relationship between the entity’s performance and the customer’s payment.
A receivable is recorded when the Group has an unconditional right to consideration. A right to consideration is unconditional if only
the passage of time is required before payment of that consideration is due. A contract asset is recorded when the Group has transferred
products or services to the customer before payment is received or is due, and the Group’s right to consideration is conditional on future
performance or other factors in the contract. No contract asset was recorded as at December 31, 2020 and 2021.
If the Group recognizes a receivable before it transfers products to the customer, the Group will defer revenue, which is also defined as a
contract liability under the new revenue guidance. A contract liability is recorded when the Group’s obligation to transfer goods or
services to a customer has not yet occurred but for which the Group has received consideration from the customer. The Group presents
such amounts as advances from customers on the consolidated balance sheet.
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F-21
Product Sales
The Group selects, purchases and obtains direct control of the goods from its brand partners and/or their authorized distributors and sells
goods directly to end consumers through online stores it operates or to secondary distributors in accordance with distribution
agreements.
Revenue is recognized when consumers or secondary distributors physically accept the products after delivery, which is when the
control of products is transferred, and is recorded net of return allowances, value added tax and sales incentives, if any.
A majority of the Group’s consumers make online payments through third-party payment platforms when they place orders on the
Group’s online stores. The funds will not be released to the Group by these third-party payment platforms until the consumers accept the
products on the online platform.
Shipping and handling charges paid by customers are included in net revenues. The Group typically does not charge shipping fees on
orders exceeding a certain sale amount. Shipping and handling costs incurred by the Group are considered to be fulfillment activities
which are presented as part of the Group’s operating expenses.
Product Sales Consignment Arrangement
The Group also enters into arrangement with online platforms, where the Group retains control over the goods until a sale is made to the
end consumer. The Group considers the arrangement meet the indicators of consignment arrangement under ASC 606-10-55-80,
because (i) The Group does not relinquish control of the products, even though the online platform has physical possession of the goods.
The products are considered to be the Group’s own inventory until they are sold to the end consumers; (ii) The Group retains the right to
require the return of the goods held with the online platform; (iii) The online platforms have no obligation to pay for the products that
are in its physical possession.
Revenue under consignment arrangements is recognized when a sale is made to the end customer and control is transferred to the end
customer upon their acceptance in accordance with the sales report provided by the online platforms. Such revenues reflect the
consideration paid by end consumers and do not take into account the sales commissions the Group pays to the relevant online platform,
which are recorded as sales and marketing expenses.
Services
The Group offers its brand partners and other brand customers marketing solutions tailored to their needs and charge fixed project-based
fees, including designing and operating online stores, running online promotional events, organizing online and offline marketing
campaigns featuring social media influencers and circulating marketing messages to end consumers.
For services provided to customers of the Group, depending on the terms of the contract and the laws that apply to the contract, control
of the services may be transferred over time or at a point in time. Control of the services is transferred over time if the Group’s
performance:
●
provides all of the benefits received and consumed simultaneously by the customer;
●
creates and enhances an asset that the customer controls as the Group performs; or
●
does not create an asset with an alternative use to the Group and the Group has an enforceable right to payment for performance
completed to date.
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F-22
If control of the services transfers over time, revenue is recognized over the period of the contract by reference to the progress towards
complete satisfaction of that performance obligation. Otherwise, revenue is recognized at a point in time when the customer obtains
control of services.
With respect to the Group’s marketing services, length of the periods over which services are provided are generally within months or
less, the Group recognizes such revenues when service is rendered and service report is delivered to the customer (point in time), which
marks the time when control of the service output has passed to the customer.
Consideration from brand partners of the Group is considered to be in exchange for distinct service that the Group transfers to the brand
partners, as i) services provided to brand partners can be sufficiently separable from the Company’s procurement of products from those
brand partners ii) consideration from the brand partner represents the standalone selling price of such service, and iii) the fees do not
represent reimbursement of costs incurred by the Company to sell the brand partner’s products. The Group accounts for the service in
the same way that it accounts for sales to other customers and revenues generated from these service arrangements are recognized on a
gross basis and presented as services revenue on the consolidated statements of operations and comprehensive income/(loss).
Practical expedients and exemption
Upon the election of the practical expedient under ASC 340-40-25-4, the incremental costs of obtaining a contract are expensed when
incurred if the amortization period of the asset that the entity otherwise would have recognized is one year or less. For the years ended
December 31, 2019, 2020 and 2021, no incremental cost was capitalized as assets.
The Group also selected to apply the practical expedients allowed under ASC Topic 606 to omit the disclosure of remaining
performance obligations for contracts with an original expected duration of one year or less. For the years ended December 31, 2019,
2020 and 2021, all contracts of the Group were with an original expected duration within one year.
Based on the considerations that there is no difference between the amount of promised consideration and the cash selling price of
product sales and promised services, in addition the actual length of time between when the Group transfers products or promised
services to the consumers and when the consumers pays for those products or services has been within one year, the Group has assessed
and concluded that there is no significant financing component in place within its products sales or service arrangements as a practical
expedient in accordance with ASC 606-10-32-18.
(r)
Sales returns
The Group offers consumers from its online shops an unconditional right of return for a period of seven days upon receipt of products
and offers its secondary distributors various rights of return after the acceptance of products. Return allowances, which reduce revenue
and cost of sales, are estimated by categories of return policies offered to online customers and secondary distributors, based on
historical data the Group has maintained, and subject to adjustments to the extent that actual returns differ or are expected to differ. The
Group records liabilities for return allowances in refund obligation of sales returns of “Accrued liabilities and other current liabilities” in
the consolidated balance sheets (Note 17) and were US$ 634,119 and US$ 236,547 as of December 31, 2020 and 2021, respectively. The
Group recorded assets as “Sales return assets” included in “Prepayments and other current assets” in the consolidated balance sheets
(Note 9) of US$ 463,361 and US$ 164,762 as of December 31, 2020 and 2021 for its right to recover products from customers
associated with settling the refund liability.
(s)
Sales incentives
The Group provides sales rebates to certain third-party online platforms/secondary distributors based on their purchase volume, which
are accounted for as variable consideration. The Group estimates these amounts based on the expected amount to be provided to the
third-party online platforms/secondary distributors considering the contracted rebate rates and estimated sales volume based on
significant management judgments based on historical experience such as likelihood of reaching the purchase thresholds and sales
forecasts, and account for it as a reduction of the transaction price. For the years ended December 31, 2019,
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F-23
2020 and 2021, sales rebates provided by the Group amounted to US$ 4,839,595, US$ 4,591,581 and US$ 5,584,109, respectively.
(t)
Value added taxes
Value added taxes (“VAT”) on sales is calculated at 9% ~13% on revenue from products and 6% on revenue provided from services. The
Group reports revenue net of VAT. Subsidiaries and VIEs of the Group that are VAT general tax payers are allowed to offset qualified
VAT paid against their output VAT liabilities. Related surcharges, such as urban maintenance and construction tax as well as surtax for
education expenses are recorded in cost of revenues.
(u)
Cost of revenue
Cost of revenue consist of cost of product sales of US$ 242,972,621, US$ 242,728,053 and US$ 121,526,704 for the years ended
December 31, 2019, 2020 and 2021, respectively, and cost of services of US$ 14,458,453, US$ 3,571,573 and US$ 1,222,000 for
the years ended December 31, 2019, 2020 and 2021, respectively. Cost of product sales comprise the purchase price of products,
purchase rebates, shipping charges to receive products from the suppliers when they are embedded in the purchase price and inventory
write-downs. Cost of products does not include other direct costs related to cost of product sales such as shipping and handling expense,
payroll and benefits of logistic staff, logistic centers rental expenses and depreciation expenses. Cost of service consists of the
advertising and promotion costs, employee wages and benefits in connection with the Group’s provision of promotion and marketing
services including fees the Group paid to third party vendors for advertising and promotion on various online and offline channels.
(v)
Rebates
The Group periodically receives consideration from certain vendors, representing rebates for products sold over a period of time. The
Group accounts for the rebates received from its vendors as a reduction to the price it pays for the products purchased. Rebates are
earned based on reaching minimum purchased thresholds for a specified period. When volume rebates can be reasonably estimated
based on the Group’s past experience, current forecasts and purchase volume, a portion of the rebate is recognized as the Group makes
progress towards the purchase threshold.
(w)
Fulfillment expenses
Fulfillment costs primarily represent warehousing, shipping and handling expenses for dispatching and delivering products to
consumers, employee wages and benefits for the relevant personnel, and customs clearance expenses.
(x)
Sales and marketing expenses
Sales and marketing expenses primarily consist of advertising costs for the products the Group offers, employee wages and benefits for
sales and marketing staff, storefront fees paid to e-commerce platforms, and travel and entertainment expenses. Advertising costs consist
primarily of costs for product marketing. The Group expenses all advertising costs as incurred and classifies these costs under sales and
marketing expenses. For the years ended December 31, 2019, 2020 and 2021, advertising and marketing costs totaled US$ 560,894, US$
663,871 and US$ 267,928, respectively.
(y)
General and administrative expenses
General and administrative expenses consist of employee wages and benefits for corporate employees, rental expenses, audit and legal
fees, amortization of both intangible assets and leasehold improvement, and other corporate overhead costs.
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(z)
Research and development expenses
Research and development expenses primarily consist of employee wages and benefits for research and development personnel, general
expenses and depreciation expenses associated with research and development activities.
(aa)
Lease
-
Prior to the adoption of ASC 842 on January 1, 2019:
Leases, including leases of offices and warehouses, where substantially all the rewards and risks of ownership of assets remain with the
lessor are accounted for as operating leases. Payments made under operating leases are recognized as an expense on a straight-line basis
over the lease term. The Group had no capital leases for any of the years stated herein.
-
Upon and hereafter the adoption of ASC 842 on January 1, 2019:
The Group determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”)
assets, operating lease liability, and operating lease liability, non-current in the Group’s consolidated balance sheets.
ROU assets represent the Group’s right to use an underlying asset for the lease term and lease liabilities represent the Group’s obligation
to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based
on the present value of lease payments over the lease term. When determining the lease term, the Group includes options to extend or
terminate the lease when it is reasonably certain that it will exercise that option, if any. As the Group’s leases do not provide an implicit
rate, the Group uses its incremental borrowing rate, which it calculates based on the credit quality of the Group and by comparing
interest rates available in the market for similar borrowings, and adjusting this amount based on the impact of collateral over the term of
each lease.
The Group has elected to adopt the following lease policies in conjunction with the adoption of ASU 2016-02: (i) elect for each lease not
to separate non-lease components from lease components and instead to account for each separate lease component and the non-lease
components associated with that lease component as a single lease component; (ii) for leases that have lease terms of 12 months or less
and does not include a purchase option that is reasonably certain to exercise, the Group elected not to apply ASC 842 recognition
requirements; and (iii) the Group elected to apply the package of practical expedients for existing arrangements entered into prior to
January 1, 2019 to not reassess (a) whether an arrangement is or contains a lease, (b) the lease classification applied to existing leases,
and (c) initial direct costs.
(ab)
Employee social security and welfare benefits
Employees of the Group in the PRC are entitled to staff welfare benefits including pension, work-related injury benefits, maternity
insurance, medical insurance, unemployment benefit and housing fund plans through a PRC government-mandated multi-employer
defined contribution plan. The Group is required to contribute to the plan based on certain percentages of the employees’ salaries, up to
a maximum amount specified by the local government.
The PRC government is responsible for the medical benefits and the pension liability to be paid to these employees and the Group’s
obligations are limited to the amounts contributed and no legal obligation beyond the contributions made.
(ac)
Income taxes
Current income taxes are provided on the basis of net income for financial reporting purposes, adjusted for income and expense items
which are not assessable or deductible for income tax purposes, in accordance with the regulations of the relevant tax jurisdictions.
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F-25
Deferred income taxes are accounted for using an asset and liability method. Under this method, deferred income taxes are recognized
for the tax consequences of temporary differences by applying enacted statutory rates applicable to future years to differences between
the financial statement carrying amounts and the tax bases of existing assets and liabilities. The tax base of an asset or liability is the
amount attributed to that asset or liability for tax purpose. The effect on deferred taxes of a change in tax rates is recognized in the
consolidated statements of operations and comprehensive income/(loss) in the period of change. A valuation allowance is provided to
reduce the amount of deferred tax assets if it is considered more likely than not that some portion of, or all of the deferred tax assets will
not be realized.
Uncertain tax positions
The guidance on accounting for uncertainties in income taxes prescribes a more likely than not threshold for financial statements
recognition and measurement of a tax position taken or expected to be taken in a tax return. Guidance was also provided on
derecognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for
interest and penalties associated with tax positions, accounting for income taxes in interim periods, and income tax disclosures.
Significant judgment is required in evaluating the Group’s uncertain tax positions and determining its provision for income taxes. The
Group recognizes interests and penalties, if any, under accrued expenses and other current liabilities on its consolidated balance sheets
and under other expenses in its statements of operations and comprehensive income/(loss). The Group did not recognize any significant
interest and penalties associated with uncertain tax positions for the years ended December 31, 2019, 2020 and 2021. As of
December 31, 2020 and 2021, the Group did not have any significant unrecognized uncertain tax positions.
The Company adopted ASC 740-270-30-36 approach for interim period tax computation and reporting. Interim period tax (or benefit)
related to consolidated ordinary income (or loss) for the year to date is computed using one overall estimated annual effective tax rate,
except for jurisdiction if a subsidiary anticipates an ordinary loss for the fiscal year or has an ordinary loss for the year to date.
(ad)
Government Grants
Government grants are recognized as other income when received. For the years ended December 31, 2019, 2020 and 2021, the Group
recognized government grants of US$ 463,253, US$ 1,825,865 and US$ 155,121 from the local PRC government authorities,
respectively. These subsidies were non-recurring, not refundable and with no conditions attached. There are no defined rules and
regulations to govern the criteria necessary for companies to enjoy such benefits and the amount of financial subsidy is determined at the
discretion of the relevant government authorities.
(ae)
Share-based compensation
Share-based compensation costs are measured at the grant date. The share-based compensation expenses have been categorized as either
fulfillment expenses, sales and marketing expenses, general and administrative expenses or research and development expenses
depending on the job functions of the grantees.
For the restricted share units granted with service conditions, compensation expense is recognized using the straight-line method over
the requisite service period. Forfeitures are estimated at the time of grant, with such estimate updated periodically and with actual
forfeitures recognized currently to the extent they differ from the estimate.
For the restricted share units granted with performance conditions whose vesting is contingent upon meeting company-wide
performance goals, compensation expenses are recognized using graded vesting method over the requisite service period in accordance
with ASC 718 and will be adjusted for subsequent changes in the expected outcome of the performance-vesting condition. For restricted
share units granted with service conditions and the occurrence of an initial public offering (“IPO”) as performance condition, cumulative
share-based compensation expenses for the options that have satisfied the service condition will be recorded upon the completion of the
IPO, using the graded vesting method.
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For the restricted share units granted with market condition whose vesting is contingent on the Company’s market value exceeding a
specific amount, Monte Carlo simulation has been applied to determine the fair value and requisite service period, compensation
expense is recognized using the straight-line method over the estimated requisite service period unless the market condition is satisfied
before the end of the initially estimated requisite service period.
Starting from November 2019 upon completion of the Company’s IPO, the Group is a publicly traded company with observable price in
the stock U.S exchange market to determine the fair value and requisite service period.
(af)
Statutory reserves
The Group’s subsidiaries, consolidated VIEs incorporated in the PRC are required on an annual basis to make appropriations of retained
earnings set at certain percentage of after-tax profit determined in accordance with PRC accounting standards and regulations (“PRC
GAAP”).
Appropriation to the statutory general reserve should be at least 10% of the after tax net income determined in accordance with the legal
requirements in the PRC until the reserve is equal to 50% of the entities’ registered capital. The Group is not required to make
appropriation to other reserve funds and the Group does not have any intentions to make appropriations to any other reserve funds.
The general reserve fund can only be used for specific purposes, such as setting off the accumulated losses, enterprise expansion or
increasing the registered capital. Appropriations to the general reserve funds are classified in the consolidated balance sheets as statutory
reserves.
There are no legal requirements in the PRC to fund these reserves by transfer of cash to restricted accounts, and the Group has not done
so.
Relevant laws and regulations permit payments of dividends by the PRC subsidiaries and affiliated companies only out of their retained
earnings, if any, as determined in accordance with respective accounting standards and regulations. Accordingly, the above balances are
not allowed to be transferred to the Company in terms of cash dividends, loans or advances.
As the Group’s subsidiaries in PRC had accumulated deficits in their functional currency, RMB, for the years ended December 31, 2019,
2020 and 2021, no statutory reserve was recorded as of December 31, 2020 and 2021.
(ag)
Related parties
Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant
influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to
common control or significant influence, such as a family member or relative, shareholder, or a related corporation.
(ah)
Dividends
Dividends are recognized when declared. No dividends were declared for the years ended December 31, 2020 and 2021, respectively.
The Group does not have any present plan to pay any dividends on ordinary shares in the foreseeable future. The Group currently
intends to retain the available funds and any future earnings to operate and expand its business.
(ai)
Earnings/Loss per share
Basic earnings/loss per share is computed by dividing net profit/loss attributable to holders of ordinary shares by the weighted average
number of ordinary shares outstanding during the year using the two class method. Using the two class method, net
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F-27
profit/loss is allocated between Class A ordinary shares, Class B ordinary shares and other participating securities (i.e. preferred shares)
based on their participating rights.
Diluted earnings/loss per share is calculated by dividing net profit/loss attributable to ordinary shareholders as adjusted for the effect of
dilutive ordinary equivalent shares, if any, by the weighted average number of ordinary and dilutive ordinary equivalents shares
outstanding during the year/period. Dilutive equivalent shares are excluded from the computation of diluted earnings/loss per share if
their effects would be anti-dilutive. Ordinary share equivalents consist of the ordinary shares issuable in connection with the Group’s
convertible redeemable preferred shares using the if-converted method, and ordinary shares issuable upon the conversion of the stock
options, using the treasury stock method. Except for voting rights, the Class A and Class B ordinary shares have all the same rights and
therefore the earning/loss per share for both classes of shares are identical. The earning/loss per share amounts are the same for Class A
and Class B ordinary shares because the holders of each class are entitled to equal per share dividends or distributions in liquidation.
(aj)
Comprehensive income/(loss)
Comprehensive income/(loss) is defined as the change in shareholders’ (deficit)/equity of the Company during a period arising from
transactions and other events and circumstances excluding transactions resulting from investments by shareholders, distributions to
shareholders, accretions on convertible redeemable preferred shares and extinguishment of convertible redeemable preferred shares.
Comprehensive income is reported in the consolidated statements of operations and comprehensive income/(loss). Accumulated other
comprehensive income of the Group include the foreign currency translation adjustments.
(ak)
Segment reporting
Operating segments are defined as components of an enterprise engaging in businesses activities for which separate financial
information is available that is regularly evaluated by the Group’s chief operating decision makers in deciding how to allocate resources
and assess performance. The Group’s chief operating decision maker has been identified as the Chief Executive Officer, who reviews
consolidated results including revenue, gross profit and operating profit at a consolidated level only. The Group does not distinguish
between markets for the purpose of making decisions about resources allocation and performance assessment. Hence, the Group has
only one operating segment and one reportable segment.
(al)
Recently issued accounting pronouncements
The Group considers the applicability and impact of all accounting standards updates (“ASUs”). Management periodically reviews new
accounting standards that are issued. Under the Jumpstart Our Business Startups Act of 2012, as amended (“the JOBS Act”), the Group
meets the definition of an emerging growth company, or EGC, and has elected the extended transition period for complying with new or
revised accounting standards, which delays the adoption of these accounting standards until they would apply to private companies.
i. New and amended standards adopted by the Group:
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which sets out the principles for the
recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard
requires lessees to classify leases as either finance or operating leases based on the principle of whether or not the lease is effectively a
financed purchase by the lessee. This classification determines whether lease expense is recognized over the lease term based on an
effective interest method for financing leases or on a straight-line basis for operating leases. A lessee is also required to record a right-
of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. For leases with a
term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease
assets and lease liabilities. If a lessee makes this election, it should recognize lease
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F-28
expenses for such lease generally on a straight-line basis over the lease term. For public entities, the guidance was effective for annual
reporting periods beginning after December 15, 2018 and for interim periods within those fiscal years.
ASU 2016-02 initially required adoption using a modified retrospective approach, under which all years presented in the financial
statements would be prepared under the revised guidance. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842), which
added an optional transition method under which financial statements may be prepared under the revised guidance for the year of
adoption, but not for prior years. Under the latter method, entities will recognize a cumulative catch-up adjustment to the opening
balance of retained earnings in the period of adoption.
The Group adopted ASC 842 using the modified retrospective approach with an effective date of January 1, 2019 for leases that existed
on that date. Prior period results continue to be presented under ASC 840 based on the accounting standards originally in effect for such
periods. This standard provides a number of optional practical expedients in transition. The Company applied certain practical
expedients to leases that commenced prior to the effective date as follows: (i) elect for each lease not to separate non-lease components
from lease components and instead to account for each separate lease component and the non-lease components associated with that
lease component as a single lease component; (ii) for leases that have lease terms of 12 months or less and does not include a purchase
option that is reasonably certain to exercise, the Company elected not to apply ASC 842 recognition requirements; and (iii) the
Company elected to apply the package of practical expedients for existing arrangements entered into prior to January 1, 2019 to not
reassess (a) whether an arrangement is or contains a lease, (b) the lease classification applied to existing leases, and(c) initial direct
costs.
In connection with the adoption of ASC 842, on January 1, 2019, the Group recorded an impact of US$ 1,735,966 on its assets and US$
1,735,966 on its liabilities for the recognition of operating lease right-of-use-assets and operating lease liabilities, respectively, which are
primarily related to the lease of the Group’s offices and warehouses. The adoption of ASC 842 did not have a material impact on the
Company’s results of operations or cash flows.
2019-12—Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in ASU 2019-12 simplify the
accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve
consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. ASU 2019-12
is effective for the Company beginning on January 1, 2021. The adoption of ASU 2019-12 did not have a material impact on the
Group’s disclosures.
In October 2020, the FASB issued ASU 2020-08, “Codification Improvements to Subtopic 310-20, Receivables—Nonrefundable Fees
and Other Costs”. The amendments in this Update represent changes to clarify the Codification. The amendments make the Codification
easier to understand and easier to apply by eliminating inconsistencies and providing clarifications. ASU 2020-08 is effective for the
Company for annual and interim reporting periods beginning after December 15, 2020. Early application is not permitted. All entities
should apply the amendments in this Update on a prospective basis as of the beginning of the period of adoption for existing or newly
purchased callable debt securities. These amendments do not change the effective dates for Update 2017-08. The adoption of 2020-08
did not have a material impact on the Group’s disclosures.
In October 2020, the FASB issued ASU 2020-10, “Codification Improvements”. The amendments in this Update represent changes to
clarify the Codification or correct unintended application of guidance that are not expected to have a significant effect on current
accounting practice or create a significant administrative cost to most entities. The amendments in this Update affect a wide variety of
Topics in the Codification and apply to all reporting entities within the scope of the affected accounting guidance. ASU 2020-10 is
effective for annual periods beginning after December 15, 2020 for public business entities. Early application is permitted. The
amendments in this Update should be applied retrospectively. The adoption of 2020-10 did not have a material impact on the Group’s
disclosures.
ii. New and amended standards not yet adopted by the Group:
In May 2019, the FASB issued ASU 2019-05, which is an update to ASU Update No. 2016-13, Financial Instruments—Credit Losses
(Topic 326): Measurement of Credit Losses on Financial Instruments, which introduced the expected credit losses
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F-29
methodology for the measurement of credit losses on financial assets measured at amortized cost basis, replacing the previous incurred
loss methodology. The amendments in Update 2016-13 added Topic 326, Financial Instruments—Credit Losses, and made several
consequential amendments to the Codification. Update 2016-13 also modified the accounting for available-for-sale debt securities,
which must be individually assessed for credit losses when fair value is less than the amortized cost basis, in accordance with Subtopic
326-30, Financial Instruments— Credit Losses—Available-for-Sale Debt Securities. The amendments in this Update address those
stakeholders’ concerns by providing an option to irrevocably elect the fair value option for certain financial assets previously measured
at amortized cost basis. For those entities, the targeted transition relief will increase comparability of financial statement information by
providing an option to align measurement methodologies for similar financial assets. Furthermore, the targeted transition relief also may
reduce the costs for some entities to comply with the amendments in Update 2016-13 while still providing financial statement users with
decision-useful information. ASU 2019-05 is effective for the Group for annual and interim reporting periods beginning January 1, 2023
assuming the Group will remain an emerging growth company at that date. The Group is currently evaluating the impact of this new
standard on its consolidated financial statements and related disclosures.
Except for the above-mentioned pronouncements, there are no new recent issued accounting standards that will have a material impact
on the consolidated financial position, statements of operations and cash flows.
3.
Divestment of subsidiaries and deconsolidation of Yang Infinity
Yang VIE and Xianggui
On April 27, 2020, the Group entered into a share transfer agreement with Xianggui Health Management, an entity jointly owned by the
Group’s co-founders Ms. Wang and Mr. Zeng, pursuant to which the Group transferred all of the equity interests it held in Xianggui,
representing 60% of its total outstanding share capital, to Xianggui Health Management, for a consideration of RMB3.4 million
(US$521,000). The consideration was calculated based on the fair value of the net assets of Xianggui. The Group received the full
amount in 2020. On April 27, 2020, Ms. Wang and Mr. Zeng entered into a share transfer agreement with Xianggui Health Management,
pursuant to which Ms. Wang and Mr. Zeng transferred 100% of the equity interests in Yang VIE, an entity controlled by Xianggui
through contractual arrangements to Xianggui Health Management at nil consideration.
The Group’s decision to diversify Xianggui and to deconsolidate Yang VIE is to restructure its operating entities and improve its
operating results in the e-commerce health and wellness industry. The Company evaluated and determined that the divestment of
Xianggui and the deconsolidation of Yang VIE did not constitute a strategic shift that has had or will have a material effect on its
business operations and financial results. Therefore, the results of operations relating to Yang VIE and Xianggui were not reported as
discontinued operations under the guidance of Accounting Standards Codification 205.
Xianggui Health Management and the Group are under the common control of Ms. Wang and Mr. Zeng. The difference between any
proceeds and the carrying amounts of the net assets transferred was recognized in the Group’s additional paid-in capital as opposed to a
gain. For the year ended December 31, 2020, the Group recognized US$200,322 in gain on divestment of Xianggui Shanghai and
deconsolidation of Yang VIE, which was recorded as an additional paid-in capital, resulted from the 60% of net assets of Xianggui
Shanghai and Yang VIE of US$285,455, and the total consideration of US$480,885 with exchange rate effect of US$4,892.
Shanghai Jieshi
On July 9, 2020, the Group entered into a share transfer agreement with Xianggui Health Technology. Pursuant to the agreement, the
Group transferred 100% equity interests in Shanghai Jieshi, the Group’s wholly owned subsidiary, to Xianggui Health Technology for a
consideration of RMB1.0 million (approximately US$0.2 million), which was based on the fair value of the net assets of Shanghai
Jieshi. The Group received the full amount in 2020.
The Group’s decision to diversify Shanghai Jieshi is to restructure its operating entities and improve its operating results in the e-
commerce health and wellness industry. The Company evaluated and determined that the divestment of Shanghai Jieshi did not
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F-30
constitute a strategic shift that has had or will have a material effect on its business operations and financial results. Therefore, the
results of operations relating to Shanghai Jieshi were not reported as discontinued operations under the guidance of Accounting
Standards Codification 205.
Xianggui Health Technology and the Group are under the common control of Ms. Wang and Mr. Zeng. The difference between any
proceeds and the carrying amounts of the net assets transferred is recognized in the Group’s additional paid-in capital as opposed to a
gain. For the year ended December 31, 2020, the Group recognized approximately US$1.4 million in gain on disposal of Shanghai
Jieshi, which was recorded as an additional paid-in capital, resulted from the net deficiency of Shanghai Jieshi of US$1.2 million, and
the total consideration of US$142,684 with exchange rate effect of US$22,313.
Shanghai Hengshoutang
On October 28, 2020, the Group entered into share transfer agreement with Xianggui Health Technology. Pursuant to the agreement, the
Group transferred 70% of the equity interests in Shanghai Hengshoutang to Xianggui Health Technology for a consideration of RMB5.0
million (US$0.8 million), which was based on the fair value of the net assets of Shanghai Hengshoutang. Approximately US$77,000 of
the consideration was received by the Group in 2020, while the rest of US$0.7 million was net against payables to Ms. Wang and
Mr. Zeng during the year ended December 31, 2020.
The Group’s decision to diversify Shanghai Hengshoutang is to restructure its operating entities and improve its operating results in the
e-commerce health and wellness industry. The Company evaluated and determined that the divestment of Shanghai Hengshoutang did
not constitute a strategic shift that has had or will have a material effect on its business operations and financial results. Therefore, the
results of operations relating to Shanghai Hengshoutang were not reported as discontinued operations under the guidance of Accounting
Standards Codification 205.
Xianggui Health Technology and the Group are under the common control of Ms. Wang and Mr. Zeng. The difference between any
proceeds and the carrying amounts of the net assets transferred is recognized in the Group’s additional paid-in capital as opposed to a
gain. For the year ended December 31, 2020, the Group recognized approximately US$340,445 in gain on disposal of Shanghai
Hengshoutang, which was recorded as an additional paid-in capital, resulted from the 70% of net assets of Shanghai Hengshoutang of
US$411,138, and the total consideration of US$744,103 with exchange rate effect of US$7,480.
Shanghai Juyi
On September 2, 2021, Yijiasancan (Shanghai) E-commerce Co., Ltd. (“Yijiasancan”), the Group’s wholly owned subsidiary, entered
into a Share Transfer Agreement (the “Equity Transfer Agreement”) with two related parties. Pursuant to the Equity Transfer
Agreement, Yijiasancan shall sell 90% equity interests in Shanghai Juyi Information Technology Co., Limited (“Shanghai Juyi”), the
Group’s wholly owned subsidiary, 70% to Daniel Wang, the Director, and 20% to Wang Wei, the IT Director, and the consideration is
zero as Shanghai Juyi has an accumulated deficits with recurring losses and it is also supported by an independent third party appraiser
with the enterprise value of Shanghai Juyi.
The Group’s decision to diversify Shanghai Juyi is to restructure its operating entities and improve its operating results in the e-
commerce health and wellness industry. The Company evaluated and determined that the divestment of Shanghai Juyi did not constitute
a strategic shift that has had or will have a material effect on its business operations and financial results. Therefore, the results of
operations relating to Shanghai Juyi were not reported as discontinued operations under the guidance of Accounting Standards
Codification 205.
The difference between any proceeds and the carrying amounts of the net assets transferred is recognized in the Group’s additional paid-
in capital as opposed to a loss. For the year ended December 31, 2021, the Group recognized approximately US$37,000 in loss on
disposal of Shanghai Juyi, which was recorded as additional paid-in capital, resulted from the net assets of Shanghai Juyi of US$41,373,
and the total consideration of US$0.
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F-31
Shanghai Boyi Information Technology Co., Ltd
On March 22, 2021, Shanghai ECMOHO Health Biotechnology Co., Ltd. (“ECMOHO Shanghai”), the Group’s wholly owned
subsidiary, entered into a Share Transfer Agreement (the “Equity Transfer Agreement”) with Cui Yun and Wang Yang, both third parties.
Pursuant to the Equity Transfer Agreement, ECMOHO Shanghai shall sell 51% equity interests in Shanghai Boyi Information
Technology Co., Limited (“Shanghai Boyi”), the Group’s 51% owned subsidiary, to Cui Yun and Wang Yang result in a loss from
disposal of subsidiary.
The Group’s decision to diversify Shanghai Boyi is to restructure its operating entities and improve its operating results in the e-
commerce health and wellness industry. The Company evaluated and determined that the divestment of Shanghai Boyi did not constitute
a strategic shift that has had or will have a material effect on its business operations and financial results. Therefore, the results of
operations relating to Shanghai Boyi were not reported as discontinued operations under the guidance of Accounting Standards
Codification 205.
The difference between any proceeds and the carrying amounts of the net assets transferred is recognized in the Group’s investment loss.
For the year ended December 31, 2021, the Group recognized approximately US$1,490 in loss on disposal of Shanghai Boyi, which was
recorded as an investment loss, resulted from the net assets of Shanghai Boyi of US$1,430, and the total consideration of US$0.3.
4.
Risks and Concentration
(a) Foreign exchange risk
The Group’s sales, purchase and expense transactions in domestic subsidiaries are generally denominated in RMB and a significant
portion of the Group’s assets and liabilities are denominated in RMB. RMB is not freely convertible into foreign currencies.
In the PRC, foreign exchange transactions are required by law to be transacted only by authorized financial institutions at exchange rates
set by the People’s Bank of China. In addition, the Group’s cash denominated in US$ subject the Group to risks associated with changes
in the exchange rate of RMB against US$ and may affect the Group’s results of operations going forward.
(b) Credit and Concentration risk
The Group’s credit risk arises from cash and cash equivalents, restricted cash, prepayments, loan receivables, and other current assets,
and accounts receivable. The carrying amounts of these financial instruments represent the maximum amount of loss due to credit risk.
The Group expects that there is no significant credit risk associated with the cash and cash equivalents and restricted cash which are held
by reputable financial institutions in the jurisdictions where the Company, its subsidiaries and VIEs are located. The Group believes that
it is not exposed to unusual risks as these financial institutions have high credit quality. The Group believes that it is not exposed to
unusual risks as these financial institutions have high credit quality.
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash. In
China, the insurance coverage of each bank is RMB 500,000. As of December 31, 2021, cash balance of US $ 3,280,252 was deposited
with financial institutions located in PRC, of which approximately US $ 2,043,908 was subject to credit risk. The Hong Kong Deposit
Protection Board pays compensation up to a limit of HKD 500,000 (approximately USD 64,000) if the bank with which an individual/a
company hold its eligible deposit fails. As of December 31, 2021, cash balance of approximately US $ 4,460,382 was maintained at
financial institutions in Hong Kong, of which approximately US $ 4,190,619 was subject to credit risk. In the US, the insurance
coverage of each bank is USD 250,000. As of December 31, 2021, cash balance of US $ 35,701,882 was deposited with a financial
institution located in US, of which US $ 35,440,000 was subject to credit risk. As of December 31,
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F-32
2021, cash balance of US $ 44,310 was maintained at banks in Korea, of which approximately US $ 1,983 was subject to credit risk. As
of December 31, 2021 approximately US $ 25,881 and US $ 110,880 were deposited on the Group’s third party platform account located
in the PRC and Hong Kong, respectively. This balance is fully covered by insurance. While management believes that these financial
institutions are of high credit quality, it also continually monitors their credit worthiness.
The Group has no significant concentrations of credit risk with respect to its prepayments.
Accounts receivable are typically unsecured and are derived from revenue earned through third party consumers. Loan receivables are
also unsecured. The risk with respect to accounts receivable and loan receivables are mitigated by credit evaluations performed on them.
(i) Concentration of revenues
For the years ended December 31, 2019, 2020 and 2021, Customer A contributed 19%, 28% and 33% of total net revenue of the Group,
respectively. For the years ended December 31, 2019 and 2020, Customer C contributed 12% and 10% of total net revenue of the Group,
respectively.
For the years ended December 31, 2019, 2020 and 2021, the Group, as a principal, earned net revenue, representing 23%, 25% and 28%
of its total net revenue, respectively, through a third party online platform (Customer B).
(ii) Concentration of accounts receivable
The Group has not experienced any significant recoverability issue with respect to its accounts receivables. The Group conducts credit
evaluations on the third party consumers and generally does not require collateral or other security from such consumers.
The Group periodically evaluates the creditworthiness of the existing online platforms and distributors in determining an allowance for
doubtful accounts primarily based upon the age of the receivables and factors surrounding the credit risk of specific customers.
The following table summarized customers with greater than 10% of the accounts receivables:
As of December 31,
2020
2021
Customer A
20 %
36 %
Customer B
34 %
18 %
Customer C
20 %
23 %
(iii) Concentration of purchases
For the year ended December 31, 2021, three vendors contributed 30%, 18% and 14% of total purchase of the Group.
For the year ended December 31, 2020, one vendor contributed 34% of total purchase of the Group.
(iv) Concentration of accounts payable
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F-33
The following table summarized vendors with greater than 10% of the accounts payable:
As of December 31,
2020
2021
Vendor A
28 %
53 %
Vendor B
14 %
12 %
Vendor C
Less than 10 %
14 %
5.
Significant equity transactions
Initial public offering
In November 2019, the Company completed its initial public offering on the NASDAQ Global Select Market of 4,675,000 American
Depositary Shares (“ADS”) (including 300,000 ADSs sold upon the exercise of the underwriters’ over-allotment option) (every ADS
represents four Class A ordinary shares, for a total ordinary shares offering of 18,700,000 shares). The net proceeds raised from the IPO
amounted to approximately US$35.0 million after deducting underwriting discounts and commissions and other offering expenses.
Upon the completion of the IPO, 9,519,000 Class A-1 and 10,817,100 Class A-2 preferred shares were converted and designated as
20,336,100 Class A ordinary shares on a one-for-one basis, and 7,938,915 Series A preferred shares were converted and designated as
8,999,999 Class A ordinary shares on an average basis of 1-for-1.13 due to the adjustment of initial conversion ratio in accordance with
the terms of Series A preferred shares.
In respect of all matters subject to shareholders’ vote, each holder of Class A ordinary share is entitled to one and each holder of Class B
ordinary share is entitled to ten votes.
2021 public offering
On August 5, 2021, the Company completed the underwritten public offering of 10 million American Depositary Shares (40 million
Class A ordinary shares) at an offering price of US$0.90 per ADS for net proceeds to the Company of approximately US$8.1 million,
after deducting underwriting discounts and offering expenses.
6.
Cash and cash equivalents
Cash and cash equivalents represent cash on hand and demand deposits placed with banks, other financial institutions and third
party payment processors, which are unrestricted as to withdrawal or use. The following table sets forth a breakdown of cash and cash
equivalents by currency denomination and jurisdiction as of December 31, 2020 and 2021:
US$
US$ Equivalent (RMB)
US$ Equivalent (Others)
Total in US$
Overseas
PRC
Overseas
PRC
Overseas
PRC
Non VIE
VIE
Non VIE
VIE
Non VIE
VIE
December 31, 2020 39,092,003 258,019 — 667,662 3,778,978 5,511 1,482,135
— — 45,284,308
December 31, 2021
39,987,355
103,162
—
124,661
3,193,402
9,570
205,438
—
—
43,623,588
7.
Accounts receivable, net
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ECMOHO LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-34
As of December 31,
2020
2021
US$
US$
Accounts receivable, gross
42,200,500 21,612,790
Less: allowance for doubtful accounts
(194,862)
(5,451,138)
Accounts receivable, net
42,005,638
16,161,652
Movement of allowance of doubtful accounts
Year ended December 31,
2019
2020
2021
US$
US$
US$
At beginning of period
140,335 234,072
194,862
Addition*
483,130
128,507
5,564,399
Reversal
(389,393)
(167,717)
(308,123)
At end of period
234,072
194,862
5,451,138
*Bad debt allowance for doubtful accounts were recorded in general and administrative expenses in the consolidated statements of
operations and comprehensive income/(loss).
8.
Inventories
Inventories consist of the following：
As of December 31,
2020
2021
US$
US$
Products
33,212,956 21,727,954
Packaging materials and others
50,138
91,045
Inventories
33,263,094
21,818,999
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ECMOHO LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-35
Inventories write-down are recorded in cost of product sales in the consolidated statement of operations and comprehensive
income/(loss), which were US$ 1,194,496, US$ 548,109 and US$ 4,634,522 for the years ended December 31, 2019, 2020 and 2021,
respectively.
9.
Prepayments and other current assets
The prepayments and other current assets consist of the following:
As of December 31,
2020
2021
US$
US$
Prepayments for products procurement (a)
2,902,347
478,804
Prepayments for service procurement (b)
210,863
24,496
Prepaid online platform promotion fees (c)
644,564
751,753
Deposits (d)
1,350,613
677,504
Value-added tax (“VAT”) recoverable (e)
2,761,299
3,045,005
Employee advances (f)
13,676
98,440
Rental prepayments
278,364
—
Sales return assets
463,361
164,762
Others (g)
575,151
282,089
Total
9,200,238
5,522,853
(a) Prepayments for products procurement represent cash prepaid to the Group’s third party brand partners for the procurement of
products.
(b) Prepayments for service procurement represent cash prepaid to the Group’s third party suppliers for the procurement of
services in connection with the Group’s service revenue. These services have not been rendered and will be provided within
one year from the respective balance sheet dates.
(c) Prepaid promotion fees represent prepayments made to online platforms for future services to promote the Group’s products
through online advertising. Such online platforms charge monthly expenses based on activities during the month, and once
confirmed by the Group, the monthly expenses will be deducted from the prepayments made by the Group.
(d) Deposits mainly consists security deposits to list the Group’s products in the third party online platforms, and to secure timely
supplies from the Group’s future purchases.
(e) Value-added tax recoverable represented the balances that the Group can utilize to deduct its value-added tax liabilities within
the next 12 months.
(f)
As of December 31, 2020 and 2021, all of the employee advances were business related, interest-free, not collateralized and
will be repaid or settled within one year from the respective balance sheet dates.
(g) Others mainly represent prepayments made by the Group to certain of its logistic and other service providers.
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ECMOHO LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-36
For the years ended December 31, 2019, 2020 and 2021, provision for bad debt expenses were US$0, US$0 and US$2,355,898,
respectively.
10. Property and equipment, net
Property and equipment consist of the following:
As of December 31,
2020
2021
US$
US$
Warehouse equipment
1,046,300
1,163,635
Furniture and office equipment
891,970
909,817
Leasehold improvements
656,792
672,162
Total
2,595,062
2,745,614
Less: Accumulated depreciation
(1,628,553)
(2,148,662)
Less: Impairment
—
(482,430)
Property and equipment, net
966,509
114,522
Depreciation recognized for the years ended December 31, 2019, 2020 and 2021 were US$ 559,063, US$ 580,322 and US$
485,490 respectively. Impairment loss recognized for the year ended December 31, 2021 amounted to US$ 476,762 was recorded in
general and administrative expenses in the consolidated statements of operations and comprehensive income/(loss).
11. Leases
The Company leases facilities under non-cancellable operating leases expiring on different dates. The terms of substantially all of these
leases are five years or less. When determining the lease term, the Company includes options to extend or terminate the lease when it is
reasonably certain that it will exercise that option, if any. All of the Company’s leases qualify as operating leases. With the adoption of
the new leasing standard, the Company has recorded a right-of-use asset and corresponding lease liability, by calculating the present
value of future lease payments, discounted at 4.4% to 6.2%, the Company’s incremental borrowing rate, over the expected term.
Variable lease cost and short-term leases (lease terms less than 12 months) are recognized as incurred.
(a) The components of lease expenses were as follows:
Year ended
Year ended
December 31, 2020 December 31, 2021
US$
US$
Lease cost:
Amortization of right-of-use assets
1,428,048
900,575
Interest of lease liabilities
83,559
158,423
Expenses for short-term lease within 12 months
243,971
344,151
Total lease cost
1,755,578
1,403,149
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ECMOHO LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-37
(b) Supplemental cash flow information related to leases was as follows:
Year ended
Year ended
December 31, 2020 December 31, 2021
US$
US$
Other information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows for operating leases
1,851,577
909,887
Right-of-use assets obtained in exchange for lease obligations:
Operating lease liabilities
2,756,170
1,541,091
Termination of operating lease right-of-use assets and operating lease liabilities
—
2,001,317
(c) Supplemental balance sheet information related to leases was as follows:
December 31,
December 31,
2020
2021
US$
US$
Operating Leases
Operating lease right-of-use assets
2,434,221
1,203,219
Operating lease liability, current
(411,557)
(402,462)
Operating lease liabilities, non-current
(1,938,885)
(771,090)
Total operating lease liabilities
(2,350,442)
(1,173,552)
December 31,
December 31,
2020
2021
Weighted-average remaining lease term
Operating leases
4.43 years
3.70 years
Weighted-average discount rate
Operating leases
4.8 %
4.8 %
(d) Maturities of lease liabilities were as follows:
December 31,
2021
US$
2022
458,634
2023
266,380
2024
273,919
2025
281,458
Total undiscounted lease payments
1,280,391
Less: imputed interest
(106,839)
Total lease liabilities
1,173,552
12. Intangible assets, net
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ECMOHO LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-38
As of December 31,
2020
2021
US$
US$
Cost:
Business license (a)
394,949
404,191
Trademark (b) (c)
42,744
50,989
Software
901,097
1,098,923
Total cost
1,338,790
1,554,103
Less: Accumulated amortization
(773,684)
(1,450,906)
Intangible assets, net
565,106
103,197
Intangible assets of the Group were mainly as follows:
(a) In April 2017, the Group consummated an acquisition of all the equity interest of Hangzhou Duoduo Supply Chain Management
Co., Limited with a total cash consideration of RMB 1.9 million (US$ 295,790).
As the total net liabilities of the acquired company was nil, in applying the screen test in accordance with ASU 2017-01, the Group
determined that substantially all of the fair value of the gross assets acquired was concentrated in the business license held by the supply
chain company. As a result, the screen test was met to support the conclusion of asset acquisition.
The fair values of the business license with amount of RMB 2.6 million (US$ 394,386) is amortized over 5 years on a straight-line
basis. Deferred tax liability of RMB 0.6 million (US$ 98,596) is recognized in associated with the identifiable intangible asset.
(b)
In April 2016, non-controlling interest shareholders of Shanghai Hengshoutang contributed trademarks as their investment in
Shanghai Hengshoutang.
The trademarks with a cost of RMB 3.0 million (US$ 464,475) is amortized over 10 years on a straight-line basis.
Shanghai Hengshoutang was disposed in October 2020. See Note 3 - Divestment of subsidiaries and deconsolidation of VIEs for more
details.
(c)
On December 16, 2016, the Group consummated an acquisition of 70% of the equity interest of Shanghai Jieshi Technology
Co., Limited (“Shanghai Jieshi”) with the cash consideration of RMB 0.7 million (US$ 100,908). Management concluded such
transaction as a business acquisition. The financial results of Shanghai Jieshi have been consolidated by the Company since the
acquisition date.
The net liabilities acquired based on their fair values was RMB 3.8 million (US$ 543,505). The newly identifiable intangible assets were
RMB 6.4 million (US$ 916,879) which primarily consist of trademarks. Deferred tax liability of RMB1.6 million (US$ 229,220) as
recognized in associated with the identifiable intangible assets.
Fair values of the trademarks with amount of RMB 6.4 million (US$ 916,879) is amortized over 5 years on a straight-line basis.
Shanghai Jieshi was disposed in July 2020. See Note 3 - Divestment of subsidiaries and deconsolidation of VIEs for more details.
Amortization costs recognized for the years ended December 31, 2019, 2020 and 2021 were US$ 437,652, US$ 248,224 and US$
642,679, respectively.
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ECMOHO LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-39
As of December 31, 2021, amortization expenses related to the intangible assets for future periods were estimated to be as follows:
December 31,
2021
US$
2022
70,679
2023
23,995
2024
8,523
103,197
13. Loan receivable
On July 23, 2020, the Group has entered into an investment agreement with Anze Premium Health and Beauty Pte. Ltd. (“Anze”), a
company involved in the research and development of Chinese herbal medicine-based health and wellness products. The Group has
committed to paying Anze up to US$30 million, comprising of up to US$15 million for an equity interest in Anze and up to US$15
million for zero coupon notes issued by Anze.
The convertible notes shall be repaid in installments starting in the 1st quarter of 2021 and ending in 2023. The Group has the right to
convert the convertible notes into equity at predetermined valuations starting in 2021. However, the notes did not specify the conversion
rate and the Group did not have any intention to amend the notes agreement with Anze to clarify the conversion term because the Group
did not have any intention to exercise the conversion option. As a result, the Group accounted for the zero coupon notes as loan
receivable.
As of December 31, 2020, the loan receivable balance amounted to $646,000 and the balance was repaid in full in January
2021. As of December 31, 2021, the loan receivable balance was nil.
14. Other non-current assets
Other non-current assets consisted of the following:
As of December 31,
2020
2021
US$
US$
Online store and other deposits
1,526,755
1,080,521
Prepayments for equipment and software procurement
2,651
2,220
Total
1,529,406
1,082,741
15. Long-term investment
On July 23, 2020, the Group has entered into an investment agreement with Anze Premium Health and Beauty Pte. Ltd. (“Anze”), a
company involved in the research and development of Chinese herbal medicine-based health and wellness products. The Group has
committed to paying Anze up to US$30 million, comprising of up to US$15 million for an equity interest in Anze and up to US$15
million for zero coupon notes issued by Anze. The Group purchased long-term investment of US$1,450,000 in Anze in January 2021.
As of December 31, 2021, the Group has invested US$7,354,000 in Anze. It represents a 14.6% equity ownership in Anze, for which the
Group currently does not have any significant influence over the operations of Anze and is not subjected to equity method accounting.
For the year ended December 31, 2021, the Group recorded an impairment loss of US$ 7,267,596 due to reduced profit projections of
Anze as a result of the negative impact of Covid-19. There were no impairments for the year ended December 31, 2020 and 2019.
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ECMOHO LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-40
On September 2, 2021, the Group sold a 90% equity interest in Shanghai Juyi Information Technology Co., Limited. The
remaining 10% equity interest would be treated as a long-term investment based upon the fair value of retained non-controlling interest
in Shanghai Juyi.As of December 31, 2021, the Group recognized a long-term investment of US$4,197 which resulted from the selling
of a 90% equity interest in Shanghai Juyi with net assets of Shanghai Juyi being approximately US$ 41,000.
16. Short-term borrowings
-
Bank borrowings
As of December 31, 2020 and 2021, the total short-term bank borrowings balance of the Group was US$ 6,472,096 and US$4,376,060,
respectively. The short-term bank borrowings outstanding as of December 31, 2020 and 2021 carried a weighted average interest rate of
4.92% and 5.39% per annum, respectively.
a)
The Group’s bank facility arrangements are summarized as follows:
On October 18, 2018, two fully owned subsidiaries of the Group obtained a three-year revolving loan facility in an aggregate principal
amount not exceeding US$25.0 million from Taipei Fubon Commercial Bank Co. Ltd., Hong Kong Branch. On March 25, 2020, this
aggregate principal amount changed to not exceeding US$18.0 million. Borrowings drawn down from the loan facility were charged by
account receivables, bank accounts as well as inventories of these subsidiary and are also charged by certain of the Class B ordinary
shares held by the Founders. As of December 31, 2019 and 2020, short-term bank borrowings amounted to US$ 14,695,000 and
US$2,200,000, respectively, from such revolving loan facility. The loan has been repaid as of December 31, 2021.
On October 29, 2018, one of the fully owned subsidiaries of the Group obtained a two-year revolving loan facility in an aggregate
principal amount not exceeding US$ 4,000,000 from The Hong Kong and Shanghai Banking Corporation Limited. As of December 31,
2019, borrowings drawn down from the loan facility were charged by certain accounts receivables with the carrying value of US$
3,239,987 and bank deposits of US$ 2,000,000 which was classified as restricted cash and are also charged by the other two fully owned
subsidiaries of the Group and the Founders. As of December 31, 2019, short-term bank borrowings with the amount of US$ 3,983,355
were from such revolving loan facility. The loan has been repaid as of December 31, 2020.
On March 18, 2019, one of the fully owned subsidiaries of the Group obtained a one-year revolving loan facility in an aggregate
principal amount not exceeding US$ 2,150,168 (RMB 15,000,000) from China Merchants Bank, Shanghai Tianyaoqiao Branch.
Borrowings drawn down from the loan facility were charged by the other fully owned subsidiary of the Group and the Founders. As of
December 31, 2019, short-term bank borrowings with the amount of US$ 1,433,445 (RMB 10,000,000) were from such revolving loan
facility. The loan has been repaid as of December 31, 2020.
On May 6, 2019, one of the fully owned subsidiaries of the Group obtained a one-year revolving loan facility in an aggregate principal
amount not exceeding US$ 286,689 (RMB 2,000,000) from Ningbo Commerce Bank, Shanghai Branch. Borrowings drawn down from
the loan facility were guaranteed by the Founders. As of December 31, 2019, short-term bank borrowings with the amount of US$
274,603 (RMB 1,915,688) were from such revolving loan facility. The loan has been repaid as of December 31, 2020.
On August 14, 2020, one of the fully owned subsidiaries of the Group obtained a one-year revolving loan facility in an aggregate
principal amount not exceeding US$ 766,295 (RMB 5,000,000) from Bank of Ningbo, Shanghai Branch. Borrowings drawn down from
the loan facility were guaranteed by the Founders. As of December 31, 2020 and 2021, short-term bank borrowings with the amount of
US$ 766,295 (RMB 5,000,000) and US$ 784,228 (RMB 5,000,000) were from such revolving loan facility.
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ECMOHO LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-41
On September 18, 2020, one of the fully owned subsidiaries of the Group obtained a one-year revolving loan facility in an aggregate
principal amount not exceeding US$ 153,259 (RMB 1,000,000) from Bank of Ningbo, Shanghai Branch. Borrowings drawn down from
the loan facility were collateralized by the Company’s property and equipment and guaranteed by the Founders and a third-party
guarantor. As of December 31, 2020 and 2021, short-term bank borrowings with the amount of US$ 134,102 (RMB 875,000) and US$
62,808 (RMB 400,442) were from such revolving loan facility.
b)
The Group’s other bank borrowings are summarized as follows:
As of December 31, 2020 and 2021, bank borrowings of US$ 1,532,590 (RMB 10,000,000) and US$ 1,254,764 (RMB 8,000,000),
respectively, were guaranteed by the Founders. On June 30, 2020, the Group entered into a one-year loan agreement with Industrial
Bank, with a principal amount of US$ 1,226,072 and annual interest rate of 5.30%. The loan has been repaid as of December 31, 2021.
On August 3, 2020, the Group entered into a six-month loan agreement with Industrial and Commercial Bank of China Limited, with a
principal amount of US$ 306,518 and annual interest rate of 4.95%. The loan has been repaid as of December 31, 2021. On January 15,
2021, the Group entered into a six-month loan agreement with Industrial and Commercial Bank of China Limited, with a principal
amount of US$313,691 (RMB 2,000,000) and annual interest rate of 4.65%. The loan has been repaid as of December 31, 2021. On June
25, 2021, the Group entered into a one-year loan agreement with Industrial Bank, with a principal amount of US$ 1,254,764 (RMB
8,000,000) and annual interest rate of 5.00%.
As of December 31, 2020 and 2021, bank borrowings of US$ 1,839,109 (RMB 12,000,000) and US$ 784,228 (RMB 5,000,000) were
guaranteed by the Founders and a third-party guarantor. On November 30, 2020, the Group entered into a one-year loan agreement with
Bank of Shanghai, with a principal amount of US$ 1,532,591 and annual interest rate of 3.85%. The loan has been repaid as of
December 31, 2021. On December 7, 2020, the Group entered into a one-year loan agreement with Bank of Communications, with a
principal amount of US$ 306,518 and annual interest rate of 4.05%. The loan has been repaid as of December 31, 2021. On September
30, 2021, the Group entered into a one-year loan agreement with Bank of Shanghai, with a principal amount of US$ 784,228 and annual
interest rate of 4.35%.
On February 8, 2021, the Group entered into a one-year loan agreement with Nanjing Bank, with a principal amount of US$ 784,228
and annual interest rate of 5.39%. On June 10, 2021, the Group entered into a three-month loan agreement with Nanjing Bank, with a
principal amount of US$ 627,382 and annual interest rate of 6.55%, the loans have been repaid as of December 31, 2021. On September
27, 2021, the Group entered into a four-month loan agreement with Nanjing Bank, with a principal amount of US$ 784,228 and annual
interest rate of 6.55%. Outstanding balance of the above loans as of December 31, 2021 amounted to US$1,490,032.
-
Other borrowings
As of December 31, 2020 and 2021, the total other borrowings of the Group was US$ 10,470,655 and US$ 5,944,584, respectively.
From July to December 2019, the Group entered into several one-year loan agreements with a third-party company with a total principal
amount of US$ 4,466,687 and annual interest rates of 10.9%. The loans were collateralized by certain accounts receivable with carrying
value of US$ 5,739,895. The loans have been repaid as of December 31, 2020.
From September to December 2019, the Group entered into a four-month loan agreement with a third-party company with a total
principal amount of US$ 205,983 and annual interest rates of 10%. The loans were collateralized by certain accounts receivable with the
carrying value of US$ 271,068. The loan has been repaid as of December 31, 2020.
From September to December 2019, the Group entered into a six-month loan agreement with a third-party company, with a principal
amount of US$ 4,812,000 and annual interest rate of 7.8%. The loan has been repaid as of December 31, 2020.
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ECMOHO LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-42
From October to December 2019, the Group entered into a six-month loan agreement with a third-party company with a principal
amount of US$ 1,777,989 and annual interest rate of 7%. The loans were collateralized by certain accounts receivable with the carrying
value of US$ 2,214,141. The loan has been repaid as of December 31, 2020.
From January to September 2020, the Group entered into a four-month loan agreement with a third-party company with a total principal
amount of US$ 374,381 and annual interest rates of 10%. The loans were collateralized by certain accounts receivable with carrying
value of US$ 418,558. On January 12, 2021, the Group borrowed another total principal amount of US$313,691. All the loans have been
repaid as of December 31, 2021.
From January to September 2020, the Group entered into a six-month loan agreement with a third-party company with a total principal
amount of US$ 688,855 and annual interest rates of 6%. The loans were collateralized by certain accounts receivable with carrying
value of US$ 576,736. From March to November 2021, the Group borrowed another total principal amount of US$1,506,000 from the
third-party company. All the loans have been repaid as of December 31, 2021.
In October 2020, the Group entered into a six-month loan agreement with a third-party company with a total principal amount of US$
1,750,000 and annual interest rates of 8.5%.This loan was repaid in 2021. From April to October 2021, the Group borrowed another six-
month loan total principal amount of US$3,040,000 and annual interest rate of 8.5% from the third-party company. US$1,240,000 was
repaid and the remaining balance was US$1,800,000 as of December 31, 2021.
From March to October 2020, the Group entered into a one-year loan agreement with a third-party company with a total principal
amount of US$ 2,898,859 and annual interest rates of 10.9%. The loans were collateralized by certain accounts receivable with carrying
value of US$ 4,599,394. From January to October 2021, the Group entered into a one-year loan agreement with a third-party company
with a total principal amount of US$ 5,944,445 and interest rates of 10.9%. US$ 6,253,108 of these loans has been repaid and US$
2,658,034 was outstanding as of December 31, 2021.
In November 2020, the Group entered into a one-year loan agreement with a third-party company with a total principal amount of US$
1,703,693 and annual interest rates of 8.5%. The loans were collateralized by certain accounts receivable and inventories with carrying
value of US$1,925,567 and collateralized by inventory in certain warehouses of the Group. From April to December 2021, the Group
entered into a one-year loan agreement with a third-party company with a total principal amount of US$ 4,800,000 and an annual
interest rate of 8.5%. US$ 5,762,143 of these loans has been repaid and US$741,550 was outstanding as of December 31, 2021.
In December 2020, the Group entered into a three-month loan agreement with a third-party company with a total principal amount of
US$ 2,554,867 and annual interest rates of 7.8%.From March to November 2021, the Group entered into a three-month loan agreement
with a third-party company with a total principal amount of US$ 4,070,000 and annual interest rates of 8.5%. US$ 6,224,867 of these
loans has been repaid and US$400,000 was outstanding as of December 31, 2021.
From June to December 2020, the Group entered into a 45-days loan agreement with a third-party company with a total principal
amount of US$ 500,000 and annual interest rates of 9.0%. From March to November 2021, the Group entered into a three-month loan
agreement with a third-party company with a total principal amount of US$ 2,210,000 and annual interest rates of 9.0%. US$ 2,410,000
of these loans has been repaid and US$300,000 was outstanding as of December 31, 2021.
In April 2021, the Group entered into a three-month loan agreement with a third-party company with a total principal amount of US$
104,688 and an annual interest rate of 9.6%. The loan was repaid in 2021.
In 2021, the Group borrowed from a third-party company with a total principal amount of US$ 1,845,000 and repaid US$ 1,800,000.
The remaining balance of this loan amounted to $45,000. The loan has no interest and is due on demand.
-
Bank and other borrowings:
There exists no restrictive financial covenants attached to any of the Group’s short-term borrowings.
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ECMOHO LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-43
The short-term other borrowings outstanding as of December 31, 2020 and 2021 carried a weighted average interest rate of 7.39% and
7.78% per annum, respectively.
Interest expenses of bank and other borrowings were US$ 2,605,167, US$ 2,650,317 and US$ 1,894,531, for the years ended
December 31, 2019, 2020 and 2021, respectively.
17. Accrued liabilities and other current liabilities
Accrued liabilities and other current liabilities consist of the following:
As of December 31,
2020
2021
US$
US$
Logistics expenses payables
1,041,570
1,458,912
Deposits from distributors
262,641
223,157
Payables for service procurement in connection with service revenue
2,222,142
927,781
Refund obligation of sales returns
634,119
236,547
Others
878,389
1,011,274
Total
5,038,861
3,857,671
18. Tax payables
As of December 31,
2020
2021
US$
US$
Value added tax liabilities
1,617,172 1,243,782
Income tax payables
1,811,852
1,910,373
Urban maintenance and construction tax
24,661
12,328
Surtax for education expenses
39,140
5,283
Individual income tax withholding
4,544
12,472
Others
76,848
3,521
Total
3,574,217
3,187,759
The Group’s product revenues are subject to value-added tax at the rates ranging from 9% to 13%, and the Group’s service
revenues are subject to value-added tax at the rate of 6%.
19. Redeemable convertible preferred shares
In August 2015, ECMOHO Shanghai received a total capital contribution of US$ 13,081,880 from third-party investors (the “Round A
Investors”) in exchange for 19% equity interests with preferential rights in ECMOHO Shanghai (the “Round A convertible redeemable
preferred shares” or “Round A preferred shares”).
In April 2016, ECMOHO Shanghai received a total capital contribution of US$ 24,000,000 from third-party investors (the “Round B
Investors”) in exchange for 12% equity interest with preferential rights in ECMOHO Shanghai (the “Round B convertible redeemable
preferred shares” or “Round B preferred shares”).
According to the investment agreements with Round A Investors and Round B Investors, the equity interest held by them have the
following preferential rights over the equity interests held by the Founders:
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ECMOHO LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-44
a.
In the event of liquidation, Round B Investors have preference over the interests held by Round A Investors, followed by Founders.
The liquidation amount is 150% of the original investment amount plus all declared but unpaid dividends (if applicable) plus its pro
rata share of undistributed earnings.
b.
In the event of a significant breach of contract by ECMOHO Shanghai or the Founders, both Round A and Round B Investors have
the right to put the equity interest back to ECMOHO Shanghai or the Founders. The put price shall be 110% of the original
investment amount plus 15% compound interest per annum.
c.
In the event that the Company does not achieve a public listing before August 2021, both Round A and Round B Investors have the
right to put the equity interest back to ECMOHO Shanghai or the Founders. The put price shall be 110% of the original investment
amount plus 10% interest per annum.
d.
Both Round A and Round B Investors are entitled to dividends in the same manner as the other equity interest of ECMOHO
Shanghai.
e.
Both Round A and Round B Investors have rights to appoint directors on the board of ECMOHO Shanghai.
In April 2018, the Founders entered into an agreement with one of the Round A Investors (“Exit Investor”) to purchase all of its 8.36%
equity interests with preferential rights in ECMOHO Shanghai at fair value.
During the Reorganization process (Note 1(b)), preferential rights associated with the 8.36% equity interest acquired by the Founders
were removed and exchanged into 9,519,000 Class A Ordinary Shares of the Company in August 2018, which was considered as an
extinguishment of the preferential rights. Subsequently in the same month, the Founders sold 8,880,894 Class A Ordinary Shares out of
the 9,519,000 shares to third-party investors (Note 21).
As described in Note 1(b), during the Reorganization process, after ECMOHO HK purchased 97.5% equity interest of ECMOHO
Shanghai, on September 27, 2018, the Company issued 9,519,000 and 10,817,100 number of Class A-1 and Class A-2 Ordinary Shares
with preferential rights (the “Class A-1 and Class A-2 convertible redeemable preferred shares” or “Class A-1 and Class A-2 preferred
shares”) to its Round A and Round B Investors, all in the same proportions, on an as converted basis, as the percentage of equity interest
they held in ECMOHO Shanghai before the Reorganization. Except for the NCI holders, who remained to hold collectively 2.5% equity
interests of ECMOHO Shanghai, preferential rights associated with the Round A and Round B preferred shares set forth above were
removed and replaced by the terms as described below during the Reorganization.
In August and September 2018, the Company issued 7,938,915 number of Series A convertible redeemable preferred shares (“Series A
preferred shares”) with US$ 2.8341 per share for a total cash consideration of US$ 22,500,000. The issuance costs were US$ 70,033.
The key terms of the Class A-1, Class A-2 and Series A Preferred Shares issued by the Company are as follows:
Conversion rights
Optional Conversion
Each Series A Preferred Share shall be convertible, at the option of the holder thereof, at any time and from time to time, and without the
payment of additional consideration by the holder thereof, into such number of Class A Ordinary Shares as is determined by dividing the
Series A Preferred Shares Original Issue Price by the Series A Preferred Share Conversion Price in effect at the time of conversion.
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ECMOHO LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-45
The Series A Preferred Share Conversion Price shall initially be the Series A Preferred Share Original Issue Price, resulting in an initial
conversion ratio for the Series A Preferred Shares of 1:1, and shall be subject to adjustment and readjustment from time to time,
including but not limited to additional equity securities issuance, share dividends, distribution, subdivisions, redemptions, combinations,
or consolidation of ordinary shares.
Mandatory Conversion
Upon either (a) a Qualified IPO or (b) the date and time, or the occurrence of an event, specified by vote or written consent of the
holders of the Series A Preferred Shares, then all outstanding Series A Preferred Shares shall automatically be converted into Class A
Ordinary Shares, at the then effective conversion rate.
Upon a Qualified IPO, all outstanding Class A-1 and Class A-2 Preferred Shares shall automatically be converted into Class A Ordinary
Shares, at the then effective Class A-1 Conversion Price and Class A-2 Conversion Price. The Class A-1 and Class A-2 Conversion Price
shall initially be the Class A-1 and Class A-2 Original Issue Price, resulting in an initial conversion ratio for the Class A-1 and A-2
Ordinary Shares of 1:1, and shall be subject to adjustment and readjustment from time to time, including but not limited to additional
equity securities issuance, share dividends, distribution, subdivisions, redemptions, combinations, or consolidation of ordinary shares.
A Qualified IPO means a firm-commitment underwritten initial public offering by the Company of its Ordinary Shares (or the ADSs
thereof) on the New York Stock Exchange or NASDAQ Stock Market in the United States, the Hong Kong Stock Exchange or any other
exchange in any other jurisdiction (or any combination of such exchanges and jurisdictions) acceptable to the Company, in any case with
a pre-initial public offering valuation of at least US$600,000,000 and with aggregate offering proceeds (before deduction of
underwriting fees, commissions or expenses) to the Company of not less than US$120,000,000 (or any cash proceeds of other currency
of equivalent value).
The Company determined that there were no beneficial conversion features identified for any of the Preferred Shares during any of the
periods. In making this determination, the Company compared the fair value of the ordinary shares into which the Preferred Shares are
convertible with the respective effective conversion price at the issuance date. In all instances, the effective conversion price was greater
than the fair value of the ordinary shares. To the extent a conversion price adjustment occurs, as described above, the Company will re-
evaluate whether or not a beneficial conversion feature should be recognized.
Voting rights
Each holder of Class A-1, Class A-2 and Series A Preferred Shares is entitled to cast the number of votes equal to the number of Class A
Ordinary Share on an as-converted basis.
Dividend rights
Each holder of Series A Preferred Shares is entitled to receive dividends at the rate per annum of 6% of the Series A Original issue price.
The dividends is accrued from day to day, whether or not declared, and is non-cumulative. After full payment of dividend to the holder
of the Series A Preferred Shares, the holders of the Class A-1 and Class A-2 Preferred Shares shall have right to receive dividends of the
Company if declared by the Directors and in such amount as the Directors consider appropriate.
Liquidation preference
In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, and in the event of a Deemed
Liquidation Event (for example, a merger, share exchange, amalgamation or consolidation, etc.), the consideration payable to
shareholders in such liquidation shall be distributed among the holders of the outstanding shares in the following order and manner:
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ECMOHO LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-46
Firstly, the holders of Series A Preferred Shares then outstanding shall be entitled to be paid, pari passu as between themselves, an
amount per Share equal to 100% of the Series A Original Issue Price, plus all declared but unpaid dividends (if applicable) on such
Series A Preferred Share (the “Series A Liquidation Amount”).
Secondly, the holders of Class A-2 Preferred Shares then outstanding shall be entitled to be paid, pari passu as between themselves, an
amount per Share equal to 100% of the applicable Class A-2 Original Issue Price (as adjusted), plus all declared but unpaid dividends (if
applicable) on such Class A-2 Preferred Share (the “Class A-2 Liquidation Amount”).
Thirdly, the holders of Class A-1 Preferred Shares then outstanding shall be entitled to be paid, pari passu as between themselves, an
amount per Share equal to 100% of the applicable Class A-1 Original Issue Price (as adjusted), plus all declared but unpaid dividends (if
applicable) on such Class A-1 Preferred Share (the “Class A-1 Liquidation Amount”).
Lastly, if there are any assets or funds remaining after the aggregate of the Series A Liquidation Amount, Class A-2 Liquidation Amount
and Class A-1 Liquidation Amount has been distributed or paid in full to the applicable holders of Series A Preferred Shares, Class A-2
Preferred Shares, Class A-1 Preferred Shares, respectively, the holders of the Series A Preferred Shares, Class A-1 Preferred Shares,
Class A-2 Preferred Shares, Class A Ordinary Shares and Class B Ordinary Shares shall be entitled to be paid, pari passu as between
themselves, an amount per Share equal to the remaining assets and funds of the Company available for distribution to the Shareholders
divided by the number of Shares held by such Shareholders on an as converted basis (the “Remaining Liquidation Amount”).
Redemption right
Series A Preferred Shares shall be redeemed by the Company at a price equal to the Series A Original Issue Price per share, plus the
amount which would accrue on the Series A Original Issue Price at the annual rate of six percent (6%) from the date of the Series A
Original Issue Date up to and including such date as the Series A Liquidation Amount is paid with respect to such Series A Preferred
Share (the “Series A Redemption Price”), in thirty-six (36) monthly instalments within three (3) years commencing not more than
90 days after receipt by the Company at any time on or after the fifth anniversary of the date of the Series A Original Issue Date from
any holder of the Series A Preferred Shares of written notice requesting redemption of all Series A Preferred Shares (the “Series A
Redemption Request”) held by such holder or on a payment schedule mutually agreed by the Company and such holder of the Series A
Preferred Shares requesting redemption.
After the payment in full of the Series A Redemption Price for all outstanding Series A Redemption Request, Class A-2 Preferred Shares
shall be redeemed by the Company at a price equal to the Class A-2 Original Issue Price per share, plus the amount which would accrue
on the Class A-2 Original Issue Price at the annual rate of six percent (6%) from the date of the Class A-2 Original Issue Date up to and
including such date as the Class A-2 Liquidation Amount is paid with respect to such Class A-2 Preferred Share (the “Class A-2
Redemption Price”), in thirty-six (36) monthly instalments within three (3) years commencing not more than 90 days after receipt by the
Company at any time on or after the fifth anniversary of the date of the Series A Original Issue Date from any holder of Class A-2
Preferred Shares of written notice requesting redemption of all Class A-2 Preferred Shares (the “Class A-2 Redemption Request”) held
by such holder or on a payment schedule mutually agreed by the Company and such holder of Class A-2 Preferred Shares requesting
redemption.
After the payment in full of (i) the Series A Redemption Price for all outstanding Series A Redemption Request and (ii) the Class A-2
Redemption Price for all outstanding Class A-2 Redemption Request, Class A-1 Preferred Shares shall be redeemed by the Company at
a price equal to the Class A-1 Original Issue Price per share, plus the amount which would accrue on the Class A-1 Original Issue Price
at the annual rate of six percent (6%) from the date of the Class A-1 Original Issue Date up to and including such date as the Class A-1
Liquidation Amount is paid with respect to such Class A-1 Preferred Share (the “Class A-1 Redemption Price”), in thirty-six
(36) monthly instalments within three (3) years commencing not more than 90 days after receipt by the Company at any time on or after
the fifth anniversary of the date of the Series A Original Issue Date from any holder of Class A-1 Preferred Shares of written notice
requesting redemption of all Class A-1 Preferred Shares (the “Class A-1 Redemption Request”) held by such holder or on a payment
schedule mutually agreed by the Company and such holder of Class A-1 Preferred Shares requesting redemption.
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ECMOHO LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-47
Accounting of Preferred Shares
The Company classified the Round A, Round B, Class A-1, Class A-2 and Series A preferred shares (collectively as the “Preferred
Shares”) as mezzanine equity in the consolidated balance sheets because they were redeemable at the holders’ option any time after a
certain date or were contingently redeemable upon the occurrence of certain liquidation events outside of the Company’s control. The
Preferred Shares are recorded initially at fair value, net of issuance costs.
For each reporting period, the Company recorded accretions on the Preferred Shares to the respective redemption value by using the
effective interest rate method from the issuance dates to the earliest redemption dates as set forth in the original issuance.
The accretion is recorded against retained earnings, or in the absence of retained earnings, by charges against additional paid-in-
capital, or in the absence of additional paid-in-capital, by charges to accumulated deficit. The accretion of the Preferred Shares was US$
1,022,461 for the years ended December 31, 2019.
When the preferred shareholders converted their preferred shares to ordinary shares upon completion of the IPO in November 2019, the
Company calculated the accretion value of the preferred share through the IPO date and the difference between the carrying value of the
preferred shares on the IPO date and the paid-in capital of ordinary share converted into were recognized in the additional paid-in
capital.
Extinguishment of preferred shares
The Company assesses whether amendments to the terms of its Preferred Shares is an extinguishment or a modification from both
quantitative and qualitative perspectives.
i.
Extinguishment of Round A and Round B preferred shares during Reorganization
As described above, prior to the Reorganization, the equity interests of ECMOHO Shanghai held by the Round A and Round B
Investors were with liquidation preference and also were redeemable at the holders’ option any time after a certain date or breach of
contract by ECMOHO Shanghai or the Founders.
Upon completion of the Reorganization, Round A and Round B Investors’ equity interests with preferential rights, except for the 2.5%
held by NCI holder, in ECMOHO Shanghai were exchanged into 9,519,000 Class A-1 and 10,817,100 Class A-2 Preferred Shares of the
Company, respectively.
The most significant changes in the preferential rights of the Round A and Round B Investors are in respect with the redemption right
and liquidation preference.
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ECMOHO LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-48
From both quantitative and qualitative perspectives, the Company assessed the impact of the above amendments and concluded that
these amendments represent extinguishment rather than modification of Round A and Round B preferred shares. Therefore, at the time
of the extinguishment, Round A and Round B preferred shares with the carrying amount of US$ 8,361,109 and US$ 23,284,214 are
derecognized, respectively, and Class A-1 and A-2 Preferred Shares are measured at its fair value with the amount of US$ 19,495,152
and 26,172,432, respectively, with the difference of US$ 14,022,261 charged to additional paid-in capital and accumulated deficit with
the amount of US$ 8,754,073 and US$ 5,268,188, respectively.
The Company concluded that there is no accretion to be recognized for Class A-1 and Class A-2 preferred shares because their initial
carrying amount is greater than the redemption value as of December 31, 2019. Therefore, no adjustment will be made to the initial
carrying amount of the Class A-1 and Class A-2 preferred shares until the redemption amount exceeds the carrying amount.
ii.
Extinguishment of 8.36% Round A preferred shares during the Reorganization
As described above, preferential rights associated with the 8.36% equity interest acquired by the Founders were removed during the
Reorganization process and exchanged into 9,519,000 Class A Ordinary Shares of the Company. From accounting perspective, the
Founders exchanged their preferred equity interests in ECMOHO Shanghai into the preferred shares of the Company and immediately
exercise its conversion right to convert the preferred shares into Class A Ordinary Shares. Changes from the preferred equity interests in
ECMOHO Shanghai to preferred shares of the Company were also considered as an extinguishment. Therefore, at the time of the
extinguishment, the Round A preferred shares with the carrying amount of US$ 8,754,168 held by the Founders were derecognized, and
corresponding preferred shares were measured at its fair value with the amount of US$ 19,495,152 on the extinguishment date, with the
difference amounted to US$ 10,740,984 charged to additional paid-in capital. Simultaneously, the Founders converted the preferred
shares to exchange 9,519,000 Class A Ordinary Shares of the Company (Note 21). The preferred shares with the carrying amount of
US$ 19,495,152 were derecognized, and the corresponding Class A Ordinary Shares were increased by US$ 95 and US$ 19,495,057 in
par value and additional paid-in capital, respectively.
Conversion of Preferred Shares upon IPO
Upon completion of the Company’s IPO in November 2019, 9,519,000 Class A-1 and 10,817,100 Class A-2 preferred shares were
converted and designated as 20,336,100 Class A ordinary shares on a one-for-one basis, and 7,938,915 Series A preferred shares were
converted and designated as 8,999,999 Class A ordinary shares on an average basis of 1-for-1.13 due to the adjustment of initial
conversion ratio in accordance with the terms of Series A preferred shares (Note 5).
The Company’s Preferred Shares activities for the year ended December 31, 2019 are summarized below:
Round A Preferred
Round B Preferred
Class A-1 Preferred
Class A-2 Preferred
Series A Preferred
Shares
Shares
Shares
Shares
Shares
Number of
Amount
Number of
Amount
Number of
Amount
Number of
Amount
Number of
Amount
shares
(US$)
shares
(US$)
shares
(US$)
shares
(US$)
shares
(US$)
Balances as of January 1, 2019
—
—
—
— 9,519,000 19,495,152 10,817,100 26,083,210 7,938,915 22,875,144
*Reorganization - Subscription receivables
—
—
—
—
—
—
—
89,222
—
—
Accretion on convertible redeemable preferred shares to redemption
value - After Reorganization
—
—
—
—
—
—
—
—
—
1,022,461
Conversion of preferred shares to Class A ordinary shares
—
—
—
—
(9,519,000)
(19,495,152)
(10,817,100)
(26,172,432)
(7,938,915)
(23,897,605)
Balances as of December 31, 2019
—
—
—
—
—
—
—
—
—
—
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ECMOHO LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-49
*These were transactions occurred during the Reorganization process of the Group, details please refer to Note 1(b), Note 19
and Note 20.
20. Redeemable non-controlling interests and non-controlling interests
(a) Redeemable non-controlling interests
As described in Note 1(b) and Note 19 above, certain Round B Investors who collectively held 2.5% equity interests in ECMOHO
Shanghai with preferential rights remained as the shareholders of ECMOHO Shanghai after the completion of the Reorganization.
The 2.5% equity interests in ECMOHO Shanghai held by these Round B Investors are with liquidation preference and also are
redeemable at the holders’ option under certain events, which are not solely within the control of ECMOHO Shanghai. Accordingly,
such 2.5% equity interests in ECMOHO Shanghai are recorded and accounted for as redeemable non-controlling interests outside of
permanent equity in the Group’s consolidated balance sheets in accordance with ASC 480-10-S99-3A.
Subsequently, the redeemable non-controlling interests should be carried at the higher of (1) the carrying amount after the attribution of
net income or loss of ECMOHO Shanghai (2) the expected redemption value. The Group accretes for the difference between the initial
carrying value and the ultimate redemption price to the earliest possible redemption date using the effective interest method. The
accretion, which increases the carrying value of the redeemable non-controlling interests, is recorded against retained earnings, or in the
absence of retained earnings, by charges against additional paid-in-capital, or in the absence of additional paid-in-capital, by charges to
accumulated deficit.
On June 25, 2019, the Group entered into agreements to acquire the 2.5% of the equity interest of ECMOHO Shanghai from its non-
controlling shareholders at a total cash consideration of US$ 5,382,048 (RMB 36,999,967). Out of the total consideration, US$
2,215,392 (RMB 15,230,156) is payable within 15 days from the date of the agreement. The remaining US$ 3,120,583 (RMB
21,769,811) is subject to the following payment terms: 1) if the Company completes an IPO before June 25, 2020, the consideration is
payable within 60 days after the IPO; or 2) if the Company does not complete an IPO before June 25, 2020, the consideration is payable
in two equal installments in two years after the agreement date plus an interest at an annual rate of eight percent accruing from the date
of the agreement.
Upon completion of the above acquisition in June 2019, redeemable non-controlling interests with the carrying amount of US$
6,678,219 were derecognized, and differences between the carrying amount and the consideration amounted to US$ 1,296,171 were
charged to additional paid-in capital.
Upon completion of the Company’s initial public offering in November 2019, the payment schedule was accelerated. Based on the
Group’s negotiation with the non-controlling shareholders, payment of the consideration of US$ 2,215,392 and US$ 3,120,583 has been
fully paid in 2019 and 2020, respectively.
The change in the carrying amount of redeemable non-controlling interests for the year ended December 31, 2019 is as follows:
Redeemable non-controlling
interests
US$
Beginning Balance at January 1, 2019
6,393,530
Net loss attributable to redeemable non-controlling interests
(27,068)
Accretion to redemption value of redeemable non-controlling interests
311,757
Acquisition of redeemable non-controlling interests
(6,678,219)
Ending Balance at December 31, 2019
—
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ECMOHO LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-50
(b) Non-controlling interests
Non-controlling interests mainly represent the Group’s subsidiary’s cumulative results of operations and changes in deficit attributable
to non-controlling shareholders.
-
Shanghai Jieshi
In 2016, the Group consummated an acquisition of 70% of the equity interest of Shanghai Jieshi. In June 2017, the Group acquired the
rest of the 30% equity interest of Shanghai Jieshi with a consideration of RMB 0.3 million (US$ 48,704). The difference between the
consideration and the carrying amount of such non-controlling interests was recorded in accumulated deficit in the amount of US$
(23,993).
The Group sold 10% of the equity interest to a third-party investor with a consideration of RMB 0.1 million (US$ 16,235) afterwards in
July 2017. The difference between the consideration and the carrying amount of such equity interests was recorded in accumulated
deficit in the amount of US$ 78,404.
In 2018 and 2019, the non-controlling interests shareholder made proportional cash capital injection with the amount of RMB 700,000
(US$ 104,159) and RMB 200,000 (US$ 29,196) into Shanghai Jieshi, respectively.
In August 2019, the Group acquired 10% of the equity interest of Shanghai Jieshi with a consideration of RMB 1.2 million (US$
170,324). The difference between the consideration and the carrying amount of such non-controlling interests was recorded in additional
paid-in-capital in the amount of US$ (180,784).
In July 2020, the Group disposed its 100% equity interests in Shanghai Jieshi to Xianggui Health Technology in exchange for RMB 1.0
million (approximately US$ 153,000).
-
Xianggui
The Group established Xiangui as a fully owned subsidiary in 2018. The operation of Xianggui was at a very preliminary stage and had
immaterial impact to the consolidated financials of the Group’s business. In June 2019, the Group, together with certain of its employees
made proportional cash injection into Xiangui with the amount of RMB 6 million (US$ 893,223) and RMB 4 million (US$ 595,482),
respectively, and these employees thereby obtained 40% equity interests of Xiangui while the Group still retained control of Xiangui.
In April 2020, the Group disposed its 60% equity interests to an entity fully owned by the Founders of the Company with the
consideration of RMB 3.4 million (approximately US$ 521,000).
-
Shanghai Boyi
The Group established Shanghai Boyi as a 51% owned subsidiary in 2021. The operation of Shanghai Boyi was at a very preliminary
stage and had immaterial impact to the consolidated financials of the Group’s business.
In April 2021, the Group disposed of its 51% equity interests to Cui Yun and Wang Yang, both third parties for a consideration of RMB
2 (US$ 0.3). The difference between the consideration and the carrying amount of such non-controlling interests was recorded in
investment income. The non-controlling interest is approximately of US$60 as the date of disposal.
-
Ranyi & Kangyao & Yiyao
The Group established Ranyi, Kangyao and Yiyao as three 51% owned subsidiaries in 2021. The operation of these three companies was
at a very preliminary stage and had immaterial impact to the consolidated financials of the Group’s business.
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ECMOHO LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-51
For the year ended of December 31, 2021, the total net loss of attributable to non-controlling interest of these three companies are US
$236.
-
Ranyao
The Group increased equity interests of Ranyao, a previously 51% owned subsidiaries, to 90% in October 2021. The operation of the
company was at a very preliminary stage and had immaterial impact to the consolidated financials of the Group’s business.
For the year ended of December 31, 2021, the total net loss attributable to non-controlling interest is approximately of
US$30,000.
21. Ordinary Share
The Company was incorporated as a limited liability company with authorized share capital of US$50,000 divided
into (i) 4,880,496,457 Class A Ordinary Shares of a par value of US$0.00001 each, (ii) 9,519,000 Class A-1 Ordinary Shares with
preferential rights (“Class A-1 preferred shares”) of a par value of US$0.00001 each, (iii) 13,663,700 Class A-2 Ordinary Shares with
preferential rights (“Class A-2 preferred shares) of a par value of US$0.00001 each, (iv) 75,150,400 Class B Ordinary Shares of a par
value of US$0.00001 each and (iii) 21,170,443 Series A Preferred Shares of a par value of US$0.00001 each.
On August 2, 2018, the Founders subscribed for 9,519,000 Class A Ordinary Shares and 75,150,400 Class B Ordinary Shares of the
Company with the cash consideration of US$ 15,261,676, in the same proportions as the percentage of equity interest they held in
ECMOHO Shanghai before the Reorganization. As of December 31, 2018, consideration of US$6,000,376 has been received, and
consideration of US$ 9,261,300 remained outstanding and was presented as subscriptions receivable, a contra-equity balance on the
consolidated balance sheets. The remaining consideration of US$9,261,300 was fully received in 2019.
As described in Note 1(b) and Note 19, upon the consummation of the above subscription, preferential rights associated with the 8.36%
equity interest acquired by the Founders in ECMOHO Shanghai were removed and exchanged into 9,519,000 preferred shares of the
Company, which was considered as an extinguishment of the original preferential rights (Note 19). Simultaneously, the Founders
converted the preferred shares to exchange 9,519,000 Class A Ordinary Shares of the Company, and sold 8,880,894 Class A Ordinary
Shares out of the 9,519,000 shares to third party investors (Note 19).
In September 2018, the Founders established a trust to hold 2,846,600 of the Company’s issued Class A Ordinary Shares. These ordinary
shares were issued by the Company and held in trust for future potential subscription of new investors based on the discretion of the
board of directors of the Company. The ordinary shares issued to the trust are accounted for as treasury shares of the Company and
presented as such for all periods presented. In August 2019, all the Class A Ordinary Shares held in trust were cancelled. The trust does
not hold any other assets or liabilities as at December 31, 2019, nor earn any income or incur any expenses for the years ended
December 31, 2018 and 2019.
In November 2019, the Company completed its initial public offering on the NASDAQ Global Select Market of 4,675,000 American
Depositary Shares (“ADS”) (including 300,000 ADSs sold upon the exercise of the underwriters’ over-allotment option) (every ADS
represents four Class A ordinary shares, for a total ordinary shares offering of 18,700,000 shares). The net proceeds raised from the IPO
amounted to approximately US$35.0 million after deducting underwriting discounts and commissions and other offering expenses.
Upon the completion of the IPO, 9,519,000 Class A-1 and 10,817,100 Class A-2 preferred shares were converted and designated as
20,336,100 Class A ordinary shares on a one-for-one basis, and 7,938,915 Series A preferred shares were converted and designated as
8,999,999 Class A ordinary shares on an average basis of 1-for-1.13 due to the adjustment of initial conversion ratio in accordance with
the terms of Series A preferred shares.
Table of Contents
ECMOHO LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-52
The Company has a dual class voting structure under which majority of the ordinary shares held by the Founders are designated as
Class B Ordinary Shares and all of the other ordinary shares, including the shares held by others shareholders and the conversion of
outstanding Preferred Shares, are designated as Class A Ordinary Shares. Each holder of outstanding Class A Ordinary Shares shall be
entitled to cast the number of votes equal to the number of whole Class A Ordinary Shares held by such holder and each holder of
outstanding Class B Ordinary Shares shall be entitled to cast the number of votes equal to ten times the number of whole Class B
Ordinary Shares held by such holder. In May and November 2020, the board of directors approved the conversion of 3,794,784 shares of
the Group’s Class B Ordinary shares to Class A Ordinary shares on a one-for-one basis for one of the Company’s shareholder. On
October 23, 2020, the board of directors approved the issuance of 2,000,000 additional shares of Class A Ordinary shares to extent the
awards in relation to the Restriction Shares Units (“RSUs”) granted under 2018 Omnibus Incentive Plan. As of December 31, 2020,
2,000,000 shares of Class A Ordinary shares has been issued and 1,590,650 shares are vested (see Note 24). In 2021, the Company
issued 12,220,000 Class A Ordinary Shares to extent the awards in relation to the RSUs granted under 2018 Omnibus Incentive Plan and
2021 Omnibus Incentive Plan. and 7,642,411 shares were vested as of December 31, 2021. As of December 31, 2020 and 2021,
3,794,784 and 12,000,000 shares of the Group’s Class B Ordinary shares have been converted to Class A Ordinary shares.
On August 5, 2021, the Company completed the underwritten public offering of 10 million American Depositary Shares (40
million Class A ordinary shares) at an offering price of US$0.90 per ADS for net proceeds to the Company of approximately US$8.1
million, after deducting underwriting discounts and offering expenses.
22. Revenues
The Group’s revenues for the respective periods are detailed as follows:
Year ended December 31,
2019
2020
2021
US$
US$
US$
Product Sales
273,202,495 280,138,505 123,023,190
Product Sales - Consignment arrangement
28,896,028
20,017,020
5,017,395
Services
27,381,393
4,783,240
2,705,975
Total
329,479,916
304,938,765
130,746,560
The Group’s breakdown of product sales revenue by product category for the respective periods are detailed as follow:
Year ended December 31,
2019
2020
2021
US$
US$
US$
Health Supplements and Food
116,975,344 138,269,439
71,390,789
Mother and Child Care Products
131,926,890
118,728,576
49,712,979
Personal Care Products
24,293,333
25,553,477
991,865
Others
28,902,946
17,604,033
5,944,952
Total
302,098,523
300,155,525
128,040,585
23. Finance expense, net
Year ended December 31,
2019
2020
2021
US$
US$
US$
Interest expense
(2,605,167) (2,650,317) (1,894,531)
Interest income
91,320
35,035
10,614
Total
(2,513,847)
(2,615,282)
(1,883,917)
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ECMOHO LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-53
24. Share-based compensation
On September 30, 2018, the Company adopted its 2018 Omnibus Incentive Plan (the “2018 Plan”), which permits the grant of restricted
shares, restricted share units, options and stock appreciation rights to the employees and directors of the Company. The Company
granted share options/restricted shares under the 2018 Plan to its employees and directors. Under the plan, a total of 11,386,410 Class A
Ordinary Shares were initially reserved for issuance. The 2018 Plan is valid and effective for a term of 10 years commencing from its
adoption.
On May 19, 2021, the Company adopted its 2021 Omnibus Incentive Plan (the “2021 Plan”), which permits the grant of restricted
shares, restricted share units, options and stock appreciation rights to the employees and directors of the Company. The Company
granted share options/restricted shares under the 2021 Plan to its employees and directors. Under the plan, a total of 14,471,750 Class A
Ordinary Shares were initially reserved for issuance. The 2021 Plan is valid and effective for a term of 10 years commencing from its
adoption.
Under the 2018 Plan and 2021 Plan, the Company granted 472,220, 2,048,991 and 9,635,488 restricted share units to its employees
during the years ended December 31, 2019, 2020 and 2021, respectively. Restricted share units granted to employees are measured
based on the grant-date fair value.
Restricted share units granted with service condition are commonly vested over a period of four years of continuous service, one fourth
(1/4) of which vest upon the first anniversary of the stated vesting commencement date and the remaining vest ratably over the
following 36 months. The Group recognizes respective compensation expense on a straight-line basis over the vesting term of the
awards, net of estimated forfeitures.
For restricted share units granted with performance conditions whose vesting is contingent upon meeting company-wide performance
goals, respective compensation cost is recognized over the requisite service period using graded-vesting method if it is probable that the
performance target will be achieved. The Group will reassess the probability of achieving the performance conditions at each reporting
period and record a cumulative catch-up adjustment for any changes to its assessment.
For restricted share units granted with market condition whose vesting is contingent on the Company’s market value exceeding a
specific amount, the Group adopted Monte Carlo simulation to determine the fair value while the Company was a private company and
requisite service period, respective compensation expense is recognized using the straight-line method over the estimated requisite
service period unless the market condition is satisfied before the end of the initially estimated requisite service period. Starting from
November 2019, the Group is a publicly traded company with observable price in the stock U.S exchange market to determine the fair
value and requisite service period.
Upon completion of the Company’s IPO in November 2019, share-based compensation expenses related to the restricted share units
granted with performance condition of the occurrence of IPO was recognized immediately with the amount of US$ 209,764.
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ECMOHO LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-54
The following table summarizes activities of the Company’s restricted share units under the 2018 Plan and 2021 Plan for the years ended
December 31, 2019, 2020 and 2021:
Number of
Weighted Average
Restricted Share
Grant Date
Units Outstanding
Fair Value
US$
Unvested at December 31, 2018
3,971,453
1.96
Granted
472,220
2.64
Vested
(746,660)
1.96
Forfeited
(1,033,446)
2.13
Unvested at December 31, 2019
2,663,567
1.98
Granted
2,048,991
0.40
Vested
(843,990)
1.15
Forfeited
(2,113,283)
1.89
Unvested at December 31, 2020
1,755,285
1.09
Granted
9,635,488
0.51
Vested
(6,051,761)
0.52
Forfeited
(913,018)
0.58
Unvested at December 31, 2021
4,425,994
0.67
As of December 31, 2021, there were US$ 2,363,153 of unrecognized compensation expenses related to restricted share units granted by
the Company to the employees, which were expected to be recognized over 0.50 to 3.25 years.
To the extent the actual forfeiture rate is different from the Company’s estimate, the actual share-based compensation related to these
awards may be different from the expectation.
Share-based compensation expenses of US$ 1,575,029, US$ 474,559 and US$ 2,552,318 related to restricted share units granted was
recognized for the years ended December 31, 2019, 2020 and 2021.
The fair value of each restricted share units granted with market condition under the Company’s 2018 Plan during the year ended
December 31, 2018 was estimated on the date of grant using Monte Carlo model with the assumptions (or ranges thereof) in the
following table:
Year ended
December 31,
2018
Expected volatility (a)
50.0 %
Risk-free interest rate (b)
4.1 %
Expected dividend yield (c)
0 %
Contractual term
10
Notes:
(a)
Expected volatility is estimated based on the average of historical volatilities of the comparable companies in the same
industry as at the valuation dates.
(b)
The risk-free interest rate of periods within the contractual life of the share option is based on the market yield of the U.S.
treasury bonds with a maturity life equal to the expected life to expiration.
(c)
The Company has no history or expectation of paying dividends on its ordinary shares.
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ECMOHO LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-55
Prior to the listing of the Company’s ADSs on the NASDAQ Global Market, determining the fair value of the share options required the
Company to make complex and subjective judgments, assumptions and estimates, which involved inherent uncertainty. Had the
Company used different assumptions and estimates, the resulting fair value of the restricted share units and the resulting share-based
compensation expenses could have been different.
The following table sets forth the fair value of restricted share units and ordinary shares estimated at the date of option grants indicated
below:
Fair value
of restricted
share units
Restricted
granted
Fair value
Discount for
share units
with market
of ordinary
Lack of
Discount
Date of Grant
granted
condition
shares
Marketability
Rate
Type of Valuation
September 30, 2018
3,971,453
US$
1.66
US$
2.06
8 %
20 % Contemporaneous
June 30, 2019
472,220
—
US$
2.64
4 %
20 % Contemporaneous
Prior to the listing of the Company’s ADSs on the NASDAQ Global Market, valuations of the Company’s ordinary shares were
determined in accordance with the guidelines outlined in the American Institute of Certified Public Accountants’ Practice Aid, Valuation
of Privately-Held Company Equity Securities Issued as Compensation, and with the assistance of an independent appraisal firm from
time to time. The assumptions the Company uses in the valuation model are based on future expectations combined with management
judgement, with inputs of numerous objective and subjective factors, including the following:
●
the Company’s operating and financial performance;
●
current business conditions and projections;
●
the Company’s stage of development;
●
the prices, rights, preferences and privileges of the Company’s convertible preferred shares relative to its ordinary shares;
●
the likelihood of liquidity events or redemption events;
●
any adjustment necessary to recognize a lack of marketability for the Company’s ordinary shares; and
●
the market performance of industry peers.
In order to determine the fair value of the Company’s ordinary shares underlying each share-based award grant, the Company first
determined its business enterprise value, or BEV, and then allocated the BEV to each element of its capital structure (convertible
redeemable preferred shares and ordinary shares) using a hybrid method comprising the probability-weighted expected return method
and the option pricing method. In the Company’s case, three scenarios were assumed, namely: (i) the liquidation scenario, in which the
option pricing method was adopted to allocate the value between convertible preferred shares and ordinary shares, and (ii) the
redemption scenario, in which the option pricing method was adopted to allocate the value between convertible preferred shares and
ordinary shares, and (iii) the mandatory conversion scenario, in which equity value was allocated to convertible preferred shares and
ordinary shares on an as-if converted basis. Increasing probability was assigned to the mandatory conversion scenario during 2017 and
2018 in light of preparations for the Company’s initial public offering.
In determining the fair value of its BEV, the Company applied the income approach/discounted cash flow, or DCF, analysis based on its
projected cash flow using management’s best estimate as of the valuation date. The determination of the fair value of its ordinary shares
requires complex and subjective judgments to be made regarding its projected financial and operating results, its unique business risks,
the liquidity of its shares and its operating history and prospects at the time of valuation.
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ECMOHO LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-56
The fair values of restricted share units are determined based on the fair value of the Company’s ordinary shares and BEV. As a
measure of sensitivity, for every 1% increase of BEV over management’s estimates as of the grant date of the restricted share units,
share based compensation expenses recognized in the year ended 2018 and 2019 would be US$3.6 thousand and US$15.8 thousand
higher, respectively.
25. Employee benefits
The full-time employees of the Company’s subsidiaries and VIEs that are incorporated in the PRC are entitled to staff welfare benefits
including medical insurance, basic pensions, unemployment insurance, work injury insurance, maternity insurance and housing funds.
These companies are required to contribute to these benefits based on certain percentages of the employees’ salaries in accordance with
the relevant regulations and charge the amount contributed to these benefits to the consolidated statements of operations and
comprehensive income/(loss). The total amounts charged to the consolidated statements of operations and comprehensive income/(loss)
for such employee benefits amounted to US$3,080,729, US$ 1,286,783 and US$ 1,966,815 for the years ended December 31, 2019,
2020 and 2021, respectively. The PRC government is responsible for the welfare and medical benefits and ultimate pension liability to
these employees.
26. Income Taxes
(a) Cayman Islands
Under the current tax laws of Cayman Islands, the Company is not subject to income, corporation or capital gains tax, and no
withholding tax is imposed upon the payment of dividends.
(b) Hong Kong Profits Tax
Before the year of 2019, the Company’s subsidiaries incorporated in Hong Kong are subject to Hong Kong profit tax at the rate of
16.5%. Effective since the year of 2019, the applicable income tax rate was changed to 8.25% for profit of up to HK$2.0 million and
16.5% for the remainder of taxable income. Dividends income received from subsidiaries in China are not subject to Hong Kong profits
tax.
(c) PRC Enterprise Income Tax (“EIT”)
On March 16, 2007, the National People’s Congress of the PRC enacted an Enterprise Income Tax Law (“EIT Law”), under which
Foreign Investment Enterprises (“FIEs”) and domestic companies would be subject to EIT at a uniform rate of 25%. The EIT law
became effective on January 1, 2008.
The EIT Law also provides that an enterprise established under the laws of a foreign country or region but whose “de facto management
body” is located in the PRC be treated as a resident enterprise for PRC tax purposes and consequently be subject to the PRC income tax
at the rate of 25% for its global income. The implementing Rules of the EIT Law merely define the location of the “de facto
management body” as “the place where the exercising, in substance, of the overall management and control of the production and
business operation, personnel, accounting, properties, etc., of a non-PRC company is located.”
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ECMOHO LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-57
The EIT Law also imposes a withholding income tax of 10% on dividends distributed by a FIE to its immediate holding company
outside of China, if such immediate holding company is considered as a non-resident enterprise without any establishment or place
within China or if the received dividends have no connection with the establishment or place of such immediate holding company within
China, unless such immediate holding company’s jurisdiction of incorporation has a tax treaty with China that provides for a different
withholding arrangement. The Cayman Islands, where the Company incorporated, does not have such tax treaty with China. According
to the arrangement between Mainland China and Hong Kong Special Administrative Region on the Avoidance of Double Taxation and
Prevention of Fiscal Evasion in August 2006, dividends paid by a FIE in China to its immediate holding company in Hong Kong will be
subject to withholding tax at a rate of no more than 5% if the immediate holding company in Hong Kong owns directly at least 25% of
the shares of the FIE and could be recognized as a Beneficial Owner of the dividend from PRC tax perspective.
A reconciliation between the effective income tax rate and the PRC statutory income tax rate is as follows:
Year Ended December 31,
2019
2020
2021
PRC statutory income tax rates
25.00 %
25.00 %
25.00 %
Change in valuation allowance
86.99 %
(0.50)%
10.05 %
Effect of permanent differences
25.70 %
(11.31)%**
(18.25)%**
Additional tax deduction for qualified research and development expenses
(10.84)%
(6.33)%
(1.13)%
Effect of tax holiday*
(115.48)%
(8.51)%
—
Difference in tax rate of subsidiaries outside the PRC
(0.06)%
1.60 %
(10.66)%
Total
11.43 %
(0.05)%
5.01 %
* Yi Ling (Shanghai) Information Technology Co., Limited, fully owned subsidiary of the Group, obtained its software enterprise
certificate in June 2019 for 1 year and in October 2020 for another 1 year and is entitled to two years tax exemption from Corporate
Income Tax (“CIT”) for the years of 2019 and 2020 and a 50% CIT reduction for the succeeding three years thereafter.
** For the year ended December 31, 2020, 3.52% represents shares-based compensation not deductible in the PRC returns, 7.79%
represents the Company’s Cayman Island operating expenses not deductible in the PRC returns and other non-taxable and deductible
items such as meal and entertainment expenses.
** For the year ended December 31, 2021, 4.35% represents shares-based compensation not deductible in the PRC returns, 13.90%
represents the Company’s Cayman Island operating expenses not deductible in the PRC returns and other non-taxable and deductible
items such as meal and entertainment expenses.
Composition of income tax expense
The current and deferred portions of income tax expense included in the consolidated statements of operations and comprehensive
income/(loss)are as follows:
Year Ended December 31,
2019
2020
2021
US$
US$
US$
Current income tax expense
56,898
78
120,366
Deferred tax expense/(benefit)
192,741
(6,582)
(3,054,564)
Income tax expense/(benefit), net
249,639
(6,504)
(2,934,198)
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ECMOHO LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-58
Deferred tax assets and liabilities
Deferred taxes were measured using the enacted tax rates for the periods in which they are expected to be reversed. The tax effects of
temporary differences that give rise to the deferred tax asset balances as of December 31, 2020 and 2021 are as follows:
Year Ended December 31,
2020
2021
US$
US$
Deferred tax assets:
Tax loss carry-forwards
3,661,528
9,073,657
Inventory provision
81,944
866,536
Allowance for doubtful accounts
50,503
1,627,257
Unrealized Profit
6,920
—
Impairment for long-term investments
—
1,213,410
Total deferred tax assets
3,800,895
12,780,860
Less: Valuation allowance
(2,971,506)
(8,861,392)
Net deferred tax assets
829,389
3,919,468
Deferred tax liabilities:
Recognition of intangible assets arising from asset acquisition and business combination
(24,684)
(5,052)
Net deferred tax liabilities
(24,684)
(5,052)
As of December 31, 2020 and 2021, the PRC entities of the Group had tax loss carryforwards of approximately US$ 3,661,528 and US$
9,073,657, respectively, which can be carried forward to offset taxable income. The carryforwards period for net operating losses under
the EIT Law is five years. The net operating loss carry forward of the Group will expire in varying amounts between 2022 and 2026.
Other than the expiration, there are no other limitations or restrictions upon the Group’s ability to use these operating loss carryforwards.
There is no expiration for the advertising expenses carryforwards.
Valuation allowance is provided against deferred tax assets when the Group determines that it is more likely than not that the deferred
tax assets will not be utilized in the future. In making such determination, the Group considered factors including future taxable income
exclusive of reversing temporary differences and tax loss carry forwards. If events occur in the future that allow the Group to realize part
or all of its deferred income tax, an adjustment to the valuation allowances will result in a decrease in tax expense when those events
occur.
As of December 31, 2020 and 2021, valuation allowances of US$ 2,971,506 and US$ 8,861,392 were provided because it was more
likely than not that the Group will not be able to utilize certain tax losses carry forwards and other deferred tax assets generated by its
subsidiaries and VIEs.
Movement of valuation allowance is as follows:
Year Ended December 31,
2019
2020
2021
US$
US$
US$
Beginning balance
1,139,566 3,039,926 2,971,506
Current year additions
2,108,356
3,929,241
7,632,539
Reversal of valuation allowances
(207,996)
(3,997,661)
(1,742,653)
Ending balance
3,039,926
2,971,506
8,861,392
Increase of the valuation allowance in the year ended December 31, 2019 was mainly due to certain of the Group’s start-up PRC
subsidiaries experienced losses at their preliminary stage of business and full valuation allowances were provided against their deferred
tax assets, mainly related to loss carry forwards.
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ECMOHO LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-59
Reversal of valuation allowances in the year ended December 31, 2020 was due to the Group disposed four PRC subsidiaries in the year
of 2020 and such valuation allowances relating to these subsidiaries were fully deconsolidated. The additions in valuation allowances
was due to the Group’s PRC subsidiaries experienced losses as COVID-19-related disruptions have had an adverse impact on the
Group’s results of operations.
Increase of the valuation allowance in the year ended December 31, 2021 was mainly due to certain of the Group’s HK
subsidiaries continuously experienced losses of business and full valuation allowances were provided against their deferred tax assets,
mainly related to loss carry forwards. Reversal of valuation allowances in the year ended December 31, 2021 was mainly due to 1) the
Group disposed a PRC subsidiary in the year of 2021 and such valuation allowances relating to this subsidiary was fully deconsolidated
and 2) some of the Group’s PRC subsidiaries have been profitable in 2021, which generates reversal of valuation allowances in the year
ended December 31, 2021.
27. Related Party transactions
Transactions with related parties and balances amount due to related parties were as follows:
Year Ended December 31,
2019
2020
2021
US$
US$
US$
Transaction with related parties
Repayment of advances to related parties (i)
(10,593,662)
(5,214,261)
(3,232,578)
Proceeds of advances from related parties (i)
9,436,151
3,409,587
2,186,806
Proceeds of borrowings from related parties (ii)
6,000,000
10,000,000
11,000,000
Repayment of borrowings from related parties(ii)
(2,000,000)
(10,600,000)
(11,990,000)
Reimbursement to related parties
331,956
292,736
47,880
Product sales (iv)
—
264,824
2,115,290
Purchases (v)
—
6,560
268,009
Proceeds from sale of equity interests in subsidiaries (Note 3)
—
710,392
—
Sale consideration from sale of equity interests in a subsidiary offset with amounts
due to related parties (Note 3)
—
652,401
—
Gain from sale of equity interests in subsidiaries to related parties recognized to
additional paid-in capital (Note 3)
—
1,950,871
—
As of December 31,
2020
2021
US$
US$
Balance amount with related parties
Payable due to related parties (i)
(708)
(125,164)
Borrowings and interests due to related parties (ii)
(9,400,000)
(8,410,000)
Accounts payable – related parties (iii)
(3,045)
(118,183)
(i)
The Group drew down interest free advances from Founders, members of Founders immediate families and special purpose
vehicles controlled by the Founders and Shareholders during the periods presented. As of December 31, 2020 and 2021,
payables due to these related parties amounted to US$ 708 and US$ 125,164, respectively.
(ii)
On September 18 and October 17, 2017, April 11, 2018 and November 12, 2019, the Group entered into loan agreements with
a fully owned subsidiary of one of the investors of Class A-2 (Round B) preferred shares, who became Class A ordinary
shareholder, Techlong International Investment Limited, after the Company’s IPO in November 2019, with the principle
amount of US$ 1,500,000, US$ 1,500,000, US$ 3,000,000 and US$ 2,000,000 and interest rate of 6.00%, 6.00%, 6.00% and
8.00%, respectively, prior to 2020. Starting from 2020, interest rate for loans aforementioned were all 8% per annum. Such
borrowings shall be repaid upon the lender’s request. In May 2020, the Group entered into supplementary loan agreements
with a fully owned subsidiary of one of its Class A ordinary shareholders, pursuant to
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ECMOHO LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-60
which the borrower agreed to, with respect to its existing loans to the Group with the principle amount of US$ 8,000,000,
waive certain interests thereon and adjust the repayment schedule. In addition, Mr. Leo Zeng has agreed to enter into certain
amended loan agreements with the shareholder in respect of 4,000,000 Class B ordinary shares to guarantee the Group’s
payment obligations under the loan agreements. In February 2021, the Group entered into a supplementary loan agreement
with Techlong International Investments Limited, extend to the Group an additional principal amount of US$1,000,000 to be
due on May 31, 2021 with an annual interest rate of 8.0%. As of December 31, 2020 and 2021, payables due to the related
party amounted to US$ 7,400,000 and US$ 6,410,000, respectively.
On December 26, 2019, the Group entered into loan agreements with the fully owned subsidiary of one of Class A ordinary
shareholders, Delta Capital Growth Fund II, L.P. with the principle amount of US$ 2,000,000 and interest rate of 10.00%, and such
borrowing has been repaid subsequently on February 21, 2020. The Group re-entered such loan agreement on November 10, 2020
with the same term of principle amount and interest rate. In January 2021, the Group entered into a supplementary loan agreement
with Delta Capital Growth Fund II, L.P, with the principle amount of US$2,000,000 to be due on March 5, 2021 with an annual
interest rate of 10.0%. From March 5, 2021, the loan was subsequently renewed to February 2022 with the same term. The loan was
repaid in February 2022.
(iii)
The balance is included in accounts payable on the consolidated balance sheets.
(iv)
The Group made product sales to related parties amounted to US$264,824 and US$2,115,290 for the years ended December
31, 2020 and 2021.
(v)
The Group purchased inventories from related parties amounted to US$6,560 and US$268,009 for the years ended December
31, 2020 and 2021
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ECMOHO LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-61
28. Basic and diluted net earnings/(loss) per share
Basic earnings/(loss) per share and diluted earnings/(loss) per share have been calculated in accordance with ASC 260 on computation
of earnings per share for the years ended December 31, 2019, 2020 and 2021 as follows:
Year Ended December 31,
2019
2020
2021
Numerator:
Net income/(loss) attributable to ECMOHO Limited
2,296,555 (13,298,912)
(55,655,198)
Accretion on convertible redeemable preferred shares to redemption value (Note
19)
(1,022,461)
—
—
Accretion to redemption value of redeemable non-controlling interests (Note 20)
(311,757)
—
—
Net income/(loss) attributable to ordinary shareholders-Basic
962,337 (13,298,912)
(55,655,198)
Net income/(loss) attributable to ordinary shareholders-Diluted
962,337 (13,298,912)
(55,655,198)
Denominator:
Denominator for basic (loss)/earnings per share weighted-average ordinary
shares outstanding
98,104,216 139,619,496 158,969,475
Dilutive impact of Class A-1 preferred shares conversion
7,954,232
—
—
Dilutive impact of Class A-2 preferred shares conversion
9,038,947
—
—
Dilutive impact of restricted share units
547,469
—
—
Denominator for dilutive earnings/(loss) per share weighted-average ordinary
shares outstanding
115,644,864 139,619,496 158,969,475
Basic earnings/(loss) per ordinary share:
0.01
(0.10)
(0.35)
Diluted earnings/(loss) per ordinary share:
0.01
(0.10)
(0.35)
Denominator:
Denominator for basic earnings/(loss) per ADS weighted-average ADS
outstanding
24,526,054
34,904,874
39,742,369
Denominator for dilutive earnings/(loss) per share weighted-average ADS
outstanding
28,911,216
34,904,874
39,742,369
Basic earnings/(loss) per ADS:
0.04
(0.38)
(1.40)
Diluted earnings/(loss) per ADS:
0.03
(0.38)
(1.40)
Note:
(1)
Vested but unregistered restricted share units are included in the denominator of basic earnings/(loss) per share calculation
once there were no further vesting conditions or contingencies associated with them, as they are considered contingently
issuable shares. Accordingly, the weighted average number of shares of 164,279 (41,070 ADSs), 901,997 (225,499 ADSs) and
2,702,672 (675,668 ADSs) and related to these restricted share units are included in the denominator for the computation of
basic EPS for the years ended December 31, 2019, 2020 and 2021, respectively.
For the year ended December 31, 2019, assumed conversion of the Series A Preferred Shares have not been reflected in the dilutive
calculations pursuant to ASC 260, “Earnings Per Share,” due to the anti-dilutive effect.
The following ordinary shares equivalent were excluded from the computation of diluted net earnings/(loss) per ordinary share for the
periods presented because including them would have had an anti-dilutive effect:
Year Ended December 31,
2019
2020
2021
Preferred shares — weighted average
6,633,889
—
—
Restricted share units — weighted average
—
671,551
3,857,574
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ECMOHO LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-62
29. Commitments and contingencies
(a) Purchase commitments
As of December 31, 2020 and 2021, no purchase commitments was related to the products procurement from third party brand partners.
(b) Capital Commitments
As of December 31, 2020 and 2021, no capital commitments was related to leasehold improvement and purchase of equipment.
(c) Litigation
In March 2016, the Group entered into a cooperation framework agreement to establish a joint venture with several joint venture
partners. As part of the agreement, the joint venture partners agreed to contribute their ownership in certain brands to the joint venture.
However, only a portion of such trademarks have been transferred to the Group. In October 2018, the Group filed a civil claim against
the joint venture partners in the Shanghai Xuhui People’s Court to enforce the transfer of the remaining trademarks, claim damages
amounting to RMB7.19 million (US$1.05 million) and request that the joint venture partners be enjoined from using the brand name
“Heng Shou Tang” in all categories. On January 10, 2019, the joint venture partners filed a counterclaim to rescind the agreement and
allege damages amounting to RMB3.25 million (US$ 0.47 million).
In July 2019, the Shanghai Xuhui People’s Court ruled that the Group shall pay damages in the amount of RMB3.25 million (US$0.47
million) to the joint venture partners for breaching its contractual obligation to contribute capital to the joint venture, and that the joint
venture partners shall continue to perform their contractual obligations by transferring the remaining trademarks to the joint venture and
cease to use the brand name “Heng Shou Tang” in all categories. Both the Group and the joint venture partners have appealed against
this ruling with the Shanghai First Intermediate People’s Court. Despite the appeal filed by the Group, as of June 30, 2019, the Group
made a provision of RMB3.25 million (US$ 0.47 million), representing the entire amount awarded to the joint venture partners by the
ruling from the Court.
In November 2019, the Shanghai First Intermediate People’s Court delivered its judgment, which provides, amongst other matters, that
the Group shall not pay damages to the joint venture partners and the joint venture partners shall continue to perform their contractual
obligations by transferring the remaining trademarks to the joint venture. Pursuant to the final judgement, the Group reversed the above
provision as of December 31, 2019.
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ECMOHO LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-63
(d) Impact of COVID-19
The ongoing outbreak of the novel coronavirus (COVID-19) has spread rapidly to many parts of the world. In March 2020, the World
Health Organization declared the COVID-19 as a pandemic. The Group’s operations and financial performance have been affected by
significant increases in international freight costs in light of the COVID-19 pandemic and such increases have had an impact on the
Group’s fulfillment expenses. In addition, during the first quarter of calendar year 2020 some of the Group’s third-party business
partners in China, in particular domestic logistics and transport services providers, experienced temporary shut-downs or worker
absenteeism and were unable to meet their obligations to the Group. This has had an adverse impact on the Group’s ability to promptly
provide its customers with the products they purchased, which, in turn, had affected the Group’s financial performance with overall
revenues decrease by approximately US$ 24.5 million for the year ended December 31, 2020 as compared to 2019. The longer-term
trajectory of COVID-19, the spread of virus variations, and effectiveness and availability of the vaccines, and their impact on our
industry and the broader economy are still difficult to assess or predict and pose significant uncertainties that are difficult for us to
quantify and beyond our control. As such, we are currently unable to predict with the ultimate long-term impact of COVID-19 pandemic
on our business, financial condition, liquidity and results of operations. As a result of our brand optimization strategy and the impact of
COVID-19 related supply-chain disruption, we experienced a 57.3% decrease in product sales revenues from US$300.2 million in 2020
to US$128.0 million in 2021 and a 43.4% decrease in service revenues from US$4.8 million in 2020 to US$2.7 million in 2021. The
COVID-19 outbreak may continue to have an adverse impact on our results of operations in the foreseeable future.
Starting from March 2022, China has experienced a new round of regional COVID-19 outbreaks. In particular, the Group has been
subject to quarantine measures imposed by regulatory authorities in Shanghai, where the Group’s headquarters are located, since March
2022. As of the date of this annual report, the impact of the quarantine measures was limited to work-from-home policy implemented at
the Group’s offices in Shanghai. The Group has faced risks associated with decline in sales order and delay in delivery due to prolonged
quarantine measures implemented in Shanghai, although currently the impact of quarantine measures has been limited, as the Group has
not experienced disruption of logistics in all of the Group’s warehouses, which are not located in Shanghai. Relaxation of restrictions on
economic and social activities in the future may also lead to new cases, which may lead to reimposition of travel restrictions and
quarantine measures. Because of the uncertainty surrounding the new round of COVID-19 outbreak, the financial impact related to the
outbreak of and response to the coronavirus cannot be reasonably estimated at this time, and the Group’s financial results for the
remainder year of 2022 may be adversely affected.
(e) Variable interest entity structure
The Group conducts its business operations primarily through its wholly-owned subsidiaries in China. The Group also control the VIE
through certain contractual arrangements, which holds an Internet Content Provision (“ICP”) License and may develop e-commerce
platforms in the future. The Group, together with the VIE, are subject to PRC laws relating to, among others, restrictions over foreign
investments in value-added telecommunications business set out in the Negative List (2021 Version) promulgated by the Ministry of
Commerce (“MOFCOM”), and the National Development and Reform Commission (“NDRC”). To the extent that the Group plans to
develop e-commerce platforms in the future, the Group has to implement such business strategy through the VIE under the Group’s
contractual arrangements.
In the opinion of management, (i) the ownership structure of the Group is in compliance with existing PRC laws and regulations; (ii) the
Contractual Arrangements are valid and binding, and do not result in any violation of PRC laws or regulations currently in effect; and
(iii) the business operations of the VIE are in compliance with existing PRC laws and regulations in all material respects.
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ECMOHO LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-64
However, there are substantial uncertainties regarding the interpretation and application of current and future PRC laws and
regulations. Accordingly, the Group cannot be assured that PRC regulatory authorities will not ultimately take a contrary view to the
foregoing opinion of its management. If the current corporate structure of the Group or the Contractual Arrangements is found to be in
violation of any existing or future PRC laws and regulations, the Group may be required to restructure its corporate structure and
operations in the PRC to comply with changing and new PRC laws and regulations. In the opinion of management, the likelihood of loss
in respect of the Group’s current corporate structure or the Contractual Arrangements is remote based on current facts and
circumstances.
30. Subsequent events
In February 2022, the Group entered into a supplementary loan agreement with Delta Capital Growth Fund II, L.P, the Group’s related
party who is a fully owned subsidiary of one of its Class A ordinary shareholders, pursuant to which the borrower agreed to, with respect
to its existing loans to the Group with the principle amount of US$1,000,000 to be due on April 23, 2022 with an annual interest rate of
10.0%. The loan was repaid in April 2022.
In March and April, 2022, the Group issued 5,000,000 Class A Ordinary Shares to extent the awards in relation to the RSUs granted
under 2021 Omnibus Incentive Plan.
In April 2022, the Group received a request for arbitration from Puritan’s Pride Inc., in connection with the alleged breach of
the distribution agreement between Puritan’s Pride Inc., and a subsidiary of the Group dated December 12, 2016, as amended on
December 31, 2019 (the “Distribution Agreement”). Puritan’s Pride is seeking no less than approximately US$17.1 million in damages
for the alleged breach of the Distribution Agreement. With respect to the Distribution Agreement, the Group recorded accounts payables
due to Puritan’s Pride Inc. for product goods procurement with the amount of approximately US$17.1 million in the consolidated
balance sheets as of December 31, 2021. As of the date of this annual report, this arbitration claim remains in its preliminary stage, and
the Group is unable to estimate the result of such claim. The Group is actively assessing our strategies to defend this claim.
31. Restricted net assets
Relevant PRC laws and regulations permit payments of dividends by the Group’s subsidiary and the VIEs incorporated in the PRC only
out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. In addition, the
Group’s subsidiary and the VIEs in the PRC are required to annually appropriate 10% of their net after-tax income to the statutory
general reserve fund prior to payment of any dividends, unless such reserve funds have reached 50% of their respective registered
capital. As a result of these and other restrictions under PRC laws and regulations, the Group’s subsidiary and the VIE subsidiary
incorporated in the PRC are restricted in their ability to transfer a portion of their net assets to the Company either in the form of
dividends, loans or advances. There are no significant differences between US GAAP and PRC accounting standards in connection with
the reported net assets of the legally owned subsidiary in the PRC and the VIEs. Even though the Company currently does not require
any such dividends, loans or advances from the PRC entities for working capital and other funding purposes, the Company may in the
future require additional cash resources from them due to changes in business conditions, to fund future acquisitions and development,
or merely to declare and pay dividends or distributions to the Company’s shareholders. Except for the above, there is no other restriction
on use of proceeds generated by the Group’s subsidiary and the VIEs to satisfy any obligations of the Company.
As of December 31, 2020 and 2021, the total restricted net assets of the Company’s subsidiaries and VIEs incorporated in PRC
and subjected to restriction amounted to approximately US$ 24,762,927 and US$ 34,109,123, respectively. Even though the Company
currently does not require any such dividends, loans or advances from the PRC entities for working capital and other funding purposes,
the Company may in the future require additional cash resources from them due to changes in business conditions, to fund future
acquisitions and development, or merely to declare and pay dividends or distributions to its shareholders. There is no other restriction on
the use of proceeds generated by the Company’s subsidiaries, VIEs and VIE subsidiary to satisfy any obligations of the Company.
Table of Contents
ECMOHO LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-65
ADDITIONAL INFORMATION: CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY
Rules 12-04(a) and 4-08(e)(3) of Regulation S-X require condensed financial information as to the financial position, cash flows and
results of operations of a parent company as of and for the same periods for which the audited consolidated financial statements have
been presented when the restricted net assets of the consolidated and unconsolidated subsidiaries together exceed 25% of consolidated
net assets as of the end of the most recently completed fiscal year.
The following condensed financial statements of the Parent Company have been prepared using the same accounting policies as set out
in the Company’s consolidated financial statements except that the Parent Company used the equity method to account for its investment
in its subsidiaries and VIEs. Such investment is presented on the separate condensed balance sheets of the Parent Company as
“Investments in and advances to subsidiaries, VIEs and VIE’s subsidiary”. The Parent Company, its subsidiaries and VIEs were included
in the consolidated financial statements whereby the inter-company balances and transactions were eliminated upon consolidation. The
Parent Company’s share of income from its subsidiaries and VIEs is reported as share of income from subsidiaries and VIEs in the
condensed financial statements.
The Parent Company is a Cayman Islands company and, therefore, is not subjected to income taxes for all years presented. The footnote
disclosures contain supplemental information relating to the operations of the Company and, as such, these statements should be read in
conjunction with the notes to the consolidated financial statements of the Company. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted.
As of December 31, 2021, there were no material commitments or contingencies, significant provisions for long-term obligations or
guarantees of the Company, except for those which have been separately disclosed in the consolidated financial statements, if any.
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ECMOHO LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-66
CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY
BALANCE SHEETS
As of
As of
December 31, 2020
December 31, 2021
US$
US$
ASSETS
Current assets:
Cash and cash equivalents
37,473,282
35,701,882
Prepayments and other current assets
39,954,153
59,115,105
Total current assets
77,427,435
94,816,987
Investments in subsidiaries, VIEs and VIEs’ subsidiary
10,671,658
—
Total assets
88,099,093
94,816,987
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accrued expenses and other current liabilities
4,441,419
14,353,300
Amounts due to related parties
3,850,000
3,572,500
Total current liabilities
8,291,419
17,925,800
Deficit of investments in subsidiaries, VIEs and VIEs’ subsidiary
—
47,974,799
Total liabilities
8,291,419
65,900,599
Commitments and contingencies (Note 29)
Shareholders’ equity:
Class A Ordinary Shares, US$0.00001 par value; 4,924,849,600 shares authorized at December
31, 2020 and 2021, respectively; 69,361,883 and 133,581,883 shares issued and outstanding at
December 31, 2020 and 2021, respectively
693
1,335
Class B Ordinary Shares, US$0.00001 par value; 71,355,616 shares authorized at December 31,
2020 and 2021; 71,355,615 and 59,355,616 shares issued and outstanding at December 31,
2020 and 2021, respectively)
714
594
Additional paid-in capital
108,369,688
118,947,530
Accumulated other comprehensive (loss)/income
4,291,628
(1,522,824)
Accumulated deficit
(32,855,049)
(88,510,247)
Total shareholders’ equity
79,807,674
28,916,388
Total liabilities and shareholders’ equity
88,099,093
94,816,987
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ECMOHO LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-67
CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY
STATEMENTS OF OPERTATIONS AND COMPREHENSIVE INCOME/(LOSS)
Year Ended December 31,
2019
2020
2021
US$
US$
US$
Operating expenses:
Fulfillment expenses
—
(40,898)
(81,802)
Sales and marketing
—
(192,685)
(1,491,912)
General and administrative
(616,906)
(1,538,732)
(2,149,580)
Research and development
—
(28,740)
(107,835)
Total operating expenses
(616,906)
(1,801,055)
(3,831,129)
Loss from operations
(616,906)
(1,801,055)
(3,831,129)
Finance expense, net
—
(264,176)
(234,038)
Foreign exchange gain, net
—
103,132
294,578
Other income
—
—
160,459
Equity in income(loss) of subsidiaries and VIEs
2,601,704
(11,336,812)
(52,045,068)
Net income/(loss)
1,984,798
(13,298,912)
(55,655,198)
Less: Accretion on Series A convertible redeemable preferred shares to redemption
value
(1,022,461)
—
—
Net income/(loss) attributable to ordinary shareholders
962,337
(13,298,912)
(55,655,198)
Net income/(loss)
1,984,798
(13,298,912)
(55,655,198)
Foreign currency translation adjustment, net of nil tax
(844,266)
6,302,263
(5,560,452)
Comprehensive income/(loss)
1,140,532
(6,996,649)
(61,215,650)
Note: In the Company’s statements of operations and comprehensive income/(loss) for the years ended December 31, 2019, 2020 and 2021,
accretion to redemption value of redeemable non-controlling interests amounted to US$ 311,757, US$ 0 and US$ 0 were treated as the
subsidiary’s cost and accordingly were included in the equity in income of subsidiaries and VIEs in the Company’s statements of operations
and comprehensive income/(loss) for the years ended December 31, 2019, 2020 and 2021, respectively.
STATEMENTS OF CASH FLOWS
Year Ended December 31,
2019
2020
2021
US$
US$
US$
Net cash used in operating activities
(567,446)
(8,381,595)
(10,306,884)
Net cash used in investing activities
(10,502,538)
—
—
Net cash provided by financing activities
54,872,326
80,767
7,785,477
Net increase/(decrease) in cash and cash equivalents
43,802,342
(8,300,828)
(2,521,407)
Cash and cash equivalents, beginning of year
3,941
43,806,283
37,473,282
Cash and cash equivalents, end of year
43,806,283
37,473,282
35,701,882
Exhibit 2.4
DESCRIPTION OF SECURITIES REGISTERED UNDER SECTION 12 OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED (the “Exchange Act”)
American Depositary Shares (“ADSs”), each representing four Class A ordinary shares of ECMOHO Limited (the “company,” “we” or
“our”) are listed and traded on the Nasdaq Capital Market under the symbol “MOHO” and, in connection with that listing (but not for
trading), the Class A ordinary shares are registered under Section 12(b) of the Exchange Act. This exhibit contains a description of the rights
of (i) the holders of Class A ordinary shares and (ii) the holders of ADSs. Class A ordinary shares underlying the ADSs are held by Citibank,
N.A., as depositary (the “Depositary”), and holders of ADSs will not be treated as holders of the Class A ordinary shares.
Description of Class A ordinary shares
The following is a summary of material provisions of our currently effective third amended and restated memorandum of association and
articles of association (the “Memorandum and Articles of Association”), as well as the Companies Law (as amended) of the Cayman
Islands (the “Companies Law”) insofar as they relate to the material terms of the Class A ordinary shares. Notwithstanding this, because it
is a summary, it may not contain all the information that you may otherwise deem important. For more complete information, you should
read the entire Memorandum and Articles of Association, which has been filed with the Securities and Exchange Commission (the “SEC”)
as an exhibit to our Registration Statement on Form F-1 (File No. 333-233951), as amended, initially filed with the SEC on September 26,
2019.
Type and Class of Securities (Item 9.A.5 of Form 20-F)
Each Class A ordinary share has US$0.00001 par value. The number of Class A ordinary shares that have been issued as of the last day of
the latest fiscal year is provided on the cover of the annual report on Form 20-F for the latest fiscal year. Our Class A ordinary shares may be
held in either certificated or uncertificated form. Certificates representing the ordinary shares are issued in registered form. We may not issue
shares to bearer. Our shareholders may freely hold and transfer their ordinary shares.
Preemptive Rights (Item 9.A.6 of Form 20-F)
Our shareholders do not have preemptive rights.
Limitations or Qualifications (Item 9.A.7 of Form 20-F)
We have a dual-class voting structure such that our ordinary shares consist of Class A ordinary shares and Class B ordinary shares. Each
Class A ordinary share shall entitle the holder thereof to one vote on all matters subject to the vote at general meetings of our company, and
each Class B ordinary share shall entitle the holder thereof to ten votes on all matters subject to the vote at general meetings of our company.
Due to the super voting power of Class B ordinary share holder, the voting power of the Class A ordinary shares may be materially limited.
See also “-Requirements to Change the Rights of Holders of Class A Ordinary Shares (Item 10.B.4 of Form 20-F) - Variations of Rights of
Shares.”
Rights of Other Types of Securities (Item 9.A.7 of Form 20-F)
Not applicable.
Rights of Class A Ordinary Shares (Item 10.B.3 of Form 20-F)
See “Item 10. Additional Information - B. Memorandum and Articles of Association” of the 2019 Form 20-F.
Requirements to Change the Rights of Holders of Class A Ordinary Shares (Item 10.B.4 of Form 20-F)
See “Item 10. Additional Information - B. Memorandum and Articles of Association” of the 2019 Form 20-F.
Limitations on the Rights to own Class A Ordinary Shares (Item 10.B.6 of Form 20-F)
There are no limitations under the laws of the Cayman Islands or under the Memorandum and Articles of Association that limit the right of
non-resident or foreign owners to hold or vote Class A ordinary shares, other than anti-takeover provisions contained in the Memorandum
and Articles of Association to limit the ability of others to acquire control of our company or cause our company to engage in change-of-
control transactions.
Provisions Affecting Any Change of Control (Item 10.B.7 of Form 20-F)
See “Item 10. Additional Information - B. Memorandum and Articles of Association” of the 2019 Form 20-F.
Ownership Threshold (Item 10.B.8 of Form 20-F)
There are no provisions under the laws of the Cayman Islands or in our Memorandum and Articles of Association governing the ownership
threshold above which shareholder ownership of the Company must be disclosed.
Differences Between the Law of Different Jurisdictions (Item 10.B.9 of Form 20-F)
See “Item 10. Additional Information - B. Memorandum and Articles of Association” of the 2019 Form 20-F.
Changes in capital (Item 10.B.10 of Form 20-F)
The requirements of the Memorandum and Articles of Association regarding changes in capital are not more stringent than the requirements
of Cayman Islands law.
Debt Securities (Item 12.A of Form 20-F)
Not applicable.
Warrants and Rights (Item 12.B of Form 20-F)
Not applicable.
Other Securities (Item 12.C of Form 20-F)
Not applicable.
Description of American Depositary Shares (Items 12.D.1 and 12.D.2 of Form 20-F)
The following description of our ADSs is a summary and does not purport to be complete. This summary is subject to and qualified in its
entirety by reference to the deposit agreement (the “Deposit Agreement”) dated as of November 13, 2019, among the company, the
Depositary and the holders and beneficial holders of ADSs issued thereunder, including the form of American Depositary Receipt. In the
following description, references to “you” are to the person registered with the Depositary.
Citibank, N.A. has agreed to act as the Depositary for the ADSs. Citibank’s depositary offices are located at 388 Greenwich Street, New
York, New York 10013. ADSs represent ownership interests in securities that are on deposit with the Depositary. ADSs may be represented
by certificates that are commonly known as American depositary receipts or ADRs. The Depositary 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.
We are providing you with a summary description of the material terms of the ADSs and of your material rights as an owner of ADSs. Please
remember that summaries by their nature lack the precision of the information summarized and that the rights and obligations of an owner of
ADSs will be determined by reference to the terms of the Deposit Agreement and not by this summary. We urge you to review the Deposit
Agreement in its entirety. The portions of this summary description that are italicized describe matters that may be relevant to the ownership
of ADSs but that may not be contained in the Deposit Agreement.
Each ADS represents the right to receive, and to exercise the beneficial ownership interests in, four Class A ordinary shares that are on
deposit with the Depositary and/or custodian. An ADS also represents the right to receive, and to exercise the beneficial interests in, any
other property received by the Depositary or the
custodian on behalf of the owner of the ADS but that has not been distributed to the owners of ADSs because of legal restrictions or practical
considerations. We and the Depositary may agree to change the ADS-to-Share ratio by amending the Deposit Agreement. This amendment
may give rise to, or change, the depositary fees payable by ADS owners. The custodian, the Depositary and their respective nominees will
hold all deposited property for the benefit of the holders and beneficial owners of ADSs. The deposited property does not constitute the
proprietary assets of the Depositary, the custodian or their nominees. Beneficial ownership in the deposited property will under the terms of
the Deposit Agreement be vested in the beneficial owners of the ADSs. The Depositary, the custodian and their respective nominees will be
the record holders of the deposited property represented by the ADSs for the benefit of the holders and beneficial owners of the
corresponding ADSs. A beneficial owner of ADSs may or may not be the holder of ADSs. Beneficial owners of ADSs will be able to
receive, and to exercise beneficial ownership interests in, the deposited property only through the registered holders of the ADSs, the
registered holders of the ADSs (on behalf of the applicable ADS owners) only through the Depositary, and the Depositary (on behalf of the
owners of the corresponding ADSs) directly, or indirectly, through the custodian or their respective nominees, in each case upon the terms of
the Deposit Agreement.
As an owner of ADSs, we will not treat you as one of our shareholders and you will not have direct shareholder rights. The Depositary will
hold on your behalf the shareholder rights attached to the Class A ordinary shares underlying your ADSs. As an owner of ADSs you will be
able to exercise the shareholders rights for the Class A ordinary shares represented by your ADSs through the Depositary only to the extent
contemplated in the Deposit Agreement. To exercise any shareholder rights not contemplated in the Deposit Agreement you will, as an ADS
owner, need to arrange for the cancellation of your ADSs and become a direct shareholder.
The manner in which you own the ADSs (e.g., in a brokerage account vs. as registered holder, or as holder of certificated vs. uncertificated
ADSs) may affect your rights and obligations, and the manner in which, and extent to which, the Depositary’s services are made available to
you. As an owner of ADSs, you may hold your ADSs either by means of an ADR registered in your name, through a brokerage or
safekeeping account, or through an account established by the Depositary in your name reflecting the registration of uncertificated ADSs
directly on the books of the Depositary (commonly referred to as the “direct registration system”). The direct registration system reflects the
uncertificated (book-entry) registration of ownership of ADSs by the Depositary. Under the direct registration system, ownership of ADSs is
evidenced by periodic statements issued by the Depositary to the holders of the ADSs. The direct registration system includes automated
transfers between the Depositary and The Depository Trust Company (“DTC”), the central book-entry clearing and settlement system for
equity securities in the United States. If you decide to hold your ADSs through your brokerage or safekeeping account, you must rely on the
procedures of your broker or bank to assert your rights as ADS owner. Banks and brokers typically hold securities such as the ADSs through
clearing and settlement systems such as DTC. The procedures of such clearing and settlement systems may limit your ability to exercise your
rights as an owner of ADSs. Please consult with your broker or bank if you have any questions concerning these limitations and procedures.
All ADSs held through DTC will be registered in the name of a nominee of DTC. This summary description assumes you have opted to own
the ADSs directly by means of an ADS registered in your name and, as such, we will refer to you as the “holder.” When we refer to “you,”
we assume the reader owns ADSs and will own ADSs at the relevant time.
The registration of the Class A ordinary shares in the name of the Depositary or the custodian shall, to the maximum extent permitted by
applicable law, vest in the Depositary or the custodian the record ownership in the applicable Class A ordinary shares with the beneficial
ownership rights and interests in such Class A ordinary shares being at all times vested with the beneficial owners of the ADSs representing
the Class A ordinary shares. The Depositary or the custodian shall at all times be entitled to exercise the beneficial ownership rights in all
deposited property, in each case only on behalf of the holders and beneficial owners of the ADSs representing the deposited property.
Dividends and Distributions
As a holder of ADSs, you generally have the right to receive the distributions we make on the securities deposited with the custodian. Your
receipt of these distributions may be limited, however, by practical considerations and legal limitations. Holders of ADSs will receive such
distributions under the terms of the
Deposit Agreement in proportion to the number of ADSs held as of the specified record date, after deduction of the applicable fees, taxes and
expenses.
Distributions of Cash
Whenever we make a cash distribution for the securities on deposit with the custodian, we will deposit the funds with the custodian. Upon
receipt of confirmation of the deposit of the requisite funds, the Depositary will arrange for the funds received in a currency other than U.S.
dollars to be converted into U.S. dollars and for the distribution of the U.S. dollars to the holders, subject to the laws and regulations of the
Cayman Islands.
The conversion into U.S. dollars will take place only if practicable and if the U.S. dollars are transferable to the United States. The
Depositary will apply the same method for distributing the proceeds of the sale of any property (such as undistributed rights) held by the
custodian in respect of securities on deposit.
The distribution of cash will be made net of the fees, expenses, taxes and governmental charges payable by holders under the terms of the
Deposit Agreement. The Depositary will hold any cash amounts it is unable to distribute in a non-interest bearing account for the benefit of
the applicable holders and beneficial owners of ADSs until the distribution can be effected or the funds that the Depositary holds must be
escheated as unclaimed property in accordance with the laws of the relevant states of the United States.
Distributions of Shares
Whenever we make a free distribution of Class A ordinary shares for the securities on deposit with the custodian, we will deposit the
applicable number of Class A ordinary shares with the custodian. Upon receipt of confirmation of such deposit, the Depositary will either
distribute to holders new ADSs representing the Class A ordinary shares deposited or modify the ADS-to- Class A ordinary shares ratio, in
which case each ADS you hold will represent rights and interests in the additional Class A ordinary shares so deposited. Only whole new
ADSs will be distributed. Fractional entitlements will be sold and the proceeds of such sale will be distributed as in the case of a cash
distribution.
The distribution of new ADSs or the modification of the ADS-to- Class A ordinary shares ratio upon a distribution of Class A ordinary
shares will be made net of the fees, expenses, taxes and governmental charges payable by holders under the terms of the Deposit Agreement.
In order to pay such taxes or governmental charges, the Depositary may sell all or a portion of the new Class A ordinary shares so
distributed.
No such distribution of new ADSs will be made if it would violate a law (e.g., the U.S. securities laws) or if it is not operationally
practicable. If the Depositary does not distribute new ADSs as described above, it may sell the Class A ordinary shares received upon the
terms described in the Deposit Agreement and will distribute the proceeds of the sale as in the case of a distribution of cash.
Distributions of Rights
Whenever we intend to distribute rights to subscribe for additional Class A ordinary shares, we will give prior notice to the Depositary and
we will assist the Depositary in determining whether it is lawful and reasonably practicable to distribute rights to subscribe for additional
ADSs to holders.
The Depositary will establish procedures to distribute rights to subscribe for additional ADSs to holders and to enable such holders to
exercise such rights if it is lawful and reasonably practicable to make the rights available to holders of ADSs, and if we provide all of the
documentation contemplated in the Deposit Agreement (such as opinions to address the lawfulness of the transaction). You may have to pay
fees, expenses, taxes and other governmental charges to subscribe for the new ADSs upon the exercise of your rights. The Depositary is not
obligated to establish procedures to facilitate the distribution and exercise by holders of rights to subscribe for new Class A ordinary shares
other than in the form of ADSs.
The Depositary will not distribute the rights to you if:
●
We do not timely request that the rights be distributed to you or we request that the rights not be distributed to you; or
●
We fail to deliver satisfactory documents to the Depositary; or
●
It is not reasonably practicable to distribute the rights.
The Depositary will sell the rights that are not exercised or not distributed if such sale is lawful and reasonably practicable. The proceeds of
such sale will be distributed to holders as in the case of a cash distribution. If the Depositary is unable to sell the rights, it will allow the
rights to lapse.
Elective Distributions
Whenever we intend to distribute a dividend payable at the election of shareholders either in cash or in additional shares, we will give prior
notice thereof to the Depositary and will indicate whether we wish the elective distribution to be made available to you. In such case, we will
assist the Depositary in determining whether such distribution is lawful and reasonably practicable.
The Depositary will make the election available to you only if it is reasonably practicable and if we have provided all of the documentation
contemplated in the Deposit Agreement. In such case, the Depositary will establish procedures to enable you to elect to receive either cash or
additional ADSs, in each case as described in the Deposit Agreement.
If the election is not made available to you, you will receive either cash or additional ADSs, depending on what a shareholder in the Cayman
Islands would receive upon failing to make an election, as more fully described in the Deposit Agreement.
Other Distributions
Whenever we intend to distribute property other than cash, Class A ordinary shares or rights to subscribe for additional Class A ordinary
shares, we will notify the Depositary in advance and will indicate whether we wish such distribution to be made to you. If so, we will assist
the Depositary in determining whether such distribution to holders is lawful and reasonably practicable.
If it is reasonably practicable to distribute such property to you and if we provide to the Depositary all of the documentation contemplated in
the Deposit Agreement, the Depositary will distribute the property to the holders in a manner it deems practicable.
The distribution will be made net of fees, expenses, taxes and governmental charges payable by holders under the terms of the Deposit
Agreement. In order to pay such taxes and governmental charges, the Depositary may sell all or a portion of the property received.
The Depositary will not distribute the property to you and will sell the property if:
·
We do not request that the property be distributed to you or if we request that the property not be distributed to you; or
·
We do not deliver satisfactory documents to the Depositary; or
·
The Depositary determines that all or a portion of the distribution to you is not reasonably practicable.
The proceeds of such a sale will be distributed to holders as in the case of a cash distribution.
Redemption
Whenever we decide to redeem any of the securities on deposit with the custodian, we will notify the Depositary in advance. If it is
practicable and if we provide all of the documentation contemplated in the Deposit Agreement, the Depositary will provide notice of the
redemption to the holders.
The custodian will be instructed to surrender the shares being redeemed against payment of the applicable redemption price. The Depositary
will convert into U.S. dollars upon the terms of the Deposit Agreement the redemption funds received in a currency other than U.S. dollars
and will establish procedures to enable holders to receive the net proceeds from the redemption upon surrender of their ADSs to the
Depositary. You may have to pay fees, expenses, taxes and other governmental charges upon the redemption of your ADSs. If less than all
ADSs are being redeemed, the ADSs to be retired will be selected by lot or on a pro rata basis, as the Depositary may determine.
Changes Affecting Class A ordinary shares
The Class A ordinary shares held on deposit for your ADSs may change from time to time. For example, there may be a change in nominal
or par value, split-up, cancellation, consolidation or any other reclassification of such Class A ordinary shares or a recapitalization,
reorganization, merger, consolidation or sale of assets of the Company.
If any such change were to occur, your ADSs would, to the extent permitted by law and the Deposit Agreement, represent the right to receive
the property received or exchanged in respect of the Class A ordinary shares held on deposit. The Depositary may in such circumstances
deliver new ADSs to you, amend the Deposit Agreement, the ADRs and the applicable registration statement(s) on Form F-6, call for the
exchange of your existing ADSs for new ADSs and take any other actions that are appropriate to reflect as to the ADSs the change affecting
the Shares. If the Depositary may not lawfully distribute such property to you, the Depositary may sell such property and distribute the net
proceeds to you as in the case of a cash distribution.
Issuance of ADSs upon Deposit of Class A ordinary shares
After the closing of the offer, the Depositary may create ADSs on your behalf if you or your broker deposit Class A ordinary shares with the
custodian. The Depositary will deliver these ADSs to the person you indicate only after you pay any applicable issuance fees and any
charges and taxes payable for the transfer of the Class A ordinary shares to the custodian. Your ability to deposit Class A ordinary shares and
receive ADSs may be limited by U.S. and Cayman Islands legal considerations applicable at the time of deposit.
The issuance of ADSs may be delayed until the Depositary or the custodian receives confirmation that all required approvals have been
given and that the Class A ordinary shares have been duly transferred to the custodian. The Depositary will only issue ADSs in whole
numbers.
When you make a deposit of Class A ordinary shares , you will be responsible for transferring good and valid title to the Depositary. As
such, you will be deemed to represent and warrant that:
●
The Class A ordinary shares are duly authorized, validly issued, fully paid, non-assessable and legally obtained.
●
All preemptive (and similar) rights, if any, with respect to such Class A ordinary shares have been validly waived or exercised.
●
You are duly authorized to deposit the Class A ordinary shares.
●
The Class A ordinary shares presented for deposit are free and clear of any lien, encumbrance, security interest, charge, mortgage or
adverse claim, and are not, and the ADSs issuable upon such deposit will not be, “restricted securities” (as defined in the Deposit
Agreement).
●
The Class A ordinary shares presented for deposit have not been stripped of any rights or entitlements.
If any of the representations or warranties are incorrect in any way, we and the Depositary may, at your cost and expense, take any and all
actions necessary to correct the consequences of the misrepresentations.
Transfer, Combination and Split Up of ADRs
As an ADR holder, you are entitled to transfer, combine or split up your ADRs and the ADSs evidenced thereby. For transfers of ADRs, you
will have to surrender the ADRs to be transferred to the Depositary and also must:
●
ensure that the surrendered ADR is properly endorsed or otherwise in proper form for transfer;
●
provide such proof of identity and genuineness of signatures as the Depositary deems appropriate;
●
provide any transfer stamps required by the State of New York or the United States; and
●
pay all applicable fees, charges, expenses, taxes and other government charges payable by ADR holders pursuant to the terms of the
Deposit Agreement, upon the transfer of ADRs.
To have your ADRs either combined or split up, you must surrender the ADRs in question to the Depositary with your request to have them
combined or split up, and you must pay all applicable fees,
charges and expenses payable by ADR holders, pursuant to the terms of the Deposit Agreement, upon a combination or split up of ADRs.
Withdrawal of Class A ordinary shares Upon Cancellation of ADSs
As a holder, you will be entitled to present your ADSs to the Depositary for cancellation and then receive the corresponding number of
underlying Class A ordinary shares at the custodian’s offices. Your ability to withdraw the Class A ordinary shares held in respect of the
ADSs may be limited by U.S. and Cayman Islands law considerations applicable at the time of withdrawal. In order to withdraw the Class A
ordinary shares represented by your ADSs, you will be required to pay to the Depositary the fees for cancellation of ADSs and any charges
and taxes payable upon the transfer of the Class A ordinary shares. You assume the risk for delivery of all funds and securities upon
withdrawal. Once canceled, the ADSs will not have any rights under the Deposit Agreement.
If you hold ADSs registered in your name, the Depositary may ask you to provide proof of identity and genuineness of any signature and
such other documents as the Depositary may deem appropriate before it will cancel your ADSs. The withdrawal of the Class A ordinary
shares represented by your ADSs may be delayed until the Depositary receives satisfactory evidence of compliance with all applicable laws
and regulations. Please keep in mind that the Depositary will only accept ADSs for cancellation that represent a whole number of securities
on deposit.
You will have the right to withdraw the securities represented by your ADSs at any time except for:
●
Temporary delays that may arise because (i) the transfer books for the Class A ordinary shares or ADSs are closed, or (ii) Class A
ordinary shares are immobilized on account of a shareholders’ meeting or a payment of dividends.
●
Obligations to pay fees, taxes and similar charges.
●
Restrictions imposed because of laws or regulations applicable to ADSs or the withdrawal of securities on deposit.
The Deposit Agreement may not be modified to impair your right to withdraw the securities represented by your ADSs except to comply
with mandatory provisions of law.
Voting Rights
As a holder, you generally have the right under the Deposit Agreement to instruct the Depositary to exercise the voting rights for the Class A
ordinary shares represented by your ADSs.
At our request, the Depositary will distribute to you any notice of shareholders’ meeting received from us together with information
explaining how to instruct the Depositary to exercise the voting rights of the securities represented by ADSs. In lieu of distributing such
materials, the Depositary may distribute to holders of ADSs instructions on how to retrieve such materials upon request.
If the Depositary timely receives voting instructions from a holder of ADSs, it will endeavor to vote the securities (in person or by proxy)
represented by the holder’s ADSs in accordance with such voting instructions. Securities for which no voting instructions have been received
will not be voted (except as otherwise contemplated in the Deposit Agreement). Please note that the ability of the Depositary to carry out
voting instructions may be limited by practical and legal limitations and the terms of the securities on deposit. We cannot assure you that you
will receive voting materials in time to enable you to return voting instructions to the Depositary in a timely manner.
Amendments and Termination
We may agree with the Depositary to modify the Deposit Agreement at any time without your consent. We undertake to give holders 30
days’ prior notice of any modifications that would materially prejudice any of their substantial rights under the Deposit Agreement. We will
not consider to be materially prejudicial to your substantial rights any modifications or supplements that are reasonably necessary for the
ADSs to be registered under the Securities Act or to be eligible for book-entry settlement, in each case without imposing or increasing the
fees and charges you are required to pay. In addition, we may not be able to provide you with prior notice of any modifications or
supplements that are required to accommodate compliance with applicable provisions of law.
You will be bound by the modifications to the Deposit Agreement if you continue to hold your ADSs after the modifications to the Deposit
Agreement become effective. The Deposit Agreement cannot be amended to prevent you from withdrawing the Class A ordinary shares
represented by your ADSs (except as permitted by law).
We have the right to direct the Depositary to terminate the Deposit Agreement. Similarly, the Depositary may in certain circumstances on its
own initiative terminate the Deposit Agreement. In either case, the Depositary must give notice to the holders at least 30 days before
termination. Until termination, your rights under the Deposit Agreement will be unaffected.
After termination, the Depositary will continue to collect distributions received (but will not distribute any such property until you request
the cancellation of your ADSs) and may sell the securities held on deposit. After the sale, the Depositary will hold the proceeds from such
sale and any other funds then held for the holders of ADSs in a non-interest bearing account. At that point, the Depositary will have no
further obligations to holders other than to account for the funds then held for the holders of ADSs still outstanding (after deduction of
applicable fees, taxes and expenses).
In connection with any termination of the Deposit Agreement, the Depositary may make available to owners of ADSs a means to withdraw
the Class A ordinary shares represented by ADSs and to direct the depositary of such Class A ordinary shares into an unsponsored American
depositary share program established by the Depositary. The ability to receive unsponsored American depositary shares upon termination of
the Deposit Agreement would be subject to satisfaction of certain U.S. regulatory requirements applicable to the creation of unsponsored
American depositary shares and the payment of applicable depositary fees.
Books of Depositary
The Depositary maintains ADS holder records at its depositary office. You may inspect such records at such office during regular business
hours but solely for the purpose of communicating with other holders in the interest of business matters relating to the ADSs and the Deposit
Agreement.
The Depositary maintains in New York facilities to record and process the issuance, cancellation, combination, split-up and transfer of
ADSs. These facilities may be closed from time to time, to the extent not prohibited by law.
Limitations on Obligations and Liabilities
The Deposit Agreement limits our obligations and the Depositary’s obligations to you. Please note the following:
●
We and the Depositary are obligated only to take the actions specifically stated in the Deposit Agreement without negligence or bad
faith.
●
The Depositary disclaims any liability for any failure to carry out voting instructions, for any manner in which a vote is cast or for the
effect of any vote, provided it acts in good faith and in accordance with the terms of the Deposit Agreement.
●
The Depositary disclaims any liability for any failure to determine the lawfulness or practicality of any action, for the content of any
document forwarded to you on our behalf or for the accuracy of any translation of such a document, for the investment risks associated
with investing in Class A ordinary shares, for the validity or worth of the Class A ordinary shares, for any tax consequences that result
from the ownership of ADSs, for the credit-worthiness of any third party, for allowing any rights to lapse under the terms of the Deposit
Agreement, for the timeliness of any of our notices or for our failure to give notice.
●
We and the Depositary will not be obligated to perform any act that is inconsistent with the terms of the Deposit Agreement.
●
We and the Depositary disclaim any liability if we or the Depositary are prevented or forbidden from or subject to any civil or criminal
penalty or restraint on account of, or delayed in, doing or performing any act or thing required by the terms of the Deposit Agreement,
by reason of any provision, present or future of any law or regulation, or by reason of present or future provision of any provision of our
Articles of Association, or any provision of or governing the securities on deposit, or by reason of any act of God or war or other
circumstances beyond our control.
●
We and the Depositary disclaim any liability by reason of any exercise of, or failure to exercise, any discretion provided for in the
Deposit Agreement or in our Articles of Association or in any provisions of or governing the securities on deposit.
●
We and the Depositary further disclaim any liability for any action or inaction in reliance on the advice or information received from
legal counsel, accountants, any person presenting Shares for deposit, any holder of ADSs or authorized representatives thereof, or any
other person believed by either of us in good faith to be competent to give such advice or information.
●
We and the Depositary also disclaim liability for the inability by a holder to benefit from any distribution, offering, right or other benefit
that is made available to holders of Class A ordinary shares but is not, under the terms of the Deposit Agreement, made available to you.
●
We and the Depositary may rely without any liability upon any written notice, request or other document believed to be genuine and to
have been signed or presented by the proper parties.
●
We and the Depositary also disclaim liability for any consequential or punitive damages for any breach of the terms of the Deposit
Agreement.
●
No disclaimer of any Securities Act liability is intended by any provision of the Deposit Agreement.
●
Nothing in the Deposit Agreement gives rise to a partnership or joint venture, or establishes a fiduciary relationship, among us, the
Depositary and you as ADS holder.
●
Nothing in the Deposit Agreement precludes Citibank (or its affiliates) from engaging in transactions in which parties adverse to us or
the ADS owners have interests, and nothing in the Deposit Agreement obligates Citibank to disclose those transactions, or any
information obtained in the course of those transactions, to us or to the ADS owners, or to account for any payment received as part of
those transactions.
Waiver of Jury Trial
The Deposit Agreement provides that, to the extent permitted by law, ADS holders waive the right to a jury trial of any claim they may have
against us or the depositary arising out of or relating to our ordinary shares, the ADSs or the Deposit Agreement, including any claim under
U.S. federal securities laws. If we or the depositary opposed a jury trial demand based on the waiver, the court would determine whether the
waiver was enforceable in the facts and circumstances of that case in accordance with applicable case law. However, you will not be deemed,
by agreeing to the terms of the Deposit Agreement, to have waived our or the depositary’s compliance with U.S. federal securities laws and
the rules and regulations promulgated thereunder.
Exhibit 8.1
List of Significant Subsidiaries
Subsidiaries
Place of Incorporation
1.
ECMOHO (Hong Kong) Health Technology Limited
Hong Kong
2.
ECMOHO (Hong Kong) Limited
Hong Kong
3.
ECMOHO Co., Ltd.
Korea
4.
Yiling (Shanghai) Information Technology Co., Ltd.
PRC
5.
Import-It Corp.
BVI
6.
Yipinda (Shanghai) Health Technology Co., Ltd.
PRC
7.
Shanghai ECMOHO Health Biotechnology Co, Ltd.
PRC
8.
Shanghai Ranyao Marketing Technology Co., Ltd.
PRC
9.
Jianyikang Health Technology (Shanghai) Co., Ltd.
PRC
10.
Shanghai Tonggou Information Technology Co., Ltd.
PRC
11.
Hangzhou Duoduo Supply Chain Management Co., Ltd.
PRC
12.
Shanghai ECMOHO Health Technology Co., Ltd.
PRC
13.
Yijiasancan (Shanghai) E-commerce Co., Ltd.
PRC
Exhibit 12.1
Certification by the Principal Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Zoe Wang, certify that:
1.
I have reviewed this annual report on Form 20-F of ECMOHO Limited;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in
this report;
4.
The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rule 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.
May 13, 2022
/s/ Zoe Wang
By:
Name: Zoe Wang
Title: Chief Executive Officer
Exhibit 12.2
Certification by the Principal Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Leo Zeng, certify that:
1.
I have reviewed this annual report on Form 20-F of ECMOHO Limited;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in
this report;
4.
The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rule 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.
May 13, 2022
/s/ Leo Zeng
By:
Name: Leo Zeng
Title: Acting Chief Financial Officer
Exhibit 13.1
Certification by the Principal Executive Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report of ECMOHO Limited (the “Company”) on Form 20-F for the year ended December 31, 2021 as filed
with the Securities and Exchange Commission on the date hereof (the “Report”), I, Zoe Wang, 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 13, 2022
/s/ Zoe Wang
By:
Name: Zoe Wang
Title: Chief Executive Officer
Exhibit 13.2
Certification by the Principal Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report of ECMOHO Limited (the “Company”) on Form 20-F for the year ended December 31, 2021 as filed
with the Securities and Exchange Commission on the date hereof (the “Report”), I, Leo Zeng, Acting 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 13, 2022
/s/ Leo Zeng
By:
Name: Leo Zeng
Title: Acting Chief Financial Officer
Exhibit 15.1
May 13, 2022
To: ECMOHO Limited
5th Floor, 909 Tianyaoqiao Road
Xuhui District
Shanghai, 200030
The People’s Republic of China
Dear Sir/Madam,
We hereby consent to the references to our firm’s name under the headings “Item 3 Key Information—D. Risk Factors—Risks
Related to Our Corporate Structure”, “Item 4. Information on the Company—C. Organizational Structure—Contractual
Arrangements with the Variable Interest Entity” and “Item 10. Additional Information—E. Taxation—People’s Republic of
China Taxation” in ECMOHO Limited’s annual report on Form 20-F for the year ended December 31, 2021 (the “Annual
Report”), which will be filed with the Securities and Exchange Commission (the “SEC”) on the date hereof, and further
consent to the incorporation by reference of the summaries of our opinion under these headings into the Registration Statements
on Form S-8 (No. 333-236027 and No. 333-257546) and Form F-3 (No. 333-257200). We also consent to the filing of this consent
letter with the SEC as an exhibit to the Annual Report.
In giving such consent, we do not thereby admit that we come within the category of persons whose consent is required under
Section 7 of the Securities Act of 1933, or under the Securities Exchange Act of 1934, in each case, as amended, or the
regulations promulgated thereunder.
Yours sincerely,
/s/ Commerce & Finance Law Offices
Commerce & Finance Law Offices
Exhibit 15.2
13 May 2022
Our Ref: NASD/SSNC/E2208-H20600
The Board of Directors
ECMOHO Limited
3rd Floor, 1000 Tianyaoqiao Road
Xuhui District
Shanghai, 200030
The People’s Republic of China
Dear Sir or Madam
ECMOHO Limited
FORM 20-F
We consent to the reference to our firm under the heading “Item 10. Additional Information—E. Taxation” (the "Cayman Islands Taxation
Section") in the Annual Report on Form 20-F of ECMOHO Limited for the year ended 31 December 2021 (the “Annual Report”), which
will be filed with the U.S. Securities and Exchange Commission (the “Commission”) on 13 May 2022 under the U.S. Securities Exchange
Act of 1934, as amended (the “Exchange Act”).
As the Annual Report shall be deemed to be incorporated by reference to Registration Statements on Form S-8 (No. 333-236027 and No.
333-257546) (the "Forms S-8"), we also consent to the Cayman Islands Taxation Section to be incorporated by reference to the Forms S-8.
We also consent to the filing with the Commission of this consent letter 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 the Exchange
Act, or the Rules and Regulations of the Commission thereunder.
Yours faithfully
/s/ WALKERS (HONG KONG)
WALKERS (HONG KONG)
Exhibit 15.3
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements of Form S-8 (No. 333-236027 and No.
333-257546) and Form F-3 (No. 333-257200) of our report dated May 13, 2022, relating to the consolidated financial
statements of ECMOHO Limited and subsidiaries as of December 31, 2020 and 2021 and for each of the years in the
two-year period ended December 31, 2021, which is included in this annual report on Form 20-F.
/s/ Friedman LLP
New York, New York
May 13, 2022
Exhibit 15.4
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-257546 and 333-236027) and
Form F-3 (No. 333-257200) of ECMOHO Limited of our report dated June 12, 2020 relating to the financial statements, which appears in
this Form 20-F.
/s/ PricewaterhouseCoopers Zhong Tian LLP
Shanghai, the People’s Republic of China
May 13, 2022